Nation must rebuild ‘industrial ecosystem’ to spur manufacturing, says MIT

By Megan Woolhouse, Globe Staff

A new report by the Massachusetts Institute of Technology urgently recommended that the nation rebuild its “industrial ecosystem” of manufacturers, suppliers, research, and skilled labor to support multiple industries, not just clusters of companies dedicated to one particular sector.
The report, unveiled in Washington Friday, said manufacturers with the ability and talent to produce the ideas of entrepreneurs are in increasingly short supply, as US corporations have shifted production offshore and outstourced many other functions, such as research and development, over the last 30 years.
“Across the entire industrial landscape there are now gaping holes and missing pieces,” the report said. “It’s not just that factories stand empty and crumbling; it’s that critical strengths and capabilities have disappeared that once served to bring new enterprises to life.”
The report, compiled by 20 MIT faculty members -- engineers, scientists, economists and policy specialists, including one Nobel Prize recipient -- said that for innovation and the invention and creation of new products to occur, start-up companies and manufacturers must operate close by so that they may draw on each other's expertise. The MIT task force studied more than 250 companies in several states to better understand how to improve the nation’s ability to manufacture and benefit from products invented, designed, and brought to market by American entrepreneurs and engineers.
“It’s not about brining back manufacturing, but how to reinvent it so it strengthens the U.S.,” said MIT provost Martin Schmidt, who recently served as a lead member of a White House–led task force looking at ways to spur a renaissance in American manufacturing.
The United States has lost about one-third of the manufacturing jobs it had more than a decade ago, many of which were lower skilled positions that paid good wages. Many of those jobs, which lifted millions of working families into the middle class, have disappeared or moved overseas.
About 30 years ago, the report said, once dominant American corporations began shedding large-scale research and development and manufacturing operations -- operations that were often under one roof. The report said companies had incentive to do this because leaner operations drove their stock prices higher.
But the change was a significant. Big corporate research efforts, such as the old AT&T’s famed Bell Labs, had spillover effects, benefitting other research and ideas, as well encouraging interplay between engineers and manufacturers. A network of suppliers, subcontractors, and machine sprung up around the companies, not only supporting their production and innovation, but also that of smaller companies and entrepreneurs.
Major manufacturing companies also train workers, introduced new technology to suppliers, and pressured state and local governments to improve infrastructure, the report said.
Newer American business giants, such as Dell, Cisco, Apple and Qualcomm, the report said, have little or no manufacturing in-house, the report said. And the remaining American manufacturing firms are on average smaller and in some cases cannot afford to train workers or employ them for life.
Increasingly, cutting edge research and innovation is instead taking place in universities, start-ups, and government labs, which face challenges moving ideas to commercial production. Often these smaller companies are acquired by foreign firms, without significant benefit to the US economy.
“This environment is far different from that of the German manufacturers,” the report said, “who are embedded in dense networks of trade associations, suppliers, technical schools, and applied research centers all within easy reach.”
Germany has one of the world’s most robust manufacturing sectors and strongest export economies. Nations benefit from exports because they bring new wealth into their economies.
The report cited additional problem in United States, noting that the disappearance of many small-and-medium-sized suppliers creates “worrisome and still relatively unknown degrees of dependence” on foreign suppliers for US military contractors.
“The anxieties of the public connected with many of our own deep concerns at MIT about where the American economy is heading,” the report said. “Our question was: what kinds of production do we need -- and where do they need to be located -- to sustain an innovative economy?”