More than 20 years ago, MIT conducted a landmark study that revealed how the declining state of industrial productivity is the biggest challenge to building globally competitive businesses in the United States.
But we now live in an entirely different world. This month, the university is concluding a major two-year research effort that follows on the 1989 "Made In America" report, and the findings focus on a very different problem American business is facing: the "gaping holes" and "missing pieces" in the industrial ecosystem that make it difficult to bring new ideas to the marketplace.
The results of the "Production in The Innovation Economy" Commission's work are told in a new book, Making in America. For the study, overseen by the commission, MIT engineers, social scientists, and management experts interviewed and visited more than 250 firms in the U.S., China, and Germany in order to compare trends in leading manufacturing nations. "What we tried to do is sort of stand back and say what’s changed," says Elisabeth Reynolds, executive director of MIT’s Industrial Performance Center. "We know we’re strong in innovation in this country—and the question is how important is production to that strength. What we found is that it’s critical."
That critical link is more than a bit worrisome. The interviews told the story of manufacturing operations sent abroad—both by big firms, and more importantly, by startups that are just beginning to scale up new ideas. It’s one reason that a growing number of academics, businesses, and policymakers (including the White House) are focusing on incubating the technologies they feel will be critical to keeping manufacturing in the United States. It’s not just about pure year-to-year job mathematics, but about keeping the next generation of global businesses in the U.S.
Here are four trends highlighted by MIT’s Reynolds and Associate Provost and professor of electrical engineering Martin Schmidt (both leaders in the study) that could be crucial for convincing innovative companies to keep making products in the U.S.
Highly adaptive, low-cost robotics are making manufacturing operations less sensitive to the cost of human labor. As labor costs in China rise with wages and higher standards of living, and as advanced economies develop more automation capabilities, the practice of companies "offshoring" for the purposes of accessing cheap labor pools may fall out of vogue.
It used to be that a company would have to invest hundreds of thousands of dollars in building a production line before making one single cheap widget. Now, with additive manufacturing (a term which includes 3-D printing technologies), companies can start to design distributed manufacturing operations that "scale with the market they serve," says Schmidt. Making things "at the point of use or point of need" will help small companies that make products in the U.S. stay competitive.
Manufacturers in energy-intensive industries like cement and chemicals have celebrated the shale gas revolution, which has brought cheap domestic energy and lowered the cost of their operations. But it’s not just brute force drilling that could change the energy calculus for many companies. New biological methods of manufacturing materials or compounds could lower the amount of energy that is required in the first place in some sectors, according to Schmidt.
"Anything we can do from a technology perspective that accelerates that time from invention to production is a winner," says Schmidt. Pharmaceutical companies like Novartis, for example, are experimenting with "continuous manufacturing" processes that replace the need to synthesize drugs in discrete, costly, and inefficient batches.
These aren’t all comfortable ideas. Advanced robotics could replace human jobs, even if it ultimately makes it feasible for a firm to stay on domestic soil. Shale gas offers cheaper energy that is crucial, but there are obvious environmental and social costs to the boom in fracking for energy production.
What jumped out most to the researchers involved in the study is that both Germany and China tend to have more supportive environments for incubating innovative manufacturing companies at every stage.
As an example, Reynolds notes that a product as seemingly simple as Bose’s quiet headphones took 20 years of development to bring to the market. But more often today, in the U.S., it is small companies and startups that are doing the initial product development as large firms cut down on their support for internal R&D. "That model is now over," says Reynolds. "Find 20 years of funding for a small startup. You can’t," she notes.