restricted access The Future of National Manufacturing Policy
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The Future of National Manufacturing Policy

For several decades, those deciding on U.S. economic growth policy have struggled over the issue of the correct growth strategy. A critical dimension of this debate has been the role the government should play in achieving desired growth rates. Nowhere has this struggle been more pronounced than in the debate over rationales for government support of the domestic manufacturing sector. Philosophies vary from a broadly activist government role to complete laissez faire.

The optimal government role depends completely on the underlying economics. In this regard, leading economies have succeeded over time by investing in a set of assets and learning how to manage those assets effectively. The first industrial revolution (1750 to 1850) began as a rudimentary factory system in which small businesses used emerging crude machines and locally available supplies of power to manufacture a fairly limited range of products. By the second industrial revolution (approximately 1860 to 1910), production technologies based on numerous scientific developments had expanded to a wide range of product categories. The critical processing technology characteristics were mass production, interchangeable parts (i.e., standardization), and the assembly line. In the United States, massive investments in new types of infrastructure such as a national transportation network (particularly railroads), electricity, and an expanded and consolidated financial market were critical to the so-called Gilded Age of the late 19th century. The driver of advancement in process technology was the growing mechanization, not only of individual industries but also of entire supply chains, which created cheaper ways of making products. The key metric was achieving economies of scale. Machines were designed, plants were organized, and labor skills were specified in order to produce large volumes of undifferentiated products. As Henry Ford famously stated, “Any customer can have a car painted any color that he wants so long as it is black.”

Economic historians will eventually pass judgment on the characteristics of the current drivers of manufacturing: information technology, nanoscience, and systems engineering. Still, regardless of when this information age is determined to [End Page 155] have begun, it is different from the two industrial revolutions. Products will be designed from the atomic level up, enabling both far greater variety and greater quality, and will be manufactured using sustainable methods at lower unit costs.

The opportunities to achieve greatly increased economic welfare through such “mass customization” are huge. Yet, debates rage not only over how to effectively manage and hence maximize benefits from this emerging era of manufacturing, but also over whether an economy need even be directly involved in this sector of economic activity.

The Policy Issue

The first industrial revolution required a set of growth policies that provided the necessary categories of infrastructure, given the nature of the important technologies, the needed skills of laborers, and the amounts and types of suitable financing. However, whereas England was the leader in the first industrial revolution, the United States took over that title in the second. Germany was not a player in the first but was a major one in the second. No Asian nations were important in either one. Today’s third revolution has many more candidates for leadership, and it is increasingly likely that no one economy will ever be dominant again.

This fact raises an important question: What are the appropriate economic growth policies for attaining and maintaining a competitive position in global markets? In this regard, two questions are key:

  1. 1. What are the roles of manufacturing in this new era?

  2. 2. How do the nature of advanced manufacturing technology and the globalization of markets determine the types and extent of supporting infrastructure?

Several things are certain. First, the extent and diversity of global demand and global competition greatly exceed anything previously experienced. As a result, and in spite of the growing complexity of emerging technologies, technology life cycles are actually shrinking. Therefore, every industrialized nation is facing a major test of its economic growth strategy, as was the case at the beginning of both industrial revolutions.

Compounding the political and social trauma that such events cause is the coincident impact of sticking with old out-of-date growth strategies. The result of the...