Home' Technology Review : March April 2013 Contents 69
MIT TECHNOLOGY REVIEW
Make the New
Economist Ricardo Hausmann
says the U.S . has a chance to invent
tomorrow’s manufacturing technology.
● The U.S . has lost millions of manufac-
turing jobs since 2000. Industries have
moved offshore. America’s trade deficit in
physical goods is $738 billion a year.
So what’s the path forward?
Countries trying to understand what’s
next for their export industries often
call Ricardo Hausmann. The Harvard
economist and onetime planning min-
ister for Venezuela has developed a kind
of economic aptitude test for nations.
Using complexity theory and trade data,
Hausmann looks at what a country is good
at making and predicts what types of more
valuable items it could produce next.
That sounds plain enough, but the
results of Hausmann’s analyses are often
surprising. A country with a competitive
garment industry might want to move into
electronics assembly—both need an indus-
trial zone with quality electrical power and
good logistics. One that exports flowers may
have the expertise in cold storage needed
to spark an export boom in fresh produce.
Hausmann, director of Harvard’s Cen-
ter for International Development, spends
much of his time helping nations that are
just beginning to modernize their indus-
tries, such as Angola and Nigeria. MIT
Technology Review asked him what his
research methods predict about opportuni-
ties for manufacturing in the United States.
Why has the number of American manu-
facturing jobs been decreasing so quickly?
The fundamental reason is that produc-
tivity in manufacturing has been rising
rapidly and demand for manufactured
products has been growing more slowly. To
supply the stuff that people want requires
And then, manufacturing is becoming
feasible in more parts of the world. There is
more competition, including from countries
with lower wages. As they emulate Ameri-
can production, they take market share.
What’s the best manufacturing strategy
for the U.S. in that situation?
It’s certainly not playing defense and try-
ing to save jobs. The U.S . has very, very
high wages compared to other countries.
Yet it also has a comparative advantage,
which is high R&D intensity, and the best
science and technology base in the world.
The step that makes the most sense for
the U.S . is to become the producer of the
machinery that will power the next global
manufacturing revolution. That is where
the most sophisticated products are, and
that is the work that can pay higher wages.
What kind of revolution will it be?
My guess is that developments around
information technology, 3-D printing, and
networks will allow for a redesign of man-
ufacturing. The world will be massively
investing in it. The U.S . is well positioned
to be the source of those machines. It can
only be rivaled by Germany and Japan.
You look at economies as “product
space.” What do you mean by that?
The product space is the space of all pos-
sible products. The metaphor is of a for-
est. Each product is a tree, and companies
are monkeys that are taking over the for-
est. Empirically, we’ve shown monkeys
don’t fly. They move to nearby trees, or to
industries for which they have many of the
required productive capabilities.
So if you have the capability to make
a regional jet, you may be able to make a
long-haul aircraft. But if you are making
only garments, figuring out how to make
any kind of jet will be very hard. Countries
that grow find a “stairway to heaven”—a
sequence of short jumps that gets them far.
How does that type of analysis help a
country know what to do next?
Think about a developing country that
exports raw commodities. The way that
people have thought about it is to add
value: if you have trees, try to export paper
or furniture rather than wood.
But product space may argue against
adding value to raw materials. The way
a country like Finland got transformed
is it moved from cutting wood to mak-
ing machines to cut wood, to making
machines that cut other things, to making
other machines, and eventually to Nokia.
So what are the opportunities for the U.S.
in product space?
The U.S. has the problem that it’s competing
with countries that pay much lower wages.
American monkeys are under stress from
other countries’ monkeys in regard to less
complex, easier-to-make products.
on what to
B USINESS REPORT — N EXT WAVE OF M ANU FACTURING
1/30/13 2:11 PM
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