Innovation: The jackpot for American manufacturers

At the dawn of the 19th century, dockyard engineers in Portsmouth, England, came up with a better way to build pulley blocks for sailing ships. They replaced skilled craftsmen, whose final products often were uneven, with machines that produced the same-sized block every time and did it faster.

This was bad for dockyard workers: Suddenly, 10 unskilled men using machines could beat the output of 110 skilled workers. But it was a boon to the Royal Navy — and similar innovations did the same for economies across the industrial world.

Over the next 100 years, manufacturers achieved huge production gains by adopting machine-fabricated, interchangeable parts. The 20th century brought the same: Breakthrough after breakthrough welled up on a factory floor, spread through an industry and rippled into other sectors.

This process of experimentation leading to widespread advances in efficiency is “one of the oldest dynamics we know of in economics,” said Mark Muro, policy director of the Metropolitan Policy Program at the Brookings Institution, and it yields “major gains for production sectors and society.”

Muro is an unabashed booster for public policies that encourage advanced manufacturing across the United States. Like many such cheerleaders, he’s making his case these days by talking a lot about innovation and less about jobs. “Mass employment is not the fundamental reason we need a healthy and vibrant manufacturing sector,” Muro and co-author Scott Andes wrote in a blog post this month — new products and productivity are.

Touting a new Obama administration initiative to promote advanced-manufacturing programs in cities across the country, Rebecca Blank, the acting Commerce secretary, struck a similar chord.

“There are a lot of reasons to want more advanced manufacturing located in the United States beyond just job creation,” she said in an interview. “And the most important one is, advanced manufacturing is often on the cutting edge of research and development.”

It’s a counterintuitive case to make in the current economy. America has 12 million unemployed adults — people who are looking for work but can’t find a job. Lost factory employment is a huge reason why.

Despite adding a half-million jobs since the end of the Great Recession in mid-2009,the U.S. factory sector employs nearly 2 million fewer people today than it did in 2008, according to the Bureau of Labor Statistics. University of Chicago economists recently found that declines in manufacturing employment account for half of the increase in joblessness among men without college degrees over the past 10 years.

At the same time, factory output per worker is continuing a steady upward march. Manufacturers keep getting better and better at doing more with fewer people. This makes factory production critical to the health of the economy — but not in the jobs-centered way most politicians like to frame the issue.

In both of his races for the White House, President Obama campaigned hard on the job-creation potential of expanded manufacturing. In contrast, many researchers say it’s the sector’s innovation potential — the advancements that help factories produce more with fewer workers — that could give America a new global edge.

Manufacturers account for about a tenth of the U.S. economy, but they conduct nearly seven-tenths of the nation’s research and development, researchers Susan Helper, Timothy Krueger and Howard Wial wrote in a Brookings reportthis year. Production and innovation are linked: When America stops making certain products, the authors write, it unsurprisingly loses its lead in designing cutting-edge versions of those products.

“Making products exposes engineers to both the problems and the capabilities of existing technology, generating ideas both for improved processes and for applications of a given technology to new markets,” they wrote. “Losing this exposure makes it harder to come up with innovative ideas.” That has been the case in areas such as advanced batteries and solar panels, where much of the global production is now done in Asia.

The importance of private, factory-driven research dollars is likely to grow in importance in the years to come, as budget concerns dig into government R&D spending. The annual R&D funding projections issued by the nonprofit (and innovation-focused) Battelle Memorial Institute show total U.S. R&D spending falling by nearly 1 percent this year from 2012, after adjusting for inflation. The problem there is a drop in government funding. Industry funding is on pace to rise — driven in large part by manufacturing, according to Battelle.

Muro points to several areas where advanced manufacturing is driving economy-wide breakthroughs in America today. Continuous-production processes developed on factory floors — such as in chemical plants where the machines run all day and night for years at a time —allow pharmaceutical makers to churn out proteins at a much faster rate, potentially speeding the advent of new drugs. Smart robotics, such as complex and automated welding, are opening new frontiers in medical devices and semiconductors.

Best-case scenario: Those and other manufacturing innovations will lead to new industries, which will support service jobs as well as those in factories, along with a broad increase in economic growth — a rising tide to lift ships across the economy, if you will. History shows it can work that way. Just ask the Royal Navy.

Jim Tankersley is the editor of Storyline, where he explains complex public policies and illuminates their human impact.
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