Why America Needs a Manufacturing Renaissance

Both President Obama and his Republican challenger, Mitt Romney, have named jobs, and specifically manufacturing jobs, as a priority. But it is unclear whether either candidate appreciates the key reason to preserve and grow manufacturing in America: by manufacturing here, we preserve our ability to innovate here. When manufacturing processes are immature and are still being perfected, a lot of innovation occurs while actually learning how to make the product efficiently and consistently. The same is true when the process is integral to the product, which is the case for many advanced biotech drugs. There is a huge difference between being able to make a few milligrams of such drugs in the laboratory and being able to make a year¹s supply for the world. As much as we glorify the researchers who made the initial discovery, they have to work hand in hand with the people on the factory floor who may change the process radically from the one pioneered in the lab.

Many innovations expand on or recombine existing ideas. If you don't manufacture the platform technologies that are the underlying building blocks, it is hard, if not impossible, to be a player in the related future technologies. In electronic displays, the ability to coat thin sheets of glass with a layer of patterned silicon resides almost exclusively in Asia. That's why the iPhone 5's new multi-touch and in-cell displays came out of Asia. It is also why the latest generations of high-strength microalloyed steels used for oil drill pipe and gas pipelines came out of Asia. Countries like China and South Korea make a lot of steel, schools there still train lots of metallurgists, and innovation is built on a strong manufacturing foundation. Putting tariffs on the import of Chinese steel pipe doesn¹t address the root of our problem in America.

President Obama attacked Mr. Romney for investing in companies that were pioneers of outsourcing to China. But the fact of the matter is many companies have moved jobs to countries whose wages and benefits are much lower than those in America, resulting in savings that far exceed the extra cost of shipping the products from Asia or Latin America to the U.S. Economists call this labor arbitrage, and it is behind the amazing price declines that American consumers have enjoyed in products ranging from computers and cell phones to apple juice, furniture, garments, and ibuprofen.

In many cases, manufacturers in low-cost countries forgo expensive machines to assemble products and instead use armies of young workers to do the job. Consider the lithium ion batteries in your cell phone. Sophisticated manufacturers in Japan used robots and highly automated processes to fill the battery cells. Chinese companies hired thousands of workers to assemble the batteries by hand. Another example: Instead of attaching electronic components to circuit boards with a $100,000 SMT ("surface mount technology") machine, some factories in Asia use "hand mount technology": young workers who solder by hand.

The president recognized that a lot of these jobs are not coming back. He didn't want low-skill, low-wage jobs. We agree. To recapture them, the U.S. would have to lower its standard of living significantly, which, of course, does not make sense. The manufacturing that the U.S. can and should perform is the more sophisticated sort that demands higher skills‹things like assembling complex machinery and computer-driven production tools, making components out of ceramics, composites, or other advanced materials, mass production of biologics, and advanced systems integration.

Because innovation is what in the end leads to growth and new jobs, we think the focus on manufacturing is on target. Having a strong manufacturing platform in critical industries of the future ensures continued innovation in fields that draw upon those platform technologies. And that will create a lot more jobs. Maybe not in the year immediately after the election, but in the decades to follow.

Willy Shih and Gary Pisano are authors of the new book, 'Producing Prosperity: Why America Needs a Manufacturing Renaissance' (Harvard Business Review Press). They are professors at Harvard Business School.