Executive Summary
The shift of the U.S.A economy from a manufacturing economy into a services industry has been a gradual process from the 1980’s. This shift has been caused by outsourcing of inputs mainly from china and Mexico. The outsourcing has caused the manufacturing to rely on the inputs that are manufactured elsewhere. However, it’s the high time that U.S.A. restructure its manufacturing industry. This paper has discussed the causes of the decline in the manufacturing industry in the U.S.A. The paper also discusses the possible steps that the government and investors can take to regain the manufacturing potential that the U.S.A. had before the 1980’s. Some of the proposals will require individual efforts while others will require a joint effort between the government and the private investors in the U.S.
Introduction
Outsourcing refers to a scenario where a firm buy some or all inputs materials from another firm, (Berlingieri, 2014). From the 1980 there has been an increase in the number of firms in U.S.A. that have resulted to outsourcing of its products. This has led to a reduction of the manufacturing activities by 24% and an increase in service industry by 36%, (Berlingieri, 2014). Most firms have resulted into outsourcing of materials from China and Mexico. Others have moved their manufacturing departments to the offshore parts such as China. Today services industry accounts for 83% of the total workforce in U.S. This is a considerable increase in the workforce in the services industry comparing with 1947 where it only employed 60%.
The first factor that has attributed to the shift of the economy from manufacturing to services is the change in the demand of services. The U.S. market is made up of people who have high earnings. Herrendorf et al. (2013), when an economy is composed of the rich they tend to shift their focus to demanding more services. In order for firms to cater for the demand of their customers they had to shift from manufacturing to offering services which were on high demand. In this regard it has been seen that professional services, engineering and accounting are the highest employers in the economy.
The second factor that has contributed in the shift of the economic structure is the structure of input-output, (Acemoglu, 2012). Production process has changed to a specialized system where professionals are required at different levels of production. For example, the production of a computer will require production of different components by different professionals at different levels. These components are later assembled by a different professional. In the process you find that the services of this people are developed at different level.
The other factor that can be attributed to the shift into service industry is the availability of outsourcing services. The availability of firms that are ready to provide the required finished products is another factor that has led to shifting to service industries. If a firm can reduce on the cost of employment and management by reducing the number of employees but at the same time offer the required products it will opt to stop manufacturing but instead offer services, (Berlingieri, 2014). This has made some firms to stop manufacturing and deal with outsourcing for example, Apple, and Hp.
Firms are also resulting into evaluating their supply chain. In some instance where a firm engages in outsourcing of its products their supply is seen to more effective than when producing the parts themselves, (Berlingieri, 2014). In such a scenario the firm will opt to outsource rather than manufacturing the parts themselves.
Graphical numerical results
From the above graph its visible that the highest employee in the U.S. market is education and health services which has employed 34,205 people. This is followed closely by trade that is both wholesale and retail with 18,989. Manufacturing is number three with 18,819. However, if we combine all the services industry totals it will have employed more than double the number of people in the manufacturing industry.
Actions or guidelines to recover the US manufacturing capacity of 1980’s
There are several actions that both the government and individual firms can do to regain the manufacturing industry. One the action that needs to be taken is investment into the manufacturing industry. The government need to reinvest in the manufacturing industry, (Knowledge, 2019). It is supposed to put more finances in supporting the manufacturing industry. Supporting local manufacturing will assist to boost this industry once again.
The other way to recover the manufacturing industry is by reshoring the manufacturing industry back to the country, (Herrendorf et al., 2013). Most manufacturing firms have moved their factories to offshore places such as China. The government should work to encourage the firms with offshore factories to bring them back. This can be done by offering both financial and material support. In doing so the government and the private firms will be able to recover the manufacturing industry.
Though the U.S. market is dominated by service industry it does not mean that there is no demand for manufactured goods, (Knowledge, 2019). Goods such as iron sheets are still in demand. The government can regain the manufacturing industry by encouraging the use of goods manufactured in the country. The buy America build America is a campaign that the government needs to use in order to recover its manufacturing industry. An increase in demand of goods manufactured in U.S. will see firms starting to manufacture since they are assured of ready market.
The government should also engage into research. There is a need for research of the U.S. market. The government needs to do research into the gaps that are existing in the manufacturing industry. Ones the government finds out the areas that require more investment it will need to share the information with potential investors who can now invest into those area of manufacturing. This will reduce the time used by investors in searching for areas that they can invest in. research will also help the government to identify those areas that will require funding.
The government will also need to invest in innovation and technology, ( Herrendorf et al. ,2013). The production process requires a lot of innovations. This can only be achieved if the government invests in the type of the technology being used today. The government needs to get learning institutions to be having high capabilities of producing the right technology. This can be done by get more people to do science oriented causes such as engineering. The government also needs to automate most of the production processes this can be done through the use of robots.
The government will require to come with a strategy on how it will recover its manufacturing sector, (Shih, 2020). A clear strategy will make it easy for the government to have a clear path towards rediscovering its manufacturing potential. To come up with the strategy it will first require to appoint a task force. The task force will comprise of people from different sectors of the economy. The task force will be given the mandate to identify areas that needs to be invested in, areas that will require funding and any other issue that will assist in reigniting the manufacturing industry. It will also need to come up with policies that will protect the rights of the employees in the manufacturing industry.
