If manufacturing companies are struggling to cope with the present (as discussed in earlier posts), how well can they be doing in preparing for the future? Not too well, judging by some recently released data from the OECD Science, Technology and Industry (STI) Scoreboard 2005. It is fashionable to decry the decline in government supported for science and technology (see for example, the National Academy of Sciences' recent report Rising Above the Gathering Storm). But companies are also to blame. According to the OECD report's country note on the US:
The United States has experienced a decline in R&D intensity from a peak of 2.73 of GDP in 2001 to 2.6 in 2003, which is mainly due to a decline in business spending on R&D since 2000. (emphasis added)
The report also indicates that while the US has a high level of researchers employed by business, the growth in the number of private sector researcher has only been average. These results are probably attributable to the decline in profitability in key technology sectors (see earlier discussion on the importance of profits).
The US country note also goes on to state that:
The United States is facing growing competition in manufacturing
The United States was among a limited number of OECD countries where services accounted for the bulk of labour productivity growth over 1995-2003. Knowledge-intensive services, such as telecommunications, finance, insurance and business services, now account for almost 25% of US value added, which is the third highest share in the OECD, with only Switzerland and Luxembourg having a larger share.
High-technology industries, such as pharmaceuticals, aircraft, ICT equipment and precision instruments, account for over 35% of US manufacturing exports. Only Ireland, Korea and Switzerland have a larger share of these industries in total exports. The United States, as well as Japan, have lost market share in the OECD area in these industries over the past decade, mainly to the benefit of Mexico, Ireland, Belgium and Korea.
The United States accounted for just over 25% of worldwide value added in manufacturing in 2002. China accounted for about 8%, making it the third-largest manufacturing economy in the world, ahead of Germany, but behind Japan and the United States.
However, the main report also notes the changing nature of manufacturing:
Concerns about deindustrialisation are back on the agenda in many OECD countries. Recent years have seen a steep decline in manufacturing employment in many OECD countries. While overall manufacturing employment has declined, not all sectors have fared equally. Most of the decline in manufacturing employment over the past three decades has occurred in only two activities, textiles products and basic metal products. In several activities, notably food products, paper products, chemicals, motor vehicles and other manufacturing, manufacturing employment in the G7 countries has remained relatively stable. This is partly because OECD countries still maintain a comparative advantage in certain sectors of manufacturing activity, in some of which demand has been quite strong, e.g. pharmaceuticals. In certain other industries, such as food products, manufacturing production is often located close to the market.
That is some comfort to US manufactures.
More later on the report's analysis of the changing nature of manufacturing, the rise of knowledge-intensive services and the interaction between services and manufacturing.
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