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Economic Crisis and U.S. Competitiveness

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Since the end of World War II, the United States has enjoyed technological leadership in the world economy. It was until the late '80s with the expansion of outsourcing to Mexico, India, and especially China with the inclusion to the WTO in 2001, the investments in domestic manufacturing have declined.  Meanwhile, investments in China and India have grown by a double-digit rate. 

The outsourcing to low labor cost countries has helped drive the prices of goods down and brought additional profits and prosperity to the majority of Americans. There is no doubt this has greatly improved the standard of living in China, India, Russia, Brazil and many other countries of the world. The remarkable growth has been attributed to globalization and free trade. The economic and government leaders believed that any restrictions to trade would cause harm to the prosperity of each country and the world.

 

Any attempt to start dialog on this subject has been labeled as protectionism and criticized in the media worldwide as the greatest sin since and the actual reason of the Great Depression. However, it is clear that any excess of one trend over the other will lead to unavoidable problems in the economy. The universal laws of equilibrium are applicable to the economy as well. The cycle of unsustainable growth in consumption continued until it was brought to its end by the crash of the financial markets in the U.S., followed by the loss of jobs in other economic sectors, ending with the same outcome for the rest of the world economy, thus creating conditions for the world's economic crisis.

 

The pendulum of Globalization that is responsible for the latest global boom has gone too far and is now inevitably poised to come back to a sustainable level. It has given us a global economic crisis that may become the first World Great Depression. The major beneficiaries of the global boom, China and India, are relying heavily on U.S. and European markets for its oversized manufacturing and support services capacity and are not ready yet for sustainable internal consumption.

 

It is common knowledge that the U.S. lacks competitiveness as compared to the countries that have fast growing economies like China and India. So what happened to our technological leadership and the ability to invent over the last two centuries? Our history is full of events that prove that the uniqueness of America as a country of opportunities has been the reason for our success, and it is because of this success we simply become incompetent.  Our complacency has grown to the level that allow us to become a society of services and consumption. We concentrate on the value of services to ourselves and not to the rest of the world. We have decided that we do not need to invent and manufacture tangible objects that can be used by others but instead improve the quality of living by concentrating on services and consume products that we import from other countries. This approach has led us to the state of economy that exists today.

 

The relatively large government's emergency infusion of money by the Bush administration, first to the banking sector and then to the automotive sector, did not produce any noticeable improvements to our economy. The stimulus package created by Obama's team will likely help the economy in a relatively minor way but will not lead to long-term recovery. The significant investments by the Obama stimulus package will be made towards the development of new renewable energy technologies, biotechnology, medical record computing technologies, education and building infrastructure, but will not address the main reason for our economic decline.

 

It is become more and more clear to Americans that we have lost the engine of our prosperity and only keep moving by the inertia. Many of us see that in order to reverse this dangerous trend, we will need to look for some new technologies that will keep our society healthy and will create new opportunities for growth.

 

The lack of competitiveness lies in misunderstanding the values of technological know-how that required by every developed society. Fewer Americans share the common belief that the U.S. needs to maintain its ability to manufacture goods. Unlike the last century, our society gave leadership roles to our financial, legal and health experts, and reduced the leadership roles of industrial entrepreneurs, scientists, engineers and inventors. The selection of business leaders that got to the top of major corporations also followed these trends.

The question of how we can resolve our economic problems can be addressed by looking at the core of the problem, our manufacturing competitiveness. It is well understood that the greatest leverage of the low labor cost countries is their human resources that can be used to manufacture goods without an advantage in technology. When coupled with the latest technological advances, the capabilities of low cost labor countries are unmatched.

U.S. businesses and government leaders pushed by the desire for greater profits have given away our technological knowledge, knowledge that has been developed over centuries, in exchange for cheap labor. The value of technological advantage cannot be monetized and can be compared to the impact of the greatest inventions of our civilization. The technology and skills of our industries have intrinsic values that do not show up on the balance sheet or income statement. By giving technology away to foreign competitors, we have squandered our inherited wealth. Now we will need to find a way to advance technology to be competitive again.

 

Today's economy is based on many advanced technologies that are marketed to all countries of the world regardless to social, economic or ideological differences. Some countries have advantages due to its historical, geopolitical or other differences.  In theory, the global village can live harmoniously if all members of the village have equal opportunities and level of prosperity.  Unfortunately, the world still has some significant differences between the wants and abilities of different countries.

 

Unlike the U.S., the European community has recognized that in order to stay competitive they need to invest in advanced manufacturing technologies, particularly robotic technology. As a result of its decision in August 2008, the European Union has invested over $500 million in research and development in robotic technology. In 2007, South Korea invested over $300 million in robotic technology, while the United States invested under $20 million.

 

Here are some of the facts:

 Robotic technology has been maturing for over two decades and has reached a level similar to the advancement of mainframe computers in late '70s. The main problems of robotic technology are its relatively high cost and difficulty of programming. The leading robotic technology countries are Japan, Germany, Sweden, France, and the U.S. The top companies that manufacture robots are: Fanuc (Japan), Yaskawa (Japan), ABB (Sweden), Kuka (Germany), followed by a handful of smaller players in Japan and other countries. The U.S. has only one robotic company that is a relatively small player in a $2 billion dollar industry. The industrial robot market is divided by type of robot, with the most advance robots using 6-axis that has the capability to mimic the arm of a human. The technological advances of the robot today allow robots to perform mechanical motions as fast as humans with much greater accuracy and repeatability. The average robot today has more than 10 years of reliable performance and costs $30,000. The applications of the robots encompass many processes including assembly, welding, packaging, material handling, and micro-manipulations. Robotic systems may also feature vision guidance: a highly developed ability of the robot to recognize objects and move in accordance with object orientation. Manufacturers buy robotic machinery to improve the quality of the products and replace unskilled labor. Since the U.S. already replaces its unskilled labor by outsourcing it to foreign countries, it will be possible to bring manufacturing back to the domestic market and make it competitive by employing today's robotic equipment. The investments for this type of advance involves a payback periods of at least five years. Robotic tools will make every worker more competitive.  For example, one operator having a tool such as a robot in the U.S. can compete with five to seven workers that use manual labor.

The cost of an investment in robotic machinery combines robotic hardware, engineering, tooling fabrication and programming. The total cost of implementation of a typical system is three times higher than the cost of the robot itself. The two largest components of cost are robotic control hardware and programming.

 

The U.S. needs to develop the next generation of robots that will drive these two costs to less than half of its current value. The cost of developing these types of technologies are quite low and requires a relatively low investment less than several billion dollars.

 

It will take ten to twenty billion dollars to get to the next revolution in robotic technology. A revolution that will come from the invention of new processors for the robot and changing the way it is programmed. In addition, another advancement will be to speed up the assembly of the robots that will lead to fully automatic lines of robot manufacturing. These steps will further reduce the cost of the robot and will make it much easier to use. Only advancement in robotic manufacturing can bring manufacturing back to the U.S.

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Mr. Gurevich has spent eleven years as R&D and Engineering Manager for the Cooper Industries Co. His educational background is MBA from Webster University, BS in Electrical Engineering and Industrial Automation fields from Washington University, (more...)
 

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