Can We Bring Back the Industrial Commons for Manufacturing? Comments 26 Email Print ShareSumming Up: Does the US have the political will or educational ability to remake its manufacturing sector on the back of an 'industrial commons?' ProfessorJim Heskett's readers are dubious.by James HeskettSUMMING UPWhere Is the Leadership Necessary to Regenerate the "Industrial Commons"

In their bookProducing Prosperity, Gary Pisano and Willy Shih pointed to the lack of long-term thinking and investment as well as education necessary to rejuvenate an "industrial commons" in the US. A "commons" fosters the process-oriented innovation that in turn contributes to the vitality of the industrial sector and the health of the economy.Respondents to this month's column were somewhat pessimistic that such resources could be found or developed.Marco Sormani commented, "Where was (the) support for manufacturing when it really counted, before much of it escaped offshore? Why should we believe this 'new thinking' now?" Citing " high labor costs and uncooperative unions," Philippe Gouamba pointed to its failing educational system as a reason the US has fallen behind in the competition for a share of the "commons." Peter Sebregondi commented that "companies aim to have the least possible ownership of the capital or assets involved in the value chain," but points out that they "went a little bit too far, and entire nations are now suffering."There was little agreement over how these barriers might be addressed. While suggesting "less and not more help from government," Doug Elliott nevertheless reminded us that many of those workers and managers essential to the rebirth of the "commons" may be "found mostly in state and community colleges and not so much in the Ivy leagues." But Hugh Quick commented, "Beware of government interference with schools."One positive example put forward was that of Germany. Bob Houck reminded us that industrial jobs still constitute "over 20% in Germany and at good wages." Peter Sebregondi said that "the German government, companies and unions TOGETHER have defended the German Industrial Commons" in response to pressure from globalization and EU East expansion." But Bob Houck reminded us that " this doesn't mean the US can follow this model."Yadeed Lobo was more optimistic. As he put it, "The United States is good at achieving turnarounds" But he warned that "the biggest obstacle will be organizational and managerial insecurities," the lack of "strong leaders who are confident and determined" to add to the near-term cost base for the long-term benefit of the organization. Byron also took leadership to task, pointing out the lack of "deep knowledge of production, products, and culture" necessary for the task, while saying that "I don't think most of management is willing to take the long view."These last comments provided a good lead-in to the question posed by Jay Somasundaram: "What types of leadership do we want most?" Where do we find such leaders? How do we develop them? Where is the leadership necessary to regenerate the "industrial commons"? What do you think?ORIGINAL ARTICLEA new book,Producing Prosperity, by profs. Gary Pisano and Willy Shih, argues that a manufacturing renaissance is critical to the process-oriented innovation that has contributed to the worldwide dominance of the US economy. The argument presumably extends as well to other countries with developed economies.Pisano and Shih maintain that their proposals are intended to encourage the regeneration of the "industrial commons"the "R&D and manufacturing infrastructure, know-how, process-development skills, and engineering capabilities"resulting from the clustering of universities, suppliers, and manufacturers in industries such as biotechnology, electronic components, and semiconductors in which rapidly-developing innovations in processes and process technologies are taking place.They are many of the same industries in which constant interaction between R&D and manufacturing are most important, industries where the outsourcing of manufacturing to another country can not only prove to be destructive to the innovative process but to the industrial commons as well. It can lead to the demise of entire industries.Note that Pisano and Shih are not calling for the return to the US of jobs in mature industries or those in which product innovation can be separated from manufacturing. Nor are they claiming that this will create many new jobs, since (1) manufacturing will probably never again amount to more than about 10 percent of total employment in any of the world's developed economies and (2) the return of manufacturing activity to the US will have to be accompanied by increased productivity, probably through investments in technology that eliminates jobs.Their argument is more basic. It is that the innovative capabilities critical to maintaining industrial leadership are being threatened and need defending.Rebuilding the industrial commons will, they argue, require efforts by both government and management. Government will contribute by providing support for the