Manufacturing, 3D Printing and What China Knows About the Emerging American Century

The factory of the future.  One man, and a dog, run the whole thing; the dog to keep the man from touching the automated controls.  (If you say “one woman” you don’t need the dog, since males are notoriously ADHD and prone to tinkering.)

The factory of the future is a fully-automated building filled with robotic systems and software.  Purified raw materials and power go in, and a massive stream of customized products comes out.  It is an incredibly efficient machine with nary an ounce of waste.  Software enables fabrication with the precise type and amount of materials, while more software and communications ensure that what is produced is precisely what is demanded from the end market.

That is the goal, and always has been.  And it is barely an exaggeration of what is already emerging — except for the dog.  The poster child of the factory-of-the-future is visible in a hot new trend in the techno-dweeb sphere, so-called 3D Printing.  These machines literally ‘print’ from computer images entire finished parts or simple products, ‘assembling’ from raw metal powders using powerful lasers or electron beams.  They work much the same way much your computer’s laser printer does, though in the latter case using much less powerful lasers to print text using powdered inks.  One guy, a computer, and a 3D ‘printer’ … presto a desktop factory.  More on this incredible technology in a minute.

Such manufacturing is being enabled by the long march of technology.  And it surely worries China.  While economic historians remind us of the importance of the twin innovations of free markets and financial structures, both those factors pale against the power of technology to create productivity, and thus the wealth of the world.

If the future factory is a machine born of emerging technologies and requires de minimus labor, on average such factories will be located preferentially where the skills and culture exist to invent and implement.  And, on average, you’d put such factories close to demand.  The U.S. still has more of both innovation and GDP than any other nation in the world, and will for some time.  (The “on average” necessarily assumes roughly equal tax and regulatory treatment, and roughly equal cost of capital.)

That technology adds productivity – more output using fewer labor hours – is an old story.  But this means, in a narrow sense, technology eliminates jobs even as it creates broader societal wealth.  We’ve seen this in America where total manufacturing output has doubled in the last thirty years while the manufacturing labor force dropped from 17 million in the mid ‘70s to 12 million today.  Each worker today is thus six times more productive.  Overall this is a very good thing for America, but not so good on the face of it for the five million no longer directly employed in manufacturing.

It is mistake to think that the solution to this employment dilemma is to encourage labor-intensive activities.  The solution lies in stimulating economic growth, and yet more productivity (more output with less labor), thus more wealth to create the jobs of the future you can’t imagine today.  One anecdote making the rounds now says it all (apocryphally attributed to Milton Friedman), and generally goes like this:

An economist visiting China sees a large number of men digging with shovels to build a dam. His host points to how many men are employed. The economist points out that fewer men with the right equipment could build more efficiently. “But then we wouldn’t be employing the other men,” the host replies. “Well, in that case, why not give them all spoons?”

The future of manufacturing will be largely determined by the combination of two inexorable facts: technology gets cheaper over time, while labor gets more expensive.  At the macro economic level, this trend is favorable to economies that are technology-advancing (i.e., the U.S.), not cheap-labor-centric (i.e., for now, China).

Consider then the aforementioned reality against the facts:  the U.S. and China are now, for the first time, essentially co-equal in total manufacturing output.  But in China there are nearly 100 million workers in manufacturing; in the U.S. fewer than 12 million.  China knows full well the trajectory they must be on.

Farming provides the classic labor-productivity lesson every school child knows.  Roughly a century ago when America had fewer than 100 million citizens, nearly 12 million worked on farms, a number that then comprised over 40 percent of the entire labor force.  Now barely three million people call themselves farmers, accounting for a shade over two percent of today’s workforce.  Meanwhile, technology enabled a 600 percent growth in agricultural output.

Both in absolute and relative terms technology blew the lid off agricultural productivity, and crushed direct farm employment.  But, over that same century, somehow the American economy managed to generate enough wealth to create jobs for more than 100 million more workers.

Most of the new employment over the past century came from new services and new products that didn’t exist in 1900 – airlines and computing to name only two examples. It is worth noting that a lot of the new employment actually came from the same industry, food, as farming.  It’s just that we count the jobs differently.  While barely two percent of the modern American workforce is in farming, over 15 percent work in the food industry.

Almost 25 million people are employed in the U.S. food system – what we do with the food when it leaves the farm, and goes to food “production” and processing, wholesaling, retailing and restaurants.  For example, anyone of a certain age remembers how few restaurants there were in relatively recent history, how little money and labor was associated with “retail food” outlets.  Today, the average consumer today spends over 40 percent of their food budget on restaurants, rather than direct purchase of groceries.

The hidden labor story goes beyond the not so subtle role of food processors and restaurants – the latter sometimes denigrated as hamburger-flipping jobs, where in reality restaurants are one of the most common forms of small business success.  To properly count we need to add the entire technology infrastructure that makes the few million farmers so astoundingly productive.  Some of this is easy to find, for example the quarter million workers that are part of the fertilizer industry.

Some other hidden farming jobs are harder to allocate, especially the parts of the tech industry that are dedicated to farm efficiency.  Data and information services are now central to agriculture.  Geographical Information Systems (GIS) combined with soil sensors, GPS, weather monitoring and forecasting, and real-time communications optimize everything from planting and fertilizing to harvesting.  The army of people in those tech industries are the farmers of the 21^st century.

The same happens with manufacturing.  Information technology (IT) and computing are already a new source of directly related manufacturing employment.  About one-fifth of all IT spending is for the manufacturing sector, wherein the relatively new IT sector itself employs over three million.  The current and future universe of people employed in the business of making final goods from raw materials is at least as broad as that associated with food.

