Innovation in Manufacturing: Driving Growth and ... · Manufacturing jobs pay 9% more than jobs in the overall economy. Manufacturing accounts for 57% of U.S. exports. A 10% increase

November 15, 2011

Innovation in Manufacturing: Driving Growth and Competitiveness

Dr. Robert D. Atkinson President Information Technology and Innovation Foundation

Presentation at Rockwell Automation Manufacturing Perspectives Chicago, Illinois

The Information Technology and Innovation Foundation (ITIF) is a Washington, D.C.-based think tank at the cutting edge of designing innovation policies and exploring how advances in technology will create new opportunities to boost economic growth and improve quality of life. ITIF focuses on:

National economic competitiveness; Innovation processes, policy, and metrics E-transformation (e.g., health, commerce, e-government) IT and economic productivity Science and technology policy Innovation and trade policy

2

Today’s Presentation

3

2

Key Trends in IT Evolution and Intersection with Manufacturing

Where Are We in U.S. Manufacturing? 1

Why is IT Driving Manufacturing Innovation?

3

4

Why Innovation is Key to Manufacturing Renewal

5 What Should Washington Do?

6 Why Hasn’t Washington Done More?

Had U.S. manufacturing grown at the same rate as the overall

economy over the past decade, the economy would have as many as 8 million more jobs. Manufacturing jobs pay 9% more than jobs in the overall

economy. Manufacturing accounts for 57% of U.S. exports. A 10%

increase in sales due to exports produces twice as many jobs as a 10% increase in domestic demand.

Manufacturing is a Key Driver of U.S. Economic Growth

4

U.S. Manufacturing Job Growth Was the Worst of A Sample of OECD Nations

5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

United States

Canada

Australia

Japan

France

Germany

Italy

Netherlands

Sweden

United Kingdom (1)

U.S. Manufacturing Jobs Fell Precipitously in the Last Decade

6

0

5000

10000

15000

20000

25000

But Not Principally Because of Productivity

7

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

56 % - 1990s

61 % - 2000s

8

Real Manufacturing Value-Added As Share of GDP

Source: Bureau of Economic Analysis

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1987 88 89 1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 2009

Manuf

9

Source: Bureau of Economic Analysis

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Manuf

Nondurables

Real Manufacturing Value-Added As Share of GDP

10

Source: Bureau of Economic Analysis

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Manuf

Durables

Nondurables

Real Manufacturing Value-Added As Share of GDP

11

Source: Bureau of Economic Analysis

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Manuf

Durables

Nondurables

Computers

Real Manufacturing Value-Added As Share of GDP

12

Source: Bureau of Economic Analysis

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Manuf

Durables

Durables - computers

Nondurables

Computers

Real Manufacturing Value-Added As Share of GDP

13

Source: Bureau of Economic Analysis

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Manuf

Manuf -computersDurables

Durables -computersNondurables

Computers

Real Manufacturing Value-Added As Share of GDP

Today’s Presentation

3

2

Key Trends in IT Evolution and Intersection with Manufacturing

Where Are We in U.S. Manufacturing? 1

Why is IT Driving Manufacturing Innovation

14

4

Why Innovation is Key to Manufacturing Renewal

5 What Should Washington Do?

6 Why Hasn’t Washington Done More?

We Are Competing With Developing Nations for Cost-Based Manufacturing

15

150

131

111 100

86 86

58 50

27 26 19

4

0

20

40

60

80

100

120

140

1602008 Hourly Compensation Costs in Manufacturing (U.S. = 100)

16

Easier to Compete in High-Tech Manufacturing

0

10

20

30

40

50

60

70

80

90

100

Australia Canada Germany Japan Korea United Kingdom United States

Low-technology Medium-low technology Medium-high technology High-technology

Source: Stephen Ezell and Robert Atkinson (2011), International Benchmarking of Countries' Policies and Programs Supporting SME Manufacturers. Washington: DC: Information Technology and Innovation Foundation, September. Data from OECD, “Industry and Services STAN Database: “Value-added shares relative to manufacturing,” http://stats.oecd.org/index.aspx?r=228903

Today’s Presentation

3

2

Key Trends in IT Evolution and Intersection with Manufacturing

Where Are We in U.S. Manufacturing? 1

Why is IT Driving Manufacturing Innovation?

