Business and political leaders from around the world gathered in Davos this week for the annual meeting of the World Economic Forum. Asutosh Padhi, McKinsey’s Managing Partner for North America, is on hand to share his thoughts on an economic solution for inclusive growth hidden in plain sight: manufacturing.
The very word could inspire visions of a declining era that has given way to technology as the harbinger of economic growth. But according to Asutosh, the manufacturing industry is at the forefront of technological innovation. In the United States, he says, it offers well-paying careers and the potential for upward social and economic mobility.
Asutosh is co-authoring the upcoming book The Titanium Economy: How Industrial Technology Can Create a Better, Faster, and Stronger America. We caught up with him to learn more about the economic promise of this sector.
Many people might be surprised by your assertion that manufacturing is the future of the economy in the United States. What is the “titanium economy”?
Apple, Google, Amazon and others have become synonymous with innovation and symbols of future economic growth. There’s a good reason for that: they’ve been among the best performing stocks of the past decade. But due to their cultural dominance, these digital tech titans may eclipse an impressive array of industrial tech companies that have performed just as well.
These companies make up what we call the “titanium economy”. Generally speaking, they manufacture products that our economy relies on, but that consumers do not necessarily buy: aerospace parts, colored enamels, recycled plastic lumber, etc. They are further characterized by lean operations, competitive salaries and benefits, inclusive work cultures, and a commitment to smart innovation. This economy is geographically diversified and its products diversified.
What’s the biggest manufacturing misconception you’ve heard in Davos this week?
Despite the headlines about robots taking jobs and displacing manufacturing, the opposite is true. Crafting and moving things remains both a cornerstone of equitable wealth creation and social improvements, but the digital revolution has changed the skills needed for careers in this field. Moreover, the average lifespan of an industrial company is 28 years, far exceeding that of technology companies, which is six years.
It’s true that America’s manufacturing industries bear heavy scars from the loss of jobs in the 1980s, when factories shut down and entire communities were emptied of young people. But today, many companies are bringing their workforce back to the United States because they recognize the benefits of nation building.
The industrial technology economy is growing and resilient, exceeding analysts’ expectations and creating jobs with high wages and benefits. Nearly half of the companies I studied for my next book outperformed the S&P index from 2015 to 2020.
What is the profile of a titanium company? What are the characteristics and values that define them?
There are a variety of attributes. Generally, shareholder value comes from operational performance and market share, not just from expansion. These companies create jobs in the United States and pay above-average wages and benefits. Their boards are typically highly engaged, implementing cutting-edge standards of self-analysis, governance and oversight. They are often family-owned, but they are resolutely innovative and committed to ongoing community relations and education.
You have already spoken of the multiplier effects that a revitalized American manufacturing industry could have. Can you elaborate?
Titanium manufacturers open factories, create jobs, offer training programs and generate indirect effects on the economy and employment. Economists calculate that 100 sustainable manufacturing jobs generate 750 or more indirect jobs, one of the highest multiplier effects of any industry. Successful industrial technology companies often regenerate a community, attracting young professionals, new immigrant families, gig workers and entertainers. They also benefit stakeholders throughout the product cycle, resulting in broad social benefits that keep pace with business success.
What challenges await titanium manufacturers?
If the last two years of empty grocery shelves and delayed deliveries have taught us anything, it’s that we need to invest in stronger supply chains. Over the decades, we’ve built supply chains that rely on lean warehouses and just-in-time systems that depend on predictability. These have left businesses vulnerable to the risks associated with single-source suppliers or countries of supply, as well as new threats such as natural disasters and cyberattacks.
To run a healthy and well-functioning supply chain, we need to invest in workforce training programs, such as community colleges, technical training programs, and high school courses like shop carpentry and the metal workshop.
There is also a stigma associated with manufacturing. Parents and society as a whole often have a huge misperception of the benefits of industrial jobs, which provide stable employment, very decent salaries and a career path; Yet many graduates do not consider a factory job.
Beyond the economic advantages, what else do the titanium manufacturers promise?
Many of these companies emphasize environmental responsibility and sustainability, and not just because reducing environmental impact is a boon for investors and regulators. These companies are forward-thinking innovators. These are about the environment, enhancing food security, making clean energy safer and cheaper, keeping our air and water clean, promoting and investing in entrepreneurship for the greatest number, and more. Their potential is limitless.