We’re No. 2: Why America is Losing its Lead in Manufacturing, and How We Can Get It Back

By Scott Paul

When IHS Global Insight revealed this week that China has passed the United States to lead the world in manufacturing output, the response from some in government and manufacturing was to quibble with the data. The correct response is to develop a national manufacturing strategy, so that we can once again lead the world in manufacturing, which is a position we’ve held for 110 years.

Why a strategy? Well, Germany has one. China has one. South Korea has one. In fact, every other industrialized nation has a network of currency, trade, tax, investment, innovation, and skills policies that promote domestic manufacturing. We stand alone in allowing our jobs to be freely outsourced overseas. Our economic and training policies spur on a service and financial sector economy at the expense of investments in manufacturing.

First, let’s consider the data on the size of manufacturing. Manufacturing accounts for one-third of China’s economic output. For most of our industrial competitors, the number is somewhere between 15 and 20 percent. In America, manufacturing accounts for less than 13 percent of our GDP, and that figure is falling every year.

The rate of growth in manufacturing in China has averaged over 20 percent per annum over the past three years. In the U.S., despite a recent rebound, that figure is only 1.8 percent. We’ve shed 50,000 factories and 5.5 million manufacturing jobs over the past decade. Meanwhile, one company in China—Foxconn—created more manufacturing jobs last year than the entire U.S. economy.

So many in industry are quick to blame America’s manufacturing woes on labor and regulation. They couldn’t be more wrong. The fact is, average compensation of an American manufacturing worker, including benefits, is a little over $32 per hour. In Germany, the figure is $48 per hour. Yet Germany’s manufacturing base is thriving. Germany has a trade surplus. German unions sit on company boards and make joint decisions about capital investments and corporate strategy. Plus, much of what we manufacture is not labor intensive; it’s capital intensive. Investing in human capital will make us more productive, and it will grow manufacturing.

Why does being number one in manufacturing matter so much? First, manufacturing jobs are simply not replaceable. Workers who lose their manufacturing jobs end up in jobs that pay far less. The tax base shrinks. The demand on government services grows. Here’s a startling fact: if states would have held their share of manufacturing jobs over the past decade, there would be no state-level budget crises, even in California.

Manufacturing drives innovation in our nation, because two-thirds of private sector R&D and 90 percent of patents come from manufacturing. As researchers at the Harvard Business School have ably demonstrated, when production leaves, innovation follows. It’s why we we're in the embarrassing and unenviable position of importing solar, battery, and wind technologies that we invented in America a generation ago, as we seek to jumpstart clean energy manufacturing in our nation.

Finally, it is arrogant, elitist, discriminatory, and foolish to suggest that young people should not enter manufacturing, yet that’s what experts tell us every day. We need an educational system that does not warehouse kids who want vocational careers. We need our business schools to teach managers how to “reshore” work rather than follow the race to the bottom.

Fortunately, there is a way forward. We’ve put forward a plan to keep it made in America that has broad support from the American people—right, left and center. It’s common sense. This new Congress is in its third month, yet no bill to create American manufacturing jobs has been sent to the President’s desk.

America likes an underdog, and that’s exactly what blue collar work is these days. It’s about time our political leaders in Washington discovered that. Otherwise, there may be some long days ahead on the campaign trail for the President in states like Pennsylvania, Ohio, Michigan, and Wisconsin.

This op-ed has been cross-posted on Huffington Post.