The List

You Didn't Build That

Is the future of manufacturing really in America?

The news that several manufacturing giants are planning to bring some of their production back to the United States has dominated the headlines in recent months. Perhaps that's because Americans see it as a bellwether of economic recovery, or perhaps it simply reflects their collective yearning for America's past industrial dominance. Either way, the interest in these moves demonstrates the unique hold that manufacturing has on the public imagination.

But precisely because it captures our imagination, a powerful belief system has grown up around manufacturing that limits the policy debate as well as the range of strategic options Americans are willing to consider. This will need to change if U.S. business leaders and policymakers are going to make the most of emerging opportunities. Meanwhile, the global manufacturing sector continues to diversify and evolve in surprising ways -- as the return of some manufacturing production to the United States indicates. Understanding this evolution is the key to the future.

Indeed, we see the potential for a new era of manufacturing growth, fueled by innovation as well as new sources of demand. But we also see an era that is fraught with new challenges that call for strategies and policies based on actual knowledge of manufacturing -- not blind faith in conventional wisdom. Here are six things you need to know about the future of manufacturing.

1. Manufacturing is dynamic

The role of manufacturing in any economy isn't static. By providing the tools to raise agricultural productivity, build critical infrastructure, and lift populations out of rural poverty, manufacturing remains the clear path to economic development. But once countries climb from developing to middle-income status (around $10,000 in GDP per capita), their economies become more diverse. At later stages of development, more consumers can afford to spend money on services, making that sector the fastest-growing sector in the economy.

Moreover, as wages rise, manufacturers must increase productivity in order to sustain their profits. As a result, manufacturing's share of GDP peaks at 20 to 35 percent in middle-income countries and then falls, following an inverted U curve. Today, manufacturing represents 12 percent of GDP in the United States, 18 percent in Germany, and 33 percent in China.

As they recover from the Great Recession, some advanced economies may see a rebound in hiring in manufacturing. Some might even see moderate export gains. But because of continuing improvements in productivity, the faster growth of service sectors, and the focus on higher-skilled jobs, manufacturing's share of overall employment will remain under pressure.



2. Manufacturing still has a productivity and innovation edge

Even as manufacturing's contribution to growth slows in advanced economies, the sector continues to make outsize contributions in productivity, innovation, and trade. In the United States, for example, manufacturing contributes more than twice the expected rate of productivity growth for its level of GDP and employment. One result of this productivity advantage is a massive consumer surplus. While services counted in the U.S. Consumer Price Index have risen by more than 150 percent over the past 25 years, prices of consumer durables (like cars and refrigerators) have risen by one-tenth of that rate.

Even as advanced economies have shifted toward services, manufacturing continues to lead in innovation. In advanced economies, manufacturing companies fund as much as 90 percent of private-sector research and development. Finally, manufacturing continues to dominate global trade: 70 percent of global exports are manufactured goods. These contributions -- in productivity, innovation, and exports -- strongly influence global competitiveness.



3. Manufacturing and services are more intertwined than you think

The notion that manufacturing and services are two completely different economic realms has become increasingly anachronistic. Much of what goes into getting a new kind of soap on the supermarket shelf or putting a new car in the showroom requires a growing number of services. Today in the United States, for every dollar of output, manufacturers purchase 19 cents of services -- everything from trucking and logistics to advertising.

Moreover, more than one-third of manufacturing sector employees work in service-type jobs, such as design, marketing, and office support. In globally-traded high-tech industries like semiconductor manufacturing, the number is more than half. If all the service jobs created by manufacturing outsourcing are counted, manufacturing employs more service workers in the United States (9 million) than production workers (7 million). Meanwhile, some service industries are beginning to resemble manufacturing in the way they compete globally and contribute to exports.



4. Manufacturing is diverse

A full understanding of manufacturing means knowing the subsectors. Manufacturing is not monolithic, and one-size-fits-all approaches -- by manufacturing leaders and by nations -- are not likely to succeed. We break manufacturing into five broad categories based on how labor, capital, or research and development (R&D) intensive they are, and how dependent they are on low-cost transportation or high-skill talent. The five categories vary considerably in sources of competitive advantage and necessary conditions for success.

The largest group, which accounts for 34 percent of manufacturing value added, we call "global innovation for local markets." It consists of industries, such as automotive and pharmaceutical manufacturing, in which companies compete by introducing a steady stream of new products, features, and models, but also must operate in or near end markets, often because of governmental regulations (e.g., drug safety standards).

The next biggest group, "regional processing," is closely tied to local markets. Food companies, for example, need to cater to local tastes and ensure freshness. Only two of the groups are heavily traded: "labor-intensive tradeables" (apparel and toys, for example) and "global technologies," which includes electronics, a high-tech industry that relies on low-cost assembly. The difference in subsector performance can be stunning. Advanced economies, for example, run a surplus of $726 billion in goods from the "global innovation for local markets" group and a $342 billion deficit in "labor-intensive tradeables."



