From Innovation to Manufacturing

The demise of American manufacturing has become a cliche in analyses of in- dustrial policy, and not without reason. Since the beginning of this century, the number of US manufacturing jobs has fallen from 17 million to 12 million, continuing a decline that started 50 years ago, when 29 percent of Ameri- can employees worked in such jobs. Equally disturbing, the most inventive American high-technology firms such as Apple, as well as their overseas rivals, now locate many of their production fa- cilities abroad.A recent report by a multidisciplinary commission at MIT, Making in America: From Innovation to Market, outlines the reasons for the deterioration and sug- gests ways in which the corporate tech- nology sector, government, and other stakeholders can reverse the situation. The need for such a reversal goes be- yond the call to increase the number of jobs in the economy. The country con- tinues to produce potentially valuable innovations, the report asserts. But the ecosystem that moves such innovations from their progenitors in small firms and academic laboratories into the mar- ket has developed blockages that halt that movement. "We discovered that manufacturing is very important in bringing good ideas, whether they form in the shop floor or the laboratory, through the stages of prototyping, pilot manufac- turing, larger-scale production, and fi- nally commercialization," says Suzanne Berger, an MIT professor of political science who co-chairs the commission responsible for the report. MIT presi- dent Rafael Reif reinforced the point at a conference introducing the new re- port. "Innovation takes place at multiple points along the line before commer- cialization," he said. "If we want to stay strong in innovation, we must regain our strength in manufacturing. "In-Depth InterviewsThe MIT commission, called Production in the Innovation Economy (PIE) and launched in 2010, set out to discover how American strengths in innovation can lead to new production capabilities, thereby spurring growth and employ- ment. To do so, the group's 21 MIT fac- ulty members and other researchers conducted 255 in-depth interviews with four types of manufacturing com- panies: US-based multinationals that invest heavily in R&D, start-up firms, small-scale manufacturers operating lo- cally or regionally, and overseas firms in China and Germany.The initial goal was to discover why the link between innovation and manu- facturing had broken down in the United States. With the American mul- tinationals, for instance, the PIE team focused on why they kept their produc- tion facilities in the United States or moved them abroad and, if they had chosen to move manufacturing, how they dealt with quality control and other technical issues that had to be handled by R&D departments literally an ocean away. Interviews with start- ups revealed the critical nature of finan- cial issues. After all, it can take 12--15 years for non-software start-ups to be- gin producing revenue. Small firms, meanwhile, face the same dilemma as real estate firms: location matters. Local technology businesses don't necessarily need to be close to rivals or partners in the same industry. But they benefit greatly when they collocate with com- panies that have complementary prod- ucts and abilities. "If there's a diverse production ecosystem, it gives them an advantage," explains commission mem- ber Martin Schmidt, an electrical engi- neering professor. "That proximity effect is incredibly valuable.Reasons for the DeclineOne key result of the interviews was a fresh understanding of the reasons for the decline in American manufacturing. Most prominent among them is what Berger calls "the transformation of cor- porate structures" that started in the 1980s. "US financial markets demanded that companies become asset-light," she explains. To do so, many high-technol- ogy firms reduced or completely out- sourced many of their business activities, such as R&D, detailed design, manufac- turing, and after-sales service. …