Mckinsey Optimism about revitalizing US manufacturing may fall short

By Amr Ismail (Miro)


Mckinsey published an insight on US manufacturing titled Making it in America: revitalizing US manufacturing

While there is good analysis of some of the underlying problems facing US manufacturing, the insight undermines a number of weaknesses that could derail policy.

Until 1999 the size of the US manufacturing sector was comprised of about 15 to 17 million people, then by 2010 more than a third was gone. This decline is due in large part to a strategic focus on short term corporate results, globalization, prioritizing finance instead of production, a strong dollar, and continuous less-than-strategic automation. Each and every one of these factors has its roots in a dysfunctional government policy, and in a lack of alignment between companies, governing industry bodies, and government institutions.

Losing production capability in the US broke the chain of ongoing innovation, slowed down R&D, and at the same time it has been the main driver for grave social problems, chiefly amongst them are drug addiction and rising mortality rates. Chinese investments in the US and a focus on advanced manufacturing may well be a boon for a way forward.

If we move across the pond to a developed economy like Germany, we find 20% of employment in manufacturing compared to now a mere 8% in the US. This primarily is due to a policy of high wages and long-term planning aimed to sustain the manufacturing base. There is also great alignment between SME’s and education institutions.

If we move again, along the belt and road highway to China, we find the leader in global production, which surprisingly until now has mostly been focused on early stage innovation rather than manufacturing. Still, they achieved global leadership in manufacturing. So, hats off please, one can imagine what’s in-store next.

China today is the largest manufacturing nation by output. Investment is now focused on advanced manufacturing engineering backed by a top-down government policy contrary to the US bottom-up approach. The China 2025 strategic framework is pouring billions in companies engaged in new technologies and robotics, and in erecting tens of manufacturing innovation centers across the country.

Aside from a host of problems still facing US manufacturing, there is no apparent trust in metrics, rising social divisions and the skill gap is a tough nut to crack.

 Amr Ismail © 2017