China will remain a major low-cost center for manufacturing, but it is egregiously incorrect and irresponsible to say it represents the landscape -- the sweep, if you will -- of the manufacturing horizon, says economist Richard Felson. "Many low cost products will be made in China, and elsewhere, but better products can and will be made in the United States, if we plant the seeds for those industries today," Felson said.
This decade, which many economists call the U.S.'s 'decade of descent,' has been a lost decade concerning manufacturing. A failure to invest in the nation's manufacturing, technology, and basic research segments "has left the United States grossly underinvested, from physical plant and capital investment standpoints," Felson said. "The U.S. auto sector is probably the best known example of this. It is a manufacturing tragedy."
U.S. can seize the high end
The solution? Invest in industry, basic research, and technology to re-grab the high-end, and beyond, Felson says.
Think next-generation cars, he says. Think even more efficient jet engines and power systems. Think solar technology. Think wind power. Think smart electric grid. Think expanded universities to train the civil, mechanical, and electrical engineers needed to develop the innovative, energy-efficient, and smart systems of tomorrow.
Felson wants: a large, long tax deduction for corporations for capital equipment, perhaps a tax credit lasting as long as 10-15 years. Also: large increases in higher education math and science training, with appropriate increases in assistance to secondary education programs that feed into the colleges.
Given the recession and rising unemployment, the danger, Felson said, is "politicians thinking too short-term, toward what benefits the economy 3-6 months ahead, and ignoring longer-term investments, 5-10 years out, that are needed to increase the nation's industrial capacity and reclaim its status as an innovation and technology leader."
"We have to do both," Felson said. "We have to provide short-term stimulus and investment credits to guarantee that we'll capture the high-end manufacturing market status that will keep the U.S. a major actor on the international manufacturing stage."
Fiscal Policy/Economic Analysis: There's strong historical support for economist Felson's thesis on two grounds. First, U.S. investment in math and science in the 1950s and 1960s during the Cold War help propel the scientific breakthroughs that followed. Second, a nation must maintain its manufacturing base to remain a world power; China's capture of most of the low-price goods segment means the U.S. must focus on the high-end segment.
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Reader Comments (Page 1 of 1)
12-17-2008 @ 4:31PM
Uri said...
In the 1950's and 1960's we also had a lot more US nationals interested in entering these fields. Who will enter them now? US students no longer accel in math and science you are right that putting more money will improve that problem. But once we rectify this problem, there is no guarantee that those people will enter those fields. For the past 10 - 25 years, we've been sending our talent to Wall Street. As long as the pay is propped up through bailouts to "keep them competitive" (with other fields), the country will continue its descent. The average GS employee this year is making over $300k, while the average (employed) engineer makes about $100k. Take away the finance option and those people will head towards medicine and law. Medicine was less lucrative during that time and probably law as well since it derives much of its profits from finance and medicine.
12-17-2008 @ 5:18PM
Dave said...
Lots of good stuff will be made in Mexico too:
www.offshoregroup.com
12-17-2008 @ 6:28PM
Iridium said...
Big ticket items can't keep the economy going. Most of these really expensive items are machines that get sold to China to make inexpensive items.
The USA will never be able to become even a shadow of its former manufacturing base. As long as Walmart exists. About the only thing you can make in the US to sell to Walmart is a rubber dog toy, and that you might only make 10%.
The massive retail market has pushed the US manufacturing base to the brink of extinction due to increased margin leverage. As main street dried up there was only the big guys left to sell to. Because a company would go out of business without customers the big guys pushed margins to 60-70%. Vendor profit margins for those who make product in the USA are close to 0.
Without the ability to make small cheap goods you will have nobody left to buy the big expensive machines. We don't need to build new buildings or houses so there goes construction equipment.
See we are just plain screwed. We built an economy that relies on Walmart to function and can't afford to make the products that Walmart buys. The downward spiral is complete.
12-17-2008 @ 7:29PM
Kent said...
I don't think the U.S. will reprise their traditional smoke-stack manufacturing base, but rather move forward in establishing their economic power as a post-industrial society by devoting all our energies to IT and knowledge-based industries. New manufacturing infrastructures to support the high-tech products we develop from this transition will replace those we traditionally held sacred to include automotive industries. For example, Ford/GM/Chrysler will have China or other emerging economies manufacture chassises and bodies; we import them and assemble them with our high-tech software. By doing this, we reduce our manufacturing and environmental costs. Some form of new business models are required by our industries as we advance into a new industrial age.
12-17-2008 @ 8:11PM
Rob said...
How come everything I look at is not made in the good Old Usa? My Ford's transmission was made in France, the engine in Germany, the windows came from Canada. Why say buy American?
12-18-2008 @ 12:29AM
robert said...
Uri is right, Kent is wrong, he had what may appear to be a good point, but it is also wrong. Per Uri, who would want to be an engineer these days. I have (2) engineering degrees and have spent most of the last 15 years working outside my field. I'm not a dummy that snuck through, I've been a Mensa member, and I work damn hard. Too bad I'm not also Indian or Chinese. These companies not only outsource manufacturing, they essentially outsource the creative work by hiring foreign engineers. Our universities would rather educate foreign students(for the out-of-state tuition?). These students either take jobs here and displace an American, or take their education home in direct competition to the U.S. I had an interview one time with Intel-4 of the 5 engineers I talked with were foreigners. I didn't get the job, they probably hired a Chinaman. Kent's been reading too much Business Week or something-he says we're going to keep the IT and knowledge based industries here. Bullshit, we're outsourcing them as we speak. We're going to import parts and build high end things here?-that's ridiculous. He's right-we need a new business model, what the hell is it, service and IT? IT is going to India and service pays $6 per hour. The government pays lip service to border security while aiding the depression of wages for everything besides high tech. Can America do anything else to destroy itself? Completely fed up. Robert