The U.S. industrial base is eroding, and this situation has enormous national
security implications. It has made the United States so dependent on foreign
countries for critical components and systems that it may have lost its ability
to control its supply chains.
The United States is becoming dependent on countries such as China, India,
Russia, France and Germany for critical weapons technology. It’s conceivable
that one of these governments could tell its local suppliers not to sell critical
components to the United States because they do not agree with U.S. foreign
policy.
The federal government, and in particular, the Department of Defense, does
not manage the country’s industrial base as a “system.”
U.S. government agencies are fiefdoms that rarely compare notes to see how
their collective policies might affect a company or an industry. Interagency
cooperation is an essential element of what needs to change in the future.
A Defense Department report entitled “Transforming the Defense Industrial
Base: A Roadmap,” recommended the department consider “viewing the
industrial base as being composed of operational effects-based sectors that
support transformational war-fighting. … Organizing its decision processes
to optimize operational effects—not programs, platforms or weapons systems.”
This report makes sensible arguments, but more needs to be done.
U.S. corporations increasingly act as large social systems with a global focus.
But ask the CEOs of the Fortune 500 to describe the issues on their minds and,
more than likely, national security or the disintegration of the U.S. industrial
base would not be among them. Many global corporations do not believe they owe
allegiance to any stakeholder except their stockholders, and sometimes, their
customers.
This attitude has not changed since the end of the Cold War—not even
since 9/11. A new vision of national security is needed that includes cooperation
between government and industry.
National security requires a healthy market-based economy, with a strong industrial
base of globally competitive industries continuously improving quality and productivity.
The United States cannot sustain the kind of growth it has enjoyed for the
last several decades if the industrial base steadily erodes. Increasingly, a
number of U.S. companies in specific industries find it impossible to compete
in world markets. This is of particular concern for the industrial base that
supplies the U.S. military.
According to U.S. Census Bureau data from 1992 to 1996, the domestic market
share of military and civilian aircraft combined (traditionally an American
manufacturing powerhouse) dropped from 88.5 percent to 86.6 percent. Aircraft
engines and engine parts suffered a steeper decline—from 70.9 percent
to 63.2 percent. And domestic producers’ share of the non-engine aircraft
parts market plummeted all the way from 80.5 percent to 68.5 percent, said industrial
base expert Alan Tonelson of the U.S. Business and Industry Council, quoting
census data.
Much of the high-value American industry experienced the same deterioration
from 1992 to 1996, according to Tonelson.
Domestic market share for relays and industrial controls dropped from 81.1
percent to 75.1 percent, for computer storage devices from 39.3 percent to 31.9
percent, for analytical instruments from 78.5 percent to 75.6 percent, for metal-cutting
machine tools from 55.2 percent to 47.9 percent, for specialized industrial
machinery from 85.2 percent to 82.7 percent, for pharmaceuticals from 95.7 percent
to 93.1 percent and for industrial inorganic chemicals from 68.2 percent to
60 percent.
Data for the 1997-2001 period shows further weakening in domestic manufacturing.
But the rate of deterioration was rarely faster than from 1992 to 1996, as the
weak-dollar advocates have been claiming. Precise comparisons between these
periods are difficult because in 1997, the government changed a key system for
classifying industries. Nonetheless, 1997-2001 data for 80 out of 90 industries
show market share losses during these years, Tonelson said.
Of note to the military defense sector, from 1997-2001, civilian jetliners
fell from an 84.7 percent domestic market share down to 73.9 percent; aircraft
engines and engine parts, from 60 percent to 50.7 percent, and non-engine aircraft
parts, from 68.9 percent to 64.6 percent.
Falling domestic market share during the late 1990s afflicted many other core
industrial sectors as well.
Market share for domestic producers of relays and industrial controls dropped
from 70 percent to 60.5 percent, metal-cutting machine tools from 41.5 percent
to 37 percent, ball and roller bearings from 77.4 percent to 75.8 percent, mechanical
power transmission equipment from 75.1 percent to 72 percent, turbines and turbine
generator sets from 74.4 to 57.7 percent, pharmaceuticals from 90.5 to 85.9
percent, and plastics and resins from 88.9 percent to 85.4 percent,Tonelson
said.
