Just a quick note on a few new reports relating to manufacturing in the I-Cubed Economy.
Thanks to Egils Milbergs at Accelerating Innovation, there is this report by Mark Schweitzer and Saeed Zaman of the Federal Reserve Bank of Cleveland on the relationship between manufacturing productivity and employment – Are We Engineering Ourselves out of Manufacturing Jobs? There answer to that rhetorical question is no. But their conclusion is interesting:
As recently as 1990, roughly 30 percent of U.S. gross purchases were domestically produced goods, whereas 52 percent of purchases were domestic services. Now, only 25 percent of U.S. purchases are domestically produced goods. About half of this decline is attributable to the rise of imported goods, but the rest is simply the result of greater consumption of services, which likely reflects a change in consumption preferences.
Implied in that conclusion, however, it that the change in consumption preferences from goods to services is in part made possible by the lower costs of goods (due, in part, to higher manufacturing productivity) which frees up funds to be used for services instead.
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Thanks to the New Economist for pointing out some new studies on the effect of offshoring. From Europe comes
How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy by Giorgio Barba Navaretti, Davide Castellani and Anne-Célia Disdier
ABSTRACT: Transferring low tech manufacturing jobs to cheap labour countries is often seen by part of the general public and policy makers as a step into the de-industrialisation of the European economies. However, several recent contributions have shown that the effects on home economies are rarely negative and often positive. Our paper contributes to this literature by examining how outward investment to cheap labour countries affect home activities of a sample of French and Italian firms that turn multinational in the period analysed. The effects of these investment are also compared to the effects of outward investment to developed economies. The analysis is carried out by using propensity score matching in order to build an appropriate counterfactual of national firms. This provides the hypothetical benchmark of what would have happened to domestic activities if firms had not invested abroad. We find no evidence of a negative effect of outward investment to cheap labour countries. In Italy they enhance the efficiency of home activities, with also positive long term effect on output and employment growth. Also for France we find a positive effect on productivity and the size of domestic activity, although not as robust and significant. Investment to developed economies from both countries have essentially scale effects but which do not trickle down on productivity at home.
And Karsten Bjerring Olsen at the OECD has produced Productivity impacts of offshoring and outsourcing: a review:
This paper surveys the empirical literature on offshore outsourcing and its productivity effects. Due to the small number of existing studies, the survey also includes research that may serve as indirect evidence of the phenomenon’s link to productivity, such as its effect on skill upgrading.
The most apparent conclusion drawn from the review is that there appears to be no clear patterns as to how offshore outsourcing affects productivity, and that much depends on both sector and firm-specific characteristics. There are some indications, however, that positive productivity effects from foreign material sourcing depends on the degree to which firms are already globally engaged, but also that such engagements generally could be close to their optimum level in developed economies.
There is little existing research on offshoring of services, but it appears that its productivity enhancing effects generally are small in manufacturing plants while being of a somewhat greater magnitude for firms in the services sector.
“Little existing research on offshoring of services.” Humm … sounds like an opportunity.
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Finally, there are two new Department of Defense reports The first is the DOD’s Annual Industrial Capabilities Report to Congress which describes the current state of the defense industrial base:
U.S. suppliers appear well-positioned to supply the most critical technologies enabling 21st century warfare. Nevertheless, although the industrial base supporting defense generally is sufficient to meet current and projected DoD needs, there are and will always be problem areas that the Department must address.
A case in point:
The provision of body armor to troops deploying to Iraq demonstrates both the very real difficulties in properly assessing evolving operational requirements, as well industry’s ability to respond to those requirements once established. DoD body armor requirements increased greatly prior to combat operations in Afghanistan and Iraq, straining domestic industry’s ability to meet DoD warfighting requirements. In particularly short supply was the specialized ballistic backing material incorporated into the body armor. Between April 2002 and May 2003, the Department’s monthly requirements for the backing material quadrupled and the sole domestic source–Honeywell–was unable to keep up with the demand. Although not completed in time to support initial operations in Iraq, Dutch State Mines (headquartered in the Netherlands) built a new production facility for a comparable backing material in Greenville, North Carolina, significantly increasing domestic production capacity. Increased capacity for the backing material is absolutely essential because DoD requirements continue to evolve as body armor design advancements make enhanced protection possible.
The report also discusses key DOD programs to support that base, such as ManTech. If you want to know where manufacturing technology is headed, look at were DOD is putting its energies.
Which brings us to the second DOD report – Report of the Defense Science Board Task Force on Manufacturing Technology. That report hints at the future of manufacturing in one of the findings of their review of ManTech:
The question of how to affordably manufacture products based on next generation disruptive technologies is as important as establishing the technical capability. DOD invests far more on research and
development of new product technologies as compared to its investments in process technologies. But investment is needed in the capability to manufacture products that incorporate emerging, disruptive technologies–such as nano-based products–which offer promise for a quantum difference in warfighting capability within the
next decade. With more emphasis on production concerns early in development, such capabilities could be fielded quicker and more economically. Identifying such technologies is challenging, but could be informed by the peer review process previously mentioned.
In addition, DOD needs to invest in disruptive manufacturing process technologies–in particular, in timely access to affordable low-volume, state-of-the-art production capabilities. Solutions such as dual-use (civil and military) production or automated, multi-product “flexible manufacturing” need to be considered. Investments need to be made in prototypes and advanced concept technology demonstrations that address affordability (low cost) and rapid production of small quantity production.
(emphasis in original)
Disruptive manufacturing process technologies. Now there is something to keep an eye on — as it will disrupt all of the projections and assumptions about the future of global manufacturing.