2 July 2009

Pinto’s Point

High-value manufacturing

By Jim Pinto

The age of large factories is over.

Today’s markets are consumption limited, not production limited. In the new paradigm, mass-produced components ship to small, widely dispersed factories that assemble finished products locally to meet custom requirements at the point of sale.

Manufacturing matters. A national economy begins to decline as its wealth-producing sectors shrink: manufacturing, mining, and agriculture. Other parts of the economy—government, banking, information services, education, insurance, health care, consumer services—maintain and use physical wealth, but do not create it. They depend on manufacturing and other wealth-producing sectors for their growth.

American manufacturing is historically responsible for the relatively higher standard of living enjoyed by Americans compared to other countries, and a thriving manufacturing base is necessary to allow that trend to continue.

How can the U.S. economy be strong if manufacturing is weak? The paradoxical answer is the decline in the share of manufacturing jobs, the deindustrialization of the U.S. economy, is actually a sign of strength, not weakness.

As with agriculture 100 years before, the drop in employment in manufacturing stems from spectacular productivity growth. Over the last three decades, improved automation has churned out manufactured goods with ever-increasing efficiency. The U.S. economy no longer needs lots of factory workers for the same reason it no longer needs lots of farmers: It can produce what it requires with far fewer people.

The question quickly becomes how to redeploy the vast numbers of people displaced from conventional jobs in large, central factories? Recessions, however unpleasant, are cathartic, and therefore necessary. They release capital and labor from profitless activities as an essential prelude to redeploying them elsewhere. The challenge today is re-deploying our “labor” force to lead the world in new manufacturing directions.

Manufacturing high-value products does not mean simply cutting, shaping, assembling. We must focus our prowess not on manufacturing commodities, but rather on becoming innovators and specialists in new types of high-value manufacturing such as nano-assembly, micro-mechanical systems, chemical engineering, or bio mechanisms.

Related links:

• New Workplace Paradigms:
  http://www.isa.org/intechnews.cfm?id=10393
• Manufacturing strategies in the global environment
  http://www.jimpinto.com/writings/mfgstrategies.html
• New Manufacturing Strategies:
  http://r.listpilot.net/c/isa/2i4dpjl/1f5be

Behind the byline

Jim Pinto is an industry analyst and founder of Action Instruments. You can e-mail him at jim@jimpinto.com or view his writings at www.JimPinto.com. Read the Table of Contents of his book, Pinto’s Points, at www.jimpinto.com/writings/points.html.