Commentary

Manufacturing Advantage

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This reveiw appeared in The Finanacial Times on January 13, 2000.

Flourishing old economy takes cue from the new U.S. manufacturing companies are thriving on the back of IT-inspired work practices

It is perhaps understandable in today’s febrile economic climate that information technology and the knowledge-based world of Silicon Valley should be regarded as setting the paradigm for the new economy.

There is a conventional wisdom that the important work in the US is now to be found in knowledge-based services. The old economy of smoke-stack industries and assembly lines in huge plants populated by workers engaged in dull,
mind-numbing jobs has gone for good.

But a forthcoming book, to be published by Cornell University Press, ought to provide a sensible corrective to the current, rather blinkered analysis. It seeks to focus on what might sound an unfashionable topic nowadays – the future of U.S. manufacturing in a competitive global economy.

The authors argue persuasively: “America continues to depend on its manufacturing sector for increases in its wealth, improvements in its living standards and the competitiveness of its companies in global markets.”

They point to the obvious but less recognised fact that computer chips and microprocessors can be found everywhere, not just in information-age workplaces. The authors liken the current “ubiquitous use of digital electronic technologies that control equipment or transmit information as digitalisation” to the impact of electrification early in the last century.

In addition, investment in computers is not confined to the service sector. On the contrary, it has grown rapidly in many manufacturing sectors, including some that are dismissed as obsolete.

There have been far more substantial investments in new technology in steel,non-electrical machinery, printing and publishing, instrument production, and electrical machinery than in finance, insurance, real estate, health care and legal services. It is the widespread use of computer technology that ensured an annual 5.7 percent productivity growth between 1990 and 1996 in those leading US manufacturing sectors.

More importantly, it is the impact of information technology that has precipitated far-reaching changes in how employment is organised in US manufacturing and how employees at all levels have “to think, act, learn and do”.

What we have seen in the US is the rise of “high-performance” work systems in manufacturing. Workers have been mobilised in problem-solving or quality improvement teams and they are now required to gather information,
process it and act upon it.

This has meant a renewed emphasis on training and employability of workers. It has also brought a focus on the need for employment security and the introduction of incentive pay schemes to improve trust and commitment in a more valued workforce.

The evidence of what is happening in the US workplace is impressive. In 1987, the proportion of employees in companies that used self-managed work teams was 28 per cent. Eight years later it had risen to 68 per cent. In their detailed empirical analysis of the steel, apparel and medical electronic instrument and imaging industries, the authors show how high-performance workplace practices improve productivity, output, competitive advantage and profitability.

They argue that this achievement stems mainly from two factors: an increase in the effectiveness of individual workers who are encouraged to give greater discretionary effort in their jobs; and the provision of new opportunities
for organisational learning through employee participation. The high-performance workplaces are also shown to ensure higher levels of employee commitment and satisfaction.

The authors found little sign of any “dark side” in these modern, technology-based workplaces for employees, who tend to enjoy higher earnings than those working elsewhere.

The breadth of evidence to drive home the central message is impressive. It makes US organised labour’s protectionist posturing at the recent abortive Seattle summit of the World Trade Organisation look all the more anachronistic.

US manufacturing companies — utilising information technology and high-performance work organisation — are thriving in the open market economy. It is also heartening to know that employment opportunities requiring skill, flexibility and continuous learning at all levels are opening up in many US manufacturing sectors.

No doubt such jobs do not provide the lavish salaries enjoyed by a limited number of lucky self-improvers in information technology and e-commerce, but they may turn out to have a more solid and permanent base.

What this impressive book demonstrates is that manufacturing and information technology, far from being separate sectors, are in fact firmly inter-related. The new and the old economies have more in common in the modernisation of work and employment than many pundits are prepared to recognise.