5. The future consumers are in the developing world

Manufacturing is entering a dynamic new phase. Over the next 15 years, McKinsey projects that 1.8 billion people -- mainly in developing economies -- will join the global consuming class, bringing the total number of people with disposable income to around 4 billion and raising annual consumption to $64 trillion. By 2025, we project that emerging markets will account for fully half of global consumption. These new consumers will demand everything from mobile phones to soft drinks, expanding markets for established manufacturers that can figure out how to compete for these new customers.  

At the same time, scientific innovation will undoubtedly produce new kinds of products, change how they are designed and made, and enable companies to meet the needs of consumers and business customers more quickly, with more tailored products, and with new forms of after-sale service. Innovations in production methods will also likely enable manufacturers to make new goods with less material or with recycled material, thereby reducing greenhouse gas emissions.



6. Old ways of thinking about manufacturing are increasingly risky 

The manufacturing opportunities of the post-Great Recession world are considerable, but making the most of them will require changing old ways of thinking. Not only do manufacturers have to figure out how to serve billions of new consumers, they also need to meet the growing demand for variation, customization, and after-sales service. At the same time, manufacturers must navigate a minefield of new uncertainties -- including volatile resource costs, greater supply-chain risks, upward wage pressures, and the difficulty of locating high-skill labor. 

In the coming era, following the path of low-cost labor -- as numerous multinationals did in the 1990s and 2000s -- is unlikely to pay off. Manufacturers will need to carry out nuanced, multi-factor analyses of all the issues that affect landed costs (what it costs to bring a product to market), including risk. Likewise, policymakers and business leaders will need to understand exactly how their industries respond to changes in factor inputs (like rising energy costs) in order to make effective strategy and policy decisions. A one-size-fits-all manufacturing policy will not suffice.

Bill Pugliano/Getty Images

National Security

How to Build an Army in Your Basement

From homemade rockets to car bombs, take a look at the weapons that Syria’s rebels are using to defeat Bashar al-Assad.


Syrian rebels mill around an open lot under a blue sky; off camera, a group chants "God is great." The spoils of a recent raid are laid out before them -- a collection of T-55 tanks and the BMP series of infantry fighting vehicles. A number of rickety pick-up trucks idle in the background, perhaps the vehicles used in the attack. The rebels have wielded heavy machine guns to the truck beds -- constructing an impromptu mechanized unit with which to wage war against President Bashar al-Assad's army.

Syria's 21-month uprising has devolved into a no-holds-barred civil war, where each side has reached for any tool that helps it kill its adversaries more efficiently. And they're not just using the standard weapons of war: Both the rebels and Assad's army have adopted a variety of do-it-yourself weapons to continue the fight. Some are the backbone of the Syrian insurgency, while others are as dangerous to the operator as to their target.

Truck-mounted weapons are one of the mainstays of this conflict, with rebels employing DShK heavy machine guns, KPV heavy machines guns and ZU-23-2 anti-aircraft cannons for this purpose. The DShK and KPV heavy machine guns are usually found mounted on the BMP vehicles and BDRM-2 armored cars, both widely used by the Syrian government forces. In many cases, they have been taken from those vehicles once they've been disabled or destroyed.

The ZU-23-2 is a more powerful weapon, capable of firing large, 23mm shells over a greater distance. It has proved itself as a deadly anti-air weapon: An October report from the Institute for the Study of War estimated that it has been responsible for 90 percent of the aircraft brought down in Syria.


Rocket-based weapons have recently appeared in the rebels' arsenal. The most common is the Type 63 multiple rocket launcher, a Chinese-made weapon that fires 107mm rockets with a range of up to 5 miles, making it one of the longest-range weapon available to the insurgents.

Until the end of September, these weapons were almost completely absent from the videos released by Syria's rebels recording their operations. But over the past six weeks, that has changed dramatically: Videos purportedly filmed in the governorates of Hama, Aleppo, Idlib, and Latakia have all showed the insurgents wielding these weapons.

Other, more unusual instances of truck-mounted rocket launchers include this example of a rocket pod, normally used by aircraft, firing S-5 rockets. These rockets, while currently a rare sight in videos from Syria, were one of the favorite weapons of Libya's rebels.


VBIEDs (Vehicle Borne Improvised Explosive Device), otherwise known as car or truck bombs, are one of the most controversial weapons in the rebels' arsenal. The New York Times reported in September that an unwitting prisoner was used to drive a truck loaded with explosives toward a checkpoint near Idlib, believing it was part of a prisoner exchange.

