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Manufacturing Matters, But So Does the Solution

Business leaders like Dow Chemical CEO Andrew Liveris and Patriarch Partners CEO Lynn Tilton see manufacturing as the future of American business. And they’re right. Chief Executive magazine Editor-in-Chief JP Donlon wants to know how to get there.

In his book, Making It in America, Dow Chemical CEO Andrew Liveris makes a compelling point: “As America’s service sector expands, and its manufacturing sector contracts, the result isn’ta new post-manufacturing economy in which everyone wins. The result, instead, is that certain people win but the country as a whole experiences massive unemployment.” It’s not that services can’t generate wealth. It’s just that they aren’t sufficient to sustain a workforce of 150 million. “Manufacturing is our future,” he writes.

In this, the Australian-born boss of the $45 billion Midland, Mich., company is the very soulmate of the flamboyant blonde on this issue’s cover. Patriarch Partners CEO Lynn Tilton has made it her mission to save mid-sized manufacturers. Nor are Liveris and Tilton alone. “Restoring manufacturing might”ought to be a priority of economic policy, GE’s Jeffrey Immelt has told the Financial Times. (See “Final Word”)

But before we administer last rites, perspective is in order. The U.S. remains the largest manufacturing economy, accounting for 21 percent of global manufactured products. (American manufacturing is roughly equivalent to the entire German economy.) In addition, U.S. manufactured goods exports increased by 20 percent over 2009 levels, according to the Commerce Department. What’s more, close to 90 percent of manufacturing affiliates of American companies produce their products locally in the markets they serve. According to the National Association of Manufacturers, this is vital for exports and creating jobs at home.

Even so, Liveris’s and Tilton’s point about the need for a stronger manufacturing base in order to sustain growth and innovation over time is not in dispute. Two-thirds of R&D is spent in this sector. In time one might see America dependant on IP or expertise created elsewhere.

How do we redress this imbalance? Liveris is not shy about seeking government involvement, saying that such action helped turn the auto industry from bankruptcy to profitability in two years. He advances several proposals in the book, a number of which are sensible and advocated by others. While believing in entrepreneurialism, he tires of the “old debate between free-market philosophy and state socialism,” as if these were the only choices.

Yes, manufacturing matters, but so do the solutions for its restoration. Creating the right conditions, like lowering tax rates so that investment decisions can be made with no distortion, is the job of government; picking winners and losers is a mug’s game that already has a name: crony capitalism.

About J.P. Donlon

J.P. Donlon
J.P. Donlon is Editor Emeritus of Chief Executive magazine.