Summary of Reports on U.S. Manufacturing Competitiveness A Literature Review

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Summary of Reports on U.S.
Manufacturing Competitiveness

-

A Literature Review






Yiliu Zhang

MIT ’13

MIT Washington Office Intern


-




August
2011

08

Fall


2

List of
Studies Summarized
-

Table of Contents:


ITIF,
The Case for
a National Manufacturing Strategy

(April 2011)


p. 5


White House,
A Framework for Revitalizing American Manufacturing

(2009)


p. 10


PCAST,
Ensuring American Leadership in Advanced Manufacturing

(June 2011)



p. 15


Gregory Tassey, Senior Economist,
NIST, U.S. Dept. of Commerce,

Rationales and Mechanisms for
Revitalizing U.S. Manufacturing R&D Strategies
, Journal of Technology Transfer (Jan. 2010)
[summary by
Brian Hill]


p. 17


Dept. of Commerce, Manufacturing Council Advisory Committee
, Manufacturin
g Policy
Recommendations

(Dec. 2008)


p. 23


NAM,
Manufacturing Strategy for Jobs and a Competitive America

(Jan. 2011)


p. 25


NAM,
Manufacturing Resurgence

(by Joel Popkin and Kathryn Kobe, Jan. 2010)
-

p. 26


Association for Manufacturing Technology,
The Manufacturing Mandate: A National Manufacturing
Strategy to Help rebuild and Strengthen the U.S. Manufacturing Sector

(2010)


p. 30


Alliance for American Manufacturing,
Our Plan for American Manufacturing

(2010)


p. 31


Alliance for American Manufa
cturing,
Manufacturing A Better Future

(Richard McCormack, ed.)
-

p. 33


Council on Competitiveness,
Ignite 1.0: Voice of American CEO’s on Manufacturing Competitiveness

(2011)


p. 35


Council on Competitiveness,
Global Manufacturing Competitiveness Index

(Deloitte Study 2010)


p. 38


MIT Wash. Office,
Survey of Federal Manufacturing Efforts

(Eliza Eddison, Sept. 2011)


p. 40


MIT,
Summary of Roundtable on the Future of Manufacturing


Advanced Techn
o
logies

(March 29,
2010)


p. 43



Miliken Institute,
Jobs for America

(Ross DeVol and Perry Wong, Jan. 2010)


p. 46


McKinsey, Building the Supply Chain of the Future (McKinsey Quarterly, Jan. 21, 2011)


p.


49


Conexus Indiana,
Manufacturing and Logistics 2010 National Report

(2010)


p. 51


Gary Pisano a
nd Willy Shih,
Restoring American Competitiveness
, Harvard Business Review (July 2009)


p. 52



List of additional recent manufacturing reports not summarized here



p. 55


Introduction and Overview:




For the past two decades, while the U.S. manufactur
ing sector has seen gains in
productivity in significant part through adoptio
n of IT
-
based technologies,
it was
passed in output
by China last year. The U.S., starting in the late 1960’s and accelerating since 1997, has been
subject to a massive trade def
icit in goods, which totaled $500b in 2008. Employment in actual

3

production jobs has been in steady decline, reaching 11m in 2009, due to a combination of
offshoring, offshore outsourcing, and productivity gains. Facing global competition from China,
India
, Brazil, Germany, Japan, Korea, and Taiwan, and other emerging, developed, and
developing nations, the series of reports summarized below
generally
argue that the United States
needs prompt and long
-
term federal policies that would retain the country’s pl
ace as the leader in
advanced manufacturing.



A key question is whether for the U.S. is whether it can obtain more out of its innovative
capabilities
to inaugurate
a

new
production approach to obtain a competitive productivity edge,
combining
technology a
dvances

with process advances

and new business and organizational
models. This question in turn leads to the central issue: what is the future for manufacturing in the
U.S.? This raises such questions as:

-

Does the IT
-
based specifications

paradigm that al
lows separation of R&D/design from
production apply to emerging new industries such as energy?

-

Or d
o
such
new industries require closer integration of R&D and production?

-

Will the finance model for IT (VCs) work for these new industries?

-

Do we have
the skills and productive capabilities needed?



MIT has a major pending study that hopes to illuminate these issues. It is summarized
here to help provide and overall context for studies reviewed in upcoming sections.


In March 2011, MIT
president Susan
Hockfield initi
ated a study on the future for U.S.
manufacturing, chaired by Professors Suzanne Berger, Phillip Sharp and Olivier de Weck.
Participants in this project include 18 leading MIT faculty and the head of MIT Corporation,
representing cross
-
disci
plinary field
s including engineering
,
applied science.
economics, political
science, and management. Six research study

modules


have been proposed
for the study,
entitled,
“Production in the Innovation Economy” (PIE)
, which provide a backdrop for
looking

at
the kinds of issues reviewed in
the studies summarized in the subsequent sections.


Module 1:
New

manufacturing technologies

(such as

energy efficiency, nanomanufacturing,
mass customization, supply chain efficiencies)
.


Module 2:
Spillover effects of

manufacturing
: connecting manufacturing and services

-

How would new

manufacturing affect new value

and job creation in services?


Module 3:
Cross border production issues


-

Who benefits
and how
from cross
-
border production partnerships between U.S. and

foreign
investors and firms
(for example,

U.S.
-
China energy innovation and production
)?


Module 4:
Challenge of scale
-
up

-

How do companies with innovative capabilities whose profitability requires sophisticated
manufacturing locate their facilities?

-

Ho
w do they finance their scale up?

-

In emerging industries like clean energy, biotech, and new materials, how does the structure of
capital markets shape the likelihood that firms will grow in the US?


Module 5:
Challenge of scale down

-

Could we create
smaller
-
scale manufacturing with lower volume, higher value production in
closer proximity to end
-
users?

-

What are the technological challenges of mass customization? (
fro example,
smaller fabs?)

-

How could new logistics reduce the costs of producing clo
se to customers and make US
-
based

4

production profitable?


Module 6:
Skills and Education

-

What are the skills and training that the US workforce will need to meet demands of new
production systems?

-

How do the demands of the global economy affect the US

workforce skills required?

-

How can we provide these skills to different segments of the US population?


Module 7:
Policy Inputs

Finally, in consideration of these six research modules, what role should the federal, state, and
local governments play in
new manufacturing advances?

-

Review existing programs at DOD, NIST, DOE, NSF, SBA and programmatic elements that
could be part of a new strategy

-

Consider various state
-
level supports for new manufacturing


These modules provide a framework of issues con
sider
ed in

the studies summarized below.
































Information Technology and Innovation Foundation

(ITIF)



The Case for a National Manufacturing
Strategy


5

(April 2011)

[Module 2
-

Spillover effects of manufacturing]

[Module 3


Cross Border Production issues]

[
Module
8


Skills and Education]

[Module 7
-

Policy inputs]


This paper advocates for a serious national manufacturing strategy by addressing three key
questions:

1. Does the United States need a healthy manufacturing sector?

A healthy manufacturing sector is defined in this white paper “… as real manufacturing out
put as
a stable or growing share of GDP, with no significant and chronic manufactured products trade
deficit.”

2. How healthy is U.S. manufacturing at the moment and for the foreseeable future?

3. Does the United States need a national manufacturing strat
egy?


The paper is divided into four major sections.

I.

Manufacturing is important for U.S. economy

a.

Trade account balance:



Manufacturing accounted for approximately 65 percent of U.S. trade over

the
past decade,
thus a weak manufacturing sector has contribu
ted substantially
to large trade deficits.



U.S. trade deficit in manufactured products was nearly $4.5 trillion from
2000 to 2010.



