Let’s talk about the future of factory automation. Most Americans are not aware that the US is largely a service-based economy. Of the roughly $24T in goods and services produced annually by our economy, 70 to 72% comprises real estate transactions, business services, government, health and other similar services. These services fit into the growth economy whenever any of these services are bought.
Simply stated, we are primarily a consumer nation.
The part of the economy that is the focus for readers of this newsletter, is the part that is driven by manufacturing, factory automation, and electronic distribution. These items fit into the economy as listed below.
Collectively this group is referred to as the “Goods Producing” side and when converted to dollars it represents $3.8T of the GDP. On top of representing a substantial portion of our economy it tends to pay a higher wage and is a more educated percentage of the workforce. A strong sector of the economy, the goods producing side is also the seat of innovation. This is where smartphones, robotics, drones, self-driving cars, computer chips and medical surgical innovations occur.
This sector of innovation relies on specific technologies and support in both an economic and political framework. When, in the 1970’s, manufacturers started moving production offshore in significant amounts what was gained in profitability was lost in institutional knowledge – mostly manufacturing techniques.
As a result, in some cases whole product lines ended up being discontinued or re-shored to avoid bankruptcies. Despite these initial difficulties, eventually the strategy worked and offshoring became standard practice. Mexico set up a formal maquiladora program for the US. Eventually Canada became part of a three-way alliance and NAFTA (The North American Free Trade Agreement) came into being. China saw that it was getting left behind and with government support, made aggressive bids to get a share of the manufactured goods market. The Chinese strength was the ability to replicate quickly and accurately. They got so good at it that they eventually could undercut US manufactured products including raw materials and transportation costs.
This raises the question, what would a strong, sustaining US manufacturing and automation sector look like? The answer can be found by looking into the past.
Manufacturing has traditionally relied on having an educated, well paid, workforce and access to data and research facilities often connected to higher education facilities. This combination creates a robust middle class. And that middle class fuels growth. The current state of this manufacturing sector looks a lot like a time in the past, post Second World War, with a few differences.
Make no mistake – there is no winding of the clock backwards to that time. We have largely ceded the manufacture of commodity products to low cost countries like China, the Philippines and Eastern Europe. For US manufacturing to survive and grow will take a dedicated effort. Factory Automation requires access to rare earth minerals, fast controllers, chip fabrication, automated assembly and increasingly, AI. These, along with alternative energies, battery storage and affordable housing are the areas that we need to focus on to build momentum through this emerging phase of engineered growth.
If we think that we will salvage our economy by trying to beat the low cost countries at their own game, that could be a fool’s errand. The question that needs answering is how quickly can we build the infrastructure pipeline to deliver the emerging technologies mentioned earlier.
The future of manufacturing will need to look different tomorrow than it does today. In this era of multi-billionaires, many of the ultra-wealthy have publicly claimed support for tech funding privately, or through venture funds, and even donation. There should be enough money “floating around” that could be put to work toward the goal of building the future US manufacturing. Tax incentives could be geared toward this support.
Similarly, incentives should encourage participation in advanced degrees and research. Employers should have good wages to attract quality employees and reasonable health care and child support. We don’t want to be caught without critical resources like exotic metals and advanced manufacturing techniques and we need to have easy access to wafer fabrication facilities. This isn’t a total blueprint for success, but these are some generally agreed guidelines to build a robust technology sector. Some of these steps are already moving forward.
For success, the commitment to these goals needs to be supported economically and politically. Barring any draconian surprises from the current administration, the timing is good for solid growth, and money is available in the manufacturing and automation sectors. We just require a unifying vision to focus our energies.
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