[Senate Hearing 111-745]
[From the U.S. Government Publishing Office]
S. Hrg. 111-745
THE OBAMA ADMINISTRATION MANUFACTURING AGENDA
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
ECONOMIC POLICY
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE OBAMA ADMINISTRATION'S MANUFACTURING AGENDA
__________
AUGUST 5, 2010
__________
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Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York JIM BUNNING, Kentucky
EVAN BAYH, Indiana MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin KAY BAILEY HUTCHISON, Texas
MARK R. WARNER, Virginia JUDD GREGG, New Hampshire
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado
Edward Silverman, Staff Director
William D. Duhnke, Republican Staff Director
Dawn Ratliff, Chief Clerk
William Fields, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
______
Subcommittee on Economic Policy
SHERROD BROWN, Ohio, Chairman
JIM DeMINT, South Carolina, Ranking Republican Member
JON TESTER, Montana
JEFF MERKLEY, Oregon
CHRISTOPHER J. DODD, Connecticut
Chris Slevin, Staff Director
(ii)
?
C O N T E N T S
----------
THURSDAY, AUGUST 5, 2010
Page
Opening statement of Chairman Brown.............................. 1
Opening statements, comments, or prepared statements of:
Senator Warner............................................... 2
WITNESSES
William A. Strauss, Senior Economist and Economic Advisor,
Federal Reserve Bank of Chicago................................ 3
Prepared statement........................................... 22
Responses to written questions of:
Chairman Brown........................................... 34
Nicole Y. Lamb-Hale, Assistant Secretary for Manufacturing and
Services, Department of Commerce............................... 11
Prepared statement........................................... 25
Responses to written questions of:
Chairman Brown........................................... 36
Roger D. Kilmer, Director, Hollings Manufacturing Extension
Partnership, National Institute of Standards and Technology,
Department of Commerce......................................... 13
Prepared statement........................................... 28
(iii)
THE OBAMA ADMINISTRATION MANUFACTURING AGENDA
----------
THURSDAY, AUGUST 5, 2010
U.S. Senate,
Subcommittee on Economic Policy,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee met at 10:31 a.m., in room SD-538, Dirksen
Senate Office Building, Senator Sherrod Brown (Chairman of the
Subcommittee) presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. This hearing of the Economic Policy
Subcommittee will come to order. Thanks to both panels. I will
introduce the first panel in a moment, and the second panel--
there is a vote called at 11:30, so we unfortunately have an
hour instead of an hour and a half, but the questions will be
focused in, I think, useful answers.
In America, we have always been good at making things.
American companies and workers laid down railways and highways,
built aircraft and semi-computers, manufactured medical
equipment and appliances. In turn, workers have been rewarded
with a pathway to the middle class, good wages to provide a
home, and economic opportunity for our children. Our Nation's
spirit of innovation helps send humans to space and develop the
technology needed to defend our Nation and cement our status as
an economic superpower. But we are at risk of this slipping
away unless we develop a more coherent national manufacturing
strategy.
In fact, it has been a long time since we even asked
ourselves in this country if we needed a manufacturing
strategy. Absent such a strategy, our economy has tilted away
from manufacturing with disastrous results for the Nation's
middle class. Since 1987, manufacturing's share of GDP has
declined more than 30 percent. Put another way, 30 years ago,
U.S. manufacturing made up about 25 percent of our GDP;
financial services made up about 11 percent of our GDP 30 years
ago. Today those numbers have almost flipped. We see where that
got us in terms of the financial crisis. We see where we are
now in terms of lost manufacturing jobs and what that has meant
to our cities, to our rural areas, to the prosperity of this
country.
We know this matters for several reasons. Jobs in
manufacturing pay more on average than service jobs and have
strong multiplier effects, according three to four jobs in
other sectors of our economy.
Second, manufacturing has in our history led the economy
out of recession because it tends to respond quickly to
changing economic conditions while creating tangible wealth.
Since the beginning of the Bush recession, we have seen
profits in large financial institutions and other service firms
increase dramatically. At the same time, our Nation's
unemployment rate is still hovering, as we know too painfully,
at 9.5 percent. Unlike wealth created by the click of a mouse,
wealth created by expanded production requires an expanded
workforce.
This Subcommittee has conducted about 10 hearings on the
challenges and opportunities facing American manufacturers in
the 21st century. There are short-term challenges, such as the
dire need for auto suppliers to get access to credit and the
competitive disadvantage from unfairly subsidized imports. And
there are long-term challenges, such as how we maintain the
capacity to supply our military forces and how we achieve
energy independence.
This morning we will hear from two of the Administration's
point people on developing and implementing a manufacturing
agenda. One lesson this Subcommittee has learned is that there
is no clear path to manufacturing success; rather, we have
heard in this room over the past year, and as I have heard in
factories and plants and businesses across Ohio, we need a
strategy that combines a predictable climate for investments
and innovation with sector-based workforce training. We need a
strategy that ensures strong supply chains and opens new
markets. Domestic manufacturers need our Government to enforce
trade rules that, when breached, undermine the ability of our
Nation's manufacturers to compete domestically and abroad, and
our national manufacturing strategy must leverage our
investments in energy and our defense industrial base.