U.S. trade balance in advanced technology products ran a

$81 billion deficit
in 2010, the largest in its history. From January 2002 to December 2010, a
there was a $427 billion total deficit in advanced technology products.
The
trade deficit in renewable energy products increased by 1,400 percent to
nearly $5.7

billion from 2004 to 2008



U.S. share of global high
-
tech exports dropped from 21 percent to 14 percent
from 2005 to 2010, while China’s share grew from 7 percent to 20 percent, as
China replaced the United States as the world’s
leading
high
-
technology
exporter.



U.S.
is
currently running significant trade deficits across many categories of
manufactured products (Figure 4)



6




“To balance trade through increases in non
-
manufactured goods exports
would require them to grow at a 23.7 percent

rate over the next decade,
whereas they grew at a 11.1 percent rate over the past decade. However, to
balance trade by 2019 with only manufacturing exports, they would have to
grow at a compound annual growth rate of 9.4 percent, compared to their
growth
rate of 6 percent over the prior decade. In other words, manufacturing
has a ‘shorter road to hoe’ in terms of the increase in exports required of it to
balance the trade deficit.”


b.

Manufacturing Job Multiplier; Skilled workforce



Manufacturing jobs have a

robust employment multiplier of 2.90, compared
to 1.63 in business services or 1.66 in transportation (
data from
Economic
Policy Institute)
. Multiplier may be significantly higher in advanced
technology sectors



Another estimate:
Every job created in manuf
acturing leads to 2.5 jobs
created in other sectors (
data from
June 2009 Milken Institute report,
Manufacturing 2.0
)



Manufacturing has a substantial impact in terms of output: additional $1.40
in output from other sectors being generated for every $1.00 i
n final sales of
manufactured products



51 percent of the workforce demand in manufacturing is currently for skilled
production workers, 46 percent for scientists and engineers, and only 7
percent for unskilled production workers



Education/skills gap: 47 pe
rcent of U.S. manufacturing workers have not
completed education beyond high school (with about 36 percent of the U.S.
manufacturing workforce having high school but no college education and 11
percent not having completed high school)


c.

R&D and Innovation
Activity



“Manufacturing firms perform approximately 70 percent of U.S. industry
R&D, despite the fact that manufacturing
[as measured at the production
stage]
accounts for only about 11 percent of the economy. Services
industries, despite the fact that the
y account for over 80 percent of GDP,
perform only 30 percent of industry R&D”



Only 9 percent of surveyed U.S. businesses were active innovators from
2006 to 2008 (NSF 2008)
. Thus a comparatively small segment of U.S.
industry leads innovation efforts.



“In
dividual industries with the highest rates of innovation were found almost
entirely in manufacturing industries. For example, 45 percent of
computer/electronic products firms reported product innovations and 33
percent process innovations; 41 percent of ch
emical companies reported
product innovations and 34 percent process innovations; and 37 percent of
electrical equipment/appliances/components subsector firms reported product
innovations.”


d.

Interdependence of manufacturing sectors



energy example



The
migration of semiconductor foundries to Asia has caused a sharp decline
in silicon
-
processing and thin
-
film
-
deposition capabilities in the United
States. But now that thin
-
film
-
deposition turns out to be a critical process in

7

manufacturing photovoltaic sol
ar cells, the United States increasingly risks
falling behind in the manufacture and development of solar cells.


e.

National security concern



In 2008, there were 9,356 incidents of counterfeit foreign products making
their way into the Department of Defense
supply line, a 142% increase over
2005 (Bureau of Industry and Security)


II.

U.S. manufacturing sector is in transition and relative decline

a.

Job loss,

not necessarily high productivity:



From 1987 to 2009, increases in the output of non
-
durables (industries l
ike
food, chemicals, apparel, and petroleum products) added just 2.55 percent to
overall GDP growth
.

This is well under half of the approximately 6 percent
they should have added to GDP had they contributed their “fair share” to
U.S. GDP growth, (e.g. the
level needed to not shrink as a share of the
economy.)

b.

Output Growth in U.S. Manufacturing Sectors is Overstated (Figure 5)



c.

While the consensus has been the U.S. manufacturing output remains strong,
based largely on one statistic, that the inflation adj
usted value added output of
U.S. manufacturing has been stable at around 11.5
-
12% of GDP, this overlooks
the fact that (see figure 5) manufacturing lagged overall economic growth and
that the majority of U.S. manufacturing sectors
have seen absolute declin
es in
real output over the past decade. The apparent growth in manufacturing output
comes from overstating and overinflating the value of output from two industries


computing/electronics and the oil industry, through a misreading of Commerce
data on the
se sectors.



The reality is that fifteen manufacturing sectors that made up
79% of U.S. manufacturing output produced less in 2009 than in
2000, despite U.S. GDP growth of a total of 15%, and the sectors
that made up the remaining 21% have been systematical
ly
overstated through a misleading inflationary factor.



Thus, U.S. manufacturing decline is considerably more acute

8

than generally understood.

d.

Manufacturing decline is not normal, growth is observed in other developed
countries

(see report data)



From 2000

to 2009, capital investment abroad by U.S. manufacturing firms
and majority
-
U.S.
-
owned affiliates was on average 16 percent higher than
manufacturing investment at home


III.

Reasons U.S. needs a national manufacturing strategy

a.

Other natio
ns have a national s
trategy, U.S.

lack thereof places our manufacturers
at a disadvantage



Casestudy
:
Advanced battery technology



other nations are accelerating
energy innovation investments
:

o

Japan: over ¥25 billion ($275 million) in funding for lithium
-
ion
battery research
over the six
-
year period from 2007 to 2012 and has
committed to a twenty
-
year advanced battery research program

o

Germany: government is providing a total of €1.1 billion ($1.4
billion) over ten years to applied research on automotive electronics,
Li
-
ion bat
teries, lightweight construction, and other automotive
applications

o

China: Innovation 2020 strategy intends to invest $1.5 trillion over
the next decade in seven areas that it considers to be strategic,
including alternative fuel
-
based vehicles. Moreover,
China has set a
goal of becoming the world’s largest manufacturer of Li
-
ion batteries
sometime between 2015 and 2020.



IP
theft and standards

manipulation

o

Theft of U.S. intellectual property is estimated to top $250 billion
annually and cost the United
States approximately 750,000 jobs
(U.S. Commerce Department)

o

Foreign countries’ standards manipulation hurts U.S. firms because
the cost of complying with country
-
specific technical standards can
add as much as 10 percent to the cost of a product for manuf
acturers
and in some cases keeps U.S. firms out of markets altogether



Beneficial spillover effects

o

The rate of return from
a study of
twenty prominent innovations and
found a median private rate of return of 27 percent but a median
soc
ial rate of return of

a remarkable

99 percent, almost four times
higher


b.

If the U.S.

lose
s

the
adv
anced manufacturing industry, it

would not be able to
regain it



“A central reason why countries need a manufacturing strategy is that if they
lose key industrial sectors of an eco
nomy, those sectors are likely to be gone
for good. For example, if a country loses its aerospace or computer chip
industries to foreign competitors, that value similarly disappears as the
industry’s supply chains, knowledge base, and industrial commons ar
e
hollowed out.”



The value
-
added per worker in the aviation industry is among the highest of
any U.S. industry, at $133,000 per year. In contrast, the value
-
added by the
average U.S. job is $103,000 per year. Furthermore, an aerospace engineer is
less like
ly to pursue equal value level job if Boeing dismisses him, thereby

9

decreasing his income and standard of living.


IV.

Effects of a U.S. national manufacturing strategy

a.

Restore U.S. competitiveness in the international manufacturing stage

b.

Policies and regulat
ions are designed to make U.S. conducive to advanced
manufacturing, including domestic and foreign investments: 4 Ts (technology,
tax, trade, talent)

Conclusion:

It is time for a comprehensive national manufacturing strategy to renew the sector.


