21st century manufacturing

Ricardo Hausman has a nice column on the future of manufacturing in Scientific American. He writes: “More and more information is getting packed into less matter. As a consequence, more of the work goes into manipulating information rather than matter. Jobs move from the shop floor to the design floor. A Boeing 747 or an iPhone are made mostly out of fairly common materials that are worth at most just a few dollars a pound. However, they both go for over $1,000 per pound. The bulk of the value is in the information content, not the raw materials.”

One of the reasons I liked the article is the immodest fact that I prefigured these arguments in my first book, The Weightless World (pdf), published in 1996. The physical mass of the UK and the US economies hasn’t risen since around 1980, according to material flows accounts (and these do take account of trade). The paradoxical point about the dematerialisation of making things is amply underlined by some excellent recent books –  by Evan Davis and  by Peter Marsh spring to mind.

[amazon_image id=”1405509856″ link=”true” target=”_blank” size=”medium” ]Made in Britain[/amazon_image]

[amazon_image id=”0300117779″ link=”true” target=”_blank” size=”medium” ]The New Industrial Revolution: Consumers, Globalization and the End of Mass Production[/amazon_image]

Economic theory of the firm hasn’t caught up yet with changes in the structure of manufacturing, although it’s starting to get there with the task-based approach to modelling. Old-fashioned production functions must be on their way out.

Update: Coincidentally, just after writing this post, I read this 2011 New Yorker article by Malcolm Gladwell, Smaller (courtesy of The Electric Typewriter). It’s ostensibly about product improvement in diapers, but is really about the wide efficiencies of using less stuff.

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The people’s car

Who would have thought that a history of the VW Beetle could be such a good yarn? Bernhard Rieger’s  (out on 5th April) has been ideal for a couple of days of travelling. It weaves together the separate strands contributing to the commercial and cultural success of this iconic automobile, bringing them together in a fascinating story spanning more than seven decades altogether.

[amazon_image id=”0674050916″ link=”true” target=”_blank” size=”medium” ]The People’s Car: A Global History of the Volkswagen Beetle: A Global History of the Volkswagen Bettle[/amazon_image]

One strand is the role of historical accident. The original design by Ferdinand Porsche was commissioned as a grand project by Hitler, the concept of the ‘people’s car’ playing both a populist role in embedding National Socialism and an ideological role, claiming modernity, much as the Italian Fascists did. However, Porsche put a higher priority on technical excellence than on cost, and the pre-war models were unaffordable. Very few Germans bought one. The brand new factory and city in Wolfsburg were turned to the production of military vehicles, using forced labour. After the war, the plant fell into the British occupied sector. Having considered removing the factory to Britain as a part of reparations, and rejecting the idea because it would pose too big a threat to incumbent UK car makers, the occupying forces instead put in a manager, Ivan Hirst, who was rather competent. The rocky process of ‘de-Nazification’ led to a German manager and, ultimately, a fresh start for VW and the Beetle as the symbol of the German post-war economic miracle and of Cold War ‘freedom’.

A second strand was the early introduction of Fordist production techniques, adopted after visits to Ford’s River Rouge factory before the war, and cemented by the appointment of ex-GM and Opel manager Heinrich Nordoff as VW’s post-war General Director. Although the huge success of the Beetle led to a failure to invest in new models through the 1960s, until that time the production techniques and management approach – mimicking Ford’s insistence on the importance of a well-paid workforce – allowed the cars to be produced at huge scale, so affordable price, and high quality. Britain’s auto-manufacturers never achieved that combination.