Our Government has taken steps to coordinate agencies
through the Assistant Secretary of Commerce for Manufacturing
and Services, whom we will hear from this morning. President
Obama has also named a Senior Consular for Manufacturing, Ron
Bloom, following his work at the restructuring--the successful
restructuring, I would emphasize--of the auto industry. Today
we will hear how the Administration is helping to rebuild
manufacturing as a way to rebuild our economy.
For Ohio and our Nation, manufacturing matters. We know
that. On behalf of auto workers and machine shop owners and
clean energy entrepreneurs in the manufacturing cities and
towns in my States and the Commonwealth of Virginia and all
over this country, I am hopeful we have an Administration that
also believes it matters. Thank you.
We will hear from Senator Warner. Welcome.
STATEMENT OF SENATOR MARK R. WARNER
Senator Warner. Thank you, Mr. Chairman. I know we have got
votes coming, so I will let us get to the witnesses. But I just
want to publicly say, you know, what a leader you have been in
this sector and in this space and a tireless advocate for
making sure that we have a manufacturing sector in America.
Nobody is better about that than Sherrod Brown. As he recently
pointed out, he showed me data just recently showing that the
traditional canard--and you may have already mentioned this--
that somehow the reason we cannot compete on a manufacturing
basis is because our wages are way too high is not based in
fact since we are 16th in the world in terms of manufacturing-
related wages. And I look very forward to hearing the witnesses
and the testimony.
Thank you for your leadership.
Chairman Brown. Thank you, Senator Warner. Thank you for
your leadership on all kinds of economic issues.
I want to introduce William Strauss, who will sit alone on
our first panel, senior economist and advisor at the Federal
Reserve in Chicago. Mr. Strauss joined the Federal Reserve Bank
of Chicago in 1982. His chief responsibilities include
analyzing the current performance of both the Midwest economy
and the manufacturing sector for use in monetary policy. He
produces the monthly Chicago Fed Midwestern Manufacturing
Index, organizes the bank's annual Economic Outlook Symposium
and annual Auto Outlook Symposium, conducts several economic
workshops and industrial roundtables throughout the year. He
has taught as an adjunct faculty member at both Loyola in
Chicago and Webster in Chicago. He currently teaches at the
University of Chicago, the Graham School of General Studies and
at DePaul, the Kellstadt Graduate School of Business. He earned
his B.A. in economics and geography from SUNY in Buffalo and an
M.A. in economics from Northwestern in Chicago.
Mr. Strauss, welcome, and we look forward to your
testimony.
STATEMENT OF WILLIAM A. STRAUSS, SENIOR ECONOMIST AND ECONOMIC
ADVISOR, FEDERAL RESERVE BANK OF
CHICAGO
Mr. Strauss. Thank you, Mr. Chairman.
Chairman Brown and Members of the Economic Policy
Subcommittee, I am pleased to share with you some perspectives
on long-term trends in manufacturing and some observations
about how the recent recession and recovery are affecting
manufacturing.
In understanding the performance of the manufacturing
sector, one major issue is the extent to which we should be
focusing on the number of people employed in the sector or its
overall production and output. Interestingly, over the long
term, each leads to the opposite conclusion about the strength
of manufacturing in the United States. Let us start off with
employment.
Manufacturing employment as a share of total employment in
the United States has been declining over the past 60 years,
moving down from 31 percent in 1950 to 9 percent in 2009.
However, observations on the amount of real goods production
are far different. Manufacturing output in 2007 amounted to a
level of over 600 percent higher than that in 1950. That
translates into an average growth of 3.4 percent per year.
So how was manufacturing able to produce such an output
surge over the past 60 years even with declining employment?
The answer is: Productivity. With the application of new
process technologies, better management, and new product
innovations, productivity growth in the manufacturing sector
averaged 2.9 percent over the past 60 years.
Between 1950 and 2007, productivity growth and
technological advancement allowed manufacturing output growth
to exceed the growth of the overall economy. Yet though it
seems to be a contradiction at the same time, the manufacturing
sector's share of GDP has been declining.
This seeming paradox can be easily explained. The greater
efficiency of the manufacturing sector has afforded either a
slower increase or an outright decline in the prices of goods
that they manufacture. And while declining prices have led to a
greater unit demand for manufactured products, increased demand
has not fully compensated for the lower prices.
So, too, the output growth in overall manufacturing has not
translated into an increase in every manufacturing sector. One
of the great strengths of the U.S. economy is its ability to
reinvent itself over time, creating new business lines while
casting others aside.
Over the past 20 years, manufacturing output has risen on
average by 2.2 percent per year, yet individual performances
ranged widely, for example, from 15-percent growth in the
computer and electronic components manufacturing per year to a
minus 7-percent per year for apparel.
