Jireh Garcia

11436670
ERGOLEC

Manufacturing is indeed one of the keys to unlock progress and development of an economy
alongside standard of living. The influence of manufacturing goes far beyond the direct contribution to
national product and employment. Manufacturing is a global business underpinning all economic activity.
Spending on goods accounts for more than half of all consumer expenditure, whilst manufacturing goods
makes up around two-thirds of all UK exports. The UK workforce creates 4% of the worlds gross
domestic product and 6% of the worlds exports, from a nation with one per cent of the worlds
population. Manufacturing is essential for economic stability and robustness. This is due to the unique
role that manufacturing activities play in how money moves about within a given economy.

Money is imported to an area principally by the business activity of the primary or contributory
industries located within the economy. A primary industry is one that sells its goods or services outside
the geography of the local economy, importing money to the local areaWhen a local manufacturer sells
its products to a buyer in another community or state, money flows into the home community. In nine out
of 10 local economies, manufacturing is still the most important contributory industry. The growth of
manufacturing machinery output, and technological improvements in that machinery, are the main drivers
of economic growth. No machinery industries, no sustained, long-term economic growth. Just consider
the explosion of the Internet, iPhones, and the like all made possible by a small subset of production
machinery called semiconductor-making equipment (SME), which itself is dependent on other forms of
production machinery, such as the machine tools that grind the lenses they use or the alloys of metal the
metal-making industries output. These technologies reproduce themselves, as when an SME makes the
semiconductors that then go to make more SMEs, or when a machine tool makes the metal components
that not only go into other pieces of machinery, such as cars, but are used to produce yet more machine
tools. The technological and productive potential of machine tools and SMEs affect each other as well,
leading to the explosive economic growth of the last two hundred years.

The issue of what has been termed the deindustrialisation of the developed world has been
exercising academics and policy makers since at least the 1980s. Low productivity growth and the
emergence of new challenger nations such as Japan and Taiwan led to a shift in the majority of industrial
economies.

As manufacturing jobs were moved offshore there was a significant amount of structural unemployment.
By the end of the 1980s the majority of employment was to be found in the services sector and there was
talk of a post-industrial society. Over the past two decades the emergence of China as a global
manufacturing powerhouse has further challenged the existing manufacturing base within other countries.
This raises further concerns over whether or not it matters that an economy retains a manufacturing
sector.

According to some analysts manufacturing does matter and the loss of manufacturing jobs is not
good for an economy. Such a view over the importance of manufacturing was articulated recently by
Professors Gary Pisano and Willy Shih of Harvard Universitys Business School. In an interview
undertaken in March 2011, they argued that manufacturing is essential to the longer term health of the
United States economy.

According to Pisano and Shih, without a manufacturing sector it will become very difficult for the US
economy to sustain innovation. The exporting of manufacturing work overseas in the form of off-
shoring, they claim, risks the erosion of Americas industrial commons.

They point to the offshoring of semiconductor manufacturing by American companies in the past.
This led to the competencies within the workforce and production systems for the production of such
technology to be largely lost to American industry. Over time this provided an opportunity for the
Taiwanese, South Koreans and increasingly the Chinese to build their manufacturing base. From
semiconductors there was a transition to the production of flat screens. This trend is now moving to LED
technology and they suggest that soon high-efficiency lighting will be largely sourced to Asian
manufacturers.

This view echoes a similar call from the US Council on Competitiveness, which launched an
initiative in late 2011 entitled Make: An American Manufacturing Movement. The underlying
philosophy driving this program is the view that manufacturing matters. Rather than a dumb, dirty,
dangerous and disappearing industry, manufacturing must be seen as a mechanism for driving
innovation. It is a sector that should be viewed as smart, safe, sustainable and surging. According to the
US Council on Competitiveness manufacturing in the United States directly employs over 11 million and
contributed around US$1.7 trillion to the national economy in 2010. It also has one of the highest
multiplier effects of all industry sectors and is a provider of skilled and well-paid jobs.

The report highlights the Global Manufacturing Competitiveness Index, a joint initiative with
Deloitte. As shown in the following diagram, the key to a competitive manufacturing sector is the ability
to draw together a range of macro and micro level elements. Government policy plays an important role.
However, so does the cost of labor, energy and the quality of infrastructure, legal and regulatory systems.

There must be greater assistance, particularly to SMEs, to help local manufacturers connect with
global supply chains. Education and training of the Australian workforce is also a critical area that
requires future investment. Our universities and technical training colleges must be funded to provide best
practice programs that can supply the future needs of industry. It must also become easier for
manufacturers to connect with such institutions for research, education and training.

Finally, there must be ongoing investment in our national infrastructure, in particular initiatives
such as the National Broadband Network, and the application of environmentally sustainable
technologies.