In a presentation to the Pennsylvania Governor’s Manufacturing Advisory Council, Senior Analyst Stephen Ezell stressed the importance of revitalizing local and national manufacturing sectors with more generous collaborative R&D tax credits to SMEs and bringing a stronger state voice to Washington policy debate.
Magical Manufacturing Thinking: Manufacturing NOT the Bright Spot in the U.S. Economy
In response to an article in The New York Times by Floyd Norris, Rob Atkinson points out Norris overlooks the loss of manufacturing jobs in this recession was the largest ever with a loss of 15 percent and emphasizes it’s simply wishful thinking to imagine that all is well in Mudville and we can just sit back and reap the manufacturing renewal. The reality is if America wants a manufacturing rebound, it can’t just hope, wish and pray. It has to act. And that means putting in place robust tax incentives for companies to invest in R&D and new capital equipment in America so that we lower the effective U.S corporate tax rate while also giving companies the incentive to invest in the building blocks of growth and competitiveness. It means much tougher enforcement of our trade laws against rampant mercantilists like China.
A Charter for Revitalizing American Manufacturing
The Charter for Revitalizing American Manufacturing is the product of a collaboration by individuals from business and labor organizations, think tanks, non-profits, and academic institutions. Their unanimous support for the charter underscores the fact there is broad agreement on the importance of manufacturing and diverse support for taking some fundamental steps to revitalize and strengthen manufacturing that transcend political ideology or party affiliation.
Over the past decade, the United States suffered the deepest industrial decline in world history, as the country lost 33 percent of its manufacturing jobs—a worse manufacturing job loss than even during the Great Depression. Unfortunately, the view that the U.S. economy can thrive without manufacturing as a post-industrial, knowledge- and services-based economy has become all too prevalent among many Washington economic policy elites. But the reality is that the United States will not experience a robust economic recovery without revitalizing its manufacturing sector—and this requires a comprehensive and coherent strategy to revitalize American manufacturing.
The charter succinctly explains why manufacturing is vital to the U.S. economy and articulates the need for a coherent national manufacturing strategy based on the “Four Ts”: Technology, Tax, Trade, and Talent. It also lays out policy recommendations for improving access to credit and financing support for American manufacturers. In sum, the charter endorses policies that promote U.S.-based investment, innovation, and production in manufacturing; ensures the United States offers the world’s best manufacturing environment in terms of workforce, technology and infrastructure; and enforces trade partner obligations more vigorously.
Signatories to the charter include the following orgnaizations (and/or individuals):
Bob Baugh, AFL-CIO Industrial Union Council;
Scott Boos, Alliance for American Manufacturing;
Doug Woods, AMT-Association for Manufacturing Technology;
Howard Wial,* The Brookings Institution;
Michael Stumo, Coalition for a Prosperous America;
Jack McDougle,* Council on Competitiveness;
Clyde Prestowitz, Economic Strategy Institute;
Robert Atkinson, Information Technology and Innovation Foundation;
Jeff Finkle, International Economic Development Council;
Stephen Gold, Manufacturers Alliance/MAPI;
Mark Rice, Maritime Applied Physics Corporation;
Lenny Mendonca, McKinsey Global Institute;
Fred Wentzel, NACFAM;
Emily DeRocco, NAM - The Manufacturing Institute;
Drew Greenblatt, Regional Manufacturing Alliance;
Harry Moser, Reshoring Initiative;
Mark Tomlinson, Society of Manufacturing Engineers; and
Jerry Jasinowski, Former President, National Association of Manufacturers (NAM) and NAM - The Manufacturing Institute.
William Bonvillian, Director of the MIT Washington Office, served as an Advisory Contributor to the charter.
Explaining Anemic U.S. Job Growth: The Role of Faltering U.S. Competitiveness
More than two years after the “end” of the Great Recession, it’s clear that things are not working. GDP remains below its peak of 16 quarters ago while jobs are five percent below their January 2008 peak. As Laura Tyson of the Center for American Progress has calculated, even if job growth doubled from recent levels to the 208,000 per month rate before 2005, it would take until 2023 to get us back to pre-recession employment levels (given new entrants to the workforce).1 Understanding why job performance has been so poor is perhaps the single most important thing for Washington to do to get us on the road to robust recovery. But what is the right diagnosis? There is anything but consensus on this for at least seven diagnoses have been offered. The dominant ones are well known, having been debated almost daily in the media. For some, this is a “Keynesian” recession, albeit of unusually severe proportions. With demand flat, what is required is for government to use significant and sustained countercyclical fiscal and monetary policies to get people and businesses spending again. Others argue that “this time it’s different.” They argue this is a financial crisis-induced recession and as such that conventional Keynesian tools are of limited use and that recovery will inherently take much longer.
But following the logical prescriptions—fiscal stimulus for the first, and cleaning up balance sheets for the second—will provide some relief for the patient, but not the needed cure. Still others argue that regulatory uncertainty is the culprit, that companies worry about vast new regulatory burdens and increased taxes and are hoarding their capital until this threat has passed. But in fact, few businesses actually appear to be worried about this.A next three diagnoses are grounded in micro-level factors. The “skills mismatch” explanation holds that many more workers would be employed if they just possessed the right skills for current job openings. But while a contributing factor, it doesn’t explain why unemployment remains at around nine percent when it was under five percent just a few years ago. The “robots killed our jobs” explanation blames new technology for job loss, even though productivity is lower now since the recession began than previously and even though the economic literature is largely in agreement that productivity does not lead to net job loss. The innovation exhaustion explanation actually posits the opposite cause: too little innovation and productivity, holding that it is because the possibilities of technology-powered innovation have dried up, that recovery is so difficult. This is an appealing diagnosis, in part because it is closer than the other diagnoses. But it is still off the mark. The current IT-driven innovation system is alive and well. To the extent that this diagnosis is accurate, it has to do with where innovation is taking place which is not in the United States as much as it used to be. Unfortunately, the United States as a whole has become less innovative.
This gets us to the seventh, and in our view, most accurate and overlooked diagnosis for the anemic U.S. recovery: the failure of the United States to maintain its competitiveness in the world economy, particularly in manufacturing, means that the overall U.S. engine of growth is not running on all cylinders and that recovery is halting. It will only be when the United States regains the competitiveness of its internationally traded sectors that the U.S. economy will achieve escape velocity.