Revue d'économie industrielle 144 | 4e trimestre 2013 Manufacturing Renaissance (1/2) Why and How Does Manufacturing Still Matter: Old Rationales, New Realities Antonio Andreoni and Mike Gregory Electronic version URL: http://journals.openedition.org/rei/5668 DOI: 10.4000/rei.5668 ISSN: 1773-0198 Publisher De Boeck Supérieur Printed version Date of publication: 1 December 2013 Number of pages: 21-57 ISBN: 9782804185701 ISSN: 0154-3229 Electronic reference Antonio Andreoni and Mike Gregory, « Why and How Does Manufacturing Still Matter: Old Rationales, New Realities », Revue d'économie industrielle [Online], 144 | 4e trimestre 2013, Online since 01 December 2015, connection on 30 April 2019. URL : http://journals.openedition.org/rei/5668 ; DOI : 10.4000/rei.5668 © Revue d’économie industrielle WHY AND HOW DOES MANUFACTURING STILL MATTER: OLD RATIONALES, NEW REALITIES Antonio Andreoni* and Mike Gregory Centre for Science, Technology and Innovation Policy Institute for Manufacturing, University of Cambridge Keywords: Manufacturing, Service, Industrial Systems, Production Networks, Machine Tools, De-linking. Mots clés : Industrie, service, systèmes industriels, réseaux de production, mécanique, rupture. 1. INTRODUCTION Over the last three decades, the importance of manufacturing in the political economy debate has steadily declined. However, recent years have witnessed a renewed interest in manufacturing production its potential as an engine of technological dynamism and a source of the wealth of nations for which it was previously recognised. This has led analysts to identify a worldwide ‘manu- facturing renaissance’ emerging in different contexts with multiple focuses, observable in many white papers and scientific research. In particular, * Email corresponding author: [email protected]. The authors acknowledge helpful discussions and comments from Patrizio Bianchi, Ha-Joon Chang, Michael Landesmann, Eoin O’Sullivan and Bob Rowthorn. All mistakes remain ours. The Centre for Science, Technology & Innovation Policy gratefully acknowledges the generous support of the Gatsby Charitable Foundation. REVUE D’ÉCONOMIE INDUSTRIELLE ➻ N° 144 ➻ 4E TRIMESTRE 2013 21 WHY AND HOW DOES MANUFACTURING STILL MATTER: OLD RATIONALES, NEW REALITIES deindustrialisation, loss of strategic manufacturing industries, increasing trade imbalances, decreasing technological dynamism and industrial competi- tiveness have been major concerns in advanced economies. This paper aims to contribute to the renaissance of a manufacturing oriented view in two ways. The first contribution of the paper is to provide a critical review of the main turning points in the manufacturing versus services debate and evaluate the analytical and empirical arguments supporting the two opposing views. By sketching the tensions behind the service oriented view that have arisen as a result of the profound transformations in industrial systems and the redistribution of manufacturing production across countries over the last two decades (the current financial crisis and resulting manufacturing loss being just the peak of these global trends), a systematisation of old and new rationales supporting a manufacturing oriented view is presented. Many of the rationales put forward in the current debate would have been familiar in the 1960s and 1970s but are now supported by new empirical evidence. However detailed understanding of ‘how’ and ‘why’ manufac- turing matters is still limited. There are two main reasons for this insuf- ficiency. Firstly, without disaggregating the analysis from the macro level to the sub-sectors and even production activities/tasks levels, it is diffi- cult to say whether certain manufacturing industries matter more than others (still less why and how). Secondly, without taking into account the new realities of manufacturing systems and their configuration in global production networks, we are not able to identify the fundamental chan- nels through which certain manufacturing industries perform their ‘cat- alytic role’. Disentangling these new realities and, thus, identifying the new manufacturing oriented rationales, make an integration of econom- ics, engineering and operations management necessary. The second contribution of the paper is to explore the reasons why cer- tain manufacturing industries (such as the machine tools industry) are more important than others and why technological linkages stemming from manufacturing industries are key enablers of a country’s systemic capacity to generate technological change. This second issue is addressed by analysing the negative consequences of de-linking manufacturing pro- duction from services (off-shoring) which systematically disrupt the bun- dle of technological linkages constituting the industrial commons. 