The industry is back. Over the past few decades, the sector has been overlooked and underinvested as Wall Street has embraced Silicon Valley, services and all things tech. Manufacturing, especially in rich countries like the United States, was considered a “gone” business. Fewer and fewer wanted to invest or work in it. The inevitable decline of factory jobs has become an economic truism.

Now, in our post-neoliberal and deglobalizing world, things are changing. As resilience replaces efficiency as the business mantra, countries and companies are strengthening industrial capacity in strategic sectors such as semiconductors, electric vehicles, cleantech and agriculture, even as a changing global wage landscape and energy arbitrage they are bringing the production of lower margin goods such as textiles or furniture closer to home.

But in the US In the U.S., an even broader resurgence in post-Covid manufacturing is underway. While U.S. manufacturers cut 1.36 million jobs during the pandemic, August data show they have now added 1.43 million, an increase of 67,000 workers. And the gains are widely spread across geographies and sectors.

Part of this is about a federal push for domestic purchasing. Part of that is supply chain delays that favor more domestic production. And part of it is also about China’s continued disengagement, as well as the current inflation of transportation costs. But beyond this, there is something overlooked and underreported: the hidden strength of private, middle-market, often family-owned American manufacturers.

As someone familiar with the factory—my father ran auto component production lines for various companies in the Midwest and eventually started his own business—I always thought the story of “the decline of the industry in the US” was overblown.

Beyond the headlines of the Detroit disaster or the rust belt hole, there have always been many smaller, community-based industrial companies, away from the pressures of Wall Street, that have been able to stay competitive by investing more in technology and making an effort to qualify the local workforce.

Now many business leaders are beginning to agree. Asutosh Padhi, the managing partner of McKinsey North America, recently co-authored a book with colleagues titled The economy of titanium, on these undervalued and overperforming middle-market manufacturing companies, 80 percent of which are privately held. The authors believe that they will be the darlings of the future. They typically have sales ranging from $1 billion to $10 billion, 2,000 to 20,000 employees, and posted a compound annual revenue growth rate (CAGR) of 4.2 percent from 2013 to 2018, outperforming the S&P 500 at 1.3 per cent.

These are the companies that make what surrounds us “everywhere: in our cars, cell phones, jewelry, sports equipment, surgical tools and more.” These companies receive less than 1 percent of venture capital funding, and yet, as Padhi tells me, “if you want strong, year-over-year growth, they’re the place to be.”

Why are these often overlooked companies so successful? Partly because they take the long view, something that’s easier to do when you’re private. Research shows that private companies invest twice as much money in things like R&D, training and other forms of long-term productive capital spending than similar public companies, which often see their stock prices fall when they invest in the future instead of paying. dividends or share buybacks. As Padhi rightly says, “there is a difference between a good deed and a good company.”

But it’s also about being the best in class. This means investing in the latest industrial technology, following the edicts of “lean manufacturing” to increase quality and productivity, and using local supply chains to innovate faster and manage risk better. Companies that operate this way know what the German and Japanese world beaters do: getting teams of engineers, scientists, workers and managers to work in close proximity gets the best results.

I spent last week in the Carolinas, looking at companies in the textile supply chain that work exactly this way. Not only are they strengthening their business at home, but in some cases they are gaining greater global market share as European companies move their businesses to the United States to take advantage of lower energy prices. Some German carmakers, for example, are moving more production to North America to avoid disruption from the war in Ukraine.

The McKinsey partners conclude that “as more advanced technology prevails in industrial products and processes,” more jobs will return to the US. That’s great news for the U.S. economy, as companies in the titanium economy pay on average more than double the wages paid to service sector workers ($63,000 versus $30,000 annually). There are also the largest number of open jobs at all levels at these companies, which are spread across communities across the country.

Those of us who grew up in these places always knew it. Investors are now learning it too. As the tech bubble deflates, I predict that market interest in the industries will grow.

rana.foroohar@ft.com



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