Bringing It Home

By Richard Harth

The outsourcing of millions of manufacturing jobs across borders and overseas is a largely American recipe. A look at the causes, effects, and how IIT is helping to counter this trend.

Bringing It Home

America is a land of things. Multiplying by the hour, a blizzard of manufactured goods has become an inescapable component of modernity, making us forget that everything from the vitamin we swallow to the commuter jet we travel in is the result of a complex and labor-intensive process of creation. Yet if widespread reports on the state of manufacturing in the United States are credible, fewer and fewer of the goods we enjoy are being made on our shores, and a decline in America’s manufacturing base may be approaching a day of reckoning.

As once-vital manufacturing communities succumb to plant closings and layoffs, many experts in political, business, economic, and even national security circles fear an eventual systemic calamity. In just the past five years, America has lost roughly 3 million manufacturing jobs representing 17 percent of the manufacturing workforce. The Progressive Policy Institute places productivity’s role in job loss at 40 percent. Nearly every domestic manufacturing industry, from shipbuilding to textiles to aerospace, has suffered a dispiriting reversal of fortune, at least in terms of employment.

“The wipeout is across the board. Not a single manufacturing payroll classification created a single new job,” insists former Assistant Treasury Secretary Paul Craig Roberts, in a commentary for the Baltimore Chronicle & Sentinel about America’s performance from January 2001-January 2006. Roberts ticks off some alarming figures: “Communications equipment lost 43 percent of its workforce. Semiconductors and electronic components lost 37 percent of its workforce.... Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43 percent....”

And the list goes on.

The tectonic shifts underway in manufacturing have provoked a fierce debate among economists, politicians, social scientists, industry leaders, and public policy gurus. For some, the changes at hand amount to inevitable reshufflings, growing pains along a course to greater prosperity, facilitated by a wired world of instant communication. For critics, however, the present trajectory is almost thoroughly negative, with multinational companies poised to reap spectacular rewards from emerging global markets—advantages achieved, it is claimed, at the expense of workers' rights, national economies, and the environment.

“I am concerned that we do not produce enough things that other people want to buy” —Institute of Design Director Patrick Whitney

The polarization of opinion regarding manufacturing’s current state and future prospects, however, hinges not only on analyses of winners and losers in the great economic game. The debate is also informed by differing views as to what is meant by manufacturing, for this, too, is in flux.

The reasons for America’s steady leakage of manufacturing jobs are not difficult to come by. Primarily, they center on two economic watchwords of the new millennium: technology and globalization. Advanced technology, though associated with increased manufacturing productivity, often displaces human workers. Computers and industrial robots slice through sheet metal, oversee factory efficiency, and perform an endless variety of assembly tasks tirelessly and with superhuman precision, allowing for a reduced workforce. Globalization allows manufacturers to draw their labor pool from across the planet, relying on an inexhaustible supply of cheap workers to manufacture goods at a fraction of the cost of domestic production.

While technology and globalization have contributed to the decline in manufacturing jobs in the U.S., their relative importance in manufacturing’s woes remains a matter of controversy. Within industry, many insist that job losses are an inevitable price for competitiveness in the global marketplace. The National Association of Manufacturers (NAM) praises strides in domestic productivity, claiming such advances “enable Americans to do more with less, increase our ability to compete, and facilitate higher wages for all employees.” While mourning job flight, NAM has generally been a strong proponent of free trade and the unimpeded flow of capital. Love or lament it, they say, America’s manufacturing paradigm has shifted, forcing businesses to adapt or succumb in a transformed marketplace.

Patrick Whitney, director of IIT’s Institute of Design and an authority on design innovation across cultures, reframes the problem of manufacturing’s decline. Rather than decreased productivity or an offshoring mania generating a flood of cheap imports, America’s limitations as an exporter and deficiencies as a domestic innovator need to be addressed. “I am concerned that we do not produce enough things that other people want to buy,” he says.

