Economic Expansion Overlooks Manufacturing Technology

Dec. 1, 2000
TRADITIONAL ECONOMIC measures of productivity alone do not reveal the full extent of contributions by machine tools and related advanced manufacturing

TRADITIONAL ECONOMIC measures of productivity alone do not reveal the full extent of contributions by machine tools and related advanced manufacturing technologies to the United States' economic progress. Over the past five years, those benefits amounted to nearly $1 trillion. The basis for this conclusion is a new study released 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 Co, Washington DC-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 why 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.

Manufacturing Productivity Grows Faster Popkin's study also reveals that between 1959 and 1996, manufacturing productivity grew about 40% 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% annually. Productivity gains in manufacturing have fostered:

- 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.

- 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).

Intense competition has led to advances in production automation and product quality. In the aerospace industry, for example, McDonnell Douglas Corp 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 35 fasteners rather than 1,720 under the previous method.

Automobile Industry Quality Surges Quality improvements are dramatic in the automobile industry. Citing an annual average quality improvement rate of 2.2% 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, an owner of a new car produced by US 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. Car maintenance costs dropped 28% 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% increase in the energy efficiency ratings of air-conditioners and heat pumps since 1981, while refrigerators realized a 100% improvement. Savings to consumers in electricity costs totaled nearly $20 billion during 1997.

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 US 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 United States as a global market powerhouse. Growth in volume of American exports far outpaces those of Germany and Japan, among others. Between 1986 and 1996, US exports of manufactured products grew at an average annual rate of 10%, compared with 4% for Germany and 2.5% for Japan.

Who Benefits from Technology Advances? 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 United States is competitive and inflation stays in check.

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