Remanufacturing America's Factory Sector

Conventional wisdom says American manufacturing jobs are gone forever, outsourced to low-wage, low-regulation nations. Thomas D. Kuczmarski disagrees

By Thomas D. Kuczmarski

Ron Bloom could not have picked a better time to start his work as President Barack Obama's point man on manufacturing policy. I believe the opportunity exists for this nation not only to sustain the manufacturing capacity it has managed to keep, but to restore much of what has been lost. It would be innovation on a grand scale.

Innovation is a process that starts with understanding what customers want and need and, through a series of practical steps, progresses to new products and services that meet those needs and wants. Bloom should frame his assignment as a challenge to develop an innovation strategy for the manufacturing sector.

We have heard a lot over the past couple of decades about how the U.S. economy is changing from manufacturing to service. The numbers bear it out. Since 1969, the number of manufacturing jobs in this nation has plummeted from 26.5% of all workers to about 10% today. These are (or were) the jobs that a person could hold over the long haul, that offered decent pay and benefits—a chance to own a piece of the American dream. Conventional wisdom says those jobs are gone forever, outsourced to low-wage, low-regulation nations. I don't agree.

An important part of an innovation strategy is timing, moving when the moment is right. It is equally important to have the courage to make a strategic move when conventional wisdom says there is no hope. Stephen Burnett, a marketing professor and associate dean for executive programs at Northwestern University's Kellogg Graduate School of Management, where I teach, has written that one of the important lessons of the recession is that when it ends—as it will—we should not expect things to simply go back to the way they were. That is where opportunity lies for U.S. manufacturing.

All Eyes on Schenectady

Jeffrey Immelt, CEO of General Electric (GE), has been saying a lot lately about the importance of reversing the outsourcing of factory work. He calls for a doubling of the manufacturing labor force to 20%, and is doing his part. GE is building a plant in Schenectady, N.Y., to convert railroad engines from diesel to hybrids. Another GE factory, in Louisville, will boost employment by making hybrid electric water heaters that had been manufactured in China.

Here's how other manufacturers could reassert themselves. First, the main reason American companies have moved manufacturing to other nations is simply that it's cheaper to make goods elsewhere. Labor, benefit programs, environmental regulations—all less than in this nation. Publicly held companies aren't being un-American by going offshore. They are doing what their shareholders demand. Give a CEO and his board a way to manufacture in this country that makes as much financial sense, or more, as doing it overseas and I believe they will.

So let's consider the new realities, starting with labor. According to the Bureau of Labor Statistics, just under 12 million nonagricultural workers are unemployed in the U.S. About 2 million are people who lost manufacturing jobs. About 10 million came from other sectors, with 3.9 million of them losing jobs in retail, wholesale, and leisure industries, which typically pay lower wages. Also, and I'm not saying I like this, employers in this country have largely shed the need to pay pension and health benefits to their workers.

Fighting Counterfeiting

So in this country, as a result of the recession, there is a large and well-educated labor force with a superb work ethic ready and willing to take manufacturing jobs if they were to be available.

Let's assume that the cost of labor in this new generation of American manufacturing will be somewhat less than in the good old days.

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