Last month President Obama invited business leaders to the White House to discuss strategies for reversing the terrible tide of outsourcing that has battered American manufacturing for more than a decade. I was honored to be one of them.
I told the president that I believed the conventional wisdom about manufacturing’s inevitable decline was wrong. For too long, we’ve operated under the assumption that because labor is cheaper elsewhere, and because no company, however well-intended, would choose to build something for more when they could build it for less, manufacturing here was more or less doomed.
But that conclusion assumed a couple of things that have turned out to be wrong: First, that cheaper wage rates would always translate to lower production costs. And second, that the products of the future, like those of the past, would essentially be commodities, the kind that could be built of equal quality, with equal technology, anywhere in the world.
These assumptions were right when it came to making lower-technology products that require little innovation on the front end, and minimal precision on the back end. If you’re manufacturing blue jeans, your highest cost is probably the wages you pay, making it difficult, if not impossible, to compete on a global scale by manufacturing them in America.
But they are largely wrong when it comes to high-end products. High-end products require skilled workers, precision assembly, intensive research, and complex technology. If you’re in the business of building high-technology products, the wage rates you pay are usually a much less significant line-item on your income statement. That’s especially true when you consider that U.S. workers are, on average, three times as productive as Chinese workers. Together, this makes it possible to build them in America, as cost-competitively as anywhere else, because access to innovators is far more important than access to cheap labor.
But there is, as always, a catch. If we can’t improve the products we build here, through each new generation, we won’t succeed. Constant innovation is the only way to stay ahead of competitors, the only way to prevent products from becoming commoditized. Sometimes products get to a point where you can’t make the next generation any better than the last. You can certainly try: you can add an internet connection to an alarm clock or a remote control to a trash can, but at some point, what you’ve got really is as good as it’s ever going to get.
When you reach that point, your competitors catch up with you, and once they do, they can build what you build, just like you did, but for less. That means that success in American manufacturing will require us to build technologies that we can constantly improve; it’s the only way we can compete, the only way we can keep our competitors a few steps behind.
That’s why there’s such a strong push by companies like mine to build things like wind turbines, clean coal and smart grid technologies in the United States. With the right army of innovators, each of these products will have constant room for improvement.
For example, we just opened a plant in Charlotte where we build the world’s most advanced, most efficient natural gas turbine. And we built it in America because each new generation of the turbine will need to be better than the previous one. That’s how you leverage America’s strength. That’s how you make manufacturing work in America. And with the Labor Department reporting a 136,000 job increase in the sector last year–the first year-over-year growth since 1997–I’m hopeful we’ve begun to turn the corner.
But I don’t want to paint too rosy a picture. The truth is, though innovation is still happening in America, it isn’t happening only here. The major advances being made right now in wind and solar technology are being made in Europe. The major advances being made in biofuels are all happening in Brazil. The same can be said for batteries in Asia.
Too many of the advances forward are happening elsewhere. If we keep taking a back seat on innovation in such critical new industries, there will be a point where we are no longer the leader in innovation. When that happens, when we don’t have a competitive advantage to leverage, we’ll be outmatched on the global stage, without recourse.
To prevent that from happening, we must all work together to make the right kind of investments, right now–in STEM education, in research, in infrastructure–to ensure that companies can do the work of rebuilding America’s manufacturing sector, and creating jobs on the scale our economy needs.
If we get this right, the story of the next decade won’t be another one about the decline of manufacturing. It’ll be about how American manufacturing, once again, saved America.
Eric Spiegel is the President and CEO of Siemens Corporation and CEO of the U.S. Region
SOURCE Siemens Corporation
Web Site: http://www.usa.siemens.com