The One With The American Renaissance Part 1

The American manufacturing renaissance

-An Innovation Driven Revolution

                                               Innovation is change that unlocks new value.

-Jamie Notter

Part A : The Fall

                                                       

The graph given above shows the variation of real output (OUTMS) of the US manufacturing sector with time.

                                                      American manufacturing and American manufacturers were at the forefront of the technological revolution which began in the early 1980s. The entire revolution was driven by American technology and innovation. This is highlighted by the emergence of companies such as Apple, Microsoft in this period and much later, in 1998, Google – all behemoths in their field even today. This is depicted in the aforementioned graph as well with American productivity rapidly growing in this period. This period also witnessed the booming growth of small-scale industries and manufacturers. Thus the manufacturing industry was extremely dynamic and competitive in this era.

All was smooth sailing and the OUTMS was monotonically increasing with time until the 4th  quarter of 2001 when the US suffered a significant blip in economic growth and productivity. This was a direct result of the 9/11 attacks which led to a nationwide depression in investment confidence and economic security. However since the problem was on the part of the investors and not the process of manufacture or thinking, American productivity recovered from the debacle to continue on its onward march.

However the 4th quarter of 2007 witnessed the beginning of yet another slide in American productivity, a huge fall that persisted until the 2nd quarter of 2009 – a small period but one in which the productivity of the American manufacturing sector fell from 108.699 times of the standard value – which is the OUTMS in the 4th quarter of 2012- to 88.535 in the 2nd quarter of 2009. Thus it is plain for all to observe that American productivity took a massive hit in this period.

The reasons behind this fall are multifarious but are primarily limited to the rapid rise of China which provided a cheaper alternative to the US hub and the reduced innovation during this period.

Now the view of this article is to explain the second point. 

Innovation affects the manufacturing industry in a two fold manner. Innovation in the field of industry or industry grade implements directly boost productivity and manufacturing in the country, here the US. Innovation in other fields also boost productivity in the form of a “knock-on” effect as the firms spearheading the innovation would choose to manufacture goods and products in the same country itself- up to a certain degree.   

                                                                  The rest of this report will serve to highlight this factor in manufacturing and explain the resurgence in American manufacturing- with special emphasis on the increase in demand for CNC machines and the manner in which this signifies the rise in innovation.

PART B: The Disappearance Of Innovation (2005-2009)

                                                                    US based firms were redefining the word innovation in the field of manufacture for a period from 1980-2005/06. On a regular basis, exponential growth was seen in industry and industry grade implements. Innovation in other fields and R&D gave American manufacturing a leg up in that period. In that era, the R&D investment, expressed as a part of the GDP, of the US was second to none and leaps and bounds ahead of the other nations. This prioritized industrial growth and helped the manufacturing industry grow.

However from 2005-2009 while the world began to catch up to the US and implement various innovative techniques in manufacturing that gave their industries an advantage, the US scene remained stagnant- witnessing only arithmetic growth while the others were growing exponentially. This, coupled with attrition  in innovation in all fields involving production led to a great decline in manufacture. 

PART C: The Revival

Defying many predictions made by experts, the American manufacturing sector witnessed terrific growth from the 2nd quarter of 2009 and has now regained its pole position as the behemoth in its field and one of the major factors driving this revival is innovation across almost all of the major fields of production and the sudden wave of nationalism sweeping across the entire country which has led to several firms in the US preferring to innovate and manufacture within the nation’s borders as opposed to opting for China which does provide a cheaper alternative. This wave of nationalism is evident in the election of the President with the voters opting for a more nationalistic Trump as opposed to a more professional or unemotional Hillary Clinton. This has led to the awakening of a nationalistic consciousness and a spirit of mercantilism to counter China’s rise.

The generation of a spirit of mercantilism may envisage a brighter future as it was the development of such a feeling that led to a boom in Chinese production and manufacture as shown in the graph below:

*China’s rise from also-rans to King of the Hill and the revival of the American industry from 2009 onwards.

Thus the generation of a national identity has helped manufacturing in the US as it ensures that the innovation being done in the US contributes to production in the country itself rather than it being outsourced to industries in China. 

The innovation being referred to here includes the advent of electric and self-driving cars in the automobile industry, greater production and demand for smartphones in the communications industry and several innovations on the industry floor.

Next we shall look at the major star-ups which are fueling innovation in the American market.