Timken was one of hundreds of manufacturing companies in a sample of firms interviewed by an MIT research team about their experiences in bringing novel ideas, products, and processes to market.
I was a principal investigator in that project. The aim of the project—Production in the Innovation Economy—was to discover whether we really need manufacturing to gain the benefits of innovation: economic growth, new companies, new profits, and good new jobs in this country. After all, Apple and other companies like it—which do R&D, design, and distribution but little or no production in the United States—reap the lion’s share of their profits here.
To explore these issues, the MIT researchers collected data on the efforts to scale innovation up to market by startup firms, Main Street small and mid-sized manufacturers, and Fortune 500 companies. When we learned about the Timken shareholders’ vote, we realized that we were seeing up close and in real time the forces that over the past thirty years have transformed and shrunken manufacturing in the United States.
In the radical downsizing of American manufacturing, changes in corporate structures since the 1980s have been a powerful driver, though not one that is generally recognized. Over the first decade of the twenty-first century, about 5.8 million U.S. manufacturing jobs disappeared.
The most frequent explanations for this decline are productivity gains and increased trade with low-wage economies. Both of these factors have been important, but they explain far less of the picture than is usually claimed. Since the 1980s, financial market pressures have driven companies to hive off activities that sustained manufacturing.
The breakup of vertically integrated corporations and their recomposition into globally linked value chains of designers, researchers, manufacturers, and distributors has had some enormous benefits both for the United States and for developing economies. It has meant lower costs for consumers, new pathways for building businesses, and a chance for poor countries to create new industries and raise incomes.
But the changes in corporate structures that brought about these new opportunities also left big holes in the American industrial ecosystem. These holes are market failures. Functions once performed by big companies are now carried out by no one.