22 REVUE D’ÉCONOMIE INDUSTRIELLE ➻ N° 144 ➻ 4E TRIMESTRE 2013 WHY AND HOW DOES MANUFACTURING STILL MATTER: OLD RATIONALES, NEW REALITIES 2. ‘MAKING’ OR ‘DOING’: MOVING THE DEBATE FORWARD Does the wealth of nations, that is, their socio-economic development and technological power, mainly result from superior capacities in manufac- turing (i.e. making things) or in doing other activities (i.e. providing ser- vices)? Furthermore, do different sectors and/or production tasks performed within each sector contribute to economic growth in specific ways? Finally, to what extent can a sustained process of economic growth rely on the increasing relative expansion of the service sector? During the second half of the twentieth century, the political economy debate addressing these questions has witnessed two major turning points. Until the late 1970s, the debate was dominated by scholars working in the classical economics tradition who supported what we call here a manufactur- ing oriented view. Then, in the subsequent two decades of the twentieth cen- tury (1980s-2000) a service oriented view came to dominate and remained cen- tral to the academic and policy debate until the recent financial crisis. These two opposing views emerged in, and may partially reflect, the worldwide process of structural change and manufacturing development that started after the World War II. A snapshot of countries’ manufacturing develop- ment trajectories over the last half of the twentieth century, is essential to understand the context of the manufacturing versus services debate. 2.1. Manufacturing development: Some long-term stylised facts Eighteenth-century Great Britain was the first country to experience wide ranging and systematic manufacturing development with consequent rises in productivity and output. In the nineteenth century Belgium, Switzerland and France followed by the United States began to industri- alise. In due course latecomers including Germany, Russia and Japan joined the industrialising nations, while the developing world (both col- onies and non-colonies) remained oriented towards primary produc- tion (Gerschenkron, 1962; Maddison, 2007). This situation remained basi- cally unchanged until the World War II, with the partial exceptions of Argentina, Brazil and South Africa. This group took the opportunity to REVUE D’ÉCONOMIE INDUSTRIELLE ➻ N° 144 ➻ 4E TRIMESTRE 2013 23 WHY AND HOW DOES MANUFACTURING STILL MATTER: OLD RATIONALES, NEW REALITIES start their own manufacturing development process through import substitution because of the contraction of world trade during the Great Depression (1930s). After World War II more countries began to enter the ‘catch-up phase’ thanks to the increasing advantages of backwardness, the greater oppor- tunities for technology transfer and the industrial policies implemented by developmental states. This allowed them to enter the worldwide manu- facturing development race (Wade, 1990; Chang, 1994 and 2002; Amsden, 2001 and 2007; Reinert, 2007). At a first glance, three sets of stylised facts emerge as characteristic features of the last half of the twentieth century. First, there has been a worldwide process of structural change and quan- titative redistribution of manufacturing across countries. In 1950, when the manufacturing development process became a major worldwide phenom- enon, manufacturing constituted around 30 per cent of GDP in advanced economies while in developing countries the figure was around 12 per cent (see Figure 1). Among economies in the ‘catch up phase’ Latin America remained the most industrialised region until 1975 when the manufactur- ing sector started contracting to the point that, in 2005, the share of man- ufacturing in GDP had reverted to 1950s levels. The manufacturing devel- opment path followed by countries in Africa was on average almost flat, reaching its peak in 1990 and decreasing to 11 per cent (again a return to figures seen in 1950). In contrast manufacturing continued to increase in many Asian econo- mies throughout the last half-century with an impressive acceleration from 1965 to 1980. Finally, in the most advanced economies, the manufac- turing share started decreasing in the late 1960s, from 30 per cent to 18 per cent on average in less than a decade, although the absolute manufactur- ing output increased or remained stable (Maddison 2007; Szirmai 2011). During the second half of the last century, few East Asian economies expe- rienced a sustained catching up process responsible for the quantitative redistribution of world manufacturing value added shares and world man- ufactures trade. In 2010 the three most successful countries in East Asia, namely China, The Republic of Korea and China Taiwan Province taken as a whole accounted for