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A U.S. Manufacturing Strategy for the 21st Century: What Policies Yield National Sector Competitiveness?

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Abstract

The national debate over the fate of U.S. manufacturing is back, with some asking the question: Is manufacturing dead? However, the U.S. manufacturing sector has been making a surprising comeback and added jobs in 2010 and 2011 following 12 straight years of declines. Utilizing economic data, coupled with qualitative manufacturing industry information, offers a unique opportunity for the authors to present a pragmatic and strategic national manufacturing strategy based on the realities of a continually evolving R&D/high-technology-based U.S. manufacturing sector.

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Notes

  1. A brief description of each entity is included in the Appendix.

  2. The number sequencing should not imply a prioritization among these policies.

  3. By sector growth, we mean increases in sector value added—the contribution of a sector to overall GDP growth. The economy-wide growth impact across sectors is a function of both individual sector growth contributions and the changes in shares of above- and below-average productivity sectors [McKinsey & Company 2010, p. 10].

  4. For further analytic insight into the MGI microeconomic approach to evaluating and enhancing national competitiveness, please see Baily and Solow [2001].

  5. Our analysis is equally applicable to foreign direct investment in the U.S. manufacturing sector. For example, the policies and strategies that could help create a more competitive domestic manufacturing environment should equally help both U.S. based multinational companies (MNCs) as well as foreign-headquartered MNCs. To the extent that foreign-based firms investing in U.S.-based manufacturing facilities would benefit from foreign workers from their own (or other) countries, we have recommended reforming employer-sponsored permanent and green card procedures in the human capital policy section. Further, factors like infrastructure policy, and regulatory and legal policy, to the extent that they benefit manufacturers, would equally benefit domestic firms as well as foreign firms manufacturing in the United States.

  6. The President's Council of Advisors on Science and Technology [2011, p. 9] defines “advanced manufacturing” as: “… a family of activities that (a) depend on the use and coordination of information, automation, computation, software, sensing, and networking, and/or (b) make use of cutting edge materials and emerging capabilities enabled by the physical and biological sciences, for example nanotechnology, chemistry, and biology. This involves both new ways to manufacture existing products, and especially the manufacture of new products emerging from advanced technologies.”

  7. This situation may already have arrived, as armor plate steel, defense-specific integrated circuits, and night vision goggles are among the items the U.S. Department of Defense must now acquire in part from overseas suppliers [Yudken 2010]. Moreover, Webber [2009] found that between 2001 and 2008 13 of 16 manufacturing subsectors that are the supporting foundation of U.S. military power suffered erosion as measured by a decrease in employment, economic activity, and the number of factories.

  8. In a recent study (Program for International Student Assessment) undertaken by the Organization for Economic Cooperation & Development (OECD) [2010], 15-year-old Americans ranked 25th (487 on a scale of 1,000) in mathematical proficiency and 17th in science proficiency (502 on a scale of 1,000) among 34 OECD-member countries surveyed.

  9. According to a study by Duke University and the University of California-Berkeley, immigrants founded or co-founded 25.3 percent of all U.S. engineering and technology start-up firms between 1995 and 2005 [Wadhwa and others 2007].

  10. The federal government is the prime source of U.S. basic research funding. In 2008, preliminary data indicated that it accounted for 57.0 percent (U.S.$39.38 billion) of the nation's total expenditures. In applied research, the federal government accounted for 32.3 percent (U.S.$28.65 billion) of the nation's total expenditures; and in (experimental) development, the federal government accounted for 14.9 percent (U.S.$35.67 billion) [National Science Board 2010]. In 2008, the federal government was responsible for funding 26.1 percent of all R&D expenditures (U.S.$103.7 billion) in the United States (preliminary data) [National Science Board 2010].

  11. As Hira and Hira [2008, p. 117] note: “It is the prevailing management approach to locate R&D as close to manufacturing production as possible. As manufacturing moves overseas it is inevitable that both engineering work and R&D will follow.” Consequently, scaling up new technologies domestically helps ensure that the manufacturing base and R&D activities remain in the United States.

  12. In 2006, approximately 11,000 U.S. companies claimed an estimated U.S.$7.3 billion in R&E tax credits [National Science Board 2010]. There are likely many more companies eligible for the R&E tax credit, but their managements do not understand what activities qualify and how much money is actually in play [Bryson and Feldman 2010]. The business sector was estimated to have funded U.S.$227.3 billion in R&D funding in 2006 [National Science Board 2010], which means that the R&E credit only affected 3.2 percent of all business expenditure for R&D activities—resulting in a negligible economic impact on the nation's total R&D activities.

  13. Under authority granted to the Congress under the Congressional Review Act of 1996, major administrative rules take effect unless Congress passes and the President signs a joint-resolution disapproving them. In the ensuing 15 years, this congressional authority has been successfully exercised only once (an Office of Safety and Health Administration (OSHA) regulation addressing ergonomics in the workplace). Furthermore, this OSHA regulation was disapproved in June 2001, when there were both a Republican President and Republican-controlled Congress, and was the only rule that was disapproved (among tens of thousands implemented) during a six-year period of Republican control of both the executive and legislative branches.

