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OM in the News: Innovation and U.S. Manufacturing

December 19, 2012

The government has long heralded the potential of American factories to offer good, stable middle-class jobs. But there might be another advantage to expanding manufacturing: a more innovative economy, says The New York Times (Dec.14,2012).  The evisceration of the manufacturing work force over the last 30 years might have dimmed the country’s capacity to innovate and stunted the prospects for long-term growth. “In sector after sector, we’ve lost our innovation edge because we don’t produce goods here anymore,” says ASU’s dean of technology and innovation.

In industries that produce complex, high-technology products, companies that keep their R&D and manufacturing employees close together are more innovative than businesses that develop a schematic and send it overseas for low-wage workers to make. Moreover, clusters of manufacturers, where workers and ideas can naturally flow between companies, are more productive and innovative than the same businesses if they were spread across the country.

GEs NY plant

GEs NY plant

At one massive G.E. facility in NY, workers are casting into thin tubes a ceramic that G.E. invented. Those tubes get packaged into batteries and shipped across the world. The plant sits near the research campus where G.E. scientists developed the technology. That allows them to work out kinks on the assembly line, and test prototypes of and uses for the battery. “We’re not thinking about just one generation,” says G.E.. “We’re working on the 2nd, the 3rd, the 4th, the 5th.”

Can such a strategy offer the same benefits for other businesses? M.I.T. analyzed what happened to towns after marquee manufacturing plants, like a BMW factory, moved in. Other factories in the town became more productive. Wages rose, too. Such evidence leads to concerns about the overseas movement of manufacturing jobs and facilities over the past 30 years. “Outsourcing has not stopped with low-value tasks like simple assembly or circuit-board stuffing,” writes the Harvard Business Review. “Sophisticated engineering and manufacturing capabilities that underpin innovation in a wide range of products have been rapidly leaving too.”

Discussion questions:

1. What are the dangers of sending low-end manufacturing jobs overseas?

2. Why is clustering important to manufacturers?

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