Adding Value In America's Future

Shop owners worried about manufacturing in America often express two concerns. One is personal: Will my own shop survive? The other is broader: Can America still thrive with so much manufacturing being sent to other countries?

The concerns are linked. An undue pessimism about America’s future can slow a U.S. manufacturer, preventing the company from making the adaptations necessary to keep on pursuing opportunity as the future unfolds.

Many who see gloom cite an idea articulated in the 18th century. Manufacturing adds value to raw materials, and in that way it increases the wealth of nations that do this work. In light of this principle, it’s legitimate to wonder whether the work going to other countries represents an irreplaceable source of wealth being lost.

Two thoughts:

1. Did the work leave the country, or did the value leave the work? The price drop for many goods made elsewhere—mass-produced consumer goods, for example—says something significant about the outsourced production. The best opportunities to add value through manufacturing are not to be found in this work.

2. Is Long Island poor for not producing its own goods? Is Hawaii? “What’s your point?” you may ask. “These places are economically connected to the rest of the country.” Exactly.

There IS something different in the world. In the 18th century, the most expensive part of international trade was the cost of transportation. Ships and horses were slow; pirates and bandits were numerous. Conclusions about the benefit for a nation to make its own most commonly used products begin by assuming this state of affairs. But that assumption got weaker with the invention of the steam engine. It all but collapsed in the late 20th century, with peace throughout the civilized world and information technology able to coordinate work across great distances. Now, supply chains can cross oceans and international borders in much the same way that they can cross Long Island Sound.

That means the U.S. manufacturing sector is free to focus its attention. Maybe a great many products we’re used to making here will be made overseas from now on, or maybe automation’s cost savings will bring them back. But either way, there will also be work that is particularly demanding in terms of delivery time, quality or the need for process innovation, and these are the areas that a growing share of U.S. shops will serve. Not only will America’s prosperity continue, but so will her manufacturing leadership.