Manufacturing can also survive in the Rust Belt. AK Steel, for example, isn’t merely surviving; it’s flourishing. With more than 1,300 employees, it is Butler County’s largest industrial employer. The company specializes in producing electrical steel (used in power transmission and distribution) and exports half of that. AK Steel is in the midst of a $135 million capital-expansion program, replacing three 1960s-era furnaces with a single, technologically advanced furnace. This will increase the plant’s production capacity by 40 percent while improving productivity and quality. It will also give AK Steel the flexibility to make various steels, depending on customer demand.
A few miles away, in downtown Butler, Wise Machine is helping AK Steel become more productive. Workers at Wise are adapting one of AK Steel’s continuous casters to resolve routine maintenance problems in hours, rather than days. Wise’s two-dozen workers are traditional machinists who may soon be outfitted with iPads to boost their productivity.
In the nearby town of Cabot, Pa., more than 500 machinists at Penn United Technologies turn out a variety of precision parts, some for instruments used by orthopedic surgeons, others for the armature that reads computer hard drives. Thanks to automation, one person—instead of four—now operates four machines that load, monitor, and spot-check the quality of each machine tool to produce more widgets, with no defects, for customers worldwide.
The secret to Butler County’s manufacturing success is not only a willingness to adapt but also the presence of an industrial ecosystem of sorts: a local network of companies and resources that help one another survive. At its core is AK Steel, which stayed in business while countless other steel mills in the Rust Belt succumbed to foreign competition. As a result, smaller businesses—such as Wise—that build parts and perform repairs for AK Steel have also survived. These companies are hothouses of innovation, spawning entrepreneurs who spin off to form their own firms. This, in turn, has preserved a skilled, local workforce.
Industrial ecosystems are important both in preserving traditional manufacturing and in developing cutting-edge, renewable-energy technologies, such as solar and wind. “Renewables have the benefit of being the new kid on the block,” said Bruce Sohn, president of First Solar in Tempe, Ariz., the world’s largest manufacturer of thin-film solar modules. “But finding the ability to compete and manufacture in the United States will be an ongoing challenge even for us, unless we make significant changes in our public policy.”
NO. 1, BUT …
Measured as an engine for employment or as a chunk of the economy, American manufacturing has been retreating for two generations. The economy has shifted steadily from generating wealth by making things to counting on finance, insurance, real estate, and other white-collar activities to fuel growth. In 1947, manufacturing accounted for more than 25 percent of the nation’s gross domestic product, while finance, insurance, and real estate produced less than 11 percent. (See graphs on p. 14.) By 2009, manufacturing had shrunk to 11 percent of the economy, while those other activities’ share had doubled to 21 percent.
Moreover, the profile of American manufacturing has been transformed. Labor-intensive, low-value-added production has all but disappeared. The textile, leather, and apparel industries, which in 1977 accounted for nearly 7 percent of all manufacturing activity, shrank to less than 2 percent by 2008.
Increasingly, U.S. manufacturers have focused on producing capital-intensive goods: computers, electronic products, chemicals, and, soon, energy technologies. “The nuclear business has come alive again,” said Eric Garrard, president of Wise Machine, whose shop is making coils for a nuclear reactor. “[It] may be the saving grace for a lot of the manufacturing firms.”
But the new American manufacturing sector employs far fewer workers. Only 11 million people now make things in the United States, the lowest number since World War II.
Before the recent recession, however, the value of U.S. manufacturing output had reached an all-time high. The United States still hosts the world’s mightiest manufacturing economy, producing 21 percent of all goods made globally. Japan is a distant second, at 13 percent. China, at 12 percent, ranks third.
The reason that the United States has remained the world’s manufacturing leader while in relative decline is, in a word, productivity. U.S. manufacturers are the most efficient in the world. AK Steel, for instance, produces more steel today than in the 1970s, with a third of the workforce. This productivity has also helped fuel the rest of the economy. For every dollar that manufacturers spend directly, they foster another $1.40 in economic activity—a multiplier larger than for any other sector.
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