Nor has manufacturing immunized itself from the business
cycle. The recent recession impacted the economy quite harshly.
Manufacturing output, which peaked in December of 2007, fell
17.5 percent, bottoming in June of last year. With this severe
loss of output, manufacturing jobs declined by 16 percent
during 2008 and 2009. And over 2.1 million manufacturing
workers lost their jobs on net, representing 26 percent of all
job losses.
While the overall economy's recovery has been moderate
since last year, manufacturing has experienced a robust
recovery. Over the past year, manufacturing output has
increased nearly 9 percent and has recovered 42 percent of the
loss experienced during the recession. Interestingly, the two
industries that have experienced the largest increases over the
past year were the same industries that were the hardest hit:
motor vehicles and parts, and primary metals. In fact, this
year, the manufacturing sector has actually been adding jobs
each and every month, for a total of 136,000 jobs, representing
nearly one out of every four private sector jobs created this
year.
The manufacturing sector remains a vibrant, innovative
industry in the U.S. Output has been rising at a solid pace
over time, and most of this growth, in particular over the past
30 years, has been achieved by improving productivity. This
increase in productivity has been a double-edged sword. On the
one side, the increasing productivity has fostered a globally
competitive sector. On the other side, being more productive
often means that a producer can increase output without the
need to add labor.
These movements in output, productivity, and labor have not
been confined to the past few years but have been taking place
for decades. If these manufacturing sector trends continue, we
can look forward to a sector that will continue to produce an
ever-increasing amount of output, while contributing to a
stronger U.S. economy.
Chairman Brown. Thanks. I apologize. I was just asking him
a question briefly. Thank you, Mr. Strauss, for your testimony.
And welcome, Senator Merkley.
I am concerned--I appreciate your testimony, and I
appreciate your public service in Chicago. I am concerned that
in your testimony there was--understanding the role of
productivity, we have the most productive workforce in the
world. We know that. But we also look, as Senator Warner said,
at a country like Germany which pays much higher wages, has
significantly higher unionization rates than we do, they export
in value in dollar terms, in deutsche mark terms, more goods
than we do, a country four times the size in population, more
or less. And I know that we are very productive. I know German
workers are very productive.
Just to kind of transition, just 2 weeks ago Chairman
Bernanke sat in the seat that you are sitting in, and I asked
him if China's exchange rate policy is a subsidy. I think most
of us believe on this Committee--and I will not speak for
others, but most of us believe that there is a currency issue.
How would you answer that question? Is China's currency
undervalued? And how much is it undervalued, if it is? And then
proceed on that, and I will follow up.
Mr. Strauss. So with regard to some of these currency
issues, certainly, you know, I have read and I have heard
different testimony as well as different studies that have
suggested that China's currency is undervalued. That would
imply that there was a subsidy taking place.
I would also highlight, though, that if, in fact, it was a
revaluation of that, it is not necessarily clear, Senator, that
that would necessarily bring jobs back, you know, in a large
amount. Businesses are looking for the least-cost way of doing
their business, and quite often a lot of the goods that we are
talking about are relatively low-value-added. In part, that is
why it was moved to China, was to try to take advantage of
their relatively lower-skilled, lower-paid wages that take
place there, and that there would be alternative sources for
that that could very well tend to be outside of the United
States.
Chairman Brown. Does it concern you that as we have lost--
as we have seen the hollowing out of--you are in the Midwest,
in Chicago. I know my State is not your jurisdiction, most of
my State, but I know that you know what has happened in medium-
sized towns and fairly big cities and small towns with the
hollowing out of manufacturing.
Does it concern you that the business model that we as a
manufacturing Nation have pursued in the last 20 years, I
believe is unprecedented in history, that our business model
for many of America's corporations are to lobby the Congress
for a certain kind of trade law and tax law, then move
production to another country, and then sell those products
back into the United States, into the mother country if you
will? I do not know that that has ever happened in history.
That is not the whole story. The whole story is--part is
productivity. But does that concern you as a business model,
that we have decided by the way we write tax law and trade law,
the way we deal with currency, the way we deal with everything
from the International Trade Commission to the Department of
Commerce, that that has become the operating business plan for
much of America's large corporations?
Mr. Strauss. Well, Mr. Chairman, I certainly can appreciate
and understand the concerns about communities, when they see a
factory that gets closed and how that could impact that
community quite severely. You know, those kind of decisions
are, of course, best left to Congress with regard to these
issues surrounding subsidies for taxation and so forth.
I can just share that, you know, historically over time
manufacturing as a whole has risen quite significantly because
of how efficient we are. And I would just exercise caution with
regard to moving forward with any kind of policy that would
cause our manufacturing firms to become less efficient, less
productive, which has allowed it to grow over this period.
Chairman Brown. So you think our trade policy and our tax
policy has served American efficiency and productivity about as
well as we can? You think that our trade policy and tax policy
contributes significantly to our rising productivity?
