A recent David Rotman column in Technology Review notes that technical progress requires shop floor experience to provide reality checks and unanticipated improvements to the scheming in the research office and boardroom.
After decades of outsourcing production in an effort to lower costs, many large companies have lost the expertise for the complex engineering and design tasks necessary to scale up and produce today's most innovative new technologies, not to mention the appetite for the risks involved.
The logic of agglomeration economies (as regional economists have it) or of "ideas in the air" (as Alfred Marshall once put it) doesn't go away, even with high-capacity internet connections and ever-better graphics software and prototyping hardware.
Academic researchers have begun documenting the complex connections between innovation and manufacturing with an eye to clarifying how the loss of U.S. manufacturing could affect the emergence of new technologies. Willy Shih, a professor of management at Harvard Business School, has created a list of basic technologies in which the United States has squandered its lead in manufacturing in recent years. They include crystalline silicon wafers, LCDs, power semiconductors for solar cells, and many types of advanced batteries. And he has detailed how losing the "industrial commons"—the research know-how, engineering skills, and manufacturing expertise needed to make a specific technology—can often mean losing the knowledge and incentives to create advances in related technologies. For example, as silicon semiconductor production and associated supply chains have shifted to Asia, the development of new silicon-based solar cells has been hampered in the United States.

It turns out it's not necessarily true that innovative technologies will simply be manufactured elsewhere if it doesn't happen in the United States. According to research by Erica Fuchs, an assistant professor at Carnegie Mellon University, the development of integrated photonics, in which lasers and modulators are squeezed onto a single chip, has been largely abandoned by optoelectronic manufacturers as they have moved production away from the United States. Many telecom firms were forced to seek lower-cost production in East Asia after the industry's collapse in the early 2000s, and differences in manufacturing practices meant that producing integrated photonic chips was not economically viable in those countries. Thus a technology that once appeared to be just a few years away from revolutionizing computers and even biosensors was forsaken.
The way in which a country exploits its comparative advantage still matters.

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