One of the most basic factors of production is labor. The government will need to come with ways that will ensure that there is job security for those people who are working with the manufacturing industry. Having job security makes the labor force to be stable. Where labor is stable there is increased production and the whole sector becomes stable. This means that the manufacturing industry will be stable and therefore will be able to cope with the prevailing circumstances in the country.
The government should also seek to partner with private firms that are involved in manufacturing, (Shih, 2020). It’s true that the government cannot be able to recover the manufacturing industry alone. It will require the assistance of local firms in order for it to reestablish the sector. Therefore, the government should be ready to offer support to the private firms in the sector. This way firms will be able to invest in recent technology and other methods of production. In return there will be an increase in the output of the firm and the whole industry. There also private investors who would want to invest in manufacturing but lacks the knowledge. In such a case the government may offer advice on how to run a manufacturing firm successfully.
The other way that the government can use to recover the manufacturing capacity is by diversifying the workforce, (Knowledge, 2019). The government should increase the number of workers for the minority groups such as the blacks and the women. This can be done by developing partnership with education institutions to train this groups. The government can do this by provision of training funds. The government can also do mobilization campaigns for this groups to train in manufacturing courses. Offering training and employment opportunity will boost the available workforce. A diversified workforce is very important in that it ensures that there is availability of different skills and knowledge. Also by involving the minority the government will be ensuring that there is equal distribution of wealth among its citizens.
The government can also invest in industrial apprenticeship, (Shih, 2020). There is a need for the government to come up with apprenticeship programs. This programs will be aimed at get qualified personnel. Apprenticeship will ensure that the semi-skilled and unskilled employees already in our industry acquires the required skills. This will help to increase efficiency and in turn increase output, (Knowledge, 2019). This can be done by offering training grants. The grants can also be extended to the higher learning institutions. The grant should also be aimed at reaching the Black Americans community and the women in the society.
Conclusion
The recent corona pandemic has exposed the need for the recovery of the U.S. manufacturing industry. Most of the equipment that were required for the treatment of the disease such as ventilators had to be imported from China. In a bid to recover the manufacturing industry the government needs to undertake serious steps. This will also need the involvement of the private sector together with individuals and the community at large. The government will also require to invest in paradigm shift from offshoring of factories to reshoring those industries. This will see most factories coming back to the country. The continued dependency of other countries for the inputs places the country at a risk of blackmail by the producing countries. This is not a good thing for the country and may cause losses to the businesses.
The shift of the U.S.A economy from a manufacturing economy into a services industry has been a gradual process from the 1980’s. This shift has been caused by outsourcing of inputs mainly from china and Mexico. The outsourcing has caused the manufacturing to rely on the inputs that are manufactured elsewhere. However, it’s the high time that U.S.A. restructure its manufacturing industry. This paper has discussed the causes of the decline in the manufacturing industry in the U.S.A. The paper also discusses the possible steps that the government and investors can take to regain the manufacturing potential that the U.S.A. had before the 1980’s. Some of the proposals will require individual efforts while others will require a joint effort between the government and the private investors in the U.S.
Introduction
Outsourcing refers to a scenario where a firm buy some or all inputs materials from another firm, (Berlingieri, 2014). From the 1980 there has been an increase in the number of firms in U.S.A. that have resulted to outsourcing of its products. This has led to a reduction of the manufacturing activities by 24% and an increase in service industry by 36%, (Berlingieri, 2014). Most firms have resulted into outsourcing of materials from China and Mexico. Others have moved their manufacturing departments to the offshore parts such as China. Today services industry accounts for 83% of the total workforce in U.S. This is a considerable increase in the workforce in the services industry comparing with 1947 where it only employed 60%.
The first factor that has attributed to the shift of the economy from manufacturing to services is the change in the demand of services. The U.S. market is made up of people who have high earnings. Herrendorf et al. (2013), when an economy is composed of the rich they tend to shift their focus to demanding more services. In order for firms to cater for the demand of their customers they had to shift from manufacturing to offering services which were on high demand. In this regard it has been seen that professional services, engineering and accounting are the highest employers in the economy.
The second factor that has contributed in the shift of the economic structure is the structure of input-output, (Acemoglu, 2012). Production process has changed to a specialized system where professionals are required at different levels of production. For example, the production of a computer will require production of different components by different professionals at different levels. These components are later assembled by a different professional. In the process you find that the services of this people are developed at different level.
The other factor that can be attributed to the shift into service industry is the availability of outsourcing services. The availability of firms that are ready to provide the required finished products is another factor that has led to shifting to service industries. If a firm can reduce on the cost of employment and management by reducing the number of employees but at the same time offer the required products it will opt to stop manufacturing but instead offer services, (Berlingieri, 2014). This has made some firms to stop manufacturing and deal with outsourcing for example, Apple, and Hp.
Firms are also resulting into evaluating their supply chain. In some instance where a firm engages in outsourcing of its products their supply is seen to more effective than when producing the parts themselves, (Berlingieri, 2014). In such a scenario the firm will opt to outsource rather than manufacturing the parts themselves.
