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July 2011

On American Manufacturing

I came across an interesting article in The Economist about the president, chairman and CEO of Dow Chemical, Andrew Liveris, and his views on reviving American manufacturing. Liveris, who studied chemical engineering at the University of Queensland before joining Dow Chemical, published a book earlier this year entitled "Make it in America: the case for re-inventing the economy".

In the book and the interviews he has given surrounding its publication - see for instance NPR and Knowledge@Wharton - he advocates for a move toward advanced (as opposed to basic) manufacturing, to exploit the current trends of "clean energy, health and nutrition, rising consumerism in emerging markets and investment in transport and infrastructure."

Here is a quote I found particularly interesting, from the NPR transcript: "outsourcing based on wages has really become the storyline of manufacturing, and I think that's wrong. It is more complicated than that. Take Dow as an example. We built this R&D center in China. We now have 500 Chinese scientists working there, and they earn incredibly good money."

His plan to improve America's competitiveness in manufacturing has the following high-level components:

  • train more engineers,
  • attract more foreign talent ("over 1m jobs in science and technology will open up in America this year but only 200,000 new graduates will have the skills to fill them.")
  • promote clean energy,
  • reduce costs to do business in America, in particular through a decrease in the corporate tax,
  • make the research-and-development tax credit permanent,
  • offer tax advantages to companies that build plants in the US.

He further describes his plan in an op-ed he wrote for USA Today last year. He has certainly promoted advanced manufacturing at Dow so far, with the opening of new factories in Michigan such as one making lithium-ion batteries (a family of rechargeable batteries), which has led to the creation of nearly 2,000 jobs. 

The Economist writer points out that "America [already] offers many subsidies fror manufacturers. Dow has had hundreds of millions of follars from local, state and federal taxpayers" and wonders whether taxpayers benefit from this arrangement.

A commenter to the Economist article (neil_dr) points out: "His proposal to reduce tax and increase the number of immigrant would help his organization with lower taxes and cheaper labor cost but how will it benefit other Americans ? The unemployed labor force will never have the opportunity of getting re skilled as the availability of immigrant labor would make that unnecessary."

But there is little doubt that a strong manufacturing sector is important for a healthy economy. 76% of Economist readers who participated in a recent debate on the publication's website voted that "this house cannot succeed without a big manufacturing base".

Innovation's Lure

The New York Times recently published a great article by Barry Meier on metal-on-metal hip implants - a supposed improvement over designs using both metal and plastic, but one that also, as it turns out, "can shed dangerous metallic debris through wear". The article suggests that these new designs were promoted before doctors had a good understanding of the risks involved, and patients began to ask for the new implants because they thought new had to be better.

The article provides several examples of other new products in health care that claimed to be technological breakthroughs but ended up no better - and sometimes worse - than the products they were supposed to reply: some artificial spinal disks, a diabetes drug, a heart device component. It also underlines the business motivation of health care companies to keep bringing new products to market rather than sticking to old models in fields where these old designs already have high success rates. (As mentioned by an expert in the article, novel approaches, with the high level of uncertainty they entail, are much more justifiable for diseases such as cancer which continue to claim many lives.) In their defense, some of these new innovations had indeed been proved more effective for a subset of the population (taller, middle-age men in the case of the new hip implants) but they were later marketed for everybody.

I found the history of the metal-on-metal hip particularly fascinating, especially the part where this design had been abandoned before on the grounds that "patients had metal particles in their blood or organs". The part of the article at the end of the first online page and the beginning of the second one is riveting. Excerpt: "In essence, the old technology was repackaged as new and cutting-edge, and warnings like Mr. Black’s were ignored and considered no longer relevant."

It is to the doctors' credit that they sounded the alarm when they noticed some of their patients develop unusual conditions, in spite of the upside marketing their practice as "on the cutting-edge of innovation" can have on their own revenues. On the other hand, it would have been infinitely better if this sad mess had not developed in the first place.

Not only were these innovations little tested, but (see the top of the third online page) computer simulations are also in part to blame, for the unrealistically optimistic conditions they assume. Specifically, "Under F.D.A. rules, most all-metal hips don’t have to undergo clinical trials before sale. Instead, they are tested in labs on machines that simulate millions of steps to study the forces exerted by years of motion... [T]ests of the all-metal implants did not point to problems, [...because they] were apparently based on idealized conditions... For example, all-metal devices proved less forgiving than metal-and-plastic ones to small variations in how they were implanted."

Ultimately, some say that "lawsuits against... makers of all-metal hips may emerge as the largest product liability cases of this decade."

Again, this is a fantastic article and I encourage everyone to read it, as an important lesson on the medical industry and what can happen when patients let themselves be convinced that innovation can only make a product better.