Production in the Innovation Economy

Massachusetts Institute of Technology

Research

The central theme of the 1989 Made in America study was industrial productivity. This continues to be a central theme today, but additional challenges and opportunities have surfaced such as trends towards increased mass customization, the emergence of new manufacturing in emerging nations such as China and Mexico as well the networked nature of distributed manufacturing and global supply chains.

The PIE study challenges the commonly held notion that simply investing in upstream innovation and R&D will automatically lead to prosperity that benefits the nation as a whole. Prosperity only emerges when innovations are translated to a stream of new products and services, which are then scaled-up in a way that creates jobs and opportunities for the whole population. The PIE study is organized into a set of 7 thematic modules that are integrated through a common backbone.


Backbone

This effort will document the current state of U.S. manufacturing and will provide both an update from the 1989 Made in America study as well as define what should be included in a broad definition of manufacturing. This effort will also integrate the findings from the more detailed research modules and synthesize integrated recommendations. As part of the PIE study we will conduct an extensive set of interviews and company visits as well as integrate a set of databases related to the integration of innovation and production.

The backbone will also conduct comparative research on public policies and firm strategies in Germany, Japan, Sweden and other leading industrial countries. How are innovation and production linked in countries with strong export performance and strong manufacturing sectors? Are there lessons that are relevant to the U.S. case? We will focus particularly on Germany, where manufacturing employment remains high and where manufacturing is a driver of strong export performance.

The backbone of the study will also issue policy recommendations both for the U.S. federal government as well as state and local governments. These recommendations will be based on a synthesis of the research modules and a review of existing programs at DOD, NIST, DOE, NSF, SBA and programmatic elements in other agencies that could be part of a new strategy. We will explicitly consider various state-level supports for new manufacturing and ask what could be the role of government beyond defense related industries.


Module 1: New Manufacturing Technologies?

Traditional manufacturing was very labor intensive and either continuous flow or batch-oriented. Here we will study the potential of advanced materials and new production technologies such as nano-manufacturing, mass customization, additive flexible robotics and network-centric production to achieve radical increases in distribution efficiency, energy efficiency, flexibility and overall productivity. We are looking for potential game-changing approaches to new manufacturing.


Module 2: The Challenge of Scale-Up

This module will study how innovations transition from the laboratory to early production. This will be accomplished by studying how entrepreneurial firms make their initial production and partnering decisions and whether there are canonical forms of early production arrangements and preferred pathways in different industries. A survey and statistical analysis will highlight how successful manufacturers can initially emerge.


Module 3: Scale-Down

Manufacturing has typically been geared to producing large quantities of highly standardized items. This mass production paradigm extends into the supply chain where shipping of large lots between major hubs benefits from significant economies of scale. How could we create smaller-scale manufacturing and logistics strategies with lower-volume, higher-value production in closer proximity to end-users? Could innovative new logistics make U.S.-based production more profitable?


Module 4: Skills and Training

What are the education, skills and training that the U.S. workforce will need to meet demands of new production systems? What institutions could provide this to different segments of the U.S. population? What is required in a 21st century manufacturing curriculum and what will it take to get young people more interested in the production of physical things that make up the world around us.


Module 5: Manufacturing Spillovers?

This module will analyze the effect of trade-induced shocks on local and regional economies in the United States. This will be done by analyzing employment, wage and productivity data in local commuting zones (LCZs) that have both gained new manufacturing plants but also lost plants due to outsourcing to countries like China. The key question is to what extent loss of manufacturing causes further de-agglomeration on the downside and to what extent gains in manufacturing lead to spillover benefits in services and regional employment and wages. The research will systematically examine claims that industry increases the productivity of other economic activities in close proximity.


Module 6: Comparative Analysis of Manufacturing Economies

This module will conduct comparative research on public policies and firm strategies in Germany, Japan, Sweden and other leading industrial countries. How are innovation and production linked in countries with strong export performance and strong manufacturing sectors? Are there lessons that are relevant to the U.S. case?


Module 7: Cross-Border Partnerships in Research and Production

Many manufacturers have transitioned from being highly vertically integrated, where most parts and steps in the product decomposition tree are handled within the firm, to horizontally integrated where many parts and services are provided by specialized suppliers. This process of de-verticalization has been accompanied by extensive outsourcing and cross-border production arrangements. Who benefits from cross-border contracting between U.S. and foreign investors and firms? Over the past twenty years, many American multinationals have outsourced manufacturing to Asia, while maintaining innovation, R&D, product architecture, branding, and distribution in the United States. Who derives how much benefit (in terms of jobs and profits) in these new sectors is not yet well-understood.


Module 8: Success stories: Interviews of sample companies

A core research team of faculty and students will conduct 200 interviews in US firms selected randomly from a list of "fast growing" firms in all size categories in order to understand the factors that determine production and production location decisions.