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4
Considerations for Government
While the technological and organizational changes needed in
manufacturing will be the result of market pressures and private
initiatives, government policies will play an important role in set-
ting the economic and political environment for private business.
Workers, managers, and technologists will develop and implement
the strategies necessary to have a competitive manufacturing sec-
tor in the future. Their acceptance of change, pursuit of new
breakthroughs, and willingness to take risks will determine the
long-term competitiveness of U.S. manufacturing. Government
policies can stimulate this process, and every tax, spending, and
money supply decision has an impact, but it is very difficult to
identify specific policies that would be indisputably beneficial and
politically acceptable across the broad spectrum of U.S. industry.
Reports from both public and private groups have made specific
policy recommendations (see Appendix C). The value of adding a
set of similar recommendations, or even of endorsing what others
have said, was thought to be negligible.
The magnitude of the changes that the Manufacturing Stud-
ies Board (MSB) is forecasting for U.S. industry, however, should
have an impact on the way policymakers think about manufac-
turing. Policymakers will need to recognize that the policies used
in the past to help domestic manufacturers may no longer pro-
vide the desired results and that the policies used by government
agencies as consumers of manufactured products may no longer
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be effective. For instance, if the changes needed are as profound
as this study indicates they will be, many companies in many in-
dustries will be unable or unwilling to adapt. These firms will
want to maintain the status quo and undoubtedly will petition
government to slow or stop the process of change. Calls for trade
protection, tax relief, or direct subsidies may result in policies
that work against the long-term goal of a competitive manufac-
turing sector and are detrimental to the long-term health of the
firms or industries being helped. Experience demonstrates clearly
that in all but a very few cases, such government intervention has
slowed change as intended, but has also damaged the interests of
consumers and other industries and has not helped the long-term
prospects of the industry assisted.
Government assistance may sometimes be unavoidable, but
it should be contingent on explicit commitments by the industries
involved to make the changes necessary to regain their compet-
itiveness. Such a quid pro quo for government assistance would
create the correct impression within the affected industry that
change is mandatory and that the industry itself must devise and
implement the necessary strategies. Government policies can help
ease the dislocations suffered by various industries and regions by
using a process that stimulates future growth rather than preserv-
ing the status quo.
Demanding an explicit quid pro quo in return for trade pro-
tection, loan guarantees, regulatory relief, or other government-
provided support represents a departure from past government
practice. Other government initiatives to support manufacturing,
however, need not require dramatic changes in policy. Existing
programs provide unemployment compensation, training and re-
location assistance, trade adjustment assistance, and protection
against dumping by foreign firms. These programs may receive
inadequate funding or include too many restrictions to provide
sufficient support in a changing environment, but they continue
to represent important government support mechanisms. Federal
activities in transportation, education, research, and defense di-
rectly benefit the competitiveness of U.S. manufacturers. These
and many other federal efforts contribute to the economic and so-
cial infrastructure in a way that ensures that all firms are affected
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fairly and that progress and success depend on market factors, not
government.
These types of supports should continue to be the major pri-
ority in government policy toward manufacturing. In addition,
several areas of traditional federal concern that will be affected by
the coming changes in manufacturing may need to be reevaluated
to ensure the continued efficacy of government programs. The
areas are trade, education, research, and defense.
TRADE
Continued progress in international economic development
and the growing internationalization of the U.S. economy will cre-
ate increasingly strong competition in manufactured goods from
an expanding number of foreign producers, even in industries that
traditionally have not had significant import competition. These
developments will change the international and domestic trading
Environment. Two specific developments should be of particular
interest to policymakers.