  14. Among OECD countries, Japan has the highest corporate tax rate at 39.5 percent, whereas the United States is second with 39.2 percent [Buiter and others 2011].

  15. Under the TRIPS Agreement, all intellectual property disputes arising under the TRIPS Agreement are now required to be settled through the mandatory WTO dispute settlement process before unilateral sanctions are imposed.

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*Thomas A. Hemphill is an associate professor of Strategy, Innovation, and Public Policy in the School of Management, University of Michigan-Flint. His research interests are in the topic areas of innovation management and policy, corporate governance, business and public policy, and international business and political economy. Hemphill received his Ph.D. in Business Administration from The George Washington University.Mark J. Perry is a professor of Economics and Finance in the School of Management at the Flint campus of the University of Michigan, where he has taught undergraduate and graduate courses in Economics and Finance since 1996. Starting in the fall of 2009, Perry has also held a joint appointment as a visiting scholar at The American Enterprise Institute in Washington, D.C., where he has been a regular contributor to the Enterprise Blog and American.com. He is also the creator and editor of the economics blog, Carpe Diem. He holds an M.A. in Economics from George Mason University, an M.B.A. from the University of Minnesota, and a Ph.D. in Economics from George Mason University.

Appendix

Appendix

Description of the entities proposing manufacturing strategies

The Alliance for American Manufacturing (AMA) (http://www.americanmanufacturing.org/about-us) is a nonpartisan, nonprofit partnership forged to strengthen manufacturing in the United States. AMA brings together a select group of America's leading manufacturers and the United Steelworkers.

The American Iron and Steel Institute (AISI) (http://www.steel.org/en/Aboutpercent20AISI) serves as the voice of the North American steel industry in the public policy arena and advances the case for steel in the marketplace as the preferred material of choice. AISI is composed of 24 member companies, including integrated and electric furnace steelmakers, and 140 associate and affiliated members who are suppliers to or customers of the steel industry.

Founded in 1902, the Association for Manufacturing Technology (AMT) (http://www.amtonline.org/AboutAMT/) represents and promotes the interests of American providers of manufacturing machinery and equipment. AMT's goal is to promote technological advancements and improvements in the design, manufacture, and sale of members’ and act as an industry advocate on trade matters to governments and trade organizations throughout the world.

The Council on Competitiveness (http://www.compete.org/about-us/) was founded in 1986. The Council on Competitiveness is a nonpartisan and nongovernmental organization made up of business CEOs, university presidents, and labor leaders who convene to generate innovative public policy solutions that address America's long-term competitiveness challenge.

The Industrial College of the Armed Forces (http://www.ndu.edu/icaf/about/) is a senior service school providing graduate-level education to senior members of the U.S. armed forces, government civilians, and foreign nationals. Its objective is to prepare attendees for leadership and success in developing national security strategy and policy, with a focus on evaluating, marshalling, and managing national resources.

The Information Technology & Innovation Foundation (http://www.itif.org/) is a Washington, D.C.-based think tank focused on designing innovation policies and documenting how advances in technology are creating new economic opportunities to boost economic growth and to improve quality of life in the United States and around the world.

The National Association of Manufacturers (NAM) (http://www.nam.org/About-US/About-the-NAM/) is the largest manufacturing association in the United States, representing manufacturers in every industrial sector and in all 50 states. The NAM is a leading advocate for a policy agenda that helps manufacturers create jobs and growth. The NAM—11,000 manufacturing companies and nearly 12 million workers—promotes government policies that will reduce the cost of production and tear down barriers to exports.

The National Council for Advanced Manufacturing (http://www.nacfam.org/Home/AboutUs/tabid/58/Default.aspx) is a nonpartisan, nonlobbying action/think tank that brokers collaboration among its stakeholders from manufacturers (small, medium, large), education, research entities, government, trade and professional associations, and individuals to develop policy recommendations to accelerate manufacturing innovation and build a more globally competitive U.S. manufacturing sector.

Launched in 1999, the New America Foundation (http://newamerica.net/about) is a nonprofit, nonpartisan, public policy institute that invests in new thinkers and new ideas to address the next generation of challenges facing the United States. It emphasizes work that is responsive to the changing conditions of the information age economy—particularly shortened job tenures, longer life spans, mobile capital, financial imbalances, and rising inequality.

To provide the President of the United States with support to govern effectively, the Executive Office of the President (EOP) (http://www.whitehouse.gov/administration/eop) was created in 1939 by President Franklin D. Roosevelt. The EOP has responsibility for tasks ranging from communicating the President's message to the American people to promoting U.S. trade interests abroad.

Established in 2009, the President's Council of Advisors on Science and Technology (http://www.whitehouse.gov/administration/eop/ostp/pcast) is located in the Office of Science and Technology Policy, Executive Office of the President. The Council is an advisory group of the nation's leading scientists and engineers that makes policy recommendations to the President.

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Hemphill, T., Perry, M. A U.S. Manufacturing Strategy for the 21st Century: What Policies Yield National Sector Competitiveness?. Bus Econ 47, 126–147 (2012). https://doi.org/10.1057/be.2012.4

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