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Part II
Presented Papers: Manufacturing in the U.S. Economy



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New Directions in Manufacturing: Report of a Workshop Part II Presented Papers: Manufacturing in the U.S. Economy

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New Directions in Manufacturing: Report of a Workshop 4 Keynote Address: The Administration’s Manufacturing Policy Samuel W. Bodman Deputy Secretary, Department of Commerce These are momentous times here in Washington and around the world. We are a nation awakened to danger and acutely aware of risk. We are a nation at war. Like many of you, I spent my weekend glued to the television. The images that we are seeing serve as constant reminders of the courage and sacrifice of the men and women who are defending our nation’s most precious and steadfast ideals: freedom, equality, and hope. In these uncertain days, we can all be certain of the resolve and resiliency of the American people, the great skill and bravery of the fine men and women of our military, and the strong and courageous leadership of their commander in chief. I have seen President Bush in action and I can tell you that we are most fortunate to have him at the helm. He is a decisive leader totally dedicated to protecting the American people. As our armed forces confront this great threat to peace and freedom in Iraq, we all must push forward with our work here at home. And so we are here today to discuss a topic that is of significance to all Americans—to our economy, to our health, to our security, and to our way of life—the U.S. manufacturing sector. It’s a topic of great importance to me, to Secretary Evans, and to President Bush. The secretary and I look forward to getting a full report on this event and to reviewing the Academies’ analysis. I trust that this forum will provide valuable insights into the major trends that will influence manufacturing in the coming decades, with the goal being to highlight future opportunities as well as challenges. I understand that over the course of the next 2 days you will discuss, among other issues, the economic significance of manufacturing to both rural and urban America, as well as some of the major drivers that affect manufacturers, like labor costs and training, globalization, and technological advances. You also will examine the policy and regulatory structures that our nation’s manufacturers confront. I know that you’ll be hearing from a host of experts on this wide array of topics, and I appreciate this opportunity to offer my two cents. Let me start off by restating the obvious: The U.S. manufacturing industries are vitally important to our economy and to our nation. The manufacturing sector directly employs more than 18 million people in this country. Manufacturing drives economic growth and prosperity. Over the past 50 years, large productivity increases in the manufacturing sector have powered this country’s economic boom. In the last decade alone we have seen enormous productivity gains from the manufacturing sector. For example, in durable goods—the heart of technology-intensive manufacturing—productivity surged 39 percent from 1994 to 2001, more than twice the 16 percent growth of the economy overall. Our prosperity and future growth are tied to the performance of the nation’s more than 300,000 manufacturing businesses. While we often focus on the impressive economic statistics, manufacturing is more than just an engine for growth. It is about research and innovation, higher incomes, and quality-of-life improvements for all Americans. Our nation’s manufacturing industries account for about two-thirds of private research and development expenditures. Even during the industrial downturn of the last 2 years,

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New Directions in Manufacturing: Report of a Workshop manufacturing industries have maintained a high level of research and development spending. More than 90 percent of all U.S. patent approvals originate in the manufacturing sector. And our manufacturing sector consistently meets the changing needs of national defense and homeland security. The bottom line is that manufacturing matters to our economic health and to the citizens of this country. Yet, there is no doubt that this important sector is hurting, and has been for some time. The manufacturing industries have experienced 30 consecutive months of declining employment, with a total job loss of over 2 million. President Bush believes that a robust manufacturing sector is essential to our economy at all levels—state, regional, national, and global. He also knows that the past 2 1/2 years have been tough ones for many U.S. manufacturers. The President recognizes that as global competition continues to evolve for our industries, so too must our policy and regulatory structures. Many U.S. companies are taking effective actions to respond to low-cost competitors, to counter rising energy prices and health care costs, and to meet other challenges. And government policies also must adjust to enable—not impede—U.S. companies as they grow, innovate, and create new jobs. I have heard the President say many times that government doesn’t create wealth, people do. He believes—and Secretary Evans and I share this view—that our job in government is to create the right environment for businesses to flourish and prosper. This administration is taking important steps to create just such an environment. Collectively, our policies aim to stimulate economic growth and create jobs; remove counterproductive red tape; foster free and open trade; prime the pump of innovation by increasing the federal investment in research and development; secure and enhance the nation’s vast and varied infrastructure; and ensure a strong domestic capability to meet the needs of national defense and homeland security. I’d like to highlight a few top priorities for you. First and foremost, I can tell you that this administration is focused on getting our economy going at full speed. America has the strongest, most resilient economy in the history of this world. Yet right now, our economy is not creating enough jobs and is not growing as fast as any of us would like. The President knows that American workers are the backbone of our economy and that business is the engine of growth and prosperity, keeping our country moving forward. And that is precisely why he has put forward a plan that will spur economic growth and create jobs. The plan works on two fronts: it encourages business investment and it ensures that consumption will continue to grow. The President proposes to speed up tax relief to individuals and families, putting more money in consumers’ pockets. Ninety-two million taxpayers would receive an average tax cut of about $1,100. The plan also encourages job-creating investment in American businesses by tripling the expensing limits for small businesses (from $25,000 to $75,000) and abolishing the double tax on dividends. Today, this country has the highest effective tax rate on dividend income (about 60 percent) of any G-7 nation. By making such a huge claim on the profits of our nation’s employers, the federal government undermines competitiveness. By ending double taxation, we will cut this rate nearly in half (to 35 percent), freeing an estimated $20 billion for our economy and making business investment a far more attractive proposition. The President’s plan makes good sense, and it is fair. This economy needs it, our nation’s employers need it, and American workers need it. We can have the best policies, the best environment for manufacturing, and still not compete in the future unless we excel in both developing and effectively integrating technologies. Technology certainly has a prominent role in the performance and long-term prospects for all U.S. industries, especially the manufacturing sector. It’s been said that technological progress shaped the 20th century. Many believe that it will define our new century. When we talk about technology, we should not only consider information technology and