17

4

Why Innovation is Key to Manufacturing Renewal

5 What Should Washington Do?

6 Why Hasn’t Washington Done More?

Transistor Growth in Intel Computer Processor Chips

Because Moore’s Law Has Not Slowed Down

18

1) $5.50 2) $55 3) $550 4) $5,500

How much would 5 GBs of storage have cost using 1995 technology?

19

1) $5.50 2) $55 3) $550 4) $5,500

5 GBs cost $1.5 billion in 1960.

How much would 5 GBs of storage have cost using 1995 technology?

20

ICT Doubling (or Halving) Times Total bits shipped 1.1 years

Microprocessor Cost per Transistor Cycle 1.1 years

Magnetic Data Storage 1.3 years

Dynamic Random Access Memory (RAM) 1.5 years Average Transistor Price 1.6 years

Processor Performance in MIPS 1.8 years

Modem Speeds 1.9 years

Transistors in Intel Microprocessors 2.0 years

Microprocessor Clock Speed 2.7 years

The capacity of the network backbone has increased by 18 million % in the past decade. By 2020, average network speeds

are likely to be 3 million times greater than they were in 1990.

Rapid Growth in Bandwidth Capacity

22

But Not All Due to Computing

23

Solving a complex linear programming model: 1988: 82 years 2003: 1 minute

An increase in efficiency of 43

million. Of this, a factor of roughly 1,000 was due to increased processor speed, whereas a factor of roughly 43,000 was due to improvements in algorithms.

Source: Ed Lazowski, University of Washington, Computer Science Dept.

Today’s Presentation

3

2

Key Trends in IT Evolution and Intersection with Manufacturing

Where Are We in U.S. Manufacturing? 1

Why is IT Driving Manufacturing Innovation?

24

4

Why Innovation is Key to Manufacturing Renewal

5 What Should Washington Do?

6 Why Hasn’t Washington Done More?

U.S. Manufacturing Has Lagged Behind in Using IT

25

.00

.02

.04

.06

.08

.10

.12

.14Ratio of Industry IT Spending to Value Added, 2009

But Manufacturing is About Atoms and Bits A part is information.

What its characteristics are

is information.

Where it is information.

What its condition is information.

New IT Capabilities are Enabling Smart Manufacturing • Smart sensing and

instrumentation • Faster, more reliable networks

• IT-enabled micro-controllers

• Design and visualization

software

• High performance modeling and simulation programs

• Machine vision

A Shift to the Cloud

28

In 2011 44% of manufacturing companies were either implementing or evaluating cloud deployments; and 22% already have implemented. (Source: IDC)

Near Infinite Internet Addresses

IPV6 can provide multiple IP addresses to every grain of sand on the planet

Today’s Presentation

3

2

Key Trends in IT Evolution and Intersection with Manufacturing

Where Are We in U.S. Manufacturing? 1

Why is IT Driving Manufacturing Innovation

30

4

Why Innovation is Key to Manufacturing Renewal

5 What Should Washington Do?

6 Why Hasn’t Washington Done More?

Get the 4 T’s Right

Flickr: marzzelo

Flickr: Alan Miles NYC Flickr: Nedral

Tech Talent

Trade Tax

Today’s Presentation

3

2

Key Trends in IT Evolution and Intersection with Manufacturing

Where Are We in U.S. Manufacturing? 1

Why is IT Driving Manufacturing Innovation

32

4

Why Innovation is Key to Manufacturing Renewal

5 What Should Washington Do?

6 Why Hasn’t Washington Done More?

Economists Don’t “Get Manufacturing”

“America’s role is to feed a global economy that’s increasingly based on knowledge and services rather than on making stuff.” (Larry Summers)

33

34

Economists Don’t “Get Manufacturing”

“Any economist can tell you that this decline (in manufacturing) is not necessarily a cause for concern…We have become an ideas economy.” (Kevin Hassett, American Enterprise Institute)

“The notion that nations compete is incorrect… countries are not to any important degree in competition with each other.” (Paul Krugman)

35

Nor Competitiveness

“Potato chips, computer chips, what’s the difference.” (Bush I economic advisor, Michael Boskin)

36

Nor Competitiveness

Robert Atkinson ratkinson@itif.org

Facebook: facebook.com/innovationpolicy

Blog: www.innovationpolicy.org

YouTube: www.youtube.com/user/techpolicy

Website: www.itif.org

Twitter: @robatkinsonitif

Follow ITIF:

Thank You