Scratch the surface of tech innovation today, look outside the sphere of social media and gaming and you find a burgeoning array of companies, innovators, emerging students across the spectrum of businesses and technologies engaged in finding new ways to make stuff from raw materials.  3D printing is the hot tech de jour, the harbinger of the factory-of-the-future.

The emergent hype surrounding 3D printing lies with the handful of new companies that are making what amounts to desktop, or at least refrigerator-sized 3D printers.  The 3D printer offers a paradigm shift, especially in metallurgy, where net final parts are assembled from powder from the ground up (from a computer image) rather than ground and melted into shape from a billet, from the top down.  The latter has the tendency to waste a lot of material, the former has a certain precision and elegance.

Personal 3D printers, personal manufacturing, some argue, offers the potential to move a lot of manufacturing into neighborhoods, even your garage and upend manufacturing the way laser printers upended the centralized paper printing industry.  It has the potential to be — to use that now over-used word — “disruptive.”

3D printing is already a viable commercial business where highly customized parts are needed for such applications as rare cars, aircraft, or medical devices like knee joints.  You can start with precision scanning or a computer design, and can make a perfectly customized replacement part.  In medicine it’s no longer theory but increasingly common, in particular in fabricating dental prosthetics.  Make a 3D image from scratch, or make a 3D scan of an object, send it to the printer – feed in the appropriate ceramic, metal, or plastic powder, melt or fuse with lasers or electron beams and the part appears in thin air.  It is pretty exciting, pretty cool.

For a reasoned if slightly hyperbolic view of 3D printing read Pascal-Emmanuel Gobry’s recent blog “The Next Trillion Dollar Industry.”  Most of the companies in this field are private, often start-ups.  There are few public plays like 3D Systems [NYSE: DDD], Stratosys [NASDAQ: SSYS], and Sweden’s Arcam [Stockholm: ARCM].  After those you’re wading through a field of private telegraphically named companies likeShapeways (a Philip’s spin-off), Digital Forming, Makerbot, Desktop Factory, MGX, Object, Z Corporation, and Germany’s EOS,

Manufacturing’s future lies not just with the seductive allure of back-yard manufacturing, or mini-factories that can mass customize idealized products, but in equally impactful emerging advances in materials science.

The combination of powerful imaging tools and supercomputing is yielding an era where we literally engineer novel materials, perhaps even novel new molecules.  Examples range from the seemingly pedestrian but remarkably useful self-cleaning materials (walls, fabrics, windows), to the truly exotic metamaterials that exhibit properties ostensibly violating physics – producing a negative index of refraction, which in English means you might render objects invisible for example.

My favorite poster-child of material engineering from the quantum mechanics level up is Northwestern University’s spin-off QuesTek where computer models of atomic behavior are used to design what amounts to perfect alloys – metals with exactly the right properties and minimizing material waste and cost.

Much of the future of manufacturing will be found in Silicon Valley; software companies in general, Autodesk [NASDAQ: ADSK] in particular, are key players in 3D printing.  The future is also be found in the good old ‘rust’ belt.  Venerable companies like Timken [NYSE: TKR], Eaton [NYSE: ETN], Emerson [NYSE: EMR], and CAT [NYSE: CAT] are already deeply engaged in building the technologies and factories of the future –  a factor underlying the recent uptick in America’s heartland’s manufacturing output.

On a larger scale, 3D printing is essentially how many factories already operate.  Finished goods are ‘printed’ from the panoply of raw materials feeding a modern automated production line.  That is certainly the case with semiconductor microprocessor plants where complex silicon devices made from a soup of dozens of elements from the periodic table, are printed on dinner-plate-sized silicon wafers, and done so by the square mile of silicon in buildings utterly dominated by automated systems.

Just as the now century-old IBM [NYSE: IBM] survived and prospered from the era of its birth with mechanical adding machines, to the age of data centers, so too will many of today’s manufacturing giants not only survive but embrace the new era of manufacturing.  And many of them have the advantage of being located in America.

If the future of manufacturing is information-centric — from materials innovation, to 3D printing, to disruptive business models — is that a field where China necessarily dominates?  Could be, but there is no guarantee.  Creativity, innovation, flexibility, flexible education, entrepreneurship are the characteristics needed to foster the new era of manufacturing.  These are the hallmarks of the American enterprise.

China is rushing to emulate the American educational structure, protection of intellectual property and patents, fostering of entrepreneurship, even a more free-spirited capitalist culture.  All of this is good, not just for China, but for the world’s economy.  But this mix of requirements is where China is in catch-up mode and America remains the leader.  Add to this formulation the demographic fact that, by about 2025 America will be a younger country than China.  Innovation requires a population and culture that is youth-centric.

Humans have been manufacturing stuff from natural resources for eons.  Glass from sand pre-dates Rome; the origin of wooden axles is lost in antiquity.  The world has gone through two great pivots in manufacturing capabilities.  The first was the age of the Medieval Machine (see theexcellent book of the same name), epitomized by the water mill.  The second was the Industrial Revolution. The third manufacturing revolution is upon us.  America has the advantage.  The whole world will participate and economic growth, and full employment, will follow, again.

A fifteen year old book, The Power of the Machine: The Impact of Technology from 1700 to the Present Day, summarized it well:

“One of the most distinctive features of the modern world is the capacity of human societies to increase their productivity, the proportion of goods produced in relation to the size of the total population.  In a literal as well as in a metaphorical sense, they have discovered the way  of making two blades of grass grow where only one grew before, and they have thereby enormously increased the total wealth of society….the main key to this achievement has been the availability of a stream of technological tools.”

Where would you look for the new stream of technological tools?  China?  Some for sure, and increasingly so.  The rest, dominantly still, the United States. <>

Posted in: 3D Printing and What China Knows About the Emerging American Century,Manufacturing