Recently, popular articles about manufacturing have taken one of two approaches. One type is filled with breathless claims about how this ain’t your grandpa’s manufacturing and it’s coming home from overseas better than ever. The other type notices that there sure has been a lot of attention paid to manufacturing lately, and goshdarnit, the actual numbers don’t meet the wild claims. Both are somewhat true.

Many of the “renaissance cheerleaders” point to the Boston Consulting Group report “Made in America Again” to bolster their case. The core of the BCG report makes a compelling argument: the advantage China faced in manufacturing is eroding, making the decision to locate manufacturing in the US easier than it once was.

The report and the trends it cites have certainly increased attention on manufacturing, but the general ideas behind manufacturing are an easy sell. As far as economic strategy goes, promoting manufacturing is a non-partisan and populist way for politicians to promise to “put people back to work.” Like I pointed out in the introduction to this series, manufacturing connects to nostalgia and historical pride better than any other sector.

Nothing gets in the news these days without a snappy cultural meme, and this story is no exception. The words “reshoring” and “insourcing” were quickly coined to combat the vast vocabulary we have to describe jobs exiting the country (“offshoring,” “outsourcing,” “sending jobs overseas”). But the question remains: is reshoring real?

Cultural and Economic Shifts In Favor of US Manufacturing

Lincoln Logs
Lincoln Logs are now made in America again. Our long national nightmare is over. 
Source: http://www.dailyfinance.com/2014/12/25/lincoln-logs-america-made-again/

If the tide is turning back to the US, it’s happening for good and bad reasons. Cost of labor (known from the worker’s perspective as wages) is stagnant in the US while steadily mounting in China. Companies are paying more attention to flexibility and are increasingly asked to produce highly specialized products; having the engineering and design of products in one country and the actual production in another adds to complexity and cost in ways that offshoring companies didn’t account for. Non-labor costs also tilt in the US’ favor: overseas shipping costs have become much higher in recent years, and US domestic energy cost is low.

There are also important trends that don’t show up in macroeconomic data. The reversal in fortune for US manufacturing is built on an interesting dynamic with something in it for everyone. Some like the reduced environmental impact, many find American-made goods higher quality, some see purchasing American products as an easy form of patriotism. What doesn’t seem to work is moral superiority alone; the goods need to be somewhat comparable in price, of unquestionably higher quality, and connect their origin story well to their customer.

Just as people increasingly want to know if their food is local, people want to understand where and how a product is made. New platforms to support local manufacturing are becoming, if not more prevalent, at least more possible.The cultural shift operates through a dual mechanism: access to greater information through the internet (people can easily pay a bit more to support a thing they like, and they say they like American-made products) and public shaming. With the support of social media and platforms like Etsy and americansworking.com, there are ample opportunities to call people’s attention to the gap between what they say they want and what they buy.

I’ll illustrate with an anecdote. Several years ago, when strolling the grand boulevards of Walmart, I came across a “Toby Keith” brand cowboy hat, festooned with an American flag. Even before inspecting it closely, I anticipated the delicious irony of what I would inevitably find on the underside: a tag that proclaimed that this piece of outrageous patriotism was, of course, Made in China.

In 2013, Walmart announced a “Made in America”initiative to great fanfare, promising to source $250 billion worth of products from US manufacturers. Although they’ve reportedly run into some problems with supply of goods, you better believe Walmart doesn’t do things that it expects to lose money. I take it as a sign of health for the future of manufacturing that Walmart is trying to take steps to reverse the perception that it relies on the lowest quality Chinese-produced goods. As in their recent embrace of organic produce, Walmart is a lagging rather than a leading indicator of change.

Overly Optimistic Projections?

Manufacturing Share
Source: Wall Street Journal analysis of WTO data.

A number of studies in recent years have argued that reshoring is less a wave than a trickle. The recently released ITIF Report “The Myth of America’s Manufacturing Renaissance,” refutes nearly every claim for the overall health of manufacturing. Don’t break out the party hats yet: recent employment growth probably represents the slow pickup of factories shuttered in the last 10 years. If labor is getting more expensive in coastal China, low cost labor is still available in interior China or other countries like Vietnam.

There is an important philosophical distinction ITIF makes with the likes of Boston Consulting Group, which is probably the most important: over and over, estimates of rapid growth of manufacturing in the US depends on the most conservative assumptions possible. The most expensive areas of China are compared with the cheapest parts of the United States (a tendency I’ll revisit in part 3 of the series). The underlying theory is that all we need to do is to continue on a path towards cost parity, and the rest will take care of itself.

In some ways, the doubters overstate their case: even the most fervent defender of manufacturing doesn’t contend that the jobs have come close to matching those lost in the recession. Harry Moser of the Reshoring Initiative, who is quoted in approximately 100% of the articles about this topic, has said that the flow of jobs between the US and China is net neutral: right now, about the same number leave as reshore.

In short, the evidence points to trends in the right direction, but the much hoped for inflection point has yet to materialize. Without a different mindset, I’m not sure it will. On reshoring specifically, I think we ought to be cautiously optimistic although It certainly doesn’t make sense to count these jobs before they’re hatched.

The Missing Link: Workforce Development

While I think the long-term trends are in favor of a continually growing manufacturing sector, it is not predestined. We could still fumble this chance horrifically. In fact, I don’t believe it will happen without excellent planning. If we focus merely on lowering costs relative to China, it will never work. There is always somewhere cheaper – we need to have a flexible, intelligent and competitive workforce. The money spent on labor in the US has to buy a better product.

Manufacturing Age Gap
Source: Manufacturing Alliance for Productivity and Innovation analysis of BLS and CPS Data

Several major reshoring efforts have stumbled on an inability to hire enough qualified workers. There are many factors underlying this trend – a rapidly aging workforce that is already older than the rest of the economy, an educational system that leaves many students without basic literacy and numeracy, and an industry that may be unwilling to pay higher wages for higher skills.

But regardless of the ultimate cause, we’re at an impasse. The damage to the reputation of manufacturing has been done over decades, creating a positive feedback loop. Because generations of families were brought up not to trust the stability of manufacturing, young people are less likely to enter manufacturing careers, meaning there’s less of a pipeline, meaning manufacturers struggle to find workers, meaning reshoring efforts are slowed, meaning that the reputation of manufacturing can’t improve. Potential employees argue that it used to be the employers’ responsibility to train the employees they need; manufacturing companies say that the workers are poorly prepared by the system and aren’t loyal enough to justify millions of dollars in training. 40 years of mistrust doesn’t reverse overnight: each side is expecting the other to take a leap of faith.

What if it’s already too late to lay this groundwork? Training efforts take a long time, and some have argued that the lost expertise of a generation ago may prevent knowledge from forming. Manufacturing and advanced industries not as thick as they once were, making it more difficult for any one manufacturer to make it on their own.

It’s going to be a tough road ahead, but workforce quality is one of the foremost elements that need to reach an inflection point before success of the manufacturing renaissance is assured. Although manufacturing usually gets set in its own category, employers in this sector – as in almost all others – are looking for people with skills in critical thinking, literacy, basic math and a willingness to learn. Building that base for workforce is an undeniable good thing, but we’re unfortunately not there yet. Fortunately, unlike in past generations, making sure our workforce can meet this need does not require us to put all of our eggs in the manufacturing basket.

Reshoring has not yet caught up with the hype, but the sector has seen growth. While most of the news about this trend focuses on the movement of jobs between US and China, the workforce development work that remains to be done will help build the basis of a manufacturing economy (or any economy, really) even if the cost savings from overseas stall or reverse.

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3 thoughts on “Part 1: The Promise of “Reshoring”

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