Mr. Strauss. That is a question that I am not prepared to
answer at this point, Senator.
Chairman Brown. OK. Senator Merkley. Senator Warner.
Senator Warner. Thank you, Mr. Chairman.
I agree with Senator Brown on--we may have different views
on how we go at trade, but I share his concerned about currency
manipulation by China, and I think it is an issue that we do--
it is our responsibility to take on.
I guess where I would like to focus my line of questioning
is on small- to mid-sized businesses, manufacturing businesses
I think that have been particularly hard hit. Mr. Strauss, I
would like you to address three issues.
One, recently I got added to an America COMPETES
legislation that would allow small- and medium-sized businesses
to kind of access high-performance computing, which, again,
helps them--larger companies have already used these tools to
improve productivity. I would like comments on that.
I would like comments as well, one of the things that we
talked about is you talked about low value. We have lost a lot
of apparel-related jobs in my State. I do not think they are
coming back. But I am particularly interested in, you know,
high-value-added manufacturing where we need higher-skilled
labor. And one of the concerns that I have, as a former
Governor, one of the things that made me crazy was the lack of
coordination on Federal job training programs. I think we have
34 separate programs and a series of different agencies within
different secretariats at the Federal level and would love any
kind of comment you might have on consolidation of workforce
training. Particularly as we add toward higher-value training
apprenticeship programs, I would argue that one of the reasons
why Germany, Switzerland, and others do better than we do on
value-added manufacturing is they put a lot more in their
training initiatives.
Then, finally, you know, while you may not want to ask a
question--answer a question about trade policy, I do think we
have not served our small- and medium-sized manufacturing
companies well on making them familiar with how they can do a
better job of exporting. You know, for so long America's market
was so large that you did not need to look abroad. I would be
curious whether you have any thoughts on that.
So high-value computing in terms of aiding small- and
medium-sized manufacturing, workforce training broadly writ,
and then what we could do from a policy perspective to actually
add the ability for small- and medium-sized manufacturing
entities to export.
Mr. Strauss. Thank you for the opportunity of addressing
those concerns, Senator Warner. I share every one of them and
understand the issues there.
So with regard to the high performance that has come about,
we had the opportunity in Chicago of having the largest trade
show in the country and the second largest in the world take
place every 2 years, the International Manufacturing Technology
Show, and this is the year that it will be coming to Chicago in
September. And it is just an absolute marvel to go and tour
that show and to see how over time the type of manufacturing
has changed.
In particular, the ramp-up that we have seen in
productivity over the past 30 years coincides with the
introduction of this computer numerical control, the CNC
manufacturing, to manufacturers that began in earnest in the
late 1970s. And over time, companies have still kind of been
trying to figure out the ways of continuing to become more and
more efficient.
This machinery, for one example, we had a conference in
Chicago about 5 years ago where we invited companies from all
around the region to talk about how productivity is going, and
certainly one of the questions I often ask when I do tours is
can we stream even more productivity out of this.
The story revolves around a woman that was running a
machine shop. The machine had gotten so efficient that she
brought in a second machine and asked one of her workers to
start running that machine at the same time as his primary
machine. And he objected at first, suggesting that, you know,
``I have got my machine. That is my responsibility.'' And she
used the analogy of, ``When you load up the dishwasher at home
and you close it up and start to run, do you sit there and
watch it run for the next half-hour or do you go and do other
things?''
It was just this fact that technology has moved to the
place where we continue to be able to bring more and more
efficiency to our processes.
With regard to the education side, I wholly agree with
you--and I think it is more than just in manufacturing; it is
across our country--that education needs to be a primary focus
for our workforce. Certainly in manufacturing I hear from
contacts that they find it a challenge to find qualified
workers who have the skills to operate in a computerized
sector. So whatever we can do with regard to job force
training, with regard to apprenticeship programs, those are
certainly key.
And with regard to the exports, I agree with you as well
that for many years we were able to proceed with living off of
how good we were doing within our own economy, and that allowed
especially smaller companies to be quite successful without
thinking internationally. But at an ever-increasing rate we see
more and more small firms, and helped out through some of these
Gold Key programs, export to countries, and I try to keep tabs
on that as well.
Chairman Brown. Thank you, Senator Warner. I think your
point about small manufacturers is so important. I have watched
particularly machine shops, tool and die, small machine shops,
small specialty shops supply companies that, you know, are 50,
100, typically nonunion, occasionally union employers, 50, 100
employees that they are in the auto supply chain or some other
supply component manufacturer. The large company will move to
Mexico or move to China. They do not have the wherewithal to
export typically, and they have lost their biggest customer.
The Manufacturing Extension Partnership program helps. So do
the Export Assistance Centers. But clearly they are not enough.
Senator Warner. Mr. Chairman, I would just add that, you
know, they really--that might be a subject of a future hearing,
because I really think that sector--we may not be able to solve
every challenge, but there could be targeted assistance to that
group.