First, while an open and fair international trading system
should continue to be the goal of U.S. policy, it may be increas-
ingly difficult to devise effective trade policy, in part because of
the diminishing number of clear-cut trade policy tools. Flexibility
in U.S. trade policy will be hampered by such factors as the grow-
ing number of foreign manufacturing facilities in this country, the
increasingly complex pattern of equity ownership across national
boundaries, a growing incidence of foreign products in the product
lines of domestic manufacturers, and a trend among multinational
companies to make components in scattered plants and assemble
them at a single location. It is becoming increasingly difficult to
determine what is an American firm and just what is meant by
"U.S. manufacturing.n In such an environment, any trade measure
designed to benefit domestic producers or encourage other coun-
tries to open their markets not only will result in additional costs
to domestic consumers but also may have conflicting effects on a
single industry or even a single company. Developments among
private firms, specifically the integration of international produc
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tion facilities, may increasingly preempt the ability of the federal
government to make a substantial positive difference in trade.
One exception to this general trend, however, should be noted.
Government protection of intellectual property rights will be an
important and essential support for U.S. companies competing
in both domestic and foreign markets. Too many foreign com-
panies have used infringement of patents, trademarks, and copy-
rights to establish market share, sometimes with shoddy goods
that damage the reputation of the original manufacturer. Ef-
fective enforcement across national borders has proven difficult,
particularly when foreign governments are slow to recognize the
problem, and delays compound the damage. Court proceedings
can sometimes award restitution and legal sanctions against con-
tinuec} infringement, but such "solutions" are too time-consuming
and often temporary. U.S. manufacturing companies and U.S.
consumers have a tremendous stake in this issue because together
they are the major victims. Provisions in the 1984 Trade Act
make benefits under the U.S. general system of preferences condi-
tional on the protection of copyright by the importer of American
works; this initiative already has begun to have an impact. The
U.S. government must remain committed to continued vigilance
and the implementation of strong sanctions to ensure quick and
effective resolution of international patent, trademark, and copy-
right infringements.
A second development in the trade area is that U.S. firms
that have had no experience with foreign trade will be thrust into
the international economy as imports compete in a growing range
of products and markets. In response, many manufacturers will
adopt new technologies and management techniques and in most
cases will compete effectively against imports in the domestic mar-
ket. Many firms, however, may not consider competing in export
markets unless they receive special encouragement, as well as help
in securing expertise and information. Government programs al-
ready exist to provide this assistance, and private initiatives can
be expected to meet many of these needs, for example, through
export trading companies, but policymakers should be aware of
the need to expand the export base as much as possible and rec
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ognize the potential for additional government efforts in ensuring
access to foreign markets and encouraging export activity.
EDUCATION
The reduction of direct employment opportunities in man-
ufacturing and the different skill requirements of future manu-
facturing jobs will put new demands on postsecondary training
and education. Technical schools will need to base their training
for displaced workers and young people entering the labor force
on realistic reassessments of industry's skill requirements, recog-
nizing that industry's ability to predict its needs sufficiently in
advance to accommodate educational planning cycles is weak at
best and that most future manufacturing jobs will not be on the
factory floor. Furthermore, skill requirements for the remaining
positions in manufacturing may vary significantly among plants,
creating a need for customized training programs. Cooperation
between public educational institutions, such as technical and vo-
cational schools, and private training programs can be expected to
increase, but there also may be increasing policy debate over the
distinction between the responsibilities of public education and
private training needs.
At the university level, manufacturing will compete with
other sectors for broadly educated engineering graduates, and
rapid technological change will make it more necessary for older
engineers to update their skills. The conflicting pressures of a
growing demand for knowledgeable engineers and a rapidly ex-
panding knowledge base will increasingly strain the ability of uni-
versities to supply enough engineers with broad-based knowledge.
A balance is needed between good grounding in one field and in-
terdisciplinary instruction. That balance is likely to improve as
industry learns how to articulate its needs and as salaries reflect
those needs.
