#698 – Global Manufacturing Scorecard: How the U.S. compares to 18 other nations – Part 2

Last week we shared information from a recent Brookings Institution report on how American manufacturing compared with other nations. This week we are sharing the countries’ rankings based on manufacturing environment along with the recommendations for improvements for those countries struggling to maintain a healthy manufacturing environment.

Global manufacturing scorecard: How the US compares to 18 other nations – Part 2
Darrell M. West and Christian Lansang, July 10, 2018

…it is important to see how American manufacturing compares to that of other nations. In this report, we develop a global manufacturing scorecard that looks at five dimensions of the manufacturing environment: 1) overall policies and regulations; 2) tax policy; 3) energy, transportation, and health costs; 4) workforce quality; and 5) infrastructure and innovation.

For the analysis, we compiled data on 20 indicators and scored 19 leading nations on a 100-point scale. The countries analyzed included Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Netherlands, Poland, Russia, South Korea, Spain, Switzerland, Turkey, United Kingdom, and the United States.

For overall policies, we included indicators on pro-business environment, a risk index, corruption, and open trade policies. With tax policies, we looked at corporate tax rates, use of R&D tax credit and expensing options, and government grants or loans to support manufacturing. On costs, we examined electricity, oil/LNG, and health care costs. Workforce quality included measures on K-12 government spending, higher education spending, family income, labor productivity, and labor support. On infrastructure and innovation, we relied upon infrastructure spending as a percent of GDP, internet access, patent filings, R&D spending as a percent of GDP, and hazard exposure.

Based on our analysis, we make a number of recommendations for improving the manufacturing environment. Our suggestions include:

• Pursue a governance strategy that emphasizes political and economic predictability, and open trade policies. When a nation is known to be economically and politically stable, many advanced manufacturing industries with high fixed costs are more willing to set up shop—even if the cost of doing so is higher than in other countries.
• Provide the proper financial incentives to promote innovation, education, and workforce development. This includes R&D tax credits and equipment expensing tax credits that help companies overcome the fixed costs of production and distribution.
• Unlock 21st century tools such as Big Data, automation, and artificial intelligence. These forms of technology have the capacity to revolutionize manufacturing from the initial design of goods to the successful delivery of products.
• Help small firms through technology research and workforce development. Technology development and its diffusion into the manufacturing sector leads to the creation of higher paying jobs, and workers with more developed skills.
• Rules that encourage transparency of business practice help to alleviate corruption and its damaging ripple effects. Whistleblower protection and investing in detection capabilities can aid in weakening the roots of corruption.
• Finance the necessary physical and digital infrastructure to support business development. Physical infrastructure such as roads, bridges, dams, and ports are necessary to connect supply chains as is the deployment of digital infrastructure such as high-speed broadband and mobile technology. The creation of adequate infrastructure helps companies operate efficiently and grow over time.

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