"Planners and businessmen of the postwar era presumed that America’s leadership in mass production would be enduring, but this was not to be. The disconnect between innovation and production would lead to profound weaknesses."
Industrial policy is no longer taboo in the United States. In the last two years, the federal government has undertaken multiple industrial‑innovation policy initiatives. The chips and Science Act of 2022 is designed to revitalize domestic production of semiconductors as well as to add an applied science directorate to the National Science Foundation (NSF) focused on advanced technologies. The Executive Order on Biotech and Biomanufacturing hopes to ensure that the next generation of medicines are manufactured in the United States. And the Infrastructure Act and the Inflation Reduction Act include massive investments in clean energy technologies.2 These industrial and innovation strategies are underpinned by a common vision, one centered on nurturing advanced technologies. The belief is that these policies will result in the United States once again being able to manufacture critical technologies at home.
But can the United States still make things domestically? What if America lacks capabilities for advanced manufacturing which the most recent round of industrial policies have not fully addressed? These go beyond the lack of resilient supply chains, or the unsurprising fact that a country which has aggressively deindustrialized during the last several decades currently lacks a workforce with skills in advanced manufacturing. What if there are more profound weaknesses inhibiting advanced manufacturing in the United States, as is indicated by the trade deficit in advanced technology products? This deficit is accelerating, growing from $128 billion in 2019, to $195 billion in 2021, to $244 billion in 2022. In 2021, the United States accounted for 78 percent of the total trade deficit among industrial nations, while China accounted for 45 percent of the total trade surplus. Productivity in manufacturing in the United States, across most measures, has actually been declining.
The United States was once the global leader in manufacturing, ushering in the mass production era from the end of the nineteenth through the mid-twentieth century. It is not a global leader in the advanced manufacturing of the twenty-first century. (Advanced manufacturing can be defined as the application of innovative technologies to improve manufacturing processes and products, adding significant value through productivity advances and innovation. These would include digital technologies, robotics, 3-D printing, advanced materials, bio-fabrication, artificial intelligence, and nanofabrication.)
The United States does not currently have the correct institutional infrastructure and accompanying operational mechanisms to support advanced manufacturing. Industry, government, and academia are largely unlinked when it comes to advanced production technology and processes, and there is a similar lack of interagency coordination within the government. Pathways necessary for diffusing new technologies and getting them to market are missing, including a lack of scale-up financing mechanisms. The vocational education system has withered as has the corporate lab system. The Department of Defense’s (DoD) mission has traditionally been one of military security rather than economic security and assuring a strong American industrial base. Yet economic security and military security are now inseparable, and by failing to pursue innovation in production, the DoD is putting U.S. economic and therefore national security at risk. Financial markets do not reward advanced manufacturing. They favor outsourcing and the disaggregation of integrated firms. Corporations are not rewarded for pursuing production as opposed to, say, stock buybacks. What is sometimes called the U.S. developmental state has many strengths—in basic research as well as applications in the areas of defense technology, software, and biopharma development—but advanced manufacturing is not one of them…