A shortage of engineers would pose a serious barrier to prog-
ress in manufacturing and many other fields. There is continuing
debate about the likelihood of a shortage of engineers-some ob-
servers claim a shortage already exists. Part of the debate stems
from the relative decline in the number of U.S. students in post
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graduate engineering programs. This drop seems to reflect in-
dustry's high demand for baccalaureate-level engineers and the
small perceived benefits of a postgraduate degree. If the situa-
tion is detrimental, industry should work with universities and
government to provide incentives for postgraduate study and ad-
just compensation levels to encourage more postgraduate work.
Of course, an overall increase in engineering students would in-
crease the pool of potential graduate students, so efforts should
be made to increase the number of students entering engineering.
This is a complex problem, requiring adjustments on at least two
levels. First, students leaving high school wiD need a thorough
grounding in mathematics and science so they will be interested
in and not intimidated by engineering curricula. Second, relative
starting salaries must be adjusted to encourage bright students to
enter engineering instead of other lucrative fields. Both of these
adjustments require a commitment by society in genera] that man-
ufacturing is important and a desirable career choice.
In management education, future business programs at both
the undergraduate and graduate levels will need to reflect the ex-
tensive organizational and technological changes on the factory
floor. For example, the criteria for operational decisions are likely
to change significantly, which management education must reflect.
The relationships between individuals and functions in the fac-
tory environment also will change. Graduates will need realistic
expectations to become effective in the new environment. Pro-
visions also will be needed to educate current managers about
new production processes, strategies, and goals to change their
traditional approaches to factory management. As with worker
retraining, company-provided training and public education will
need to work in partnership to produce effective manufacturing
managers.
RESEARCH
A major advantage of U.S. manufacturing has been in basic
research and the resulting product and process applications. A1-
though the nation continues to spend far more than other coun-
tries on research and development, the U.S. share of world research
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spending has declined steadily in the past 20 years as other coun-
tries have increased their expenditures. The United States can no
longer be assured of unchallenged leadership in research findings
and applications. This shift could prove crucial to manufacturing
competitiveness.
Manufacturing is becoming increasingly science based; that
is, scientific knowledge is virtually a prerequisite to the effective
design and implementation of advanced process technologies. The
integrative nature of future manufacturing technologies (see Chap-
ter 2) is less tolerant of imprecise data than traditional manufac-
turing operations. The "art" of a skilled machinist, for example,
cannot be duplicated exactly by an automated machining center,
especially for a complex part. The machine must "knows what is
happening at the interface of the part and the cutting tool, which
varies tremendously with the material, size, and shape of both the
part and the tool. Enough is known about the various interactions
to automate the basic machining process, but the fundamental sci-
ence is poorly understood. It will need to be known in detail as
tolerances get tighter and the number of available materials and
processing technologies changes. Just to program this one ma-
chining application involves thermal dynamics, materials science,
surface physics, and a number of other disciplines; given the huge
number of process activities in the factory, the need for scientific
research explodes.
The required level of investigation will be far more precise
than it has been traditionally. Even now, research into the sur-
face behavior of materials is being conducted at the atomic and
subatomic levels. These and other research efforts require sophisti-
cated equipment, controlled environments, well-trained personnel,
and time costly but necessary inputs for progress. The ability
of supercomputers to simulate physical phenomena may help con-
tro} costs, but actual experimentation and measurement cannot
be replaced completely.2
As these developments unfold, federal support of basic re-
search in both government laboratories and universities will be
increasingly important to the health of U.S. manufacturing. For-
eign competition, more sophisticated research, and the burgeoning
need for scientific knowledge in many aspects of manufacturing
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will place growing demands on federal research funds. Policymak-
ers will need to recognize the increasing importance of research
in the long-term competitiveness of manufacturing and allocate
resources accordingly.
