U.S. Leadership in Manufacturing A Symposium at the Eighteenth Annual Meeting, November 4, 1982, Washington, D.C., National Academy of Engineering. (1983) / Chapter Skim
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Opening Remarks, Keynote Address, and Response
Opening Remarks, Keynote Address, and Response
Pages 1-58
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Leadership in Manufacturing," continues our tradition of the past years of having a technical session on important national engineering subjects. In l979 the subject was energy, a broad view on the most important subject of the last decade.
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I can best illustrate this point by showing the result of a study by the Brookings Institution (see Figure l) that quantifies the point that technological innovation is the biggest contributor to productivity -- more than scale economics, training, and capital investment.
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They are analogous to what, in a special way, has been accomplished in process industries for some time, namely the conversion from batch processing to continuous-mode flow processing. The technology is here to apply this concept to discrete parts manufacturing and assembly.
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1.1% Z 1870< 1950 S 1950m 1965 5.2% S 1965h 1973 4.3% W 1973^ 1979 3.1% S 18701950 1 1.0% Z 1950< 1965 | 7.2% ^ 1965-i 1973 1fi 9.1% 19731979 | 3.4% 15.9 28.8 FIGURE 2 Productivity growth, age of plant and equipment, and capital investment as a percentage of output, United States, West Germany, and Japan, selected years, l870-l979. 0 O CL 1,100 1,000 900 800 700 600 500 400 300 Total Private Industry • -- -- -- -- -- Manufacturing __ -- Nonmanufacturing I 1970 1974 YEAR 1978 1980 FIGURE 3 Employment of scientists and engineers in private industry by sector, l970-l980.
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His response will be from the viewpoint of an executive active in the management of a large manufacturing enterprise. He is a physics graduate, a past member of the U.S.
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Only about 3 percent of the workforce is left on the farm. Technological innovation -- largely mechanization and its modern concommitant automation -- was the primary force releasing labor from each area and providing opportunities in others.
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Wealth and leisure have been redistributed as work weeks dropped from over 60 hours in the l800s to the high 30s in the post-World War II era. And income has shifted from property holders (40 percent in l930 to l5 percent now)
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From a strategic viewpoint, how much below its current l9 percent of the workforce employed in manufacturing can the United States shrink without sacrificing (l) the vital challenges a strong manufacturing sector poses in maintaining the health of the nation's science, engineering, technical, business TABLE l U.S.
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Overconsumption -- as opposed to industrial investment -- was encouraged on all fronts: by huge federal deficits devoted to income transfers, by easy credit policies, by inflation rates higher than savings returns, and by tax policies that selectively encouraged real estate investment over industrial development. By l979, $2,254 billion was invested in real estate, while the aggregate value of all the stocks and bonds on the New York Stock Exchange was only $l,42l billion.12 And transportation, education, and other infrastructures went into a state of relative decline.13 Although U.S.
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Table 3 sets forth some macrotrends in the U.S. manufacturing structure and some consistent, politically neutral forecasts suggesting mid-l990s positions if current trends continue.
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Manufacturing Health by Sectors Tables 5 through l0 set forth some measures of the relative health of various manufacturing sectors today. These data show that it is both unfair and unwise to TABLE 4 Key Macro Indicators, Manufacturing and Services in the United States, l960-l995 Indicators I960 I970 I980 I990 I995 Gross National Product ($ billions)
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manufacturing sectors had positive trade balances (Table 2) , growth rates (Table 5)
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& O fi S S ? S M 0 oi s § in 7 c^ ON r~ in Os ^ 10 $ |
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J McKelvey, "Constant-Dollar Estimates of New Plant & Equipment Expenditures in the United States, I947-I980," Survey of Current Business, September I98I, p.
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Source: Science Indicators, l980. The Basic Challenge Without the massive hemorrhage caused by imported petroleum, the United States would have enjoyed a strong $44 billion positive trade balance (in l98l)
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. Source: Science Indicators, l980.
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will continue to be the most important factors -- other than access to special resources -- determining future success for most U.S. manufacturing sectors and individual companies.
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And the stock market rewarded this behavior in the short run. In the late l970s, however, management horizons seemed to expand as net interest rates fell below inflation rates (see Figure 6)
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More importantly however, few top managers in such highly diversified companies still had the intuitive feel for their process or product technologies or the deep experience in technological innovation that bred comfort with major technological risks. Instead, financial allocation and control systems tended to emphasize near-term, surer prospects, whose results were more quantifiable and predictable.
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26 x Os 9> |
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The United States improved its R&D-intensive trade balances with Western Europe and developing nations in the l970s. But it has experienced a sharp loss of position versus Japan after l975 (see Figure 4)
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allows it a much-needed latitude for investment and risk taking, if properly encouraged by policy. The United States enjoys the world's most aggressive venture capital market.
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The important point is that with intelligence, foresight, and flexibility many attractive options remain for a healthy manufacturing sector. The United States has some impressive structural strengths for industrial strategies.
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, remained higher cc LU Q_ 2.5 r2.0 1.5 1.0 0.5 FIGURE 8 Estimated ratio of civilian R<5cD expenditures to GNP for selected countries. Source: Science Indicators, l980.
