Are U.S. Mfgs Losing Their Competitive Edge?

A recent report by the McIlvaine Company (www.mcilvainecompany.com) shows the United States is losing its status as the world’s leading producer in many industries, including chemical, municipal wastewater, pharmaceutical, and semiconductor. According to the study, Australia, China, Thailand, and Taiwan are among those surpassing the U.S. in certain key industry sectors.

The study cites Australia as an example of a small country with larger production capacity than the United States. In 2002, Australia’s mining output was larger than that of the United States, and McIlvaine predicts it will be 150 percent of U.S. production by 2009.

Meanwhile, China, which has long been the world leader in cement production, will exceed the United States in this industry by 14 times in 2009. During this same timeframe, Thailand is expected to exceed U.S. production in the disk drive space by 12 times, and Taiwan is expected to continue to distance itself from the United States in the semiconductor industry.

So, the question arises, why is the United States falling so far behind in these industries? The answer may be, quite simply, a lack of innovation, or, more precisely, a poor environment for innovation.

A recent article in The New York Times (www.nytimes.com), "Are U.S. Innovators Losing Their Competitive Edge," which examined the state of science and technology in the United States, showed some glaring and worrisome differences in the way research is conducted today as compared to the days of Benjamin Franklin and Thomas Alva Edison. Meanwhile, the National Association of Manufacturers (NAM, www.nam.org) released a report last week indicating there are "five clear warning signs" that U.S. manufacturers are falling behind in innovation. According to NAM, the warning signs are: dwindling manufacturing output during a period of economic recovery; underutilized manufacturing capacity; shrinking U.S. share of global manufactured products; a lack of skilled workers due to the perception that manufacturing is an unstable job market; and slow growth in the area of research and development.

In the Times article, James E. West, a member of the National Inventors Hall of Fame (www.invent.org) and the holder of more than 50 domestic and 200 foreign patents relating to his research in the area of electrically charged materials and recording devices, says he fears that corporate and public nurturing of inventors and scientific research is faltering and that America will pay a serious economic and intellectual penalty for this lapse.

The inability of U.S. institutions to provide the sort of nurturing environment for scientific research that Mr. West speaks of is raising the eyebrows of industry organizations. For example, according to a recent report by the National Academy of Sciences (www.nasonline.org), "The scientific and technical building blocks of our economic leadership are eroding at a time when many other nations are gathering strength."

This trend, notes the Times, is the product of a move away from the individual inventor and toward a corporate research process that may be too focused on short-term, bottom-line accounting. As a result, the Times says pure research is often "eclipsed by innovation tied to rapid commercialization — leading to routine refinements of existing products rather than to breathtaking advances."

Clearly, to draw a straight line from faltering innovation to faltering industrial production capacity is an overly simplistic view of the situation the United States finds itself in. Still, there is no denying the impact each trend has on the other. Cheap labor and loose environmental and occupational health and safety law abroad are contributing to an environment where foreign nations can surpass U.S. production capacity in certain industries. And such a competitive landscape certainly limits the amount of money U.S. companies can contribute to science and technology research. Figuring out a solution to this tug-of-war that will enable the United States to emerge on the top of the heap in both production capacity and innovation will, no doubt, require some good, old-fashioned, innovative thinking. The seeds of a solution may have been planted last week when President Bush announced the American Competitiveness Initiative during his State of the Union Address. The program commits $5.9 billion in FY 2007, and more than $136 billion over 10 years, to increase investments in research and development, strengthen education, and encourage entrepreneurship and innovation. It will be interesting to see how wisely U.S. manufacturers and educators use this funding.