DEFENSE
Rapid technological progress in manufacturing in defense-
related industries will be even more of a cornerstone of defense
r policies than it has been in the past. For a number of historical
reasons, the U.S. defense posture has been based on technologi-
cal superiority of weapons systems, which depends increasingly on
sophisticated manufacturing processes. Advances in manufactur-
ing technologies will provide broad benefits in terms of the abil-
ity to design and manufacture increasingly complex weapons sys-
tems. The technologies will bring higher quality at lower cost with
more cost-effective customization capabilities and better price-
performance ratios (see Chapter 2 and Appendix A). Advanced
technologies will give defense contractors the responsiveness, flex-
ibility, and cost effectiveness necessary to meet a broad range of
weapons design requirements and production schedules. The new
manufacturing processes made possible by new technologies also
will result in completely new products. Defense officials there-
fore have a clear interest in stimulating the implementation of ad-
vanced manufacturing technologies and organizational structures
in the defense industrial base. Because defense contractors often
respond to different market signals than their commercial counter-
parts (even in the same company), federal officials have a difficult
problem ensuring that defense procurement policies give contrac-
tors strong incentives to implement new process technologies.
Because of the inherent problems in defense procurement pro-
cedures, defense officials have used specific programs to encour-
age manufacturing development and implementation by contrac-
tors. The Manufacturing Technology programs, Industrial Mod-
ernization Incentive Program, and the Technology Modernization
programs have used different strategies and criteria to support
manufacturing technology improvements by defense contractors.
The effectiveness and necessity of these programs have been de
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bated and their funding levels have fluctuated, but they remain
the only specific government programs directed at improving man-
ufacturing technology. These programs reflect the importance
of advanced manufacturing technology in weapons systems pro-
duction and the shortcomings of the defense procurement system
in providing incentives for manufacturing process improvements.
Policymakers will need to recognize the growing link between ad-
vanced manufacturing technology and advanced weapons systems
and address ways to provide incentives for manufacturing process
modernization, either through major corrections in the procure-
ment process, consistent adequate funding for focused programs,
or a combination of both.3
CONCLUSION
Government should continue to help companies and indus-
tries unduly hurt by the rapid change in manufacturing. It should
help primarily by continuing to provide infrastructural support
to manufacturers and their workers and secondarily by easing the
negative impacts of the many changes expected in manufacturing.
Policy should support and encourage the emergence of a tech-
nologically advanced, competitive manufacturing sector through
continued strong infrastructural programs. In this vein, this re-
port has three broad suggestions for future government policies
toward manufacturing.
· Government initiatives to help special interests adversely
affected by change should (1) secure explicit commitments from
the industries affected to take the steps necessary to regain com-
petitiveness and (2) ease the short-term economic and social dis-
locations without disrupting a fair competitive environment for
other producers and without hindering continued progress for U.S.
manufacturing as a whole.
· Government programs should help speed adjustments and
provide the necessary infrastructural support to manufacturers
without undue government interference. Private-sector initiatives
will be most effective in developing and implementing the changes
needed to make U.S. manufacturers competitive.
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· Government policymakers need to understand that the
process of change in manufacturing will result in corresponding
change in a number of areas in which government has primary re-
sponsibility, such as trade, education, research, and defense. Poli-
cymakers need to recognize these changes in the environment and
adjust their policies accordingly to provide maximum service to
the private sector and to achieve maximum benefits for govern-
ment programs.
NOTES
iThe National Association of Manufacturers estimates that
70 percent of American manufacturing is already confronted with
import competition.
2For a fuB discussion of the use of computers in design and
manufacturing see Committee on Science, Engineering, and Public
Policy, 1985, Report of the Research Briefing Pane! on Computers
in Design and Manufacturing, pp. 214-235 in New Pathways in
Science and Technology: Collected Research Briefings 1982-84,
New York: Vintage Books.
3An MSB committee is currently studying the role and effec-
tiveness of the Manufacturing Technology programs. Their initial
findings are contained in a Phase 1 report. See Committee on the
Role of the Manufacturing Technology Program in the Defense
Industrial Base, 1986, The Role of the Department of Defense
in Supporting Manufacturing Technology Development, Washing-
ton, D.C.: National Academy Press.
Representative terms from entire chapter:
government policies
