To Remain On Top, The U.S. Needs To Start Protecting Its Design IP
Published on December 20th, 2011
Despite the positive and hopeful news with respect to U.S. manufacturing addressed in my blog last week, people are right to be nervous and uncertain about the economic future. The negative news is virtually impossible to escape, encouraging news seems discounted, and focus on China grows more intense. However, there is a lot of perspective lost in the broad debate, and in my opinion the focus on China and the growth of other developing countries (i.e., BRIC) really misses our needed focus on the potential of "Made in America."
True, China’s share of global manufacturing output has nearly tripled since 2000, from 6.6% in 2000 to 18.6% in 2009, and trends show that it will overtake us at some point in manufacturing output. In terms of value, the United Nations shows the United States has 19% of the global manufacturing value added (MVA) output, while the UN’s 2011 Q2 report shows China with 15.4% in 2010. China has earned the world’s respect, but Americans shouldn’t fret for their own future. China’s growth and manufacturing strength isn’t a cause for panic because it has a much less efficient workforce, it makes different things, and Chinese goods still represent a small fraction of America’s national expenditures. America also competes well on patents—the other side of the "Made in America" coin.
SOME PERSPECTIVE ON CHINA AND AMERICA
The U.S. still makes a lot of stuff. According to the Associated Press, U.S. manufacturers made $1.7 trillion in goods in 2009 and out-produced China by more than 40%, but "the story of American factories essentially boils down to this: they’ve managed to make more goods with fewer workers." Productivity gains have changed the picture during the past 60 years. This has been both a blessing and a curse.
Most don’t realize that today the U.S. remains competitive in manufacturing with roughly 10% of the Chinese workforce. A recentWall Street Journal article cites, "The average American factory worker today is responsible for more than $180,000 of annual output, triple the $60,000 in 1972." This strong output is mirrored by strong value creation; UN BLS data shows that the value added per worker is $118,419 in the U.S., while in China that amount is just a fraction, $13,266. The other countries with highest per-worker productivity are actually our most direct competition: Japan, the U.K., Korea, Canada, France, Germany, Spain, and Italy. With proper focus, I know we can have high wages and manufacturing trade surpluses simultaneously, just as seen in Germany and Japan. Healthy wages can be justified and sustained by continued leadership in MVA and through continued productivity growth, and this goal should integrate with a numerical job creation focus.
By and large, the U.S. also makes different stuff than the Chinese. Findings from the new survey of senior U.S. manufacturing executives show that "while 84% of survey respondents consider China the U.S.’s biggest competitor, the Export Similarity Index (ESI) ranks the degree of overlap between China’s exports and those of the U.S. as 41.4 out of 100, based on data from 2010." Since a 0 means exporters don’t compete in any of the same markets and 100 would be identical export structures, it shows that the two countries largely compete in different areas.