Value Added: America's Manufacturing Future

Manufacturing matters. That is the rapidly emerging consensus in the United States, after a generation in which leading policymakers, economists and journalists dismissed the importance of the U.S. manufacturing sector to the American economy. Transcending partisan divides, there is a deepening appreciation for the many ways in which a world-class, dynamic manufacturing sector contributes to innovation and American prosperity.

Manufacturing’s contribution to the economic recovery and long-term economic growth extends to other economic sectors, including commodities and professional services, through forward and backward linkages and spillover effects. America’s manufacturing companies also anchor America’s innovation ecosystem, providing demand for American researchers and a supply of investment in R&D in the U.S. Innovation in the U.S. cannot be severed from domestic production; the two belong to an innovation system whose elements benefit each other and flourish or fail together.

But manufacturing is changing, and the contribution of manufacturing to the American economy makes it all the more important for the U.S. to capture the gains of the next generation of manufacturing innovation. Advanced manufacturing encompasses the wave of revolutionary technologies that includes robotics, nanotechnology, photonics, biomanufacturing, the synthesis of new materials and additive manufacturing or rapid prototyping, which promises to replace mass production with customized production in many industries. New kinds of business organization, made possible by advanced communication and information technology, are transforming the way manufacturing firms operate. Servitization is the process by which a product-centered firm adopts a product-service strategy in which revenues from services throughout the product’s lifecycle are as or more important than the sale of the original product. While some companies have long pursued product-service strategies, that business model is becoming available to many more firms in industries ranging from aerospace to medicine.

To remain competitive, the U.S. needs a strategy to ensure that breakthroughs in technology and their diffusion and commercialization continue to take place in America. Public policy needs to focus on the imperative of revitalizing and upgrading America’s manufacturing base, by methods that include:

R&D and Technology Diffusion. Public policy needs to encourage private sector R&D, including through a permanent R&D tax credit. Public investment in R&D and support for manufacturing should be financed in part by new federal development banks and federally-favored municipal bonds. Breakthroughs in R&D must be followed by development at scale and the diffusion of new transformative technologies across sectors, with the help of government procurement, credit and technology extension programs. 

Infrastructure and Energy Strategy. In addition to these forms of direct assistance, infrastructure and energy policies can indirectly retain or onshore manufacturing in the U.S. by lowering the costs of energy and chemical feedstocks and by reducing bottle-necks in the transportation and communications infrastructures. In addition to lowering the costs of manufacturing, the energy sector, revitalized by natural gas, and the construction of new, more efficient transportation and communications systems can provide sources of demand for domestic manufacturing firms.

Tax and Regulatory Reform. Tax policy should encourage investment in American manufacturing by foreign and domestic firms alike. Legacy regulatory systems need to be updated as cutting-edge technology blurs or destroys the boundaries among kinds of manufacturing or between manufacturing and services.  

Training Workers for Advanced Manufacturing Jobs. Rapid technological change in manufacturing means that the U.S. needs a new social contract in education which rationally allocates responsibility for learning and upgrading skills among government, employers and individuals.

Promoting Mutually Beneficial Rather than Adversarial Trade. The U.S. needs to do a better job of defending its industries against predatory policies by mercantilist nations, without sacrificing the benefits of access to foreign markets and foreign talent.

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This report was made possible with the support of General Electric. General Electric did not guide preparation of the report and does not bear responsibility for its conclusions.