" Why is manufacturing significant? " asked Professor Susan Christopherson, City & Regional Planning, Cornell University, speaking on Tuesday 24th September at the University of Birmingham's Barber Institute.
"Firstly, it's about the number of jobs created in manufacturing which tend to be of a better quality than in other sectors," she said.
"Secondly, manufacturing constitutes the basis of exports - without this countries' balance of payments is challenged.
"Thirdly, the relationship of manufacturing to innovation is significant. Innovation that improves products and processes is critical in enabling manufacturing to move up the value chain and bring about transformative kinds of innovation. This kind of innovation happens when industries are more mature and it can lead to a more robust economy through the transformation which it can help to effect."
She was presenting on Advanced Manufacturing in the 海角视频 and US economies, in particular looking at the role of financialisation and its impact on the productive economy in assessing the potential for re-balancing our economy through a resurgence in manufacturing.
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She opened by reminding us of the profound losses in manufacturing jobs in the US during the 2000s - 'more substantially than during the 'great recession'', she said.
"Today young people have little understanding of manufacturing and its role in the economy. They do not see it as a likely employer and they are more likely to think of innovation in terms of a new app rather than in relation to a new product and service offer. Sceptics, in turn, doubt the economic sense in looking at 'post industrial' renaissance for advanced economies."
Professor Christopherson put the case for a re-evaluation of manufacturing and its fundamental value to economies, in terms of balance of payments and in driving innovation in processes, products and services and in moving economies higher up value chains.
She proposed the following reasons for the reassessment of manufacturing within the developed economies:
1) The decline in labour costs as a percentage of total costs of output which has been happening because of an increase in capital intensity, combined with lower labour costs as a proportion of the total cost of sales have changed the equation for firms when making location decisions.
2) There is a need for a strong IPR regime because of the increasing proportion of intellectual capital embedded within the wealth creation process.
3) Advantages of quality control and processes around production in contrast with increasing dissatisfaction with the Chinese QA processes.
4) Transportation costs and proximity to market with the flexibility that brings to respond to upturns in demand
5) Other costs forming part of Total Cost Analysis and which form part of the decision-making framework or the 'deals' that firms can strike as part of their relocation packages.
"The Innovation Technology Foundation has looked at capital investment going on within manufacturing and whether there has been an increase in investment overall - whether in capital, upskilling, other investment associated with moving up the value chain. They have looked at where profits are coming from and where they are being utilised. The situation is not as positive as some anecdotal evidence may suggest. Firms that come into the US and 海角视频 are looking for enhanced levels of support in terms of infrastructure, skills etc, from government. The question that has to be asked is why firms are looking for government support with areas that they would have paid for in the past. The answer seems to come from the change in the make-up of our economies and the financialisation of these economies.
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"There is literature about the role of financialisation in non-financial industries and the transformation of these businesses that are very dependent on returns embedded in financial instruments. These are largely studies looking at shareholder capitalism. They suggest that as manufacturing firms have had to increase their returns to shareholders they have been able to do this through an increasing reliance on financial instruments. GE is the 'poster child' or case study exemplar here as half their profits come from the financial services arm of the business, GE Capital. What has happened here is that GE is really a financial firm with a manufacturing arm. These businesses have internal capital markets. It was interesting to see how Rattan Tata has been derided for making the investment in Jaguar Land Rover because they were not seen as making profits quickly enough.
" How does the short-term profit horizon distort manufacturing in our economies? ", she asked.
"Krippner, 2005, has written about the impact of financialisation on capital accumulation in the non financial sector." She outlined how over the period from 1973-2003 a negative relationship between real investment and financialisation had been recorded. Two explanations were offered: firstly, increased financial investment and increased financial profit opportunities were proposed as 'crowding out' real investment by changing the incentives of business managers resulting in funds being directed away from real investment. Secondly, increased payments to the financial markets were proposed as having impeded real investment by decreasing available internal funds, shortening planning horizons and increasing uncertainty. These findings indicated a dramatic change in investment away from R&D, capital equipment and skills development, she argued.
She explained that most attention has been focussed on the impact of this capital equipment where investment levels in the US have been low compared to Japan and Germany where there are still high levels of capital investment and more product and process innovation.
"With reference to human capital there has been a constant debate around this topic and whether the state should prepare people with the skills businesses need or the businesses should train people to do what they require to be competitive. Whilst it is more generally accepted that core skills around literacy and numeracy are the role of the state with employability skills being increasingly seen as the role of education, it has even been argued by some businesses when looking at location choices that workers should be trained in how to use machines or technologies, specific to their businesses.
"In the US skilled manufacturing workers are paid on average just 10% more than the average US worker so their salaries wouldn't appear to justify going into this area. There has also been a decline in the investment made by businesses into managerial talent according to the Kauffman Foundation. There were skills gaps in terms of the availability of the sorts of people wanting to run businesses that employs people, especially where this involves engineering skills, which may produce more innovative skills in productive areas.
"Investment in IPR is more aligned to investment in a financial product because it is intended to produce a 'fast buck'," she claimed, whilst also stating that the universities had a role in fostering these managerial skills and neglecting longer-term skills for the productive industries.
" Research & Development is the third area where there has been a decline in investment and this decline at firm level has been matched by a decline in government investment in R&D, so much so, that it is perceived by some to be at crisis levels by some industrialists and academics.
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"Michael Mandel has looked at the relatively small number of jobs produced by the so-called innovative industries even though there had been the promise that these would replace the traditional industries with new emerging sectors over time - biosciences, etc. However, these sectors are financialised to a greater extent than the traditional industries and so are under pressure to produce quick turns and profits for the people who have started them up.
"If we only invest in them then we cannot recreate our economies or start to rebalance them as has been proposed of late.
"I don't think the situation is completely hopeless, but we can see evidence that the kinds of inputs that would rebuild robust manufacturing is simply not there. Until that is remedied we are not going to rebuild robust manufacturing. Businesses are saying today, 'If you provide us with the skills we need, give us tax breaks then we'll come to your locations', and increasingly, they don't see these as core areas of investment for them any longer. In the US people are not getting to grips with this.
"Privately or family-owned businesses have, in my view, more latitude around investment. Corning is an case where they have been able to adjust profit expectations in light of economic changes with more capacity to sustain investment in R&D, managerial skills and capital spend.
"There is a policy shift required to recognise the fundamental value of manufacturing. In terms of supply chains, more needs to be done to encourage larger companies to support their supply chains as too often OEMs are competing with SMEs for skills. Tax breaks and subsidies could be used more effectively to encourage behavioural changes in the way companies behave towards each other, especially within the same sectors aiming for greater levels of collaboration. For example a focus on looking to finance SMEs where they are collaborating together."
* Beverley Nielsen, Director Employer Engagement,