Study Cites Unmeasured Role Of Manufacturing Technology in U.S. Economic Expansion
28 September 2000
Study Cites Unmeasured Role Of Manufacturing Technology in U.S. Economic Expansion
WASHINGTON--Sept. 28, 2000--Traditional economic measures of productivity alone do not reveal the full extent of contributions by machine tools and related advanced manufacturing technologies to the nation's economic progress.Over the past five years, those benefits amounted to nearly $1 trillion. The basis for this conclusion is a new study released today by AMT -- The Association For Manufacturing Technology.
"Machine tools and technologies other than computers and microprocessors receive inadequate credit for America's prosperity," said the study's author, Joel Popkin of Joel Popkin and Company, Washington, D.C.-based economic consultants.
Several recent studies have concluded that contributions of enhanced productivity in traditional manufacturing equaled -- and may have exceeded -- those of the high-tech sectors, including computers and information technologies. This new study, "Producing Prosperity -- Manufacturing Technology's Unmeasured Role in Economic Expansion," goes further in illustrating and explaining why the remarkable growth in durable goods producing industries, with a rate of increase in real output between 1992 and 1997 about twice the rate of the overall economy, is not the full measure of the benefits associated with advanced manufacturing technologies.
Popkin's study also reveals that between 1959 and 1996, manufacturing productivity grew about 40 percent faster than productivity in the overall non-farm economy as measured by multifactor productivity (MFP), a fundamental measure that considers factors beyond capital and labor. Between 1992 and 1996, durable goods manufacturing (such as autos, appliances and aircraft) achieved MFP gains averaging 4.2 percent annually.
"For the last several years, a puzzling gap has existed between what traditional economics was telling us about productivity and what the economy has actually done," said AMT President Don F. Carlson. "This study allows us to see the light. Moreover, because it is focused on only the manufacturing technology industry, this study may well be only the tip of the iceberg," Carlson continued. "It is likely that other manufacturing industries have a similar tale to tell."
Productivity gains in manufacturing have fostered enormous benefits:
| -- | Rapid gains in labor productivity in the durable goods sector generated an additional $618 billion of output (in 1996 dollars) over the 1992-98 period. |
| -- | These same producers saved $25.3 billion in carrying costs between 1992 and 1997, thanks to a decline in inventory requirements per dollar of sales attributable to advanced manufacturing processes. This frees up capital for additional investments. |
| -- | Eight key industries saved a combined total of $24.3 billion in payroll costs in 1997 alone -- and $80 billion between 1992 and 1997 -- because of productivity increases. They include auto parts, aircraft engines and parts, engines and turbines, metal foundries, fabricated structural metal, other industrial machinery, construction and mining equipment, and farm and garden machinery. |
| -- | The cost of consumer durable goods from 1996 to 1999 was just over $100 billion less than it would have been without these gains and purchases of imports would have risen more than they did. |
| -- | Consumers are saving billions from product quality improvements such as cars with higher fuel efficiency ($50 billion in 1999). |
"This study proves that much of the gain in productivity reflects a revolution in manufacturing technology generally and advances in machine tools specifically," said Carlson. "Manufacturers operate today in a complex, competitive, quality-conscious world where the consumer's demand for mass customization has replaced the earlier one-style/color-fits-all notion of mass production."
"Today's manufacturing mantra is a blunt 'faster, better, cheaper'," Carlson continued. "Those who can't compete on those terms don't survive."
This intense competition has led to advances in production automation and product quality. In the aerospace industry, for example, McDonnell Douglas Corporation took advantage of high-speed machining, operating 15 times faster than a previous method, to improve the manufacturing process for landing-gear bulkheads on the C-17 aircraft. With the new process, it makes bulkheads with two parts rather than 72 and only 35 fasteners rather than 1,720 under the previous method.
Quality improvements are especially dramatic in the automobile industry. Citing an annual average quality improvement rate of 2.2 percent documented by the Bureau of Labor Statistics between 1967 and 1998, the study notes that today's car has twice the quality of one built 30 years ago in terms of performance, reliability, durability and warranty. As a result, today an owner of a new car produced by U.S. companies experiences fewer than 30 problems per 100 vehicles during the first year of ownership compared with a rate of 104 per 100 cars in 1980. That higher quality translates into significant consumer savings as a result of fewer repairs and longer useful life. Car maintenance costs dropped 28 percent between 1985 and 1998, saving consumers $21 billion in 1998 alone.
Consumers are realizing similar savings with other durable goods, thanks to machine tool advances that have streamlined production. The scroll compressor, made possible by more precise and flexible machine tools, contributed to a 40 percent increase in the energy efficiency ratings of air conditioners and heat pumps since 1981, while refrigerators realized a 100 percent improvement. Savings to consumers in electricity costs totaled nearly $20 billion during 1997.
In addition to fueling a good portion of America's economic expansion during the last 10 years, advances in manufacturing technology have provided other macroeconomic benefits. They have:
-- Improved the quality and prosperity of the nation's workforce
by making it necessary for employers to provide workers with
more training. Workers who improve their skills qualify for
higher wages and improve their living standards.
-- Reduced the peaks and valleys of the U.S. business cycle,
perhaps avoiding economic recessions, by smoothing out
inventory fluctuations. Better machine tools have helped
shorten process times and aided just-in-time inventory
management procedures.
-- Restored the U.S. as a powerhouse in the global marketplace.
The growth in volume of American exports far outpaces those of
once feared Germany and Japan, among others. Between 1986 and
1996, U.S. exports of manufactured products grew at an average
annual rate of 10 percent, compared with 4 percent for Germany
and 2.5 percent for Japan.
Beneficiaries of these understated advances have included nearly everyone:
-- Manufacturers, who make higher quality products faster and at
lower cost.
-- Consumers, who pay less for higher quality goods that perform
better and last longer.
-- Workers in the manufacturing sector, who acquire new skills
and earn higher real wages.
-- The economy, because the U.S. is competitive and inflation
stays in check.
"Government policymakers as well as candidates for federal and statewide elective office should take a close look at this study when formulating future economic policies," said AMT's Carlson. "Our priorities at all levels of government should be policies that promote and support more capital investment, development of advanced manufacturing technologies, free and fair trade, and improved education and skill training for workers. The failure to recognize and enhance the benefits of these contributions risks the ending of our strong economy and resulting prosperity."