Reinventing Economic Development: Industrial Revolution 3.0

New Mexico Business Weekly by Mark Lautman, Guest Columnist

Date: Friday, December 30, 2011, 4:00am MST
Which country has the largest share of global manufacturing? Your first thought would probably be China, but that would be wrong. Thanks in part to a big drop in Chinese manufacturing production from the global recession and a surge in American productivity [7.7 percent], we are still number one with nearly 20 percent of global production.We’ve held the title since the late 1800s when we took it from Great Britain, which had it for a while as it got the Industrial Revolution 1.0 started. Ironically, the Chinese were number one before that. For the U.S. to still be on top at this point is as remarkable as it is counterintuitive, considering that American popular culture gave up on manufacturing over 25 years ago.Manufacturing almost always makes the list of potential target economic sectors being considered for a community’s economic development efforts, but it rarely generates the enthusiasm needed to become a strategic priority.In addition to believing we can’t compete with the Chinese and Japanese, most Americans still think of manufacturing as dirty, de-humanizing, uncool, low-status work that degrades the environment and repels the creative class. Do you know any parents encouraging their kids to go into manufacturing? Any teachers? How many city councils have declared manufacturing to be a prime target for their city’s future economic base?

There are two compelling reasons to give manufacturing a second look. First, China is no longer invincible.

Decades of China’s one-child policy, and a rising life expectancy, have the country without enough young people to care for their rapidly aging population. It is called The 4:2:1 Problem. Unlike the old days when every family put four to six kids into the workforce every generation to support two parents and maybe one grandparent, the average Chinese family now has only one child to support two parents and four grandparents. They just don’t have enough people to take care of their elders and to continue stealing our manufacturing jobs.

A mix of economic and demographic forces have already undermined much of China’s competitive advantage. According to a new report by the Boston Consulting Group, Made in America, Again, manufacturing in the U.S. and Mexico is about to make a comeback.

Even though productivity of Chinese workers is improving at an impressive 8 percent a year, their labor rates are rising at an astonishing 15 to 20 percent annual rate. The report predicts that Chinese labor rates in their major manufacturing centers will exceed $6.00 per hour a few years from now. When you add skyrocketing Chinese land costs and the uncertainty of growing labor strife in China’s coastal manufacturing centers against steadily improving U.S. and Mexican worker productivity, a weakening dollar and rising Trans-Pacific shipping and fuel costs, production platforms in some southern U.S. states and Mexico could actually become superior to China. This means that many Chinese made goods destined for U.S., Canadian and Mexican markets could soon be manufactured back here.

The implications for U.S. communities looking for economic base sector opportunities worthy of strategic investment are encouraging. While we are still a long way from a having clear advantage over China, some powerful trends have started to turn in our favor.

The second reason to re-think going back to making stuff here is that the nature of manufacturing work has morphed into a highly-desirable career path. There are really two manufacturing sectors now: the old labor intensive, de-humanizing, environment-degrading ways of making things, and the new, technology-intensive, human-creativity-driven, and environment-enhancing sector.

Newer and better materials, rapid prototyping, robotics, mass customization and logistics innovations are making this new manufacturing sector one of the most creative, innovative, intrinsically satisfying and well-paying career sectors in the economy.

Signs of opportunity in this new manufacturing sector are visible everywhere. A massive new intermodal transportation project is under construction in Santa Teresa, and Fox Conn’s massive, 20,000 employee, 1million-square-foot production facility is being ramped up a stone’s throw from the Santa Teresa Port of Entry. Last week the City of El Paso announced a major effort to overhaul and coordinate its economic and workforce development efforts.

In three weeks, the state of  New Mexico will be 100 years old. I don’t think anyone is sorry we missed the first Industrial Revolution, or even IR 2.0 when everything moved to Mexico, but we ought to look at getting in on 3.0.