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MANUFACTURINGIN

AMERICA

A Comprehensive Strategy to Address

the Challenges to U.S. Manufacturers

U.S. Department of Commerce

MANUFACTURINGIN

AMERICA

A Comprehensive Strategy to Address

the Challenges to U.S. Manufacturers

U.S. Department of Commerce

Washington, D.C.

January 2004

ISBN 0–16–068028–X

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January 2004

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

One

Competing—and Winning—in a Global Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Two

Challenges Facing American Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Three

Recommendations and Next Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Appendix

List of Manufacturing Roundtables and Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

M A N U F A C T U R I N G I N A M E R I C A 3

President Bush is committed to making sure every American who wants to work can find ajob. In the third quarter of 2003, the U.S. economy grew at 8.2 percent—the strongestgrowth in nearly 20 years. Over the past five months, more than 250,000 new jobs havebeen created and the December 2003 unemployment rate of 5.7 percent was significantlybelow the 30-year average of 6.4 percent. Thanks to the President’s pro-growth policies,America’s economy is strong—and growing stronger.

The recent economic downturn hit the U.S. manufacturing sector particularly hard,but now our manufacturers are beginning to experience the benefits of the President’s pro-growth policies. Factory activity is at its highest level in 20 years and new orders are at thehighest level since 1950.

Strengthening American manufacturing is a top priority for the President. America'smanufacturers provide our nation and our people with good jobs, a better quality of life,and inventions that have established our national identity. Manufacturing is the backboneof our economy and the muscle behind our national security.

To make sure the administration is doing everything possible to help American man-ufacturers, last year I ordered a comprehensive review of our manufacturing sector. Ourgoal is to help the American manufacturers compete and win in the 21st century. Throughthe Manufacturing Initiative, we will redouble the administration’s efforts on behalf of themillions of Americans who work in the manufacturing sector.

The Initiative organized over 20 public roundtables to solicit input from Americanmanufacturers. Our question was simple: How can government help manufacturers compete?

This report includes a series of recommendations aimed at unleashing the full potentialof American manufacturers. It is an important first step toward strengthening Americanmanufacturing and creating new jobs. In the coming weeks and months, the Department ofCommerce will continue to work with manufacturers, other state and federal agencies, andCongress to help U.S. manufacturers become more competitive in the global marketplace.

American manufacturing has a rich history. After traveling the country and meetingwith hundreds of factory workers, executives, and experts, I am confident it will have anequally rich future.

Donald L. EvansSecretary of Commerce


Message from the Secretary ofCommerce

A cutting-edge manufacturing techniques.Perhaps most importantly, productivity inmanufacturing has continued to rise sig-nificantly.

Even as U.S. manufacturers engage inglobal competition with singularstrengths, they also face unprecedentedchallenges. These challenges are bothcyclical and structural. The most recentrecession in the business cycle—a down-turn that first began to be felt in 2000—hit U.S. manufacturers and their workershardest. Output fell 6 percent in manu-facturing even though the recession wasrelatively shallow overall. Employmentfell by 2.6 million jobs in manufacturing,accounting for all of the net job lossesfrom the fourth quarter of 2000 throughthe third quarter of 2003.

Today, as the overall U.S. economyexpands strongly, much of the manufac-turing sector continues to operate wellbelow its previous peak. For example,while automobile production remainsstrong, many of the industries that sup-port this production, such as the machinetools and tool and die industries, con-tinue to lag behind the rest of the econ-omy by a wide margin.

As difficult as the recession has beenfor U.S. manufacturers, the sector faces

American manufacturers are a cornerstoneof the American economy and embodythe best in American values. They enhanceU.S. competitiveness while improving livesdomestically and internationally.

President Bush’s concern for the menand women who work in manufacturingand the critical contribution they maketo the U.S. economy is the driving forcebehind this report. Manufacturers are fullpartners in the effort to build the futureof the country in the marketplace for newproducts and ideas. Simply put, a healthymanufacturing sector is key to better jobs,fostering innovation, rising productivity,and higher standards of living in theUnited States.

The United States is the world’s lead-ing producer of manufactured goods.Standing alone, the U.S. manufacturingsector would represent the fifth-largesteconomy in the world—larger thanChina’s economy as a whole.1 The U.S.manufacturing sector also leads in inno-vation, accounting for more than 90 per-cent of all U.S. patents registered annu-ally.2 Investments in technology createnew industries and careers in manufactur-ing as U.S. firms introduce products and


Introduction

create the economic conditions that fostera healthy and competitive manufacturingsector and spur economic growth? Whatare the best means of removing the im-pediments that government action hascontributed to in the form of increasedenergy and healthcare costs and high ordistortionary tax and regulatory compli-ance burdens that make it harder for U.S.manufacturers to attract investment andcompete? How can government policyfoster an environment in which Americanmanufacturers and their workers are thebest trained in the world? And, equallyimportant, how can America ensure thatsuccess in the global marketplace is basedon economic strength, rather than ongovernment intervention that creates arti-ficial advantages?

The Manufacturing Initiative

In a March 2003 speech to the Na-tional Association of Manufacturers inChicago, U.S. Secretary of CommerceDonald Evans launched the Manufactur-ing Initiative to begin answering thosequestions. Secretary Evans called for acomprehensive review of issues affectingthe competitiveness of the U.S manufac-turing sector. The goal of the review wasto develop a strategy designed to ensure“that the government is doing all it can tocreate the conditions” necessary to fosterU.S. competitiveness in manufacturingand stronger economic growth at homeand abroad.

Secretary Evans directed the U.S. De-partment of Commerce to seek the help ofAmerican manufacturers themselves inidentifying the roots of the manufacturingsector’s current challenges and the specificobstacles that government policy mightpose to U.S. manufacturing competitive-ness. To that end, the Department ofCommerce held over 20 roundtable eventswith manufacturers, in which the adviceof individual attendees was sought andobtained. These nationwide discussionsincluded representatives from the aero-

even more significant structural chal-lenges from the effects of rapidly chang-ing technology and adjustment to aglobal economy. Barriers to trade havefallen rapidly over the past decade. Inno-vations in communications, computing,and distribution have accelerated the de-sign, production, and delivery of goods.Improved production processes havespread rapidly throughout the world. Pri-vate investment now flows largely unim-peded across national borders as investorsseek the highest rates of return. All thesefactors equate to unprecedented globalcompetition for capital and markets. Be-cause manufactured goods make up thebulk of international trade, the competi-tion is especially strong. Taken together,the effects of technology and globaliza-tion accelerate the competitive pressuresto lower costs and increase productivity.

The challenges facing U.S. manufac-turers raise important questions for bothindustry and government. For industry,the question is how best to reinforce thesector’s strengths and maintain its com-petitive edge in an increasingly competi-tive global economy. The competitivepressure on U.S. manufacturers has forcedthem to cut costs, to adopt lean manufac-turing techniques, and to implementquality assurance programs that guaranteezero defects in production. Innovation inproducts, processes, and services has be-come a key determinant for success.

Fostering a competitive manufactur-ing sector also requires a different way oflooking at government policy. The rightpolicies in Washington, D.C.—and acrossthe nation—can unleash the great poten-tial of the U.S. economy and create theconditions for growth, prosperity, and jobcreation. For government, the ultimatequestion is whether the actions that ittakes help or hinder American manufac-turers as they compete in global markets.What steps should government take to

8 U. S. D E P A R T M E N T O F C O M M E R C E

Manufacturers Association, Motor andEquipment Manufacturers Association,Aerospace Industries Association, Associa-tion of Equipment Manufacturers, Ameri-can Foundry Society, American ForestProducts Association, and others.

The following report is divided intothree chapters. The first chapter providesan overview of the domestic and interna-tional economic issues facing Americanmanufacturing and identifies the power-ful trends shaping the environment inwhich U.S. manufacturers compete today.

The second chapter draws on the ex-perience of U.S. manufacturers themselvesin identifying the challenges governmentmust tackle. Small, medium-sized, andlarge manufacturers all stated that the firstpriority should always be to eliminate gov-ernment policies and practices that hinderU.S. competitiveness. They identified im-mediate priorities such as spurring highereconomic growth and creating incentivesfor investment, including research and de-velopment, as well as long-term effortssuch as the reliability of energy supplies,reducing healthcare costs, and tort reformneeded to reduce the indirect costs im-posed on manufacturers by governmentaction or inaction.

On the international front, manufac-turers stressed the importance of breakingdown the barriers that other governmentserect against U.S. exporters and eliminat-ing the practices that distort trade and in-vestment. With respect to both financeand trade, manufacturers stressed that thegoal of U.S. foreign economic policyshould be to ensure that competition isfree and fair. They also emphasized theneed to reinforce U.S. trade promotion ef-forts in markets opened by recent tradeagreements, particularly in China.

Manufacturers also emphasized theimportance of looking to the future andinvesting in activities that have givenU.S. manufacturers their competitiveedge. In practical terms, that means en-suring that government does not impede

space, auto and auto parts, biotechnology,semiconductor, chemical, pharmaceutical,plastics, and tool and die industries,among others. The manufacturers attend-ing the roundtables represented a broadmix of small, medium-sized, and largecompanies, as well as minority-owned andwomen-owned enterprises.

To demonstrate Secretary Evans’commitment to meeting the challengesfacing the manufacturing sector, theCommerce Department’s senior managersled the roundtables,3 with help from theCommerce Department’s local Export As-sistance Centers and private sector Dis-trict Export Councils. Commerce Depart-ment industry specialists attended theroundtables to listen to and report on thediscussions to Commerce Departmentleaders, thus ensuring follow-up actionwith any companies needing informationor assistance.

In addition, the Commerce Depart-ment set up a Web site to gather and dis-seminate information regarding the ini-tiative as broadly as possible. This Website—www.export.gov/manufacturing—wasused to provide information on eventsand activities, and to encourage thosewho could not attend the roundtables tocontact the Commerce Department re-garding manufacturing issues.

The process also benefited from dis-cussions with industry association repre-sentatives who reflected a broad cross-section of the American manufacturingcommunity. The Commerce Departmentreceived considerable help from both thepersonnel and member companies of theNational Association of Manufacturers,Manufacturers Alliance/MAPI, Associationfor Manufacturing Technology, Society ofPlastics Industries, Alliance of AutomobileManufacturers, National Tooling and Ma-chining Association, American Forest andPaper Association, American Furniture


with manufacturers across the country, toaddress the challenges identified, and tohelp set immediate priorities that willbenefit American manufacturing.

In the meantime, the challengesconfronting American manufacturers andmanufacturing workers are urgent, andPresident Bush has already taken action.He has implemented a jobs and growthagenda and outlined a six-point plan:

1. To make healthcare costs more affordable.

2. To reduce the lawsuit burden on theU.S. economy.

3. To ensure an affordable, reliable energy supply.

4. To streamline regulations and report-ing requirements.

5. To open markets for American products.

6. To enable families and businesses toplan for the future with confidence.

The necessity of acting on these re-forms was reflected in the roundtable dis-cussions: each proposal would improvethe U.S. manufacturing sector’s competi-tiveness in the years and decades to come.

One final point deserves emphasis.Despite the challenges faced by Americanmanufacturing, there is one fundamentalreason for optimism about the future ofAmerican manufacturing: the talent andmotivation of the men and women whowork in and manage America’s manufac-turing companies. More than anythingelse, manufacturers participating in theCommerce Department’s roundtables ex-pressed their commitment to roll up theirsleeves and address the challenges theyface in doing business in an increasinglyglobal and competitive environment.American manufacturers are enthusiasticabout meeting the competition, but theyneed a fair international playing field anda domestic environment free from imped-iments to investment and growth. This

the development of new technologiesthat will create the industries and jobs ofthe future, as well as improving the com-petitiveness of America’s existing manu-facturing base. Manufacturers stated thatthis effort would require government re-search and development funding and thecreation of a highly educated and moti-vated workforce.

The third chapter of this report setsout a series of recommendations designedto address the challenges identified byU.S. manufacturers. The recommenda-tions represent a first step toward craftingthe comprehensive strategy SecretaryEvans called for in March 2003.

The recommendations respond tothe call by U.S. manufacturers for agreater focus within the federal govern-ment on manufacturing competitiveness,including the creation of an Assistant Sec-

retary of Commerce forManufacturing and Services.President Bush announcedon Labor Day 2003 that thecreation of this positionwould help keep the federalgovernment focused on is-sues relating to manufactur-ing and would drive theManufacturing Initiativeforward. The recommenda-tions also address the chal-lenges identified by U.S.

manufacturers on both the domestic andinternational front, as well as reinforcingAmerican manufacturing’s competitiveedge in the development of new tech-nologies and a workforce that can meetthe needs of modern manufacturing.

These recommendations representthe start of a process, not the end. Fromthe outset, Secretary Evans has viewedthis report and its recommendations asan opportunity to work closely with U.S.manufacturers to develop a sound strat-egy for American competitiveness inmanufacturing. The Commerce Depart-ment intends to review these proposals


American manufacturers are

enthusiastic about meeting the

competition, but they need a fair

international playing field and

a domestic environment free

from impediments to

investment and growth

3 They included Secretary Donald Evans; Deputy

Secretary Samuel Bodman; Under Secretaries Grant

Aldonas, Philip Bond, and Kathleen Cooper; Assistant

Secretaries Linda Conlin, Bruce Mehlman, and David

Sampson; Directors Arden Bement, Ronald Langston,

and John Maxon Ackerly; and Deputy Assistant Secre-

taries Joseph Bogosian, Kevin Murphy, and Michelle

O’Neill. Officials of the U.S. Department of Labor (in-

cluding Assistant Secretary Emily DeRocco) co-hosted

a roundtable focused specifically on workforce, educa-

tion, and training issues, to which the U.S. Depart-

ment of Education contributed as well.

report and its recommendations representa commitment on the part of the Bushadministration to foster an environmentfor the continuing success of Americanmanufacturing.

Notes1 See “Total GDP 2002,” World Development In-

dicators database, World Bank, July 2003.2 Jeff Werling, The Future of Manufacturing in a

Global Economy, December 2003.


Abbreviations and AcronymsFDA Food and Drug Administration

GATT General Agreement on Tariffs and Trade

GDP gross domestic product

HSA health saving account

IRC Internal Revenue Code

ITA International Trade Administration

ITC International Trade Commission

MEP Manufacturing Extension Partnership

NAFTA North American Free Trade Agreement

NAM National Association of Manufacturers

NIST National Institute of Standards and Technology

NTMA National Tooling and Machining Association

OECD Organization for Economic Cooperation and Development

OEM original equipment manufacturer

OMB Office of Management and Budget

ONR Office of Naval Research

OSTP Office of Science and Technology Policy

PCAST President’s Council of Advisors for Science and Technology

R&D research and development

R&E research and experimentation

SBA Small Business Administration

SBIR Small Business Innovation Research

STTR Small Business Technology Transfer

TRIPS Agreement on Trade-related Aspects of Intellectual Property

TPCC Trade Promotion Coordinating Committee

TPSC Trade Policy Staff Committee

USPTO U.S. Patent and Trademark Office

USTR Office of the U.S. Trade Representative

WTO World Trade Organization


T in mid-2000, before the overall economytook a downward turn. Although rapidmonetary and fiscal responses kept the re-cession in check, the cyclical changesflowing from the recession hit the manu-facturing sector with unusual force.

In fact, the general economic down-turn that first appeared in the manufac-turing sector in mid-2000 may havemasked the far more powerful underlyingstructural changes affecting manufactur-ing. With rapid advancements in technol-ogy, lower barriers to trade, and the entryof significant new competitors into globalmarkets, the past five to 10 years havebeen marked by rapid change for Amer-ica’s manufacturers, even as they continueto adapt to the global market.

Importance ofManufacturing to theEconomy

Manufacturing is crucial to the U.S.economy. Every individual and industrydepends on manufactured goods. In addi-tion, innovations and productivity gainsin the manufacturing sector provide bene-fits far beyond the products themselves.

There is no dispute over the signifi-cant contribution that manufacturing

The following discussion sets out a frame-work for understanding the challengesidentified by U.S. manufacturers. Thischapter highlights the critical contribu-tion manufacturing makes to the U.S.economy and details the many underlyingstrengths of the manufacturing sector.

The manufacturing sector’s rapidlyrising productivity is its greatest strengthand a major contributor to the growth ofthe U.S. economy. Higher productivity of-fers multiple benefits: stronger competi-tiveness in manufacturing and other sec-tors of the economy, higher real wages,and a rising standard of living. That sameproductivity growth, however, has alsobeen largely responsible for the gradualdecline in employment in manufacturing:manufacturing employment has declinedeven as U.S. manufacturers have becomemore efficient both in absolute terms andrelative to other sectors in the economy.

The manufacturing sector’s overallperformance in the past 25 years has beenvery strong, despite difficult periods of ad-justment through the 1970s and 1980s. Itremained strong despite shocks to theworld economy, including those in someof the strongest U.S. export markets dur-ing the Asian financial crisis of 1997.

However, the manufacturing sectorwas hit by a particularly harsh recession


One

Competing—andWinning—in a GlobalEconomy

as a whole. For example, improvements incotton harvesting equipment, manufac-tured in the Midwest, help improve theproductivity of cotton growers in Califor-nia and Texas. And expanding the powerof computers makes on-line banking andother financial services possible.

A recent study by the National Insti-tute of Standards and Technology rein-forces how the benefits of improved man-ufacturing productivity extend to othersectors in the economy. The NIST studydetailed the service sector’s reliance onU.S. manufacturers for the goods andtechnology that spur service sectorgrowth. It emphasized “the substantial de-pendency of services on manufacturingfirms for technology” and the “criticalrole” manufacturing plays in stimulatinggrowth in the services sector, which nowmakes up more than 70 percent of theU.S. economy.5

From the perspective of the averageAmerican worker, rising productivity trans-lates into higher real wages and a broaderrange of higher-quality, lower-cost goods,meaning each additional dollar earnedgoes further. This makes it is easier to buya home, save for a child’s college educa-tion, or set aside money for retirement.

The manufacturing sector has gener-ated many of the innovations that haveled to significant productivity gains overthe past 25 years in manufacturing andthroughout the economy. Increases inmanufacturing productivity have consis-tently outpaced other sectors of the U.S.economy. From 1977 to 2002, productiv-ity in the overall economy increased 53percent, while manufacturing sector pro-ductivity rose 109 percent. The greaterthan 50-percent increase in overall pro-ductivity represents a tremendous gain inthe U.S. standard of living, and the morethan 100-percent increase in manufactur-ing productivity is a remarkable achieve-ment. As Figure 1 reflects, labor productiv-ity in manufacturing has doubled since1977. The rate of change has increased

makes to the U.S. economy and to Amer-ica’s standard of living. The sector contin-ues to account for 14 percent of U.S. GDPand 11 percent of total U.S. employment.

Those statistics, however, do not ade-quately convey the importance of themanufacturing sector to the U.S. economyand to America’s future. Manufacturing isan integral part of a web of inter-industryrelationships that create a stronger econ-omy. Manufacturing sells goods to othersectors in the economy and, in turn, buysproducts and services from them.

Manufacturing spurs demand foreverything from raw materials to interme-diate components to software to finan-cial, legal, health, accounting, transporta-tion, and other services in the course ofdoing business. According to the Bureauof Economic Analysis, every $1 of finaldemand spent for a manufactured goodgenerates $0.55 of GDP in the manufac-turing sector and $0.45 of GDP in non-manufacturing sectors.1

The automotive sector provides agood example. The production of automo-biles stimulates the demand for every-thing from raw materials in the form ofcoal and iron to manufactured goods inthe form of robots to the purchase of serv-ices in the form of health insurance forthe automobile companies’ employees.

A healthy manufacturing sector iscritical to America’s economic future forother reasons as well—innovation andproductivity.2 Innovation holds the key torising productivity, and productivity gainsare the key to both economic growth anda rising standard of living.3 As one leadingeconomist put it:

A nation’s standard of living in the long termdepends on its ability to attain a high andrising level of productivity in the industries inwhich its firms compete.4

Rising productivity is the key to main-taining U.S. competitiveness in manufac-turing, but the benefits of rising manufac-turing productivity extend to the economy


over time, with productivity growingfaster (14.2 percent) in the past two and ahalf years, since the beginning of the lastrecession, than in any two-and-a-half-yearperiod in the past 50 years.

Further, U.S. productivity strongly ex-ceeds that of America’s principal tradingpartners (Figure 2). The United Statesleads all countries in the absolute level oflabor productivity, both per hour and peremployee. This position has enabled theUnited States to maintain its labor costadvantage over these trade competitorsdespite the higher wages and benefits paidto American workers. The recentlystronger performance of U.S. manufactur-ing in raising its productivity representsone of the causes for optimism for thesector’s ability to adjust to rising levels ofcompetition at home and abroad. Theability to raise productivity, even in themidst of recession and recovery, reflectsthat U.S. manufacturers have madechanges in their operations and produc-tion methods to put themselves in astronger position than manufacturers inother industrialized nations.

The growth in productivity has alsohad a profound effect on the U.S. stan-dard of living. The 31-percent productiv-ity advantage of the U.S. economy overOECD members accounts for three-quar-ters of the per capita income difference.6

One important vehicle for the risingproductivity in manufacturing has beentechnological innovation. In manufactur-ing, technological innovation comes intwo forms. First, new inventions provide aleap forward in technology. Consider thefirst integrated circuits and the astonish-ing array of products that are directly re-lated to its development. Many of thoseinventions derive from large investmentsin research and development in the man-ufacturing sector: manufacturing firmsfund 60 percent of the $193 billion thatthe U.S. private sector invests annually inR&D.7 Those technologies are absorbed bythe much larger service sector and drive


0.5

1.0

1.5

2.0

2.5

Manufacturing Sector

Total Economy*

200019951990198519801977

Figure 1. Productivity in Manufacturing and the Total

U.S. Economy, 1977–2002

* Excludes government and agricultural sectors.Index: 1977 = 1.0Source: U.S. Department of Labor, Bureau of Labor Statistics.

20

40

60

80

100

United Kingdom

West Germany

France

United States

20001995199019851980197519701965196019551950

Figure 2. Per-Capita Manufacturing Output in Western Europe

Relative to the United States, 1950–2000

Index: U.S. level = 100Note: ”West Germany“ data are for West Germany throughout, even after 1990.Source: U.S. Department of Labor, Bureau of Labor Statistics; Groningen Growth and Development

Center, International Comparisons of Output and Productivity by Industry.

and manufacturing processes within majortechnology life cycles. Such improvementinvolves many less dramatic innovations,but collectively these innovations have asignificant effect. For example, incremen-tal improvements in the ability to etch ahigher number of functions on a micro-processor or to multiply the number ofcalls a fiber-optic cable can transmit havea remarkable effect over time.8

Both major and incremental innova-tions improve the competitiveness of themanufacturing sector and the U.S. econ-omy as a whole. Because productivity hasrisen faster in manufacturing than in theservices sector, prices of manufacturedgoods have risen more slowly than pricesof services. At times, manufactured goodsprices have even declined. That pricingpressure helps keep production costs incheck for both the manufacturing sectorand other areas of the economy.

In the past 25 years, prices in theoverall economy have increased more than140 percent, while prices in manufacturinghave increased only slightly more than 60percent (Figure 3). That also explains whymanufacturing’s share of nominal privateoutput has declined from around 27 per-cent in 1977 to around 16 percent at pres-ent, even while the sector’s contribution toreal private output growth has remainedroughly the same since 1977.

Real manufacturing output, adjustedfor changes in prices, provides the bestrepresentation of manufacturing outputover the past 25 years relative to the restof the economy. Real manufacturing out-put since 1977 has grown nearly as fast asreal output of the private economy as awhole (Figure 4).

Another way of measuring the simi-larity between manufacturing’s growth inreal terms and that of the broader econ-omy is to look at the sector’s contributionto the growth of real private output. Mea-sured that way, the manufacturing sector’scontribution has remained roughly steadyat 0.6 percentage points for each 10-year

the increasing rates of innovation andproductivity growth in that sector.

The other form of innovation comesfrom the steady improvement in products


1.0

1.4

1.2

2.0

1.8

1.6

2.6

2.4

2.2

0.8


Total Economy

200019951990198519801977

Figure 3. Prices in Manufacturing and the Total U.S. Economy,

1977–2002

Index: 1977 = 1.0Sources: Total economy: U.S. Department of Commerce, Bureau of Economic Analysis;

manufacturing sector: U.S. Department of Labor, Bureau of Labor Statistics.

0.8

1.0

1.6

1.4

1.2

2.0

1.8

2.4

2.2


Total Economy

200019951990198519801977

Figure 4. Output in Manufacturing and the Total

U.S. Economy, 1977–2002

Index: 1977 = 1.0Source: U.S. Department of Commerce, Bureau of Economic Analysis.

average annually from the 1977–1987 pe-riod to the most recent 1992–2002 period(Figure 5).

Compensation and Employment

Historically, the manufacturing sectorhas had the reputation of providing a wayfor blue-collar workers to find good-pay-ing jobs. Even today, the average hourlytotal compensation of production workersin manufacturing is higher than the aver-age in all other sectors.

However, manufacturing’s advantagein total compensation is based on bene-fits, rather than higher hourly wages. Av-erage hourly earnings of production work-ers since 1967, when measured on aninflation-adjusted basis, suggest that man-ufacturing as a sector has offered an aver-age, rather than high, hourly wage. Thereare, of course, specific sectors such asautos and steel that have offered wages farabove the average, but these are balancedby others that have offered below averagewages. In fact, the average hourly earn-ings in the wholesale trade, finance, andservice sectors have surpassed those inmanufacturing over the past 10 years;only retail trade remains lower.

