The Bay Area is in the midst of a modern manufacturing revival that could help shape the region's economy for years to come.
It sounds crazy. This is the land of Facebook and Google (GOOG), the land of cloud computing and big ideas. This is a place where you'd be forgiven for thinking that the only things we make are companies and millionaires. How often have you heard that manufacturing is dead in the Bay Area; that Silicon Valley stopped being a production center when the semiconductor plants moved out?
Turns out, that's not the case.
"It's amazing how the real story can contradict conventional wisdom," says Timothy Krueger, co-author of an April Brookings Institution study that found Silicon Valley had the country's highest manufacturing wages and the second highest concentration of production jobs in the nation's big cities. "Clearly Silicon Valley is the envy of much of the American manufacturing industry. There is no doubt about that."
It is amazing -- and surprising, at least to me. I set out to write a series of columns on what I thought would be the death of Bay Area manufacturing. Turns out nearly 18 percent of Silicon Valley's jobs are in manufacturing, and that has held steady in recent years. But even more
Instead, boutique manufacturing operations relying on fewer workers, more computer code and mind-boggling machines are building complicated components and early iterations of electronics for the world. Look at companies like digital-sign-maker Altierre in San Jose and custom-part-maker IMG Precision in Livermore and many others. They've been hiring, and their Bay Area ambitions are showing up on our favorite economic score card: the state jobs report.
More than 162,000 people are working in Silicon Valley factories today, up by 7,900 from two years ago. And state economists say the gains will continue, with the manufacturing sector growing by 5 percent by 2018. In the East Bay, fewer than half as many people work in manufacturing, but that number will rise to 79,800 from 78,200 in the next six years.
In short, I went looking for lethargy and found Lazarus.
With the unemployment we've had, any job growth is welcome. But it turns out all jobs are not created equal.
As important, manufacturing is a huge deal in an innovation economy because companies that make things account for most of the research and development work in the country -- by a lot. While manufacturing generates roughly one-tenth of the country's economic output, manufacturers are responsible for 68 percent of spending on domestic R&D.
So you can see why politicians flock to factories to give campaign speeches about reviving manufacturing and why even so fierce a free-market capitalist as former Intel (INTC) CEO Andy Grove took to Business Week in 2010 to write an essay proposing a new tax on products made by offshore workers. The money raised, he wrote, should go into a pot to help U.S. companies that want to scale up their manufacturing in the United States.
And you can see why it's worth looking at what's happening in the Bay Area and especially Silicon Valley.
For once, we can thank China for our good fortune. Rising wages
If someone told me the same thing six months ago, I would have said they were nuts. But I've spent that time visiting factories and talking to dozens of academics, executives, economists, production workers, policymakers and educators. I've talked to a CEO bringing jobs back to San Jose from China, a team that is building desktop computers in Santa Clara and an East Bay CEO who is starting production in Asia to serve customers there, but who is also hiring at his Livermore factory.
In the coming weeks, I'll share more of what I've learned in a series of columns. But here's the short story: Global economic shifts and the rapid advance of technology provide the Bay Area with the potential for growth in new manufacturing jobs and in the fields that support production -- including research and development, product and production design, supply-chain management, logistics and even marketing and the law.
Those are the kind of jobs that excite Doug Henton, who's studied the Silicon Valley economy for years as CEO of Collaborative Economics. For every product made, there must be designers to design it and logistics experts who figure out how to get parts and components to the factory and the finished product out to the world. Another army of designers needs to ponder the most efficient way to build the product from the ground up.
So when Henton talks about reasons for optimism, he points not to figures that show modest gains in manufacturing jobs in Silicon Valley. Instead, he focuses on what he calls "innovation and specialty services," generally well-paying positions that support the business of making things. Such jobs comprise about a tenth of the jobs in Silicon Valley, as defined by Joint Venture: Silicon Valley, which considers San Mateo and Santa Clara counties, southern Alameda County and a slice of Santa Cruz County as the valley. A quarter of those 144,000 jobs are linked to manufacturing, Henton estimates.