Chairman Brown. I agree. Senator Merkley.
Senator Merkley. Thank you for your testimony. You have
framed it in the context of your expertise in the Midwest. I
come from the Northwest. Oregon is one of 17 States where
manufacturing makes up more than 10 percent of employment. It
is a source of good-paying, stable jobs except when those jobs
go to Mexico or Asia, as they routinely have following the
challenge in the rest of the Nation.
But as you think about the challenges and dynamics in the
Midwest and then recognize that other regions have some
different factors at work, what do you see? If you are looking
at the Northwest, what makes the Northwest manufacturing
economy different than the area that you spend most of your
time on in terms of the Midwest? And are there insights we can
draw about some of the challenges around the rest of the
country?
Mr. Strauss. Well, certainly, when I think of the
Northwest, you know, I think a very big part of that is the
aviation industry, and that has been one of our great
opportunities for exports as it has tended to dominate,
especially recently, in terms of our exports, the rest of the
world.
The point about some of these trends that we see in terms
of employment, you know, these are issues--the productivity
that we have been experiencing in the United States is not
solely a U.S. phenomenon. We are seeing productivity growth
happening all around the world and similar trends with regard
to the loss of employment.
In fact, in a study that was put out by the Bureau of Labor
Statistics 5 years ago--it is hard to get data from China, but
there was a study that was put out 5 years ago by BLS which
looked at manufacturing trends between 1995 and 2002, and their
estimates are that China went from having 98 million workers in
manufacturing in 1995 down to 83 million in 2002. So, in
essence, China lost the same number of jobs in manufacturing
that we have in manufacturing, and we can add to that list
Brazil, Russia, and so forth.
These productivity trends are happening all around the
world on the employment share.
Senator Merkley. Well, thank you. I am not sure that got
really to the heart of the distinctions in the regions, but one
thing I think that is in common across the country is that you
have a workforce that is less prepared in areas such as
welding, machine operation, and so forth. Just about everybody
I knew took metal shop and wood shop in either middle school or
high school. And added to that was the fact that we grew up
building things in garages. And neither of those is true now.
The classes in school are gone, and the kids are on the
computers rather than utilizing tools.
At times that is used as an explanation of why firms are
choosing to go abroad, just not enough folks trained in the
crafts, if you will, or interested in the crafts.
Do you see that as a real factor? And if so, what do you
suggest we do on that?
Mr. Strauss. Well, in your example with regard to welders,
when industry was doing--the machinery industry was doing quite
well several years ago, as commodity prices began to move up
quite sharply, we were hearing about a dearth of available
workers who really had the skills for welding, and things have
softened up. Clearly, while things have improved, we are still
quite weak. But, nonetheless, these kinds of skilled type of
jobs, there tend to be shortages. And what we can do is to, you
know, foster greater amounts of skills training, you know,
again, through some of these technical schools, apprenticeship
programs, and just, you know, allow firms themselves to train
their workforce.
Senator Merkley. Well, I will conclude with one last
question, and that is, up through about the mid-1970s, as
productivity increased, the wages of working Americans
increased. And at about that time, those two curves started
dramatically diverging. And you would think with this increase
in productivity that you are talking about we would have a
proportional increase in wages. But as you look at the
divergence in those two curves, the upward path on productivity
and the flat line on compensation to working families, any
insights on that?
Mr. Strauss. Well, I share your concern with regard to the
real increases in wages that have been taking place. Again, to
get back to the education side, clearly we have seen over time
that there are rewards to greater amounts of education. Again,
when you look at the differentials between obtaining a college
degree, an associate degree, or even technical training, there
are definitely rewards. So education is a big key to continued
advancement. Again, I would encourage those type of things.
The only other thing I would just highlight is that one of
the benefits of this surge of productivity has been the ability
of the goods that most Americans need to purchase to have been
showing--or getting relatively slower rates of increase or, in
fact, outright declines. As an example, the auto industry, you
know, for the past 10 years, prices of those vehicles have
actually fallen by roughly 0.4 percent each and every year for
the past 10 years, making those products more affordable to the
average American.
Senator Warner. Mr. Chairman, could I just ask one----
Chairman Brown. Senator Warner.
Senator Warner. Could you repeat again, Mr. Strauss, what
you said about the workforce size in China actually declining
as well within the manufacturing sector?
Mr. Strauss. Yes, there was a report that was put out by
the Bureau of Labor Statistics back in 2005 that employment in
China peaked at 98 million in----
Senator Warner. In manufacturing.
Mr. Strauss. In manufacturing, in 1995. Keep in mind the
size of our entire workforce is 140-some-odd million. So this
is 98 in manufacturing, and by 2002 it had fallen down to 83
million. In fact, it fell even further to 80 million in 2000
because of the Asian crisis, but then it bounced back up to 83
million.
But, nonetheless, we are seeing these downward trends
around the world.