The advantage of working in themanufacturing sector has derived, instead,from the higher level of average benefitsreceived ($8.89 per hour for manufactur-ing versus $5.94 for non-manufacturing).Manufacturers contribute an average of$0.81 per hour more for health insurance,$0.66 more for overtime and supplemen-tal pay, $0.62 more for leave, $0.29 morefor retirement, and $0.34 more for otherbenefits (Figure 6).9

Because productivity gains in manu-facturing have outstripped the growth indemand for manufactured goods, manu-facturing employment has been falling forthe past three decades. Manufacturingemployment was significantly lower in2002 than in 1977, falling from 22 per-cent of the non-farm economy to under12 percent. Partial data for 2003 indicate


0

1

2

3

4

5

Total real private outputManufacturing sector

20011999199719951993199119891987

Figure 5. Manufacturing as a Percentage of Average U.S. Private

GDP Growth, 1987–2002 (Ten-Year Averages)

Note: “Total real private output” is the same as total real U.S. private GDP—that is , GDP minus thegovernment sector. The top bars show the 10-year growth of private GDP, annualized to single-year averages. The bottom bars show 10-year moving averages: for a given year, contribution toprivate GDP growth by the manufacturing sector for that year is averaged with the previous nineyears.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

100

150

200

250

300

350

Benefits

Wages & Salaries

Compensation

20001995199019851980

Figure 6. Employment Cost Index, 1980–2002

Index: 1980 = 100Source: U.S. Department of Labor, Bureau of Labor Statistics.

that the share has fallen further to about11 percent (Figure 7).

Given that manufacturing represents astable part of the economy while enjoyingoutsized productivity gains, the gradual de-cline in manufacturing employment is notsurprising. Expressed another way, giventhe more rapid gains in labor productivity,manufacturing’s share of total outputwould need to increase dramatically tomaintain a given level of employment.

While the number of U.S. manufac-turing jobs has fallen since 1979, otheradvanced economies have experiencedthe same trend. In the 1990s, manufactur-ing’s share of employment fell at least asfast, if not faster, in Western Europe thanin the United States (Figure 8).

On average, U.S. manufacturing em-ployment has fallen 0.4 percent annuallyover the past 35 years. But that averagerate of decline masks large fluctuations.Manufacturing employment rises andfalls sharply in each business cycle. Witheach recession, manufacturing employ-ment falls slightly lower than the previ-ous trough. When the business cycleturns up and manufacturing firms beginhiring again, manufacturing employmentrises, but it does not quite reach its previ-ous peak.

These trends provide a useful transi-tion to discuss the more recent develop-ments in manufacturing.

Cyclical Effects of Recessionand Recovery

After seeing prospects improve formore than a decade, American manufac-turers have, in the past five years, facedharsh economic conditions. Recessions aretypically hard in manufacturing. Of theeight recessions since 1950, real GDP hasdeclined, on average, about 2 percent,whereas manufacturing output has de-clined 7 percent.

By the standard of overall output,the recession of 2001 was relatively mild;


0.8

0

1.0

1.6

1.4

1.2

1.8


Total Economy

200019951990198519801977

0

15

20

24

14

19

23

13

18

22

12

1716

21

Perc

ent

200019951990198519801977

Manufacturing Shareof Total Employment

Figure 7. Total Employment Growth and Manufacturing Employ-

ment Decline, 1977–2002

Source: U.S. Department of Labor, Bureau of Labor Statistics.

Index: 1977 = 1.0Source: U.S. Department of Labor, Bureau of Labor Statistics.

however, it hit the manufacturing sectorparticularly hard. Manufacturing outputdeclined about 6 percent from the fourthquarter of 2000 to the third quarter of2001, over which time real GDP fell 0.5percent.

What has been striking about themost recent recession in manufacturing,however, was not the sharp drop in out-put, but the slow pace of recovery. In allbut the most recent recession since WorldWar II, manufacturing output has in-creased nearly 15 percent in the first twoyears of economic recovery. However, overthe past two years, a period during whichGDP rose nearly 6 percent, manufacturingoutput declined slightly (Figure 9). Totalmanufacturing production is still downsome 4 percent below its previous peak ofmid-2000.

The recession and the slow pace ofrecovery in manufacturing have been par-ticularly hard on workers in manufactur-ing. Since the onset of the manufacturingemployment downturn, the sector haslost 2.6 million jobs, while employmentin other sectors has been relatively stable.In the third quarter of 2003, manufactur-ing employment remained 15 percentlower than in the period immediately be-fore the recession. Perhaps more signifi-cantly, employment in manufacturing hasfallen 8 percent since the recovery began.This decline was widespread across allmanufacturing sectors (Table 1).

There were several features of the re-cent recession that made its effect on themanufacturing sector more pronounced.First, there was a significant retrench-ment in business investment in technol-ogy following a surge in such investmentthroughout the preceeding decade. It isgenerally accepted that the high-tech sec-tor spurred the economy in the late1990s. High-tech production peaked,however, in late 2000 (Figure 10). Outputin the sector declined 12 percent by thesummer of 2001, decreasing considerably


0

15

20

25

30

35

Netherlands

United Kingdom

Italy

Germany*

FranceUnited States

20011998199519921989198619831980

Figure 8. Manufacturing Employment as a Percent of Total Civilian

Employment in Europe and the United States, 1980–2001

* “Germany” data are for West Germany through 1990, and for unified Germany thereafter.Source: U.S. Department of Labor, Bureau of Labor Statistics.

1.00

1.04

0.96

0.92

0.90

1.08

GDP

Manufacturing

2003-Q32003-Q2

2003-Q12002-Q4

2002-Q32002-Q2

2002-Q12001-Q4

2001-Q32001-Q2

2001-Q12000-Q4

Figure 9. GDP and Manufacturing Output, 2000–2003

Index: Fourth quarter 2000 = 1.00Sources: GDP: U.S. Department of Commerce, Bureau of Economic Analysis; manufacturing output:

Board of Governors of the Federal Reserve System.

further than the average for the manufac-turing sector as a whole.

The drop-off in high-tech spendingthat led the decline affected the high-techsector worldwide. Data on global semicon-ductor sales, for example, indicate a sizabledrop beginning in late 2000 and continu-ing for the next year as businesses spentconsiderably less on communications andcomputing technology (Figure 11).

Two manufacturing sectors that expe-rienced among the largest percentage jobdeclines were precisely those industriesmost affected by the decline in high-techspending. Employment in computers andelectronics fell 24 percent from the fourthquarter of 2000 to the third quarter of2003, and the decline in employment inelectrical equipment was of similar magni-tude—23 percent. Both decreases werelarger than the 18-percent average formanufacturing as a whole.

The second feature of the recessionthat deserves attention was the sharp dropin inventories that accompanied thedownturn. Inventory imbalances are typi-cal for recessionary periods. Demand falls,and excess inventory is left on theshelves. Businesses respond by cuttingback orders, shipments, and productionuntil demand returns.

In the most recent recession, busi-nesses reacted to a modest increase in in-ventory-to-sales ratios during 2000 bycutting back production in 2001 to getsupply under control. The extent of theresulting relatively drastic inventory liq-uidation was much more severe in the2001 recession than it was in the1990–1991 recession.

The third feature of the recessionworth noting is the uncertainty caused bythe events of September 11, 2001, whichdepressed investment and demand. In ad-dition to the direct effects on demand formanufactured goods, the decline in thedemand for services such as tourism hadsubsequent effects on other manufactur-ing sectors such as autos and aircraft.


Table 1. Net Change in Manufacturing Employment, Fourth Quarter

2000 to Third Quarter 2003

Percent Number of Jobs

Total Manufacturing -15.1 -2,599,000Food -1.8 -29,000Beverage and Tobacco -6.7 -14,000Textile Mills -29.5 -109,000Textile Product Mills -15.8 -34,000Apparel -37.4 -178,000Leather and Products -34.1 -22,000Wood Products -9.6 -57,000Paper -12.3 -74,000Printing -14.0 -113,000Petroleum/Coal Products -3.9 -5,000Chemicals -6.3 -62,000Plastics/Rubber -11.9 -112,000Nonmetallic Minerals -9.4 -52,000Primary Metals -22.7 -140,000Fabricated Metals -16.6 -293,000Machinery -19.6 -285,000Computers and Electronics -25.1 -467,000Electrical Equipment -21.3 -125,000Transportation -12.8 -260,000Furniture -15.5 -105,000Miscellaneous -8.6 -63,000

Source: U.S. Department of Labor, Bureau of Labor Statistics.

0

10

20

30

40

50

60

70

80

Perc

ent c

hang

e fro

m y

ear a

go

20032002200120001999199819971996

Percent Change

0

100

200

300

400

500

600

700

800

Index Level

Inde

x le

vel

Figure 10. High-Tech Industrial Production, 1996–2003

Notes: High-tech industries are defined for this analysis as computers, communication equipment,and semiconductors.

Source: Board of Governors of the Federal Reserve System.

A fourth feature of the recession isthe extent to which slower growth athome was compounded by the effects ofslower growth abroad, particularly thedramatic drop in U.S. manufacturing ex-ports to our principal export markets.Stronger growth abroad helps cushion theeffects of recession at home.

Unfortunately, although they haveshown recent signs of growth, both Eu-rope and Japan have grown considerablyslower than the United States since thebeginning of the recovery. Slower growthamong the industrial economies has mag-nified the effect of slower growth inemerging economies in Asia since theonset of the Asian financial crisis in mid-1997. Although several Asian economieshave recovered, the region’s growth, withthe principal exception of China, has yetto approach the levels reached before tothe financial crisis.

Continued slow economic growthabroad produces less demand for U.S.manufactured goods than would other-wise be the case. Figure 12 covers a periodthat includes the last three U.S. recessions:in 1982, 1991, and 2001. The pattern ofthe most recent recession resembles thatof the 1982 recession, which was markedby stagnation among America’s majortrading partners.

What the trend lines reflect is thatthe U.S. economy in general, and themanufacturing sector in particular, re-ceived little support from growth amongmajor U.S. trading partners over the pasttwo years.

However, the U.S. economy as awhole has responded to both monetaryand fiscal stimulus in the past year. Theeconomy grew at an annual rate of 8.2percent in the third quarter of 2003,which translates into stronger demand forall goods and services, including manufac-tures. In addition, there are signs of grow-ing strength in a number of marketsabroad. That stronger growth, combinedwith the continued competitiveness of the


10

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12

13

9

8

15

14

16

17

19

18

20

Billi

ons

of d

olla

rs20032002200120001999199819971996

Figure 11. Worldwide Semiconductor Sales, 1996–2003(Billions of Dollars)

Notes: Data are based on a three-month moving average, wherein each month’s sales figure is anaverage of its total sales and those of the subsequent two months. Data for 2003 are throughOctober.

Source: Semiconductor Industry Association.

-3

-2

-1

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1

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4

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6

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United States

World

2004200220001998199619941992199019881986198419821980

Figure 12. Economic Growth: History and Forecast, 1980–2004(Percent Change)

Sources: World: International Monetary Fund; United States: U.S. Department of Commerce, Bureauof Economic Analysis.

reduction in barriers to trade, particularlywith respect to trade in manufacturedgoods. The third is the end to political di-visions that have segmented markets formore than 70 years and the correspondingemergence of Russia, China, and othercountries in the world trading system.Each of these trends has significant impli-cations for U.S. manufacturing, both inthe form of new market opportunities aswell as stronger competition.

Role of Technology

Global manufacturing has been fun-damentally reshaped by the remarkableimprovements in computing, communica-tions, and distribution. Each factor, stand-ing alone, would have greatly expandedthe opportunities for trade, investment,and global production. Taken in combina-tion, however, the rapid changes in allthree influence many of the trends thathave most reshaped manufacturing fromthe shop floor to the loading dock to thefinal customer. What these factors havealso done is raise the bar to compete intoday’s manufacturing environment.

In 1987, in a review of the book Man-ufacturing Matters, Nobel Prize-winningeconomist Robert Solow famously ob-served, “You can see the computer every-where but in the productivity statistics.”10

In the latter part of the 1990s, however,the evidence of the computer’s effect onproductivity finally surfaced. Comparedwith the relatively slow rates of productiv-ity growth experienced between 1973 and1995, labor productivity grew “roughly1.2 percentage points [faster] a year from1995 through 2000, a rise of more than80 percent” above the previous trendline.11 Investments in information tech-nology are estimated to account for 60percent of that increase in productivity.12

The dramatic expansion of comput-ing power and its application to an evergreater range of tasks in the business en-vironment is without a doubt the singlemost powerful technological change

U.S economy, has improved the prospectsfor exports of U.S. manufactured goods.

The manufacturing sector has re-cently begun to participate in the broaderrecovery under way in the U.S. economy.The Institute of Supply Management’sPurchasing Manager’s Index has remainedabove 50 (indicating continuing growthin future orders for manufactured goods)since August 2003.

Furthermore, rising productivity re-mains a bright light. Since the end of therecession, productivity in manufacturingis up 9.7 percent. Measuring from the pe-riod immediately before the recession,productivity is up 14.2 percent.

Those increases in productivity speakto the ability of American manufacturingto meet the competitive challenges andmake a contribution to the rising stan-dards of living in the economy. What themanufacturing sector can control—to in-vent, to innovate, and to combine re-sources to produce quality merchandise—it does quite well.

Structural Changes Shapingthe Competitive Environment

With renewed growth in the U.S.economy, rising production numbers inthe manufacturing sector, and significantgains in productivity even in the face ofthe recent recession, the manufacturingsector is poised for what could be a strongrecovery. Nevertheless, the cyclical effectsof the recession and the strengthening re-covery are only part of the manufacturingstory. In some respects, the recent reces-sion has obscured the more fundamentalstructural changes under way in the man-ufacturing sector globally.

Over the past two decades, three sepa-rate, powerful trends have reshaped themanufacturing sector globally. The first isthe revolution in technology that has beenunder way for two decades, raising produc-tivity in manufacturing and reducing costsworldwide. The second is the significant


Similarly, new communicationstechnologies allow engineers to conductreal-time product development discus-sions with colleagues around the world.In addition to the videoconferencing ca-pability, communications technologiesuse operating systems that allow anyoneparticipating in the discussion to manip-ulate the same computer-generated de-sign on the screen.

The revolution in communicationshas fundamentally changed the way man-ufacturers do business. Wireless communi-cation means that a cellularphone and a laptop com-puter can replace a salesper-son’s office. Not only doesthe cellular phone allow forgreater contact and consul-tation with customers abouttheir needs, but it also con-tains the necessary functions to place anorder and begin the manufacturingprocess directly from the point of sale.

The communications revolution hasalso significantly changed the delivery offinished goods to customers. For instance,in trucking, the combination of a globalpositioning system transmitter and a cellu-lar phone has meant less waste, greater ef-ficiency, and a lower cost to manufactur-ing customers. New communicationsdevices also ease the distribution of goodsby creating an interface with governmentagencies that may require information forsecurity or regulatory reasons. By reducingthe costs of distribution, new communica-tions technologies have reduced the costof the end products.

The application of technology hasalso transformed the distribution of man-ufactured goods and reduced the costs oftransportation. Obviously, air travel hascontributed much to making the competi-tive marketplace for manufactured goodsa single market. In addition, significantchanges in shipping since World War II,such as the rise of containerization and

affecting manufacturing today. Moore’sLaw—that computing power will doubleevery 18 months—still prevails and islikely to continue for some time to come.One useful way to think about the explo-sion in computing power is the fact thatthe microchip in today’s talking greetingcards contains more computing powerthan existed worldwide in 1945.13

Even skeptics of the contribution ofinformation technology to productivitygains, such as Robert Gordon, generallyhave conceded its impact on manufactur-ing.14 The increase in computing powertouches every part of the manufacturingprocess. It has revolutionized product de-sign by introducing computer-assisted de-sign that allows much of the product de-velopment and testing to be done at a farlower cost in a virtual environment. Com-puting power has revolutionized manufac-turing by creating a whole new family ofmultiple-axis machine tools that offer un-matched precision, quality, and efficiency.

Computers have also made possiblemost of the revolutions in businessprocesses as well. In the absence of thecomputing power available today, con-cepts such as “just-in-time” productionand “demand-pull” manufacturingprocesses could not exist in their currentforms.15 The dramatic increase in com-puting power has created an ever morepowerful tool for developing new prod-ucts, lowering production costs, raisingquality, measuring performance, andmanaging business.

Communications technologies are es-sential to running high-performance man-ufacturing operations. New communica-tions technologies create the ability tomanage just-in-time inventories and de-mand-pull manufacturing. Real-time com-munication is critical to feeding informa-tion back into a system that is designed toyield zero defects. Interoperable commu-nications systems provide opportunitiesfor manufacturers and their customers tocollaborate in product development.


manufacturing has been funda-

mentally reshaped by the remark-

able improvements in computing,

communications, and distribution

The post-World War II investment inR&D paid enormous dividends in theform of new products, new industries, andimproved growth and competitiveness ofU.S. manufacturing. But, increasingly, it isprivate industry that is making the invest-ments driving innovation. By 1980, indus-try had become the lead investor in U.S.R&D activities, investing more than thefederal government for the first time.Today, robust private sector investment inR&D outpaces federal R&D funding by aratio of more than two to one, effectivelyreversing the ratio that prevailed through-out the Cold War and the space race.

The lesson that the post-World War IIrevolution in science and engineering inthe United States flowed from investmentsin R&D was not lost on foreign nations.Today, nations everywhere recognize thelink between technology, economicgrowth, and job creation. They are, as aconsequence, increasingly establishing re-search institutes and key technology pro-grams; creating incentives for partnershipsamong industry, academia, and govern-ment; and boosting training for scientistsand engineers.

That dynamic is reflected in thesharp decline in the U.S. share of totalworld R&D spending. Through the 1960s,the U.S. share of global R&D ranged be-tween 60 and 70 percent. Today, by con-trast, the U.S. share is 30 percent.

Equally important is the proportionof a nation’s output that is reinvested inR&D, as this ratio is an indicator of aneconomy’s commitment to competing onthe basis of new technology in the fu-ture. In this regard, the R&D intensity ofthe U.S. economy has remained essen-tially constant for 40 years, during whichtime the surge in foreign R&D invest-ment has occurred.

The change in R&D funding patternsin technology has led to the broad disper-sion of technology worldwide. The in-crease in foreign direct investment bymany global firms has reinforced that

roll-on/roll-off cargo allow for a smoothtransition from container ship to rail totruck and dramatically increase efficiency.Distribution is also aided by new cargohandling facilities operated by express de-livery services. For example, this enablescomputer manufacturers to operateovernight repair facilities and deliver re-paired computers to their owners in fewerthan 24 hours.

The combination of the trends incomputing, communications, and trans-portation has generated a new service ofdoor-to-door logistics. Logistics has be-come essential to meet the demands of

the market and has been fundamental inlowering the costs of manufacturing to re-main competitive. The competitive envi-ronment has been reshaped by such ad-vances, which grew out of post-World WarII defense research.16 The Office of NavalResearch funded the research of a numberof engineering professors at the nation’spremier research institutions. Those pro-fessors had been instrumental in solving awide range of practical technical problemsattendant to the war effort during WorldWar II and continued to receive ONRfunds after the end of the war in 1945.


eliminated tariffs and many non-tariff bar-riers applicable to the largest three-waytrade in the world.

The value of world trade has grownenormously as a result. Since the creationof the GATT system, worldexports grew from $58 bil-lion in 1948 to $5.98 trillionin 2001. According to datacompiled by the WTO, thevolume of world exports in-creased at a compound an-nual rate of 5.8 percent inthe past 25 years alone, a pace that wasmore than twice as fast as growth in theworld economy as a whole.18

Most of the growth in world tradehas been in manufactured goods. The sec-tor now accounts for approximately three-fourths of all trade in goods and 60 per-cent of all trade, in goods and servicescombined.19 One reason for the predomi-nance of manufacuring trade is that theUnited States and its trading partnershave reduced barriers to trade in manufac-tured goods further and faster than inother sectors. While trade in agriculturalgoods, for example, has grown at a rela-tively strong annual rate of 3 percent overthe last 20 years, exports of manufacturedgoods advanced at nearly twice that rate,averaging 5.7 percent per year.

The growth in trade over the past 50years, fueled by falling trade barriers, hascontributed directly to the most rapid,sustained economic growth in U.S. his-tory. Output in the United States in-creased fivefold and real GDP tripled. U.S.real GDP, expressed in 2000 dollars, grewfrom $11,672 in 1950 to $34,934 in 2002.

Trade continues to contribute signifi-cantly to U.S. economic growth. In thepast decade alone—which included thecreation of NAFTA, the conclusion of theUruguay Round of GATT talks, and thecreation of the WTO—world trade grewby 87 percent.20 Between 1990 and 2000,U.S. exports were up 98 percent and theshare of world trade represented by U.S.

trend. Advanced, state-of-the-art manufac-turing facilities capable of producinghigh-quality, low-cost goods are nowavailable worldwide. American manufac-turers face competition not only frommanufacturers of low-cost commodityproducts, but also from manufacturers ofsophisticated products and the tools tomake them.

Thus, U.S. manufacturers will faceconstant pressure not only to lower prices,but also to increase the value that they addto their products. Competition from low-cost producers creates an incentive tomove up the value chain in the directionof higher-margin goods, where the condi-tions of competition are not based on pricealone. Increasingly, success in manufactur-ing will depend on the ability to integratenew technologies rapidly into both prod-ucts and operations. That ability puts a pre-mium on continuing R&D as the primarymeans of gaining a competitive edge.

Lowering Barriers to Trade

The second trend reshaping the envi-ronment in which U.S. manufacturerscompete is the significant reduction in tar-iff and non-tariff barriers to trade in manu-factured goods globally. Successive roundsof multilateral trade negotiations under theGeneral Agreement on Tariffs and Tradeand its successor, the World Trade Organi-zation, for example, have cut the averagetariff on manufactured goods worldwide by30 percent. For industrialized countries theresults are even more remarkable. Accord-ing to a 1999 study published by the Orga-nization for Economic Cooperation andDevelopment, the average tariff rate forOECD countries, which was 40 percent atthe end of World War II, is now 4 percent.17

The more recent creation of free tradeagreements, such as the North AmericanFree Trade Agreement between the UnitedStates, Canada, and Mexico, has reinforcedthe trend. Over the past 10 years, NAFTA


U.S. manufacturers face

considerably higher compliance

costs than do many of America’s

trading partners

The benefits from import competi-tion are not limited to the final consumer.Access to the highest-quality, lowest-costcomponents is an essential element of theU.S. manufacturing sector’s competitive-ness. Imports stimulate competition andspur American manufacturing to increaseits own quality and productivity. It isworth underscoring that during the pastdecade, while trade was expanding signifi-cantly, the U.S. manufacturing sector wasgrowing faster and in more dynamic waysthan it had in decades.

None of those results are surprisingin economic terms. A more open econ-omy has moved the United States towardthe position of its greatest comparativeadvantage. This openness has broughtabout increasing returns and a more effi-cient use of resources. Both are consistentwith stronger economic performance. In-deed, some of the latest research suggeststhat the broad engagement of the UnitedStates in the world economy—particularlythe adjustment of the U.S. economy to-ward a more competitive state—has actu-ally helped retain employment in themanufacturing sector that would haveotherwise been lost.28

In fact, to the extent that other coun-tries are currently examining the health oftheir own manufacturing sectors, theyhave identified the United States as themodel. In its recent study of manufactur-ing in the United Kingdom, for example,the British government essentially bench-marked the U.S. manufacturing sector asthe best measure of its own progress andpolicies.29 Similarly, the European Unionarticulated a vision of aerospace manufac-turing that expressly contrasted the devel-opment of their aerospace industry withthat of the United States.30 Many develop-ing countries also use the United States asa model.

These developments point to thebasic benefits to the U.S. economy, and toits manufacturing sector in particular,from participating in an increasingly open

exports actually grew from 11.4 to 12.2percent.21 In other words, rather than hav-ing a negative impact on the U.S. econ-omy and manufacturing sector, the mostrecent round of trade agreements appearsto have allowed U.S. exports to grow at afaster pace than world trade overall.

The U.S. economy grew rapidly overthose same years, exceeding the pace ofmost other industrialized nations. From1990 to 2002, the economy expanded ata 3-percent annual rate: the economygrew from $7 trillion in 1990 to $10 tril-lion in 2002.22 During that time, thegrowth in U.S. exports accounted for one-sixth of all growth in the U.S. economy.23

In sectors such as machinery, computersand electronics, and transportation equip-ment, exports now make up between 50and 60 percent of all sales.24 In one-thirdof U.S. manufacturing industries, exportsaccount for one in every five manufactur-ing sales. According to the most recentfigures available, exports now supportmore than 12 million jobs, and thosejobs pay between 13 and 18 percenthigher than the average U.S. wage.25

The benefits of trade, of course, flowfrom imports as well as exports. Reduc-tions in tariffs on imports into the United

States represent acut in regressivetaxes. This cut of-fers significantlyhigher benefits tolow-incomehouseholds thanto those withhigher incomes.By some esti-mates, NAFTAand the Uruguay

Round agreements raised the average an-nual income of an American family of fourby $1,300 to $2,000.26 A further reductionin global barriers by just one-third wouldincrease that family’s annual average in-come by an additional $2,500 a year.27


The United States has led the way inreducing trade barriers worldwide andhas, in past negotiations, proved willingto cut its tariffs and limit other forms ofits own intervention in the market to agreater extent than a number of Amer-ica’s trading partners. While noting thatthere are significant excep-tions, including in the manu-facturing sector, the averageU.S. tariffs on a trade-weightedbasis are now less than 1.7 per-cent.31 While many major in-dustrial trading partners have also re-duced their tariffs to comparable rates, inother parts of the world U.S. exportersstill face heavy tariffs. In addition, theUnited States is far less likely to subsidizeits manufacturers directly than is the casein many other countries.

Wholly apart from the basic regula-tion of trade or the imposition of specificprotective barriers lies the question ofcosts imposed by government. U.S. manu-facturers face considerably higher compli-ance costs in labor, environmental, andother regulatory areas than do many ofAmerica’s trading partners, particularly inthe developing world.32 But there is littledoubt that the disparities in certainhighly visible areas drive the perception ofunfairness that permeates many of theconcerns of U.S. manufacturers about thecurrent trade rules.