10

The White

House


A Framework for Revitalizing
American Manufacturing

(December 2009)

[Module 1
-

New manufacturing technologies]

[Module 2


Spillover effe
cts of manufacturing]

[Module 6


Skills and Education]

[Module 7
-

Policy inputs]


The Administration has set a

goa
l to provide Americans with well
-
paying manufacturing jobs in
the December 2009 Report: “A Framework for Revitalizing American Manufacturing.
” This
outlines,
wit
h certain assumptions,
key manufacturing cost factors that governm
ent could affect
:
labor, business practices, equipment, location, and transportation, access to markets, and taxation
and regulation. This report advocates
an

active gove
rnment role in creating a competitive
business climate.


Key Facts and Assumptions:

1.

The manufacturing sector generates significant benefits for society



70 percent of all research and development spending performed by U.S. industry



Manufactured goods
represent 69 percent of exports, which is particularly
important as increasing exports is critical to reducing our trade deficit and
supporting economic growth

2.

Overall costs drive manufacturers’ location choices

3.

The environmental impact of manufacturing ac
tivities creates both responsibilities and

corresponding

regulatory costs but also can generate new economic
opportunities
, for
example in the new energy sector

4.

Productivity growth is essential for maintaining high wages

5.

U.S. total manufacturing costs are
internationally competitive in certain sectors



American manufacturing’s major strengths and challenges

I.

Power of U.S. manufacturing



High productivity: Between 1987 and 2008 manufacturing productivity increased
at a 3.4 percent annual rate, as compared to
only 2.2 percent for nonfarm
business as a whole (Figure 1). At this rate, workers can produce twice as much
in manufactured goods per hour roughly every two decades.


11




Manufacturing is also responsible for 90 percent of all patents.



In 2008 manufacturing
produced $1.4 trillion in national income, making it one
of the largest sectors in the American economy. If it were an economy, American
manufacturing would be the 9th largest in the world


roughly the size of the
entire Canadian economy.


II.

Evidence showi
ng that the manufacturing sector provides good jobs



Hourly total compensation in the manufacturing sector averages more than
$32.00, approximately 22 percent higher than average compensation in
service industries.


III.

The manufacturing workforce is diverse an
d educated



Since the 1980s, women have comprised about one
-
third of the
manufacturing workforce, while African American workers comprise roughly
10 percent, slightly below their share of the population. Hispanics account
for 15 percent of the manufacturing

labor force.



Over half of current manufacturing workers have some education beyond
high school (Figure 3)



12


IV.

Adverse

impacts of job losses in manufacturing on workers and communities



High
-
tenure manufacturing workers displaced from their firms suffer
long
-
term earnings losses 15 years or more after they lose their jobs. The wage
loss is even greater for those who are not subsequently re
-
employed in
manufacturing.



Displaced workers have higher mortality rates than their counterparts.
Furthermore, there
is disturbing evidence that the consequences of job losses
persist across generations: the children of displaced workers have been found
to have lower earnings as well.


Administration policies and initiatives (7 components)

[
note: policies largely overtak
en by events
since 2009
]

1.

Provide American workers with opportunities to obtain skills necessary to be highly
productive.



Invest in community colleges



Invest in high
-
quality job training

o

The 2010 Budget and the Recovery Act contain substantial Federal
inve
stment in job training and career pathway programs, which help
individuals of varying skill levels enter and pursue rewarding careers in
high
-
demand and emerging industries.



Provide training and mentoring to entrepreneurs



Expand education and training supp
ort for unemployed workers



Make a historic investment in college affordability

o

The Recovery Act increased Pell grant scholarships by $500 to $5,350
and created a new $2,500 tax credit for college costs.



Create a New College Access and Completion Fund

o

In hi
s 2010 Budget proposal, President Obama included a five
-
year, $2.5
billion fund to build federal
-
state
-
local partnerships aimed at improving
college access and completion, particularly for individuals from
disadvantaged backgrounds.



Improve America’s math
and science education

o

The Recovery Act provided funds to be used as a down payment toward
the goal of tripling the annual number of the National Science
Foundation’s (NSF’s) Graduate Research Fellowships.

o

The President has also proposed more funding for N
SF’s Advanced
Technological Education Program, which focuses on two year colleges
and supports partnerships between academic institutions and employers
to promote improvement in the education of science and engineering
technicians.



Strengthen K
-
12 schools

o

Through investing in the Innovation Fund, the Administration will
support the efforts of school districts and non
-
profit organizations with
track records of success in raising student achievement.


2.

Invest in emerging technologies and business practices.



G
overnment must focus on advanced research without immediate commercial
application, especially since the private sector is likely to under
-
invest

in that
area



Double the R&D budgets of key science agencies


13

o

In his FY2010 Budget, President proposed to double

the research
budgets of three key science agencies (the National Science Foundation,
the Department of Energy's Office of Science and the National Institute
of Standards and Technology’s laboratory programs).



Improve coordination of manufacturing
-
related
R&D such as
nanomanufacturing, robotics, and information technology



Explore new options to stimulate innovations and technological breakthroughs
(prizes and reverse auctions as a complement to grants, tax credits and other
mechanisms currently used to spur

innovative technologies)



Make the research & experimentation tax credit permanent



Spur innovation in manufacturing by Increasing the Technology Innovation
Program (TIP)

o

TIP is slated to grow from $60 million in FY09 to $100 million in FY15.



Pursue
structural reforms that support innovation and production (e.g. public
-
private partnerships)



Protect intellectual property rights



Double the Manufacturing Extension Partnership (MEP)



Streamline and Enhance Delivery of Government Services to Businesses



Crea
te an Office of Innovation and Entrepreneurship and a National Advisory
Council on Innovation in the Department of Commerce


3.

Encourage business investment through developing stable and efficient capital markets



Provide access to capital for new businesses



Ensure access to capital for exporters



Create a financial regulatory system that works



1603 cash grants in lieu of tax credits

o

ARRA allows renewable energy generation projects to receive a 30
percent cash grant in lieu of the Production Tax Credit. The pr
ogram has
already supported over 1GW of renewable energy projects.



DOE 1703 and 1705 loan guarantees



Section 48C manufacturing tax credit

o

Supports the building and equipping of new, expanded, or retooled
factories that manufacture the products needed to po
wer the green
economy. The program covers a wide array of clean energy technologies,
including renewable energy, energy efficiency, advanced transportation,
and advanced transmission. The Recovery Act included $2.3 billion in
tax credits that will support
over $7.5 billion in total capital investment.



Advanced Vehicle Manufacturing Loan Program

o

Through the $25 billion Advanced Technology Vehicles Manufacturing
Loan Program, the Administration is supporting competition to produce
the most cost
-
effective solu
tions to reduce oil dependence.


4.

Assist

workers and communities
in
transition from manufacturing to other jobs



End the rush to plant closures



Support the creation of competitive communities by promoting regional
innovation clusters



Expand adjustment assist
ance



Target assistance for auto manufacturers’
workers



14

5.

Invest in an advanced transportation infrastructure



Invest in our nation’s roads, bridges, and mass transit

o

The Recovery act provides $36 billion for infrastructure projects to improve
our nation’s
highways and mass transit systems.



Continue to Advocate for a National Infrastructure Bank



Support batteries and electric drive components for transportation electrification

o

In early August 2009, the Administration announced $2 billion in grants to 30
fact
ories producing advanced batteries and electric drive components. The
ARRA Transport Electrification program is also providing $400 million in
cost
-
shared grants to 8 projects deploying over 4,000 electric vehicles and
the infrastructure to support them. A
n additional nine grants are helping
universities prepare the workforce and consumers for the new industry.



Invest in Clean City Infrastructure

o

In August 2009, the DOE awarded nearly $300 million in grants to 25 Clean
Cities coalitions.



Modernize the Elect
ric Grid

o

The Recovery Act provides $4.5 billion to support the Smart Grid, including
development of technologies to enable greater energy efficiency, customer
demand response, energy storage, and other components of the “Smart Grid.”