Chairman Brown. Thank you, Senator Warner, and I
appreciated your comment about the cost of automobiles has
dropped 0.4 percent a year for X number of years. I would add
that is not the whole--that is good, but that is not the whole
story when you look at what has happened with wages in this
country over this 10 years. I think it is important to keep
that in context.
But, Mr. Strauss, thank you for joining us and thank you
for your service.
Mr. Strauss. It has been my pleasure.
Chairman Brown. We appreciate it very much.
I will call forward Ms. Nicole Lamb-Hale and Mr. Roger
Kilmer, if they would come forward. I also want to, while we
are switching there, just recognize that in the audience is Pat
Mulloy, who is a member of the China Economic and Security
Commission and his being such an advocate for American
manufacturing. Pat, thanks for sitting in on this as an
official and listening to this testimony. This is very helpful
testimony from Mr. Strauss and the two panelists now.
Nicole Lamb-Hale was nominated by President Obama and
unanimously confirmed by the Senate to serve as the Assistant
Secretary of Commerce for Manufacturing and Services. She helps
to strengthen in this role the competitive position of U.S.
industries in domestic and foreign markets by coordinating
Commerce Department strategies and policies with U.S.
industries in mind. Manufacturing and Services, her portfolio,
which is within the International Trade Administration of the
Commerce Department, convenes experts inside and outside the
Government to arrive at solutions on issues faced by U.S.
industry. Prior to joining the Obama administration, Ms. Lamb-
Hale was a managing partner of the Detroit law firm of Foley &
Lardner, where she specialized in business restructuring in the
manufacturing sector.
Roger Kilmer has been with the Manufacturing Extension
Partnership since 1993 and with NIST since 1974. Previously he
was the MEP deputy director serving as the chief operating of
course, and chief financial officer. He received the Department
of Commerce Silver Medal Award for Leadership as the NIST-MEP
liaison to the Interagency Technology Reinvestment Project
Initiative and the Bronze Medal for Superior Leadership at
NIST's Unmanned Ground Vehicle Robotics Program. The MEP is a
$300 million public-private partnership program leveraging
Federal support by teaming with industry as well as State and
local organizations and has played a very important role--I
know in my State, I assume also in Oregon and Virginia--with
small companies especially. With nearly 300 manufacturing
extension offices in all 50 States and Puerto Rico, the MEP
provides companies with services and access to resources that
enhance growth and increase productivity.
So thank you both for joining us. Ms. Lamb-Hale, if you
would begin.
STATEMENT OF NICOLE Y. LAMB-HALE, ASSISTANT
SECRETARY FOR MANUFACTURING AND SERVICES, DEPARTMENT OF
COMMERCE
Ms. Lamb-Hale. Thank you, Senator Brown. Chairman Brown and
Members of the Subcommittee, thank you for this opportunity to
testify before you today on the President's Manufacturing
Agenda and what we at the Department of Commerce are doing to
promote U.S. manufacturing. The Department of Commerce is
committed to promoting this important sector. We do this every
day by working to create the right business environment to help
manufacturers sustain and grow their companies and create jobs.
As you know, in December 2009, the Obama administration
released a manufacturing strategy entitled, ``A Framework For
Revitalizing American Manufacturing.'' The Department of
Commerce addresses several of the framework's components,
including helping communities and workers transition to a
better future. We are working with other agencies, such as the
Departments of Transportation and Treasury, as well as the
Small Business Administration, to address others.
As Assistant Secretary of Commerce for Manufacturing and
Services, also known as MAS, I believe that it is critical to
ensure that our manufacturing sector is strong. MAS actively
works to ensure that our manufacturing sector is competitive
globally. Our programs and partnerships to promote U.S.
manufacturing are strategically developed to support the needs
of the U.S. manufacturing sector and the President's
Manufacturing Agenda.
MAS industry analysts and economists have extensive
knowledge about manufacturing. Based on their economic,
statistical, and policy analyses, we provide decision makers
objective data and information to develop and implement
policies and initiatives to support U.S. manufacturing
competitiveness.
MAS follows a three-pronged approach, which I call ``the
three Cs,'' to convene, to collaborate, and to connect. We
convene experts both inside and outside of the Federal
Government to work toward solutions to the problems faced by
U.S. industry. MAS collaborates with agencies around the
Federal Government to implement solutions that will sustain and
increase the global competitiveness of U.S. industry. And MAS
works to connect industry with Federal Government resources
that can help U.S. companies compete abroad.
I would like to share with you a few examples of the three
Cs at work. MAS convenes the Manufacturing Council, created to
advise the Secretary of Commerce on manufacturing issues and to
ensure regular communication between the Federal Government and
the manufacturing sector. Commerce Secretary Gary Locke will
announce the newly appointed members of the current
Manufacturing Council this afternoon at two o'clock in the
Senate Visitors Center. The Council will immediately begin to
look at the critical issues affecting manufacturing, such as
finance and energy.
