Q. What are the main findings of the PIE project?
A. The key question of the PIE research for the past two-and-a-half years was: What kinds of production do we need in this country in order to get innovation to the market? We know that in the United States and at places like MIT, there are great new ideas coming out, but what would it take in order to get these new ideas about products and processes into the hands of customers? However great our ideas are, we’re not going to be contributing to growth and new jobs unless we can move these ideas to the market. And so what we tried to do in the PIE research was discover the role of manufacturing in our ability to get innovation out there into the world.
I think what we discovered is that manufacturing is very important in bringing good ideas, whether they come from the shop floor or the laboratory, through the stages of prototyping, pilot manufacturing, larger-scale production, and finally commercialization. We looked at many kinds of companies in the United States: In tracing the trajectory of startups, for instance, we discovered that actual proximity of startups to established firms — suppliers, metalworking shops, people who had experience with the processing of biotech materials — was really vital.
Another way we saw manufacturing capabilities as being important is that in the process of making things, there’s a lot of innovation and learning, which feeds back into research and development. That is critical. We could see that in the biotech industry, where scaling up processes is an extraordinarily complex scientific and engineering problem. Innovation takes place at multiple points along the line before commercialization.
Q. The United States has lost manufacturing jobs over the last few decades, but it still has a fair number of them. What, if anything, can the United States learn from other countries about the innovation economy?
A. When we went to Germany and China, we realized that being able to scale up from prototype and pilot production involves significant innovation. Today, German manufacturing is still so strong — about 20 percent of the workforce is still employed in manufacturing, their wages are almost double U.S. wages when you count benefits, and Germany has a trade surplus — and we could see that many German firms have more integrated structures than many American firms. They have kept their arms around production, and we could see the benefits for those companies in the long run.
In China there are many differences, but Chinese manufacturing is doing well, and it’s not just because of low labor costs. It’s also because the Chinese have developed real capabilities for scaling up production. So they’re able to do rapid product introductions, taking designs and prototypes produced by Western companies, and figuring out how to simplify them, find materials, and move from innovation to product rapidly. And that’s an extremely important skill.
When we look at manufacturing in the United States, we’ve had an enormous transformation of our corporate structure from the 1980s to today. There were about 25 large vertically integrated companies then, and everything took place within the four walls of those companies. DuPont’s research labs worked for more than 10 years on nylon, and when they decided to produce it, they had plants, they had cash.
Today, when most innovation is growing up out of university laboratories and public laboratories, venture capital supports companies for the first years. But when it comes to building factories, where are those funds going to come from? The startup might be purchased by a bigger company. So we have a very different corporate model today. There are some real strengths to it, but also potential problems.
Those new problems are what we’re calling the holes in the industrial ecosystem. They’re market failures where, given these new corporate structures, no one economic actor really has the incentive to provide the inputs needed, like capital for scale-up.
Q. What is unique about the PIE study?
A. There have been a lot of studies of manufacturing over the last four years, but I think there are two distinguishing features of the PIE study. First, our emphasis on innovation, and on asking one key question, relentlessly, of companies: When you have an innovation, what kinds of production capabilities do you need in order to bring it to life in the world? And secondly, the fact that we tried to build this analysis from the bottom up, carrying out 260 interviews in companies. We spent a lot of time on shop floors, and I think that is definitely in the MIT style.