THE BLOG
05/09/2011 04:57 pm ET Updated Jul 09, 2011

A Manufacturing Renaissance

We continue to get good news about manufacturing which is clearly embarked on a long-awaited and highly-desirable resurgence. The Federal Reserve recently noted that manufacturing is outgrowing the rest of the economy by a margin of three to one. This augurs well for the long term.

Forced to the wall by fierce foreign competition and the deepest recession of modern times, manufacturers in the first decade of the new century have gone through the most dramatic transition since World War II. Today, manufacturing firms have created a mountain of cash and are investing in new factories, new technologies, job training, strategic acquisitions and going global.

Even more encouragement is found in the Census Bureau's report on trade. American exports of goods rose 21 percent in 2010 to $1.289 trillion, the sharpest rise since 1988, enabling us to move back into second place among world exporters, nudging aside Germany. And 85 percent of all goods exported in 2010 were manufactured goods, with a total value of $1,098 trillion.

Despite what you may have heard to the contrary, the U.S. is still the world's largest manufacturing country, at least in terms of dollar value of manufactured goods. According to Mark Perry who teaches economics and finance at the University of Michigan at Flint, in every year since 2004, U.S. manufacturing output has exceeded $2 trillion in constant 2005 dollars, twice the output produced in America's factories in the 1970s. We produce 22 percent of global manufactured products, well above Japan's 13 percent. Standing alone, U.S. manufacturing today would rank as the sixth largest economy in the world.

We are successful in large part because many of our premiere manufacturing companies are true economic champions in every sense of the term - leadership, innovation, global presence, productivity, and profitability. Over half of the Dow Jones 30 companies are in manufacturing - including 3M, Caterpillar and Intel.

They are all international companies with extensive investments overseas, but that is the reality of world commerce today. A full 95 percent of the world's customers are not here, and neither is the most dynamic economic growth. To compete successfully in the competitive world marketplace of today, we need great manufacturing champions that can aggressively take advantage of opportunities all over the globe.

The key to our success in manufacturing is productivity. Between 1987 and 2008, manufacturing productivity grew by 103 percent, almost double the 56 percent increase in the rest of the business sector. While manufacturing accounted for an average of 11.5 percent of GDP during that time frame, it was responsible for about 22 percent of productivity growth.

And our productivity explosion is due to innovation. U.S. accounts for fully 40 percent of all industrial research and development spending in the world. U.S. manufacturers are clear leaders in developing new products to drive productivity. We developed the Internet to improve communications among defense contractors; electronic computers and telecommunications equipment have revolutionized business practices in every business sector; and much of the capital equipment made by manufacturers is used in service industries.

Manufacturing is also the seedbed for new products. U.S. inventors continue to win about half of all U.S. utility patent grants, down from 60 percent in 1980, but still an astounding statistic for a country with about 5 percent of the world's population. Emerging nations like China are winning more patents every year, but they are still far behind us.

Many people believe we have lost our leadership in manufacturing because of the decline of manufacturing jobs. To compete with less expensive foreign labor, U.S. manufacturers have employed innovation to accelerate gains in productivity, reducing the labor factor. But manufacturing in the U.S. still employs about 12 million people, and factories are hiring again. In 2010, manufacturing jobs increased by roughly 1 percent, the first real increase since 1997. And we need to keep in mind manufacturing jobs support jobs in other sectors -- such as mining, retail and services -- about 6.8 million to be exact.

Manufacturing has substantially increased -- and continues to increase -- the American consumer's standard of living. Strong productivity gains, rapid advances in innovation, and intense international competition have led to actual declines in the prices of manufactured goods -- in stark contrast to the inflation that has accompanied services. Between 1995 and 2008, manufacturing prices decreased by 3 percent, while the overall price level increased by 33 percent.

To sustain this manufacturing renaissance, it is essential that government pursue a competitiveness agenda including trade and export expansion, encouraging technology and innovation, modernizing our tax system and investing in education and training. We need to recognize manufacturing's renaissance and build on it to increase economic growth and create jobs.

Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.