The third strand is the cultural. Rieger cites Roland Barthe’s wonderful essay in on the Citroen DS, about the extraordinary cultural role of some cars. What’s interesting about the VW is how different it was in different countries, combining globalized production with distinct national experiences. The Beetle was the mass vehicle in Germany, was never very successful in the UK because of its Nazi origins, became a niche (often 2nd) vehicle for the American liberal suburbs and counterculture, and – news to me – was iconic and massively successful in Mexico and Brazil. VW was one of the main drivers of West Germany’s post-war export miracle. It was an export machine, and also an early example of a huge multinational producing in key markets. The book has a fascinating section on the part played by advertising agency Doyle Dane Bernach from 1959. The agency’s innovative campaigns contrasted with the macho boasting of the American Big 3, emphasising honesty and reliability by making (seemingly) modest claims about technical reliability and service quality, and successfully creating an image of a plucky, friendly, characterful little vehicle – the character picked up in the movie Herbie.

The Beetle now has an afterlife as a “postmodern retro” vehicle, as the Epilogue puts it: “Designed in California with the intention of reviving Volkswagen of America, developed in Wolfsburg, and produced in Puebla by workers on comparatively low wages,” the New Beetle was launched in 1998, although  production ended in 2003. The book ends with a hint – is it wishful thinking? – that this does not mark the end either. Another relaunch seems unlikely but even so, the Beetle certainly deserves to be labelled ‘iconic’.

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Making things

Yesterday I had a brilliant visit to the Rolls Royce aero engines plant in Derby. Factory visits are always fascinating, and this was particularly so. It’s of course a superb company, and its qualities manifested themselves in all kinds of ways: the focus of the conversations on the long term, on 2020 and 2025; the superb apprenticeship and management training programmes, now being provided for companies in the supply chain as well as Rolls Royce itself; the fact that everyone I spoke to from apprentices to top execs talked about their bit of the business in a way that was consistent and fitted into the same overall strategic picture. Above all, of course, the engines. Amazing technology, so complex, highly dependent on research, long-term investment, IP and skilled people. It was interesting to hear the emphasis on ideas and skills, and on services provided with the product, in a manufacturing company.

A Rolls Royce engine – one of the big ones

There have been a couple of excellent books recently on the areas of strength in UK manufacturing –  by Evan Davis and  by Peter Marsh (the latter is speaking at the Festival of Economics in Bristol on 24 November). (See also the excellent TV programmes by Evan D, Built in Britain, which turned to infrastructure.) Given that I also recently heard about the potential for a significant revival of the Lancashire textiles industry (to which I have an emotional attachment), I do tend to agree with these two authors in believing that our manufacturing industry still has areas of strength.

[amazon_image id=”0300117779″ link=”true” target=”_blank” size=”medium” ]The New Industrial Revolution: Consumers, Globalization and the End of Mass Production[/amazon_image]

However, I think there are two big worries. One is about investment in skills: we have had far too few industrial apprenticeships for too long, and although this is improving slowly, it will take many years to rebuild a sufficiently large skill base. There is also still too much of a presumption that university is better than an apprenticeship – I would disagree with this priority on academic or cognitive skills.

The second is the gap between the superb big companies like Rolls Royce and small, albeit vigorous, manufacturers. The UK needs the middle rank of companies that can feasibly supply the biggest ones – the small ones just can’t deliver on an appropriate scale, can’t afford to invest either in basic R&D or even product development, can’t take on more than one or two apprentices. A lasting manufacturing revival will need to look again at the long-standing barriers that are stopping successful small companies from growing above a certain size.

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Made in everywhere

Building Boeing’s Dreamliner used 16,000 gigabytes-worth of information, equivalent to a library of 16 million books, according to Peter Marsh’s new book . He quotes one historian’s comment about the original Industrial Revolution: “About 1760, a wave of gadgets swept over England.” A wave of gadgets is now sweeping over the world. The general purpose technology of the microprocessor and the other innovations it has enabled has launched us into another industrial revolution – indeed, the history of capitalism is one damn technological revolution after another.

The book sets out these successive waves, but its interest lies in the mass of examples Marsh gives to illustrate the thesis of a new revolution. He has been covering manufacturing around the world for many years as a Financial Times journalist, and has a more or less unrivalled range of experience. One of his supplementary arguments is that manufacturing is of vital importance for economic growth because it is the route for innovation to enter everyday life. His description of the specifics of how companies actually innovate is very interesting. The organisation of the manufacturing process is one key, and one chapter looks at the Toyota Production System in some detail. Not only did this famously introduce the concepts of just-in-time and constant improvement, it also enabled huge variety by the switching of standard components – Marsh calculates that out of 8.6 million units made by the company in one year, there are 1.7 million variants.