Globalization and the intense pressure applied by Wall Street to U.S. companies
encourages indiscriminant cost cutting, a measure that frequently works in the
short term, but often creates losses in the long term.
The “better, faster, cheaper” mentality sometimes sacrifices long-term
gains by forcing a company to outsource work to low-wage countries in the near
term. These decisions can come back to haunt a company. This is especially the
case when the work acquired is of inferior quality, or the accessibility of
an essential item can be put in jeopardy.
In many cases, the United States is unable to manufacture critical military
equipment. This situation is not officially documented and monitored, but it
needs to be.
The United States does not have control over foreign shipping. Enemies can
easily disrupt the economy just by sinking ships that feed the industrial base
and consumer culture. The United States is vulnerable because of its dependence
on foreign parts, services and fuel to maintain economic growth, not to mention
military capability.
Global purchasing organizations in industry and the military are not sufficiently
looking at the risks of potential disruption of supply lines. They tend to be
rewarded for getting commodities less expensively, and nothing else.
In a global economy, the rules of engagement are different. Just look at the
results of the brief longshoremen’s strike last year on the West Coast
and the billions of dollars it cost the nation.
The Defense Department’s Diminishing Manufacturing Sources and Material
Shortages (DMSMS) program, monitors spare part shortages regardless of cause.
DMSMS is the loss or impending loss of manufacturers or suppliers of critical
items and raw materials due to production discontinuance. DMSMS can be caused
by rapid changes in item or material technology, uneconomical production requirements,
foreign source competition, federal environmental or safety requirements, and
limited availability or increasing cost of items and raw materials used in the
manufacturing process.
The problem is further complicated by a reduction in the industrial base dedicated
to production of military equipment. In fact, the Defense Department now accounts
for less than one-half of 1 percent of total microelectronic component sales.
In addition, aging fleets of ships and aircraft have lost their original supplier-base
of constituent mechanical, hydraulic and other components.
The DMSMS database is an example of how badly the industrial base is deteriorating.
The Industrial College of the Armed Forces at National Defense University has
an industry studies program that annually examines 20 industries representing
key components of national security. ICAF’s work has chronicled the deterioration
in industries such as advanced manufacturing and shipping.
Manufacturing
When government R&D investment in an industry deteriorates, it is only
a matter of time before an industry is in trouble. Manufacturing R&D by
the federal government is declining.
According to Manufacturing News, “in the mid 1990s, the government was
spending $1.5 billion on manufacturing related R&D, including such programs
as Technologies Enabling Agile Manufacturing at the Energy Department and $500
million in electronics manufacturing programs at DARPA. Both of those programs
have been discontinued.”
In the same article, Dick Engwall, the 2002 recipient of the multi-association
“Individual Manufacturing Excellence Award,” said he is “concerned
about the military’s desire to abandon programs related to materials,
processes and affordability.”
Shipbuilding and Repair
In May 2001, the U.S. Department of Commerce’s Office of Strategic Industries
and Economic Security, in partnership with the Carderock Division of the Naval
Surface Warfare Center, completed a three-year national security assessment
of the U.S. shipbuilding and repair industry. Some of the findings were disconcerting.
According to the study, employment in the industry has “dropped sharply
since the early 1980s, when total private employment was close to 180,000 workers.
Survey estimates indicated that employment would decline to about 83,500 in
2000.” In addition, “orders for U.S. warships have declined 60 percent
during the 10 years since the end of the Cold War.”
Young people no longer view working in a shipyard as a viable way to make a
living. Consequently, according to DOC, “survey responses indicate that
labor shortages have reduced profits, impacted construction costs, and delayed
project completion for most shipyards.”
According to the study, the basis for U.S. ship-building superiority has been
the research and development expertise that currently resides in Navy’s
laboratories, acquisition commands, and certain shipbuilders and universities.
“Collectively, these organizations have conceived and designed most of
the state-of-the-art hull, mechanical, electrical, power projection, air defense
and undersea warfare capabilities that are operational today. With reduced research
and development budgets, some of that capability now is becoming fragmented.”
This situation also exists in other industries, such as machine tools, the
high performance explosives and explosive components industry, cartridge and
propellant actuated device sector and welding. nd
Sheila Ronis, Ph.D., is president of The University Group Inc., in Birmingham,
Mich.