In today’s global economy, a policyof protection simply does not work. Agood example is the tool and die industry.While the U.S. tool and die industry hassought protection from import competi-tion, particularly from China, the indus-try was also among the most vociferousopponents of President Bush’s impositionof tariffs on imports of steel into theUnited States in 2002. What the tool anddie industry’s position reflects is that pro-tection invariably involves costs and caninjure other U.S. industries, includingmany manufacturers. Instead, what U.S.manufacturers seek is simply to ensure

trading system governed by a common setof rules. They also point to the benefitsthat can be derived, both for U.S. manu-facturers and for the country, from thecurrent effort to open markets throughtrade negotiations. Furthermore, vigorousenforcement of agreements is needed toensure that U.S. manufacturers, togetherwith the nation’s farmers and serviceproviders, receive the benefit of the bar-gains negotiated.

Given the concerns expressedthroughout the U.S. manufacturing sectorabout the current trade rules, it is worthreiterating the extent to which the rulesadopted in recent trade agreements haveserved, rather than undercut, U.S. eco-nomic interests, including those of U.S.manufacturers. Reducing tariff barriers, im-proving investment rules, and developingstronger intellectual property protections,for example, mainly benefit the smallmanufacturers that were previously lockedout of foreign markets. While larger firmscan afford to invest behind the “tariffwall” and have the resources, in manycases, to develop strategies for protectingtheir intellectual property, smaller manu-facturers have generally had only two op-tions: either export directly or sell tosomeone who exports.

In the aggregate, macroeconomicforces—rates of growth and relativeprices—have the primary effect on ourtrade balance and help explain the tradedeficit. These forces, combined with inno-vation and productivity, underpin ourtrade position over the long term.

On the other hand, from the perspec-tive of individual firms, other factors canbe seen as important in global marketsand America’s trade position. Continuedtrade deficits, combined with the very vis-ible efforts by some countries to confer acompetitive advantage on their firms, leadsome U.S. manufacturers to question thefairness of our trade agreements and thebasic tenets of U.S. trade policy.


the United States has led the

way in reducing trade barriers

worldwide

onset of World War I. Even with the rapidchanges in technology and the reductionof tariff and non-tariff barriers to trade,the global economy would not be possibleif those divisions still existed.

The numbers bear this theme out.While the so-called Asian tigers’ share ofworld trade grew rapidly over the past 20years, the biggest gains in share of worldtrade in manufactures were captured byChina. China’s manufactured exports in-creased from only 0.8 percent of worldshipments in 1980 to 5.3 percent in 2001.With the onset of economic reforms in1979 and a heavier reliance on marketforces, China has rapidly expanded itstrade in manufactured goods. China nowranks fourth among exporters of manufac-tures worldwide.

It is worth underscoring that virtuallyall of the market share gains of China andother Asian nations have come at the ex-pense of Japan and Europe, while the U.S.share of world exports of manufacturedgoods actually increased marginally be-tween 1980 and 2001, from 13 percent to13.5 percent.33 That increase, in turn, isdue to the ability of U.S. manufacturers toraise their productivity significantly overthe same period. At the same time, how-ever, U.S. manufacturers in a variety ofsectors were seeing their share of the U.S.market eroded.

There is another side to the politicaland economic revolution that has takenplace over the past two decades; any formof economic restraint has the effect of cre-ating imbalances between demand andsupply. Consequently, when those re-straints are removed, capacity often ex-ceeds demand, and the markets must ad-just to bring supply and demand backinto equilibrium.

The end of the Cold War and China’sreentry into the world economy had asimilar effect. A recent study of trends inmanufacturing employment illustratesthis. The study showed that manufactur-

that the rules that apply to U.S. manufac-turers apply to their competitors as well,especially in the case of competition withcompanies that benefit from heavy stateintervention.

Overall, the U.S. economy has bene-fited from import competition, which hashelped maintain the competitiveness ofmany manufacturing enterprises and hasdampened inflation considerably. At thesame time, however, stronger import com-petition has put extraordinary pressure onmanufacturing industries, including steel,furniture, tool and die, foundry products,textiles and apparel, and automotiveparts, while touching advanced technol-ogy sectors as well.

Increasingly, competi-tion in manufactured goodshas been driven by the evo-lution of low-cost competi-tors in emerging Asian mar-kets. In 1980, the UnitedStates, together with the Eu-ropean Community and

Japan, dominated trade in manufactures,accounting for nearly 75 percent of thevalue of world manufactures exports ac-cording to WTO statistics. By 2001, how-ever, that share had fallen by almost 15percentage points, to 60 percent.

Emergence of New Competitors

The third powerful trend affectingthe manufacturing sector globally is bothpolitical and economic. It involves theincreasing reliance of other countries,notably China and the nations of theformer Soviet Union, on market mecha-nisms, rather than government planning,as the principal means of structuringtheir economies.

Though not often thought of in tradeterms, the economic consequences of theend of the Cold War may have had themost profound effect of all. The end ofthe Cold War marked the end of politicaland economic divisions that had split theworld in one way or another since the


what U.S. manufacturers seek is

simply to ensure that the rules

that apply to U.S. manufacturers

apply to their competitors as well

focusing on what traditionally definedmanufacturing—that is, the process ofturning raw materials into components orfinished products—manufacturers todaythink of manufacturing as a system de-signed to perform the activities requiredto deliver the end-product to the cus-tomer and meet the customer’s needs,from design to finance to production tosales and marketing to after-sales service.

Thought of in that way, the structureof manufacturing no longer implies thatall of those processes need take place in asingle enterprise. Manufacturers increas-ingly see themselves as system integrators,managing a supply chain or “virtual net-work” that may consist of any combina-tion of the activities mentioned above,whether or not provided by the “manu-facturer” itself.

Adapting to this changing competi-tive environment has forced U.S. manu-facturers to adopt new production, mar-keting, and management methods, from“lean manufacturing” techniques, to qual-ity assurance programs thatguarantee zero defects, to in-ternational product stan-dards so their goods can beincorporated in other firms’global supply chains. It alsomeans an increasing de-mand to reach out to cus-tomers worldwide in orderto show how a manufacturercan add value to the cus-tomer’s product and its supply chain.

The automotive sector provides acase in point. Whereas U.S. automobilemanufacturers once provided a ready mar-ket for many domestic suppliers of partsand components, the manufacturers nowoperate on a global basis. Thus, automo-tive parts suppliers must now find nichesin the global supply chains of U.S. autocompanies or their foreign competitors tosucceed in today’s market. That brings

ing employment has fallen not only inthe United States, but also around theworld.34 In fact, China’s manufacturingemployment has actually fallen fasterthan that of the United States in percent-age terms in recent years.35

This decline in employment largelyreflects the gradual privatization ofChina’s many state-owned enterprises andthe subsequent reduction in employmentas they adjust to competing in world mar-kets. However, it also underscores the ef-fect of rising global productivity and theextent of the excess capacity in manufac-turing that continues to put downwardpressure on the price of manufacturedgoods worldwide.

Shift toward Global Outsourcing

The practical effect on U.S. manufac-turers of the three trends described abovehas been to increase the availability ofnew sources of low-cost labor and manu-facturing capacity. Indeed, the trendshave not only made it available, theyhave also made it an important competi-tive issue. In a global economy in whichboth goods and capital are mobile, butlabor is not, manufacturers’ tapping oflower-cost labor by importing it in theform of lower-cost parts, components,and—increasingly—finished goods issimply a function of trying to stay com-petitive in a global economy.

Hence, the trend toward sourcingparts and components globally is drivenby powerful competitive forces and is hereto stay. Manufacturers now have the abil-ity to manage global supply chains effec-tively, which allows them to source fromthe lowest cost supplier globally and, as acompetitive matter, forces them to do soin order to remain competitive themselves.

In an increasingly global market formanufactured goods, competition willlargely take place among supply chains,rather than between individual manufac-turers. That implies an entirely differentconcept of manufacturing. Rather than


competing in a global market-

place puts a premium on gov-

ernment getting the economic

fundamentals right to create an

environment in which U.S.

manufacturing can flourish

goods were shipped from one manufacturing proces-

sor to another, or inputs from other sectors-agricul-

tural products into food manufacturing, crude petro-

leum into petroleum refining, and iron ore into steel

manufacturing, as well as contributions from the

transportation, financial, and business services sectors.2 Productivity is defined as the amount of goods

and services produced, adjusted for inflation, per hour

of work.3 See, for example,William J. Baumol, The Free-

Market Innovation Machine—Analyzing the Growth Mira-

cle of Capitalism (Princeton, N.J.: Princeton University

Press, 2002); see also Michael E. Porter, “Building the

Microeconomic Foundations of Prosperity: Findings

from the Microeconomic Competitiveness Index” in

The Global Competitiveness Report (Geneva: World Eco-

nomic Forum, 2003).4 Michael E. Porter, The Competitive Advantage of

Nations, 1st ed. (New York: The Free Press, 1990).5 Gregory C. Tassey, R&D and Long-Term Competi-

tiveness: Manufacturing’s Central Role in a Knowledge-

Based Economy, Planning Report 02-2 (Gaithersburg,

Md.: National Institute of Standards and Technology,

February 2002).6 R. McGuckin and B. van Ark, Productivity, Em-

ployment, and Income in the World’s Economies (New

York: The Conference Board, 2002).7 Thomas J. Duesterberg and Ernest H. Preeg, eds.,

U.S. Manufacturing: The Engine for Growth in a Global

Economy (Westport, Conn.: Praeger, 2003).8 Baumol, Free-Market Innovation Machine. Baumol

makes that point a central theme in his recent work

on the determinants of economic growth. He finds

that “the social benefits contributed by the initial in-

novations are typically smaller than those provided by

the accumulation of subsequent incremental improve-

ments.” Baumol points to the rapid improvement in

performance and reduction in the cost of computers,

which is largely attributable to the incremental im-

provements in production technology, rather than a

quantum leap in the form of an entirely new way of

computing.9 U.S. Department of Labor, Bureau of Labor Sta-

tistics, “Employment Cost for Employee Compensa-

tion” (Nov. 25, 2003).10 Robert Solow, review of Stephen Cohen and

John Zysman, Manufacturing Matters: The Myth of the

Post-industrial Economy in The New York Times Book Re-

view (July 12, 1987).11 Roger E. Alcaly, The New Economy (New York:

Farrar, Straus, and Giroux, 2003).12 Ibid.

U.S. auto parts suppliers into head-to-head competition with parts suppliersworldwide. The possibility of relying onincreased auto sales in the United Statesthat automatically translate into increasedorders for parts and components for U.S.suppliers simply no longer exists. Compe-tition now takes place on a global basis,and that fact will continue to shape theprospects for the manufacturing sector inthe future.

The Government’s Role:Getting the FundamentalsRight

The changing nature of competitionrequires, correspondingly, a different wayof looking at government policy. Thismeans fostering an economic environ-ment, both domestically and internation-ally, that encourages growth, rewardssound investment, controls costs, and fos-ters innovation and rising productivity. Italso means an aggressive internationaleconomic policy that ensures a level play-ing field by reducing barriers to trade andinvestment and vigorously enforcing thetrade rules when violated.

Competing in a global marketplaceputs a premium on government gettingthe economic fundamentals right to createan environment in which U.S. manufac-turing can flourish. It means examiningwhether the U.S. government’s actionsand the structure of the U.S. market im-prove or hinder the ability of Americanfirms, in manufacturing and throughoutthe economy, to compete in an increas-ingly global marketplace.

Notes:1 Bureau of Economic Analysis, U.S. Department

of Commerce (2002). Calculations based on total re-

quirements matrix from the BEA Web site,

www.bea.doc.gov. Considered on an aggregate basis,

total manufacturing shipments in the most recent 12-

month period were $4 trillion, but only roughly 40

percent of this was value added in the manufacturing

sector. The rest was either duplicate shipments as


31 U.S. International Trade Commission calcula-

tions for all goods in 2002, including preferences. Ex-

amples of exceptions in the manufacturing sector in-

clude tariffs over 50 percent for certain footwear and

over 30 percent for certain apparel.32 Jeremy A. Leonard, “How Structural Costs Im-

posed on U.S. Manufacturers Harm Workers and

Threaten Competitiveness,” NAM/MAPI study, Decem-

ber 2003.33 World Trade Organization, International Trade

Statistics, 2002.34 Joseph G. Carson in Alliance Capital’s U.S.

Weekly Economic Update (October 2003).35 Ibid. China’s manufacturing employment de-

clined by 15 percent from 1995 to 2002, while U.S.

manufacturing employment declined 11 percent over

the same period.

13 Diane Coyle, The Weightless World (Cambridge,

Mass.: MIT Press, 1998).14 Robert Gordon, “Technology and Economic Per-

formance in the American Economy,” National Bureau

of Economic Research Working Paper, no. 8771 (Feb-

ruary 2002).15 Economic Report of the President (January 2001).16 Ibid.17 Organization for Economic Cooperation and

Development, Post-Uruguay Round Tariff Regimes:

Achievements and Outlook (Paris: OECD, 1999).18 World Trade Organization, International Trade

Statistics (Geneva: World Trade Organization, various

editions).19 World Trade Organization, International Trade

Statistics 2002 (Geneva: World Trade Organization,

2002).20 International Monetary Fund, Direction of Trade

Statistics (Washington, D.C.: International Monetary

Fund, 1981–2002), data from various editions.21 Ibid.22 U.S. Department of Commerce, Bureau of Eco-

nomic Analysis.23 Ibid.24 Bureau of the Census, Annual Survey of Manu-

factures and foreign trade data in the FT 900 releases

for 2001and 2002.25 U.S. Department of Commerce, Economics and

Statistics Administration, “U.S. Jobs Supported by

Goods and Services Exports, 1983–94,” staff research

report, November 1996.26 Drusilla K. Brown, Alan V. Deardorff, and Robert

M. Stern, “Computational Analysis of Multilateral

Trade Liberalization in the Uruguay Round and Doha

Development Round,” Discussion Paper no. 489 (Ann

Arbor, Mich.: Research Seminar in International Eco-

nomics, 2002).27 Idem, “Multilateral, Regional, and Bilateral

Trade-Policy Options for the United States and Japan,”

Discussion Paper no. 490 (Ann Arbor, Mich.: Research

in International Economics, 2002).28 Lori G. Kletzer, “Imports, Exports, and Jobs:

What Does Trade Mean for Employment and Job

Loss?” unpublished paper for the W.E. Upjohn Insti-

tute for Employment Research, December 2002.29 United Kingdom, Department of Trade and In-

dustry, Manufacturing—a Sector Study; the Performance of

Manufacturing Companies within Benchmark Index

(Staffordshire, England: Benchmark Index, 2002).30 European Commission, Star21: Strategic Aero-

space Review for the 21st Century (Brussels: European

Commission Enterprise Publications, 2002).


T 1. Manufacturers perceived a lack offocus within government on manufactur-ing and its competitiveness. Manufactur-ers are looking for a commitment to un-derstanding the challenges that the sectorfaces in competing in a rapidly globaliz-ing economy. They want government totake the steps needed to foster the manu-facturing sector’s ability to adjust to thatnew competitive reality.

2. Manufacturers want the govern-ment to focus on encouraging strongereconomic growth both at home andabroad. There is a broad understandingthat the recent recession was led by asharp drop in business investment andthat both monetary policy and fiscal pol-icy have worked to set the economy onthe route to recovery. But there are stillsteps that manufacturers feel are necessaryto encourage business investment, and toreinforce the recovery under way in theeconomy as a whole and in the manufac-turing sector in particular.

3. Manufacturers see the need forgovernment to match the effort that theyhave made in controlling manufacturingcosts. As manufacturers have focused onreducing costs to improve productivityand ensure their competitiveness, theyoften find their efforts eroded by coststhey cannot control—costs that result in

This chapter highlights the challenges fac-ing the U.S. manufacturing sector, as ex-pressed by manufacturers themselvesthrough the Department of Commerceroundtables. It also seeks to capture thepriority issues that manufacturers believeneed to be addressed in a comprehensivestrategy to ensure the competitiveness ofU.S. manufacturing. The views reflect acommon understanding of the trends out-lined in Chapter 1 that likely will shapethe competitive environment for manu-facturing. Manufacturers also recognizedthe basic strengths of the U.S. manufac-turing sector as it meets the challenge ofcompeting in a global economy.

If there was one underlying themethat emerged in the roundtables, it wasthe understanding that fundamental ad-justments are under way throughout theglobal manufacturing sector. Manufactur-ers asked for an increasing focus by gov-ernment on these adjustments andwanted to ensure that government wastaking the steps necessary to create aneconomic environment in which U.S.manufacturers could succeed.

Toward that end, manufacturers at-tending the Commerce Department’sroundtables outlined six areas that requireimmediate attention:


Two

Identifying theChallenges FacingAmericanManufacturing

fair. Many manufacturers expressedconcerns regarding China. What manufac-turers seek is not protection from compe-tition, but the ability to compete on equalterms. Toward that end, they stronglysupport leveling the playing field interna-tionally by lowering barriers to trade andeliminating efforts by foreign govern-ments to confer unfair competitive advan-tages for their manufacturers.

The following discussion exploreseach of those themes.

Focusing on Manufacturingand Its Competitiveness

At every roundtable, U.S. manufactur-ers made the point that, although themanufacturing sector represents a corner-stone of the U.S. economy, manufacturingreceives scant attention from the public orgovernment. To many manufacturersacross the country, it appears that the pub-lic and government have lost sight of asimple truth: you cannot have good jobs ifyou do not have strong businesses.

That thought was articulated by Phyl-lis Eisen of the National Association ofManufacturers at a roundtable held inWashington, D.C. She summed up herconversations with “teachers, educators atall levels, with kids from seventh gradethrough university, with their parents,with politicians, and with our own manu-facturers,” with this statement:

The information we got is not good aboutmanufacturing. It is invisible to most people.They don’t equate the table and the spoonthey use and the glass they use . . . with thisextraordinary industrial strength that we’vehad for so many years and that we have tomaintain.

Some roundtable participants wentfurther, describing what they saw as a per-vasive bias against manufacturing, basedon an old assembly-line image, causingthe best and the brightest to pursue ca-reers outside the manufacturing sector. Atthe roundtable in New Britain, Conn.,

part from government policy. Manufactur-ers seek a commitment on the part of gov-ernment to reduce those costs and, in theprocess, create an economic environmentthat is attractive to investment in manu-facturing within the United States.

4. Manufacturers emphasized that en-hancing America’s technological leader-ship was critical to their future. There iswidespread recognition that the UnitedStates remains the world’s leader for in-vestment in research and development,and that U.S. investments in technologyhave paid significant dividends in currentmanufacturing competitiveness. It is alsounderstood by U.S. manufacturers thattechnology is now more widely diffusedthroughout the world economy and thatthis trend risks eroding what has becomethe principal competitive advantage ofthe United States. What manufacturersseek is a commitment to encourage re-search and development and to ensurethat the government reinforces, ratherthan creates obstacles to, the process ofbringing innovations to the marketplace.

5. Manufacturers regarded educationas crucial. Manufacturers are extremely in-terested in addressing the shortcomings ofthe U.S. educational system. Roundtableparticipants underscored that the evolvingnature of the manufacturing sector relieson individuals entering the workforce withgreater problem-solving abilities. Theseworkers must continually sharpen theirskills through lifelong learning. In addi-tion, roundtable participants expressedconcern that the United States risks losingan innovation infrastructure if the nationfails to produce scientists and engineers.Manufacturers seek a renewed emphasisfrom all levels of government to invest ineducational and training institutions.

6. Manufacturers also focused on theneed for international trade and monetarypolicies that ensure that global competi-tion in manufacturing is free, open, and


efforts. While it is widely understood thatthe Commerce Department serves as theprincipal advocate for manufacturing’s in-terests, there is no office in the CommerceDepartment that is solely responsible forlooking out for the competitiveness of U.S.manufacturing.

Many roundtable participants thusrequested the establishment of a manufac-turing-related position within the Com-merce Department at the assistant secre-tary level or higher to focuson manufacturing competi-tiveness and the health ofthe manufacturing sector ingeneral. Manufacturers alsourged stronger coordinationboth within the federal gov-ernment and with state andlocal governments to fosterinvestment in manufacturing, as well asrequesting a regular dialogue betweengovernment and the manufacturing sectoron its competitive challenges.

The administration has thereforeproposed creating an assistant secretaryfor manufacturing and services whowould develop and implement a compre-hensive strategy on manufacturing. Whilemaintaining a focus on manufacturing,strategic planning must include the serv-ice sector, which both influences andbenefits from the manufacturing sector’scompetitiveness.

This new position would provide thefocus within the Commerce Departmentneeded to respond to manufacturers’ con-cerns. The assistant secretary’s officewould be able to provide regulatory eco-nomic analysis essential to assessing thecosts and benefits of government actionon manufacturing competitiveness. Thisoffice would be charged with establishinga mechanism for coordinating manufac-turing-related initiatives among the vari-ous executive branch agencies and would

Bruce Thompson of Projects Incorporatednoted that manufacturing had evolved inways most people did not know or appre-ciate. He emphasized that “people need toget out and see that it’s not a dirty, oily,old mess anymore. It’s technicians run-ning high-precision equipment.”

The roundtable participants attrib-uted some of the public’s misperceptionabout manufacturing to the lack of focusin government on manufacturing. Theypointed out that there was no single advo-cate for manufacturing within the execu-tive branch departments. “I think theUnited States is the only country in theG8 which doesn’t have a very-high leveldepartment of manufacturing,” said BobBrunner of Illinois Tool Works at theRockford, Ill., roundtable. “I think that[establishing such a department] would bea real positive development in terms ofsupporting us manufacturers.”

Manufacturers expressed frustrationthat there was no focal point for themany programs that government supportsat the federal, state, and local levels to as-sist manufacturers. Bruce Thompsonpointed out that there was no “seamlessinterface.” What was needed, in his view,was “a one-stop shopping mentality,” sothat manufacturers do not have to call ona lot of different organizations to get theinformation and assistance that theyneed. As Von Hatley of the Louisiana De-partment of Economic Development putit at a roundtable in New Orleans, “We re-ally need a concerted effort between fed-eral and state [governments] to do what ittakes to save manufacturing.” To ensureaccountability, manufacturers sought theestablishment of a single office withingovernment with responsibility for imple-menting the Manufacturing Initiative.

Historically there has been little insti-tutional focus on manufacturing in thefederal government. Although variousagencies take into account elements ofmanufacturing competitiveness, in practicethere is no mechanism to coordinate these


manufacturers sought the

establishment of a single office

within government with

responsibility for implementing

the Manufacturing Initiative

Relief Reconciliation Act was a “signifi-cant achievement,” and the resulting re-covery in the U.S. economy would “cre-ate sufficient or significant demand forinvestment in the industry” to put themanufacturing sector on the right path.

Despite the reductions in capitalgains and dividend taxes, as well as ex-pensing provisions, many manufacturersbelieved that the recent tax cuts did notgo far enough. They underscored the needto create greater certainty under the taxcode to encourage business investment.They also emphasized their desire for gov-ernment to address longer-term issues:specifically, manufacturers highlighted theneed to reform the tax code to eliminatethe penalties they believe it imposes ontheir businesses, such as outmoded depre-ciation schedules and the overall impactof the alternative minimum tax.

They also sought simplification ofthe tax code, which in its present com-plexity raises the costs of compliance—particularly for smaller manufacturers.Manufacturers further focused on reformsin the tax code that they believe wouldyield a broader and deeper pool of invest-ment capital to the benefit of U.S. manu-facturers, particularly for small andmedium-sized businesses. Murry Gerber,former chair of NAM’s Small and MediumManufacturers Group, explained the needat the New Britain, Conn., roundtable:

They [small and medium-sized manufactur-ers] haven’t kept up to date with new equip-ment, and you can’t blame them. They havehad falling sales, their margins are deci-mated, they don’t have the wherewithal. . . .An offer of investment tax credits . . . woulddrive companies to put on this additionalequipment that’s consistent with the high-tech manufacturing in the future.

There is little doubt that reducingcomplexity and making the recent tax

enhance the Commerce Department’sability to ensure that focus on a govern-ment-wide basis.

The Need for StrongerEconomic Growth at Homeand Abroad

Manufacturers attending the roundta-bles indicated that the single most impor-tant economic policy objective from theirperspective was encouraging economicgrowth. Stewart Dahlberg of J.D. Street &Co. described the reality of the global mar-ketplace at the St. Louis, Mo., roundtable:

The world is a very big place. There are lotsof customers out there and lots of niche cus-tomers to find. What we would . . . simplyask [is] that every possible opportunity toopen up every single possible market be inves-tigated and called out anywhere you can.

Although many of the specific con-cerns raised by manufacturers focused on

the effect of indirect costs onthe supply side of the eco-nomic equation, no one dis-agreed with the notion thatthe first and most pressingissue was sufficient demand,domestically and globally, tostimulate purchases by con-sumers and businesses of the

goods that U.S. manufacturers produce.Manufacturers recognized that the

most recent recession was one driven by asharp decline in business investment,rather than a drop in consumer spending.They also understood that policies de-signed to encourage business investmentwere essential to any recovery in manu-facturing. Most manufacturers indicatedthat recent efforts to stimulate the econ-omy were paying off, even though theyhad not fully filtered through to themanufacturing sector. As Mustafa Mo-hatarem of General Motors put it at theroundtable in Washington, D.C., the re-cent passage of the Jobs and Growth Tax


American manufacturers, both

large and small, understand the

value of promoting economic

growth worldwide and reducing

the barriers to global trade

monetary stability, reducing taxes, and re-ducing the costs and inflexibility of heavyregulations that impose limits on growth.Every country, including the United States,has room for improvement in terms of thesteps it could take to foster growth and arising standard of living.

Another aspect of growth involvestrade liberalization. From the perspectiveof U.S. manufacturing, reducing trade bar-riers and opening markets abroad hasmanifold advantages. Liberalization pro-motes economic growth in foreign mar-kets, which raises the demand for manu-factured goods worldwide. It offers theprospect of higher exports, and the result-ing greater efficiencies for American man-ufacturers and exporters. It also eliminatesthe implicit subsidy that tariff protectionextends to foreign competitors.