Another element is specialisation in specific gatekeeper technologies. Industrial clustering is as old as industry, and Marshall famously described the role of know-how in explaining clusters. However, many older clusters are explained by the location of resources or by transport. Knowledge clusters are the new norm. Marsh’s example is Poole in Dorset, which turns out – who knew? – to be the world centre for the manufacture of air spindles. These are small electric motors whose shaft rotates on an air bearing rather than a metal bearing. They are essential for making circuit boards. In 2010, two firms in Poole accounted for 80% of the world’s supply. One has a factory in China as well as Dorset, but the other does not, and both have their R&D in their southern English home. We tend to talk down UK manufacturing and, heaven knows, we need more of it; but this story chimes with my own experience of there being many uniquely innovative and productive specialist manufacturers in the UK. Here, as another example, is a encouraging tale about the revival of the Lancashire cotton industry – my parents and aunties and uncles worked in the old version;  Lancashire Cotton 2.0 is a remarkable story.

Between 2006 and 2010 the UK slipped from 5th to 10th in the world league table of manufacturing nations. It wasn’t alone in this slide – China, S Korea, Brazil and India have also pushed France down the rankings with us. But Italy is hanging on with a slightly larger share of world manufacturing output, and apart from the US, Japan and Germany have substantial shares. What lessons do the success stories hold? Marsh highlights scientific and technical education, R&D spending, the accumulation of specialist knowledge – including practical know-how –  in niche areas (a highly effective barrier to entry by new competitors), added-value activities such as design or customer support surrounding the manufacturing, and strategic thinking about supply chains.

The redrawing of the manufacturing map into complex global supply chains is another interesting part of his account. Indeed, one of the main messages I took away was the massive interdependence of the various countries’ manufacturing industries. You can see its visible expression in the marvellous atlas of economic complexity. Marsh does not go on to consider the implications of this interdependence, which – for all the industrial upheaval and job losses –  has been the source of huge gains in productivity and prosperity over the decades. On the other hand, it is also a vulnerability. China needs those two factories in Poole to continue improving living standards there. We need other factories sited outside Bangkok or in Shenzen just as much. There has been less of a move to protectionism than one might have feared in the aftermath of the Great Financial Crisis, but if we do now see a turning away from globalization, the implosion of living standards around the world will be absolutely catastrophic.

The book does not go in for this kind of analysis, however. It is a book of reportage, stuffed with interesting examples that illustrate the history of manufacturing and its present, globalised state. I love the kinds of facts it offers – in 2010, six out of every 10 large crawler excavators of the kind needed for big construction projects went to Chinese customers (they are made by Komatsu of Japan and Caterpillar of the US but these manufacture them in China). There’s more on every page. This book is a great companion to  by Evan Davis. Wearing global rather than national spectacles, it offers the same policy lessons for the UK or for any country needing to ensure the long term health of manufacturing industry.

[amazon_image id=”0300117779″ link=”true” target=”_blank” size=”medium” ]The New Industrial Revolution: Consumers, Globalization and the End of Mass Production[/amazon_image]

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Steel yourself

Here’s a brilliant fact of the day:

“Since the beginning of civilization to 2011, the human race has created goods containing about 43 billion tonnes of iron. Of this huge amount of metal…. almost half has been made since 1990.”

But even at 2011 rates of use, there’s a billion years’ worth of iron left on earth, before we have to start on the asteroids. I’m a chapter in to Peter Marsh’s  and already thoroughly enjoying it.

[amazon_image id=”0300117779″ link=”true” target=”_blank” size=”medium” ]The New Industrial Revolution: Consumers, Globalization and the End of Mass Production[/amazon_image]

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