MIT Faculty Newsletter  
Vol. XXIV No. 1
September / October 2011
Political Climate Change Threatens
Scientific Endeavors
Putting the Genie Back in the Bottle:
MIT Faculty and Nuclear Disarmament
Rise of the Rest, Fall of the Best?
Innovations in Communication Instruction at MIT: Celebrating Ten Years of the Communication Requirement (CR)
HASS Exploration Program:
Entering Phase Two
Faculty Fallout
A Letter to President Hockfield
MIT Ranked 3rd in the World, 5th in the U.S.?
Teaching this fall? You should know . . .
MISTI Expands Faculty Seed Funds and Launches New MIT-Chile Program
College Admissions 101
Request for Preliminary Proposals for
Innovative Curricular Projects
Nominate a Colleague for the
MacVicar Faculty Fellows Program
Commenting on “Departmental Discussions of Diversity and Inclusion”
U.S. News & World Report: Best College Rankings for Nartional Universities, 2003-2012
Printable Version

Rise of the Rest, Fall of the Best?

Alice Amsden

Ed. Note: The following article continues the discussion initiated by Pres. Hockfield in her August 29 New York Times Op-Ed, “Manufacturing a Recovery,”

MIT is gearing up to attack the country’s serious manufacturing problem: manufacturing accounts for a stagnant share of GDP, less than 15% (although manufacturing output is growing absolutely), and a persistent declining share of total employment (see graph). This comes at a time when the prices of world manufactured exports are rising much more slowly (30%) than the prices of fuels and metals (almost 300% each), which may divert investors’ attention towards non-manufacturing activity and raise manufacturing costs. It is also happening when the investments in learning of the post-World War Two de-colonized generation are handsomely paying off. This intensifies global competition, not least of all on an underground playing field paved with subterfuges to circumvent the liberal intent of World Trade Organization law. In this demi-monde an accurate account of real government policies to promote manufactures is hard to grasp.

MIT has an excellent teacher to guide it in this endeavor – a past community-wide attack on manufacturing problems that resulted in a landmark study in 1989, “Made in America,” published by the MIT Commission on Industrial Productivity. This earlier Commission focused on high-tech, clusters, and outsourcing. As shown in the graph, after the study’s publication, the share of manufacturing in GDP fell briefly and then stabilized, probably for serendipitous reasons (Toyota and other Japanese giants began investing in American manufacturing in 1990); possibly also reflecting the short but very wide spread national discussion of manufacturing which MIT stimulated, but also reflected. This second round follows the first under a new MIT committee for the twenty-first century, Production in the Innovation Economy (PIE), with many of the same experienced corps of people as the old and an even greater emphasis, as its name suggests, on fighting for competitiveness with frontier innovations.

This is a very American way to look at an American problem, which seems appropriate enough, but does this way gain enough insight into the countries that are our new competitors, the BRICs (Brazil, Russia, India, and China) and other emerging economies – not Germany and Japan, against which we’ve already learned to compete, of necessity, with state-of-the-art technologies? These new countries’ huge trade surplus with us is largely in “mid-tech,” not high tech, and the mid-tech component would be even larger if the electronics sector, classified as high-tech, had its unskilled assembly operations subtracted (Malaysia, a country with relatively weak technological capabilities, has an astounding 67% of its exports in high-tech due to this accounting error). Mid-tech industries such as steel, shipbuilding, and semiconductors are mature but demand is still growing, and new technologies – some highly advanced – are being borrowed from other industries or generated internally to cut costs and improve product design, not necessarily to foster new technological frontiers.

If the U.S. is serious about raising manufacturing employment and output, it has to run on two tracks: one runs from the manufacturing problem to advanced technologies as solutions, and the other runs from the manufacturing problem to mid-tech industries, many of which are high-wage, large-scale employers.

Fortune’s 500 largest international firms (in terms of revenues) in 2008 ranked two Taiwanese electronics firms as 109th (Hon Hai) and 342nd (Quanta Computer) while Google ranked 423rd and Amazon ranked 485th (lean and mean). If the networks connected with these firms were factored in, the size disparity might even be larger. This is where the jobs are.

Besides running on the high-tech track, PIE must ensconce itself even deeper in the culture of mid-tech to get into the minds and motivations of the world’s leading manufacturers. Only then can PIE also anticipate revolutionary technologies that emerge from mid-tech sectors, such as high-speed rail, a fast-growth industry with dense linkages to other sectors that has left the U.S., once the railroad king, woefully behind.

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High-tech is also emerging out of mid-tech in the field of energy, and just as Detroit withered under competition from the Far East’s manufacturing corridor, Houston may follow under competition from the Middle East’s oil fields. OPEC members now regard themselves as “green energy suppliers;” they use oil and petrochemicals as cash cows to finance R&D in clean technologies such as wind, solar, hydro, and nuclear power.

The U.S. has long been the leader in the oil, gas, and petrochemical business; Japan never became especially competitive in this field.But emerging economies are moving fast, favored by the fact that their best and brightest chemical engineering graduates want to work for national oil companies, because they invest heavily in R&D, whereas this is not the case with American graduates.

Will PIE get its hands dirty examining the energy, mining, and minerals industries, including rare earth metals (the U.S. has only one company, Molycorp, active in this field)? These sectors now bear heavily on the cost-effectiveness of manufacturing, and can only attract the best graduates by investing in knowledge and the environment.

The shipbuilding industry is now sometimes classified as high-tech due to having achieved record rates of speed and safety in carrying hazardous cargoes. Korea is the world’s largest shipbuilder, employing upwards of 10,000 workers, having aced out Japan (but quivering at the rise of China). It began life in the 1960s, at the same time as the Brazilian shipbuilding industry, which failed. Now Brazil is trying to restart shipbuilding; Brasilia has ordered its state-owned oil company, Petrobras (ranked 34th on Fortune’s 500) to source its oil tankers from local shipyards. Is it possible for the U.S. to start a shipbuilding industry of its own?

The answer depends on the distinction between “made by Americans” and “made in America” – by foreign-owned companies from the de-colonized world. PIE has abundant economic expertise on board to figure out the best incentive system to rebuild American manufacturing. But this incentive system must leverage the outward foreign direct investments that emerging economies are now undertaking – accounting for one-quarter to one-third of total world outward Federal Direct Investment (FDI). India invests in China (China is India’s largest export market) and China allies with Korea to invest in Indonesia; Taiwan now invests more overseas than foreign firms invest in Taiwan. The U.S. must rejuvenate its manufacturing sector by attracting the world’s great manufacturers to invest in the U.S. Developed countries account for 95% of total FDI in the U.S., but the share of manufacturing in their investments is fast declining.

This may all seem a far distance from what MIT is good at, but PIE is the perfect organization to look carefully around the Institute, to find the many faculty with expertise in manufacturing technologies, both product and process, suitable for mid-tech. Unless it casts its net widely, PIE will be frozen in the late 1980s, uncomprehending of the “rise of the rest.” Unlike 1989, it is no longer the case that manufacturing and outward FDI are undertaken almost exclusively by the U.S., Europe, and Japan, in which the most advanced technologies stole the show.


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