How far can US manufacturing go in its resurgence?

on August 11, 2013

There has been a lot of media attention given to the resurgence of US manufacturing lately.   Many economists are hopeful that this strong growth will continue as manufacturing jobs tend to be high paying jobs that tend to have strong ripple effects on other parts of the economy.   So the question is; can manufacturing become the growth and jobs driver that it once was say 20 years ago? 

There is reason to be optimistic, but expectations need to be tempered.   One union official was quoted as saying that back in the 70’s and 80’s when unions were strong; manufacturing was a major driver for high wages and economic growth.  His conclusion was that a resurgence of unions would increase US manufacturing.  His conclusion is erroneous as cause and effect were reversed in his logic.   The truth was that the unions became strong because US manufacturing was strong, not visa-versa.

To gain a little perspective on what is possible for today, we should review history.

The industrial revolution took place in the US back in the early 1900’s as mass production techniques replaced craftsmanship.  Europe held on to its craftsmanship position and as a result lagged far behind the US in manufacturing by the time things started steamrolling in the mid 1950’s.   From the mid 20th century until into the 1990’s, the US was virtually the uncontested king of manufacturing.  In the early 80’s Japan made some significant inroads in automotive manufacturing by producing products with superior quality.   However, the US quickly responded by adopting quality and productivity programs that put it back on par with Japan.

The 1970’s saw the baby boomer generation starting to exercise its buying power.  This demographic group turned out to be the most vivacious consumers that the world has seen.  During the this time frame, the combination of the baby boomer consumerism and the US being the uncontested world leader in manufacturing sort of created the “perfect storm”  for US manufacturing employment.

Management guru Tom Peters once said that back in the 1970’s and 80’s a CEO couldn’t screw up a US Fortune 500 company if he tried.  Since manufacturing had little competition and just about every market was growing, American manufacturing became fat and sloppy.   Corporate structures were bloated; unions negotiated great wages, great benefits and job rules that expanded the work force.  Everything was great for a couple of decades.

Then the rest of the world started to catch up and the US with its bloated corporate structures and high labor rates started to lose market share.  Asia has emerged not only as low cost manufacturing centers but also has demonstrated the use of sophisticated manufacturing techniques.   The rest of the world also became consumers.   The world became more global both in supply in demand.  In the 1990’s the US started to lose manufacturing jobs to China and other parts of Asia.   Much of it due to the tremendous cost pressure manufactures started to feel because of the emergence of global manufacturing. 

Today, US manufacturing is responding by implementing cost reduction strategies; high wage union manufacturing jobs are a thing of the past.  The US is starting to become more competitive, granted some of it because of a narrowing wage gap with the rest of the world.   Gone are the days where a US company can survive with the high overhead and “strong” union contacts that prevailed in the 70’s. 

Using the previous couple decades as the benchmark to where manufacturing should return is very unrealistic.  Business is far too global for that to happen.   But the US has always been resilient in responding to challenges.  The US can and will gain some of its manufacturing base back, but it will probably never come close to the levels seen last century.