The US Congress is considering a number of proposals to boost federal funding for research and development in order to foster innovations that will fuel the growth of new domestic high-tech industries. This approach won’t work unless we revive manufacturing in the US at the same time.
Federal R&D spending during the 1960s and 1970s got world-beating results because it partnered with the world’s best high-tech manufacturing companies. Overseas competitors were absent or in early stages. After the great industrial migration overseas, foreign manufacturers can exploit American innovation unless they are directed into US facilities.
Simply increasing the federal research budget won’t automatically upgrade the domestic technological capabilities. Federal initiatives need to focus on implementing domestic manufacturing for rapid research transfer into market-ready products.
There are good business reasons to produce domestically. In the search for lower costs, earlier offshoring decisions created operating problems by separating manufacturing, product development and marketing while management functions remained in the US. This gap can be a serious competitive disadvantage in high-tech industries, which require quick and efficient transfer of innovations into manufactured products.
So there is every incentive to integrate product development and manufacturing. In addition, integration better protects intellectual property.
Formerly US-based high-tech manufacturing industries with hundreds of billions of dollars of annual revenues are now largely overseas, including consumer and industrial electronics, communications equipment and the semiconductors that enable all electronic systems.
Especially noteworthy is that the new fifth-generation (5G) wireless equipment, the foundation of major new advances in communications infrastructure, is imported because there is no US company in that business.
The consequences of this migration are profound. Deprived of the value generated by growth of these industries in their evolutionary developments, the US lacks key drivers of economic growth and an impaired defense capability.
The good news is that new technology makes onshoring high-tech manufacturing a better economic option than offshoring. These new technological capabilities include artificial intelligence, machine learning, improved data management thanks to cloud computing access, ever more sophisticated robotics, sensors and efficient wireless communications infrastructure such as 5G.
With these new capabilities, a new age of flexible manufacturing is enabled where the sophistication of the manufacturing facility is the ultimate determinant of product cost and quality, rather than labor costs, which are a much lower part of the operating cost than in older manufacturing facilities.
The flexible manufacturing plant is a computer-controlled facility characterized by extensive sensor networks that monitor production processes and are in constant communication with robots that do the manual work.
Computer nodes enabled by artificial-intelligence software command the robotic operating conditions needed to manufacture the product.
Eliminating equipment failure is critical. The operating efficiency of the plant is enhanced by remote sensors that monitor the equipment to ensure timely preventive maintenance.
The plant is operated by a small number of trained technicians who program the command computers for specific product specifications.
Such plants are already being built. They require big capital inputs, which is where federal support is likely needed. For example, the semiconductor (chip) industry already has plants in operation where the atomic-level cleanliness requires operations to be performed by robotic equipment in rooms devoid of humans.
Support for capital outlays is one part of the solution. The other is training. The US needs people who are highly skilled in software, electronic and mechanical systems. This means that the US will have to invest heavily in training such talent, without which it is impossible to build the manufacturing infrastructure of the future.
Henry Kressel is a technologist, inventor and long-term Warburg Pincus private equity investor. Among his technological achievements is the pioneering of the modern semiconductor laser device that enables modern communications systems. His most recent book (with Norman Winarsky) is If You Really Want to Change the World: A Guide to Creating and Sustaining Breakthrough Ventures (Harvard Business Review Press, 2015).