We’ve all heard the arguments, ranging from the cost of labor to corporate tax rates, regulatory burdens, waning innovation and declining numbers of engineers, mathematicians and scientists.
Andrew N. Liveris, the CEO of DOW Chemical and author of Make it in America (2011), presents an interesting rationale for focusing on manufacturing to reinvent the US economy.
The idea is certainly not new. But as the country wraps up its third year of recession-recovery, it’s an idea worth revisiting.
Part of Liveris' case hinges on a familiar concept, the multiplier effect. This is the principle that specific types of economic activity produce direct and indirect activity in other economic sectors.
According to the US Bureau of Economic Analysis, manufacturing has the greatest multiplier effect of any sector. The multiplier comes from dollars spent, dollars earned and jobs created in a complex supply and delivery chain that encompasses everything from construction to mining, research, development, packaging, telecommunications, technology, transport and more.
In terms of dollars earned, each dollar of final sales of manufactured products generates $1.40 in output from other economic sectors. Each dollar of final sales in the service sector, on the other hand, only supports $.71 in output from other sectors. Manufacturing has twice the multiplier effect in the general economy.
In terms of job creation, economists have determined that every manufacturing job creates between two and five jobs in other sectors as well. A modest manufacturing operation with 50 workers and $10 million in sales has the potential to generate $14 million in economic impact and between 100 and 250 jobs. Not too shabby.
If US manufacturing were an independent country, it would be the eighth largest economy in the world. Consider for a moment the implications and extraordinary economic engine the established US manufacturing base represents.
Could we make it in America? It's a question worth considering.
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The Facts About Modern Manufacturing (2009, The Manufacturing Institute)
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