From Labor to Electricity: The New Arbitrage in Manufacturing
A recipe for manufacturing growth and economic development
LM Glass Fiber has been producing wind turbine blades in Grand Forks, North Dakota for more than 40 years. Over 100,000 turbine blades have rolled down Demers Avenue, turned onto Highway 29, and been delivered to wind farms across the United States.
In 2022, after being acquired by General Electric, LM Glass Fiber began planning to replace their existing plant with a new one. The goal: quintuple production capacity to meet soaring demand.
To achieve this, LM Glass Fiber is investing heavily in automation and advanced manufacturing tools—from carbon fiber curing ovens and better winding machines to automated material transport systems. Yet, the most dramatic change isn’t the plant’s size (nearly identical) or workforce (all 500 employees will remain) but its power requirements.
The current plant operates with 4 megawatts (MW) of installed electric capacity. The new, advanced plant? 40 MW—ten times the electricity to enable a fivefold productivity increase.
Labor Arbitrage: The Old Path to Globalization
For 60 years, U.S. manufacturing has been reshaped by globalization. Labor arbitrage—outsourcing to lower-wage countries—was the dominant strategy for American manufacturing industries. Advances in transportation, communications, and trade liberalization enabled companies to relocate their cost centers from local hubs to international locations, and compete more effectively in the global market.
Labor arbitrage worked because labor costs dominated income statements. Industries like apparel and textiles were the first to offshore, driven by the high cost of direct labor in these products. Mill towns in the Northeast and Midwest fell silent as contract after contract moved to Southeast Asia where labor was almost 10x cheaper. Electronics followed, as Japan, Korea, and later China industrialized. Automobiles soon joined the exodus, particularly following NAFTA, with Detroit’s decline illustrating the human toll of offshoring.
What didn’t move? Industries where labor wasn’t the primary cost driver. Chemicals, paper, and heavy machinery—sectors dominated by capital investment—remained rooted in the U.S. Boeing, Dow Chemical, and General Electric prioritized proximity to customers, suppliers, and infrastructure over labor costs.
A New Arbitrage is Emerging
Today, electricity has become the new cost frontier.
Despite the hysteric headlines about McDonald’s robots , automation does not lead to widespread unemployment. Automation doesn’t eliminate jobs wholesale; instead, it shifts costs toward energy, making electricity the dominant input in modern manufacturing.
Modern manufacturing processes—electric arc furnaces, semiconductor fabrication, 3D printing, and robotic assembly—are becoming steadily more energy-intensive. Facilities of today consume vastly more power than their counterparts of 40 years ago. LM Glass Fiber in North Dakota exemplifies this trend, but it is seen across the board. TSMC, for example, has seen the energy consumption per 12-inch wafer produced nearly double in the last 5 years from 21.4 kWh in 2017 to 40.5 kWh.
For manufacturing leaders, the implications are clear: energy costs are the new labor costs on the P&L
Every Company an Energy Company
The IT industry is already learning this lesson. For hyperscalers like Microsoft, Google, and Meta , electricity constitutes over 50% of data center expenses. These companies are becoming power developers, signing nuclear deals and directly investing in renewables to ensure assured power supply.
The most advanced manufacturers in the world are also moving in this direction. Energy availability and cost was a primary driver in the selection of sites for new semi-conductor fabs funded by the CHIPS act.
As automation continues throughout the industry, the importance of energy costs will trickle down from Tier 1 suppliers to Tier 2 and Tier 3s and spread in importance.
As automation scales, energy costs will eclipse labor costs - and become the most salient line item on a manufacturing companies P&L.
The American Opportunity
What if U.S. manufacturing could seize this moment? What if energy-intensive industries returned to the U.S., transforming towns, startups, and families while also delivering shareholder value?
The shift from labor to energy dominance creates a unique opportunity. While U.S. electricity prices are higher on average than Southeast Asia or Mexico, specific regions—particularly those with renewable energy penetration—offer competitive or superior costs. These regions also benefit from greater grid stability and uptime.
On a grand scale, companies like Tesla have already done this - locating highly energy intesive gigafactories in areas with abundant renewable power and affordable prices like Nevada. On a smaller scale, unlikely pioneers, like Bitcoin miners, have already identified many hotspots which we can follow.
The U.S.’s diverse energy resources—from solar and wind to natural gas—could make it the global destination for advanced manufacturing for the first time since World War II.
We should not let this moment pass.
How to Seize the Moment
The way to bring about this change is not to fix the grid.
The grid is a Gordian knot of political, economic, and bureaucratic challenges—untangling it will take decades.
Instead, we should take advantage of the existing grid where the grid already serves up the thing manufacturers need, cheap electricity:
For Municipalities:
Leverage energy advantages. Market competitive electricity rates aggressively, not just to Bitcoin miners or data centers but to all industries with high power demands. This should be the #1 line item on your ED website.
Offer practical incentives. Ten-year power purchase agreements (PPAs), dynamic consumption options, and co-development agreements can make a compelling case to companies to relocate to your area. Tax breaks are so 2005.
For Startups:
Build Geographical Moats: Build expertise operating where no one else does. Make the geographic advantages of the United States work in your favor. Palantir succeeded because it went into the Government before anyone else did. Who is going to be the first to bet on North Dakota.
Build For New Unit Economics: Many of the cheap electricity opportunities in the United States come about because of intermittent generation. Design for that. Build small, modular, flexible systems that can take advantage of free power. Not ones that presume 24/7 operation to payback
For Ecosystem Builders (VCs, Studios, etc.)
Rethink “Credits”: What if studios or VCs offer partnerships with utilities to test and subsidize electricity costs for energy-intensive startups during their first two years of operation, reducing their burn rate while they scale. Think AWS credits, but for energy.
Build a Stable of First Customers: Actively do the work for your startups. Are you backing idea after idea that relies upon cheap energy to work? Then do the work upfront - and build partnerships with those who can give all of your companies that advantage now.
The Virtuous Cycle
LM Glass Fiber illustrates the potential of a virtuous cycle we can create in this country: The wind turbine blades they produce reduce their own energy costs over time. The more wind turbines they help produce, the more they set themselves up for success through lower energy prices and lower costs.
The world is shifting before our eyes. The defeatism that has come to characterize the American manufacturing view of globalization no longer needs to be the case. The old rules are no longer in play.
The United States already has large pockets of energy opportunity - areas where utilities are forced to dump electrons into the ground instead of using them.
The time is now for municipalities, startups, and ecosystem builders to step up and seize this moment. The energy is here if we are willing to go find it. Let’s get to work.