Manufacturing - China Faces "Long March" on Path to #1

US industrial production is not collapsing
By Michael Pettis, on his blog
August 29, 2007

I received an [email] that muttered darkly about how the current world structure, in which the US acts as a design and assembly platform while other countries, like China, do all the manufacturing, was unsustainable and would lead inevitably to the collapse of the US. I have heard this idea repeated in many different forums and ways. [...]

But all the thousands of stories about China's manufacturing buttons and toy trains doesn't mean that US manufacturing has crumbled. In fact US industry continues to produce a greater share of industrial value added than any country in the world, and it has been growing every year.

The confusion probably comes from two sources. Total value of US manufacturing has grown consistently over the decades, but other sectors -- research, design, services -- have grown faster, so that manufacturing's share of the US economy has declined. Also manufacturing productivity has grown quickly, resulting in a decline in the number of workers involved in manufacturing. But producing more and more with fewer and fewer workers is actually a sign of economic success, not failure.

On that note here is an article that was published in [the] Chicago Tribune:

Trade Fears are All Smoke
by Daniel J. Ikenson
Daniel Ikenson is associate director of the Center for Trade Policy Studies at the Cato Institute.

[U.S.] manufacturing is not in decline; it is thriving. By historic standards and relative to other countries' manufacturing sectors, U.S. manufacturing is firing on all cylinders.

In 2006, the sector achieved record output, record sales, record profits, record profit rates and record return on investment. American manufacturing performance has never been stronger. Nor was 2006 an aberration. Since the nadir of the manufacturing recession in 2002, all of those indicators have been trending upward. Earlier this month, the Federal Reserve released its monthly report on industrial production, which found that U.S. manufacturing output has continued to rise throughout 2007. [...]

U.S. factories remain the world's most prolific, accounting for more than 20 percent of the world's added manufacturing value. By comparison, Chinese plants account for about 8 percent. Thus, for every dollar of product made in China, U.S. factories produce $2.50 of output. And not only is manufacturing thriving. It is thriving in large measure because of international trade. Manufacturing exports and imports hit records in 2006. [...]

While misguided (or disingenuous) politicians rail against the rising trade deficit, they fail to comprehend (or acknowledge) that U.S. producers are America's largest importers. In 2006, 55 percent of all U.S. goods imports were industrial products and components, the kinds of purchases made not by consumers, but by producers.

That statistic supports the strong correlation between manufactured imports and U.S. manufacturing output, which has been observed for decades. Imports and output rise and fall in tandem. Thus, policymakers who seek to restrain imports are effectively advocating a manufacturing recession. If their mercantilist worldview prevails, and imports decline, reports of idled factory equipment will not be far behind. [...]

While it is true that the number of workers employed in the U.S. manufacturing sector declined by about 2.8 million between 2000 and 2003, [...] declining employment in a sector that is producing record output is hardly credible evidence of doom. In fact, the two indicators taken together are evidence of soaring labor productivity, which is the source of long-term increases in living standards...
[Full article at blog.]

In N.C., A Second Industrial Revolution
Biotech Surge Shows Manufacturing Still Key to U.S. Economy
By Peter S. Goodman
Washington Post
Monday, September 3, 2007

PITTSBORO, N.C. -- Until the late 1950s, the low-slung brick building in the center of this minuscule town was home to the Kayser-Roth hosiery mill. Some 400 workers tended to clattering looms, churning out pantyhose.

"It was the best employer in town," said Nancy May, a former worker.

The hosiery mill is gone now, along with much of the Carolina textile industry -- a casualty of the global reordering that has concentrated production in Asia and Latin America. But the old brick building is still here and still making products -- albeit modern varieties that could scarcely have been imagined a half-century ago: Today, the site is occupied by a biotechnology company, Biolex Therapeutics.

Inside, 90 workers harness expensive laboratory equipment and a plant called duckweed, a bane to local ponds, to develop a drug for a serious liver ailment. Even the lowest-paid lab technician takes home far more than the seamstresses earned. If the start-up succeeds, its product will be substantially more lucrative than pantyhose.

As lawmakers pursue legislation aimed at softening the blow from factory closures, and as the downside of trade emerges as a talking point in the 2008 presidential campaign, it might seem that manufacturing is a dying part of the U.S. economy. But the retooling of this old brick building on Credle Street underscores how, despite its oft-pronounced demise, American manufacturing is in many regards stronger than ever.