“Manufacturing is not dead and is not dying, but it will never again return to the ‘good old days’” —Professor Keith McKee

A study by economists Martin Baily of McKinsey & Company and Robert Lawrence of Harvard University seems to bear out Whitney’s conclusions: “Increased domestic demand is the solution to continued job weakness,” they report, concluding that 90 percent of job losses in 2000-03 were due to domestic forces rather than trade. Productivity gains were a factor, but more important was a low demand for U.S. goods, coupled with an export weakness (exacerbated by Chinese economic policies that keep the dollar overvalued by 20 percent).

One effect of manufacturing loss on the overall health of the American economy is undeniable: it has been the largest single contributor to a staggering trade deficit, currently inching toward the trillion-dollar mark. (In 2005, it reached more than $800 billion, with an accumulated value since 1990 of $4.5 trillion.) America’s reliance on goods manufactured outside its borders presently amounts to twice its dependence on foreign oil. In the past, America primarily imported items that were manufactured abroad with unskilled labor, but the trend has undergone a sea change, with some of our most sophisticated high-tech consumer goods now being manufactured and, in some cases, designed outside the United States.

Indeed, Advanced Technology Products (ATPs) seem to be fleeing our borders as quickly as steel production and clothing manufacture had earlier migrated to greener pastures. Two-thirds of the 650 distinct ATPs identified by the Department of Commerce are now entering the United States as imports from China. The Chinese trade surplus with the U.S. is the largest in the world, and, ironically, more than half this surplus is due to offshore production by U.S. firms for U.S. markets, a policy that critics such as Roberts consider wildly self-destructive.

As noted business strategist and author Peter Fingar points out in his new book Extreme Competition: “Original-design manufacturers, such as Quanta in Taiwan and Flextronics in Singapore, design and assemble products for international clients, supplying some 20-70 percent of the world’s PCs, cell phones, PDAs, MP3 players, and digital cameras.” Such “ghost manufacturers” from abroad are the authors behind many brand-name items. Meanwhile, China’s recent R&D spending has increased 500 percent as the country looks to capture America’s historical strong suit: talent for innovation and fresh, unprecedented design.

Whitney calls for an aggressively creative and culture-specific approach to innovation, insisting, “Design that focuses on making incremental changes to existing products will, in general, be able to be outsourced. Design that is creating newer, more innovative changes needs to be close to the people who will be using the design. If the users are in the U.S., it is likely the design will have to be done here. If the users are in China, it is likely the design will be done there.”

In addition to teaching innovative design, IIT has been involved in wide-ranging efforts to address this country’s manufacturing issues. Keith McKee, director of IIT’s Industrial Technology and Management Programs, believes that America must accept that manufacturing has changed. U.S. manufacturing output is increasing, he says, having gone up 5 percent last year. Such increases have been achieved by greater productivity, leading to inevitable declines in manufacturing employment. “It is really pointless to hope that in some way, manufacturing will become less efficient so that manufacturing employment will increase. Manufacturing is doing well and is not dying, but it will never again return to the “good old days” where it will provide employment for unskilled workers. The manufacturing workforce for the future requires more education and a greater set of skills.”

Part of IIT’s efforts, according to McKee, who is also director of IIT’s Manufacturing Productivity Center, involve expanding the definition of manufacturing to include the full range of industrial operations—all those activities that provide “stuff” to companies, the government, and the population. Industry considered in this way includes manufacturing, but it also includes building and maintaining equipment and facilities, as well as all of the activities related to moving, storing, and distributing the “stuff.” “Based on this worldview, industry, representing about 30 percent of GDP and employment, is the foundation upon which the entire economy exists,” McKee points out.

“IIT started to focus our educational programs on industry several years ago with specialization available in Manufacturing Technology, Industrial Facilities, and Industrial Logistics,” he says. IIT’s Industrial Technology and Management Programs offer a Bachelor of Industrial Technology and Management, as well as a Master of Industrial Technology and Operations.

Under the leadership of the Department of Mechanical, Materials, and Aerospace Engineering, IIT has also partnered with eight other universities to take part in the National Coalition for Manufacturing Innovation (NCMI). Through research and teaching, NCMI aims to assist U.S. manufacturers to lead the world, capturing the manufacturing market and generating jobs, to distribute scientific and manufacturing news to companies, and to promote entrepreneurship.

