In the last decade, manufacturing job growth in the United States has been slower than in any other developed nation. Rob Atkinson calls for a national industrial policy that fosters innovation through tax incentives, workforce development and technology investments. Further, many economists maintain a market-driven approach to policy that has dominated decision-making in Washington. More government and private industry partnerships are needed to re-establish the United States as a global manufacturing leader.

1. November 15, 2011
Innovation in Manufacturing: Driving
Growth and Competitiveness
Presentation at Rockwell Automation
Manufacturing Perspectives
Chicago, Illinois
Dr. Robert D. Atkinson
President
Information Technology and Innovation Foundation

2. The Information Technology and Innovation Foundation (ITIF)
is a Washington, D.C.-based think tank at the cutting edge of
designing innovation policies and exploring how advances in
technology will create new opportunities to boost economic
growth and improve quality of life. ITIF focuses on:
 National economic competitiveness;
 Innovation processes, policy, and metrics
 E-transformation (e.g., health, commerce, e-government)
 IT and economic productivity
 Science and technology policy
 Innovation and trade policy
2

3. Today’s Presentation
1 Where Are We in U.S. Manufacturing?
2 Why Innovation is Key to Manufacturing Renewal
3 Why is IT Driving Manufacturing Innovation?
Key Trends in IT Evolution and Intersection with
4
Manufacturing
5 What Should Washington Do?
6 Why Hasn’t Washington Done More?
3

4. Manufacturing is a Key Driver of U.S. Economic Growth
 Had U.S. manufacturing grown at the same rate as the overall
economy over the past decade, the economy would have as
many as 8 million more jobs.
 Manufacturing jobs pay 9% more than jobs in the overall
economy.
 Manufacturing accounts for 57% of U.S. exports. A 10%
increase in sales due to exports produces twice as many jobs as a
10% increase in domestic demand.
4

5. U.S. Manufacturing Job Growth Was the Worst of A Sample of OECD Nations
100%
90%
80%
70% United States
Canada
60%
Australia
50% Japan
France
40%
Germany
30% Italy
20% Netherlands
Sweden
10%
United Kingdom (1)
0%
5

6. U.S. Manufacturing Jobs Fell Precipitously in the Last Decade
25000
20000
15000
10000
5000
0
6

7. But Not Principally Because of Productivity
20000
18000 56 % - 1990s
16000
14000 61 % - 2000s
12000
10000
8000
6000
4000
2000
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
7

8. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0%
Manuf
6.0%
4.0%
2.0%
0.0%
1987 88 89 1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 2009
Source: Bureau of Economic Analysis
8

9. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0%
Manuf
6.0% Nondurables
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
9

10. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0%
Manuf
Durables
6.0%
Nondurables
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
10

11. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0%
Manuf
Durables
6.0% Nondurables
Computers
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
11

12. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0% Manuf
Durables
Durables - computers
6.0% Nondurables
Computers
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
12

13. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
Manuf
Manuf -
8.0% computers
Durables
Durables -
computers
6.0% Nondurables
Computers
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
13

14. Today’s Presentation
1 Where Are We in U.S. Manufacturing?
2 Why Innovation is Key to Manufacturing Renewal
3 Why is IT Driving Manufacturing Innovation
Key Trends in IT Evolution and Intersection with
4
Manufacturing
5 What Should Washington Do?
6 Why Hasn’t Washington Done More?
14

15. We Are Competing With Developing Nations for Cost-Based Manufacturing
2008 Hourly Compensation Costs in Manufacturing (U.S. = 100)
160 150
140 131
120 111
100
100 86 86
80
58
60 50
40 27 26
19
20
4
0
15

16. Easier to Compete in High-Tech Manufacturing
100
90
80
70
60
50
40
30
20
10
0
Australia Canada Germany Japan Korea United Kingdom United States
Low-technology Medium-low technology Medium-high technology High-technology
Source: Stephen Ezell and Robert Atkinson (2011), International Benchmarking of Countries' Policies and Programs Supporting SME Manufacturers. Washington: DC: Information Technology and Innovation
Foundation, September. Data from OECD, “Industry and Services STAN Database: “Value-added shares relative to manufacturing,” http://stats.oecd.org/index.aspx?r=228903
16

17. Today’s Presentation
1 Where Are We in U.S. Manufacturing?
2 Why Innovation is Key to Manufacturing Renewal
3 Why is IT Driving Manufacturing Innovation?
Key Trends in IT Evolution and Intersection with
4
Manufacturing
5 What Should Washington Do?
6 Why Hasn’t Washington Done More?
17

