In 2010, then-MIT president Susan Hockfield created a special commission of economists, engineers, scientists, and policy specialists to study a critical economic issue: reviving US manufacturing. The panel recently completed its work, finding that decades of corporate restructuring, outsourcing, and overseas manufacturing have eroded the industrial capacity needed to turn the nation’s innovations into products — and jobs.
Suzanne Berger, the political science professor who chaired the MIT commission, recently spoke to Sunday business editor Robert Gavin about the panel’s findings and recommendations, and the future of US manufacturing.
You began this project three years ago. What were the most surprising things you found?
One, the innovative strength of small and medium Main Street manufacturers. We saw a lot of innovative ideas. It’s just they’re not able to grow any of these ideas very fast or create very many jobs out of them.
Secondly, we did a study of 150 start-ups that grew out of MIT licenses and patents. Almost all the companies that were doing well had to get money from foreign governments, move to a foreign country, or sell out to some larger company if they were going to commercialize their products. The pattern by which start-ups grow to scale seems to be broken.
You were on the MIT commission that studied US manufacturing in the 1980s. Are the challenges different?
There are two huge changes. In the ’80s, the US economy was dominated by 25 large, vertically integrated companies like DuPont, Hewlett-Packard, or Texas Instruments, that did everything from R&D to scaling up production to after-service. That kind of company is almost nonexistent in the United States, and holes in the industrial ecosystem have been created.
The second big change is competition, particularly from Chinese imports and the real capabilities in China that allow US and other companies to produce there.
Is it too late?
We’re not going to build vertically integrated companies anymore.
I guess the better question is, how are we going to fill in these holes?
We thought a lot about that, how you create capabilities in the manufacturing ecosystem that more than one company can use. Main Street manufacturers, any time they have a new idea, only have the resources they have in pocket. That’s why growth is so slow in those companies. They’re really home alone.
How do we fix it?
Get resources and build capabilities that multiple companies can use. We have one example with the [semiconductor industry’s] Sematech consortium. It involves road mapping of next generation products, risk sharing among companies, and when one player backs out, the whole thing doesn’t collapse.
In general, we’ve been handing money to companies through tax credits and subsidies. Massachusetts gives a subsidy to company X, which moves from some country. That company then decides to move somewhere else and the community totally loses its investment. If we can build institutions where multiple companies are willing to put some skin in the game, these institutions can weather the coming and going of one or another player.
Is there a role for government in this?
The role is to incentivize private-public partnerships like Sematech. It was funds from government in 1987 that got Sematech rolling.
Companies today are much smaller and don’t have resources for training, so there is a role in getting community colleges to connect to companies
How did people view manufacturing in the US?
A lot of people thought it’s just a sunset industry, like agriculture. Maybe we just don’t need so many people. That analogy is just wrong. We are certainly growing all we need to eat, but our appetite for manufactured goods is far greater than our production, hence a big, big trade deficit.
What’s the most important recommendation?
Rebuilding the industrial ecosystem. Filling those holes as they relate to skills, training, and capital, finding mechanisms for transferring new technologies into small and medium companies.
Those holes were opened up by the transformation of corporate structure, and it’s still the case that financial markets have a negative impact. The forces eating up industrial capabilities since the 1980s are still at work. I’m sorry to say we have no recommendation for that.
So, can manufacturing be saved?
Winds are blowing in a more favorable direction. The new availability of natural gas, reduction of energy costs, is a huge boost. There’s been a huge rethinking of outsourcing. Jobs that emerge around new activities in the US have a far greater potential for sticking here. We really are in a moment of possibility. I don’t think we’re on the verge of creating tens of millions of new jobs, but we can create jobs. Good ones.