"We haven't lost those jobs," he says. "In fact, we've gained in those jobs." Employment in innovation and specialty services increased by just over 2 percent from 2010 to 2011, according to the latest Silicon Valley Index, produced by Joint Venture and the Silicon Valley Community Foundation. And as manufacturing grows and grows in complexity, jobs in those categories are likely to grow with it.
The East Bay stands to benefit from the same trends as Silicon Valley, according to a 2011 economic study released by the East Bay Economic Development Alliance. That study, "Building on Our Assets," concluded that the high concentration of advanced manufacturing jobs in the East Bay was spurring growth in local professional, scientific and technical services jobs, similar to the ones described by Henton.
"I have some guarded optimism about manufacturing in the East Bay," says Jon Haveman, chief economist at the Bay Area Council Economic Institute, who worked on the study. "There is an enormous workforce that lives in the East Bay that is engaged in providing services to manufacturing."
Even guarded optimism bucks the conventional wisdom. Most of Silicon Valley's big production operations left decades ago, creating the impression that manufacturing in the area was history. And it's true that the percentage of Silicon Valley's workforce in manufacturing has dropped from 30 percent in 1990 to just below 20 percent today. But the decline has leveled off since the middle of the past decade. While the raw number of manufacturing jobs has risen and fallen with the total number of jobs in Silicon Valley, the percentage of the workforce employed by manufacturers has held steady at about 18 percent since 2006.
In the East Bay, where manufacturing historically has not been as prevalent, production jobs still make up about 8 percent of employment, down from 12 percent in 1990. But remember, the number is expected to creep up between now and 2018.
Manufacturing is again a big topic of conversation in the Bay Area, with Bloom Energy making its clean-energy-producing fuel cells in Sunnyvale, Google contracting to have its Nexus Q streaming media player made in Silicon Valley and Tesla ramping up its electric car plant in Fremont.
Manufacturing has become more complex, and as it has, it's rewarded those in the field. Manufacturing workers in Silicon Valley make an average of $145,000 a year, tops in the country, according to the April Brookings report that analyzed U.S. manufacturing locations. The high wage is in part because of the sophisticated jobs needed to design and run the region's advanced factories.
"People say 'manufacturing' and you imagine some dirty person, with maybe not such a high IQ, tending some machine where their job never changes, and that's just not the case with so much of U.S. manufacturing," says Susan Helper, an economics professor at Case Western Reserve University and a co-author with Krueger of the Brookings report.
That is the good and bad news. Modern manufacturing creates fewer jobs, but they pay better than old-school assembly line jobs. And they require higher-level skills in areas such as math, computer-aided design, programming and critical thinking. Workers who lost their jobs when more traditional, mass-production plants closed can't always move easily into the new jobs in highly automated factories.
But for workers with the right skills or those with the time and means to learn them, there are signs that opportunities will grow in the coming years.
The Bay Area will be an especially attractive production site for companies making complex products that consist of expensive, high-tech components and a relatively small amount of labor per unit, says Gary Guthart, CEO of Intuitive Surgical, which last fall opened a new 150,000-square-foot factory in Sunnyvale to build its robotic surgical systems.
"It's not an accident that we're in Silicon Valley," says Guthart, explaining that each $1.5 million surgeon-guided robot consists of about 10,000 components, seven laptops' worth of computing power, millions of lines of code, and sophisticated optics.
Maybe it should come as no surprise that the world is changing, and that as it does, the Bay Area is among the first to adapt or take advantage of the change. Signs of what the future will look like are already showing up on factory floors throughout the region. In the coming weeks, I'll bring those stories to you.
Contact Mike Cassidy at firstname.lastname@example.org or 408-920-5536. Follow him at Twitter.com/mikecassidy.
A look at electronic price sign-maker Altierre. Facing rising labor costs in China, the San Jose company is turning to automation to bring production jobs back to the Bay Area.