#371. Why Does Manufacturing Matter?

Posted on | The Agurban
Why Does Manufacturing Matter?
A February 2012 study by the Brookings Institute recently looked at American manufacturing and why it matters to the U.S. economy. We have included below highlights from the conclusion of the study.
Manufacturing provides four important benefits to the U.S. economy:
  • – Manufacturing pays above-average wages to workers from virtually all demographic groups and all occupational categories.
  • – Manufacturing promotes innovation: it accounts for the lion’s share of R&D spending.
  • – Manufacturing is a key part of reducing the trade deficit.
  • – Manufacturing makes a large contribution to environmental sustainability.
Certain whole industries stand out for their contributions on these measures (and have been growing in recent years or have strong growth potential); computers and electronics, chemicals (including pharmaceuticals), transportation equipment (including aerospace and motor vehicles and parts), and machinery are especially important. Other industries, such as food processing, are also likely to grow. The nation would benefit from programs that aid firms in all industries in adopting more “high-road” strategies that advance critical national goals.
The United States needs a manufacturing policy that will enable more firms to adopt high-road strategies and help existing high-road firms to expand. Such a policy must address four major challenges that modern manufacturing faces: R&D support, worker training, financing of productive investment, and reconstituting mechanisms for creating and sharing productivity improvements In addition to promoting the high road, a U.S. manufacturing policy should be based on the principles of multiple levels of policy (economy-wide, industry-specific, and firm-specific) and shared responsibility on the part of employers, workers, unions, and government.
General policies to improve productivity and wages (such as policies to support education, training, and basic scientific research) are not sufficient. Industry-specific policies are also needed because manufacturing industries, like other industries, are subject to market and policy failures that can be corrected only with considerable industry-specific knowledge and with the participation of firms and other institutions that support the industry.
The main challenge to creating a vibrant U.S. manufacturing sector is America’s lack of political will to create national manufacturing policy. Explaining the root cause of this inaction is difficult, as other countries with very dissimilar political and economic systems (e.g. China, Japan, Denmark, and Germany) have all developed manufacturing strategies.

For the full study, click here.