What’s happened to American manufacturing? America was built by generations of men and women who got up every morning and made something. Their hard work and ingenuity was the backbone of this nation.
But somewhere along the line, our country fell out of love with manufacturing. After World War II, U.S. manufacturing contributed as much as 30 percent of gross national product. But since 2007, because of a number of factors such as the recession, that share of GNP has fallen to just 11 percent. We stopped making products, not just from “mature industries,” but from the high-tech space, too. Innovations that define this generation — cellphones, microprocessors, plasma TVs — aren’t made in America anymore.
These technologies are now primarily coming out of China, where companies are quickly “scaling” up from startup to mass production. One Taiwanese company alone, Hon Hai Precision Industry Co., plans to employ more than 1.3 million by the end of the year. That’s more than the worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard, Sony and Intel combined.
So how do we correct the course of the American manufacturing industry? The framework for an answer may be found in the work of two unheralded geniuses: Angus Maddison, a Scottish economist, and William Bernstein, an American neurologist turned investment adviser turned historian.
For nearly six decades, Maddison looked at a single economic statistic: Gross domestic product per capita in every country, across all of human history. Per-capita economic growth was essentially nonexistent for much of recorded history, until about 1820 and the onset of the Industrial Revolution in the United Kingdom. Here began a remarkable growth trajectory, which works out to be about 2 percent of inflation-adjusted income growth per year. It continues to this day.
Bernstein entered the picture with his book, “The Birth of Plenty.” His “hypothesis of wealth” is based on four conditions: property rights, scientific rationalism, capital markets, and efficient transportation and communication. Each has to be present to create real and sustainable economic growth. Combine these four and you begin to manufacture products that improve people’s lives.
Take a deeper look at Bernstein’s four conditions of industrialization, and you can see a stark correlation to the decline of manufacturing here in America, and how we can start moving in the right direction again.
● Property rights: The U.S. tax system has a chilling effect on property rights. America’s corporate tax rate, at 35 percent, is the second highest among the 30 countries in the Organization for Economic Cooperation and Development. Only Japan has a higher tax rate. While most countries are lowering corporate taxes, America is doing the opposite.
● Scientific rationalism: Our nation’s need for scientists and engineers will only grow as baby boomers retire. Reaching students early is key to sparking interest in science. Bayer’s Making Science Make Sense program promoting hands-on learning is one example.
● Access to capital markets: The government must ensure a stable financial system, efficient capital markets and ethical business practices. Carefully implementing new financial reforms will give banks the certainty they need to begin lending in a way that grows our economy and creates jobs.
● Transportation: We must invest in infrastructure to more efficiently move products and people. An analysis by the nonpartisan Milken Institute estimates that an infrastructure investment of $225 billion over three years would create 6.2 million jobs, $238 billion in earnings and $775 billion in output.
There are some positive signs. In February, U.S. manufacturing saw an additional 33,000 jobs and the highest output indexes in seven years. These large gains were spurred by declining inventories and robust export demands.
Building upon the current manufacturing momentum for continued long-term success depends on whether or not we encourage the factors that give rise to economic growth.
We need to start the conversation. The decision is ours alone and will ultimately decide our economic future.
Greg Babe, president and CEO of Bayer Corp. and Bayer MaterialScience LLC, will speak at the IndustryWeek Best Plants Conference on Tuesday in Atlanta.
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