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A Review Of President Obama's New 'Framework For Revitalizing American Manufacturing'
By Jack Shilling
jack.shilling@comcast.net
Although there is much to agree with in the President Obama's recently released manufacturing policy "Framework" and it is great to see this subject receive such a high priority, it does not go nearly far enough. It is a good start, but only that. If somehow the United States finds a way to do all of the things mentioned in the Framework, the country will still fall far short of its goal of restoring U.S. manufacturing. It is important to recognize that revitalizing American industry is going to be a very tough problem to solve -- tougher than healthcare. The country must set high expectations in this area and put solutions in place consistent with lofty goals, otherwise the effort will fail.
On the plus side, the Framework report does a good job explaining the importance of manufacturing and the need for new policy. It recognizes that government has a critical role to play and that the private sector will not solve this problem on its own. It acknowledges that the country must create a business environment that stimulates investment by the private sector in research and development and in manufacturing. It calls on Congress to make the R&D tax credit permanent. It highlights the important role of education and training, productivity improvements, the need for the Manufacturing Extension Partnership program and the importance of improved credit regulation and credit availability. It also focuses on the role of government in opening global markets and enforcing U.S. trade laws.
But in many ways President Obama's Framework falls short. There is much more to do.
For example, it is a mistake in policy development to assume that "we are unlikely to be able, nor should we aspire, to compete for all manufacturing jobs worldwide," as is stated in the document. There is an undertone in the report that U.S. manufacturing's future is in high-tech, niche areas. This is a false assumption. If this premise is accepted, then it will become a self-fulfilling prophecy. In order to support reasonable levels of employment and adequate defense capabilities for the country, all forms of manufacturing need to be revitalized and there needs to be a committed belief that this is possible to do. It is a lofty goal and adopting it will be critical to meaningful success.
The report makes no mention of the significant incentives needed to encourage investment in U.S. manufacturing. One of the most important for any manufacturing company is taxes. The corporate income tax system must be restructured so that investment is encouraged in manufacturing. In addition, a globally competitive border adjustable tax system that encourages exports over imports should be implemented. Without either of these measures, the United States will not succeed in rebuilding its industrial base. There must be an understanding that such a tax structure will significantly increase GDP and reduce trade deficits, and be revenue neutral at worst.
Another item missing from the Obama administration's agenda is the need for manufacturers have for a stable and globally competitive supply of energy. It is important that fixed, forward-price contracts for energy supplies be available to manufacturers so they can calculate accurate return on large capital investments in manufacturing. Creative solutions to the energy problem need to be found. The United States should consider new business models that involve partnerships between the private sector and government in order to meet these objectives, or even nationalize the energy generation and distribution industries if need be. The capital investments required to provide a clean, stable energy supply to the country are most likely too large and risky for the private sector to handle on its own. In order to significantly affect manufacturing jobs, the scope of this initiative needs to encompass all significant forms of energy generation, not just alternative energy generating technologies. Solving this problem would be a win-win for the U.S. economy, manufacturing jobs and the environment.
In addition, the government must change the manner in which new environmental regulations are created and imposed on manufacturers. They must be based on good science, be predictable, be globally competitive and represent a reasonable balance between costs and benefits. If the government wishes to set standards that place U.S. manufacturers at a significant competitive disadvantage globally, then it must find a way to offset the increased costs of compliance. "Regulatory certainty," a term used in the Framework, is a plus, but not if it places the U.S. manufacturing base at a significant global disadvantage.
The government must clarify its position on picking winners and losers. There are significant inconsistencies regarding this subject in the Framework. On the one hand, the report says that the government "has a poor track record in picking winners and losers." But then it recommends doing exactly that in a number of cases, such as nanomanufacturing, biotechnology to make "green" chemicals and advanced robotics. The U.S. free enterprise system's global advantage is that it can pick winners and losers. The government has a critical role to play as a financial partner in selected cases, but the system the government should endorse and fund is one that minimizes the government's input in how the subjects for investment are chosen. Examples of successful partnerships between government, universities and private sector -- wherein projects are selected primarily by the private sector -- are numerous. The government needs to expand funding for these programs, especially the Technology Innovation Program run by the National Institute of Standards and Technology. It is also important that the government understand the different roles played by universities and the private sector in conducting and then commercializing R&D. The primary role most often pursued by universities is basic research where government funding is of critical importance. The private sector's primary role is commercializing R&D. Although there are numerous partnerships that exist between universities and the private sector, it is a mistake to assume that universities should have the primary responsibility for creating manufacturing jobs related to new technology development and thereby receive most of the government funding allocated for this purpose. Government funding must be available to stimulate investment by the private sector in R&D per se, and its commercialization. It is great to see that the Framework recognizes the critical link between manufacturing and technology development, but carefully defining the government's role in this process is of critical importance to its effectiveness in restoring the U.S. manufacturing base.
Finally, government spending related to manufacturing should focus on creating long-term GDP growth, not short-term job creation. This will be money well spent since it will not increase government debt as a percentage of GDP, if properly done.
-- Jack Shilling is former President of Allegheny Ludlum and Chief Technology Officer of its parent company, Allegheny Technologies, as well as chairman of the Specialty Steel Industry of North America -- jack.shilling@comcast.net. The Framework can be downloaded from http://www.whitehouse.gov/ sites/default/files/ microsites/20091216-maunfacturing-framework.pdf.
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