My firm, Dayton Machine Tools (below), builds, repairs, and upgrades the complex (and often very large) machine tools that are used in many types of manufacturing. In this position, I am afforded a broad perspective of the American manufacturing sector.
When the bean counters starting holding sway in American business about 30 years ago, many companies faced increased competition from foreign suppliers in the machine tool and other manufacturing industries. Rather than support domestic companies and technology, buying patterns favored the least expensive products, usually off shore. The result was that American manufacturing capability and technology withered while European and especially Asian companies flourished. American companies first consolidated, then went out of business, their documentation and spare parts businesses absorbed by a few service companies providing only spare parts and service. Now even German and other European companies are being acquired by the Asians. The net result is that there is pitifully little left of the American machine tool industry. We have adequate machine tool operators (button pushers without much knowledge of setting up a job), but few if any machine tool designers capable of designing a machine tool from scratch.
Machine tool controls—the components that direct the actions of the machine tool--are dominated by Fanuc (Japan), followed by Siemens (Germany). General Electric (GE) formed a partnership with Fanuc in the late 1980s in which they would use Fanuc’s Computer Numerical Controls (CNCs) and GE’s Programmable Logic Controllers (PLCs). Since GE purchases a large number of machine tools for their manufacturing operations, the net result was a de facto standardization of much of the industry around the GE Fanuc CNC. The GE Fanuc PLC is a very small player in that market. With a huge installed base, many trained operators and service people, Fanuc’s income stream permits them to develop new proprietary features and hardware. This effectively locks smaller competitors out of the market because Fanuc does not supply documentation that would permit other products to be substituted or attached to their controls. Even Siemens (comparable to GE in Europe) has a tough time competing with Fanuc.
Another result of the 30-year shift has been companies that are focused on short-term results, not long-term viability, technology development and research. It is much easier to quickly grow a company (and promote its stock) by acquiring smaller companies and consolidating an industry, than it is to grow a business in its own right. The result is that most large American companies these days are run by marketing, financial and legal people, not engineers.
The United States has largely lost its manufacturing base. There are really only three principal enterprises that create value – farming, mineral extraction, and manufacturing. Everything else is just manipulation of the wealth created by these processes. It could be argued that intellectual property (invention) creates value, but if the manufacturing is done off shore, the producing countries demand (and get) technology transfer with very little investment. Intellectual property and software are like a new disease – once it’s out of the bottle, you can’t put it back in.
The US needs a program to rebuild its ability to create value through manufacturing and engineering. We need to create attractive careers in engineering and manufacturing, and provide the educational programs to supply the candidates for those jobs. It may sound protectionist (not a good strategy overall), but the pendulum has shifted too far off-shore and needs to return closer to home. Rather than impose tariffs, which would start a tariff war with our trading countries, we need to stimulate domestic sources of production through tax incentives. There are some in place, like the energy rebates offered for insulation, energy-saving appliances and lighting, improved industrial processes, etc., but these are often of limited duration; see a current incentives list here. They may stimulate a domestic interest in hybrid cars, wind/solar power or other beneficial program, but all too often these programs expire before a meaningful industry can take shape. Wind power, which was the hot new technology of 2007/2008, has fallen by the wayside in 2009 because the funding dried up with the economic downturn. Long-haul passenger and freight rail systems, the most efficient way to move goods and people, will require a long-term (decades) commitment, not a one or two-year stimulus.
Above: Vertical turret lathe, a machine tool used in making industrial compressors.
In this time of economic depression, we could use a stimulus that would help our country start rebuilding its manufacturing sector. The American Recovery and Reinvestment Act, passed this year to stimulate the economy, extends a modest tax credit from 2008, Internal Revenue Code 179(b), which gave businesses a tax incentives to invest in capital equipment – a 50% first-year depreciation for equipment purchases, capped at $250,000,
Above : Gantry with two-axis head and rotary table, a machine tool used in making large glass disks for telescopes.
The owner of Dayton Machine Tool, of which I am the COO, invested in several pieces of new equipment in 2008 specifically because there was a tax incentive to do so. A couple of pieces were domestically produced, but the big equipment was from Asian sources. I think the owner would have preferred to buy domestic product, but the right equipment at the right price wasn’t available in the specified one-year time horizon. He bought demo/used equipment because he could get it into service within the time frame allotted.These observations are relevant to the idea of a using another short-term tax stimulus for capital investments made by businesses. To be truly beneficial to the manufacturing sector, any tax stimulus program will have to allow for a longer time frame, perhaps 2-3 years, since the large capital investments that will be meaningful take time, engineering, supporting vendors, and capital to produce. The incentive should apply to any capital purchase that meets the criteria, but offer an additional incentive if the product is more than 50% US content. For example, Dayton Machine Tool already has a couple of vendors who would be willing to supply partially-completed machines for us to finish in the US, thus enabling us to meet these criteria.
Left: Six-spindle profiler machine tool can make six struts for airplane landing gear at a time. Note person in background. Right: Six-spindle profiler -- note scale. Mid-portion of machine tool rises to 12 feet above the platform where 17 men are standing.
One more thought about a stimulus for businesses and individuals: The German idea of providing rebates for people who trade in their old, inefficient cars for newer, more advanced cars is an ideal model – get the clunkers off the road and upgrade the average level of efficiency and technology at the same time. Our vehicles are relatively new, but I would consider hybrids if the incentives and products were available. This incentive should apply to any vehicle that meets the criteria, with additional credit given for US content.