Adapt or die

Business is “creative destruction,” as economist Joseph Schumpeter famously wrote. Companies and industries must die to make way for new technology and new companies. However, most people tend to focus on the destruction, not the creation. 

That’s understandable. Witnessing a car accident is far more compelling than seeing a car being built. 

There’s no greater example of this than Detroit, where dozens of empty plants have been left to rot. In a new book, “Punching Out,” Paul Clemens describes the closing of the Budd Automotive stamping plant in Detroit, which at 2 million sq. ft. and a peak workforce of 10,000 workers was like a small city. The book describes the work of wreckers and equipment movers who stripped the plant of its machinery, which was sold to companies in low-cost-labor countries. 

In stories like these, some observers see the decline of the entire country. An editorial published in Plant Closing News likened the closing of U.S. factories to the fall of Rome and the tribulations of Biblical tribes. “You know what? It’s that desperate. We’ve lost our horizon. We don’t know whether we’re flying right side up or upside down,” the editorial stated. 

That opinion was seconded by none other than Donald Trump. “You know, we don’t manufacture anything anymore in this country,” he said in an interview with CNNMoney. “We do health care; we do lots of different services. But ... everything is made in China, for the most part.’’

The perceived decline of U.S. manufacturing makes Americans nervous. A survey found that just 20 percent of Americans believe the U.S. has the world’s strongest economy, while nearly 50 percent think China is the leader.

But those opinions are wrong. By focusing on the destruction, they are missing the creation. The U.S. still makes more goods than any other country. According to the United Nations, U.S. manufacturing output in 2009 (measured in 2005 dollars) was $2.15 trillion, while second-place China’s output, $1.48 trillion, was 46 percent less. The U.S. accounted for 20 percent of global manufacturing output in 2009, just below its 1990 share of 21 percent.

Another fact: U.S. manufacturing output reaches a new high almost every year. Measured in constant dollars, U.S. manufacturing output is more than double what it was in the early 1970s.

That’s not to say manufacturing growth creates jobs. In fact, the opposite is true. The U.S. has lost nearly 8 million factory jobs since manufacturing employment peaked at 19.6 million in mid-1979. The math is simple: higher productivity through automation and robotics equals fewer workers.

Even so, U.S. manufacturing added 136,000 workers in 2010, the first net increase since 1997. But U.S. manufacturing will never be a huge job creator again, and will meet new demand through even greater automation.

After ceding low-margin manufacturing jobs to China, the U.S. now focuses on high-margin products that take advantage of the U.S. edge in trained labor, reliable resources and good transportation systems.

So what are U.S. factories making? A recent article published by the Canadian Press cited the example of Centerline Machining & Grinding in Hobart, Wis., which makes parts for paper mills.

“Our average customer wants a turnaround in less than 3 weeks,” CEO Sara Dietzen was quoted as saying. “You’re not going to get that in China.” Some Centerline customers have placed orders with Chinese manufacturers but came back to Centerline. Dietzen said her customers are “finding when they get their parts back from China, they’re not always what they want. So we end up doing the work anyway.”

So while it’s hard to ignore the lost jobs and crumbling factories in American cities, keep in mind that the creative process of building new companies and new industries is underway. It’s harder to see, but under the surface, the ferment continues.

—Alan Rooks, Editorial Director