Significantly, U.S. manufacturers con-tinue to stand behind the effort to openmarkets abroad at the negotiating table.That is true of virtually every industry andbusiness large and small. Matthew Coffey,of the National Tooling and MachiningAssociation, which represents many smalland medium-sized metalworking firmsacross the United States, put it this way inan NTMA policy paper:

The NTMA believes in the free-enterprise sys-tem . . . whether it is in the United States, theAmericas, or the world as a whole. That leadsus to the conclusion that competition shouldbe open. The NTMA is in favor of open mar-kets and getting rid of trade barriers and tar-iffs and has, therefore, generally supportedfree trade initiatives as long as there was aprospect of fairness over time.1

In short, American manufacturers,both large and small, understand thevalue of promoting economic growthworldwide and reducing the barriers toglobal trade. They are more than willingto compete in that environment as longas the competition is open and fair, andas long as the same rules governing com-petition apply equally to all.

cuts permanent would encourage busi-ness investment. Greater certainty as tothe tax treatment of earnings is one ofthe basic components in any firm’s in-vestment plans.

The other salient point reflected inthe comments of manufacturers was aclear understanding of the implicationsof slower growth abroad. Roundtable par-ticipants focused on the need to use bothinternational monetary and trade policyto promote growth internationally. Theycited issues such as exchange rates, basedon their understanding of the economicsaffecting the value of the dollar. Theymade the point that, in addition to doingeverything possible to restore growth athome, the United States needs to press itsmajor trading partners for strongergrowth abroad.

Encouraging international economicgrowth requires consistent advocacy ofgrowth-oriented economic policiesabroad. Not only must the United Statespromote growth through its own eco-nomic policies, but it also must be willingto “preach what it practices.”

In practical terms for policy-makers,promoting economic growth abroadmeans action on two fronts. The first isfocusing discussions with U.S. tradingpartners, whether bilaterally or multilater-ally, on policies that will foster growth.That means continuing to advocategrowth in G7 finance ministers’ meetings,the G8 summit, and the annual meetingsof the International Monetary Fund andthe World Bank, since growth is not anissue for the larger, industrial economiesalone. But it also means, most particu-larly, encouraging the largest economiesin the world to pursue policies that stimu-late their growth, since they make up asignificant share of the world economy.

Growth-oriented economic policiesstart with the basics, such as promoting re-spect for private property and observanceof the rule of law, which are essential to allmarket transactions. It means ensuring


Keith Guggenberger of Starkey Labssummed up the perspective of many U.S.manufacturers, at the roundtable in Min-neapolis, Minn.:

Healthcare is a big part of the concerns ofpolicy that we have in keeping us competi-tive. . . . At Starkey, we spend almost $8,000per employee on healthcare in the U.S., andwhen half of our people make under$28,000 a year, it is hard to make thosesorts of ends meet.

The problem is becoming particularlyacute in the automotive industry, which iscentral to the health of so many othermanufacturers, particularly in the Mid-west. At a Washington, D.C., roundtable,Mustafa Mohatarem of General Motorsunderscored that point:

American companies also face two other chal-lenges that are related to their legacy costs.The first is pensions, which over time is mostlikely to be equalized. That’s something wehave negotiated and we’re trying to addresswithin that context. The one we don’t have asgood of control on is the medical side of it. Asyou know, the cost of medical care has beenrising much more rapidly than other costs inour economy. So the traditional Americancompanies that have large healthcare obliga-tions to retirees are being really harmed bythis rapid increase in healthcare costs.

This statement is not merely anec-dotal: there is no doubt that healthcarecosts have risen sharply. A 2002 report byPricewaterhouseCoopers noted that in2000, the share of U.S. GDP devoted tohealthcare was 13.2 percent, up from 8.8percent in 1980, and, according to fore-casts, that share will continue to rise andreach 16 percent of GDP during the nextfive years.2

The rising cost of healthcare is thebiggest barrier to health coverage. The an-nual family health insurance premium in-creased to $9,068 in spring 2003, accord-ing to a survey of 2,808 companies by theKaiser Family Foundation and the HealthResearch and Educational Trust.3 Further,

Reducing the Costs ThatErode Competitiveness

One of the most consistent themesexpressed by manufacturers attending theroundtables was the need to “keep ourside of the street clean.” For manufactur-ers mean that government, at all levels,must understand that it does not have theluxury of making domestic economic pol-icy choices in a vacuum. Every regulation,every additional form to be filed, every in-crease in litigation, and every increase inhealthcare costs can impose unwarrantedcosts on American manufacturing.

Manufacturers expressed concernthat, too often, fundamental decisionsabout taxation, government spending, en-vironmental regulation, workplace re-forms, energy policy, personal injury com-pensation, and trade policy are made inisolation. They stated that legislatures, ad-ministrative agencies, and courts make de-cisions without understanding the multi-ple burdens that those decisions imposeon manufacturers.

Rising Healthcare CostsCurt Magleby of the Ford Motor

Company underscored this most fre-quently cited concern at a roundtable inWashington, D.C.: “Where we really needhelp for U.S. manufacturing is some sta-bility in healthcare.” Most manufacturersindicated that they want to continue toprovide healthcare benefits, because suchbenefits made for a motivated and moreproductive workforce that contributed tothe success of their firms.

Rapidly increasing healthcare costsdirectly affect the bottom lines of U.S.manufacturers and steadily erode theircompetitiveness. John Vaught of Tri-Castnoted at the Columbus, Ohio, roundtablethat, while the cost of the healthcare heprovides to his employees had been “sky-rocketing,” he was only able to raiseprices less than 1 percent a year.


become less competitive. However, costcontainment may not be an avenue opento small manufacturers, which face specialproblems in obtaining health insurance.They commonly must pay higher premi-ums and, thus, are less likely to offerhealth insurance as a benefit.

Employers, both large and small,have responded to these rising costs in avariety of ways. Firms are less likely tooffer retiree health coverage; the percent-age of large firms offering retiree health

benefits has decreased from 66 percent in1988 to 38 percent today.9 And manyfirms increasingly rely on cost sharing as away to increase awareness of cost andvalue in healthcare. Tiered reimburse-ments, often used for drug benefits, havebecome a common approach to encourag-ing the use of generic and lower-pricedmedications. Some companies have begunoffering consumer-driven health plans,which combine high-deductible insurancewith health spending accounts.

What these facts suggest regardingpolicy is that there is economic and com-petitive value for reducing the growth inhealthcare costs that U.S. manufacturingcompanies face, particularly for the smalland medium-sized manufacturers that arethe foundation of the U.S. manufacturing

between spring 2002 and spring 2003,monthly premiums for employer-spon-sored health insurance rose 13.9 percent—the third consecutive year of double-digitpremium increases and the highest pre-mium increase since 1990. Small firms,with three to nine workers, faced thelargest increase of all: a 16.6-percent surgein premiums.4

Rising healthcare costs are notunique to the United States. While overallspending on healthcare is higher in theUnited States, the growth rate of spendingis similar to that of other nations. The av-erage real annual rise in healthcare spend-ing in this country was 3.2 percent from1990 through 2000, which is comparableto the 3.3-percent rate in OECD countries,and the 3.1-percent growth rate amongcountries in the European Union.5

However, what is unique to theUnited States is the extent to which it re-lies on businesses as the primary providersof healthcare coverage and the burdensthey bear as a consequence.6 Employer-sponsored health insurance is a corner-stone of healthcare financing in theUnited States. Three out of every fiveAmericans receive some type of employer-sponsored health benefits.7

According to the National Associa-tion of Manufacturers, 97 percent of itsmembers continue to voluntarily supportemployer-provided healthcare in spite ofthe growing cost of these benefits and thesluggish economy for manufacturing.8 Thepercentage of employers providing cover-age has not declined substantially, and inspite of rising costs, employers have notincreased the percentage of the premiumpaid by the employee.

To avoid shifting more of the costs tothe actual consumers of healthcare serv-ices, employers, particularly those in smalland medium-sized manufacturing firms,have to find ways to contain costs or they


Commerce SecretaryDonald Evans, LaborSecretary Elaine Chao,and Treasury SecretaryJohn Snow discussU.S. manufacturingwith factory workersat Harley Davidsonheadquarters in Mil-waukee, Wisconsin.

Addressing the underlying causes ofrising healthcare costs would, of course,complement the effort to improve costcontainment. In that regard, tort reform,discussed below, is vital. Current malprac-tice litigation often fails to compensatepeople who should be compensated andrewards those who do not experience mal-practice. In the process, it also dramati-cally raises the costs of all doctors andhealthcare providers, regardless of theirrecords, by increasing liability insurancepremiums. Equally important, it raises thecost to the consumer and to the employerin manufacturing by encouraging costlyand wasteful “defensive” medicine.

Need for Tort ReformPerhaps no single issue drew more

heated comments from manufacturersthan the need for tort reform. Manufac-turers pointed to a system that drove in-surance costs higher even for firms thathad never had lawsuits filed against themor had never put hazardous products onthe market. Rick Kelly of Pellerin MilnorCorp. explained at a roundtable in NewOrleans, La., that his firm had recently re-newed his product liability insurance andwas obliged to pay an annual premiumworth 30 percent of the coverage itself. AsKelly put it:

We need tort reform real bad. We just recentlyhad our insurance renewed for the followingyear. A $1-million product liability insurancepremium gives you $3 million in coverage.That’s insane. That’s absolutely insane.

These comments only begin to de-scribe the ways that tort costs debilitatebusinesses. Manufacturing firms pay “torttaxes” in several ways. First, manufactur-ers pay significantly higher costs for em-ployee healthcare benefits, due to increas-ing medical liability costs. Second,manufacturers pay as product liability andother tort claims increase the cost of gen-eral liability insurance. And third, manu-facturers pay in the form of legal fees even

sector. One means of addressing theirneeds, as well as those of larger firms,would be to encourage the developmentof association health plans and otherjoint purchasing arrangements thatwould increase firms’ bargaining power inthe market for health insurance andhealthcare services.

The historic Medicare reform legisla-tion, which was enacted following theroundtables, provides assistance to firmsoffering health insurance to retirees and isan important step in controlling health-care costs. This legislation also establishedhealth savings accounts to help employ-ees pay for their healthcare expenses bycombining the purchase of a high-de-ductible health insurance plan with tax-free savings accounts. Employees will usethe accounts to pay for their healthcareneeds, with any remaining balances rolledover from year to year. HSAs ensure thatworkers have the health insurance cover-age they need plus the money to pay forday-to-day medical care, all while provid-ing them with an incentive to save fortheir future health care needs.


manufacturer was dubious or nonexist-ent. From these types of tort claims, it isdifficult to reach any conclusion otherthan that the company in question wastargeted simply because the plaintiff’scounsel identified it as the deep pocketfrom which the lawyer could maximizethe award.

Consumers, workers, and investors allpay for excessive claims of the current tortsystem. Tort costs amount to a tax onconsumption, wages, and investment.Clearly, tort costs make U.S. manufactur-ers less competitive, increase the risk ofbankruptcy, and are a significant drag onthe American economy.

Just as important is the fact that thecurrent system also fails to deliver forthose who are injured and deserve com-pensation. Only 20 percent of direct tortcosts actually go to claimants for eco-nomic damages, such aslost wages or medical ex-penses.10

The U.S. tort liabilitysystem is already the mostexpensive in the world; itscost is more than doublethe average cost of suchsystems in other industrial nations, asmeasured in GDP share. The consultingfirm of Tillinghast-Towers Perrin pub-lished findings that in 2002, the U.S. tortsystem cost $223 billion—approximately2 percent of the nation’s GDP.11 Similarly,the U.S. Chamber of Commerce recentlyreleased a study showing that a state’s tortliability system has a “statistically signifi-cant” impact on its economic develop-ment, which in plain terms means slowereconomic growth and fewer jobs, particu-larly in manufacturing.12

It is crucial to understand that noneof these studies capture anything morethan the direct outlays of existing firms,such as the payment of liability insurancepremiums. Although those costs continueto rise dramatically, they understate theimpact on manufacturers and the cost to

when there is no merit to claims andmanufacturers ultimately prevail in litiga-tion—a problem that is only exacerbatedby the growth of frivolous shareholderclass-action suits.

The indirect costs of tort litigationare also significant—particularly the timespent by managers and employees, whowould otherwise focus on improving op-erations, raising productivity, and expand-ing sales. Giff Kriebel of BAE Systems putthat part of the tort system in perspectiveat the roundtable in Manchester, N.H. Hesaid, “I can think of nothing that is morenon-value-added than all the litigationsthat all of us have to go through. . . . Thetime it takes and distraction that it causesis absolutely huge.”

The basic reason for manufacturers’concern about the civil liability system isthe dramatic increase in tort claims andawards. Manufacturers have become out-sized targets, as plaintiffs’ lawyers consideroperating companies’ “deep pockets” ofinsurance and capital. From a personal in-jury lawyer’s perspective, manufacturersrepresent desirable defendants because ju-ries can more easily sympathize with aclaimant by assigning blame to a seem-ingly impersonal corporation regardless offault, assumption of risk by the plaintiff,or contributory negligence.

The tort system significantly under-mines the competitiveness of U.S. manu-facturers. The awards have driven insur-ance premiums higher and, in instanceswhen liability insurance proved cost pro-hibitive, the insurance premiums havedriven firms out of business.

The examples of tort claims cited bymanufacturers attending the CommerceDepartment’s roundtables were striking.In many instances, the connection be-tween the plaintiff’s injury and the prod-uct put on the market by the defendant


the basic reason for manufacturers’

concern about the civil liability

system is the dramatic increase in

tort claims and awards

The comments of Dow Chemical’sGene Reinhardt at a New Jersey round-table put the problem in context:

Asbestos litigation that continues after somany years . . . is a problem for society inthat . . . the victims of asbestos are not theones getting the help. We’d like to see that weget some legislation that would protect thevictims now and in the future and make thesystem fair. It is chaos now, with litigationcoming from all directions that is damagingthe economy and undermining the security ofjobs and pension systems.

Tort reform should focus on threeareas. The first is the critical need to capmedical malpractice awards in ways thatensure that those deserving compensationget compensated. The second is the needto restore the balance that previously ex-isted in tort law: meaningful reforms arerequired that would hold individuals ac-countable for their own actions in the useof products, rather than holding manufac-turers strictly liable for any injury sufferedin proximity to their products. And thethird area is the need to resolve the litiga-tion over asbestos-related injuries by en-suring that those deserving compensationreceive it. Such class-action suits remain acontingent liability for U.S. manufacturers,making it hard to attract capital and liabil-ity insurance for their current operations.

Reducing Regulatory CostsAt the roundtables, manufacturers

frequently mentioned the issue of regula-tory costs and the relative burdens theyplace on U.S. firms versus their competi-tors. An OMB study found that regulatorycosts were 3.7 percent of GDP in 1997.13

Since manufacturing tends to bear agreater share of regulatory costs thanother sectors, it is safe to assume thatroughly 4 percent of manufacturing GDPgoes to compliance. Of this, about half of

the U.S. economy as a whole. These stud-ies do not capture the value of the prod-ucts that otherwise would have been de-veloped or other opportunities thatmanufacturers have forgone because of lit-igation risk.

Manufacturers stated that common-sense legal reforms are crucial to bolster-ing manufacturing competitiveness. Al-though tort liability is most often afunction of the common law of eachstate, a better balance needs to be struck.In fact, individual states are already devel-oping models of tort reform in an effortto maintain their manufacturing bases.

Wisconsin’s efforts at reform weretouted at the Commerce Department’sroundtable in Milwaukee as one of thereasons for manufacturing firms stayingdespite higher taxes and relatively broadregulation. As explained at the round-table, the reforms in Wisconsin did nomore than restore some of the balancethat previously existed in U.S. tort law, asopposed to the strict liability standardsenacted in many jurisdictions.

One particular issue on the legalfront dwarfed all others: the ongoing as-bestos litigation, which continues to cre-ate a great deal of uncertainty for manu-facturers in the marketplace. The pointraised by many manufacturers was hard todispute. When asbestos was first installedas a safety device to retard the spread offire in many factories, no one knew thepotential danger of long-term exposure toasbestos. The product was not subject toregulation by the government, nor wasthere any warning to manufacturers re-garding the risks inherent in its use.

But now, many years later, the multi-ple class-action lawsuits filed over the useof asbestos have created a legal and finan-cial quagmire. While the litigation contin-ues, affected individuals in American soci-ety are not receiving any assistance tocope with the medical bills they face. Andthe continuing litigation remains a cloudover the entire manufacturing sector.


Further, taken together, all compli-ance costs appear to have increased sig-nificantly since the SBA’s study of 1997data. According to a recent NAM study,the total burden of environmental, eco-nomic, workplace, and tax compliance is$160 billion on manufacturers alone,equivalent to a 12-percent excise tax onmanufacturing production. This reflectsan increase of about 15 percent over thelast five years.18 In short, regulatory com-pliance costs are rising faster than incomein the manufacturing sector, which im-plies a loss of cost competitiveness or, ata minimum, a negative offset to the ben-efits of the extraordinary productivitygains and efforts by manufacturers to cutcosts under their direct control.

Rising Energy CostsAnother point of concern for manu-

facurers is the rising cost of energy, partic-ularly natural gas. Manufacturers dependon affordable, reliable energy. Industryuses more than one-third of all the energyconsumed in the United States, the major-ity of which is natural gas and petroleum,followed by electricity. In all sectors, en-ergy prices have a significant effect on op-erations and product prices.

Manufacturers uniformly criticizedthe failure to enact the legislative aspectsof a comprehensive and coherent energyplan that would increase America’s energyindependence while yielding energy pricesthat would help ensure manufacturers’long-term competitiveness. Don Wain-wright of Wainwright Industries put it instraightforward terms at a roundtable inSt. Louis, Mo., explaining that manufac-turing is “one of the biggest users of en-ergy.” He emphasized that, in his view,the biggest challenge facing his industry is“energy policy, which is before the Senateright now.”

As it stands, America “faces the mostserious energy shortage since the oil em-bargoes of the 1970s,” directly attributable

the cost is for compliance with environ-mental regulations; the remainder is forcompliance with workplace safety andproduct safety requirements, as well as forthe time spent filling out government pa-perwork and keeping records.

One measure of the economic cost ofcompliance is the cost to government ofmanaging regulatory programs and theconsequent drain on tax revenues whichthat effort represents. Total federal budgetoutlays for regulatory compliance activi-ties have almost doubled in the past 13years, from $13.7 billion in 1990 to $26.9billion in 2003 in real terms.14 Those costscover all regulatory activities, from tradeand customs, to consumer safety, to secu-rities laws. They do not include the costto the private sector of compliance, whichcan be many times greater.

From a manufacturer’s perspective,particularly that of a small or medium-sized business, the most common compli-ance costs are related to environmentalregulation, workplace safety, and tax com-pliance/employment rules. The SmallBusiness Administration’s Office of Advo-cacy has conducted the most comprehen-sive study of those costs.15 The studyfound that the total cost of complyingwith regulations in those areas in 1997amounted to $147 billion annually, or acost per employee of $7,904. Of the indi-vidual categories that made up that total,environmental compliance costs took thelargest share. Environmental costs ac-counted for nearly 50 percent of the total:$69 billion in 1997, or a cost per em-ployee of $3,691.16

Significantly, the cost of compliancewith such rules falls hardest on businesseswith fewer than 20 employees. Accordingto the SBA study, small manufacturingbusinesses reported that compliance withworkplace rules amounted to a cost of$16,920 per employee. For larger firms,that cost dropped by more than half, to$7,454 per employee.17


budgets, consumer spending slows, lower-ing demand for manufactured goods. Thatcontraction in demand feeds back intothe manufacturing sector in the form oflower sales, lower use of capacity, and aninability to take advantage of theeconomies of scale that manufacturers’existing capital investments would other-wise afford.

For energy-intensive industries such aspaper products, plastics, and chemicals, theimpact of rising energy costs, particularlythe cost of natural gas, is compounded. Atthe Commerce Department’s roundtable inTrenton, N.J., Gene Reinhardt, of DowChemical Company, explained:

Those of us in the chemical sector are getting adouble hit with natural gas, since we use itboth for our fuel and as raw material for ourchemicals. . . . Natural gas prices are the high-est in the world and drain all of the industry.Consumers are spending $70 billion more innatural gas costs in 2003 than they did lastyear in 2002. So it is not only an emergency oran emergent issue for Dow Chemical; it is re-ally an issue for all of the industry in America.

Additionally, energy supply disrup-tions can pose a significant problem evenin industries in which energy is not animportant component of the total cost ofthe goods or services produced. Manybusinesses require a high-quality, reliablesource of power. Even a brief loss of powercan impose significant costs on technol-ogy firms. Products or product inputs maybe damaged or destroyed, or productionruns may be interrupted.

The effects of the blackouts in Califor-nia several years ago illustrate this. A sur-vey of small businesses, which was con-ducted by the National Federation ofIndependent Business in February 2001,found that more than half of the firmssurveyed that had experienced blackoutsin California were forced to reduce or shutdown business operations altogether dur-ing the blackouts. About one-third of thefirms surveyed lost sales. Roughly one-fifth

to a “fundamental imbalance betweensupply and demand.”19 From 1991 to2000, Americans consumed 17 percentmore energy than they had in the previ-ous 10 years. During that same period,U.S. production rose only 4.9 percent; thedifference accounted for by imports.20

America’s energy challenge will con-tinue to grow as the U.S. economy grows.Energy consumption in the United Statesis expected to rise “by about 32 percentby 2020.”21 While the Bush administra-tion has pursued successful executive ac-tions to increase domestic access and pro-duction, there is no prospect, in theabsence of congressional action, for signif-icant new U.S. production.

Conservation and efficiency canhelp, and U.S. manufacturers lead the way

in producing and implementingtechnologies designed to fosterefficiency and reduce costs.Those efforts pay big dividends.Today, it takes only 56 percent ofthe energy required to produce adollar of GDP as it did in 1970.The nation’s “energy intensity”(the amount of energy requiredto produce a dollar of GDP) has

declined in recent years and is expected todecline further, at a rate of 1.5 percentyearly, through 2020.22 With appropriatecapital investments, conservation couldreduce that figure even further. Yet in theshort run, rising energy prices and disrup-tions in energy supply reduce profits, pro-duction, investment, and employment forU.S. businesses. In practical terms, absorb-ing the cost of high and rising energyprices means deteriorating profit margins.And by reducing a manufacturing com-pany’s cash flow, high energy costs restricta firm’s access to capital needed for newplants and equipment.

The impact of high energy costs onthe demand side also negatively affectsmanufacturers. With rising energy coststaking a greater percentage of consumers’


rising energy prices and

disruptions in energy supply

reduce profits, production,

investment, and employment

for U.S. businesses

American manufacturing. Manufacturersattending the roundtables stressed the im-portance of cutting taxes in a way thatwould stimulate consumer demand andbusiness investment, which has laggedeven during the recovery from the recentrecession.

The other frequently made point isthe need for certainty. What manufactur-ers attending the roundtables see in themarketplace is an unwillingness of their

customers to make the investments thatwill lead to purchases of capital equip-ment and a strong recovery throughoutthe manufacturing sector. That unwilling-ness is inconsistent with the strong con-sumer demand that continues to pull theeconomy along through the recession andinto a stronger recovery.

Manufacturers explained that theother forces inhibiting investment are re-lated to the general uncertainty regardingthe strength of the recovery, concerns re-garding the effect of the events of Septem-ber 11, 2001, the rising cost of security intheir aftermath, and to the more uncertaininternational economic environment. How-ever, the one concern manufacturers identi-fied that is entirely within the control of

said materials were aged or destroyed. Andnearly two-fifths absorbed additional costs,such as in wages and benefits, for workthat was not completed.23

Plainly, the problems manufacturersface because of rising energy costs anddisruption have been a long time in themaking. They are the product, like manyof the other issues manufacturers raisedduring the roundtables, of nearly adecade of neglect. To put it in perspec-tive, it helps to understand that not a“single major oil refinery has been builtin the United States in nearly a genera-tion.” By some estimates, the UnitedStates needs “38,000 miles of new gaspipelines, along with 250,000 miles ofdistribution lines” to match the demandfor natural gas with supply.24

It will take a comprehensive, long-term strategy to address the energy chal-lenges facing America’s manufacturingsector, and an equal attention to modern-izing the U.S. energy infrastructure, in-creasing energy supplies, and improvingenergy conservation and efficiency. And itwill require a multifaceted approach. Thenature of the problem requires first thatgovernment ensure that energy marketswork well; for example, by moving aheadwith the restructuring of electricity mar-kets where necessary to ensure that energysavings are passed on to the consumer.The problem may also merit a hard lookat increased federal funding for researchand development of renewable energy re-sources and energy-saving manufacturingtechniques and products, tax incentivesfor the development of new technologies,and greater coordination among the vari-ous levels of government involved in theapproval and development of new energysupplies and infrastructure.

TaxesManufacturers pointed to federal,

state, and local taxes as one of the keyfactors inhibiting future investment in


identified numerous ways in which thecode may distort investment decisions.They cited the alternative minimum tax,which imposes significant extra costs onmanufacturers and results in almost noadditional revenue for the federal govern-ment. In addition, depreciation schedulesin some sectors may not reflect high ratesof innovation.

Assessing the full impact of the in-vestment distortions contained in the cur-rent IRC requires an understanding of howthe IRC’s impact reaches well beyond thefederal system of taxation. Because manystate tax codes are ultimately based on def-initions of income that flow from the fed-eral tax code, the distortions of the IRCperpetuate themselves at the state level.

Several manufacturers went consider-ably further with respect to state and localtaxation, suggesting changes to the mostprevalent forms of state and local taxa-tion. Many states and localities rely moreheavily than the federal government onproperty and other taxes that are fixed indollar amounts or in the form of a fixedpercentage of asset value. Those taxes be-come far more regressive in an economicdownturn; although revenues and incomefall, the liability for tax does not. The neteffect is an increase in tax on manufactur-ing firms as a percentage of income. Themanufacturers’ comments suggested aneed to shift from taxes based on fixedvalues to those tied to income, and to relymore heavily on consumption as the basisfor defining income subject to taxation.

Lastly, with respect to taxes, there isbroad recognition of the advantage con-ferred on foreign manufacturers by the in-terrelationship between the current U.S.tax system and international trade rules.American manufacturers are well awarethat most of their competitors are locatedin countries that rely more heavily on con-sumption, rather than income, as the basisfor taxation. In practical terms, foreigngovernments apply taxes solely to income

the federal government is the uncertaintycreated by frequent changes in the tax codeand the often-conflicting policies that thetax code represents. U.S. manufacturers puta premium on getting the right rules andrates in place and then making them per-manent so businesses can invest withgreater certainty in terms of the treatmentof income earned on their investments.