18. Because Moore’s Law Has Not Slowed Down
Transistor Growth in Intel Computer Processor Chips
18

19. How much would 5 GBs of storage have cost using 1995 technology?
1) $5.50
2) $55
3) $550
4) $5,500
19

20. How much would 5 GBs of storage have cost using 1995 technology?
1) $5.50
2) $55
3) $550
4) $5,500
 5 GBs cost $1.5 billion in 1960.
20

21. ICT Doubling (or Halving) Times
 Total bits shipped 1.1 years
 Microprocessor Cost per Transistor Cycle 1.1 years
 Magnetic Data Storage 1.3 years
 Dynamic Random Access Memory (RAM) 1.5 years
 Average Transistor Price 1.6 years
 Processor Performance in MIPS 1.8 years
 Modem Speeds 1.9 years
 Transistors in Intel Microprocessors 2.0 years
 Microprocessor Clock Speed 2.7 years

22. Rapid Growth in Bandwidth Capacity
 The capacity of the network
backbone has increased by 18
million % in the past decade.
 By 2020, average network speeds
are likely to be 3 million times
greater than they were in 1990.
22

23. But Not All Due to Computing
 Solving a complex linear
programming model:
 1988: 82 years
 2003: 1 minute
 An increase in efficiency of 43
million. Of this, a factor of
roughly 1,000 was due to
increased processor speed,
whereas a factor of roughly
43,000 was due to improvements
in algorithms.
 Source: Ed Lazowski, University of Washington, Computer Science Dept.
23

24. Today’s Presentation
1 Where Are We in U.S. Manufacturing?
2 Why Innovation is Key to Manufacturing Renewal
3 Why is IT Driving Manufacturing Innovation?
Key Trends in IT Evolution and Intersection with
4
Manufacturing
5 What Should Washington Do?
6 Why Hasn’t Washington Done More?
24

25. U.S. Manufacturing Has Lagged Behind in Using IT
Ratio of Industry IT Spending to Value Added, 2009
.14
.12
.10
.08
.06
.04
.02
.00
25

26. But Manufacturing is About Atoms and Bits
 A part is information.
 What its characteristics are
is information.
 Where it is information.
 What its condition is
information.

27. New IT Capabilities are Enabling Smart Manufacturing
• Smart sensing and
instrumentation
• Faster, more reliable networks
• IT-enabled micro-controllers
• Design and visualization
software
• High performance modeling
and simulation programs
• Machine vision

28. A Shift to the Cloud
 In 2011 44% of
manufacturing companies
were either implementing or
evaluating cloud
deployments; and 22%
already have implemented.
(Source: IDC)
28

29. Near Infinite Internet Addresses
IPV6 can provide multiple IP addresses to every grain of
sand on the planet

30. Today’s Presentation
1 Where Are We in U.S. Manufacturing?
2 Why Innovation is Key to Manufacturing Renewal
3 Why is IT Driving Manufacturing Innovation
Key Trends in IT Evolution and Intersection with
4
Manufacturing
5 What Should Washington Do?
6 Why Hasn’t Washington Done More?
30

31. Get the 4 T’s Right
Tech Talent
Flickr: marzzelo
Trade Tax
Flickr: Nedral
Flickr: Alan Miles NYC

32. Today’s Presentation
1 Where Are We in U.S. Manufacturing?
2 Why Innovation is Key to Manufacturing Renewal
3 Why is IT Driving Manufacturing Innovation
4 Key Trends in IT Evolution and Intersection with
Manufacturing
5 What Should Washington Do?
6 Why Hasn’t Washington Done More?
32

33. Economists Don’t “Get Manufacturing”
“America’s role is to feed
a global economy that’s
increasingly based on
knowledge and services
rather than on making
stuff.” (Larry Summers)
33

34. Economists Don’t “Get Manufacturing”
 “Any economist can tell you
that this decline (in
manufacturing) is not
necessarily a cause for
concern…We have become an
ideas economy.”
(Kevin Hassett, American Enterprise
Institute)
34

35. Nor Competitiveness
 “The notion that nations
compete is incorrect…
countries are not to any
important degree in
competition with each
other.” (Paul Krugman)
35

36. Nor Competitiveness
“Potato chips, computer
chips, what’s the
difference.” (Bush I
economic advisor, Michael
Boskin)
36

37. Thank You
Robert Atkinson ratkinson@itif.org
Follow ITIF:
Facebook: facebook.com/innovationpolicy
Blog: www.innovationpolicy.org
YouTube: www.youtube.com/user/techpolicy
Website: www.itif.org
Twitter: @robatkinsonitif