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Engineering an Economic Recovery

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Over the weekend, White House officials announced that the leading theme of the president's State of the Union address will be making America a "magnet for jobs and manufacturing."

If this sounds like the theme of every recent State of the Union, it's for good reason: The nation is not only suffering unbearable unemployment but also a badly damaged manufacturing sector.

Over the last decade, the U.S. lost nearly 6 million manufacturing jobs and closed down at least 40,000 industrial facilities. More troubling still, the nation lost ground in its area of core comparative advantage: High-tech manufacturing. The U.S. trade deficit in Advanced Technology Products (ATPs) reached $100 billion in 2011. This deficit alone surpassed the total net foreign earnings on all intellectual property royalties and fees for all U.S. incorporated companies from Apple to Boeing to Starbucks.

Americans have grown accustomed to such gloomy statistics. But, in order to reverse the depressing trends, we need greater clarity on their causes. While conventional wisdom says that low labor costs abroad, stagnant science research, or changes in American workers' productivity explain the loss of competitiveness, these factors don't tell the whole story regarding advanced manufacturing. A core problem lies in America's failure to keep pace with one of its historical core strengths: engineering. Distinct from science and technology research, this means not just analysis and discovery, but synthesis and innovation aimed at turning abstract ideas into tangible products. To help reclaim our advanced manufacturing edge, Obama might emphasize a single point: America needs to put the "&" back in "R&D".

Consider first why the conventional wisdom regarding our loss of competitiveness misses the mark. Low-cost labor abroad is not, on its own, the reason that the U.S is losing its position with regard to high technology products. With labor accounting for only a small portion of the costs of high technology production, it's telling that Germany -- boasting 30 percent higher wages and higher overall costs -- sustains a robust modern manufacturing sector. Likewise, with average annual output per worker over the past decade decreasing slightly compared to the previous decade, productivity changes cannot singlehandedly explain all these job losses. Finally, while conventional wisdom may blame a fall in scientific investment or innovation, the federal government still spends upwards of $140 billion annually on science and technology, and America still leads the world in key measures of research output including research publications, citations and patents -- not to mention university rankings.

Scientific research is still an absolutely crucial element in manufacturing strength. But it's what comes next that often counts most. The U.S. is currently lagging in advanced manufacturing because it is failing to translate basic research into marketable products.

Consider the emerging field of nanotechnology. While a 2010 report by Lux Research showed the U.S. to be -- far and away -- the world leader in research activity, it lagged far behind Germany, Japan, South Korea and Taiwan in a measure of strength in related technology product development. This is hardly a new phenomenon. The basic science discoveries behind a range of high-tech products such as MRI machines, MP3 players, flat panel displays, solar cells, lithium-ion batteries, and cell phones were largely made in the U.S, but later-stage innovation and the bulk of subsequent job-creation and wealth-creation has taken place in other countries.

The Obama Administration, to its credit, has initiated a range of programs to promote technology transition from federal labs, manufacturing tax credits, and expanded access to capital. New institutional partnerships, research programs, and proof-of-concept centers are seeking to nurture innovation at the university-level to bring science from laboratories into the marketplace. Hopefully, the president will announce continued focus on these commitments during the State of the Union.

But even the grandest public investments might be insufficient to solve a problem that runs deep in American industry and education.

In contrast to the days when Bell Labs engaged in comprehensive R&D processes focused on long-term product-development goals, today's corporations tend to be decidedly short-term in orientation. The average time Wall Street investors held a stock has dropped from eight years in the 1960s to four months in 2010. This trend has forced firms to focus on making a quick return. Most U.S. corporate R&D goals now focus on achieving incremental improvements rather than engineering the "next big thing."

There are similarly systemic problems in our education system. While we still have the world's best universities by any measure, market pressures have forced a focus on inputs like SAT scores and alumni donations over outcomes like startups or products spawned. At the same time, fewer and fewer of America's "best and brightest" are clamoring to get into our engineering schools. Some of this dearth of engineering talent and interest is attributable to our primary and secondary schools, which largely omit the "E" -- engineering -- from STEM education. While most high schools require students to dissect a frog to learn biological anatomy, few require students to dissect a power tool to study the anatomy of machines.

America's loss of advanced manufacturing competitiveness is a multi-disciplinary problem that demands a multi-stakeholder solution. It's time for business, academia and government to get on the same page.

  • Government: While Federal authorities should continue to invest in science, they must also invest in translational R&D to transform knowledge into high-value, domestic-made products. Just one-seventh of Federal R&D investments went to engineering in 2008. Congress should fully fund the Obama Administration's proposed Manufacturing Innovation Institutes to bring industry, academia, and other stakeholders together through public-private partnerships in precompetitive translational research and engineering efforts to reduce the risks inherent in high growth emerging technologies. This is hardly "picking winners." To the contrary, this represents the continuation of a quintessentially American tradition that stretches from the early days of aviation to the emergence of the Internet.
  • Industry: The off-shoring craze of the past decades has not only resulted in the abandonment of manufacturing facilities but also directly undermined engineering expertise and innovation culture. While some firms are now reconsidering their outsourcing decisions or even "re-shoring" operations, undoing the damage will require investing in domestic knowledge and skills. With a recent Manufacturing Institute study showing 67 percent of manufacturers reporting a moderate to severe shortage of available, qualified workers, the need should be clear to managers and shareholders alike. Firms can take a cue from Siemens, which spends upwards of200 million annually on training and technical apprenticeship programs starting at the high school level.
  • Academia: To create a pipeline of talented engineers and skilled production workers, we must bring engineering into the mainstream K-12 curriculum. We need to rebrand engineering to again attract top young minds. Ultimately, with regard to institutions of higher education, we need to redesign metrics of success: University rankings should place greater emphasis on contributions to technological innovation and economic growth than student selectivity or donor contributions.

While some of these decisions are ultimately out of Obama's hands, he can help catalyze a manufacturing revival by emphasizing a simple point tomorrow night: We must build the education and research infrastructure to transform ideas into products.