Interestingly, the most salient butleast-understood tax issue involves the in-ternational provisions of the Internal Rev-enue Code. Far from encouraging compa-nies to move offshore, manufacturersbelieve the IRC contains significant penal-ties on income derived from foreign in-vestment that sometimes lead to the dou-ble taxation of foreign-source income. Ina global economy, manufacturers under-

stand that their successeswill increasingly depend ontheir ability either to export(which often requires invest-ment abroad in marketing)or to sell to U.S. firms thatcompete in global markets(which also increasingly de-pends on the ability to in-

vest, produce, source, and sell abroad). Inshort, manufacturers recognize that thegovernment should not impose penaltieson those American companies that are thebest U.S. competitors in world markets,even when the exact penalties imposed bythe Internal Revenue Code are not alwaysapparent to purely domestic producers.

The basic point in support of tax re-form was made by Curt Magleby of FordMotor Company at a roundtable in Wash-ington, D.C.:

Our tax code internationally was developed inthe 1940s and 1950s [and] updated in the1980s and represented a completely differentenvironment. For us to be competitive domes-tically, we’ve got to update the tax code onthe international side.

In addition to the IRC’s outdated in-ternational provisions, manufacturers


manufacturers attending the

roundtables stressed the impor-

tance of cutting taxes in a way

that would stimulate consumer

demand and business investment

ica’s contined leadership in technologyand its ability to produce the workforceneeded to maintain U.S. excellence inmanufacturing. Manufacturers continuallyemphasized the important role that tech-nology plays in serving customers and en-suring cost competitiveness. Lou Auletta ofBauer, Inc., made that point at the NewBritain, Conn., roundtable:

We’re in the process of developing new tech-nologies that are going to save our customersmoney, and also technologies and enhance-ments that are going to make us more efficientin production, both from the design aspect andthe manufacturing side.

Manufacturers understand that leader-ship in innovation and technology are keyto their future competitiveness. WilliamFee of Magnesium Elektron, Inc., at theTrenton, N.J., roundtable spoke for manyin describing the process that his companyhad gone through to remain competitive,and the extent to which it increasingly de-pends on investment in technology:

Our response has been to shift our businesstowards more technically sophisticated appli-cations, for example, catalysts, high-tech ceramics, and water treatment. To achievecompetitive advantage in these new markets,we corner a strong commitment to researchand development and ongoing innovation inproducts and the processes needed to manu-facture them. To be successful, this strategyrequires significant investment in scientifictalent, laboratories and analytical equip-ment, intellectual property patents, and fol-lowing the pursuit of same information tech-nology to control manufacturing processes,and even the most difficult of all is stepchange in the level of detail engineering sup-port necessary to manufacture products toever-tightening specifications and consistencydemanded by our customers.

From the perspective of manufactur-ers, there is a need for continuing invest-ment in research and development ofnew products so that manufacturers re-main one step ahead of the competition.

earned on sales in their jurisdictions andwill rebate any taxes that apply to exports.

By relying more heavily on incomeas the basis for taxation, and in taxingU.S. manufacturers on their worldwide in-come, the U.S. system contains no simplemeans of ensuring that U.S. exporters re-ceive comparable treatment. The interna-tional trade rules reinforce that disparitybecause they allow the rebate of indirecttaxes (that is, taxes on consumption suchas value-added taxes) but prohibit the re-bate of any direct taxes on income, onwhich the U.S. system relies so heavily.Although manufacturers believe recentlypassed changes in federal tax law havehelped, manufacturers maintained thatthose changes do not go far enough tooffset the underlying inequity betweenthe tax treatment of most foreign manu-factured goods and those produced in theUnited States.

The basic lesson to draw from theroundtables regarding tax is the need forboth short- and long-term efforts to re-duce the cost and uncertainty that theIRC creates for American manufacturers intheir operations and their pursuit of in-vestment capital needed to maintain theircompetitiveness. In the short term, themost significant step would be to makethe recent tax cuts permanent in order toincrease the certainty of the business envi-ronment in which manufacturers operateand the relative attractiveness of investingin manufacturing in the United States. Inthe long run, manufacturers called for anintense focus on tax reform—reform thatreduces rates, reduces investment distor-tions, and simplifies the IRC to reduce thecost of compliance.

Reinforcing America’sTechnological Leadership

At every roundtable, American manu-facturers expressed their concern for Amer-


this for years and years, and it’s critically im-portant because if you want to know wheremanufacturing is going to be in 20 years; it’sgoing to be involved with the highest-techwork that’s possible in the world that can’t bedone in other nations where they pay 80 centsa day or whatever to lesser skilled workers.

As noted at the outset, U.S. manufac-turers continue to invest in innovationand technology, accounting for the major-ity of R&D dollars spent in any given year.The roundtable participants also empha-sized the importance of government’s in-vestment in the basic sciences that lead tolater innovations in manufacturing. Theyview government’s role as catalytic—spark-ing many of the ideas that manufacturerslater transform into consumer products.

Manufacturers expressed concern overthe declining commitment of federal gov-ernment funds for directed basic or generictechnology research of the sort that drivesinnovation in manufacturing. At theWashington, D.C., roundtable focused onthe future of manufacturing, many of theattendees highlighted the well-known rolethat the Defense Department and the Na-tional Aeronautics and Space Administra-tion played in research on electronics,computing, and communications. Whatmanufacturers seek is focus within thegovernment’s budget on research thatwould yield the same spillover effects thatthe earlier work on defense applicationsand the space program provided.

U.S. manufacturers suggest that thefederal government’s ability to provide themeans necessary to maintain the techno-logical edge of the United States needs tobe strengthened. At the roundtable in Min-neapolis, Minn., which focused on manu-facturers in the medical device industry,many of the participants commented onthe need to improve the responsiveness ofthe Food and Drug Administration to therequirements of a rapidly evolving indus-

The fact that technology and innovationare key to the future of manufacturingsimply reinforced the concern manymanufacturers had for the declining in-vestment in research and development asa percentage of GDP, both in industryand in government. Mike Mauer of Siko-rsky Aircraft Group made that point atthe roundtable in New Britain, Conn.,noting that U.S. manufacturing’s compet-itive edge depends on “great new tech-nology . . . that’s a result of some of theinvestments that were made 20, 30 yearsago.” Mauer described the decline in in-vestment in research and development as“worrisome,” recognizing that future

competitiveness is “really about the tech-nology and the investment up frontand . . . the engineering and developmentthat ends up leading” manufacturing to-ward a more competitive future.

Many of the comments focused onmaking the Internal Revenue Code’s re-search and experimentation credit perma-nent. At the roundtable in New Britain,Conn., Murry Gerber, former chair ofNAM’s Small and Medium ManufacturersGroup, stated what was a uniform opin-ion among manufacturers:

One is the R&D tax credit, which should bemade permanent. We’ve been arguing about


sophistication. The United States, until re-cently, consumed 40 percent of the world’ssemiconductor production, meaning thatAmerican firms were manufacturing goodscontaining 40 percent of the world’s semi-conductors. In the past two years, the U.S.share has dropped to 20 percent, whereasAsia now represents 40 percent of theworld’s semiconductor consumption.27

One of the principal advantages Asianow holds is a very well-educated techni-cal workforce. Both China and India aregraduating high numbers of talented sci-entists and engineers. In 2002 alone, 58percent of all the degrees awarded inChina were in engineering and the physi-cal sciences, compared with 17 percent inthe United States. China’s 219,600 engi-neering graduates accounted for 39 per-cent of all college graduates, whereas U.S.engineering graduates, a total of only59,500 engineers, represented a mere 5percent of all college graduates in theUnited States.28

Particularly troubling is that compar-ative advantage in today’s manufacturingsector has less to do with physical endow-ments, such as natural resources, than ithas to do with human capital. Accordingto some U.S. firms’ estimates, by 2010, asmuch as 90 percent of their research anddevelopment, design, and manufacturingwill be conducted in either China orIndia. There is frankly little governmentcan do through tax, cost reduction, andother policies to prevent this shift towardAsia if the United States is not at the sametime providing the talent pool necessaryto continue spurring innovation.

The discussions of education, train-ing, and workforce needs in manufactur-ing at the Commerce Department’s round-tables raised the same concerns. Beyondthe incentives needed for investment inresearch and development, manufacturersstressed the importance of a skilled work-force in maintaining America’s technologi-cal leadership. Chris Bollinger of BollingerShipyards, Inc., at the roundtable in New

try. Currently, the FDA is grappling withthe question of how best to regulate the in-troduction of biotechnology into the mar-ketplace. In the view of some manufactur-ers, the inability to match the speed ofinnovation in industry with innovation ingovernment is becoming a drag on whatprovides the United States its primaryadvantage in the manufacturing sector—continuing innovation.

Education and SkillsThe President’s Council of Advisors

on Science and Technology (PCAST) re-cently completed the first phase of a studygauging the health of U.S. high-tech in-dustries. The PCAST report emphasizes aconcern that motivated many of the par-ticipants in the Commerce Department’sroundtables: with continued outsourcingof manufacturing functions to lower-costalternatives outside the United States, theUnited States risked losing the “innova-tion infrastructure of design, research anddevelopment, and the creation of newproducts and industries.”25

George Scalise, president of the Semi-conductor Industry Association and chair-man of the PCAST subcommittee thatdrafted the report, put it this way:

Foreign governments—and especially China—have done an effective job of creating a richenvironment for the manufacture of electron-ics and semiconductors, and the implicationsare that U.S. high-tech leadership is not guar-anteed. That is all there is to it. We have it.We enjoy it. We have been here forever, but itis not guaranteed going forward. If we losethat leadership and if we don’t have that as adriving force in our economy, it will have animpact on our ability to maintain and furtherimprove our standard of living in the future.That is a reality.26

The numbers bear out that othercountries are increasing their technological


Manufacturers stressed the need toconcentrate increasingly on readyingstudents for the requirements of modernmanufacturing and the modern market-place. They emphasized the potentialthreat to U.S. technological leadershipfrom declining numbers of engineeringgraduates and high school graduateswith adequate technical skills to qualifyfor even entry-level jobs in manufactur-ing today.

Phyllis Eisen of the National Associa-tion of Manufacturers captured the viewsof many when, at a Washington, D.C.,roundtable, she offered the followingperspective:

We are in a highly competitive state withother countries that have taken education veryseriously for a very, very long time—fromsmall countries like Denmark, [which] havebeen at the peak of pushing kids in the educa-tional world, to China, [which] graduatedclose to 40 percent of engineers as undergradu-ates last year. We graduated less than 6 per-cent. Now this should be a frightening thoughtto all of us. Manufacturing is an engineering-based industry, and whether we’re trainingtechnicians at a very high scale or high per-formance production workers or engineers andchemists or whatever . . . we’re not doing itfast enough or good enough, and we have toput as much pressure on the education com-munity and ourselves to work with them.

The role of talent is critical to thefuture viability of America’s manufactur-ing sector. The 2001 U.S. CompetitivenessReport, published by the Council on Com-petitiveness and co-authored by ProfessorMichael Porter, stated that “the prioritiesfor sustaining U.S. economic growth andcompetitiveness center on strengtheningthe nation’s innovative capacity and skillsof the American workforce.”29 The reportfurther stated that “the nation’s ability tocommercialize innovation—and furtherproductivity growth—rests on the skills ofits workers. But, the bar for skills is rising-and demand for higher skills is outstrip-

Orleans, La., identified the “biggest prob-lem that we see” as the “lack of qualifiedlabor.” He indicated that this observationwas true even during the recent recession.He expressed concern about what thatmeant as the manufacturing sector recov-ered, calling the lack of qualified labor“our biggest issue and our biggest . . . road-block to continuing to grow.”

From the perspective of most manu-facturers, the effort to maintain America’sleadership in innovation and technologymust begin with improvements in thebasic education delivered by U.S. publicschools. Many manufacturers now spenda considerable amount of time and re-sources simply training their workers tomeet the basic skill levels that workers inother countries have attained by the timethey enter the workforce.

General Motor’s Mustafa Mohataremidentified the problem at a Washington,D.C., roundtable, noting, “the auto indus-try was always considered a high-wage in-dustry that would hire people withoutmuch education. Your physical skills weremuch more important than your mentalskills. That clearly has changed.” To meetthe challenge that this change presentswill require continuing improvement inthe basic education America gives all stu-dents through high school.

Most manufacturers recognize, how-ever, that even a solid high school-leveleducation is not enough to remain rele-vant in today’s manufacturing sector. TimTimken of the Timken Company madethat point at a roundtable held in Wash-ington, D.C., concerning the future ofmanufacturing. He emphasized that hiscompany, the world’s leading manufac-turer of roller bearings, was increasinglylooking for workers who had training be-yond high school, up to and includingfour years of college, for entry into thecompany’s workforce. The reason for thatshift is the increasingly complex capitalequipment involved in today’s manufac-turing processes.


derstood that the most valuable trainingand retraining occur on the job. Being outof work, even briefly, means that an indi-vidual’s skills are eroding. Programs thatput a premium on helping individualsfind new employment may be the mostimportant form of adjustment assistance.

Communities and EconomicDevelopment

A separate topic is the adjustment ofcommunities. Recent stories of plant clo-sures in the hard-hit textile mill townsthroughout the Southeast reinforce theneed to ensure closer linkages betweencommunity economic-development ini-tiatives and workforce development pro-grams. As a practical matter, job trainingprograms are useful only ifthere are jobs available forthose pursuing the training.

Consistent with the needto upgrade the skills of existingand dislocated workers is theneed to ensure that there is adiversified economy capable of employingthose workers. Areas with diversifiedeconomies are more stable and generallyprovide for a higher standard of living fortheir citizens. Communities that areoverly dependent on a single industry areat greater risk for economic dislocation.

There is considerable room for com-munities to engage in thoughtful andproactive economic-development plan-ning. Establishing a comprehensivestrategic plan for economic developmentis a critical element in maintaining acommunity that can grow, thrive, and en-dure changes in the economic environ-ment. Coordinated economic develop-ment programs can help build a morefavorable business climate to attract pri-vate investment.

Economic development planning is,furthermore, not just a strategy for adjust-ment in a particular industry. A sound ap-

ping supply.”30 Higher-level skills areessential to enable productivity and com-mercialize innovation.

Worker skills and education will be adominant, if not decisive, factor in Amer-ica’s ability to compete in the global econ-omy. The United States’ ability to engagein the world economy must be accompa-nied by a commitment to boost the skillsof every worker. Educational institutionsmust respond by giving every Americanthe tools to prosper in the global economy.

The final component that manufac-turers focused on in their commentsabout workforce needs and training wasthe need to ensure lifelong learning.Nowhere is that need more acute than inthe case of workers faced with a layoff be-cause of changes in the underlying eco-nomics of their industry.

Traditional trade adjustment assis-tance programs, though helpful in thosespecific instances, may not actually ad-dress the circumstances faced by mostworkers laid off during the recent reces-sion who have yet to be called back towork simply because the manufacturerhas learned to produce the same quantityof output with fewer workers. That driveto innovate and raise productivity may ormay not be spurred by competition fromimports, but that debate is increasingly ir-relevant in light of the changes under wayin the manufacturing sector. There are anumber of federal as well as state pro-grams directed at training and retrainingworkers. The Workforce Investment Act,passed in 1998, has gone a long way to-ward streamlining and consolidating theefforts of a wide variety of federal job-training initiatives. However, morechange is needed to make the systemmore responsive in a dynamic and rapidlychanging economic environment. As apart of that effort, it would also be helpfulto work toward programs that actually en-courage re-employment. It is widely un-


worker skills and education will

be a dominant, if not decisive,

factor in America’s ability to

compete in the global economy

tries. Steve Prout of Alpha Q at the NewBritain, Conn., roundtable cited the ear-lier discussed issue of rising healthcarecost as contributing significantly to in-creased indirect costs that affect competi-tion. “Many of our companies have seenmedical healthcare cost increases of 20percent or greater. You cannot sustain thatyear after year . . . it’s just impossible.”

Those and other cost differences con-front U.S. manufacturers with starkchoices and create an incentive to shiftmanufacturing abroad. As Joe Fusco, ofNovus Fine Chemicals, put it at theroundtable in Summit, N.J., “I couldthrow up my hands. I could shut my fac-tory. I could turn my factory into condo-miniums . . . and then just ship my manu-facturing overseas, and—guess what—Ican make . . . more money.”

What Fusco added was also represen-tative of most American manufacturers.While acknowledging the differences incosts that are driving many manufacturersoffshore, Fusco also stressed:

I don’t think that that’s the right way to go.That’s just my opinion. I’d like to think thatwe can be creative and innovative. . . . It’s re-ally about just . . . doing a good job andbeing productive and [competitive]. And wedo . . . But the only thing I’m complainingabout is this uneven playing field that I see.

Economic and Trade Policy and

Manufacturing Interests

Roundtable participants raised theissue of exchange rates, in particularChina’s peg of its currency, the yuan, tothe dollar. Many manufacturers expressedconcern that exchange rates with a numberof trading partners are set by governmentintervention rather than market forces,leading to lower U.S. exports and strongerimport competition. American manufactur-ers pressed for the market to set the termsof competition, not governments.

proach to economic development canhelp promote competitiveness, innova-tion, and increased productivity amongexisting businesses or industries in thecommunity as well.

One of the development conceptsmanufacturers highlighted is the conceptof clustering. Economically healthy re-gions can often foster competitivenessand innovation by focusing on industryclusters—groups of interrelated firms andindustries. America’s ability to producehigh-value products and services that sup-port higher-skill and higher-wage jobslargely depends on the creation andstrengthening of these competitive clus-ters. Significantly, the concept of clustersboth draws on and reinforces the benefitsof funding for research universities, whichoften form the core of such clusters.

In general, there is a need for a moreaggressive look at how existing economicdevelopment programs could best rein-force a community’s development of asound approach to building a more diver-sified and strengthened local economy.Reinforcing the focus of communities onbuilding more diversified economic basesis one means of both attracting and re-taining manufacturing companies.

Leveling the InternationalPlaying Field

Perhaps the key short-term demandof U.S. manufacturers is for a level inter-national playing field. They stressed theimportance of international economicpolicies, on both finance and trade, whichensure that U.S. manufacturers have a fairopportunity to compete.

Disparities in the Cost of Doing

Business

According to manufacturers attend-ing the roundtables, one key reason forleveling the international playing field isto address the differences in the cost ofdoing business within the United States tothe costs of doing business in other coun-


one of those tools is trade negotiations,and many applauded the U.S. initiativewithin the WTO to eliminate tariffs alto-gether as the most direct route to endingthe current disparity.

Stephen Collins of the AutomotiveTrade Policy Council, which representsU.S. automakers on international trade is-sues, echoed that basic point at a round-table in Washington, D.C.:

The greatest levels of growth are going to beoutside of the United States. That’s where theU.S. government does have an extremely im-portant role in helping to open those marketsthrough the WTO, through bilateral negotia-tions, and through regional negotiations. Andthe reason it’s so important is because thosegovernments will try to protect their marketsand try to protect the development of theirmarkets during that same period.

That basic point is worth underscor-ing. Manufacturers understand that tariffprotection abroad is not only a barrier toits exports, but it also represents a meansof subsidizing foreign manufacturers bylimiting the competition they face. Infact, the disparity in tariff rates applied byforeign countries compared with the tar-iffs applied on goods entering the UnitedStates was, apart from the difference inoperating costs, the most common exam-ple that U.S. manufacturerspointed to in terms of thelack of a level playing field.

Kimberly Hayden ofSupreme Tool & Die at theroundtable in St. Louis, Mo.,expressed her strong dismayat the disparities in tariffrates, stating what many others voiced atroundtables across the country:

In 2020, if things don’t change, we may notbe here. That playing field needs to be evenedout in order for us to compete globally. I cancompete in the United States. I can’t competewith the Chinese imports, and I can’t importor export my product over there. . . . Bringinga die cast tool into the United States, the total

Manufacturers attending the round-tables made the same basic point abouttrade. What most manufacturers askedfor was not for protection from interna-tional competition, but to level the play-ing field by lowering trade barriersabroad. As Jay Jackson of Stuller, Inc., aprivately held jewelry manufacturer andwholesaler, pointed out at the NewOrleans roundtable:

Mexico went to zero percent [tariffs] on pre-cious jewelry in January of 2002. And firstquarter of this year, we actually had an 8 per-cent-plus balance of trade surplus of greaterexports going to Mexico than were actuallyimported, and that’s the first time. So we cancompete if we’re allowed to compete where wehave the competitive edge, and we can com-pete with the low labor cost, but we just haveto have that level playing field.

There were serious criticisms of U.S.trade policy. Some manufacturers ex-pressed continuing concerns about theimpact of trade agreements, such asNAFTA, and questioned whether contin-ued U.S. participation in the World TradeOrganization is warranted.

Other criticisms reflected dissatisfac-tion with the terms of the agreementsthemselves, particularly the extent towhich they opened the U.S. market togoods made with low-cost labor. Thosecriticisms were offset, to an extent, by therecognition that, in today’s manufactur-ing, direct labor costs in the form ofwages actually represent a small portionof the total cost for most manufacturers,with certain exceptions such as apparelmanufacturers.

Further, most manufacturers arguedthat the global marketplace is here to stayand that the United States is better offusing the tools available to ensure thatcompetition in that global marketplace ison even terms. For most, it was clear that


many manufacturers expressed

concern that exchange rates are

set by government intervention

rather than market forces

Toward this end, the administrationhas undertaken a number of significantinitiatives to address this issue: an in-creased focus on intellectual propertyrights enforcement, heightened efforts topromote the adoption of U.S.-developedtechnical standards, focused efforts on en-forcement and compliance, particularlywith respect to China, and expanded ex-port promotion activities.

The rapid globalization of world mar-kets presents American manufacturerswith new challenges and opportunities.Falling trade barriers create opportunitiesin two forms. First, lower barriers to tradeopen markets for American exports. TheUnited States is already one of the mostopen economies in the world.31 Loweringbarriers to trade largely means loweringbarriers to trade abroad, where significantbarriers still exist.

Second, increased trade bringsstronger competition, which represents adouble-edged sword for U.S. manufactur-ers. Although it can place stiff demandson U.S. manufacturers, competition intrade also ensures that American manufac-turers remain competitive. Increased com-petition demands higher productivity,greater efficiency, and greater innovation.In today’s global economy, the industriesthat engage in the constant process of in-novation—lowering costs, creating newproducts, and serving new markets—rep-resent market leaders.

Global competition represents an op-portunity for American manufacturers inone other respect as well. Opening mar-kets abroad allows U.S. manufacturers totake advantage of economies of scale thatthey would not enjoy if they were limitedto the U.S. market alone. It also delivershigh-quality, low-cost inputs that are nec-essary to maintain the competitiveness ofAmerican manufacturing in many sectors.

In many industries, particularly thosein which American manufacturers main-

taxes equal 3.9 percent. Bringing a die casttool from the U.S. into China, the taxes equal30 percent.

Tariffs are not the only trade barrierthat U.S. manufacturers face. Anothersalient example is the lack of adequate in-tellectual property protection and enforce-ment in the markets of some of America’smajor trading partners. For U.S. manufac-turers, protection of intellectual propertyis not an abstract concept. America’s com-petitive edge ensues directly from innova-tion and rising productivity. Intellectualproperty protection is the best means forensuring that American manufacturersenjoy the benefits of their investments inresearch and development and of their ef-forts to raise productivity. It is also themeans best calculated to ensure that theycan enjoy the investment they make incustomer service and creating a brandname that distinguishes them from othermanufacturers.

As Frank Johnson of the Manufactur-ing Alliance of Connecticut underscoredat the New Britain, Conn., roundtable:

We understand what free trade was designedto be, but free trade isn’t free. We want freetrade. If there is a tariff on tea going intoChina and not coming into the United States,that’s not fair. If a manufacturer in China cansteal pictures from a Connecticut manufac-turer’s advertising brochure and put them ontheir Web site and use the company’s trade-mark name to sell products in China, that’snot fair. We want fair trade. We understandfree trade, but we want it to be fair. We wantto level the playing field in every place that wecan. We want the Chinese and other competi-tors to honor trademark laws. We want themto respect . . . to show the same respect to U.S.manufacturers that we show to them.

Indeed, U.S. manufacturers indicateda willingness to compete in a global mar-ket, but they want to make sure that theground rules are the same for everyoneand that those ground rules are enforced.


agreement under which Mexico had toundertake far more significant reformsand was obliged to remove more tradebarriers than Canada or the United States,simply because the U.S. and Canadianmarkets were already largely open to Mex-ican products.

Even the most ardent critics of U.S.trade policy, however, were not advocatingprotection from import competition, norwere they looking for subsidies. Rather,they were looking for a level playingfield—an equal opportunity to competefor business both at home and abroad.

Manufacturers showed support for anaggressive trade policy intenton opening markets. Such apolicy does not require backingaway from current trade nego-tiations in the WTO or in bilat-eral, multilateral, or regionalfree trade agreements. It does,however, require that the inter-ests of American manufactur-ers, as well as U.S. farmers andservice providers, be served bythose negotiations and that the U.S. gov-ernment be vigilant in ensuring that thebenefits of the bargains reached at negoti-ating tables are, in fact, delivered.

It also requires an understanding thattrade policy does not take place in a vac-uum. During the latter part of the 1990s,trade policy was in a rut because of a de-bate about the extent to which futuretrade negotiations should be conditionedon labor or environmental standards.That debate prevented the previous ad-ministration from vigorously pursuing,much less obtaining, trade negotiating au-thority. The debate was also one of themany reasons that the WTO conference inSeattle in 1999 failed to launch a newround of multilateral trade talks.

From U.S. manufacturers’ perspective,the politics of the trade debate largely ig-nore the need for an ongoing effort, with-out the threat of coercion, to improve

tain a significant technological or othercompetitive advantage, there is growth inexports. During the roundtables in Chicagoand Minneapolis, several firms indicatedthat more than 50 percent of their sales arenow offshore. That trend holds true forfirms throughout the high-technologysector of the American economy.

