Susan Lund, James Manyika, and Michael Spence
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For decades, manufacturing Ãrms made physical things. Today, that
is no longer a given. Some multinational companies, including Apple
and many pharmaceutical manufacturers, have turned themselves into
“virtual manufacturers”—companies that design, market, and distrib-
ute but rely on contractors to churn out the actual product.
That change reÁects a broader shift toward intangible goods. Across
many industries, R & D, marketing, distribution, and after-sales services
now create more value than the physical goods, and they’re growing
faster. The economist Carol Corrado has shown that Ãrms’ annual invest-
ment in intangible assets, such as software, brands, and intellectual prop-
erty, exceeds their investment in buildings, equipment, and other physical
assets. In part, that’s because products have become more complicated.
Software now accounts for ten percent o the value o new cars, for ex-
ample, and McKinsey expects that share to rise to 30 percent by 2030.
Goods still matter. Companies still have to move goods across bor-
ders, even when services have played a big role in their production.
Taris on goods disrupt and distort these Áows and lower productiv-
ity. That means they act as taris on the services involved, too. Taris
on intermediate goods raise costs for manufacturers and result in a
kind o double taxation for Ãnal exports. In short, the argument for
free trade is just as strong today as it was three decades ago.THE GOOD NEWS FOR THE WEST
Middle-class Americans and Europeans bore the brunt o the job
losses caused by the last wave o globalization. With the notable ex-
ception o Germany, advanced economies have experienced steep falls
in manufacturing employment over the past two decades. In the
United States, the number o people working in manufacturing de-
clined from an estimated 17.6 million in 1997 to a low o 11.5 million
in 2010, before recovering modestly to about 12.8 million today.
Yet advanced economies stand to beneÃt from the next chapter o
globalization. A future that hinges on innovation, digital technology,
services, and proximity to consumers lines up neatly with their
strengths: skilled work forces, strong protections for intellectual prop-
erty, lucrative consumer markets, and leading high-tech Ãrms and
start-up ecosystems. Developed countries that take advantage o these
favorable conditions will thrive. Those that don’t, won’t.
Manufacturing jobs are not yet Áowing back to the rich world in vast
numbers, but there are some encouraging signs. Several major compa-