It’s the information age, the age of high technology, so why even focus on manufacturing? It’s clear that, over time, there has been a significant loss in manufacturing jobs in the United States, as well as throughout the West. In the 10 years from 2002 to 2012, manufacturing jobs in this country dropped by 15 percent. It was even worse for other nations, like Canada (22 percent), France (22 percent), the UK (24 percent), and Spain (28 percent).
Germany, however, managed to stem that loss by half (only 7 percent). And while overall manufacturing growth in the US for that period rose by 5 percent (despite the job loss), in Germany, it grew by 15 percent, triple US growth. Germany’s success may hold the key for great American cities like Chicago, whose larger metropolitan area has seen a loss of nearly one-third its factory jobs during that time frame.
Why does manufacturing matter?
There are two key reasons that manufacturing still matters. First, it helps build the economy. Over the years, the United States has developed its knowledge-based economy, but experienced a loss of production to overseas markets. Today the percentage of our nation’s gross domestic product (GDP) coming from manufacturing is 12 percent. Contrast that with Germany’s 20 percent.
The second key factor is the loss of high-paying jobs. While those who once worked in manufacturing may find other jobs outside that sector, those are more likely to be in lower-paying fields like the service sector, where it is far more difficult to sustain a family. In addition, each manufacturing job typically supports 5 to 10 indirect jobs in areas such as accounting, transportation, and logistics.
Digital Lab for Manufacturing
The new US experiment, the Digital Lab for Manufacturing, may be one key to turning around manufacturing. The outlook is even better, if one examines the German model on which this idea is based. In that nation, Fraunhofer-Gesellschaft, a network of more than 60 applied research institutes, is credited with helping Germany maintain good wages and its strong global role in manufacturing.
This government-supported system of research and development (R&D) hubs has helped Germany develop and bring to the fore new manufacturing processes and ideas, which are then converted into real companies with good paying jobs. Just a few samples of the technologies that were developed in its applied labs are MP3 digital compression, file formats for rapid video streaming, technology to monitor energy consumption, new rubber for tires made of dandelions, mobile blood analysis, and a new car production processes that consume 35 percent less energy. In Germany, these research institutes employ some 20,000 people (mostly scientists and engineers), with a budget of $2.75 billion.
The US model, on a much smaller scale (and as a public-private partnership), will begin with four institutes with budgets of about $300 million each, ultimately growing to 45 such entities nationwide. The biggest hurdle the project faces is the drop-off of government funding after five years. So far, however, there has been tremendous interest by partner companies. To date, some 60 companies have signed up to participate in the Youngstown, Ohio, pilot lab, and the Department of Defense has shown interest in its aerospace component.
Can this German experiment succeed in the United States? While only time will be able to answer that question, but the overall risk seems small compared with the potential for reward.