Production’s Role in Innovation

Since the State of the Union, “winning the future” has emerged as a hallmark of the Obama administration’s strategy for economic recovery, in an attempt to “out innovate, out educate, out build the rest of the world.”  With a nod to the innovative “spark” of the American people as the key to regaining lost manufacturing output, the President’s plan focuses on revamping science and math education and doubling exports in the next five years.

The United States has increased its exports 20% so far in 2011, but a simultaneous increase in imports has expanded the trade deficit close to 4% of GDP.  Susan Houseman, a senior economist at the W.E. Upjohn Institute, noted that the fraction of American goods made with foreign parts has risen from 17% to over 25%  since 1997—if counted, meaning more than a 1% drop in the reported American output.

A weaker manufacturing sector has implications for the entire American economy, and several business leaders point to production as another important tool for revival.  Mark Pinto, Executive Vice President of Applied Materials, suggested that investments in scale and technology beyond R&D innovations can attract business and keep American producers at the head of the market.  He argues that, by keeping production more local, the economy can retain the skilled workers that make the products, who Houseman and others believe play an integral role in the process of innovation.  “The big debate today is whether we can continue to be competitive in R&D when we are not making the stuff that we innovate,” Houseman said. “I think not.”

These theories do not discount the importance of a strong education system, but instead provide a supplementary theory of how United States manufacturers can stay competitive in the near term.  John Seely Brown, a former head of Xerox’s Silicon Valley research center recently told the Financial Times that “We really have to get back to building things.  We can’t just design things.”  Advocating spending on research and digital and physical infrastructure, Brown sees a “new kind of 21st-century economy that still has us building stuff.”

Posted by: John Coit

Sources: The New York Times, Financial Times, Wall Street Journal, Foreign Policy, Whitehouse.gov

Photo Credit: Industrial Construction – Automotive Industry courtesy of flickr user grayconstruction

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