Most of the manufacturers withwhom Commerce Department officialsmet understand the benefits of trade andindicated that much of what they produceis destined for foreign markets. However,some manufacturers believe that the fed-eral government is not aggressive in de-fending the interests of American manu-facturing in its international economicand trade policy. They argued that thebroad opening of U.S. markets throughNAFTA was evidence that federal govern-ment officials did care about U.S. manu-facturing or its competitiveness.

Instead of the terms of the deal, crit-ics of NAFTA focus on Mexico’s subse-quent devaluation of the peso, which hada far more significant impact on the termsof trade between Mexico and the UnitedStates than did cuts in tariffs or quotas.That fact is reflected in the movement ofU.S. trade with Mexico from surplus todeficit in the years immediately followingthe implementation of the agreement.

The lesson many in manufacturingdrew from that experience is that the U.S.government, following the implementa-tion of the trade agreement, failed even toacknowledge the implications for Ameri-can manufacturing of the agreement andthe subsequent peso devaluation. The bal-ance of payments adjustment assistanceprovided to Mexico after the peso devalu-ation simply reinforced that impression.

In fact, NAFTA has proved to be aboon economically to all parties by mak-ing the U.S., Canadian, and Mexicaneconomies more efficient. Indeed, mostcritics ignore the actual terms of the


opening markets abroad allows

U.S. manufacturers to take

advantage of economies of

scale that they would not enjoy

if they were limited to the U.S.

market alone

cies is also a central part of the adminis-tration’s strategy. Good economic policiesin other countries benefit the UnitedStates and the rest of the world. It iswidely recognized that free markets arebest able to allocate scarce resources totheir most productive uses. The UnitedStates believes that the goals of raisinggrowth and increasing stability can bestbe accomplished in an international fi-nancial system that relies on the princi-ples of free trade, free capital flows, andmarket-based exchange rates among theworld’s major economies.

The world economy has strength-ened over the past year. Outside theUnited States, growth in Japan has re-sumed, and prospects for the euro areabrightened in the second half of 2003.The United Kingdom and Canada, as wellas many emerging market countries, arealso growing more strongly. Rising U.S.exports reflect this greater vitality inAmerica’s trading partners.

However, what the broader trend ofweak export performance should not ob-scure is the fact that certain industrieshave faced, and continue to face, a surgein imports that, in particular sectors, has astronger impact than the decline in ex-ports. Textiles and apparel are primary ex-amples. The most significant feature shap-ing those sectors has been the gradualremoval of quotas on textile and apparelproducts that have protected the two sec-tors since the textile agreements of theearly 1960s. Quotas had the effect ofmaintaining a relatively high level of in-vestment and productive capacity, as wellas supporting higher price levels. Theyalso allowed for the existence of sectorscharacterized by a large number of firmsproducing a wide variety of products. Inaddition, they provided an incentive forthe establishment of outward processingarrangements to try to maintain industrycompetitiveness.

As quotas were removed pursuant tothe Uruguay round of GATT negotiations,

labor and environmental standards. Thereis little doubt that there is much to begained by encouraging economic growthin the developing world. As countries de-velop, they tend to choose higher laborand environmental standards for them-selves. Trade liberalization is one of themost promising means by which toachieve those higher standards.

Concerns Regarding theTrade Deficit

Many manufacturers point to thetrade deficit, including the rising bilateraltrade deficit with China, as a major con-cern. While the trade deficit has changedlittle over the past year and exports havebeen rising, America’s trade and currentaccount deficits reflect broad economicforces, strong U.S. growth relative togrowth in America’s major trading part-ners, and a low-inflation environment.Sustained, strong U.S. performance relativeto performance abroad has also served toattract substantial capital to the UnitedStates to finance the current accountdeficits. At the most fundamental level,the current account deficit is related to de-

velopments in U.S. na-tional saving relative toU.S. investment. When in-vestment is higher in theUnited States than domes-tic saving, foreign in-vestors make up the differ-ence, and the UnitedStates has a current ac-

count deficit. Increased private saving anddeficit reduction in the United States willwork to reduce the current account deficit.

The Bush administration’s interna-tional economic strategy aims for higheconomic growth throughout the world.At the core of this strategy are the growth-oriented economic policies being imple-mented within the United States. Butworking with U.S. trading partners to en-courage pro-growth and pro-stability poli-


growth in the trade deficit has been

driven by relative rates of economic

growth and consumption, rather

than the competitiveness of

American goods and services

eralization by both developing and devel-oped countries would provide the greatestoverall benefit.

But some manufacturers expressedconcern that the United States has “givenmore than it has gotten” out of the worldtrading system and that foreign policy,rather than U.S. commercial interests,drives trade policy. Those views are basedon the visible difference between the aver-age tariffs in the United States and thosein many markets abroad and on the obvi-ous point that the United States hasproved willing to open its market fasterthan the vast majority of its trading part-ners. Although the broader reach of U.S.foreign policy certainly was one of themotivating reasons for pursuing trade lib-eralization, it is difficult to point to a spe-cific area where, as a result of foreign pol-icy concerns, American negotiators putmore on the table than they otherwisewould have done. The argument alsotends to ignore the active role that Con-gress has played in oversight of the tradenegotiation process in defense of particu-lar manufacturing industries’ interests.That oversight alone has ensured thattrade policy has normally been driven bycommercial considerations.

It is also worth reiterating what thoseviews ignore: the benefits of an open trad-ing environment and the competition itbrings. There is little doubt that openeconomies grow faster than closedeconomies and that competition is essen-tial. The United States itself has, becauseof its openness, grown considerably fasterthan it otherwise would have.

Notes:1 Matthew B. Coffey, “NTMA Manufacturing Pol-

icy” (paper adopted by NTMA Executive Team, July,

16, 2003).2 PricewaterhouseCoopers, “The Factors Feeding

Rising Healthcare Costs” (April 2002).3 Kaiser Family Foundation and the Health Re-

search Educational Trust, Employer Health Benefits;

2003 Annual Survey (Washington, D.C.: Kaiser Family

Foundation, 2003).

increased competition lowered prices,dampened profitability, and placed muchof the previous investment in apparelunder pressure from competition fromabroad. In response, apparel manufactur-ing, which is labor intensive, began tomove offshore. Meanwhile, U.S. textilemanufacturing, which encompasses in-creasingly capital-intensive enterprises,began to see its primary customers moveoffshore or enter bankruptcy. The result-ing decline in demand for U.S. textile pro-duction has placed the fabric makers inthe same difficult financial position thatapparel makers faced earlier.

The rise in the trade deficit does notnecessarily indicate that American manu-facturing is uncompetitive. As mentionedabove, growth in the trade deficit hasbeen driven by relative rates of economicgrowth and consumption, rather than thecompetitiveness of American goods andservices. Many American manufacturerssee the playing field being distorted byforeign government intervention.

Most discussions of trade begin andend with a survey of the most recentround of trade talks and what they meanfor particular sectors of the U.S. economy.In the past 15 years, a dynamic has un-folded that has complemented and rein-forced the impact of trade negotiations inlowering the barriers to trade worldwideas well as the opportunities and chal-lenges lower barriers create for Americanmanufacturers.

U.S. leadership within the context ofpost-World War II international economicinstitutions was an important componentof the overall effort to ensure the future offreedom, democracy, and a market-basedeconomic system in the midst of the ColdWar. Unilateral trade liberalization towardthe developing world formed an essentialelement of American foreign assistancestrategy, which was also a tool in achiev-ing broader foreign policy goals. In thelong run, however, multilateral trade lib-


California Small Businesses” (press release, Feb. 26,

2001).24 National Energy Policy Development Group, En-

ergy for America’s Future.25 President’s Council of Advisors on Science and

Technology, “Report on Information Technology Man-

ufacturing and Competitiveness” as reported in Manu-

facturing and Technology News (Oct. 3, 2003).26 Ibid.27 Ibid.28 Ibid.29 Michael E. Porter and Debra van Opstal., U.S.

Competitiveness 2001: Strengths, Vulnerabilities and Long-

Term Priorities (Washington, D.C.: Council on Competi-

tiveness, 2001), p. 37.30 Ibid.31 On a trade-weighted basis, the U.S. average tariff

is less than 1.7 percent; the current U.S. simple average

tariff is 3.6 percent on a legally bound basis under the

WTO. Average tariffs throughout much of the world are

significantly higher, with simple average WTO legally

bound rates of 31.4 percent in Brazil, 37.2 percent in

Egypt, 49.8 percent in India, and 39.5 percent for WTO

members overall. The manufacturing sector of the U.S.

economy is also largely free of non-tariff barriers to

trade, such as quotas and trade-distorting subsidies. In

addition, because of requirements of the Commerce

Clause of the Constitution, there are few barriers to

trade within the United States. Taken together, that

makes the United States the most open and contestable

market of any major economy in the world.

4 Ibid.5 Alliance for Health Reform, Covering Health Is-

sues: A Sourcebook for Journalists (Washington, D.C.: Al-

liance for Health Reform, 2003).6 That is not to say that the total cost of health-

care does not take a toll on manufacturers elsewhere.

Even in systems like Canada’s or Great Britain’s,

where the government actually provides the health-

care, taxpayers, including manufacturing companies,

end up paying for it in the form of higher taxes. To

the extent that those taxes take the form of value

added or similar taxes that are rebated upon export of

a manufactured good, the price of the good on inter-

national markets may not fully bear the cost of the

healthcare system in a way that U.S. goods must,

since they are built into the cost base of the U.S.

manufacturer itself.7 National Association of Manufacturers, Health

Care Costs at the Crossroads: Manufacturers’ Agenda for

Lower Costs and Higher Quality (Washington, D.C.: The

Manufacturing Institute, 2002).8 Ibid.9 Kaiser Family Foundation, Employer Health

Benefits 2003.10 Jeremy A. Leonard, How Structural Costs Imposed

on U.S. Manufacturers Harm Workers and Threaten Com-

petitiveness (Washington, D.C.: National Association

of Manufacturers, 2003).11 Tillinghast-Towers Perrin, U.S. Tort Costs: 2003

Update; Trends and Findings on the Costs of the U.S. Tort

System (New York: Tillinghast-Towers Perin, 2003).12 Todd Buchholz and Robert Hahn, Does a State’s

Legal Framework Affect Its Economy? (Washington,

D.C.: U.S. Chamber of Commerce Institute for Legal

Reform, 2002).13 Office of Management and Budget, Office of In-

formation and Regulatory Affairs, Report to Congress

on the Costs and Benefits of Federal Regulations (Wash-

ington, D.C.: Office of Management and Budget, Sep-

tember 1997).14 Leonard, Structural Costs.15 Thomas Hopkins and W. Mark Crain, The Im-

pact of Regulatory Costs on Small Firms, report no.

PB2001–107067 (Washington, D.C.: U.S. Small Busi-

ness Administration, Office of Advocacy, 2001).16 Ibid.17 Ibid.18 Leonard, Structural Costs.19 National Energy Policy Development Group,

Reliable, Affordable, and Environmentally Sound Energy

for America’s Future (Washington, D.C.: National En-

ergy Policy Development Group, May, 2001).20 Ibid.21 Ibid.22 Ibid.23 National Federation of Independent Business,

“NFIB Poll Reveals Initial Effects of Deregulation on


T goods, capital, and labor. They are also de-signed to foster compliance with the rulesgoverning the international trading sys-tem so that it is competition in the mar-ketplace, rather than government inter-vention, that determines success.

The recommendations include pro-posals that demand immediate action byCongress and new activities that can bepursued under existing authority tostrengthen current efforts to support U.S.manufacturers. A number of recommenda-tions also provide direction for broad-basedreforms that will require coordinated effortover the long term. The new Assistant Sec-retary of Commerce, called for by PresidentBush in his September 4, 2003, Labor Dayaddress, will be responsible for coordinat-ing the administration’s efforts to imple-ment these recommendations.

The recommendations are dividedinto the following six sections:• Enhancing Government’s Focus on

Manufacturing Competitiveness• Creating the Conditions for Economic

Growth and Manufacturing Investment• Lowering the Cost of Manufacturing in

the United States• Investing in Innovation• Strengthening Education, Retraining,

and Economic Diversification• Promoting Open Markets and a Level

Playing Field

The recommendations that follow are de-signed to address the challenges identifiedby U.S. manufacturers over the course ofthe Commerce Department’s roundtablediscussions. These recommendations rep-resent a step toward building the compre-hensive strategy called for by SecretaryEvans to ensure “that the government isdoing all it can to create the conditions”that would enhance U.S economic growthand manufacturing competitiveness.

These recommendations start fromthe premise that it is manufacturers andtheir actions in the marketplace that willdefine their success, spur economicgrowth, and create jobs. The government’srole is not to interfere with that process,but rather to foster it. For government,creating the conditions for success in themarketplace means focusing on economicfundamentals, such as encouraging eco-nomic growth and innovation in the pri-vate sector and reducing the cost of gov-ernment policies on U.S. manufacturers. Italso means regulating only when ab-solutely necessary and then with a viewtoward minimizing unwarranted costs.

This same basic approach informs therecommendations on international eco-nomic policy and trade. The recommen-dations are designed to encourage govern-ments to open markets and eliminatetrade practices that distort markets for


Three

Recommendations andNext Steps

assistant secretary would be responsible forimplementing the recommendations con-tained in this report and for supportingthe Secretary of Commerce in his role asthe federal government’s chief advocatefor the manufacturing sector.

Specific responsibilities of the assis-tant secretary would include:

Lead a Benchmark Analysis to MeasureProgress toward Achieving the President’sGoals

One of the key components of anystrategy is a means of measuring progresstoward a defined goal. That requires botha baseline that sets a starting point foranalysis and the tools to measure progress.To establish a baseline against which tomeasure progress toward improving theeconomic environment for manufacturingin the United States, the newly establishedassistant secretary would work with theCouncil of Economic Advisers, the U.S.Treasury and Labor Departments, andother relevant agencies, to initiate abenchmark analysis of the U.S. environ-ment for manufacturing.

The study would identify and priori-tize those areas of public policy that havethe most impact on manufacturing com-petitiveness. The findings should be sub-ject to further analysis to determinewhat, if any, actions could be taken. Inaddition, the study would review initia-tives to improve manufacturing competi-tiveness underway at the state and locallevel or abroad.

Create a New Office of Industry Analysis

Through a new Office of IndustryAnalysis, the assistant secretary would be responsible for assessing the cost com-petitiveness of American industry andevaluating the impact of domestic and in-ternational economic policy on U.S.competitiveness, particularly in the manu-facturing sector. This effort would requiredeveloping the analytical tools and ex-pertise within the Commerce Department

Enhancing Government’sFocus on ManufacturingCompetitiveness

One of the major concerns registeredby manufacturers was the long-standinglack of focus and accountability withingovernment on manufacturing and itscompetitiveness. The following recom-mendations are intended to sharpen thatfocus and to ensure accountability for im-plementing the recommendations thatmake up the Manufacturing Initiative.

Beyond providing greater focus andaccountability, the recommendations arealso designed to enhance coordinationwithin the federal government and withstate and local authorities to improve thedomestic economic environment formanufacturing. These steps would estab-lish a mechanism for ongoing dialoguewith the manufacturing sector on theimplementation of the President’s Manu-facturing Initiative.

These activities would further thework begun by this report. One of the firststeps that the newly established assistantsecretary should take is to conduct a studyof the cost competitiveness of U.S. manu-facturing relative to its principal competi-tors. This should include an assessment ofthe business environment in terms of sup-porting innovation, not just in terms ofproducts and services, but in manufactur-ing process and business organization.This work will help determine whetherthere are additional steps the governmentcould take to reduce costs and to enhancecompetitiveness.

Create an Assistant Secretary of

Commerce for Manufacturing and

Services

As President Bush called for in hisLabor Day address, the federal governmentshould establish an assistant secretary-levelposition at the Department of Commerceto serve as the principal point of contactwith the U.S. manufacturing sector. The


Foster Coordination and

Cooperation among Federal,

State, and Local Governments

Not all of the steps needed to fosteran economic environment helpful tomanufacturing reside in the jurisdictionof the federal government. However, thefederal government could serve as a coor-dinator of activities designed to foster ahealthy manufacturing sector throughoutthe United States. The states have tradi-tionally served as laboratories for a widevariety of initiatives that have shapedeconomic policy throughout the country.The administration should create an in-tergovernmental coordinating committeeon manufacturing, with the assistant sec-retary serving as the coordinator, to en-sure that sound ideas on regulatory re-form or economic development strategiesare widely available to all state and localgovernments.

to assess the impact of proposed rules andregulations on economic growth and jobcreation before they are put into effect.

Establish a President’s

Manufacturing Council to Provide

Oversight and Advice on the

Implementation of the President’s

Manufacturing Initiative

To ensure that the government re-sponds to the challenges facing U.S. man-ufacturers and remains focused on whatmatters to their competitiveness, Con-gress should establish a ManufacturingCouncil under the chairmanship of theSecretary of Commerce. The assistant sec-retary would serve as the executive direc-tor of the council. The council wouldprovide a means of ensuring both regularcontact between government and themanufacturing sector and effective coun-sel in the implementation of the Presi-dent’s Manufacturing Initiative. Thecouncil’s membership should reflect thediversity of American manufacturing interms of industries and the size of the en-terprise, particularly small and medium-sized businesses.

Create an Interagency Working

Group on Manufacturing Chaired

by the Secretary of Commerce

Implementing the recommendationsoutlined below will require coordinationamong a number of agencies within thefederal government. Toward that end, theadministration should establish an intera-gency working group modeled on theTrade Promotion Coordinating Commit-tee. This manufacturing competitivenessinteragency working group, chaired bythe Secretary of Commerce, would be re-sponsible for coordinating the implemen-tation of the recommendations, as well asdeveloping new initiatives that wouldcarry President Bush’s Manufacturing Ini-tiative forward.


investment, which accounts for the otherone-third of GDP, has gained strength buthas yet to reach pre-recession levels.

Fostering a climate for strong busi-ness investment, particularly in manufac-turing, requires a stable economic envi-ronment that reduces risk. Reducing riskrequires greater certainty. Congress shouldincrease certainty and foster a healthierclimate for investment in manufacturingand other sectors of the economy by mak-ing the recent tax cuts permanent.

The elimination of the estate or“death” tax, the temporary increase in ex-pensing limits, and the new incentives forsmall business investment are among themost significant business-related featuresof the recent tax cuts. In addition, the re-ductions in individual marginal tax ratesaid those businesspeople whose incomesflow through directly to individual re-turns, such as sole proprietors and part-nership members. Congress should act tomake the elimination of the death taxand the investment incentives for smallbusinesses permanent to ensure that man-ufacturers, particularly small and medium-sized businesses, are able to attract the in-vestment capital needed to ensure theirfuture competitiveness.

Reduce the Costs of Tax

Complexity and Compliance

U.S. tax laws have become unneces-sarily complex. Complexity increases thecost of compliance and creates a drag onthe economy, with businesses spendingmore time and resources on complianceand diverting talent and resources awayfrom productive activities. Small businessowners are particularly unprepared to dealwith this complexity and do not have theresources to hire sophisticated tax counselto advise them. It is time to make a seri-ous effort to simplify the tax rules. TheTreasury Department should undertake astudy of tax simplification, focusing onthose provisions that are particularly complex for manufacturers, including

Creating the Conditions forEconomic Growth andManufacturing Investment

Creating an economic environmentdesigned to foster manufacturing competi-tiveness begins with establishing the con-ditions for strong economic growth athome. Congress has already taken severalsignificant steps toward that goal by en-acting President Bush’s proposals reflectedin the Economic Growth and Tax ReliefReconciliation Act of 2001, the Job Cre-ation and Worker Assistance Act of 2002,and the Jobs and Growth Tax Relief Rec-onciliation Act of 2003.

By acting decisively to lower the taxburden on American manufacturers, par-ticularly for small and medium-sized busi-nesses, President Bush and Congresshelped to keep the recession short andstart the process of economic recovery.According to the U.S. Treasury Depart-ment, had President Bush and Congressfailed to enact those measures, by the endof 2004, 3 million fewer jobs would havebeen created and a deeper recession and afar slower and more uncertain recoverywould have resulted.

Nevertheless, there remains an enor-mous amount that government can stilldo to increase the certainty of the busi-ness environment in which U.S. manufac-turers operate. The following steps wouldensure that the government makesprogress toward that goal.

Make Recent Tax Cuts Permanent

to Enable Manufacturers to Attract

Capital and Invest for the Future

with Confidence

One of the key features of the recentrecession was the sharp drop in businessinvestment. Consumer spending, whichmakes up two-thirds of U.S. GDP, re-mained strong throughout both the reces-sion and the subsequent recovery. Business


Lowering the Cost ofManufacturing in the UnitedStates

As manufacturers made clear in everyroundtable discussion, to make the UnitedStates an attractive place to invest in man-ufacturing, government must reduce thecosts it imposes on manufacturers. Thefollowing recommendations outline stepsthat the government should immediatelytake to bring down the cost of manufac-turing in the United States, including reg-ulatory, energy, legal, healthcare, and pen-sion costs.

Reduce the Cost and Improve the

Availability of Healthcare

Healthcare costs represent the largestand fastest rising costs faced by U.S. man-ufacturers. These costs are also leastwithin their control to manage. Manufac-turers have a vested interest in the healthof their employees. Building on the his-toric Medicare reforms signed into law byPresident Bush, the following actionswould help reduce the burden of provid-ing this care:

Establish Association Health Plans

As President Bush has endorsed, Con-gress should pass legislation to create andfund association health plans. Such planswould afford small business manufactur-ers greater leverage in negotiating the costof health insurance with providers. Thatleverage would translate into lowerhealthcare costs and improved cost com-petitiveness.

Promote Health Savings Accounts

Health savings accounts (HSAs) wereestablished in the Medicare prescriptiondrug bill signed by the President on Dec-ember 8, 2003. HSAs combine high-deductible health insurance plans withtax-free savings accounts that can be usedto pay for medical expenses incurred byemployees and their families. Under HSAs,

depreciation, the corporate alternativeminimum tax, and the research and ex-perimentation tax credit.

Make Permanent the Research

and Experimentation Tax Credit

While public investment in researchand development is a critical componentin the development of new technologies,the private sector bears the burden of theresearch and development needed tobring those technologies to market.

To reinforce the existing incentiveavailable under the Internal RevenueCode, Congress should make the researchand experimentation (R&E) tax credit per-manent.1 Making the R&E credit perma-nent has been a consistent, long-time pri-ority for advanced manufacturers. Doingso will increase the certainty associatedwith the tax treatment of research expen-ditures and thereby reduce the risk andcost associated with attracting or allocat-ing capital expenditures to such activities.

Deepen the Pool of Investment

Capital Available to Manufacturers

by Introducing Incentives for

Saving

Another key element for encouraginginvestment is deepening the pool of in-vestment capital available to U.S. busi-ness. To do so, Congress should adopt taxincentives to increase the savings rate ofAmerican taxpayers.

Increasing U.S. savings and invest-ment would also address the growing U.S.trade deficit. By providing incentives forsavings and investment, the United Stateswould reverse one of the main causes ofthe trade deficit, as well as expand accessto, and lower the cost of, capital availableto U.S. manufacturers.


medium-sized businesses that make up thebulk of the U.S. manufacturing sector.

Modernize the U.S. Legal System

to Eliminate Disincentives to

Invest in Manufacturing

The U.S. legal system discourages in-vestment in manufacturing by raising therisk and cost associated with manufactur-ing. There are three steps Congress shouldimmediately take to lift the disincentivesfor investment in manufacturing that thecurrent system of tort liability creates:

Enact Class-Action Reform

Congress should enact a commonsense class-action system through the pas-sage of a consumer “class-action bill ofrights” that would, among other provi-sions, require notice of a lawsuit to classmembers in understandable terms, requirejudicial review of settlements that giveclass members only non-cash benefits, andprohibit a court from approving a settle-ment that discriminates among plaintiffs.

Enact Asbestos Reform

Litigation is an enormously expen-sive means of compensating those injuredby the use of asbestos in constructionprior to the 1970s. Because asbestos is nolonger being used in construction, class-action lawsuits no longer serve even a de-terrent purpose. Congress should enactlegislation resolving the current class-ac-tion litigation on asbestos. The asbestoslitigation continues to dampen invest-ment in manufacturing. Passage of legisla-tion that will ensure compensation forthose actually injured and stop litigationthat destroys jobs is critically important.

Make the Medical Liability System Fair,Predictable, and Timely

The most significant step govern-ment should take to improve the medicalliability system and reduce its costs to U.S.

year-end balances can be rolled over, en-couraging employees to be more cost-con-scious and giving them both an incentiveand the means to save for future health-care needs.

Accelerate the Food and DrugAdministration’s Review of New andGeneric Drugs

In addition to the FDA’s broad effortsto speed the development of safe, innova-tive, and low-cost new health treatments,the FDA continues to expedite the reviewof generic drugs in order to make lower-cost prescription drugs available to con-sumers. The administration has increasedfunding for generic drug reviews by over35 percent over the past two years, allow-ing the FDA to establish ambitious newperformance targets for reducing reviewtimes for generic drugs. Continued FDAperformance improvements will allownew and generic drugs to reach the mar-ket more quickly, resulting in lower pricesfor prescription drugs available under em-ployer health plans.

Implement New Technologies to PreventCostly Medical Errors

To ensure medical treatments arebeing used as effectively as possible andto prevent costly adverse events, thehealthcare industry should adopt and im-plement 21st century technologies suchas bar coding of medical products andelectronic prescribing.

Enact Medical Liability Reform

Congress should enact legislationmaking the medical liability system fair,predictable, and timely. Reforms should in-clude the adoption of standards that en-sure that injured patients are compensatedfully and quickly for their economic losses,while limiting recoveries for non-eco-nomic damages to a reasonable amount.

