More about the moral imperative

In a recent blog post, my colleague Tim Heston described the need for the U.S. to develop an advanced manufacturing base with turn-on-a-dime flexibility. He called it a moral imperative, and I couldn’t agree more.  The U.S. hasn’t lost its position as the world’s largest manufacturer, but without a strategy and some action, we’re in danger of doing so.

A cursory look at the textile industry reveals a lot about how quickly things can change in a global economy.



It was about 100 years ago that an English entrepreneur observed that if he “could add an inch of material to every Chinaman’s shirt-tail, the mills of Lancashire could be kept busy for a generation.” It might sound quaint now, but the power loom was one of the big drivers of the Industrial Revolution, and textile exports helped catapult England to the top spot of the global economy.

To make a long story short, that didn’t last. Britain’s textile manufacturers lost quite a bit of market share to manufacturers in lower-wage countries, notably and ironically, China. Job losses are hard to cope with, but in the end, would Lancashire want those old textile jobs back? Probably not. Its largest industry these days is defense; BAE Systems has a big presence, as does Rolls-Royce. Other manufacturers include Leyland Trucks, Baxi Group (domestic and commercial heating equipment), Hanson (construction supplies), and Thwaites (a brewer). Call me biased, but these industries sound much more interesting, and profitable, than textile manufacturing.

Of course, British textile manufacturing wasn’t the only industry that lost substantial market share to China. It’s safe to say that every industrialized nation has lost significant numbers of manufacturing jobs, in both durable and nondurable goods, to competitors in China. As a percentage of the world's manufactured output, China's share climbs relentlessly.

More than a few of us tried to calm jittery nerves—our own and others’—by downplaying it as much as possible (“It’s all junk,” “Good luck with engineering changes,” “Seen any copies yet?” and the like). China’s economy has been growing by leaps and bounds, and its gross domestic product (GDP) is going to surpass the U.S.’s GDP before long. We can try to downplay that too (“Well, they manipulate their currency” or “Sure, but China’s GDP per person is a small fraction of ours”), but we minimize the threat at our own peril.

What’s going on in China these days? Well, it looks like the same thing that happened in Britain is now happening in China. According to “China’s export machine goes high-end,” an article at Bloomberg Businessweek, the phrase “Made in China” brings to mind cheap shoes, plastic toys, and electronics, but this is changing quickly. Many textile, shoe, and apparel companies in China are closing or moving to countries such as Vietnam, Cambodia, and Bangladesh; meanwhile, Chinese manufacturers have moved into other fields, such as manufacturing ships, locomotives, industrial boilers, and heavy equipment.

The article specifically cites Sany, a construction-equipment manufacturer. Whether it’s a world-class manufacturer isn’t for me to say, but the fact is that it has subsidiaries in 25 countries: Algeria, Angola, Australia, Brazil, Congo, Egypt, Germany, India, Indonesia, Iran, Kenya, Libya, Nigeria, Peru, Poland, Russia, Saudi Arabia, Singapore, South Africa, Spain, Thailand, Turkey, U.S., Venezuela, and Vietnam. If you read that list the way I read it, you counted at least 12 countries that have substantial oil reserves. Sany is well-positioned to take advantage of the petroleum boom. In the same vein, mining is a key industry in Australia, Germany, and South Africa. Finally, India has an extraordinary infrastructure deficit. If the Indian government ever manages to get out of its own way, the country will purchase a lot of construction equipment.

How has the U.S. positioned itself as China’s economy has grown? Some companies have been proactive. According to General Motors’ web site, “The General Motors-China relationship dates back more than eight decades. GM has 11 joint ventures and two wholly owned foreign enterprises as well as more than 35,000 employees in China.”

Likewise, Caterpillar has been involved in the Chinese market for decades. “In the 1980s, Caterpillar launched technology transfer agreements with Chinese manufacturers who began building Caterpillar-licensed products.”

Deere also builds equipment in China to serve the Chinese market.

As a society, we have a moral imperative to prepare our workforce for the future of manufacturing, but we haven't been as farsighted as GM, Cat, Deere, or Sany. We started cutting the funding to vocational programs decades ago because they are too expensive. These days U.S. manufacturers are in such a bind that they find it difficult to add a worker, much less a shift of workers, when they need to. Meanwhile, China’s export machine has gone high-end.