How to Build Again

By Foroohar, Rana | Newsweek, July 19, 2010 | Go to article overview

How to Build Again


Foroohar, Rana, Newsweek


Byline: Rana Foroohar

Ever since the financial crisis hit, policymakers around the world have been talking about how to "rebalance" their national economies. In rich nations, this mostly entails reducing debt. But it also involves reassessing the mix between the service sector, which represents about 70 percent of the U.S. economy, for example, and manufacturing, which makes up just 11 percent. In the U.S. and the U.K. in particular, there's a sense that overreliance on dodgy financial services is no way to create decent jobs for the masses or to build a more stable economy. In these and many other countries, like France and Germany, influential voices are calling for a return to the business of producing real goods.

Of course, that involves competing not only against nimble, highly skilled, and cheaper labor giants like China, but against a raft of other developing nations in Asia, Africa, and Latin America that want to become factories to the world. Still, a new report issued in late June by the Council on Competitiveness and the consultants Deloitte Touche Tohmatsu should give America and some European nations like Germany reason to hope they can stay in the global game.

The report surveyed 400 global CEOs, tallying their views on the key factors that drive manufacturing competitiveness. The most surprising finding is that it's innovation, not how cheap or expensive labor is, that determines whether a country will be successful in manufacturing. Contrary to conventional wisdom, manufacturing has not become a race to the bottom. That's why the U.S. still ranks as the fourth-most competitive nation after China, India, and South Korea, despite vastly higher labor costs. Germany, Japan, and Singapore also hold positions in the top 10. The skill levels of their workers more than offset their costs (U.S. workers are twice as productive as those in the next 10 leading manufacturing economies). Skills are particularly critical in the lucrative high-end manufacturing sector, which accounts for about half of all new innovation within an economy.

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