Fulfill a new transpor
tation vision with high
-
speed rail ($8 billion investment in
Recovery Act)



Develop the next generation of air traffic control

o

FY2010 Budget provides $865 million for the Next Generation Air
Transportation System in the Federal Aviation Administration



Expa
nd access to broadband

o

Recovery Act provides $7.2 billion for broadband expansion and the 2010
budget includes $1.3 billion in USDA loans and grants to increase broadband
capacity and telecommunication service.



Support research for next
-
generation informa
tion and communication technology


6.

Ensure (foreign) market access and a level playing field against foreign producers in
domestic markets



Open markets abroad and promote U.S. exports



Enforce our trade agreements, regulation, and intellectual property right
s


7.

Improve business atmosphere, especially for manufacturing



Replace tax breaks for overseas investment with tax cuts for businesses creating
jobs in America



Pass comprehensive energy and climate legislation that will jumpstart the
American clean energy
sector.


15

President’s Council of Advisors on Science and
Technology


Ensuring American Leadership in Advanced
Manufacturing

(June 2011)

[Module 7


Policy inputs]


Key Conclusions:



U.S. is losing leadership in manufacturing, both low and high
-
tech, including
manufacturing from its own innovation and R&D



Other nations are heavily investing, poised to overtake U.S. advanced manufacturing
lea
dership



Advanced manufacturing is essential to create and maintain high
-
paying domestic jobs



Interdependence between

manufacturing production and R&D



Advanced manufacturing tied to national security



U.S. is not as conducive to advanced manufacturing busine
ss as other nations



Federal investment in new technology is crucial for future development of new major
industries



Private investment must be complemented with public investment to overcome market
failure, spur spillover benefits such as infrastructure bui
lding, and support new methods
of manufacturing process.


Principles for Promoting Advanced Manufacturing in the US:

1.

Create an innovative environment by investing in R&D, cultivate and attract high talent
for a skilled workforce

2.

Overcome market failure th
rough joint public and private investment in domestically
developed technology and infrastructures. Develop better methodologies to expedite the
manufacturing process


Recommendations:

1.

Launch an
advanced manufacturing initiative

(AMI), a whole
-
government e
ffort led by
the Departments of Commerce, Defense and Energy, coordinated by the Executive Office
of the President. The coordinating body of AMI should prepare a biannual report to the
President on the most important needs for Federal investments, includin
g:

(i) Coordinated Federal support to academia and industry for applied research on new
technologies and design methodologies

(ii) Public
-

private partnerships (PPPs) to advance such technologies through
precompetitive consortia

(iii) Development and diss
emination of design methodologies

(iv) Shared facilities and infrastructure to help small and medium sized firms
compete globally



AMI should identify and focus on the most pressing technological challenges



AMI should report on the availability of
financing for pilot plants and early
-
stage
activities within these technology areas.



Funds to implement the programs recommended by AMI should be appropriated to the 3
Departments, at the level of $500 million rising to $1 billion over four years.


2.

Federal

government should improve tax policy by reforming corporate income tax to
other OECD countries’ rates, extending R&D tax credit permanently and increasing it to
17%


16

3.

Federal government should support research by doubling the research funding for NSF,
DOE O
ffice of Science and National institutes of Standards and Technology. Public and
Private R&D investment should reach 3% of GDP.

4.

Federal government should strengthen the workforce by supporting STEM education and
attracting foreign talents to U.S. companies
.
















































17


Gregory Tassey, Senior Economist, NIST, U.S. Dept. of
Commerce
,

“Rationales and Mechanisms for Revitalizing U.S.
Manufacturing R&D Strategies”
, Journal of Technology Transfer
(Jan. 2010)


[Summary by: Brian Hill,
2010
Intern, MIT Washington Office]



Manufacturing still contributes a significant share of GDP, performs a disproportionately large
fraction of R&D, and produces jobs that are
substantially higher paying than service sector jobs

Moreover, its network effects run wide and deep, with domestic companies from other industrial
and non
-
industrial sectors participating in extended value chains. In particular, the rapidly
growing technology
-
based service sector depends heavily on manufact
ured goods. Given the
increasing complexity and rapid rate of change of modern technologies, co
-
location of these two
sectors


advanced manufacturing and related services
-

remains an important strategic factor.
Consequently, manufacturing must be targete
d as an essential element of the technology
-
based
economy.


Case for a Domestic Manufacturing Technology Strategy

1.

Diversification: Manufacturing contributes $1.6 trillion to GDP and employs 11 million
workers

2.

Manufacturing firms account for ~70%of US industry R&D and employes 64% of
scientists/engineers

3.

High
-
tech workers paid substantially more than service workers and
a number of the
most
technology intensive industries are in manufacturing

4.


Significant
m
ajori
ty of world trade is in manufactured products


increasingly in
complex, high
-
value manufactured goods

5.

High
-
tech service jobs are growing but are not a panacea

a)

These jobs are
i
ncreasingly “tradable”


they are in a global market

b)

30 nations have policies in

place to promote service exports


However, domestic
manufacturing suffers from
serious problems. The U.S. trade
balance in manufacturing has
been in deficit for more than
three decades and has grown
considerably worse since 2000.
In 2007, before the recent
recession, the deficit in
manufa
ctured goods exceeded
$500B. A major reason is the fact
that the national R&D intensity
is the same as it was in 1960,
while other competitive
economies have steadily
increased their intensity


defined as R&D spending

18

relative to GDP (see chart below). M
oreover, although domestic corporate R&D spending
increased relative to GDP for most of this period, this ratio has begun to decline. A major reason
is that U.S. manufacturing firms have dramatically shifted their R&D investments strategies
during the last

twenty years toward an increasingly global scope. Today, their R&D spending
outside the U.S is growing at nearly three times the rate of their domestic spending. U.S.
manufacturing firms have also progressively shifted the composition of their R&D portfo
lios
toward shorter
-
term development objectives. In other words, the so
-
called “valley
-
of
-
death”
(barriers between investment in radical or breakthrough new technologies, which have the
greatest long
-
term potential, and development) is widening.


Trends in

Manufacturing



Over 50 years (1957
-
2007), manufacturing’s share of GDP has shrunk from 27% to <12%



For most of this period (1965
-
2000), manufacturing employment remained constant at 17
million



Value of manufacturing shipments in constant dollars continued
to grow due to productivity
growth but, in the last decade, 3.8 million jobs have been lost (falling to around 12
million) and constant
-
dollar shipments remained flat (2000
-
2007)

Trends in Manufacturing R&D



The manufacturing sector’s average R&D intensity
(industry
-
funded R&D compared to
annual sales) began growing slowly in the mid 1980’s from approximately 2.5% to the
current rate of 3.7%



The increase has been a response to globalization, but

o

More the result of offshoring low R&D
-
intensive industries than

to absolute
increases in R&D spending by remaining domestic industries

o

Overall industry R&D intensity pales compared to truly “R&D
-
intensive”
industries, whose ratios range from 6
-
22%
-

sectors such as semiconductors and
pharmas

o

Most of the global economy
’s $1.1 trillion annual R&D spending is targeting
manufacturing technologies

o

U.S. manufacturing firms increased offshore R&D at three times the rate of
domestic R&D spending, as noted above.


Government funded R&
D related to the manufacturing sector (which is overwhelmingly in
the the defense sector) increases the sector’s R&D intensity from 3.7 to 4.1%


Traditional R&D funding
policies have done little to lessen
the impact of these trends.
Federally funded R&
D relative
to GDP has declined steadily for
decades. Moreover, the
traditional pattern of government
R&D is to provide funds through
mission
-
oriented agencies with
the expectation that resulting
technologies will diffuse (“spin
-
off”) into broader commercia
l
applications. At the federal
government level, 91 percent of
all R&D funding is through these
mission agencies, whose primary
objective is not economic

19

growth. While spin
-
offs into unrelated commercial markets certainly do occur, the process is
slower an
d less efficient than if the commercial connection was more conscious

a problematic
strategy in today’s highly competitive $1 trillion global R&D economy. Funding for next
-
generation and breakthrough manufactured technologies has been particularly constra
ined, as
indicated by the fact that the physical sciences portion of the federal S&T research budget (the
“R” in R&D) has grown only 1.1 percent per year in real terms over the past 20 years and has
actually declined in this decade.