Taken together, these steps would sig-nificantly reduce the current burden thathigh healthcare costs impose on U.S. man-ufacturers, particularly those small and


Conduct an Analysis of the Inventory

OMB should, in coordination withthe Council of Economic Advisers, theCommerce Department, and other agen-cies, evaluate the proposed reforms and,where appropriate, implement those re-forms on a priority basis. This evaluationshould include an assessment of the costof compliance and the economic impactof current rules, particularly on small andmedium-sized businesses, as well as thecost to the taxpayer and to the consumerof administering those regulations. Theobjective of the review should be to deter-mine whether there might be a less costlymeans of achieving the benefits Congressintended by authorizing such regulations.That analysis should extend to the agen-cies that implement the rules as well. Thiseffort could involve broadening the analy-sis done under section 610 of the Regula-tory Flexibility Act, which currently ap-plies to small businesses.

Conduct a Regulatory Impact Analysis ofNew Rules

Lastly, OMB should rigorously applyits recently developed guidance on regula-tory impact analysis to any proposed rulesthat would influence the costs imposedon the manufacturing sector, particularlyas they affect small and medium-sizedbusinesses. As a part of this effort, thenewly established assistant secretary formanufacturing and services should taskthe new Office of Industry Analysis towork with OMB and other agencies to re-fine the analytical tools needed to assessthe impact of proposed rules and regula-tions on economic growth and job cre-ation in the manufacturing sector andother areas of the economy.

manufacturers would be to adopt stan-dards that ensure injured patients arecompensated fully and quickly for theireconomic losses, while limiting recoveriesfor non-economic damages to a reason-able amount.

In addition, the administration andCongress should undertake a long-term ef-fort to ensure an appropriate balance inthe tort system between plaintiffs’ and de-fendants’ interests. As questions of tort li-ability are frequently adjudicated at thestate level, any such effort would ulti-mately require close cooperation with thestates to ensure the best approach and ahigher degree of consistency.

Reduce the Costs of Regulation

and Legislation

The cost of regulation on the U.S.economy has been the subject of ongoingreviews since the late 1970s. OMB reviewsof proposed regulations, and statutes suchas the Paperwork Reduction Act, havecontributed to that effort. In addition, theBush administration has slowed the in-crease in regulatory costs produced bynew regulations reviewed by OMB by 70percent compared with the previous ad-ministration.

Nonetheless, overall, the cost of regu-latory compliance has risen significantlyover time. To combat these rising costs,OMB should lead a comprehensive three-step process to reduce the burden of regu-lation on manufacturing enterprises:

Establish an Inventory of PotentialRegulatory Reforms that Would Lowerthe Cost of Manufacturing

To establish an inventory of potentialreforms that would reduce the cost ofcompliance on the manufacturing sector,OMB should seek public comment on ex-isting rules and afford the opportunity topropose particular reforms. The requestfor public comment and the nominationof reforms should address existing regula-tions, guidance documents, and paper-work requirements.


most important steps that President Bushhas proposed and on which Congressshould act are:

Increase Electricity Supply andModernize the Legal FrameworkGoverning Electricity Production

Congress should modernize the legalframework governing electricity produc-tion and transmission to lessen thechance of disruptive blackouts and ensurethe delivery of ample and affordable sup-plies of electricity. The provisions shouldestablish mandatory and enforceable relia-bility standards, encourage expanded in-vestment in transmission and generationfacilities, eliminate transmission bottle-necks, reform outdated laws, promoteopen access to the transmission grid, pro-mote regional planning and coordination,protect customers, and help develop newtechnologies.

Facilitate Adequate and EconomicalSupplies of Natural Gas

Congress should facilitate adequateand economical supplies of natural gas byeliminating the regulatory obstacles to thedevelopment of natural gas resources onfederal land and to the construction ofliquefied natural gas terminals and otherinfrastructure, simplify the permit processand facilitate the construction of an eco-nomically viable natural gas pipeline fromAlaska, and encourage additional deep-well gas development on the outer conti-nental shelf.

A Clean and Affordable Diversity ofFuels for Electricity Production

Congress should moderate future de-mand growth for natural gas by ensuringa future for clean-burning coal and nu-clear power, and providing tax incentivesto increase the production of electricityfrom renewable sources such as wind,solar, biomass, and landfill gas.

Enact a Comprehensive Energy

Plan That Encourages

Conservation, Improves

Infrastructure, and Expands

Domestic Production

According to the National Associa-tion of Manufacturers, about one-third ofthe United States’ energy, including 40percent of the natural gas and 30 percentof the electricity, is consumed by manu-facturers. Energy shortages, price spikes,and blackouts disrupt the economy; dis-courage investment in energy-dependentmanufacturing industries, such as chemi-cals and plastics; and inhibit manufactur-ers in those sectors from planning withconfidence and hiring new workers.

Given the significant increase in U.S.energy costs, enacting a comprehensiveplan to encourage conservation, improveinfrastructure, and expand domestic pro-duction is fundamental to the future ofAmerican manufacturing. Adopting acomprehensive energy plan, particularlyone that addresses the need for expandednatural gas production and distribution,would help reduce the cost in some man-ufacturing sectors considerably. Such ac-tion would offer a particular benefit tothose manufacturing industries, such asplastics, that depend on natural gas bothas a source of power and as an input intotheir manufactured goods.

President Bush has proposed a com-prehensive national energy policy thatwould, if enacted by Congress, modernizeand expand our electricity infrastructure,modernize and increase conservation andenergy efficiency, ensure a clean and af-fordable diversity of fuels for producingelectricity, increase domestic energy sup-plies, and increase the development anddeployment of new technology.

In short, Congress should pass Presi-dent Bush’s energy plan to reduce the costof energy to U.S. manufacturers. From theperspective of U.S. manufacturers, the


Investing in InnovationThe discussion above and the views of

manufacturers highlight the need to bol-ster further the development of new tech-nologies that fuel productivity gains andimprove U.S. security and the U.S. stan-dard of living. The following recommen-dations are designed to ensure that theUnited States remains the most competi-tive and productive economy in the world.

Review Federal R&D Funding for

Generic Technologies,

Engineering, and the Physical

Sciences to Encourage Better

Coordination and Focus on

Innovation and Productivity-

Enhancing Technologies

Since taking office, President Bush hasprovided a renewed focus on federal re-search and development funding. For fis-cal year 2004, he proposed a record $123billion, which represented an increase ofmore than 34 percent over funding levelsthat existed when he took office.

Continuing this effort to enhancegovernment funding of research and de-velopment activities is crucial to the con-tinued U.S. success in manufacturing.

Also needed is a review of currentfederal R&D programs important to man-ufacturing, to ensure that there is an ap-propriate focus on innovation and pro-ductivity-enhancing technologies. TheCommerce Department’s Technology Ad-ministration, in coordination with theAssistant Secretary for Manufacturing andServices should conduct this review withother affected agencies, through the Na-tional Science and Technology Council’sInteragency Working Group on Manufac-turing R&D, and the private sector.

The review should consider the needfor additional investment in core R&Dprograms for generic technologies, engi-neering, and the physical sciences, espe-cially in interdisciplinary scientific en-deavors. The model followed should be

New Technology

Congress should encourage furtherresearch and development in new energytechnology, particularly the funding ofPresident Bush’s hydrogen fuel initiativeto develop technology for commerciallyviable hydrogen-powered fuel cells and anew generation of hydrogen powered ve-hicles to help reduce U.S. dependence onforeign oil.

Promote Pension Reform

The administration will work withCongress to make fundamental changes inthe funding rules that will put under-funded plans on a predictable, steady pathto better funding. Improvements in thefunding rules should set stronger fundingtargets, foster more consistent contribu-tions, mitigate volatility, and increaseflexibility for companies to fund up theirplans in good economic times. The ad-ministration will continue to work withCongress and the private sector to addressthis issue.


measurements and standards, and manu-facturing information technologies. Itwould also address the need for new in-dustry-university-government researchdedicated to high-priority manufacturingR&D needs, knowledge diffusion, and ed-ucation of the next generation of manu-facturing technologists and leaders.

Strengthen the U.S. Patent and

Trademark Office

Patents have always been key to re-warding manufacturing innovations, buttheir importance has been magnified bythe fact that the application of new tech-nology has become one of the key ingre-dients in successfully competing in manu-facturing globally. Delay in the issuance ofa patent can mean the difference betweensuccess and failure in today’s marketplace.

The USPTO currently runs the risk ofseeing its processing times erode. The ad-ministration has proposed legislation thatwould significantly enhance the ability ofthe USPTO to meet the needs of U.S. man-ufacturers. Congress should pass this legis-lation to ensure that the USPTO can con-tinue to serve the needs of manufacturersby protecting their intellectual propertyand increasing the availability of newproducts and services in the marketplace.

Strengthen Partnerships to

Promote Manufacturing

Technology Transfer

Robust research and development ac-tivities are essential steps in reinforcingthe process that has provided U.S. manu-facturing with its competitive edge. These activities, however, should bematched with an equally vigorous effortto ensure that the technology developedis diffused broadly throughout the manu-facturing sector, particularly to small andmedium-sized manufacturers, which willbenefit most because of their own limitedcapacity for independent research and development.

the same one that has been used over thepast 50 years to develop the major tech-nologies influencing the U.S. economytoday (semiconductors, computers, net-work communications, biotechnology,and now nanotechnology). This model isbased on government funding of basic sci-ence and early-phase generic technologyresearch, followed by massive investmentin applied R&D by the private sector.

Identify Priorities for Future

Federal Support for Advanced

Manufacturing Technology—

Create an Interagency Working

Group on Manufacturing Research

and Development

To improve the effectiveness of fed-eral investment in manufacturing researchand development, a new interagencyworking group should be establishedwithin the National Science and Technol-ogy Council. This interagency workinggroup would serve as a forum for develop-ing consensus and resolving issues associ-ated with manufacturing R&D policy, pro-grams, and budget guidance and direction.

The working group should identifyand integrate requirements, conduct jointprogram planning, and develop jointstrategies for the manufacturing R&D pro-grams conducted by the federal govern-ment. Among the responsibilities of thisgroup would be to review all federal man-ufacturing R&D programs and establishpriorities designed to improve U.S. manu-facturing technology.

The review would be aimed at identi-fying the timely and critical early-stagedevelopments needed to provide a funda-mental foundation for industrial researchand development and the commercializa-tion of related applications. The reviewwould be comprehensive, covering a widebreadth of manufacturing innovationtechnologies, such as supply chain inte-gration, interoperability technologies,


reach of programs designed to providetechnical assistance to standards agencies,national metrology institutes, and re-gional metrology organizations in the de-veloping world, particularly in significantpotential export markets.

Ensure the Reliability of the

Critical Infrastructure That Is Vital

to Manufacturers

The United States’ most advancedmanufacturing industries and the infra-structures that they depend on—power,communications, and transportation inparticular—are increasingly dependent onsophisticated, distributed automated con-trol systems. Typical of these are the con-trol systems that manage the electricpower grid; similar systems control theproduction and distribution in critical in-frastructure industries such as oil and gas,water, chemicals, pharmaceuticals, metalsand mining, pulp and paper, and durablegoods manufacturing. Protecting thesecritical control infrastructures from fail-ure, either by accident or by malicious in-tent, is essential to the long-term securityof the manufacturing sector—and the na-tion as a whole. Therefore, the followingsteps should be taken:

Promote Standards to Better ProtectIndustrial Control Systems

The federal government should workvigorously and hand-in-hand with the pri-vate sector and state and local agencies toencourage and enable standards develop-ment organizations in the United States toestablish needed security standards for in-dustrial control systems.

Support the Research and Developmentthat Underpins Critical Infrastructures—and Quickly Transfer the Results of ThatR&D to the Private Sector

As part of the administration’s em-phasis on improving homeland security,the federal government today is providing

The PCAST report on technologytransfer of federally funded R&D, releasedin May 2003, provides 10 recommenda-tions for strengthening technologytransfer.2 These recommendations will pro-vide valuable insight for strengtheningtechnology transfer to the manufacturingcommunity.

Implementing these recommenda-tions will require a comprehensive effort,led by the National Institute of Standardsand Technology. As a part of that effort,NIST should take the lead in identifyingand promulgating best practices in intel-lectual property management, cooperativeR&D agreements, and partnering arrange-ments needed to enhance the benefits anddelineate the obligations associated withsuch cooperative efforts. Participationfrom existing groups such as the FederalLaboratory Consortium, the InteragencyWorking Group on Technology Transfer,and others should be solicited in thiscomprehensive effort.

Expand Cooperative Technical

Assistance Programs on

Standards

In an increasingly globalized econ-omy, the capacity to compete success-fully will depend on the ability of indi-vidual manufacturers to satisfy global aswell as U.S. standards. Most U.S. manu-facturers understand the importance ofachieving these goals and have investedheavily in satisfying not only productstandards, but quality and environmen-tal standards as well.

The importance of standards in man-ufacturing will only increase with the de-mands placed on manufacturers hoping tocompete for a place in global supplychains. Indeed, in many respects, interna-tional standards will define access to theglobal marketplace. To ensure that stan-dards with a potential to affect the accessof U.S. manufacturers to markets aroundthe world are set objectively, based onsound science, NIST should expand the


that are helping manufacturers to be morecompetitive and expand markets.

Through this coordination, the Com-merce Department can more closely linkthe technical and business staff employedby the MEP centers located around thecountry with trade promotion specialistsin the Commerce Department’s Interna-tional Trade Administration who areworking with the proposed new AssistantSecretary for Manufacturing and Services.In addition, the ITA has experts with in-depth knowledge of and connections withvarious sectors of industry—automotive,textiles and apparel, energy, aerospace,machinery, metals, and microelectronics,to name a few. With a direct teaming ofMEP field agents and these sector experts,the program can be a more effective na-tional resource to help small manufactur-ers compete and succeed in the globalmarketplace.

Additionally, MEP should hold a rec-ompetition for all MEP centers, with afocus on effectiveness and cost-efficiency.MEP should also explore methods, withCongress, for statutory authority to re-ceive direct programmatic funding fromprivate sector entities.

Wherever possible, MEP should alsoencourage applicants to identify areas ofsector-specific expertise that could qualifythem as a “center of excellence.” MEPshould encourage co-location with univer-sities, community colleges, and ITA assis-tance centers to foster cooperation,knowledge transfer, greater efficiency, andmanufacturing exports. The TechnologyAdministration would lead the establish-ment of these centers by partnering withother organizations—including govern-ment at all levels as well as private sectororganizations.

dramatically expanded support for the re-search and development that is necessaryto protect the nation’s critical infrastruc-tures that U.S. manufacturers and the U.S.economy and society at large dependupon so heavily. In addition, the adminis-tration should ensure that the manufac-turers and users of industrial control sys-tems are involved with—and are keptinformed about—the latest research ad-vances from the Department of HomelandSecurity, the Commerce Department, andelsewhere.

Support a Newly Coordinated

Manufacturing Extension

Partnership and Create a National

Virtual Network of Centers of

Manufacturing Excellence

Since its inception as a pilot programin 1988,3 the Manufacturing ExtensionPartnership (MEP) has provided manysmall U.S. manufacturers with useful busi-ness services to become more competitiveand productive. MEP’s nationwide net-work serves to promote lean manufactur-ing techniques such as zero-defect qualityprograms. The program makes it possiblefor even the smallest firms to tap into spe-cialists from across the country with man-ufacturing and business expertise in plantoperations and on manufacturing floors.MEP clients have experienced moregrowth in labor productivity over a five-year period than similar non-client firms.4

MEP was originally intended to becomprised of 12 federally supported cen-ters, with federal funding ending after sixyears. In its 15 years of operation, the pro-gram has expanded away from this origi-nal design to include 400 locations, andCongress has removed the sunset provi-sion.5 Given advances in manufacturingand technology, it is appropriate to evalu-ate MEP operations and take steps for con-tinuous improvement. The administrationproposes to coordinate MEP fully withother Commerce Department programs


Strengthening Education,Retraining, and EconomicDiversification

To remain globally competitive, edu-cation and worker training strategies mustbe at the top of the national priority list.The administration successfully passed theNo Child Left Behind Act in 2001, and isnow working to fully implement thislandmark education reform. The adminis-tration is also investing $1 billion overfive years to improve math and scienceeducation.

In addition, under President Bush’sleadership, the Departments of Commerceand Labor have worked together through-out the country to link workforce devel-opment efforts with economic develop-ment efforts. Important initiatives includethe Department of Commerce’s EconomicAdjustment Program and the Departmentof Labor’s new 21st Century WorkforceInitiative, which strive to strengthen re-training systems that maintain the U.S.skills advantage in manufacturing. TheDepartment of Labor’s Employment andTraining Administration invests approxi-mately $10 billion a year in an array ofworkforce investment programs.

Building on that record should takethe form of the steps set out below.

Enhance Workforce Skills

Essential for Employment in

Manufacturing Enterprises of the

Future

Manufacturers across the countryraised significant concerns about whetherAmerica was training the next generationof workers required to meet the needs ofan increasingly high-tech workplace aswell as to develop the manufacturing in-dustries of the future. There was clear sup-port for the development of improved vo-cational/technical training at both thesecondary and post-secondary level, aswell as for programs designed to improve

Encourage the Small Business

Innovation Research and Small

Business Technology Transfer

Programs to Focus on

Manufacturing

Two federal programs in particularexist to provide funding to small busi-nesses to pursue R&D: the Small BusinessInnovation Research (SBIR) and SmallBusiness Technology Transfer (STTR) pro-grams. While results to date have beenunclear, these programs can be a catalystfor greater innovation within small manu-facturing enterprises. SBIR and STTRshould place a higher priority on manu-facturing R&D topics that would greatlyleverage innovation in small andmedium-size manufacturing companies.

Explore New Avenues for

Leveraging the Unique

Capabilities of U.S. National

Laboratories and Universities for

the Benefit of Small and Medium-

sized Manufacturers

The National Institute of Standardsand Technology, in collaboration withother federal agencies, and national labo-ratories, should explore the opportunityfor establishing cooperative research pro-grams on innovative manufacturing tech-nologies among national laboratories, uni-versities, the SBIR program, communitycolleges, and state and local technology-development associations. The objectiveshould be to develop a working model ofsuch arrangements that would provide therapid diffusion of research successes intothe private sector, provide access for smallentrepreneurial businesses to sophisticatedresearch tools, and provide training op-portunities, such as for future nanotech-nologists and nanomanufacturers. Thecurrent pace of technological changeplaces a premium on expediting such ini-tiatives. NIST should report its findings tothe Secretary of Commerce in 2004.


Establish a High School and

Technical Education Partnership

Initiative

Congress should pass legislation cre-ating a coordinated high schools andtechnical education improvement pro-gram, utilizing secondary and technicaleducation state grants, as proposed in thepresident’s budget for fiscal year 2004.This program would provide high-qualitytechnical education through partnershipsbetween high schools and postsecondaryinstitutions. Such an initiative, adminis-tered by the Department of Education,would support secondary and postsec-ondary career and technical educationprograms in high-demand occupationalareas. The high school component wouldinclude a challenging academic core toensure that students in the program meetstate achievement standards and obtain aclear pathway to further education be-yond high school, through apprenticeshipor postsecondary technical certificates andassociate or baccalaureate degree pro-grams. Such an initiative will ensure thatstudents are being taught the necessaryskills to make successful transitions fromhigh school to college and college to theworkforce.

Establish Personal Reemployment

Accounts

In any period of economic adjust-ment, the most significant challenge ishow best to ensure that workers who losetheir jobs can successfully re-enter theworkforce. The federal and state govern-ments provide a number of programs de-signed to help workers find new jobs withtraining and re-employment assistance.

Toward that end, President Bush hasproposed a Personal Reemployment Ac-count initiative to assist Americans whoneed the most help getting back to work.This innovative approach to worker ad-justment would offer accounts of up to$3,000 each to eligible individuals to pur-chase job training and key services, such

the skills of career-changing adults inter-ested in manufacturing jobs. There wasalso support for improvements in basicmath and science education, such as thecurrent five-year, $1-billion initiative for anew math and science partnership pro-gram that will strengthen math and sci-ence teaching and education at all levels.

It is important to define the startingpoint for improving the skills and prepara-tion of the U.S. workforce. Toward thatend, the Department of Labor, in conjunc-tion with the Departments of Commerceand Education, should undertake a bench-mark analysis of the existing skills of theU.S. workforce and the future needs of theU.S. manufacturing sector. The effortshould be designed to inform both pro-grammatic changes at the federal level andsuggestions for curricula at the local level.

The analysis should address ways thatfederal programs that support basic educa-tion for elementary and secondary stu-dents will prepare them to enter the work-force without the need for significantremedial education. The analysis shouldcatalog the basic academic skills neededfor individuals entering the manufactur-ing workforce and assess the extent towhich primary and secondary educationin the United States provide those skills.

The second step in the analysis goesto the specialized training needed to suc-ceed in the manufacturing environmentof the future. Historically, U.S. schools,particularly in secondary education, pro-vided a number of opportunities for voca-tional training. Over time, these opportu-nities have declined, and the educationalsystem has relied more heavily on special-ized vocational-technical schools, at boththe secondary and post-secondary level, tofill in the gap. The analysis should exam-ine whether the existing system of voca-tional-technical education is sufficient tomeet the needs of the U.S. manufacturingsector and should propose recommenda-tions for change where needed.


Given that early intervention andplanning are critical for communities atrisk, the first step the task force shouldtake is to identify criteria for determiningwhen a rapid response is needed. The taskforce would then work with the commu-nities identified under these criteria todevelop market-based development poli-cies that seek to retain manufacturingjobs in a community, while beginningthe efforts to diversify the economic baseof the community.

Improve Delivery of Assistance for

and Retraining of Displaced

Workers

The challenges unfolding in manu-facturing and in the job market representa significant change from years past. In-stead of individual industries facing par-ticular adjustment issues due to strongerimport competition, the U.S. economy ingeneral is adjusting to fundamentalchanges underway in the world economy.While that process is particularly acute inthe manufacturing sector, it extendsbroadly throughout the U.S. economy.

Current worker adjustment programs,in general, take one of two forms. Thefirst involves the traditional suite of un-employment insurance and related pro-grams that are designed with the individ-ual worker in mind. That individual’semployment prospects may or may not berelated to more fundamental changes un-derway in the economy. The alternativeform is the suite of trade adjustment assis-tance programs that fund extended unem-ployment and retraining for eligible work-ers. Here, eligibility is defined in terms ofwhether the employee can point to somedirect trade impact that has displaced himor her from a job.

Neither of the current programs fullyaddresses the sort of adjustment under-way in today’s economy. What that calls

as child care and transportation, to helpthem look for a job and get back to workquickly. As a further incentive, recipientswould be able to keep the balance of theaccount as a cash reemployment bonus ifthey become reemployed within 13weeks. The Bush administration has in-cluded Personal Reemployment Accountsin its legislative proposal to reauthorizeand reform the Workforce Investment Act.

Coordinate Economic Adjustment

for Manufacturing Communities

Communities are hard hit when localmanufacturing declines, particularly whena local factory accounts for much of theemployment in a city or town. Just as in-dividuals may need retraining to reenterthe workforce, communities must, attimes, develop alternative bases of eco-nomic development.

The federal government already has anumber of programs available that can beused to develop the competitiveness ofcommunities and support innovation inmanufacturing. The challenge for commu-nities often involves sorting out the pur-poses and requirements of those federalprograms and how they might best be em-ployed or tailored to local circumstances.

What is needed is an interagency fed-eral task force, chaired by the Assistant Sec-retary of Commerce for Economic Develop-ment, to coordinate the efforts of relevantfederal agencies, particularly the Depart-ments of Labor and Education, in address-ing the structural economic challengesfaced by manufacturing-dependent com-munities. The task force would ensure thatall federal agencies work together, coordi-nating resources and strategies to best pro-vide a range of assistance to eligible com-munities. More specifically, the task forcewould provide a means of rapid response,identifying communities where the em-ployment base is substantially dependenton only a few manufacturing companiesand the communities that are at a signifi-cant risk of economic dislocation.


able workers to transform their skills inorder to gain employment in emergingand growing industries. The administra-tion is seeking to strengthen this systemthrough the re-authorization of the Work-force Investment Act. Among the changessought are to make funding more accessi-ble through consolidation, to make thesystem more responsive to business needs,and to strengthen accountability.

for is a fundamental reassessment of bothtypes of programs to see how they mightbest be integrated into a coordinated ap-proach to adjustment, reemployment, andretraining. Toward that end, the Com-merce and Labor Departments, with theassistance of the Department of Educa-tion, should review the existing programsand provide recommendations on howbest to integrate them into a coherentprogram that is dedicated to addressingthe needs of workers affected by the ongo-ing adjustment in the rapidly changingeconomic environment.

This effort should build on the workcurrently underway through the LaborDepartment’s High Growth Job TrainingInitiative. That initiative facilitates collab-oration among employers, industry lead-ers, business associations, educators, com-munity and technical colleges, and thepublic workforce system to tailor trainingprograms to meet local workforce needs.

As part of this initiative, the Depart-ment of Labor is working with the manu-facturing industry and others to conduct anationwide review of workforce chal-lenges. Key manufacturing sectors includeelectronics, motor vehicles, communica-tions equipment, aerospace, plastics andpharmaceuticals. These sectors, and themanufacturing industry in general, areundergoing a transformation as a result oftechnological advances, requiring workersto adopt and perform new skills. Throughcollaborative efforts, the High Growth JobTraining Initiative will identify those skillsand work with institutions to develop suc-cessful training models.

In addition, Congress must pass theBush administration’s plan to strengthenthe Workforce Investment Act. Annually,the Department of Labor spends $15 bil-lion on the nation’s “One-Stop” employ-ment and job training system. Over 3,800One-Stop centers provide services that en-


President Bush has taken the lead inpromoting economic growth and opentrade among America’s trading partners.The coming year presents a number of sig-nificant opportunities to reinforce that ef-fort, including G7 finance ministers’meetings, the G8 economic summit thatthe United States will host in June 2004,and the prospect of concluding tradeagreements with a number of significantU.S. trading partners.

As President Bush has indicated, thegoals of raising growth and increasing sta-bility can best be accomplished in an inter-national financial system that relies on theprinciples of free trade, free capital flows,and market-based flexible exchange ratesamong the major economies.

In addition, the following stepsshould be taken:

Encourage the Growth and Developmentof Foreign Capital Markets

Efficiently functioning capital mar-kets are key to promoting economicgrowth. The United States should pro-mote market-based prices and interestrates, including the phase-out of govern-ment subsidies and directed lending, inorder to allocate capital more efficiently,raise productivity, and encourage eco-nomic growth.