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. Highest performers were fabricated metal products, electrical and nonelectrical machinery, aircraft guided missiles and parts, tobacco manufactures, printing and publishing, pharmaceuticals, and petroleum refining and production.
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marketplace; and an aggressive venture capital system will probably contribute to continued U.S. product innovativeness in the future.
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U.S. food trade and its financial support to developing nations should also offer access to crucial raw materials through counter trade relationships.
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industries that could utilize new technologies to regain competitiveness. Capital investment markets are forecast to grow at more than l0 percent per year through the next decade if government policies or catastrophic economic downturns do not intervene.
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35 60 r(9 I 40 _ ee w CL 20 United States Japan West Germany France FIGURE l0 Growth in scientific and engineering personnel, l970-l979. Source: An Assessment of U.S.
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. STRATEGIES FOR THE FUTURE Given these potential strengths and the very real threats outlined above, what strategies can engineers, manufacturing managers, and government policymakers realistically adopt?
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I97I, Paris: OECD; and unpublished tabulations from OECD, I980. whole new industries and fueling potential future growth.
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38 asic and nnlied esearch r^^so^OO o oo ao so r^ m r -- fl sTs o O -H O O O f} f*
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Just as anticipation of inflation can feed inflation, so can positive visions of the future set the climate for accomplishment.38 It is anomalous that knowledgeable people talk gloomily about future market demands when the government had to intervene so forcefully to quench these very demands through its monetary policies. Lower Capital Costs Lowering capital costs is a key to any U.S.
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One doubts that such extensive use of monetary policy -- as opposed to fiscal policy coupled with productive government investment -- is compatible as an anti-inflationary tool with the historical U.S. strategy of increasing personal wealth and opportunity through capital investment, innovation, and entrepreneurial endeavor.
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To the contrary, past government attempts to shore up "sunset industries" rather than to stimulate "sunrise industries" have actively misdirected capital allocations. However, there are a series of new forms of cooperation at the industryuniversity-venture capital level that do deserve stimulation and support.
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. While the current recession and some more constructive national attitudes toward science and technology are causing a resurgence of undergraduate engineering, companies express such disappointment with graduate training that many choose to hire at the BS level and train their own engineers.*
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The traditional discipline-oriented faculty structures at engineering schools are ill-adapted for this, as are company organizations that separate product, process, plant, environmental, and computer engineering groups. Revised classroom approaches and major facilities changes will be needed at most universities to research and teach
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Source: Science Indicators, l980. integrated design effectively.
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Pilkington's float glass innovations occurred because Alastair Pilkington wanted to invent, and its top management had long time horizons, understood the need for innovation, and empathized with the chaos and risks involved.57 Japan has emerged largely because its leaders had vision, patience, and a high regard both for technological advance and for building the worth of their human resources.5* Until boards appoint and reward top managers for being innovation oriented and interested in the company's future product and cost positions, U.S.
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Some excellent adjustments in federal policy have occurred in the last two years, but uncertainties still persist for small investors who need safe posttax yields above inflation rates. Research limited partnerships and small business tax decreases have helped offset some of the special advantages government policy once offered real estate investments.
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an acceptance of social and infrastructure investments as valid markets in themselves, as well as being potential contributors to national productivity and well being.'1 Setting forth such dimensions is not hard to do; implementing them is the difficult process. One of the challenges of this meeting and its work groups is to specify more clearly how these visions might be realistically attained.
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Department of Commerce, Productivity Measures for Selected Industries l954-80, Bulletin 2l28, and National Science Foundation, Science Indicators 1980, Washington, D.C. : National Science Foundation, l98l.
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Adam Smith, Paper Money, New Yorkt Dell, l98l, develops shifts toward real estate investment in detail.
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Walter, America in Ruins, l98l, op. cit., note the need for data bases to make capital accounting possible, annual analyses of public works needs related to overall economic performance, a phased capital budget relative to cyclical and long term needs, and economic linkage analyses to understand the impact of construction expenditures outside the geographical area where the construction takes place.
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Visich, "Engineering Education and National Policy," Science, October 8, l982. " National Science Foundation, Science Indicators, l980, Washington, D.C.
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B Quinn, "Public Markets; Growth Opportunities and Environmental Improvement," Technology Review, June l974.
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They have been rendered obsolete by the Japanese. Of vital concern to the future health of other key segments of our American economy is the current targeting by the Japanese on microelectronics, computers, communications, machine tools, robots, and bioengineering -- the next industries for Japanese world dominance.
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Here is a mobilization on a national scale that is aimed at the domination of the world computer market, and most of their advanced computer concepts were originally developed by three American universities. An unusually clear insight into the attitudes and ambitions of the Japanese is provided in the recent book, Japanese Technology, by Masanori Moritani.
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We need a national commitment and an explicit strategy for American productivity improvement and international competitiveness, with particular emphasis on manufacturing. I am not suggesting that we must copy our competition's political systems.
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• Finally, promote and participate in programs to enhance our nation's engineering and manufacturing capabilities through synergistic cooperation among government, business, labor, and academe, such as DOD's current VHSIC program, as well as the emerging major R&D joint ventures on semiconductors and computers. I hope that these comments are of real interest and value and that this National Academy of Engineering meeting helps you and your engineering associates to make even more significant contributions to our nation's prosperity and security.
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Session l participants. Left to right: George H
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