In a rhetoric-heavy election year, we have heard politicians talk about the need to get our nation back on track, and how bringing manufacturing back to the U.S. will alleviate many of our economic woes. Although high unemployment is a real problem, the extent to which our leaders have painted our country as the "victim" of outsourcing and relentless industrial competition from our friendly neighborhood rival China may have been exaggerated.
Moreover, in the conversation about unemployment, the concerns of young people have been largely brushed aside. So how can millennials rise in this faltering economy? Before we answer that, let us consider the current state of manufacturing. Hopefully, this rather lengthy article will reward the reader for his patience.
Contrary to the image of national victimhood, economic output from the manufacturing sector in the United States has steadily increased since the 1980s, with current output second only to China, and Japan at a distant third. However, the manufacturing sector does comprise a lower percentage of our economy than at our peak, falling from about 40% in the 1950s to about 25% in 2010. In that time, private sector industrial employment fell from 50% to fewer than 20% today. Although, it is difficult to pinpoint the exact point of decline in employment, Adam Davidson of The Atlantic notes that from 1999 to 2009, approximately 6 million manufacturing jobs (or roughly one out of every three) disappeared.
The Decline in U.S. Manufacturing Employment: Some of the more apparent reasons for this decline include free trade agreements and open-door policies that have encouraged employers to move their production processes to Mexico or China in order to take advantage of their low labor costs and tax incentives. Many large production facilities in the States are then left to the ravages of time. Coupled with technological advancements that dramatically increased worker productivity, we are left with a constantly diminishing workforce in the manufacturing sector.
Getting a job in a factory was once an assured path to the middle class for the unskilled. Before computer-run machines became the norm, workers were needed at every step of production. The simpler aspects of the process were laborious, but only required dedication and a willingness to learn on the job. Now, many modern machines can do tasks that once required multiple machines and workers, and all that is needed is a basic-level operator to make sure the machine is running smoothly.
The return of large-scale manufacturing
What is making executives think about bringing manufacturing back to the U.S.?
Certain changes in the global economy have prompted U.S. companies to reconsider their manufacturing operations in China. First, rising labor costs and the appreciation of the RMB are making production in China less profitable. Second, greater fuel costs have made shipping finished products from overseas less attractive due to the time and expenses incurred in getting them to the U.S. market. But more importantly, even though computer-run machines may have contributed to lower employment in this sector, it is also this constant technological innovation that may save American manufacturing.
As mentioned above, basic-level operators of a machine usually do not require outside training, so no skills are really necessary except the ones learned on the job. In fact, employers and engineers make sure these operators do not have to use their own judgment (or as little as possible), while the machines do most of the work.
On the other hand, skilled workers that deal with calibration and operation of more complicated machinery do require personal judgment. These machines can be (re)programmed to perform different functions — and also, to produce different parts — rather than be constrained to a single task as in the days of yore. These skills require a solid understanding of mathematics and science that often goes beyond a traditional high school education. Unfortunately, this is a luxury that low-skilled workers may not have the time or resources to pursue.
Skilled workers are also responsible for quality-assurance to ensure that a product batch is rendered according to standards. U.S. manufacturers have outsourced the production of cheap and low-end products such as shirt and shoes to other countries, but many continue to make high-tech or precision products that require a significant amount of skill.
It is this requirement of skill and education to operate ever more-complicated machinery in order to produce precision products that places the U.S. at a distinct advantage over its competitors. For example, Davidson notes that the quality of a fuel injector produced by Standard Motor Products in Greenville, South Carolina, needs to be so top-notch that even a microscopic imperfection in the metal or a speck of dust will cause it to not work. The skilled operators also engage in mechanical maintenance and input of commands into the machine to change what type of fuel injectors it produces. The level of labor skill and technology necessary to ensure product consistency and diversity of operation is not prevalent, even non-existent, in many Chinese factories, where workers focus on "long runs of single products, with far less frequent changeovers."
These changing economic factors, the desire to be competitive, and assessment of their inefficiencies have fostered the drive of some major U.S. companies to retain and bring back many aspects of manufacturing to the States. Managers of General Electric's Appliance Park, one of the largest manufacturing facilities that once churned out every part of a dryer and dishwasher, are attempting to reclaim all stages of its production by using "lean" manufacturing techniques — a style of factory management in which everyone can critique and improve the process with the goal of reducing waste. Worker feedback is often heeded in order to rearrange the assembly line so that efficiency is maximized.