Even the High
-
Te
ch Portion of U.S. Manufacturing is Impacted:

Example: Semiconductor Devices

o

U.S.
-
headquartered
firms still account for 48% of global semiconductor sales and remain
technological leaders

o

Fabless/Fab
-
lite firms
-
evolved out if necessity due to inability to c
apture economies of
scale in manufacturing

o

U.S. domestic share of global semiconductor manufacturing capacity



1980: 42%



1990: 30%



2007: 16%

o

Global 300mm semiconductor wafer (the most advanced )manufacturing capacity:



U.S. share sunk by 50% in the last
decade (36% to 18%)



80 % of new 300mm plants are outside the U.S.

Example: Printed Circuit Boards

o

Supplies components used in tens of thousands of products


this is a pervasive component

o

U.S. industry shrunk from $11 billion to $4 billion during the 2000s

o

Production Process

o

Once relatively labor intensive, which led to its offshoring

o

Now highly automated, but other countries have automated

o

Majority of the global industry remains in Asia near he next tier in the electronics supply
chain (assembly)

Poor
Technology Life
-
Cycle Management:

The United States has been the “first mover” and then lost virtually all market share in a wide
range of materials and product technologies including:

o

Oxide ceramics

o

Semiconductor Memory Devices

o

Semiconductor Production Eq
uipment such as Steppers


20

o

Lithium
-
Ion Batteries

o

Flat Panel Displays

o

Robotics

o

Video Cassette Recorders

o

Digital Watches

o

Interactive Electronic Games








The chart below indicates the growing and declining sectors in U.S. manufacturing; it also
illustrates the much stronger growth rates of key sectors in the 90’s period compared to the
current decade:



In summary, manufactured goods will continue to domi
nate U.S. (and world) trade for the
foreseeable future, the global services sector, while growing, is not close. Because of this
continuing disparity, a “just do services” strategy will be inadequate; the U.S. needs to undertand
the problems facing the man
ufcturing sector and act to resolve them. Moreover, co
-
location
synergies exist between manufacturing and services, thereby adding a second long
-
term strategic
imperative. In otherwords, advanced firms are joining services and manufacturing into a
combine
d business model


so the U.S. needs to continue to do both. However, the domestic
advance and utilization of manufacturing technology is being constrained by a number of barriers.
The critical barriers are structural in nature and, therefore, are signific
antly different than the
business
-
cycle problems currently receiving high levels of attention.



21

The prospects for dealing
effectively with these structural
problems are bleak, as long as
traditional neoclassical economic
principles dominate economic
gro
wth policy. This decades old
framework, despite the history of
critical federal roles in both
research and development, views
all technology assets as pure
private goods and hence no
government interventions are
deemed necessary beyond funding
basic resea
rch. However, while
products commercialized based on
new technologies are private goods, the underlying technology platforms (“generic technologies”)
and supporting “infratechnologies” are derived from a combination of public and private assets
(ie, R&D i
nvestments). Hence, new economic growth policies that recognize the multi
-
element,
public and private nature of modern technologies are needed. These new policies must tackle
head on early
-
phase R&D investment inefficiencies and subsequent supply
-
chain i
ntegration and
technology life
-
cycle management requirements.


Industry Structure is a Characteristic of R&D Investment

o

R&D is not undertaken in a vacuum


it fits within types of production tiers

o

At a single tier in high
-
tech supply chain, coordination is required (i.e., horizontal
integration, is required whether it is
v
irtual or organizational)


true for both:

o

Product design and process
-
technology development

o

Process
-
technology development and
commercial
-
scale operations

o

Vertical distribution of R&D in a supply chain requires greater amounts and types of
collaboration

Co
-
location Synergies

o

In the traditional OEM (the Original Equipment Manufacturer)
-
led supply chain the OEM
conducted majority of

R&D and controlled component design

o

Increased pace and complexity of technological changes leading to changes: the “value
stream” supply chain

o

R&D is backward distributed

o

Much more collaboration (including virtual vertical integration) among the
supply chain’s tiers req’d

o

This
b
ackward integration of R&D increases need for more “open innovation”

o

Co
-
location (of R&D and mfg.) still essential for tacit knowledge transfers in
early phases
of technology’s development

o

Key issue is maturity of technology


can separate as technology matures

o

Note


integrated global supply chain management without co
-
location very
difficult process: Boeing and Airbus new airliners are examples of t
he difficulty

Typical Process of Offshoring:

o

Step 1: Manufacturing with small accompanying amount of supporting R&D:

o

Assembly
-
China

o

Components
-
Taiwan, Korea

o

Step 2: Host country (for assembly or component) gains some R&D experience and
extends R&D
infrastructure to capture synergies at the relevant tier in high
-
tech supply
chain


22

o

Step 3: Host country then begins to integrate into design and into adjacent tiers in supply
chain to capture higher value added

o

China
-
is reaching Backward to components (fro
m assembly)

o

Taiwan
-
is reaching Forward to electronics circuits (from components)

o

Korea
-
is reaching Forward to electronic products (from components)

o

Step 4: Some hosts eventually begin to integrate forward into services and backward into
stronger R&D

o

Step
5: Co
-
location synergies are captured


U.S. Response?

How should the U.S. respond to this model?

A
n integrated technology
-
based growth policy is
proposed that addresses the entire technology life cycle. Such a framework is centered on two
traditional polic
y instruments


government funding of breakthrough
generic technologies

and
tax incentives for company
-

funded applied R&D

plus an increased emphasis on R&D
-
efficiency enhancers such as infratechnologies and standards and greater use of the total
innovation

ecosystem concept embedded in technology cluster models.



This integrated public
-
private approach for an advanced technology
-
based industry is illustrated
below, with federal role in blue and industry role in blue (compare to the traditional “Black Box

chart above):



Thus, the overall policy goal is to coordinate public
-

and private
-
sector

funding and facilitate the
diffusion of the resulting technology elements to innovating companies more effectively. This
goal requires three major policy adjustments:


(1)

Increase the average R&D intensity (R&D % of annual revenues) of the domestic
manufac
turing sector as a whole to 6 percent. This approximate 50 percent increase
would still be below the R&D intensities of a number of high
-
tech manufacturing and

23

merged technology
-
service industries, but it would enable the breadth and depth of
innovation to

increase significantly across the entire sector.

(2)

Adjust the composition of national R&D to emphasis more long
-
term, breakthrough
research and increase the amount sufficient to fund a diversified portfolio of emerging
technologies commensurate with the siz
e of the U.S. economy. This will require a
reversal of the long
-
term decline in government funding of manufacturing
-
related
research relative to GDP. It will also mean the establishment of a federal innovation
policy infrastructure to identify optimal res
earch portfolios, conduct underinvestment
analyses, and promote the use of the most efficient policy instruments.

(3)

Improve the efficiency of R&D performance and subsequent technology diffusion by
increasing the number of science parks and regional technolog
y clusters (which offer co
-
location and improved tacit knowledge transfer) and the use of research portfolio and
stakeholder management techniques in order to facilitate person
-
to
-
person knowledge
exchange so critical to innovation, particularly at early s
tages.


A Growth Strategy: The race to the next technology life cycle is increasingly occurring on a
global scale. As part of their efforts to win that race, a number of national economies in Europe
and Asia have implemented growth strategies similar to
those described in this paper. In these
economies, government, industry, and a broad infrastructure (technical, education, economic, and
information) are evolving into increasingly effective technology
-
based ecosystems. Should the
U.S fail to follow suit,
its manufacturing firms will continue to compete largely as independent
entities against these national economies. That is a race we cannot win.