Graphical numerical results
From the above graph its visible that the highest employee in the U.S. market is education and health services which has employed 34,205 people. This is followed closely by trade that is both wholesale and retail with 18,989. Manufacturing is number three with 18,819. However, if we combine all the services industry totals it will have employed more than double the number of people in the manufacturing industry.
Actions or guidelines to recover the US manufacturing capacity of 1980’s
There are several actions that both the government and individual firms can do to regain the manufacturing industry. One the action that needs to be taken is investment into the manufacturing industry. The government need to reinvest in the manufacturing industry, (Knowledge, 2019). It is supposed to put more finances in supporting the manufacturing industry. Supporting local manufacturing will assist to boost this industry once again.
The other way to recover the manufacturing industry is by reshoring the manufacturing industry back to the country, (Herrendorf et al., 2013). Most manufacturing firms have moved their factories to offshore places such as China. The government should work to encourage the firms with offshore factories to bring them back. This can be done by offering both financial and material support. In doing so the government and the private firms will be able to recover the manufacturing industry.
Though the U.S. market is dominated by service industry it does not mean that there is no demand for manufactured goods, (Knowledge, 2019). Goods such as iron sheets are still in demand. The government can regain the manufacturing industry by encouraging the use of goods manufactured in the country. The buy America build America is a campaign that the government needs to use in order to recover its manufacturing industry. An increase in demand of goods manufactured in U.S. will see firms starting to manufacture since they are assured of ready market.
The government should also engage into research. There is a need for research of the U.S. market. The government needs to do research into the gaps that are existing in the manufacturing industry. Ones the government finds out the areas that require more investment it will need to share the information with potential investors who can now invest into those area of manufacturing. This will reduce the time used by investors in searching for areas that they can invest in. research will also help the government to identify those areas that will require funding.
The government will also need to invest in innovation and technology, ( Herrendorf et al. ,2013). The production process requires a lot of innovations. This can only be achieved if the government invests in the type of the technology being used today. The government needs to get learning institutions to be having high capabilities of producing the right technology. This can be done by get more people to do science oriented causes such as engineering. The government also needs to automate most of the production processes this can be done through the use of robots.
The government will require to come with a strategy on how it will recover its manufacturing sector, (Shih, 2020). A clear strategy will make it easy for the government to have a clear path towards rediscovering its manufacturing potential. To come up with the strategy it will first require to appoint a task force. The task force will comprise of people from different sectors of the economy. The task force will be given the mandate to identify areas that needs to be invested in, areas that will require funding and any other issue that will assist in reigniting the manufacturing industry. It will also need to come up with policies that will protect the rights of the employees in the manufacturing industry.
One of the most basic factors of production is labor. The government will need to come with ways that will ensure that there is job security for those people who are working with the manufacturing industry. Having job security makes the labor force to be stable. Where labor is stable there is increased production and the whole sector becomes stable. This means that the manufacturing industry will be stable and therefore will be able to cope with the prevailing circumstances in the country.
The government should also seek to partner with private firms that are involved in manufacturing, (Shih, 2020). It’s true that the government cannot be able to recover the manufacturing industry alone. It will require the assistance of local firms in order for it to reestablish the sector. Therefore, the government should be ready to offer support to the private firms in the sector. This way firms will be able to invest in recent technology and other methods of production. In return there will be an increase in the output of the firm and the whole industry. There also private investors who would want to invest in manufacturing but lacks the knowledge. In such a case the government may offer advice on how to run a manufacturing firm successfully.
The other way that the government can use to recover the manufacturing capacity is by diversifying the workforce, (Knowledge, 2019). The government should increase the number of workers for the minority groups such as the blacks and the women. This can be done by developing partnership with education institutions to train this groups. The government can do this by provision of training funds. The government can also do mobilization campaigns for this groups to train in manufacturing courses. Offering training and employment opportunity will boost the available workforce. A diversified workforce is very important in that it ensures that there is availability of different skills and knowledge. Also by involving the minority the government will be ensuring that there is equal distribution of wealth among its citizens.
The government can also invest in industrial apprenticeship, (Shih, 2020). There is a need for the government to come up with apprenticeship programs. This programs will be aimed at get qualified personnel. Apprenticeship will ensure that the semi-skilled and unskilled employees already in our industry acquires the required skills. This will help to increase efficiency and in turn increase output, (Knowledge, 2019). This can be done by offering training grants. The grants can also be extended to the higher learning institutions. The grant should also be aimed at reaching the Black Americans community and the women in the society.
Conclusion
The recent corona pandemic has exposed the need for the recovery of the U.S. manufacturing industry. Most of the equipment that were required for the treatment of the disease such as ventilators had to be imported from China. In a bid to recover the manufacturing industry the government needs to undertake serious steps. This will also need the involvement of the private sector together with individuals and the community at large. The government will also require to invest in paradigm shift from offshoring of factories to reshoring those industries. This will see most factories coming back to the country. The continued dependency of other countries for the inputs places the country at a risk of blackmail by the producing countries. This is not a good thing for the country and may cause losses to the businesses.
