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Sunday, September 12, 2010

Manufacturing Jobs in America

From the DC underground:

Those in the manufacturing innovation business, select and fund the development of new ideas that will be manufactured in the USA, and those ideas address some major problem that the country is facing like crumbling infrastructure, the need for clean energy, or the high cost of medical care and the entrepreneurs and innovators who drive innovation. What I have learned is that the old refrain, build a better mousetrap and the world will beat a path to your door is not true. Good quality ideas are necessary for advancement, but the best ideas in the world will never be built without investment.

Why is investment in innovation important? Because the staple industries that American depended on for good paying jobs are gone or cutting back and they will not return. In an article in the on line news magazine, 24/7 Wall Street, John Ogg listed 10 industries that will never return to their pre recession employment levels. These industries include, home construction, the auto industry, the pharmaceutical industry, telecommunications, and local and state government.

There are two sources of investment capital, large companies and venture capitalists. Large companies do not invest in breakthrough innovation for two reasons. First, their emphasis is on short-term gains. The managers need to show improved profits each quarter to satisfy the stockholders. Incremental improvements in the various processes are valued, but breakthrough innovations don’t pay off for years. So, the work to develop breakthrough innovations doesn’t get funded.

The second reason involves how large-scale manufacturing businesses operate. Established businesses are built for efficiency, which depends on predictability and repeatability, breaking tasks down into their components and holding employees accountable for accomplishing the tasks. Innovation is by definition unpredictable and uncertain. Successful businesses don’t invest in breakthrough innovation. The classic example is Ford Motor Company that nearly went out of business making the same car long after the market had gone away.

The second source for investment capital to develop breakthrough innovation is the venture capital (VC) firm. These investors are interested in funding innovative products that will come to market in 2 – 3 years. The problem is that on average it takes 5-6 years from the discovery of a breakthrough idea to the time it is ready for market. Also the more exotic the breakthrough idea is the less likely it is that the VC firm will understand its implications. For these reasons most breakthrough ideas never get the investment funds they need.

The period of time between the discovery of a breakthrough idea and the availability of development funds is known as the Valley of Death.

Two things, first, the jobs we had aren’t coming back, and second, government investment that is needed to get innovative products over the Valley of Death can also steer the innovators into regions where the jobs are needed. For the second part, the nation needs active Representatives that understand how innovation works and have the energy and motivation to take action and get the funds to the innovators and bring in the resulting businesses.

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