Rebuilding American Manufacturing: Memos to the Next President

On January 20, 2017--after the speeches, parades, and parties end--the next president will sit down, start sifting through a seemingly endless trove of briefing binders, and begin making difficult decisions that will shape the future of the world.
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On January 20, 2017--after the speeches, parades, and parties end--the next president will sit down, start sifting through a seemingly endless trove of briefing binders, and begin making difficult decisions that will shape the future of the world.

Many of the next president's most consequential choices--on trade, technology, education, and other matters--will have serious implications for American manufacturing. While the unemployment rate and many of our economic fundamentals have improved markedly in recent years, the loss of at least 5 million manufacturing jobs over the past two decades has left a scar on the national psyche. Our trade deficits in advanced technology products shifted from a surplus in 2001 to a deficit of more than $90 billion in 2015. There's widespread uncertainty about what we as a nation will produce in the decades ahead.

On September 29, MForesight: Alliance for Manufacturing Foresight convened leading thinkers from industry, academia, and government to envision a successful future for American manufacturing. We asked six seasoned thinkers to share what they would say to the next American president. Their answers are below.

Robert Atkinson, President, Information Technology & Innovation Foundation
Support the designation of at least 20 U.S. "manufacturing universities"

If the United States wants to win in advanced manufacturing a key step it needs to forge stronger industry-university research collaborations and incentivize universities to focus more on training students with the requisite skills to support engineering-based industries. Unfortunately, university engineering programs have evolved in two troubling directions. First, the focus on "engineering as a science" has increasingly moved university engineering education away from a focus on real problem solving toward more abstract engineering science. Second, this focus on "engineering as a science" has left university engineering departments more concerned with producing pure knowledge than working with industry.

To address this, the next president should work with Congress to pass legislation with appropriated funds to create a core of at least 20 universities that brand themselves as leading manufacturing universities. In the Senate, Senators Coons (D-DE) along with Ayotte (R-NH), Gillibrand (D-NY), Graham (R-SC), and Baldwin (D-WI) took the lead in authoring the Manufacturing Universities Act of 2015, which was incorporated in the 2017 National Defense Authorization Act (NDAA) passed by the Senate in June 2016. In the House, Representatives Elizabeth Etsy (D-CT) and Chris Collins (R-NY) have introduced a companion bill, HR 1441. While this legislative text was not included in the House's version of the 2017 NDAA, there is hope that it might be included in the final NDAA bill reported out of conference.

This legislation would provide a competitive grant program managed by the National Science Foundation to winning universities that propose to revamp their engineering programs and focus much more on manufacturing engineering and in particular work that is more relevant to industry. This would include more joint industry-university research projects and more student training that incorporates manufacturing experiences.

Christine Furstoss, Vice President & Technology Director, GE Global Research
Paradigm changes require both new outcomes AND new approaches. Building a vibrant, flexible U.S. manufacturing ecosystem requires a bold plan premised on three 'Es' - Engage, Educate and Evolve.

It starts with Engage. Despite many efforts, the reach and impact of industry's voice is still too limited in setting priorities. We must create a national common purpose, driven less by funding and more by linking efforts to specific industry outcomes that make U.S. manufacturing more attractive and competitive. Implementing technologies in industrial test beds will allow the entire ecosystem to learn together, strengthen engagement, and demonstrate the benefits.

Second, we need a new framework to Educate our present and future manufacturing workforce. Industry sees the greatest gap in the skilled trades positions. These positions are becoming increasingly high-tech and require more specialized training. We need government entities to partner with industry and local institutions to create standardized certifications that meet the needs of high-tech advanced manufacturing. This in turn will create high paying manufacturing jobs that can be obtained without exorbitant educational expenses.

Third, we need an Evolving approach. With the digital revolution happening so rapidly, we're seeing enterprise changes in how manufacturing is executed at all levels of the supply chain. Government and industry together need to look at new innovation models from full testbeds to develop and integrate changing technology to increased hands-on activities with students and universities.

The key is sustainability and consistency of purpose. The new manufacturing institutes, while a great start, cannot fully address what is required as their ability to adapt and sustain is limited. By bringing together the entire manufacturing ecosystem and focusing on the 3 E's, we can truly affect sustainable change for our country.

Ralph Gomory, Research Professor, New York University Stern School of Business; President Emeritus, Alfred P. Sloan Foundation
Our present wide-open economy and the current orientation of our major corporations make our nation an excellent target for mercantilist exploitation.

Although we like to imagine that we are in a world of free trade, the world that we live in is not like that. It is to a considerable extent, a world of mercantilism--a world in which many foreign governments do whatever it takes to make their industries succeed.

Our vulnerability to these tactics can be traced to the doctrine of shareholder primacy, profit as the only corporate goal.

Today our corporations believe their mission is to make as much money as possible for their shareholders; they believe it is someone else's job to take care of the American economy. This is a long way from the Stakeholder doctrine that dominated business thinking in the decades before the 1980's. That view took into account the impact of corporate actions on customers, employees, local communities, and the nation.

In today's world, mercantilist nations can sign free trade agreements with us but then use subsidies to make outsourcing or moving overseas the most profitable path for our corporations.

Experience has shown that in a mercantilist world, the free trade arguments used to justify our trade agreements with many countries simply do not apply, and the promised benefits do not materialize.

Instead, these agreements have often opened our industries to destructive, non-market competition.

We end up with huge trade deficits and find that we have traded jobs for corporate profit, and along with the jobs we have often lost our technology, and increasingly the actual ownership of our own economy.

