AM & National Competitive Advantage, Part One: the Real Problem with US Manufacturing

The problem with US manufacturing is the productivity growth rate. Depending on the source, US manufacturing productivity has either been flat or slightly declined since 2010.

Before going any further into the discussion, it’s worth mentioning that, on this front, the US shouldn’t be singled out as some exceptional case of stagnation, at least in the context of other comparable national economies. The US has fared better in manufacturing productivity growth over that time period than European nations. Moreover, Japan’s manufacturing productivity growth over the last fifteen years or so, while better than in the US, hasn’t been much better, and is indeed low enough to raise concerns, as well. But, because of the unique manner in which non-Chinese economies appear currently to be attempting to bring their respective national industries into closer coordination, the productivity growth rate of the US manufacturing sector may have outsized importance to the fate of the global economy.

That is because productivity growth is singularly important to national competitive advantage, and this is what’s troubling about US manufacturing’s extended period of flatlining. That is, if we are trying to gauge improvement (or decline) in a given national industry, the productivity growth rate is the metric we should track above all others. Demonstrating why, and what might be done about it, will require a lengthy explanation that can’t all fit in one article. However, for those interested in the additive manufacturing (AM) industry, at least, I think the whole explanation will be worth reading, if only because AM is in an unusually favorable position to help address what’s ailing productivity growth in aged industrial economies, including the US’s.

Defining Competitive Advantage in National Terms

National competitive advantage in the context of productivity growth has to be defined, which isn’t such a difficult task thanks to the work of longtime Harvard Business School professor Michael E. Porter (he retired in 2023). For him, though, the task was quite difficult: when he began applying his knowledge to the topic from the perspective of national economies, there was very little clarity as to how one nation’s economy achieved competitive advantage over another nation’s, despite pervasive interest in the subject.

Porter helped change that when he released The Competitive Advantage of Nations in 1990, the result of years of an international study, with the help of a team of researchers, and partly inspired by his participation in President Reagan’s Commission on Industrial Competitiveness, which began in 1983. Porter did not view what the commission accomplished in favorable terms:

“Partly because of these differences [in defining competitiveness], much energy has been expended in the United States debating whether there is a competitiveness problem at all. The Commission’s report, instead of providing a consensus for action, had little effect. The debate about competitiveness raged on, and still does today.”

Referencing this background matters on multiple levels. First, even though Porter’s book has now been in circulation for nearly four decades — thus implying that business stakeholders no longer have an excuse to remain oblivious to the basis for national competitive advantage — many of the same arguments that Porter debunked continue to be used today to explain, for example, why China has attained such a seemingly insurmountable lead in global manufacturing. Second, the background affirms that Porter wasn’t some obscure academic whose findings, at the time they were published, wouldn’t have stood a chance of being applied in the real world by policymakers.

As I’ve just noted, Porter’s expertise was explicitly sought out by the US government, which then, for whatever reasons (we’ll consider some of them), largely decided to enact policies that were precisely the opposite of what Porter recommended a nation should do, if its primary aim is to maximize its economic competitive advantages. So what should the goal of the nation (or city, or state, or region) be, if it’s trying to become more economically competitive? On this, Porter was very clear:

“The only meaningful concept of competitiveness at the national level is national productivity. A rising standard of living depends on the capacity of a nation’s firms to achieve high levels of productivity and to increase productivity over time. …Sustained productivity growth requires that an economy continually upgrade itself. A nation’s firms must relentlessly improve productivity in existing industries by raising product quality, adding desirable features, improving product technology, or boosting production efficiency” (p. 6).

Higher GDP with the same inputs, or the same GDP with fewer inputs: that’s the goal that matters. Now, people can, and I think should, debate how much we really benefit from viewing GDP as the all-important metric for judging economic progress. But this isn’t the time to have that debate, and pretty much everyone who views GDP as singularly important agrees that productivity growth is the benchmark we should pay attention to above all else. Convincingly, Porter argues that achieving productivity growth always comes down to how good a nation is at stimulating upgrading:

“A nation’s firms must also develop the capabilities required to compete in more and more sophisticated industry segments, where productivity is generally higher. At the same time, an upgrading economy is one which has the capability of competing successfully in entirely new and sophisticated industries. Doing so absorbs human resources freed up in the process of improving productivity in existing fields” (pp. 6-7).

