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America's Manufacturing Renaissance
A re-birth of manufacturing and the middle class starts with the energy transition.
Most arms races leave no one better off. Today's race to re-industrialize the West is different. The trends driving this race - decarbonization, deglobalization, and digitization are all likely to help the West diversify its economy in a way that revitalizes a working middle class in danger of being left behind.
Manufacturing as a percentage of employment peaked in the U.S. around 1970 at 25%. Today, that number is slightly under 8%. In terms of real jobs, manufacturing payroll employment hovers around 5 million, compared to 17 million during the 1990s. It's estimated that roughly 70% of those jobs went to China to make goods cheaper and faster.
Whether we like it or not, this world is one the U.S. made. We pushed for China's inclusion into the WTO in 2021 and the opening of the world economy. Both of those were great for the American consumer and accelerated global growth and innovation.
Now, we're suffering from a bit of buyer's remorse. The good news is we have two new sustainable industries that could turn the tables and make America a manufacturing powerhouse for the future.
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According to the IEA, global spending on solar energy production will surpass spending on oil and gas production for the first time in history in 2023. The vast majority of solar panels come from one nation. China manufactures 80% of all the solar panels produced globally.
The factors driving China's success in this arena are the same ones that helped move an entire class of workers there in the 1990s and early 2000s - low-cost capital, low labor costs, and fast-growing domestic demand.
The latter might come as a surprise. A rising middle class in China contributed to the improved economics of manufacturing goods there in the early part of the century. Now, the growing demand for cleaner air has led to more demand for renewable energy, including solar.
The U.S. Inflation Reduction Act (IRA) includes up to $100B in subsidies for manufacturers of solar panels and residential consumers, plus another $100B in tax credits. Companies are already taking advantage; 70 G.W. worth of U.S. factory capacity has been announced since last year.
If solar is the older sibling coming into its own, batteries are the younger sibling with more potential that everyone is waiting to see them tap into.
These days, billion-dollar plants to make massive batteries are announced so often that — even if you follow the industry — it's hard to track them all.
Almost $60B of electric vehicle supply chain manufacturing has been announced since the passage of the IRA. That includes $53B of construction expenditures mostly planned for 2024 start dates, based on previous factories' production, can be expected to start five quarters after construction begins.
The good news is that every part of the country is benefitting. The Southeast is gaining a reputation as the battery belt, but new plants have also been announced in Ohio, Texas, Oklahoma, Kansas, and Arizona.
The U.S. is now on track to attract nearly a quarter of all announced global E.V. investments, second only to Europe.
Labor - The Elephant in the Room
Now for the bad news, we don’t currently have the workforce to support a rapid scale-up of manufacturing in the U.S.
However, a successful transformation could boost GDP by almost half a trillion dollars, including 1.5M new jobs.
In general, there are two large-scale demographic factors influencing the labor shortage. The first is an aging workforce. It's estimated that over 27% of manufacturing employees are baby boomers older than 57.
These workers spent their careers attaining a wealth of industry and company knowledge. They navigate complicated processes and procedures that keep plants running and orders filled daily.
Backfilling these jobs has become an increasingly difficult task. U.S. manufacturing executives believe that finding the right talent is now 36% harder than in 2018.
Entry-level jobs are the second piece to the labor puzzle. These jobs do not require technical know-how or industry knowledge, such as team assemblers, production work helpers, and hand-held tool cutters and trimmers.
The inability to fill these jobs leads to a snowball effect as they are the eventual pipeline for what manufacturers call "middle-skill" jobs that require a skill set that spans human and technology aspects but often does not require formal postsecondary education.
Unlike the first category (management), these jobs cannot typically be filled immediately by someone from another industry or who recently graduated from high school. Rather, they often require on-the-job or applied training programs that can take several months to more than a year to complete.
As the digital transformation in the manufacturing industry continues to develop, the skills needed to do the jobs in the smart factory will likely be different than those used today. But today's manufacturing workforce doesn't possess many of these skills, and the pipeline is increasingly bare.
A Modern American Industrial Strategy Includes Software and Sustainability
We're at a turning point for the American economy. A modern industrial and sustainability strategy could position the U.S. for success and resiliency for decades to come.
We can support sectors like energy and chip manufacturing that are strategic to economic growth and national security.
We can make permitting easier for these industries. As Joe Biden said, "We got so good at stopping projects that we forgot how to build things in America."
We can ensure inclusiveness both economically and demographically to these emerging sectors so that more people are exposed to a growing pie both on their personal top line (better jobs) and bottom line (cheaper energy).
We can take advantage of new technologies and the talent flowing into them to scale industries at a pace that exceeds what we once were capable of. The Empire State Building was built in 410 days, and The Pentagon in 491.
Software has a role to play in all of these initiatives. Automating factories, permitting studies, workforce enablement, and construction are all now aided by advances in software.
Factory automation is empowered by computer vision, permitting studies by LiDAR and image recognition, workforce enablement by marketplaces, and construction by a combination of all the above.
I'm the product of a family largely supported by skilled labor, I've seen the power of it to transform a generation slowly but surely. We have an opportunity to give an entirely new set of generations the opportunity for stable jobs and beyond - hopefully, we'll seize it.?