Bringing Manufacturing Back to the U.S. Requires Political Will, but Success Hinges on Training American Workers

The Power of Innovation
It is impractical to bring all manufacturing back to the U.S. Offshoring is often less expensive. But research shows that certain types of in-country manufacturing can not only help secure national security but also spark innovation.

When research and development are conducted close to where the goods are physically made, this proximity can increase the likelihood of collaboration between these two activities. Collaboration can lead to greater efficiencies.

Product development can benefit as well. New research demonstrates that U.S. firms that located their manufacturing and R&D physically close to each other generated more patents than firms that did not.

Even so, the contribution of U.S. manufacturing firms to innovation declined greatly between 1977 and 2016. That’s because the benefits of locating manufacturing and R&D close to each other depends on the nature of the manufacturing itself, researchers have found.

For instance, the design of new drugs often requires manufacturing facilities to be located nearby. In that respect, co-locating manufacturing and research and development makes sense. This can be true for semiconductors as well. World-class chip manufacturers in Taiwan, such as TSMC, are located alongside a growing chip design industry, which permits designers to prototype and test new ideas quickly.

The U.S. and other countries are betting on the same potential benefits from co-location. For instance, to minimize the dependence on TSMC and, more generally, on foreign sources for chips, the European Union is spending 43 billion euros, while Japan is encouraging chip manufacturing at home with a $6.8 billion investment.

People Are the Bottom Line
In a 2011 op-ed, I argued that while federal legislation to promote U.S. manufacturing could succeed in bringing more manufacturing back to the U.S., there was no guarantee that large numbers of jobs would be created – a key point made by those seeking to promote manufacturing.

Governments are generally poor at picking winning technologies and industries. Governmental mistakes in picking supposedly winning industries or sectors have, generally, led to a great deal of waste of taxpayer dollars.

In fact, market forces and informed company decisions should, I believe, play a larger role picking winners than federal investment. Where that investment comes from, what it supports and how much money is needed are critical questions.

If firms choose to relocate their companies to benefit from the synergy of R&D, then they must be able to attract the best human resource talent available. This is where U.S. investment can help build a more skilled workforce.

As pointed out by the economist Gary Pisano, many policymakers in the U.S. have long believed that manufacturing is an attractive sector for people with less education and training. Therefore, as a nation, we have not devoted many resources to train people with specialized skills in manufacturing.

This approach stands in stark contrast to the approach followed in Germany. There, practical work is valued by employers and employees and hence apprenticeship programs are routinely used to train workers who are well qualified to work in the manufacturing sector. While the U.S. approach is changing with recently announced investment by the White House through the CHIPS and the Inflation Reduction acts, more is needed.

It is my belief that if the U.S. is to remain an economic powerhouse, then corporations should not separate their workforce, sending cost-saving manufacturing offshore while retaining the innovators. Corporations like Apple have sent nearly all of their production offshore, retaining only the most skilled parts of the supply chain involving activities like R&D.

Instead, the U.S. needs to financially support firms wishing to bring manufacturing back by making it easier for such firms to find qualified manufacturing workers at home – and close to innovators when practical. This effort will bolster the U.S.‘s ability to be self-sufficient, innovative and secure in times of geopolitical conflicts.

Amitrajeet A. Batabyal is Distinguished Professor, Arthur J. Gosnell Professor of Economics, & Interim Head, Department of Sustainability, Rochester Institute of Technology. This article is published courtesy of The Conversation.