I received an early copy of “Producing Prosperity: Why America Needs a Manufacturing Renaissance”, by Gary P. Pisano & Willy C. Shih and have finally found the time to finish writing about its significant ideas.

The authors join the debate about the importance of manufacturing in modern American economy. They make a number of strong points. It’s a book that leaders in manufacturing should read. In fact, if our policy makers could read (I’m sorry, that was a cheap shot), they also should read it.

Right in the beginning, they lay out the stakes, “It struck us that the United States had been running a pretty high-stakes experiment: for decades, America has been betting that the erosion of its manufacturing base posed no harm to its long-term economic prospects.” The argument of the book is to convince business and government leaders to abandon the de-industrialization that has been happening.

What do we need? We need the infrastructure, much as McAffe and Bjorn… conclude that education must be a priority. Pisano and Shih state, “Today’s industrial commons consist of webs of technological know-how, operational capabilities, and specialized skills that are embedded in the workforce, competitors, suppliers, customers, cooperative R&D ventures, and universities and often support multiple industrial sectors.”

If we don’t have all the parts of the web–especially operational capability–then we don’t have the whole enchilada.

Indeed, “Know-how and capabilities are often highly local.” And the loss of the commons–that is, all the parts of a complete manufacturing system–it’s harder to compete and could cut off future opportunities.

They feel no need to be subtle. “The erosion of the industrial commons in the United States is the result not of the “invisible hand” of markets but rather the “visible hand” of managers and policy makers. If you had to pick just one elixir for economic growth and prosperity, it would be productivity. Productivity drives economic growth and standards of living.”

“Finally, we believe this perspective is blinded by some distorted views on the realities of manufacturing, its place in a ‘knowledge economy,’ and its contribution to innovation. Too often, services are equated with ‘knowledge work’ and manufacturing is stereotyped as low-value-added ‘grunge’ work. Generalizations in either direction are dangerous. Not all services are ‘burger-flipping’; there are plenty of high-value-added, high-skilled service jobs to be had. But the same is true of manufacturing. There are many high-value-added types of manufacturing that are just as much part of the knowledge economy as high-end services. In fact, in many contexts the real distinction between service and manufacturing is blurry. As we argue later, if the United States is serious about building its future economic growth around knowledge work and innovation, manufacturing has as important a role to play as services.”

Competitiveness

This is interesting. I’m reading a book about “managerialism” that I’ll be reviewing shortly. Part of the ideas I’m picking up there is the idea of greed–maybe workers should share in the success of the organization. At any rate, these authors continue, “We define the competitiveness of a country as the advantage workers and organizations located in one place—a local commons—enjoy in the production of specific goods or services over workers and organizations located elsewhere. For workers, this advantage means being able to attract and sustain higher wages through higher productivity. For organizations, this advantage is the differential in cost or quality of products or services produced elsewhere.”

And this is key, “Thus if we care about prosperity and standards of living, we need a definition of competitiveness that explicitly takes into account the economic rewards to human capital.”

The authors note that the decline of the semiconductor commons resulted from the interplay of three forces: active government policies in regions such as Asia (and a lack of policies in the United States); changed circumstances (the shift in manufacturing assembly and supply chains to Asia, a change in technology that made it feasible to separate R&D and manufacturing); and private companies’ strategies (decisions to go fabless and to source production from Asia).

An indictment“US policies have not kept pace with this new reality. Too often, Washington has been reactive and has focused on symptoms rather than the causes of the disease, and has made policies without taking into account the broader consequences. Consider how the government responded when particular industries such as steel, semiconductors, and automobiles encountered serious foreign competition and suffered major declines. Government did step in to provide help in the form of import restriction or voluntary price restraints (under the rubric of “orderly market agreements”). Ultimately, in the case of GM and Chrysler, it provided bailouts. But the root causes–declining technical and manufacturing competitiveness (and, in the case of steel and autos, poor labor relations)–had been decades in the making.”

“We argue that strong leadership involves recognizing the following:

Superior capabilities that reside in a commons are a precious source of competitive advantage and therefore are integral to strategy.

The value of a healthy industrial commons and the close proximity of R&D and manufacturing should be factored into decisions about whether to outsource an operation or to invest in building or improving it.

Leaders should act in the long-term interest of the enterprise and all its stakeholders and not in the short-term interest of a particular set of shareholders.

Government policies if effectively designed can work as a complement to, not substitute for, market forces.

Final Prescription“A national economic strategy for manufacturing needs to focus on two critical foundations for the commons: scientific and technological know-how and specialized human capital. The US government needs to reaffirm its long-term commitment to investing in basic and applied research.”

And, “The government has a key role to play in building the human capital base needed to support the commons—one that goes beyond improving K-12 education. Let’s start with the workforce in the areas of science, technology, and engineering. This group includes those with undergraduate and postgraduate degrees in science, engineering, and mathematical fields who are the foundation of any country’s innovation capability in technology and manufacturing industries.”

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