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When manufacturing is offshored, related technical talent, R&D spending, and innovative success tend to go with it. I've written about that unfortunate process here. Annie Lowrey reports the same story with additional examples in this NYT piece.

A growing chorus of economists, engineers and business leaders are warning that the evisceration of the manufacturing work force over the last 30 years might not have scarred just Detroit and the Rust Belt. It might have dimmed the country's capacity to innovate and stunted the prospects for long-term growth. "In sector after sector, we've lost our innovation edge because we don't produce goods here anymore," said Mitzi Montoya, dean of the college of technology and innovation at Arizona State University.

GE is trying to reverse that loss in advanced battery production.

The idea is to knit together manufacturing, design, prototyping and production, said Michael Idelchik, vice president for advanced technologies, who holds a dozen patents himself. "We believe that rather than a sequential process where you look at product design and then how to manufacture it, there is a simultaneous process," Mr. Idelchik said. "We think it is key for sustaining our long-term competitive advantage."

MIT Professor Susan Berger, a founder of the Production in Innovation Economy project was interviewed by Lowrey.

Thus far, she said, the anecdotal evidence from about 200 companies has proved striking, with company after company detailing the advantages of keeping makers and thinkers together. That does not mean every business, she stressed. Companies with products early in their life cycle seemed to benefit more than ones with products on the market for years. So did companies making especially complicated or advanced goods, from new medicines to new machines.

Update on Saturday, February 23, 2013 at 11:04AM by

Skeptic

The MIT Production in the Innovation Economy working group has issued a report on its findings. From the press release announcing the report--

"It has been suggested by previous reports that sustaining the strength of U.S. manufacturing is essential to America’s future; a strong advanced-manufacturing base is crucial to national security, and it represents a key source of good-paying jobs,” MIT President L. Rafael Reif says. “But as the PIE report makes clear, local production is very important to sustaining a vibrant innovation ecosystem in a region. Thus, we must also take steps now to regain U.S. manufacturing momentum if we want to sustain the nation’s signature economic advantage: innovation."

Update on Saturday, February 23, 2013 at 01:45PM by

Skeptic

Harvard Business School professors Gary Pisano and Willy Shih make the case at length and in detail in their recent book Producing Prosperity: Why America Needs a Manufacturing Renaissance. The Harvard Business Review summary:

Manufacturing's central role in global innovation... Companies compete on the decisions they make. For years--even decades--in response to intensifying global competition, companies decided to outsource their manufacturing operations in order to reduce costs. But we are now seeing the alarming long-term effect of those choices: in many cases, once manufacturing capabilities go away, so does much of the ability to innovate and compete. Manufacturing, it turns out, really matters in an innovation-driven economy. In "Producing Prosperity," Harvard Business School professors Gary Pisano and Willy Shih show the disastrous consequences of years of poor sourcing decisions and underinvestment in manufacturing capabilities. They reveal how today's undervalued manufacturing operations often hold the seeds of tomorrow's innovative new products, arguing that companies must reinvest in new product and process development in the US industrial sector. Only by reviving this "industrial commons" can the world's largest economy build the expertise and manufacturing muscle to regain competitive advantage. America needs a manufacturing renaissance--for restoring itself, and for the global economy as a whole. This will require major changes. Pisano and Shih show how company-level choices are key to the sustained success of industries and economies, and they provide business leaders with a framework for understanding the links between manufacturing and innovation that will enable them to make better outsourcing decisions. They also detail how government must change its support of basic and applied scientific research, and promote collaboration between business and academia. For executives, policymakers, academics, and innovators alike, "Producing Prosperity" provides the clearest and most compelling account yet of how the American economy lost its competitive edge--and how to get it back.

Hat tip to Simolean Sense.