DESPITE nearly six years of economic recovery, American manufacturers in key industries have still not learned that productivity and competitiveness depend on investing in modern computerized equipment. And the future does not look any brighter. New evidence shows that in the metalworking sector - at the heart of the industrial economy where machines from coffee grinders to jet engines are made - modernization of manufacturing technology is proceeding at a snail's pace. This directly threatens our ability to compete with nations that are rapidly adopting computerized automation technologies and could lead to the demise of thousands of small manufacturing companies.
As of 1987, only 11 percent of the machine tools used in the United States were computer-controlled. In more than half of the companies in machinery and metalworking industries, not one computerized machine can be found. Moreover, of those establishments that had begun to modernize their plants before 1982, 1 in 4 has ceased investing in new technology. Among plants that have invested in computerized automation within the past five years, the use of new technology in production operations is not overwhelming. In these facilities only about 1 in 6 machines is computerized.
The little investment in new production equipment being undertaken is concentrated in a small number of large plants. In 1986, 85 percent of total investment in new equipment of any kind occurred in only 26 percent of all plants. In short, an enormous number of small businesses exist in a technological and investment backwater. Nor is the situation likely to change much in the next couple of years. Only 1 in 10 production managers of facilities where there is no computerized automation says he plans to invest in the new technology during 1988-89.
In modernizing so slowly, large manufacturing companies run the risk of falling even further behind their competitors in Japan and West Germany on cost-savings and quality improvements. Small firms that fail to innovate face a double threat: As large firms loose out in world markets, the small suppliers that depend on them will also suffer. If large firms do computerize but the small firms do not, the latter are likely to loose out to foreign suppliers.
The loss of a base of small manufacturers seriously threatens our economy. If these companies continue as they have planned and make no effort to modernize their production technology, we could lose a million or more domestic jobs. Rather than relying on outmoded domestic suppliers of machinery parts, major companies can be expected to turn increasingly to foreign parts suppliers (particularly in West Germany, Italy, and Japan) with a more up-to-date technology and more sophisticated technical and managerial skills acquired from years of experience with computerized machinery. In 10 years, we could find ourselves with state-of-the-art modern facilities in the leading companies in the auto, aircraft, and machinery manufacturing industries, but with fewer companies and slower domestic economic growth. Without a modernized parts supplier capacity in the metalworking sector, the sales of the major companies in these industries won't translate into as much employment and economic growth as they once did.
The ability of the economy to innovate can also suffer if small manufacturers do not modernize. In the initial stages of the adoption of a new process technology such as computerized automation, the large company is the source of the expertise. But once having mastered that technology, the small-scale parts suppliers can be called upon by their customers to solve manufacturing problems associated with new products. Hence the stagnation of the small-manufacturing sector portends a loss of innovative capacity - not just jobs - for our economy, and a further weakening of the competitive position of US industries in the world economy.
The Bush administration needs to take a hard look at state and federal technology policies to see that they get at problems related to the diffusion of new technologies.
The competitive capacity of our manufacturing base is at stake.