America's advanced manufacturing problem and how to fix it

The key topics missing from this article are management and culture. Manufacturing companies by and large are stubborn with outdated practices that haven’t kept up with the times. The number of mechanical engineers who switched to web development, for instance, because of poor pay and improper management is insane. And during the pandemic, even more either fled or were pushed out from lack of opportunity. It’s easy to blame these policies and say that industries aren’t connected, but when these firms are refusing to embrace new technologies and take calculated risks, they do this to themselves all by themselves.

They commonly keep employees using the simplest heuristics that someone at some point in the past developed which worked then, so why break it? And they push this mediocrity throughout the entire organization and industry. Then they swap out one failed CEO for the same person with a different name like a pair of gloves, wondering what ever happened as there was nothing more that could be done. Meanwhile their ageist management policies block out the insights of the young, all but ensuring that no new ideas are brought into the mix—all until it’s time for another bailout.

I work in one of the last remaining large industrial manufacturing labs in the US. Some of my colleagues worked at Bell before that was shuttered.

My sense from talking to the previous generation is that financialization of the US has started (finally) failing the American people.

The previous generation cashed in on major profits by off shoring (Kodak), but we overdid it.

In a round about way our company is run by pension funds, and I work on projects that would get 8-9 figure investments if we were doing this in APEC, but we would rather have stock buybacks, so we end up getting 6 figures and puttering along.

Meanwhile the higher ups wonder ‘what happened to R&D?!’

Here are the key points the article suggests (it spends quite a long time explaining how we got here):

1) Improve the [government sponsored] Manufacturing Institutes

2) [federally] Back R&D for manufacturing technologies

3) Provide scale-up financing [by the government]

4) Use government procurement power to promote new manufacturing technologies

5) Direct production support [to sectors deemed critical]

6) Provide both “top-down” [gov picks a tech and supports development of it] and “bottom-up” [broad incentives like IRA] support

7) Build a manufacturing focus into existing industrial policy programs

8) Map and fill gaps in supply chains

9) Fix workforce education [by refocusing on legitimate vocational tracks]

10) Put someone in charge [of coordinating agencies, budgets, and efforts]

This is all effectively trying to copy large segments of the China playbook, but in my opinion it misses some rather important points. Namely, protectionism and implicit incentives. On the first point, you can't really compete with China when it is actively hostile to foreign companies and de facto encourages outright theft of knowledge and expertise in exchange for access to its market. As long as we have a significant portion of people yelling about "trade wars don't solve anything" any time someone proposes leveling the playing field, competition is a nonstarter.

On the second point, the elephant in the room is that smart people in the US can make 2-3X as much in software or finance as they can in manufacturing, so what do you think they're going to pick? Which company is private investment going to fund - the SaaS co. with 40% margins and rapid growth or the manufacturing co. scraping 10% margins and 5% CAGR? It's hard to see where the skilled labor and private investment side of the equation is supposed to come from when the incentives are so mismatched - you almost have to find a way to decrease incentives in the currently lucrative pools first.

The Triffin Dilemma plays a big role here. Debt substitutes exports in the balance of trade; running the reserve currency pumps assets and dump exports. If you want to export from the US, you have to compete with a literal money printer for access to talent and resources.

https://en.wikipedia.org/wiki/Triffin_dilemma

This is going to be hella difficult to unwind, especially given the current state of macro awareness in the US: if I had a penny for every time someone in an export industry panicked over the possibility of a declining dollar, even though this would be in their best interest, I'd have too many to carry. Arguably worse, we have an otherwise respectable top 10 list that doesn't include macro anywhere, which is like teleporting onto the Titanic only to hear that the conversation is all about how to best duct-tape the doors. Sigh.