Jan 17 2012

Manufacturing and Wealth

When you are engaged in an activity, it is easy to endow it in your mind with qualities an outsider would not see. Manufacturing produces tangible, physical goods, things that you can see, touch, use, and express your social status with. It is a necessary sector of the world economy and, as manufacturing professionals, we have the privilege of working in it. But we have no grounds to claim that it is the only true way to create wealth.

What is wealth, anyway? To accountants, it is the difference between the totals of what you own and what you owe, synonymous  with net worth;  it is expressed in money and easily quantified. To others, it is how long you could survive if all your sources of income dried up, and expressed in time, however it might be measured. To others yet, it is related to human relations and happiness.

In none of these meanings does it make sense to assert that  the production of material goods is the only source of wealth. This leaves out movie making, health care, tourism, or software development, just to name a few activities that generate wealth for many. As much as I personally like manufacturing, reality is that converting materials into products is only one of many ways of getting other people to pay. Making things is necessary, and somebody needs to do it. But immaterial goods or services are equally valuable creations, that can be exchanged for material goods.

18th century physiocrats thought that agriculture was the only true wealth creation. They were deluded because agriculture was the dominant sector of the economy of their day. Just because manufacturing was dominant for, say, 150 years doesn’t mean that sector has special virtues. In advanced economies, I see it headed in the same direction as agriculture : a vital and important sector, but employing a small, highly skilled fraction of the work force. It has been moving slowly and steadily in this direction since 1960, and I don’t think it can be reversed, no matter what politicians may say.

On the other hand, the human and social consequences can be anticipated. A production operator with 15 years of experience on the same machine is vulnerable; a multi-skilled machinist is much more likely to be retained and to find a rewarding alternative job if necessary. Schools can train young people wishing to make a career in manufacturing to meet the rising requirements.

Like agriculture, manufacturing matters because we need the goods, not because it provides jobs. Whether we make the goods or buy them is a decision that should not be based on direct labor cost alone but instead on all the relevant issues, including engineering, quality,  logistics, intellectual property, the skills base, customer communications, public relations, taxes, etc.

By • Management • 8 • Tags: ,