educational system, with incentives to encourage advanced study in engineering as well as information and manufacturing-related technologies. In addition, they call for a national economic strategy for manufacturing, with an emphasis not on "picking winners" among companies or even industries, but on providing support for basic process-oriented innovation that can be utilized by competing companies in several industries.Managers who understand the importance of competing through innovation will fare best in the future Pisano and Shih envision. This means such things as: Making capability enhancement "an explicit goal in the strategy process." Including executives with deep knowledge of such things as "the company's technology, operating processes, culture on the shop floor, and supplier network" in the strategy-making process. Adopting a "dynamic perspective" that emphasizes cumulative investments over relatively long periods of time. Recognizing that instead of evaluating investments in R&D or new factories on a purely short-term financial basis, that the math of location decisions take account of the impact on process-oriented innovation as well. They admit that in this day of short-term, transaction-oriented management, this is a tall order.This leaves us with some questions: How realistic is the thesis that Pisano and Shih advance? Where is it most likely to succeed? To fail? What can be done to mitigate the possibilities for failure? Can we bring back the "industrial commons" critical to manufacturing? What do you think?TO READ MORE:Gary P. Pisano and Willy C. Shih,Producing Prosperity: Why America Needs a Manufacturing Renaissance, Harvard Business Review Press, 2012.Is Indias Manufacturing Sector Moving Away from Cities?by Ejaz Ghani, Arti Grover Goswami, and William R. Kerr Email Print ShareEXECUTIVE SUMMARY One of the biggest challenges in development is urbanization. Within developing countries, nearly two billion people are expected to move from rural regions into cities in the next two decades. This paper closely examines the movement of economic activity in Indian manufacturing between urban and rural areas. The authors find that while the organized sector is becoming less urbanized, the unorganized sector is becoming more urbanized. This process has been most closely linked to greater urbanization changes in districts with high education levels; a second role is often evident for public infrastructure as well. On the whole, these urbanization changes have modestly improved the urban-rural allocation of industries within India's districts. Key concepts include: Much of the urbanization that is occurring is in the unorganized sector. Policies that take an inclusionary approach to the urban informal economy may be more successful in promoting local development and managing its strains than those focused only on the formal sector. Districts with better education and infrastructure have experienced a faster pace of urbanization, although higher urban-rural cost ratios cause movement out of urban areas. Observers have frequently noted the relatively slow pace of India's urbanization. Moreover, the movement of organized manufacturing sector plants to rural areas is surprising, given the relative youth of India's manufacturing sector. Continued investment in infrastructure and education, beyond their direct effects for Indian businesses, may also provide beneficial effects from an urbanization and spatial allocation perspective. The most urbanized states in terms of manufacturing employment are Delhi and Chandigarh at over 90 percent in 2000, with Gujarat, Haryana, Maharashtra, and Punjab also above 60 percent. However, Bihar, Orissa, and Himachal Pradesh have urbanization rates of less than 20 percent for manufacturing employment.AUTHOR ABSTRACTThis paper investigates the urbanization of the Indian manufacturing sector by combining enterprise data from formal and informal sectors. We find that plants in the formal sector are moving away from urban and into rural locations, while the informal sector is moving from rural to urban locations. While the secular trend for India's manufacturing urbanization has slowed down, the localized importance of education and infrastructure have not. Our results suggest that districts with better education and infrastructure have experienced a faster pace of urbanization, although higher urban-rural cost ratios cause movement out of urban areas. This process is associated with improvements in the spatial allocation of plants across urban and rural locations. Spatial location of plants has implications for policy on investments in education, infrastructure, and the livability of cities. The high share of urbanization occurring in the informal sector suggests that urbanization policies that contain inclusionary approaches may be more successful in promoting local development and managing its strains than those focused only on the formal sector.PAPER INFORMATION Full Working Paper Text Working Paper Publication Date: April 2012 HBS Working Paper Number: 12-090 Faculty Unit:Entrepreneurial Management Em