The mentality of "lean" has spread not only to operators and assembly-line workers, but "engineers, designers, salespeople, and bosses" as well. GE's chief executive Jeffrey Immelt tells Charles Fishman of The Atlantic that this key to the new era in manufacturing can best be exemplified by the "four screws" story. A new dishwasher door design originally had four visible screws. The marketing team wanted to get rid of the visible screws so that the door would look "iPhone-sleek." The operators also liked the idea because assembling the product with the four screws is a lot of work. So the engineers and designers came up with a new design that held the door together with one hidden screw and a rod. The final version of the door was easier to assemble and cost less than the original. If the engineers were in a separate building from the marketing team, and the operators were in China, this improvement would never have happened.
Solutions for millennials
What does this mean for millenials?
Although much of the article has been devoted to the important changes in large-scale manufacturing within the last few decades, there is an uptick to this trend that may be economically beneficial to the younger generation who want to become entrepreneurs or start their own businesses.
The "Smiley Curve" ... So called by entrepreneur Liam Casey of PCH in his interview with The Atlantic, the concept of the "Smiley Curve" is a familiar and important model of current global manufacturing. Imagine it as a U-shaped curve with profitability on its Y-axis and the sequential stages of manufacturing along its X-axis. Corporate brand (i.e. Apple), product idea (iPhone) and industrial design start at the high left-end of the curve, with manufacturing at the very bottom, and then shipment, retail and service going up the right side. While U.S. white collar professionals are in control of the more profitable stages, current manufacturing is outsourced to Chinese workers, who partake in the stage of lowest profitability. This precludes many Western manufacturing workers.
Speed. However, technological innovation is changing this dynamic. Social media is allowing entrepreneurs to quickly expose their ideas to a wider audience for market testing, while three-dimensional printing allows them to convert their idea to a physical prototype. The speed and relative ease with which these stages can be achieved should encourage many more start-ups and small manufacturers to compete with larger companies.
Consider SFMade. It is a small coalition of "community makers" based in the San Francisco Bay Area who are using this technological innovation to their advantage. Many of these 400 member manufacturing companies with 3,000 employers are making low-tech items such as apparel and smartphone cases that could have been made much cheaper in China just a few years ago. However, the constant push to innovate in a modern economy means that companies have to go from product design to delivery within a much shorter period of time. Member firm DODOcase, which makes electronic reader and iPad cases with unique designs, has to design the product, produce it, and deliver it to the customer all within one month, while the current outsourcing model may take up to nine months.
Proximity. As illustrated in the "four screws" story, the proximity of talent from all stages of industrial production can yield exceptional and practical results. In order to quickly fulfill orders, SFMade manufacturers draw from local skilled workers. For example, Kate Sofis, the executive director of SFMade, observes, "The Latino and Asian communities have a high level of apparel skills. A young designer might have high design skills but not the technical ability to realize it." Dubbed "mass customization," millennials can pool together local and regional talent to make viable, low-tech products if they can keep up with the constant innovation necessary to retain the interest of their clientele. Combining people with the vision and those who are able to realize the design seems like a simple concept, but this is a gap that should once again be explored by entrepreneurs and start-ups in the United States after decades of outsourcing the latter.
With manufacturing in countries such as China becoming less and less profitable, it is a good idea to bring back some aspects of manufacturing to the United States in order to help expand the ailing economy. We see a shift away from employers only considering the labor costs of the manufacturing process, but taking in other considerations such as convenience, quality consistency, and human capital as well in a relentlessly changing modern economy.
Do not be mistaken: some aspects of manufacturing will never again become a dominant part of the U.S. economy simply because the outsourced work is too basic (blue jeans, etc.) or relieves much of our inconvenience. For now, we have the advantage in high-end technology and precision products. Of course, this will change as primarily manufacturing economies mature and are able to use better technology, churn out more educated workers, and have better working conditions.
But there is hope for low-tech American manufacturing yet, and certainly for young people who are willing to take the initiative to contribute to this economic revival. We are already adept at the use of social media to spread our thoughts and ideas, so using it as a marketing tool as a way of reaching out to talent should not be difficult. Combine that with regional talent and relatively cheap technology to realize the product, and small start-ups have a competitive advantage against much larger companies. In fact, this technological change should contribute to the growth of all regions, including China.
This wave of innovation in manufacturing may not be the sole answer to the economic slump in the United States, but it can create and retain more jobs here, which is a start. Manufacturing may not be the dominant economic driver that Americans had in the 20th century, but if approached in an intelligent, receptive, and proactive way, then it may not only be a partial solution to the economic crisis, but one of the answers to the uncertainty of a generation.