Thursday, May. 14, 2009

Yes, We'll Still Make Stuff

The death of American manufacturing has been greatly exaggerated. According to U.N. statistics, the U.S. remains by far the world's largest manufacturer, producing nearly twice as much value as No. 2 China. Since 1990, U.S. manufacturing output has grown by nearly $800 billion — an amount larger than the entire manufacturing economy of Germany, a global powerhouse.

But growth does not mean jobs. While sales soared (at least until the recession), manufacturing employment sank. Using constantly improving technology to make more-valuable goods, American workers doubled their productivity in less than a generation — which, paradoxically, rendered millions of them obsolete. (See pictures of retailers which have gone out of business.)

This new manufacturing workforce can be seen in the gleaming and antiseptic room in Southern California where Edwards Lifesciences produces artificial-heart valves. You could say the small group of workers at the Edwards plant, most of them Asian women, are seamstresses. Unlike the thousands of U.S. textile workers whose jobs have migrated to low-wage countries, however, these highly skilled women occupy a niche in which U.S. firms are dominant and growing. Each replacement valve requires eight to 12 hours of meticulous hand-sewing — some 1,800 stitches so tiny that the work is done under a microscope. Up to a year of training goes into preparing a new hire to join the operation.

Highly skilled workers creating high-value products in high-stakes industries — that's the sweet spot for manufacturing workers in coming years. After an initial surge of enthusiasm for shipping jobs of all kinds to low-wage countries, many U.S. companies are making a distinction between exportable jobs and jobs that should stay home. Edwards, for example, has moved its rote assembly work — building electronic monitoring machines — to such lower-wage and -tax locales as Puerto Rico. But when quality is a matter of life or death and production processes involve trade secrets worth billions, the U.S. wins, says the company's head of global operations, Corinne Lyle. "We like to keep close tabs on our processes."

Recent corner-cutting scandals in China — lead-paint-tainted children's toys, melamine-laced milk — have underlined the advantages of manufacturing at home. A botched toy is one thing; a botched batch of heparin or a faulty aircraft component is quite another. According to Clemson University's Aleda Roth, who studies quality control in global supply chains, the successful companies of coming years will be the ones that make product safety — not just price — a "big factor in their decisions about where to locate jobs."

Innovative companies will also stay home thanks to America's superior network of universities and its relatively stringent intellectual-property laws. Consider, for instance, the secretive and successful South Carolina textilemaker Milliken & Co. While the rest of the region's low-tech, backward-looking textile industry was fading away, Milliken pushed ahead, investing heavily in research and becoming a hive of new patents.

U.S. manufacturing will also be buoyed by a third source of power: the American consumer. Even in our current battered condition, the U.S. is the world's most prosperous marketplace. As global economic activity rebounds, so will energy prices. The cost of shipping foreign-made goods to the U.S. market will begin to offset overseas wage advantages. We saw that last year when oil prices zoomed toward $200 per barrel.

Thus, even if fewer cars are built by America's wounded automakers, there will still be plenty of car factories in the U.S. They will be owned by Japanese and Chinese and Korean and German and Italian firms, but they will employ American workers. It just makes sense to build the cars near the people you expect to buy them.

Raised on images of Carnegie and Ford, we rue the loss of once smoky, now silent megaplants but are blind to the small and midsize companies replacing them. Ultimately, what's endangered is not U.S. manufacturing. It is our deeply ingrained cultural image of the factory and its workers.

See TIME's pictures of the week.