The past several months alone have seen some surprising reversals. Apple, famous for the city-size factories in China that produce its gadgets, decided to assemble one of its Mac computer lines in the U.S. Walmart, which pioneered global sourcing to find the lowest-priced goods for customers, said it would pump up spending with American suppliers by $50 billion over the next decade — and save money by doing so. And Airbus will build JetBlue’s new jets in Alabama.
Some economists argue that the gains are a natural part of the business cycle, rather than a sustainable recovery in the sector. But I would argue that the improvements of the last three years aren’t a blip. They are the sum of a powerful equation refiguring the global economy. U.S. factories increasingly have access to cheap energy thanks to oil and gas from the shale boom. For companies outside the U.S., it’s the opposite: high global oil prices translate into costlier fuel for ships and planes — which means some labor savings from low-cost plants in China evaporate when the goods are shipped thousands of miles. And about those low-cost plants: workers from China to India are demanding and getting bigger paychecks, while U.S. companies have won massive concessions from unions over the past decade. Suddenly the math on outsourcing doesn’t look quite as attractive. Paul Ashworth, the North America economist for research firm Capital Economics, is willing to go a step further. “The offshoring boom,” Ashworth wrote in a recent report, “does appear to have largely run its course.”
Today’s U.S. factories aren’t the noisy places where your grandfather knocked in four bolts a minute for eight hours a day. Dungarees and lunch pails are out; computer skills and specialized training are in, since the new made-in-America economics is centered largely on cutting-edge technologies. The trick for U.S. companies is to develop new manufacturing techniques ahead of global competitors and then use them to produce goods more efficiently on superautomated factory floors. These factories of the future have more machines and fewer workers — and those workers must be able to master the machines. Many new manufacturing jobs require at least a two-year tech degree to complement artisan skills such as welding or milling. The bar will only get higher: Some experts believe it won’t be too long before employers will expect a four-year degree — a job qualification that will eventually be required in many other places around the world too.
Understanding this new look is critical if the U.S. wants to nurture manufacturing and grow jobs. There are implications for educators (who must ensure that future workers have the right skills) as well as policy-makers (who may have to set new educational standards). “Manufacturing is coming back, but it’s evolving into a very different type of animal than the one most people recognize today,” says James Manyika, a director at McKinsey Global Institute who specializes in global high tech. “We’re going to see new jobs, but nowhere near the number some people expect, especially in the short term.”
Still, if the U.S. can get this right, though, the payoff will be tremendous. Manufacturing represents a whopping 67% of private-sector R&D spending as well as 30% of the country’s productivity growth. Every $1 of manufacturing activity returns $1.48 to the economy. “The ability to make things is fundamental to the ability to innovate things over the long term,” says Willy Shih, a Harvard Business School professor and co-author of Producing Prosperity: Why America Needs a Manufacturing Renaissance. “When you give up making products, you lose a lot of the added value.” In other words, what you make makes you.