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New Directions in Manufacturing: Report of a Workshop biotechnology. To be sure, increasing computational power and connectivity offer enormous potential to convey knowledge, transact commerce, and raise productivity. And biotechnology is full of incredible promise that is only now starting to be realized. But technology spans a much larger spectrum, as all of you know. It encompasses materials and machine tools, energy systems and systems engineering, aerospace and atomic clocks, automobiles and autonomous combat vehicles, food processing and chemical processes, and on and on. The point is simply this: Advances in science and technology present us with an incredibly rich—and ever-growing—array of manufacturing opportunities. From somewhere within this wealth of possibilities will come the next technology revolution, the “next big thing.” Make no mistake: Our competitors are not standing idly by. From Europe to China, our companies are facing fierce and fast-paced competition. As U.S. industry races toward the “next big thing,” we need a strong manufacturing sector. As I mentioned at the outset, U.S. manufacturers fund a sizable component of the nation’s innovative capacity, the driver of future national prosperity. The federal government also has a critical role to play in fostering innovation and in realizing the tangible benefits that begin with advances in science and technology. Federal funding of basic research takes us further into the technology frontier, where the seeds of new opportunities are planted. U.S. leadership in many key areas—pharmaceuticals, semiconductors, Global Positioning Satellites, the Internet—often began with federally funded research performed at universities, in industry, or at government laboratories. The President is committed to maintaining America’s technological leadership. Since taking office, the President has proposed record levels for research and development: $123 billion in 2004, up more than 25 percent since taking office. The future of our manufacturing sector and the future of our national economy require no less. There are certainly many other topics that I could discuss with you today that influence our manufacturing base, for example, our aggressive efforts to promote free trade. We know that trade is an engine of economic growth. It spurred our most recent economic expansion, accounting for roughly one-quarter of U.S. economic growth in the 1990s. About 12 million jobs in this country, many of them in the manufacturing sector, depend on exports. On the topic of trade, I have to mention a big victory for the American economy: trade promotion authority, or TPA, as we call it here in Washington, which the President signed into law last summer. While TPA lapsed, the United States was sidelined in negotiations. We are pushing forward on negotiating trade agreements. In December, we concluded free trade negotiations with Chile and Singapore. And we are pursuing negotiations with Morocco, five Central American countries, the Southern African Customs Union, and Australia. We continue to work with our trading partners to open markets, to bring about real and lasting tariff elimination, and to reduce technical barriers to trade, like standards that are developed and applied in ways that obstruct market access. We are being very aggressive about this. So aggressive, in fact, that some of our chief trade officials in the Commerce Department are no longer welcome in certain countries! I believe that now is a very appropriate time to take a comprehensive look at the state of U.S. manufacturing. We are doing our part at the Commerce Department. A cross-agency senior leadership team is preparing an assessment of the issues influencing the long-term competitiveness of U.S. manufacturing industries. Others are launching similar and, we should make sure, complementary efforts, such as the President’s Council of Advisors on Science and Technology and several members of Congress. I believe that the National Academies bring a unique and critical perspective to this issue. Unlike political or business leaders, scientists are trained to pursue the truth. Rather than telling us what we want to hear, we are counting on you to tell us what we need to know. And to do this you will have to ask some tough questions and then follow the facts wherever they may lead. For example: Do we have the right metrics for

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New Directions in Manufacturing: Report of a Workshop measuring manufacturing competitiveness? Many point to the loss of two million jobs as an indicator of manufacturing decline. And whenever two million Americans lose their jobs, we are all very concerned. Yet we have to ask if total employment is the best gauge for the future. Technology is enabling increases in productivity and capital substitution for labor. Emerging technologies promise dramatic changes in the manufacture of many products. So as we assess our manufacturing strengths and challenges, let’s make sure we are counting the right things. Another question: Do our policies permit the evolution and responsiveness so critical to a market economy? America has succeeded by rewarding risk and permitting failure. This means that the manufacturing sector of tomorrow will be very different from that of yesterday or today. Do our policies protect the status quo or do they enable our manufacturers to lead the global changes that are inevitable? And are our manufacturers leveraging the best in new technologies to maintain leadership, especially with respect to new processes? Are we investing in the right research and development? Are our manufacturers able to understand and integrate these innovations to achieve competitive advantage? We may not know the answers, but we certainly must not fear the questions. I know you will tackle these and many other issues. What we all do know and agree on is that manufacturing is—and will remain—vital to our economy and to our nation. And I’ll end on that note. Again, I look forward to your conclusions and recommendations. I thank you for allowing me to share a few of my thoughts with you. And I wish you all a productive conference.