The Future of National Manufacturing Policy

Abstract

over the issue of the correct growth strategy. A critical dimension of this debate has been the role the government should play in achieving desired growth rates. Nowhere has this struggle been more pronounced than in the debate over rationales for government support of the domestic manufacturing sector. Philosophies vary from a broadly activist government role to complete laissez faire. The optimal government role depends completely on the underlying economics. In this regard, leading economies have succeeded over time by investing in a set of assets and learning how to manage those assets effectively. The first industrial revolution (1750 to 1850) began as a rudimentary factory system in which small businesses used emerging crude machines and locally available supplies of power to manufacture a fairly limited range of products. By the second industrial revolution (approximately 1860 to 1910), production technologies based on numerous scientific developments had expanded to a wide range of product categories. The critical processing technology characteristics were mass production, interchangeable parts (i.e., standardization), and the assembly line. In the United States, massive investments in new types of infrastructure such as a national transportation network (particularly railroads), electricity, and an expanded and consolidated financial market were critical to the so-called Gilded Age of the late 19 century. The driver of advancement in process technology was the growing mechanization, not only of individual industries but also of entire supply chains, which created cheaper ways of making products. The key metric was achieving economies of scale. Machines were designed, plants were organized, and labor skills were specified in order to produce large volumes of undifferentiated products. As Henry Ford famously stated, “Any customer can have a car painted any color that he wants so long as it is black.” Economic historians will eventually pass judgment on the characteristics of the current drivers of manufacturing: information technology, nanoscience, and systems engineering. Still, regardless of when this information age is determined to