24

Department of Commerce Manufacturing Council
Advisory Committee


Manufacturing Policy
Recommendations

(December 2008)

[Module 3


Cross border production issues]

[Module 6


Skills and Education]


I.

Context

a.

U.S. is missing the energy technology wave, not working toward energy
independence

b.

Manufacturing is the largest domestic consumer of energy

c.

Decline in the manufacturing sector is not natural or inevitable, result of
inadequate policy

II.

Energy Independence

Goal: Eliminate dependence on foreign fuel source by transitioning from fossil fuel
t
o renewable energy sources

Background:



U.S. Manufacturers consume one
-
third of all energy in the country



60% of petroleum and 34% of energy use
d

by the United States come from
foreign imports



U.S. Transportation uses virtually 100% of imported oil



R
ecommendations:

o

New traditional sources: advanced coal, nuclear power plants

o

New alternative sources: wind, solar, biomass

o

Energy Infrastructure: upgrade national electricity distribution grid

o

Sustainable Manufacturing practices


III.

Trade

Goal: Remove inequit
able trade barriers such as tariffs and currency manipulation
that have caused the current unsustainable trade deficit.

Background:



Trade deficit with China accounts for 50% of total U.S. trade deficits



T
rade deficits

illustrate that

an increasing amount of U.S. domestic consumption
is being satisfied with imports instead of domestic production. In 1990, domestic
manufacturing met 93% of domestic demand; by 2006 that figure dropped to
74%

Recommendations:

o

Free trade with major
partners, especially East Asian exporters

o

Control currency manipulation

o

Protect intellectual property


IV.

Workforce

Goal: Build a skilled workforce competent in engineering, math, and sciences to
match the needs of the advanced manufacturing sector

Background
:



81% of respondents to a recent survey by the National Association of
Manufacturers stated that they could not find enough skilled production
workers
and 65% said not enough scientists and engineers available



Success and failure in the manufacturing is in
creasingly determined by the

25

correct combination of “soft” and “hard” skill

Recommendations:

o

Worker training and retraining programs

o

STEM education

o

Manufacturing industry developmental grants


V.

Domestic Structural Costs

Goal: Eliminate 17%+ domestic manufac
turing cost disadvantage compared to
American trading partners

Background:



Intense global competition puts manufacturing through a cost
-
price squeeze,
more so than other sectors. 45% of all U.S. manufactured output is traded
internationally, compared to ju
st 3% for other sectors.



At 40%, U.S. has the highest corporate tax amongst major trading partners with
the exception of Japan

Recommendations:

o

Tax reform:



Restructure Alternative Minimum Tax (AMT) to allow for accelerated
depreciation

for key produced g
oods



Make permanent the capital gain tax, the federal R&D tax credits (to
offset liability), and the Subpart F active financing exception



Eliminate inheritance tax

[adversely affects small mf’ing firms]

o

Revise Family and Medical Leave Act

o

Reform Healthcare

comprehensively

to reduce employer costs







26


National Association of Manufacturers


Manufacturing
Strategy For Jobs and a Competitive America

(January
2011)

[Module 7


Po
licy inputs]


The United States is the world’s largest manufacturing economy,



Producing 21% of global manufactured products
,




Accounting for 11.2% or 1.6 trillion dollars of U.S. GDP



At 15% of global manufactured goods, China is in second place, followed
by Japan at
12%.



U.S. manufacturing alone would be the 9th largest economy in the world.


Manufacturing contributes to the U.S. economy with high paying jobs.



Manufacturing supports an estimated 18.6 million jobs in the United States, about one in
six pr
ivate sect
or jobs [note: actual mfg. production jobs: 11m]



Average U.S. manufacturing worker earned $74,447 annually compared to $63,122
annually for average non
-
manufacturing worker in 2009.


In terms of productivity



U.S. manufacturers are the most produc
tive workers in the world
,

twice as productive as
workers in the next 10 leading manufacturing economies.


U.S. manufacturers drive more innovation in the country than any other sector, performing 2/3 of
all R&D in the nation.


NAM’s manufacturing strategy

contains recommendations aimed toward attracting foreign
investment, bolstering innovation and R&D, and encouraging exports.

Attract foreign investment:

-

Reduce corporate tax rate to 25% or lower

-

Implement fair tax policy on a U.S.
-
based company’s foreign
income

-

Permanently lower tax rate for small businesses

-

Reject new federal regulations that dictate rigid work rules, wages and benefits and that
introduce conflict into employer employee relations

-

Reduce legal costs associated with manufacturing, such as
special
-
interest legislation that
incentivizes and subsidizes litigation against manufacturers


Innovation and R&D:

-

Increase and make permanent R&D tax credits

-

Defend American IP rights, currently valued at $5 trillion

-

Attract foreign talent by sponsoring
more work visas


Exports

-

Promote open
-
market trade policies that “reduces regulatory and tariff barriers and
reduces distortions due to currency exchange rates, ownership restrictions”

-

Reduce dependence on foreign oil by developing domestic oil and natural

gas supply

-

Invest in infrastructure

-

Invest in STEM education


27

National Association of Manufacturers


Manufacturing Resurgence

(by Joel Popkin and
Kathryn

Kobe, Jan. 2010)


[Module 1


New manufacturing technologies]

[Module 2


Spillover effects of manufacturing]


I.

Introduction

Manufacturing is the engine for productivity, innovation, and economic growth. The
manufacturing sector has a “high multiplier effect” and extensive linkages to other sectors of the
economy, meaning that changes within manufacturing greatly affects the sec
tor itself and related
sectors. Growth in the manufacturing sector is likely to increase R&D, which would increase
productivity and higher
-
skilled jobs.


Productivity role:

Historically, manufacturing’s innovations and investment raised its
productivity
faster than other large sectors and its productivity has added substantially to overall
U.S. productivity.


Sheer size of Mfg. Economic Role:

U.S. consumers and businesses consumed manufactured goods
valued at $5.8 trillion dollars in 2008. In addition to
the $4.3 trillion worth of goods that U.S.
manufacturers produced for the domestic market in 2008, they also produced $912 billionworth
of manufactured goods that were exported to other countries. Those exports helped pay for
somewhat more than half of the

$1.5 trillion of manufactured imports thatU.S. consumers and
producers consumed.


II. What Has Changed

The Current State of U.S. Manufacturing

U.S. manufacturing has been expanding with declining rate for the past five decades and the
decline in manufact
uring production during the recent recession erased past gains. However, U.S.
manufacturing exports grew at an average annual pace of almost 9 percent between 2002 and
2008, in response to the declining value of the dollar. In addition, the manufacturing s
ector itself
has limited low
-
skill but great high
-
skill job creation ability as productivity increases, and the
service sectors have benefited from manufacturing’s high multiplier effect on demand for their
output. Furthermore, service sectors have relativ
ely lower productivity, which means greater
traditional job creation ability. Returning to the manufacturing sector, greater number of R&D
related jobs has resulted in wage increase across the sector. This NAM report states that
“manufacturing growth is on
e key element in a recovery’s pace”.


III. The Key Contribution of Manufacturing Output

In 2008, U.S
. manufactured goods composed

50% of $1.8 trillion exports
(30% were services and
20% were resources based goods


agriculture, minerals, fuels),
and

59% of $2.5 trillion imports.
“Strong export growth is the vehicle by which mature economies keep their overall growth rate at
acceptable levels. Research has found that exports help improve productivity growth and can play
almost as important a role as R
&D does.”



IV. The Innovation Process: Manufacturing’s Key Role

A.

R&D Activity

a.

Incremental growth in the manufacturing sector “is likely to increase U.S.
R&D activity by more than a like
-
size increase in any other major private
industrial sector because of
the high intensity of innovation in
manufacturing. R&D, through the innovation process, boosts overall U.S.