As long as we do not realize what is possible for countries to do in a mercantilist world, and as long as our corporations feel their only goal is profit, we will be vulnerable to having jobs and technology lured overseas.

It is time to wake up both to the realities of the modern world and to the need to reform the goals of our corporations.

Ron Hira, Professor of Public Policy, Howard University; Research Associate, Economic Policy Institute
Americans continue to harbor concerns about the economy even with record stock prices and low unemployment rates. Many of their anxieties stem from the emergence of the New U.S. Employment Model. The loyalty between employers and workers has deteriorated. Employers discard workers for cheaper substitutes and workers show little attachment to employers.

IBM illustrates how employment relations have radically transformed over the past twenty-five years. Until 1992, IBM never laid off an employee. Faced with losses in the early 1990s IBM began layoffs, continuing them even when profits returned. By 2003, IBM's offshoring strategy included requiring its U.S. workers train their overseas replacements as a condition of severance. IBM went from lifetime employment to requiring its workers destroy their own jobs.

Employers across the spectrum are aggressively cutting labor costs even for jobs that cannot be offshored. In 2010, Dr. Pepper Group demanded significant wage and benefits cuts for workers at a Motts plant in New York even though the plant was profitable. Contractors for Tesla Motors hired guestworkers at $5 per hour for its California factory while Tesla receives $millions in job creation tax credits. It even extends to state governments. The University of California announced it would force its information technology workers train their cheaper guestworker replacements.

This behavior represents a major structural transformation in our economy but our current policy formulation operates as though nothing has changed.

R&D policies provide a good case. The U.S. heavily subsidizes R&D hoping we will capture many downstream design, development, and production jobs. Yet firms act rationally and the lure of lower costs, from cheaper labor and government incentives, make it more likely many of those jobs leak offshore even when R&D is performed here. Instead of blindly increasing R&D subsidies, as many leaders have prescribed, we should craft policies to better capture those downstream jobs - the real prize.

Solving the serious economic problems of our time requires that we look at all of our policies - tax, trade, education, training, and innovation - through the lens of the New U.S. Employment Model.

Scott Paul, President, Alliance for American Manufacturing
Madam/Mister President: You have embraced manufacturing as a critical element of economic growth and pathway to the middle class. You recognize that public policy can help to strengthen manufacturing. I know these to be some of the core truths of your economic thinking.

Now is the time to put these words into action. We stand at the cusp of dramatic changes in manufacturing. Industry 4.0 means we will have opportunities to bring some manufacturing back to the U.S. as it becomes more automated, more technical, more digital, and more customized.

But this shift will not occur on its own. We need the right public policy environment. For this to happen, it will require your strong leadership. Manufacturing policy solutions tend to unite our otherwise divided citizens, so harnessing their energy will be critical. Navigating a fractured and dysfunctional Congress will require pragmatism and hands-on work--work you must dedicate to this effort, ahead of your other campaign goals.

An omnibus Make It in America bill is the answer. Why? Because fostering a competitive environment for manufacturing requires the adjustment of a number of monetary, fiscal, and trade policy levers.

First, erase regulatory and tax incentives for short-termism and restore Wall Street's function as a utility and provider of capital to industry. Increase incentives for long-term corporate investments in workers, machines, innovation, and domestic production.

Second, phase in a border-adjustable carbon fee. This will minimize the externalities, both here and abroad, of climate progress, and incentivize new industries and energy processes.

Third, make post-secondary technical training free to any worker in traded industries, formalize portable credentials, and incentivize high-road apprenticeships.

Fourth, include sizable investments for infrastructure and the Manufacturing USA/MEP networks.

Finally, appoint a robust Special Trade Prosecutor to identify and knock down unfair trade practices and barriers to our exports.

Justin Talbot-Zorn, Truman National Security Fellow; Senior Adviser to MForesight
The Case for a National Innovation Foundation

In June of 2008, then-Senator Hillary Clinton and Republican Senator Susan Collins introduced a piece of legislation that had unique potential to bolster America's manufacturing competitiveness. The National Innovation and Job Creation Act would have created a National Innovation Council to consolidate and coordinate the activities of many of the government's diverse innovation programs. The idea was straightforward: To catch up with more than 50 countries from China to the UK that all have coordinating agencies to catalyze the translation of scientific discoveries and inventions into useful products and process improvements that help meet societal needs.

Fast-forward eight years, and manufacturing remains one of the few truly bipartisan national priorities. While specific policy proposals regarding manufacturing tend toward contentious matters like tax rates and trade policy, a new national coordinating body for translational research could expand domestic manufacturing and win broad bipartisan support by helping US taxpayers maximize their return on investment from R&D spending.

The need for translational research is clear. Crucial platform technologies like semiconductors and solar cells were not simply created in an academic lab but rather through the combined efforts of government-funded scientific researchers and private sector engineers over years or even decades. The United States remains the world's leader in R&D spending, but we're doing a lackluster job of connecting the research with the development: translating our basic science activities into the new products and services that improve lives and livelihoods.

Along the lines of the 2008 legislation, the new Administration should propose the creation of a National Innovation Foundation (NIF) to catalyze federal translational research activities. Such an entity would be tasked with identifying the most promising basic research being undertaken across the federal government and building public-private partnerships to invest in transforming that research into wealth-creating products and services. This need not be expensive. A National Innovation Foundation could be formed by consolidating relevant offices at 12 or more key federal research agencies. The idea would go beyond existing models like the Manufacturing Institutes or the Small Business Innovation Research program by encompassing the entire innovation pipeline from basic research to early procurement to workforce development to even regulations and trade assistance--and spanning sectors from health to energy to national security.

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