Plants starting to hum again

Manufacturing leads recovery, but some skeptical of future

March 08, 2010|By Don Lee | Tribune Newspapers

WASHINGTON -- Improbable as it may seem, the brightest spot so far in the nation's spotty economic recovery is a sector long considered all but dead -- good oldfashioned manufacturing.

Factories are churning. Exports are up. Even with jobs, the bleakest aspect of the overall economy these days, factory payrolls have actually turned positive.

"We could have a renaissance here," President Barack Obama's manufacturing czar, Ron Bloom, declared in an interview. "Indeed," Federal Reserve Chairman Ben S. Bernanke declared late last month, "manufacturing has been leading the recovery so far."

The basis for that optimism is in emerging companies such as Nanosolar in San Jose, Calif., which is riding a wave of demand for "green energy" equipment, as well as in established firms such as Intel Corp. and Boeing Co. that are investing billions in U.S. production facilities. Even old-line manufacturers such as Caterpillar Inc. and General Motors Co. are calling back workers.

But after years of losses to foreign competition, can American manufacturing really turn around and power the nation back to long-term prosperity? Replace the 2 million- plus factory jobs lost during the past two years alone?

America's industrial might has been declining for three decades and more. From shoes and socks and television sets to flat panel displays, advanced ceramics and robotics, one product after another has turned from "Made in the USA" to "Made Overseas."

Manufacturing's share of the economy, meanwhile, dropped from 21 percent in 1979 to 11.5 percent in 2008. The result has been the loss of what historically has been the foundation of modern economies -- making things people want to buy.

"I don't know where we go when we don't make anything and send our dollars elsewhere," laments Robert Gates, senior vice president at Clipper Windpower. His Carpinteria, Calif., company has little choice but to buy wind-turbine components from abroad, mainly Asia.

Now, in the wake of the Great Recession that was rooted partly in Americans' heavy borrowing and purchases of foreign- made goods, Obama is trying to lay the foundations of a new American economy -- one built more on savings and producing, not spending and importing.

He wants to double exports in five years and increase research and development investment to more than 3 percent of the nation's economic output, which would be the highest since President John F. Kennedy's administration.

Obama wants to make tax credits for private investment in research and experimentation permanent. And he has promised to get tough with trading partners who don't play fair and don't open their markets.

Many manufacturers like what they're hearing but remain skeptical. The massive budget deficits will hamper federal spending on economic development for years. Besides, many business leaders doubt the government's ability to play a major role. And Washington's divisive political atmosphere already has paralyzed decision-making -- and frozen potential manufacturing investment -- in fields ranging from energy to health care. So if business leaders are hopeful about the future of manufacturing, it's because of their faith in the private sector -- their belief in a nation that's traditionally had an abundance of private capital, entrepreneurial spirit, research and creativity to turn ideas into commercial products.

They point to continued U.S. leadership in such key industries as aerospace, biotech, optical communications and memory chips. Intel's $2.5 billion retooling of its wafer plant in New Mexico, for example, will soon make a 32-nanometer processor, two generations ahead of the semiconductor that Intel's new China factory will churn out later this year. American firms also hold leads in aerospace, biotech and optical communications.

Yet planting green shoots such as Intel's wafer plant -- or the cluster of high-tech research labs and production plants established by IBM and others along the Hudson River -- is one thing. Rebuilding manufacturing on the scale that once undergirded American prosperity is another. The problem goes far beyond the oftcited factor of lower labor costs overseas -- already a diminishing factor in world trade.

For one thing, as manufacturing declined, so did the supply chains, support firms, capital investment and, ominously, more and more of the research and development. In the United States, government policies have tended to be neutral or even negative when it came to the manufacturing base. China, by contrast, invests heavily in R&D, subsidizes plant sites and in a host of other ways nurtures not just lowend manufacturing but the development of world-class hi-tech products such as wind turbines and "clean coal" power plants.

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