This weapon is devastatingly simple. As the above video shows, insurgents simply fill vehicles with explosives, in this example including unexploded bombs, and drive them close to targets before detonating. In another case, a suicide car bomber killed at least 50 Syrian security men by exploding himself in the town of Sahl al-Ghab.

Both IEDs and VBIEDs were the scourge of the U.S. military in Iraq, and it may not be a coincidence that these weapons have now shown up in Syria. Some of the groups using these tactics supported the insurgency in Iraq: Jabhat al-Nusra, an al Qaeda-affiliated group that has claimed responsibility for a large number of these attacks, is perhaps the most prominent example.


One of the most effective DIY weapons used by the Syrian opposition is the IED, which has allowed the Syrian opposition to take on armored vehicles and effectively turn certain areas into no-go zones for troops in unarmored vehicles. As the use of IEDs increasingly limits troop movements, New York Times journalist C.J. Chivers wrote that the situation meant "the Syrian army is finished."

IEDs come in different shapes and sizes: Gas cylinders filled with explosives can make a simple bomb, while metal tubes with a concave end can be manufactured into an armor-piercing projectile. They can also be detonated using a variety of methods: by wire, radio, or cell phone -- all methods easily accessible to the opposition.


Syrian insurgents have also began to use a variety of DIY weapons, the most common being pipe bombs. An example of the simple manufacturing process is shown in the above video: A metal pipe, filled with explosives from sources such as unexploded bombs and artillery shells, is detonated using a simple fuse.

In an attempt to increase the range of these weapons, Syrian opposition fighters have also been using oversized slingshots to launch them over longer distances, but as this video -- where a pipe bomb fails to clear the wall from which it's launched behind -- proves, that comes with its own risks.


The production of rifle grenades -- a grenade that can be attached to, and launched from, the end of a rifle barrel -- demonstrates Syrian rebels' ability to produce more sophisticated weapons. The above video demonstrates the manufacturing process: Fuses are manufactured for the grenade, the rifle grenades are cut into shape on a metalworking lathe, and then the insurgent provides a demonstration of how to use the rifle grenade.

This video demonstrates one of the key advantages the rifle grenade has over a standard grenade or pipe bomb: a much longer range, a great advantage in an urban combat environment such as Aleppo.


Since their earlier sightings in June, DIY rockets appear to have become one of the main long-range weapons used by the insurgents. Their significance was reflected in this recent video showing Aleppo Military Council head Col. Abdul Jabbar Aqidi visiting a Syrian opposition rocket factory. Although not manufactured in quite the same volume, DIY mortars have also made an appearance. These weapons have been crucial to providing the Syrian opposition with both direct and indirect explosive firepower.

It's difficult to be certain of how effective and accurate these weapons are. Some videos show occasional accidents (for example, here and here) posted online, demonstrating that these are not the most reliable weapons in the opposition arsenal.


This unique video demonstrates the ingenuity of the Syrian opposition, as well as some of the risks they take to procure explosives. It begins with Syrian opposition members digging up unexploded PTAB 2.5m cluster bomblets -- an extremely dangerous job, considering how unstable unexploded cluster bomblets can be. The rebels then remove the fuses and tail fins from the bomblets, and replace the fin with fittings that allows them to be screwed into a rocket. A newly manufactured fuse is then screwed into the warhead, completing the rocket.

What we are seeing here is not just cluster bomblets being repurposed as warheads, but a manufacturing process that creates both a specialized fitting and an entirely new fuse.


There are also a number of weapons that appear to be one-offs -- for example, the above air-powered Molotov cocktail launcher. Other examples included a prototype of a grenade launcher, a shotgun based pipe-bomb launcher (seen in action here), a DIY recoilless gun, and a multi-caliber pipe gun.

Some of these weapons are extremely unsafe -- for example, take this shoulder-mounted mortar launcher. Toward the end of the video we see several examples of the weapon being fired, and the last of those examples show the mortar becoming stuck in the end of the barrel, causing the rebel to drop the weapon and run away before the detonation.


In late August, activists began posting videos online of what they described as "barrel bombs" -- barrels filled with explosives and shrapnel that were dropped from helicopters. In one report, a Syrian military defector described building more than 100 of these bombs, which an analyst described as doing roughly the same damage as a 1,000-pound bomb.

In late October, a series of videos filmed inside a Syrian Air Force helicopter showed barrel bombs being dropped. Odd as it may seem for a professional army to use such weapons, Assad's forces aren't the first to resort to such tactics: There have been reports of them being used in both Croatia and Sudan. With a limited number of ground attack helicopters, barrel bombs may be Assad's way to get maximum firepower out of his Mil Mi-8 helicopters, which are used primarily for transport.