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Manufacturing still matters

In 1988 Stephen Cohen and John Zysman published a book called Manufacturing Matters: The Myth of the Post-Industrial Economy, which warned against sacrificing America’s industrial base and relying on an increasingly service- and finance-based economy.

Well, they tried to warn us anyway.

I never heard of Vaclav Smil before reading this interview, but he’s Bill Gates’s favorite author, which may be reason to pay him some attention.

Smil has tackled the same subject in a book called Made in the USA: The Rise and Retreat of American Manufacturing. The Table of Contents (click on LOOK INSIDE) looks intriguing.

I assume much of what he says is relevant to the UK and other western countries as well.

Let’s talk about manufacturing. You say a country that stops doing mass manufacturing falls apart. Why?

In every society, manufacturing builds the lower middle class. If you give up manufacturing, you end up with haves and have-nots and you get social polarization. The whole lower middle class sinks.

You also say that manufacturing is crucial to innovation.

Most innovation is not done by research institutes and national laboratories. It comes from manufacturing—from companies that want to extend their product reach, improve their costs, increase their returns. What’s very important is in-house research. Innovation usually arises from somebody taking a product already in production and making it better: better glass, better aluminum, a better chip. Innovation always starts with a product.

Look at LCD screens. Most of the advances are coming from big industrial conglomerates in Korea like Samsung or LG. The only good thing in the US is Gorilla Glass, because it’s Corning, and Corning spends $700 million a year on research.

American companies do still innovate, though. They just outsource the manufacturing. What’s wrong with that?

Look at the crown jewel of Boeing now, the 787 Dreamliner. The plane had so many problems—it was like three years late. And why? Because large parts of it were subcontracted around the world. The 787 is not a plane made in the USA; it’s a plane assembled in the USA. They subcontracted composite materials to Italians and batteries to the Japanese, and the batteries started to burn in-flight. The quality control is not there.

Can IT jobs replace the lost manufacturing jobs?

No, of course not. These are totally fungible jobs. You could hire people in Russia or Malaysia—and that’s what companies are doing.

Restoring manufacturing would mean training Americans again to build things.

Only two countries have done this well: Germany and Switzerland. They’ve both maintained strong manufacturing sectors and they share a key thing: Kids go into apprentice programs at age 14 or 15. You spend a few years, depending on the skill, and you can make BMWs. And because you started young and learned from the older people, your products can’t be matched in quality. This is where it all starts.

You claim Apple could assemble the iPhone in the US and still make a huge profit.

It’s no secret! Apple has tremendous profit margins. They could easily do everything at home. The iPhone isn’t manufactured in China—it’s assembled in China from parts made in the US, Germany, Japan, Malaysia, South Korea, and so on. The cost there isn’t labor. But laborers must be sufficiently dedicated and skilled to sit on their ass for eight hours and solder little pieces together so they fit perfectly.

But Apple is supposed to be a giant innovator.

Apple! Boy, what a story. No taxes paid, everything made abroad—yet everyone worships them. This new iPhone, there’s nothing new in it. Just a golden color. What the hell, right? When people start playing with color, you know they’re played out.