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Act II for American Manufacturing? Act II for American Manufacturing?

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Act II for American Manufacturing?

Say bye-bye to the likes of River Rouge, and hello to smaller, smarter factories surrounded by industrial ecosystems that nourish innovation. But the next wave of manufacturing may require government’s helping hand.

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To the untrained eye, the new-wave manufacturing at AK Steel's Lyndora plant looks a lot like the old.(Patrice Gilbert)

LYNDORA, Pa.—Is American manufacturing dead? Those who think so point to manufacturing’s plummeting share of the national economy as a predictor of its eventual demise. But they likely have never been to Butler County. Here, north of Pittsburgh, in the heart of western Pennsylvania, basic manufacturing still drives the local economy. It has survived around here—indeed, thrived—suggesting that America, too, has an industrial future.

Butler County’s economy has long depended on making steel and fashioning it into precision tools, industries that most Americans think have largely fled overseas. To survive, companies here have successfully adapted, using flexible manufacturing techniques that marry computers with a skilled workforce to craft products for international markets. And in the wake of the worst economic downturn since the Great Depression, the unemployment rate in Butler County stood at just 6.8 percent in September, far lower than the national average.

 

The Obama administration’s hopes for a second act for U.S. manufacturing center on high-tech, future-oriented products such as solar panels and biotechnology. There is reason to think these goods will play a big role. Their track record has been impressive, and their cutting-edge nature inspires public imagination. The wind-energy industry, for instance, is roughly a $20 billion business and is growing by leaps and bounds. Still, these technologies’ contributions to the overall economy are statistically insignificant. Jobs in renewable energy, broadly defined (including wind, solar, and hydroelectricity), accounted for just 0.1 percent of total employment in the United States in 2007, according to Moody’s Analytics. The makers of steel, aluminum, and other primary metals employed three times as many people.

 “When it comes to new industries, it takes a while for them to grow,” said Sophia Koropeckyj, a managing director at Moody’s Analytics. So, for the foreseeable future, they’ll be dwarfed in economic significance by existing manufacturing. Despite the near-disappearance of the American textile, apparel, and shoe industries, and the recent troubles of the auto industry, the United States remains—if tenuously so—the world’s leading manufacturer, led by industries that rely more on technological precision and brainpower than on low-skilled labor—aircraft, sophisticated machinery, medical devices, and the like. But manufacturing’s staying power is also thanks to old dogs, such as high-end steelmakers, that have learned new tricks.

An unlikely testing ground for the second act in American manufacturing is in western Pennsylvania, where the first act had its heyday. To the untrained eye, the two eras look much the same. Showers of sparks and unspeakable heat still mark the pouring of steel. But Andrew Carnegie would not recognize this steelmaking. To compete in an increasingly competitive world market, even traditional manufacturers must operate on the technological frontier. In its Lyndora plant, AK Steel operates the world’s fastest and most productive coating and final annealing process, which chemically aligns grains on the surface of electrical steel so that—when it is used in a transformer that generates electricity—the electrons pass over it more quickly.

 

This is the future of American manufacturing, according to Sherle Schwenninger, who directs the economic growth program at the New America Foundation in Washington. “We need a broad-based manufacturing economy to provide jobs in the United States,” he said. And it can be done, he believes, because America’s competitive advantage in the world market lies in “sophisticated and higher-value-added, fundamental manufacturing—things such as earth-moving equipment and safer mining and drilling technologies—that can meet the needs of emerging economies.”

“This is manufacturing’s moment,” said John Engler, president of the National Association of Manufacturers, “precisely the right time for manufacturing to have a comeback.” A broad-based manufacturing economy, however, may well depend on the right policy environment: lower taxes, smart regulation, a weaker dollar, better training for workers, and the preservation of local industrial clusters of large and small firms that feed off one another. That, in turn, requires the public’s recognition that manufacturing has a meaningful role to play in America’s future and a government-guided plan to make it happen. “Without a plan,” warned Leo Gerard, president of United Steelworkers International, “American manufacturing will continue to atrophy.”

SECRET TO SURVIVAL

The departures from the first act in American manufacturing may be more than technological. The geography will change, as will its configuration. Huge facilities with tens of thousands of workers are out. Factories won’t look like the gigantic River Rouge auto-making complex that Henry Ford built in Dearborn, Mich., in the 1920s. Compact plants surrounded by clusters of small firms that service them will likely populate tomorrow’s manufacturing landscape. Many of the factories will be in the South, where lower wages may help establish a new industrial heartland.

This article appears in the December 11, 2010 edition of National Journal Magazine.

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