MAS collaborates with other agencies to help deliver MAS
programs. For example, MAS developed the Department's
Sustainable Manufacturing Initiative. We work with industry and
other Federal agencies to showcase sustainable manufacturing
practices that help companies reduce operating costs to be more
effective.
In September, we will launch a new initiative, Manufacture
America, which will help to connect manufacturers to resources
to help them rethink, retool, and rebuild their operations. The
initiative is designed to enable them to explore new products,
markets, processes, and sources of finance. We expect that this
initiative will help to sustain and create jobs, and we will be
particularly focused on the needs of small- and medium-sized
manufacturers.
The Administration's framework recognizes that exporting
goods is a key component for revitalizing U.S. manufacturing.
In this year's State of the Union Address, President Obama
announced the National Export Initiative, or the NEI, and set
the ambitious goals of doubling U.S. exports in 5 years to
support several million jobs. MAS and other bureaus are
developing initiatives and improving the implementation of
existing programs to support the NEI goals. We are also
strengthening interagency coordination on NEI efforts by
working with other agencies across the Trade Promotion
Coordinating Committee.
Both emerging markets and our key traditional trading
partners offer export opportunities for U.S. manufactured
goods. Manufacturing export leaders are likely to be found in
high-growth sectors, such as medical devices, aerospace, clean
energy and energy efficiency, technology industries, and
infrastructure. MAS is currently developing sector-specific
global strategies to guide policies to enhance U.S.
manufacturing exports. We have taken on or are planning a
variety of actions to expand exports to emerging and
traditional markets.
For example, Secretary Locke led a Clean Energy Mission to
China in May that resulted in immediate sales by mission
participants valued at over $20 million. The mission came at a
critical time when the Chinese leadership expressed a clear
commitment to adopt clean energy technologies and U.S.
companies are developing and commercializing these
technologies.
The Department and ITA are prioritizing existing programs
that offer the highest return on investment. One such program
is the Market Development Cooperator Program. For every Federal
dollar awarded through that program, we estimate that $131 in
exports is generated.
MAS is also working to address the manufacturers' critical
financing needs. For many of the companies that will
participate in Manufacture America, financing is a significant
challenge. We are working with the Treasury Department and
local banking groups to help small- and medium-sized
manufacturers better understand the resources available to
them, including access to capital.
President Obama has proposed legislation that includes a
$30 billion Small Business Lending Fund and a State Small
Business Credit Initiative. These are two parts of a small
business job package that the President hopes to sign into law.
I have mentioned just some of the strategic initiatives
that we are employing to support President Obama's
Manufacturing Initiative and his agenda. We at the Department
of Commerce continue to work to ensure that the business
environments, both domestic and international, are fair to U.S.
manufacturers, their workers, and their communities.
Again, thank you for the opportunity to testify on the
activities of the Department of Commerce in manufacturing and
services as we undertake to enhance the competitiveness of U.S.
manufacturing.
Chairman Brown. Thank you, Ms. Lamb-Hale.
Mr. Kilmer, welcome.
STATEMENT OF ROGER D. KILMER, DIRECTOR, HOLLINGS MANUFACTURING
EXTENSION PARTNERSHIP, NATIONAL INSTITUTE OF STANDARDS AND
TECHNOLOGY, DEPARTMENT OF COMMERCE
Mr. Kilmer. Chairman Brown, Members of the Committee, thank
you for this opportunity to appear before you today to discuss
the efforts of the Hollings Manufacturing Extension
Partnership, known as MEP, and how it supports American
manufacturers. Today, I would like to highlight a few of the
services that MEP offers to assist small- and medium-sized
manufacturers with growth strategies and the access to capital
to support that growth.
But first, I would like to give you a brief overview of the
program. With a nationwide network of over 400 locations around
the country, MEP helps manufacturers strategically implement
business growth opportunities to improve their competitive
position in the market. In fiscal year 2009, MEP served nearly
33,000 manufacturing clients, resulting in more than $3.6
billion in new sales, $1.1 billion in cost savings, and the
creation or retention of nearly 52,000 jobs.
Through MEP's Next Generation Strategy, we are working with
manufacturers to harness technology and innovation, the results
of new business opportunities. MEP facilitates the adoption of
technological innovations, especially clean technologies and
processes that improve the manufacturer's competitive position.
We all know improving manufacturing processes, developing new
products, or accessing new markets requires capital. For most
smaller manufacturers, identifying and securing capital is
often a complex and frustrating process. With capital becoming
significantly scarcer in today's financial climate, that
process will become more difficult for even historically
successful companies.
This case is highlighted in a recent report by the MEP
Advisory Board, which found that many small manufacturers, even
those with orders that are relatively healthy, have been unable
to finance growth or execute business and product
diversification plans in this current environment.
Accordingly, MEP is tackling the access to capital issue
from a number of angles. Today, I would like to give you an
overview of MEP's ongoing work in these areas.