The United States makes more manufactured goods today than at any time in history, as measured by the dollar value of production adjusted for inflation -- three times as much as in the mid-1950s, the supposed heyday of American industry. Between 1977 and 2005, the value of American manufacturing swelled from $1.3 trillion to an all-time record $4.5 trillion, according to the Bureau of Economic Analysis.

With less than 5 percent of the world's population, the United States is responsible for almost one-fourth of global manufacturing, a share that has changed little in decades. The United States is the largest manufacturing economy by far. Japan, the only serious rival for that title, has been losing ground. China has been growing but represents only about one-tenth of world manufacturing. [...]

[But] while American manufacturing is not declining, manufacturing employment has been shrinking dramatically. After peaking in 1979 at 19 million workers, the American manufacturing workforce has since dropped to 14 million, the lowest number since 1950.

A stark educational divide has emerged on the factory floor, as skills and training separate winners from losers. In 1973, more than half of all American manufacturing workers failed to complete high school, and only 6 percent attended some college, according to the National Association of Manufacturers. By 2001, nearly half completed high school and one-fourth attended some college. [...]

The textile industry has been particularly aggressive in replacing people with machines. A half-century ago, a typical North Carolina textile worker operated five machines at once, each capable of running a thread through a loom at 100 times a minute. Now machines run six times as fast, and one worker oversees 100 of them.

With machines increasingly occupying the center of production, manufacturers want highly trained, literate workers at the controls. To meet the demand and help workers secure jobs, North Carolina has beefed up course offerings at its community colleges.

Three years ago, it set up Bionetwork, a training program based in community colleges, to feed workers into the state's growing biotech sector.

"All of the skills are closely tied to the workplace," said Norman Smit, Bionetwork's recruitment director. [...]

Glen Raven Custom Fabrics was another Carolina textile operation whose future seemed in doubt. In the early 1990s, the company was still concentrated on products under siege from foreign competition -- pantyhose, luggage fabric and yarn for apparel. Throughout the Carolinas, other textile companies were vanishing.

Glen Raven managed to endure and prosper by refocusing on specialty industrial fabrics for outdoor furniture, boats and awnings -- expensive goods that require customization, high-end machinery and technical expertise.

Economists suggest this is the future for successful U.S. manufacturers: zeroing in on high-value products that tap America's technological advantages to offset high labor costs. This strategy has fostered a boom in exports of American-made industrial engines and machinery, aerospace gear and pharmaceuticals.

North Carolina has embraced this approach, aggressively pushing biotechnology development. In the past decade, the number of biosciences firms in the state has jumped to 386 from 131, and the number of workers has more than doubled from 20,000 to 47,000, according to the North Carolina Biotechnology Center, a government arm that promotes the industry.

At Research Triangle Park, a sprawling complex outside Raleigh-Durham, Biogen Idec has established one of the larger biomanufacturing facilities in the United States, making sophisticated pharmaceuticals. Entry-level workers with the necessary training earn $27,000 to $35,000 a year. Experienced production workers can make considerably more.

For Glen Raven, the focus on high-technology production has turned its factory floors into lonely expanses. In Norlina, N.C., a red-brick factory just down Route 1 from the town's lone traffic light, 225 people once made pantyhose, pushing baskets of nylon across the floor by hand. Now, 156 workers man computers that control acres of robotic arms and bobbins producing yarn.

The refashioning has positioned Glen Raven to profit from what many portray as the mortal threat to the Carolina textile industry: China now buys growing volumes of the company's products. Last year, North Carolina exported $52 million of textiles and fabrics to China, a fivefold increase from 2003.

Chinese factories increasingly use Glen Raven's fabrics to make sun umbrellas and upholstery for lounge chairs, sending many of these finished goods back across the Pacific to the United States.

The workers at these Chinese factories typically make less in a month than the price of a sun umbrella at an American retailer. Glen Raven's success allows the company to pay its American workers $10.50 to $22 an hour, plus benefits. Even at those wages, labor represents only 5 percent of the overall cost of turning fiber into fabric.

Put another way, the efficiency of the machines that have eliminated jobs at its plants has allowed Glen Raven to pay the remaining workers enough to afford cars, health care and homes. Some of those homes boast patios and lawns now shaded by sun umbrellas made in China using fabric woven just down the road.