Negotiate Liberalization of Markets forFinancial Services in All TradeAgreements

Consistent with the Bush administra-tion’s proposal in the ongoing WTO nego-tiations, the United States should press forthe elimination of all barriers to trade infinancial services within the WTO and asa part of any bilateral or regional freetrade arrangement, subject to prudentialmeasures. Removing such barriers and in-troducing competition to the markets forfinancial services not only creates newmarket opportunities for U.S. servicescompanies that serve U.S. manufacturers,

Promoting Open Marketsand a Level Playing Field

American manufacturers support anopen trading system in which both theyand their competitors face the same rules.Leveling the playing field internationallywill require a three-part strategy:

1. It will require the encouragementof economic growth and the pursuit oftrade agreements that eliminate barriers toexports of U.S. manufactured goods.

2. It should include the aggressive en-forcement of current trade rules, particu-larly in the context of the World TradeOrganization, to ensure compliance.

3. It should reinforce current effortsto promote exports of U.S. manufacturedgoods and services in growing foreignmarkets. Increasingly, those efforts mustbe adapted to the needs of U.S. manufac-turers and service providers, particularlysmall and medium-sized businesses, by fo-cusing on their ability not just to enterforeign markets, but also to become a partof global supply chains.

The following recommendationsbuild on President Bush’s strong commit-ment to ensure free and fair trade. Theyrepresent a further step toward fulfillingthe three-part strategy outlined above.

Encourage Economic Growth and

Open Trade and Capital Markets

Abroad

One of the key features hamperingboth the prospects for a stronger recoveryin U.S. manufacturing and ensuring a bet-ter balance in U.S. trade is the slow eco-nomic recovery among many major U.S.trading partners. The United States shouldencourage the adoption of growth-ori-ented economic policies as a means ofspurring growth and expanding marketsfor U.S. manufacturers.


Negotiate the Elimination of Trade-distorting Subsidy Practices

Current international trade rules pro-hibit export subsidies, but they do notlimit the means by which governmentscan confer a competitive advantage bysubsidizing production at home. In futuretrade agreements, the United Statesshould pursue the approach adopted bythe administration in the context of WTOnegotiations that seek to expand the exist-ing prohibitions to include a broaderrange of subsidies as well as strengthenthe rules against government financing ofthe private sector, including governmentinvolvement in, or distortion of, capitalmarkets that insulate foreign firms fromcompetition. In particular, future negotia-tions should pursue the elimination of theborder adjustability of indirect taxes toaddress the disadvantages to countries re-lying primarily on direct taxes.

Enhance the Effectiveness of TradeEnforcement Tools

As the Bush administration has donein the context of the WTO negotiations,the United States should seek improve-ments in the tools available for the en-forcement of trade agreements. Disputesettlement procedures should encouragethe prompt resolution of disputes, as wellas a reading of trade agreements that isconsistent with the negotiators’ intent.The administration should also pursue(within the WTO, bilateral or regionalfree trade arrangements, and other forasuch as the current steel negotiations un-derway in the Organization for EconomicCooperation and Development) strongermechanisms for countering trade prac-tices that are not subject to existing or fu-ture trade disciplines.

but also serves as a necessary predicate forefficiently functioning capital marketsthat are key to economic growth.

Negotiate Trade Agreements That

Benefit U.S. Manufacturers

Most manufacturers believe that themost effective step that the U.S. govern-ment can take to promote a level playingfield is to eliminate the barriers that in-hibit market access for U.S. exports and todiscipline the unfair trade practices thatother countries use to afford their firmsan unfair competitive advantage in theglobal marketplace. They also understoodthat doing so means strengthening en-gagement in the process of trade negotia-tions with America’s trading partners.

The following steps would ensurethat such negotiations focus on whatcounts for U.S. manufacturing:

Pursue the Elimination of Foreign Tariffand Non-tariff Barriers to Exports of U.S.Manufactured Goods

Among the highest priorities estab-lished by Congress in passing trade pro-motion authority was the elimination oftariff and non-tariff barriers to the exportof U.S. manufactured goods through bilat-eral, regional, and multilateral agree-ments. The Bush administration’s pro-posal on non-agricultural market access inthe context of the ongoing WTO negotia-tions represents a model to be pursued inall negotiations. It would ensure the elim-ination of all tariffs on manufacturedgoods worldwide, thereby eliminating thecurrent disparity between U.S. tariff levelsand higher tariffs imposed by major trad-ing partners on manufactured goods. Pur-suing a counterpart strategy for non-tariffbarriers is essential, particularly in indus-tries like the automotive sector, where tar-iff barriers are already relatively low andnon-tariff measures have become a signifi-cant means of barring U.S. access to for-eign markets.


would involve the aggressive investigationof allegations of theft of intellectual prop-erty that would violate commitmentsmade under TRIPS or similar provisions ofbilateral or regional agreements, particu-larly allegations in which American man-ufacturers are compelled to divulge intel-lectual property as a condition of marketaccess or investment.

Establish an Office of Investigations andCompliance within the CommerceDepartment

Congress created the position of As-sistant Secretary of Commerce for MarketAccess and Compliance in order to im-prove the Commerce Department’s focuson compliance with trade agreements aswell as on their negotiation. The AssistantSecretary works closely with the USTR andthe Trade Policy Staff Committee agenciesto identify and pursue the elimination offoreign trade practices that violate U.S.trade agreements or distort markets to thedisadvantage of American manufacturersand other sectors of the U.S. economy. Toimprove the Commerce Department’sability to support the USTR and investi-gate allegations of trade agreement viola-tions and market-distorting practices, theAssistant Secretary for Market Access andCompliance should establish an office ofinvestigations and compliance. That officeshould be staffed with skilled investigatorstrained in the development of the factualbasis for potential enforcement action,particularly in those areas that have a sig-nificant effect on market access for U.S.manufactured goods.

Establish a Task Force within theCommerce Department’s ImportAdministration to Pursue theElimination of Foreign Unfair TradePractices

Foreign unfair trade practices thatdistort markets represent a unique subset

Enforce U.S. Trade Agreements

and Combat Unfair Trade Practices

Affecting U.S. Manufacturers

American manufacturers are entitledto the benefits of the agreements that U.S.negotiators reach at the negotiating table.They are also entitled to the aggressive in-vestigation of unfair trade practices thatundercut those agreements, even wheresuch actions are not subject to specifictrade disciplines.

There are a variety of ways in whichU.S. trade agencies could improve theirapproach to the enforcement of tradeagreements and their response to foreignunfair trade practices. They include thefollowing steps:

Reinforce the Efforts of the NationalIntellectual Property EnforcementCoordination Council

To the extent that U.S. investment inresearch and development provides acompetitive edge in the marketplace, theprotection of the intellectual property de-veloped by U.S. manufacturers, which em-bodies the product of that research, be-comes critical to the future of themanufacturing sector. The National Intel-lectual Property Enforcement Coordina-tion Council—made up of the CommerceDepartment (including the USPTO), theUnited States Trade Representative, theBureau of Customs and Border Protection,and the Department of Justice—is respon-sible for ensuring a coordinated approachto such efforts. It is time to reinforce thecouncil’s mission in two important re-spects. The first should be to promote theprotection of U.S. intellectual propertyabroad by expanding cooperative effortswith developing country trading partnersto encourage the full implementation oftheir obligations under the WTO’s Agree-ment on Trade Related Aspects of Intellec-tual Property (TRIPS). One measure couldinclude the placement of U.S. intellectualproperty experts within certain countriesto provide in-country support. The second


Reinforce Efforts to Promote the

Sale of American Manufactures in

Global Markets

U.S. exports of manufactured goodshave fallen significantly in the past twoyears. Although the pace of economicgrowth abroad appears to be accelerating,an expanded export promotion strategyshould help ensure U.S. manufacturershave access to foreign markets that U.S.negotiators have opened. The followingsteps are designed to both improve the co-ordination of and accountability for U.S.export promotion activities, as well as tofocus those efforts in a way that is consis-tent with the current challenges facingU.S. exporters of manufactured goods. Therecommendations include:

Enhance the U.S. Government’s Effortson Behalf of U.S. Manufacturing byConsolidating Commerce DepartmentExport Promotion Functions

Consolidation of all Commerce De-partment export promotion functionsunder a new Assistant Secretary for TradePromotion, who would serve concurrentlyas the director general of the CommercialService, would represent a solid first steptoward improving the promotion of ex-ports of manufactured goods in globalmarkets. That consolidation would im-prove coordination and ensure accounta-bility for the implementation of the Na-tional Export Strategy.

Accelerate Implementation of thePresident’s National Export Strategy

Consistent with the legislation creat-ing the Trade Promotion CoordinatingCommittee (TPCC), the administrationpublished a comprehensive approach toimproving the delivery of government ex-port promotion services. The National Ex-port Strategy contains a series of innova-tions designed to improve the promotionof U.S. exports. Given the sharp decline inU.S. exports in the recent past, the Com-merce Department, as chair of the TPCC,should accelerate the implementation of

of trade barriers. Current trade arrange-ments have significantly reduced the visi-ble tariff and non-tariff barriers to tradeworldwide. They do not, however, inevery instance, impose disciplines onother forms of intervention in markets,such as subsidies, that governments mayuse to confer a competitive advantage ontheir firms. Unchecked, such actions notonly can injure U.S. manufacturers, butalso can significantly undercut the bene-fits of the trade agreements for U.S. pro-ducers while undermining support for theglobal trading system in general.

The existing international trade rules,as well as their counterparts in U.S. law,generally require that an industry proveinjury from unfair trade practices in thecontext of either an antidumping orcountervailing duty action before the U.S.government can take remedial action onits behalf. Furthermore, antidumping andcountervailing duties at best only act indi-rectly to help eliminate the underlyingunfair trade practices at the heart of U.S.industry’s complaints.

The Assistant Secretary for ImportAdministration should form a task forceto investigate allegations of such tradepractices and develop a strategy for pursu-ing their elimination. This would elimi-nate the underlying distortions andthereby reduce the use of anti-dumpingand countervailing duty actions. As partof that effort, the task force should reviewthe implementation of current trade rem-edy rules, such as the procedures govern-ing new shipper reviews. The CommerceDepartment should further establish anoffice within Import Administration to co-ordinate cases involving non-marketeconomies in order to develop an experi-enced core of investigators familiar withthe facts of such investigations and to en-sure consistency in terms of the method-ological approach.


achieve these objectives and to promote aprivate-sector based approach to standardsdevelopment in other nations. The initia-tive should be accelerated and given ahigh priority by the various CommerceDepartment offices involved.

Update and Reauthorize U.S. ExportControl Laws

Manufacturers in some sectors identi-fied U.S. export control laws as an impedi-ment to their competitiveness in interna-tional markets. Although necessary, suchcontrols should be focused on truly sensi-tive goods and technologies consistentwith U.S. national security concerns. TheUnited States should work to ensure thatsuch controls are applied uniformly byour multilateral export control regimepartners. The administration should con-tinue its support for the early passage of arevised Export Administration Act thatwould take into account the changes intechnology and the international market-place, as well as defense-acquisition prac-tices.

The administration should also re-view the existing structure of the U.S. for-eign-trade zone program to determinehow it could be enhanced to provide agreater incentive to manufacture in theUnited States. The Commerce Depart-ment, which is responsible for administer-ing the existing program, should do abenchmark analysis of how other coun-tries make use of their foreign-trade zonemechanisms to determine whether thereare features of those programs that theU.S. government should consider imple-menting, particularly as a means of lower-ing the cost of such programs for smalland medium-sized businesses in theUnited States.

Notes1 The research and experimentation tax

credit is commonly referred to by manufactur-ers as the R&D tax credit.

2 President’s Council of Advisors on Scienceand Technology, Technology Transfer of FederallyFunded R&D (Washington, D.C.: President’s

those innovations to improve theprospects for American manufacturersseeking new markets abroad.

Implement a Global Supply ChainInitiative to Promote Access to theGlobal Marketplace

Manufacturers at every roundtable re-inforced the importance of focusing onaccess not just to export markets, but toglobal supply chains that would takeAmerican manufactured goods into theinternational stream of commerce. TheCommerce Department, in conjunctionwith the TPCC, should develop and im-plement a joint public-private global sup-ply chain initiative to promote access byAmerica’s small and medium-sized manu-facturers into global supply chains.

As part of the initiative, the Com-merce Department should assess the bene-fits of establishing new venues in majorforeign commercial centers to enhancethe services offered to U.S. exporters whilein the country and to provide for on-the-ground expertise, including market re-search capabilities.

Promote Global Recognition and Use ofU.S. Technical Standards

One significant means of expandingthe access of small and medium-sized U.S.manufacturers to global supply chains isto encourage the adoption of U.S. techni-cal standards in world markets for manu-factured goods. With U.S. standards inplace, a small or medium-sized U.S. manu-facturer is, in effect, already “exportready,” saving the manufacturer from theexpense of satisfying more than one tech-nical standard. Recognition and use ofU.S. standards would have the additionalbenefit of reducing the ability of foreigngovernments to use technical specifica-tions as a means to bar access to theirmarkets for manufactured goods. SecretaryEvans launched a global standards initia-tive in spring 2003 that was designed to


16 percent more growth in labor productivityover a five-year period than similar non-clientfirms. The productivity growth of the 1,559firms studied translates into $484 million in ad-ditional value-added at client firms.

5 The Technology Administration Act of1998 (Public Law 105-309).

Council of Advisors on Science and Technol-ogy, May 2003).

3 The Manufacturing Extension Partnershipwas created with the enactment of the Om-nibus Trade Act of 1988 (Public Law 100-418).

4 Researchers at the Census Bureau’s Centerfor Economic Studies found that manufacturingextension clients experienced between 3.4 and


Bob ArmisteadAracor

Philip FokSolectron

Daryl HatanoSemiconductor Industry Association

Greg HinesSolectron

Cynthia JohnsonAgilent Technologies

Juri MatisooSemiconductor Industry Association

Fred NicholsNational Association ofManufacturers

Rockford, Ill., May 12, 2003Industry focus:

HEAVY EQUIPMENT, TOOLAND DIE, MACHINERY

Participants:

Eric AnderbergDial Machine Corporation

Bruce BrakerTooling and ManufacturingAssociation of Chicago

Bob BrunnerIllinois Tool Works

Thomas BurengaWorksave, Inc.

High Point, N.C., April 23, 2003Industry focus:

TEXTILES AND FURNITUREParticipants:

Sam BoydPearson Company

Keith Crisco Asheboro Elastics

Rob GinnCouncill Furniture

Diane HowellKayser-Roth Corporation

Quez LittleNorwalk Furniture

Willis MooreUnifi, Incorporated

Pat NortonLa-Z-Boy Furniture

Jerry RowlandNational Textiles

Anderson WarlickParkdale Mills

San Jose, Calif., May 8, 2003Industry focus:

IT EQUIPMENT,TELECOMMUNICATIONS,COMPUTERS

Participants:


Appendix

List of ManufacturingRoundtables andParticipants

Frank JohnsonManufacturing Alliance ofConnecticut

George LaCapraQuality Rolling & Deburring

Rich LarkinBrown Larking & Co., LLC

Wells LindseyManufacturing Service Corp.

Nick MasiMasi Associates

David NivenDohnam Craft

Steve SasalaGreater Waterbury Chamber ofCommerce

Mark StuartNational Association ofManufacturers

Bruce ThompsonProjects Incorporated

Joe VrabelyAtlantic Steel & Processing, LLC

Manchester, N.H., May 29, 2003Industry focus:

IT EQUIPMENT,TELECOMMUNICATIONS,COMPUTERS

Participants:

Raymond BoissoneauElectropac Company

Mark BuckHypertherm

Marc GirouxCorning, Inc.

Kedar GuptaGT Equipment Technology

James (Giff) KriebelBAE Systems

Gerry LetendreDiamond Casting & MachineCompany

Hong YuMetrobility Optical Systems

Gerald BusseRockford Toolcraft, Inc.

Michael CayleyMIDACO Corporation

Allan CurranRoyal Products

Lloyd FalconerSeward Screw Products

Mary Rose HennesseyNIU Biz Coalition for Manufacturing

Michael HetzelAmericas for ProQC International

Bill HickeyLatham-Hickey Steel Corp.

Phil JamesIngersol Production Co.

John KaminskiE.D. Etnyre & Company

Alan D. KinslerSellstrom Manufacturing

Bill LeeNavagation Consulting Group

Richard LingusRockford Consulting Group, Ltd.

Mike LynchIllinois Tool Works

Howard NewelHammil Tool

Alan PetrucciBA Die Mold, Inc.

Dan ProvonsanoTeletool Manufacturing

James J. ZawackiGR Spring & Stamping, Inc.

Washington, D.C., May 20, 2003Industry focus:

MACHINERYParticipants:

Jay CarlsonG&R Manufacturing

Richard DemseyDemsey Manufacturing Co., Inc.

Chris Gemino and Robert HecheGaynor Electric Co., Inc.

Bob HawieHawie Manufacturing


Len PoliM. Carder Industries

Kenneth SheadIDS Boeing

Don WainwrightWainwright Industries

Summit, N.J., June 30, 2003Industry focus:

PHARMACEUTICALS,BIOTECHNOLOGY

Participants:

Joseph CherryCR Bard

Joe FuscoNovus Fine Chemicals

Stephen GreeneG&W Laboratories

William HealyHealth Care Institute of New Jersey

Michael KatzCenogenics

Christian SchadeMedarex

Washington, D.C., June 24, 2003Industry focus:

MANUFACTURING IN 2020Participants:

Arden BementNIST, Department of Commerce

Ron BlackwellAFL-CIO

Cary CrouseDelphi, Inc.

Tom DuesterbergManufacturers Alliance/MAPI

Steven EmpedoclesNanosys, Inc.

Juan Enriques-CabotHarvard Business School

Terry LisenbyNucor Steel, Inc.

Martha MorrisIBM

Milwaukee, Wis., May 29, 2003Industry focus:

FOOD PROCESSING,PACKAGING, HEAVYEQUIPMENT

Participants:

James BuchenWisconsin Manufacturers andCommerce

Mark HardwickP&H Mining Equipment

Joe MorrisseyConflex, Inc.

Rick PatekTelsmith, Inc.

Steven PolonowskiKrones, Inc.

Steve TylerCNH

Mike WhiteRite-Hite Corporation

St. Louis, Mo., June 13, 2003Industry focus:

CHEMICALS, AVIONICS,BIOTECHNOLOGY

Participants:

Bill BachmanBachman Machine Company

Robert BurnsPatriot Machine

Stewart DahlbergJ.D. Street & Co.

Gerald DanielsEngineered Support Systems

Kimberly HaydenSupreme Tool & Die

Ray McCartyMissouri Chamber of Commerce and Industry

Mike MittlerMittler Brothers Machine & ToolCompany


Steve ProutAlpha Q

John SalceHygrade Precision Technologies

Bruce ThompsonProjects, Inc.

Los Angeles, Calif., July 7, 2003Industry focus:

MINORITY-OWNED ANDSMALL MANUFACTURERS

Participants:

Candance ChenPower Clean 2000, Inc.

Maria de Lourdes SobrinoLulu’s Dessert

Frank VillalobosBarrio Planners, Inc.

Linda WongCommunity DevelopmentTechnologies Center

Columbus, Ohio, July 8, 2003Industry focus:

METALS, TIRES, PLASTICSParticipants:

Lowell DunckelGoodyear

Steve GiangiordanaRTI International Metals

Mitchell HechtInternational Steel Group

Robert StevensImpact Forge

John VaughtTri-Cast

Leo J. ReddyNational Coalition for AdvancedManufacturing

Ross E. RobsonShingo Prize for Excellence inManufacturing

George ScaliseSemiconductor Industry Association

Amram ShapiroPittiglio, Rabin, Todd & McGrath

William StraussFederal Reserve Bank of Chicago

Michael TiemanRed Hat Software

Tim Timken, Jr.Timken Corporation

Bruce TompkinsInstitute of Industrial Engineers

Frank VargoNational Association ofManufacturers

Jim ZawackiFR Spring and Stamping

John ZysmanUniversity of California at Berkeley

New Britain, Conn., July 7, 2003Industry focus:

AEROSPACE, MACHINERYParticipants:

Lou AulettaBauer, Inc.

Murry GerberNational Association ofManufacturers, Small and MediumManufacturers Group

Frank JohnsonManufacturing Alliance ofConnecticut

Bill LeeThe Lee Company

Mick MauerSikorsky Aircraft Group

Ted MalkowskiContinental Machine Company

Al MulveyPratt & Whitney


Detroit, Mich., July 9, 2003Industry focus:

AUTOMOTIVE PARTSSUPPLIERS

Participants:

Christopher BatesMotor & Equipment ManufacturersAssociation

Jason BrewerE&E Manufacturing

Ron CutterTRW Automotive

Neil DeKokerOriginal Equipment SuppliersAssociation

Sylvia VogtRobert Bosch Corporation

John VoorhorstDenso International

Washington, D.C., July 10, 2003Industry focus:

FOUNDRYParticipants:

Michael BeyersdorferSawbrook Steel Casting Company

G. Edward CurtisHarrison Steel Casting Company

Shane DowneyAmerican Foundry Society

Jim LajeunesseBronze Craft

Jim MalloryNon-Ferrous Founders Society

Bill MartinNeenah Foundry

Joe MayerCopper Brass Fabricators Council

Raymond MonroeSteel Founders Society

Russell SymmesAluminum Foundries

Fred WiltonWilton Armetale Company

Trenton, N.J., July 8, 2003Industry focus:

CHEMICALSParticipants:

Ashok BalarClariant Corporation

Hal BozarthChemical Industry Council of NewJersey

W. Dexter BrownNational Starch and ChemicalCompany

William FeeMagnesium Elektron, Inc.

Ron FennPolarome International

Charles A. LynchNew Jersey Commerce andEconomic Growth Committee

Roger MaddenChurch & Dwight

Salvatore MonteKenrich Petrochemical, Inc.

Ron MunsonChurch & Dwight

Gerald PechulisValero Energy

Gene ReinhardtDow Chemical

Jeff StollerNew Jersey Business and IndustryAssociation

Ed Van EkC.J. Holt


Minneapolis, Minn., July 14, 2003Industry focus:

MEDICAL DEVICESParticipants:

Daniel B. Garry3M

Keith GuggenbergerStarkey Labs

Stephen OesterleMedtronic Inc.

Marge SearingAdvanced Medical TechnologyAssociation

Phillip VierlingEMPI

Paul J. WagnerMinnesota Wire and Cable

New Orleans, La., July 22, 2003Industry focus:

ENERGY, ELECTRICITY,OIL AND GAS EQUIPMENT

Participants:

Guy BaroneXenetech, Inc.

Chris BollingerBollinger Shipyards, Inc.

Murphy BourkeGulf Island Fabrication

William CoyleBilco Tools, Inc.

Leo GuidrozOil Stop, LLC

Von HatleyLouisiana Department of EconomicDevelopment

Rick KellyPellerin Milnor Corporation

Chicago, Ill., July 10, 2003Industry focus:

HIGH TECHNOLOGYParticipants:

Shail GodambeMotorola, Inc.

Anthony HilversIPC

Richard PaullinIllinois District Export Council

Candy RenwallChicago Software Association

Ramesh SethS.I. Tech, Inc.

Mike SkarrNaperville Chamber of Commerce

Robert WeskampWes-Tech, Inc.

Ray WillisZuchem, Inc.

Des Moines, Iowa, July 11, 2003Industry focus:

GENERALMANUFACTURING

Participants:

Ralph BurchfieldFirestone Tires

Daniel B. Garry3M

Alan OakGoodrich

Bob JenningsEFCO

Christopher NelsonKemin Industries


Washington, D.C., Aug. 14, 2003Industry focus:

WORKFORCE ANDEDUCATION

Participants:

Sandra Carney-TalleyAerospace Industries Association

Edward DooleyAir-Conditioning and RefrigerationInstitute

Phyllis EisenNational Association ofManufacturers

James HughesNorthrop Grumman

Steven MandesNational Institute for MetalworkingSkills

Dan MeckstrothManufacturers Alliance

Branka MinicManpower, Inc.

Tony RaimondoBehlen Manufacturing

Michael SmeltzerManufacturers Association of SouthCentral Pennsylvania

Richard WalkerNational Tooling and MachiningAssociation

Allen PorterAllen Process System

Brett ReaganPoint Eight Power, Inc.

Rodder RussoStabil Drill Specialties

Arthur ZatarainTEST Automation & Controls

Washington, D.C., July 24, 2003Industry focus:

AUTOMOBILEMANUFACTURING

Participants:

Edward CohenHonda

Steve CollinsAutomotive Trade Policy Council

Josephine CooperAlliance of AutomotiveManufacturers

Marie KisselDaimlerChrysler

Curt MaglebyFord Motor Company

Tim McCarthyAssociation of InternationalAutomobile Manufacturers

Mustafa MohataremGeneral Motors

Harland ReidNissan

Doug WestToyota


Washington, D.C., Sept. 5, 2003Industry focus:

FOREST PRODUCTSParticipants:

George Glatfelter IIGlatfelter Company

Donna HarmanAmerican Forest and PaperAssociation

Kenneth Jastrow IITemple-Inland, Inc.

John A. Luke, Jr.MeadWestvaco Corporation

Henson MooreAmerican Forest and PaperAssociation

Arnold M. NemirowBowater, Inc.

Ft. Lauderdale, Fla., Aug. 19,2003

Industry focus:

AEROSPACEParticipants:

Carlon AaronHialeah Metal Spinning

Dan BeckerBoeing

Reynaldo BlancoFlorida Air Transport

Stan BodnerGreater Miami Aviation Association

Ken CookseyEnterprise Florida

Michael FatigHoneywell, Inc.

Ken KrauterNew Port Director

Bill LewandowskiAerospace Industries Association

Sam PlummerGEAR Technologies

Jim RoubianHEICO Corporation

Kenneth SitomerVHL Aircraft Inc.

Al StimakMetal Essence

James SwansonSwanson Tool