Finally, Porter caps off that line of thought with respect to its implications for how people at the time were misunderstanding (and how they’re still largely misunderstanding) what accounts for competitive advantage:

“All this should make it clear why cheap labor and a “favorable” exchange rate are not meaningful definitions of competitiveness. The aim is to support high wages and command premium prices in international markets (p. 7).

The Relevance for the AM Industry

As I alluded to above, and as Porter frequently reminds his readers, his perspective applies just as well to communities on a smaller scale than the nation, to industries, and all the way down to the individual firm. In fact, one key to his thinking is that to understand a nation’s competitive advantage, we can’t start with the nation as a whole; we must begin with a focus on “specific industries and industry segments” (p. 9).

This already suggests why the AM industry is a perfect field of activity for applying Porter’s methods. In addition, AM  serves as a textbook case of firms “develop[ing] the capabilities to compete in more and more sophisticated industry segments”, as well as of economic upgrading in the form of acquiring the “capability of competing successfully in entirely new and sophisticated industries”.

The growth of AM adoption should ultimately contribute positively to the productivity growth of US manufacturing. It may already be doing so to some limited degree, to the extent that the US manufacturing sector may have performed even worse over the last 15 years without the growth of the AM industry that has taken place during that time. If it’s delivering no positive impact, then the explanation is (1) the industry is still far too small to put any dent in the overall sector; (2) the US’s AM competency hasn’t crossed a threshold necessary to yield productivity growth; (3) other nations’ industries are simply so much better than the US AM industry that we’ve already reproduced the same disadvantages in AM that characterize the US’s lost ground in manufacturing as a whole; or (4) some combination of two or three of the factors.

Assuming AM has made no meaningful contribution to US manufacturing productivity, either positive or negative, I would lean toward a combination of factors 1 and 2. As for 3, China is obviously the “other nation” the US should be measuring itself against, and there are many reasons to be concerned that China has already taken as decisive a lead in AM as it did in the manufacturing sector at large. But I think the industry still represents too small a portion of manufacturing activity to affect the data.

On the other hand, that could all change very quickly, and I think that there’s reason to believe that it will, and this is why we should care about the determinants of competitive advantage. The US is making the same wrong decisions about its manufacturing sector that it has been making for decades, and AM is included in this context. Consider this excerpt from the end of Porter’s book — which, I reiterate, was published in 1990 — where he’s discussing recommendations for US industry:

“A new national effort to upgrade technical and vocational schools, which are a vital link in developing specialized human resources for industry, must begin immediately,” Porter wrote, nearly 40 years ago. “…Yet improving the general education system in the United States is not enough. What is required for competitive advantage is specialized skills tailored to particular industries. American companies must understand more clearly that human resources will be what really determine their long-term competitive position relative to international rivals, not capital costs or the value of the dollar. There is a need for firms to play a greater role in the training and continual upgrading of their workforce” (p. 725).

While there has been some lip service to revamping US vocational training, little has resulted, and the fact that the discourse surrounding it is so eerily similar to what Porter advocated nearly four decades ago doesn’t inspire confidence. Nor does this observation made by Porter, several pages later:

“There have been recent proposals that [DoD] take a more active role through its procurement in bolstering industry. While a greater concern in defense procurement with the needs of industry is desirable…DoD is not an instrument that should be relied upon too heavily. The goals of DoD are skewed toward preserving domestic competitors. This has the danger of leading to protection and to the blunting of rivalry. In addition, defense needs are not the same as civilian needs in most industries. Too much of a role for DoD can be a distraction” (p. 729).

Finally, and perhaps most concerning of all, there’s this assertion from an earlier section, on government policy:

“Defining national economic goals in terms other than long-term productivity growth is a fundamental error that leads to inappropriate policies. No nation can achieve net exports in every industry…Balancing trade is not in and of itself an appropriate goal, nor is attempting to boost “competitiveness” through forcing down the value of the currency” (p. 618).

So, US policymakers are clearly doubling down on many bad decisions, and the AM industry can’t help but be caught up in the process. Nevertheless, many good things are happening as well, and AM tends to embody the good more than the bad. US manufacturers prioritizing a segment driven toward high-value applications is promising, and despite the continued lack of progress in American workforce development generally, what’s happening in the AM industry arguably counts as a small exception to that rule. The AM industry remains far too beholden to defense, but there is reason to believe AM can serve as a bridge between civilian and defense needs in a way conventional manufacturing technologies largely cannot.

The key, again, is to identify ways to amplify AM’s potential to upgrade the US economy and drive sustained productivity gains. In the follow-up to this post, I’ll discuss some of what’s involved in that process.