Restoring American Competitiveness

Decades of outsourcing manufacturing has left U.S. industry without the means to invent the next generation of high-tech products that are key to rebuilding its economy.

by

Gary P. Pisano

and

Willy C. Shih

by

Gary P. Pisano

and

Willy C. Shih

From the Magazine (July–August 2009)

Summary.

Reprint: R0907S

For decades, U.S. companies have been outsourcing manufacturing in the belief that it held no competitive advantage. That’s been a disaster, maintain Harvard professors Pisano and Shih, because today’s low-value manufacturing operations hold the seeds of tomorrow’s innovative new products.

What those companies have been ceding is the country’s industrial commons—that is, the collective operational capabilities that underpin new product and process development in the U.S. industrial sector. As a result, America has lost not only the ability to develop and manufacture high-tech products like televisions, memory chips, and laptops but also the expertise to produce emerging hot products like the Kindle e-reader, high-end servers, solar panels, and the batteries that will power the next generation of automobiles.

To rebuild the commons and restore its wealth-generating machine will require government and industry in the United States to make two drastic changes:

The government must change the way it supports basic and applied scientific research to promote the broad collaboration with business and academia needed to tackle society’s big problems.

Corporate management practices and governance structures must be overhauled so they no longer exaggerate the payoffs and discount the dangers of outsourcing production and cutting investments in R&D.

Restoring the ability of enterprises to develop and manufacture high-tech products in America is the only way the country can hope to pay down its enormous deficits and raise its citizens’ standard of living.

The Idea in Brief

Thanks to destructive outsourcing and faltering investment in research, the U.S. has lost or is on the verge of losing its ability to develop and manufacture a slew of high-tech products.

To address this crisis, government and business must work together to rebuild the country’s

industrial commons

—the collective R&D, engineering, and manufacturing capabilities that sustain innovation. Both must step up their funding of research and encourage collaborative R&D initiatives to tackle society’s big problems. And companies must overhaul the management practices and governance structures that have caused them to make destructive outsourcing decisions.

Only by rejuvenating its high-tech sector can the U.S. hope to return to the path of sustained growth needed to pay down its huge deficits and raise its citizens’ standard of living.

As the United States strives to recover from the current economic crisis, it’s going to discover an unpleasant fact: The competitiveness problem of the 1980s and early 1990s didn’t really go away. It was just hidden during the bubble years behind a mirage of prosperity, and all the while the country’s industrial base continued to erode.

A version of this article appeared in the July–August 2009 issue of Harvard Business Review.

Gary P. Pisano is the Harry E. Figgie Jr. Professor of Business Administration at Harvard Business School and the author of Creative Construction: The DNA of Sustained Innovation (PublicAffairs, 2019).
Willy C. Shih is a Baker Foundation Professor of Management Practice at Harvard Business School.

Restoring American Competitiveness

The Idea in Brief

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