The challenge of empowering a new workforce is a daunting one. Only 6 percent of students in America pursue engineering degrees, compared with 12 percent in Europe and 40 percent in China. While the anticipation of poor job prospects may discourage some students from pursuing careers in manufacturing, others find that good schools are increasingly priced beyond their means. Additionally, more than half of U.S. engineering Ph.D.s and 34 percent of all U.S. doctoral degrees in the natural sciences are earned by foreign-born students who often return to their home nations after their visas expire.

The borderless terrain of globalism provides an environment in which companies are currently competing with countries in indirect conflict, as Whitney observes: “Companies are adapting quite readily; look at IBM’s announcement about growing its workforce in India. Countries have a much more difficult problem because they are defined by a fixed geography and society. The main way for countries and their citizens to survive is through high-level education.”

Spelling out the mixed blessing of profit and loss posed by borderless trade, the Report to Congress of the U.S–China Economic and Security Review Commission notes, “Increasingly, U.S. multinationals are using China as an export platform in order to compete more aggressively in the global economy.” The study gives an example: Wal-Mart, whose imports of Chinese goods reached $18 billion in 2004, is today the largest importer of Chinese-made products in the world.

Meanwhile, if U.S. companies hope to stay competitive without outsourcing, manufacturing payroll clearly cannot be the sole or even chief defining factor, as labor costs in places like China amount to singledigit percentages of U.S. labor costs, and will remain so for the foreseeable future. Instead, a focus on diversification and indispensable customer service will be required. Manutec, a metals and machining manufacturer in Milwaukee, faced steep competition from parts made in China and Mexico, reporting to the Milwaukee Journal Sentinel of its 20 percent drop in sales figures in 2003. Diversifying its business plan to include highway and power plant construction and scaling back activities identified as non-productive helped Manutec regain its equilibrium.

Other manufacturers benefit from geographic proximity to their domestic supplier and customer base, making outsourcing a less appealing strategy. Nevertheless, for a vast and growing manufacturing sector, the enticements of labor and design outsourcing may be too tempting to resist. Fingar speaks of the extreme competition faced by U.S. businesses in the transfigured landscape brought about by globalization: “We are in the midst of one of the greatest economic shifts of all time. In round one of twenty-first-century globalization, the capitalists have labor on the ropes.”

For American consumers, globalization has spurred a shopping bonanza in low-priced goods, though many experts warn that without adjustments in our thinking, a steep decline in America’s standard of living may be inevitable. Due primarily to the budget deficit, 2005 was the first year in U.S. history in which total spending exceeded income, yielding an unprecedented sub-zero savings rate. “Once the pain level becomes acute,” says Fingar, “the DNA of our forefathers will awaken ‘homo consumptus’ and transform him into ‘homo sapiens’ once again. When that happens, watch out, world. Hopefully, that won’t take an economic 9/11, though it very likely could.”

In the case of America’s more immediate future, an allied effort by government, industry, and higher education is required to bolster research and development leading to new industries, and to prepare and inspire a new generation of students with the necessary skills to compete. While some companies and manufacturers will not survive aggressive competition from abroad, some will grow stronger through these economic upheavals. As Patrick Whitney notes, “Companies learning how to design and produce things for emerging markets learn how to be more innovative and efficient. This knowledge is directly applicable to helping them compete in their more developed domestic markets.” As for the staggering potential of emerging markets, one only need consider China’s 1.3 billion citizens embedded in an economy that is growing by 10 percent per year.

In light of the challenges faced, the imperative for radical, risk-taking creativity in both the design and manufacture of goods has never been more critical. Educational efforts such as those underway at IIT are helping to prepare the next generation for the full range of opportunities and challenges inherent in industry, of which manufacturing is but a part.

Manufacturing Productivity Center

Since 1976, IIT’s Manufacturing Productivity Center (MPC) has led efforts to improve manufacturing innovation in the United States. Assisting companies both large and small, MPC boasts a client list ranging from Kraft Foods to Elkay Manufacturing to the United States Department of Defense. To read more about the MPC, including its areas of expertise and successful case studies, visit