June 19, 2012 Volume 08 Issue 23

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A wake-up call for manufacturing

By Bernie DeGroat, University of Michigan

Roman Kapuscinski (left) and Wally Hopp of U-M's Ross School of Business.



U.S. factories produce about 75% of what the country consumes, but the right decisions by both business and political leaders could push that to 95%, say University of Michigan researchers.

However, a huge portion of U.S. manufacturing - as much as 40% - hangs in the balance and could either stay in this country or go elsewhere in the coming years based on policy decisions, they say.

According to Wally Hopp and Roman Kapuscinski of U-M's Ross School of Business, how the U.S. shapes education policy, worker training, the tax code, the regulatory environment, and its relationship with Mexico will determine whether manufacturing continues to rebound or spirals into permanent decline.

Hopp and Kapuscinski are co-authors of "Manufacturing's Wake-Up Call," a study by U-M's Tauber Institute for Global Operations and consulting firm Booz & Company.

"This study says there's an opportunity," said Hopp, associate dean of faculty and research and professor of operations and management science at the Ross School. "U.S. manufacturing has declined, but we are not structurally out of the game. Manufacturing is still here, it's big, and it's helping us out right now. Are we going to line up enough factors to keep it here, or will we let it trickle away like we did during the lost decade of 2000-10?"

The researchers say that finding technically trained production workers such as machine operators and maintenance specialists is an issue that looms particularly large. Low-skill jobs may be disappearing, but high-skill ones are not. Since 1980, high-skill manufacturing jobs have increased by about 40%, despite a drop in total manufacturing employment.

Industry leaders surveyed for the study confirmed that technically savvy production workers are hard to find in the U.S. but are more abundant in other countries. The issue of worker skill increasingly will become a critical policy issue as factories become more automated and driven by new and rapidly evolving technology.

Education has long been a competitive advantage for the U.S. and enabled it to become a manufacturing powerhouse. But other countries have caught up. American preoccupation with college preparation has marginalized vocation education and industrial arts programs, according to the study. To meet future employment needs, schools must recover their vocational training roles and also become more adept at vocational guidance to ensure that young people realize the diverse career paths in manufacturing.

"If you talk about manufacturing long enough, all roads eventually lead to education," Hopp said. "A huge determinant of how many manufacturing jobs remain in the U.S. will be our ability to create a skilled workforce."

Besides supporting and engaging in the education process, companies need to make the manufacturing industry attractive to young people.

"Modern plants are exciting, technical places to work, but the perception has not caught up with reality," said Kapuscinski, professor of operations and management science at Ross and co-director of the Tauber Institute.

In addition to worker training and education policy, tax policy and regulatory measures can help create a stronger environment for manufacturing.

Hopp and Kapuscinski say the current corporate tax structure is "the worst of both worlds" because the U.S. loses operations to other countries and doesn't collect the full tax rate. A simpler code with a tax rate in line with other industrialized nations would help manufacturing grow and boost revenue.

Regulatory compliance also is problematic for U.S. manufacturers, mostly because of the time it takes to get through the process, they say.

"The knee-jerk reaction is that we're going to sacrifice worker safety or the environment when we streamline regulations," Hopp said. "That doesn't necessarily follow. You can still measure and hold companies accountable. The main complaint from firms isn't that the regulations are too strict. It's that they're too slow, too complicated, and the agencies are not responsive to the competitive needs of industry."

Finally, the U.S. must build a stronger relationship with Mexico. While some low-skill operations will be sent offshore every year, keeping them closer will allow R&D and engineering jobs to stay stateside.

"If you could push a button and solve some of the problems with Mexico, that would really benefit both countries," Hopp said. "Ross Perot had the famous quote during the NAFTA debate about that giant sucking sound of jobs going to Mexico. That's the wrong way to look at this. Jobs are not a zero-sum game. That argument also assumes low-skill jobs would stay in the U.S., if not for Mexico. But that's not true. They would just go someplace else."

Overall, Hopp says that all of the variables - education policy, worker training, the tax code, the regulatory environment, and U.S.-Mexico relations - have to line up to make that work. "In the presidential campaign, manufacturing has emerged as an important issue," he said. "The candidates are all talking about it. This is a big chance."

You can read more about the study here: http://www.tauber.umich.edu/docs/Manuf-WakeUp_w_Cover.pdf

Published June 2012

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