28

productivity growth, the source of improvements in its standard
-
of
-
living.”




B.
R&D Spillovers and Their Impacts

Social returns of R&
D are about 3.5 greater than private returns. Considering this large R&D
spillover, policies that incentivize private investment in R&D should be adopted, such as tax
credits. The paper outlines three types of spillovers: “market spillover”, “knowledge spi
llover”,
and “network spillover”. These pathways often intertwine and create a greater combined effect.

The first, “market spillover”, refers to the cost
-
free benefits accrued to the consumers and
suppliers when the prices of newly created or improved pro
ducts do not capture all the
improvements from R&D in their new prices. The second, “knowledge spillover”, refers to the
transfer of knowledge from R&D activities to other sectors that can use it almost cost
-
freely.
Finally, “network spillover” occurs when

the development of a related technology enhances the
benefit of R&D; consider the development of Wi
-
Fi and computer use. Wi
-
Fi has allowed user to
experience greater benefits from computer use, and greater number of computer users expand the
Wi
-
Fi network
.


One of the outcomes of spillovers is the regional clustering of hi
-
tech companies that take
advantage of each other’s “spillovers”. However, this advantage can disappear if R&D activities
move overseas. In addition, clusters of high tech firms emerge f
rom research universities,
implying that academic universities play a major role in facilitating spillovers. “One important
role for universities in the process is to help increase the magnitude of the human capital in an
area both by concentrating well
-
ed
ucated academics and by training new researchers.” To
capitalize on this relationship, some states have invested heavily in research universities. Texas,
for instance, invested $300 million in University of Texas’s engineering program. This investment
help
ed Texas Instruments to build next generation chip facility in Texas, “because it would have
access to the highly skilled students and faculty at the university, but the infrastructure investment
also benefited other Texas high
-
tech firms and generally inc
reased the country’s investment in a
skilled workforce.”


A 2007 Bureau of Labor Statistics analysis of R&D literature showed that “while government can

29

play a role to promote spillovers and increase investment in riskier types of research, government
cannot replace private sector R&D
[largely the development stage]
as the back
-
bone of the
innovative process.”


C.
Sustaining vs. Disruptive Innovation and B
usiness Size

Larger, more established businesses tend to favor

sustaining


innovations, “ones that improve a
product or process along the general trend that the company and the market has expected.” Small
businesses tend to be better at disruptive innovations, ones that may go against traditional
company or market trends but may

evolve into productivity leaps in technology. These small
firms perform 11% of manufacturing R&D and 40% of technical supporting R&D, while 85% of
their research funding are from non
-
federal sources such as sales and profits.


D.
Human Capital Shortages
in U.S. Fuel Offshoring

Due to the lack of adequate science and engineering talent supply in the U.S., tech companies
have been expanding overseas to tap into o
ther nation
s


talent pools.

“An NSF study shows that in
2007, almost 43 percent of the 31,801 st
udents awarded science and engineering doctorates were
non
-
U.S. citizens, a 6 percent increase from the previous year.” It is important to enact policies
that encourage U.S.
-
trained scientists to stay in the U.S.


V. Manufacturing Contributes More to U.S.
Productivity Than Any Other Major Sector

U.S. productivity, which R&D increases, is crucial to U.S. economic growth. By an OECD
analysis, countries (Norway and Luxembourg) with higher productivity levels than the U.S. had
greater GDP per capita, whereas
cou
ntries with lower productivity

levels had lower GDP per
capita than the U.S.


The manufacturing sector has the greatest influence on U.S. productivity among all economic
sectors. In order for U.S. to remain competitive in the world market,
the sector m
ust have enough
capital

and confidence in the future of U.S. manufacturing to make long
-
term capital investments.
A lack of cash flow and confidence would stifle innovation, particularly in the manufacturing
sector.


VI. The Face of Manufacturing Going Fo
rward

A. The Classification of Manufacturing

The establishments in the manufacturing sector are currently defined as activities relating to “the
mechanical, physical or chemical transformation of materials, substances or components into new
products.” How
ever, this paper calls for a different classification structure that encompasses the
full extent of the manufacturing sector. “
Consideration of services affecting goods reveals the
demand generated by manufacturers outside their own sector. Some services t
o goods producers,
such as the legal, accounting and scientific, are labor intensive. Others, such as distribution
networks, like freight transportation, are more capital intensive. The classification is not so much
about what label to put on activities as

it is about the data that are collected about a sector and the
transparency with which linkages are revealed to enhance analysis.”


B. Issues for the Future

New fields must emerge, such as health sciences and nanotechnology and especially new energy
tech
nology. Two forces in the manufacturing industry propelling future advance development in
clean energy technology are the rising cost of current energy use and the increasing emission of
greenhouse gases.


VII. Summary and Policy Recommendations

A.
The r
ecent recession

-

provides a

unique opportunity to regenerate the U.S. manufacturing

30

base

B.
How Government Can Both Spur and Support Liftoff

Partnership between government and business to support basic as well as applied research,
provide R&D tax credits,

enact policies that commits to clean technology, improve STEM
education and general k
-
12 quality, strengthen legal immigration


Specific recommendations
, include:

• Reduce the corporate income tax rate on profits

earned

from production in the U.S. to match those of

our major trading partners.

• Eliminate one important uncertainty in private

decisions to undertake R&D by making the R&D

tax credit permanent.

• The National Science Foundation should hasten its

efforts

to identify the most promising areas for basic

R&D so that companies can increase the share of

such research they undertake.

• Make the commitments now that will guide private

decisions on R&D investment for cleaner energy

technologies and more varied ene
rgy sources. Findings

from that research will help mitigate energy price

spikes and make domestic manufacturing production

more attractive to both U.S. firms and foreign investors.

• Assure the health of small businesses. They are niche

suppliers of compon
ents and parts for finished goods

manufacturers. And they are also important investors

in, and initiators of, high
-
risk, ground
-
breaking

innovative endeavors.

• Governments at all levels should make investments in

infrastructure and facilitate its expansio
n to encourage

the R&D, production and academic clustering that

maximizes spillovers and increases the public and

private returns to R&D investment.



















31

The Association for Manufacturing Technology
-

The
Manufacturing Mandate: A National Manufacturing
Strategy to Help Rebuild and Strengthen the U.S.
Manufacturing Sector

(August 2010)


[Module 7


Policy inputs]


To be globally competitive in the long run, the United States needs a coherent national
manufacturing strategy that emphasizes innovation. AMT believes that that cooperation and
innovation are key for American manufacturing to move forward in the next dec
ade. A robust
advanced manufacturing sector can be achieved by developing what AMT coins “the
Manufacturing Mandate,” which is a federal policy of collaboration between government,
industry, and academia. This national policy would “incentivize innovation
and R&D in new
products and manufacturing technologies; assure the availability of capital; increase global
competitiveness; minimize structural cost burdens; and enhance collaboration between
government, academia, and industry to build a better educated a
nd trained ‘smartforce.’”


