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Offshore Outsourcing Has Crippled America's Innovation Engine

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A generation of efficiency experts have been telling us the U.S. doesn't need to manufacture things. We will lead the world at innovating -- coming up with new products and technologies, they say.

But a troubling report by the Massachusetts Institute of Technology finds that the loss of manufacturing is crippling our ability to innovate.

The always incisive Manufacturing & Technology News has the story.

The United States no longer has the industrial "ecosystem" necessary to bring new ideas to market. Finance, equipment, suppliers and manufacturers are not available in the United States to make prototypes and scale up commercial production of innovative ideas and products. This holds true for high-tech start-ups, the best small- and medium-sized manufacturing companies, and U.S.-based multinational corporations.

"Serious basic weaknesses in the industry ecosystem are prevalent," according to MIT's Production in the Innovation Economy (PIE) study in a book published on Sept. 20 titled Making in America: From Innovation to Market. "In some companies we interviewed, these weaknesses took the form of managers' worrying about having to bring parts of production back in-house because they feared for the survival of their suppliers. The cost of substituting for missing suppliers would divert resources from the development of new lines of business."

How about all those iWhatevers -- Designed in California, Made in China? Doesn't that prove America can be the innovation leader even if we don't make anything?

No, says Martin Schmidt, MIT professor, Associate Provost and director of the Task Force on Production in the Innovation Economy:

a lot of attention gets paid to consumer electronics -- and Apple being the greatest icon of that -- where you have firms that can innovate in new products but don't manufacture any of the products under their own roof -- and in many instances manufacture those products in other parts of the world. But while that is true, it is an anomaly -- a function of the standardization of the manufacturing processes for the core technologies that feed into consumer electronics. We don't see that standardization in other areas. ... We just haven't seen that model work in other industries.

The varied skills, know-how and facilities associated with manufacturing is nothing less than an industrial ecosystem needed to nurture new invention. The offshore outsourcing of America's manufacturing base has had the same impact on this ecosystem as a million chain saws have had on the Amazon rain forest.

Another problem: Many enterprising innovators are being bankrolled by foreign capital. These investors stipulate when production ramps up it happen where the capital came from - outside the U.S.

So the next time someone tells you "We don't need to make things here - America is best at coming up with the next great new technology" you can tell them they don't know what they're talking about.

We won't have full employment until we start making the products we consume. And we won't remain a technological leader, either.