Reposted from The Boston Globe

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Industrial landscape has holes, MIT says

Megan Woolhouse | February 22, 2013 |Boston Globe

A new report by the Massachusetts Institute of Technology urgently recommends 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 outsourced 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 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 bringing back manufacturing, but how to reinvent it so it strengthens the US,” 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, disappeared or moved overseas.

Companies that make products are also in shorter supply, and those that survived have succeeded by adapting to new markets. The report cited Mass Tank, a Middleborough manufacturer that has used its expertise in metal fabrication to make tanks for everything from pharmaceuticals to chicken feed as well as help start ups innovate materials and components. For example, the company hopes to win a contract with the Cape Wind project, using its metal fabricating abilities to construct the steel bases for the project’s massive ocean windmills, said chief executive Carl Horstmann, who left banking 15 years ago to buy the company.

“It’s not easy,” he said of manufacturing. “When I was a banker, the biggest challenge some days was where was I going to have lunch. Now I have to make sure payroll is covered.”

The network of small and medium manufacturers such as Mass Tank has dwindled over the past 30 years as large US corporations shed manufacturing, research and development, and other operations in search of higher stock prices.

That change was significant, altering the way ideas came to market, the researchers said. Corporate research efforts had spillover effects, benefiting other research, ideas, and products. The suppliers, subcontractors, and machine shops that sprung up around the big companies not only supported their production and innovation but also that of smaller companies and entrepreneurs.

Increasingly, cutting-edge research and innovation are instead taking place in universities, start-ups, and government labs, which face challenges moving ideas to commercial production

Major manufacturing companies also trained workers and pressured state and local governments to improve infrastructure — activities that also diminished over the years, the report said.

“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.

Jack Healy, executive director of the Massachusetts Manufacturing Extension Partnership, a training group, said the vast majority of manufacturing companies in the state — more than 70 percent — employ 20 or fewer workers. These manufacturers play small parts in a wider supply chain, providing specific parts for cars or medical devices.

But these small companies, Healy said, have come under pressure from the larger corporations they supply to produce goods inexpensively.

As a result, they have pared operations and have fewer employees with the skills and knowledge to turn innovators’ ideas into products. Some of those larger corporations now need manufacturers with wide-ranging skills to help them develop products, but such manufacturing companies are few and far between.

“You now have large manufacturers, the Raytheons of the world, looking for technology and the small manufacturer,” he said. “And guess what? They drove most of that stuff out.”