Specific policy recommendations include:

Incentivize innovation and R&D in new products and manufacturing technologies

∙ Support reauthorization and full funding of the America COMPETES Act

∙ Improve the R&
D tax credit and make it permanent

∙ Fund targeted, sustaining economic growth technologies

Assure availability of capital

∙ Revise SBA/government lending requirements for manufacturers
-

qualifications should
consider economic conditions

∙ Use the expand
ed D
efense
P
roduction
A
ct

Title III lending authority to provide credit to
defense
-
critical manufacturers

∙ Provide incentives to banks making and maintaining capital loans to qualified manufacturers

Improve global competitiveness

∙ Modernize U.S. export c
ontrol policy ∙ Strengthen intellectual property protection ∙ Streamline
the business visa process with major trading partners

12
Minimize structural cost burdens

∙ Lower business taxes and avoid any new tax increases on U.S. manufacturers ∙ Avoid excessive

regulations ∙ Encourage investment in retooling plants and new equipment

Enhance collaboration between government, academia and industry

∙ Coordinate Government support and utilization of the existing national network of
Manufacturing Innovation Clusters

∙ Create a standing Interagency Manufacturing Structure made up of Cabinet officials, industry
leaders, and academics

∙ Support and sponsor targeted technology challenges

Build a better educated and trained “smartforce”

∙ Develop a national manufacturing s
kills certification program

∙ Support grants, scholarships and/or incentives for Science Technology Engineering and
Mathematics (“STEM”) degrees

∙ Utilize MEPs as centers of manufacturing excellence to train and support local manufacturers


32

Alliance for Ame
rican Manufacturing


Our Plan for
American Manufacturing

(2010)


[Module 4


Challenge of scale
-
up]

[Module 6


Skills and Education]


This plan gives an overview of what needs to done in five areas of advance manufacturing:
capital expenditures, infrastructure, workforce, trade, and innovation.


AAM advocates for expanding American production, hiring, and capital expenditures.
Specifically, the following should be established: manufacturing investment facilities, permanent
clean energy manufacturing tax credits and grants, federal loan guarantees for new energy
infrastructure projects, immediate upfront expensing rules, and trad
e
-
legal Buy America
procurement requirements.


In terms of investing in America’s infrastructure, AAM believes in creating a National
Infrastructure Bank to finance high
-
value, long
-
term infrastructure projects such as roads and
high
-
speed rails, leading t
o “robust
-
, multi
-
year surface transportation infrastructure programs of
at least $500 billion financed exclusively by fuel taxes.”


The third part of the plan is workforce enhancement, refocusing on technical and vocational
education, training and re
-
trai
ning manufacturing workers, and reward companies that make such
investments in their workers.


Fourthly, trade regulations must be implemented to protect American interests, such as trade laws
that penalize currency manipulation and unfair non
-
tariff barri
ers from trading partners. In
addition, the Administration should balance the trade account so that increasing imports do not
overwhelm gains in exports.


America’s innovation base is the last but certainly not the least important component of AAM’s
plan.
Highlights include “making permanent the research and development tax credit” and “focus
federal invests in new technology and workforce training on promoting regional clusters of
innovation, learning and production”.


Specific
p
olicy
r
ecommendations

in
“Our Plan,” as stated by AAM,
include:

Expand American Production, Hiring, and Capital Expenditures

-

Establish a manufacturing investment facility to leverage private capital for domestic
manufacturing

-

Expand and make permanent clean energy manufacturing
tax credits and industrial energy
efficiency grants to allow America to lead on green job creation

-

Link federal loan guarantees for new energy infrastructure projects, including nuclear,
wind, solar, other renewable energy sources, as well as the smart gri
d, with expanding
domestic supply chains

-

Adopt immediate, up
-
front expensing rules for plant and equipment to spur capital
expenditures

-

Enforce our trade
-
legal Buy America and other domestic procurement requirements to
prevent leakage of tax dollars overse
as

Invest in America’s Infrastructure

-

Create a National Infrastructure Bank to finance high
-
value, long
-
term infrastructure
projects, such as roads, bridges, high
-
speed rail, and other needs


33

-

Enact a robust, multi
-
year surface transportation infrastructure
program of at least $500
billion financed exclusively by fuel taxes

Enhance Our Workforce

-

Refocus on technical and vocational education, providing a seamless program that bridges
high school and post
-
secondary education to produce the next generation of hi
ghly skilled
manufacturing workers

-

Reward companies that are investing in effective skills and training programs for their
workers Make Trade Work for America

-

Keep America’s trade laws strong and strictly enforced to provide a level playing field for
our w
orkers and businesses

-

Penalize and deter mercantilist nations such as China that manipulate their exchange rates
and implement non
-
tariff barriers to gain an unfair trade advantage

-

As the Administration works to double exports, expand the goal to include b
alancing our
trade account so that gains in exports are not overwhelmed by increased imports

Rebuild America’s Innovation Base

-

Make permanent the research and development tax credit and enhance it to incentivize
commercialization and production in America

-

Focus federal investments in new technology and workforce training on promoting
regional clusters of innovation, learning and production

































34

Alliance for American Manufacturing, Manufacturing a
Better Future (Edited by Richard
McCormack, 2010)

[Module
3


Cross Border Production Issues]

[Module 6


Skills and education]

[Module 7


Policy]


(P
oints
listed below
from AAM website summary of
this
AAM book
/report
)
:

Consumption:

The United States “is broke because it has stopped producing what it consumes,”
according to
the book’s editor, Richard McCormack. Even an increase in consumer demand, he
notes, “will not put Americans back to work” as the “spending will only help workers
making
products overseas.” Offshoring of production is of great concern because, “The United States is
not generating enough wealth to pay its mounting and massive debts.”


Plant Closings
:
About 40,000 U.S. manufacturing plants closed between 2001 and 2008
,
resulting in the loss of millions of good
-
paying jobs. From 2001 to 2007, 2.3 million jobs were
lost just from the U.S.’s huge trade deficit with China.

Services not at Substitute:

“The mindset among America’s economic elite


that the

U.S.
economy can
thrive with just service industries
”, is incorrect,

as high
-
paying
production jobs
have

not

been
replaced by other sectors
. The report

attacks

the notion that lost manufacturing
plants will not mean lost research and development. It details the unfair trad
ing practices China
employs, and explains the social costs of the decline in manufacturing. And it outlin
es recent
trends, not only regarding

trade policies and practices, but also
regarding
the exporting of
innovation, the shift away from job training and

the threat to national security.

Geopolitical Policy Sacrificed Mfg
.:
The report argues a

shift in post
-
World War II policies
contributed to the decline in manufacturing. “For the past 60 years, the needs and interests of
American manufacturers have taken

a back seat to the country’s geopolitical interests and the
interests of the U.S. financi
al sector.



Globalization and Mfg.:

The report argues “a myth

promoted by those favoring status
-
quo
globalization is that losing manufacturing isn’t harmful (and maybe even good) because the
United States can specialize in technology and innovation. Low
-
skill jobs would be replaced by
high
-
skilled, well
-
paid jobs.

Contributor
Ron Hira of the Ro
chester Institute of Technology
argues,

“some high
-
tech jobs and sectors have already moved to low
-
cost countries like India and
China, and there is even more evidence that this migration will increase.”

Hira’s data suggests

t
hat

not only is the United States running trade deficits in high
-
tech products, but research and
development facilities are moving overseas as well. Even U.S. universities are moving to train
American competitors overseas. At the same time, federal fundin
g for research and development
is declining, while most other countries are increasing their R&D investments.

Education and Training
:
The report suggests that t
he rhetoric of the 1990s promising that
“competitiveness” would be enhanced by education and tra
ining was replaced by a focus on
boosting profits through overseas investments. “The ‘high road’ strategies of the 1990s . . . were
jettisoned in favor of earning tons of money from easily exploitable low
-
wage workers,” writes
James Jacobs, the president o
f Macomb Community College. Corporate and public dollars moved
abruptly from training incumbent workers to assessing potential workers. Today, “education and
training is shifting from being a responsibility of the employers to being the responsibility of t
he

35

employees.”

National Security Implications
:
deindustrialization now poses a threat to national security.
Research by Michael Webber of the University of Texas at Austin shows that, “For 13 of the 16
industries that comprise the defense industrial manufa
cturing support base, significant erosion
took place in two or more indicators without any signs of recovery.”


36

Council on Competitiveness


Ignite 1.0:
Voice of
American CEOs on Manufacturing Competitiveness

(Jan. 2011)

[Module 7


Policy inputs]


The
Council on
Competitive
ness Manufacturing

Initiative issued
this report, from U.S. industry
CEO ionterviews) highlighting