MEP is working through its network of partnerships with
other Federal, State, and local organizations to more
effectively access the myriad of programs that can provide
capital to finance smaller manufacturers growth. As an example,
at the Federal level, MEP uses its participation in the
Interagency Network of Enterprise Assistance Providers as a
mechanism to learn about programs that can provide financing to
manufacturers. We use this information as input to a quick
reference guide to growth financing that we developed as a tool
for Center staff to assist manufacturers in accessing Federal
programs to provide loans and financial assistance.
MEP is also sharing information on private sources of
capital and finance. For example, MEP is reaching out to the
equipment leasing community to provide manufacturers with
information on leasing strategies as possible options for
equipment acquisition. MEP has also engaged the Independent
Community Bankers of America, which represents nearly 5,000
community banks throughout the U.S. Through these engagements,
MEP looks to enhance the financial institutions' understanding
of how the MEP system can serve as a technical resource on
manufacturing issues, thereby supporting manufacturers as a
good investment by these institutions.
Another example where financing is a factor is when MEP
helps companies develop export opportunities. In collaboration
with ITA's U.S. Export Assistance Centers, MEP has developed
the ExporTech program to assist companies with developing an
international growth plan. The ExporTech program connects the
company with organizations and resources, including financial
resources, such as Eximbank, that can help them move quickly
beyond planning to actual export sales.
Another expanding area that requires access to financial
resources involves improving the energy efficiency of
manufacturing operations. As a result of the emphasis placed on
reducing energy consumption, MEP is delivering services and
technologies that help its clients make equipment and process
changes to become more energy efficient.
We are piloting a new collaborative effort called E3, which
stands for ``Economy, Energy, and the Environment.'' It is a
model that combines the resources of five Federal agencies,
local government, and utilities to enhance sustainability and
competitiveness in local and regional economies.
Another program is the Green Supplier Network, or GSN,
which is a collaboration between MEP, EPA, and other State and
local resources focused on the dual challenge of reducing the
environmental impact while simultaneously increasing the
companies' efficiency, productivity, and profitability.
As I have mentioned throughout my testimony, raising
capital is one of the most basic of business functions, but for
many smaller manufacturers, it is often difficult. To help
bridge this gap, MEP continues to look at ways to improve
manufacturers' access to financing options. Smaller
manufacturers positioned to move to the next level of growth,
whether it is through the development of new products, markets,
or sales, need to have clear strategies for securing the
necessary capital resources to achieve that growth.
With our partnerships and a toolbox of services, MEP is
uniquely positioned to provide smaller manufacturers with a
better understanding of the range of financial options and
resources that match their exact needs. The continued
incorporation of this type of service will give U.S.
manufacturers the information they need to successfully
implement their business growth strategies, resulting in new
sales, expanded markets, technology adoption, and
sustainability.
Again, thank you for the opportunity to testify today and I
will be glad to answer any questions.
Chairman Brown. Thank you, Mr. Kilmer.
I will start with you, Mr. Kilmer. I understand MEP has a
partnership with the Energy Department to help determine
domestic capacity for energy programs funded by ARA, and all of
us were concerned about the--probably the most salient of those
was the Texas wind turbine farm and not having developed enough
supply chain. So I understand the way it works is when DOE
receives a Buy America waiver request, it forwards on to you
that information and then you advertise for the product
specification through your network. And I understand there is
an incentive, a bit of an incentive for you to find those
suppliers. How is that working? How are you doing on that?
Mr. Kilmer. It is actually working very well. We are pretty
much, if you will, on the front end of that process, but we
have already had quite a bit of success in terms of being able
to find local suppliers. I think one of the advantages that we
have is with a national network, we can broadcast this to
anywhere in the country to be able to find those domestic
sources for the components that they are looking for.
Chairman Brown. Do you see the potential, if you are doing
that with DOE, is there a potential for, for instance, DOT? I
was speaking with the Secretary on the way to Columbus 1 day
about high-speed rail, and pretty much the only countries that
have a very well developed high-speed rail manufacturing system
or manufacturing capacity are France, Germany, China, and
Japan. That is not to say we don't build a lot of the
components. I know in Dayton, for instance, there is a
locomotive company that builds interesting components for rail.
Could we apply what you are doing to DOT and even to DOD?
Mr. Kilmer. Yes, absolutely. And in fact----
Chairman Brown. Do you need legislative authority to do
that?
Mr. Kilmer. No, we do not. Actually, an example, and I will
give it in kind of the wind energy one, we have had examples in
States where a potential manufacturer would like to move
operations to the U.S., but one of their concerns obviously is
the access to the suppliers. And so what we are able to do is
actually to work with them and with the States that are
involved to identify and locate those suppliers that can
actually help support that manufacturing operation, which can--
--
Chairman Brown. This is a company that assembles the
final----
Mr. Kilmer. The wind turbines, and so, like you said, there
are companies--many of our small manufacturers make all of the
same components that they have been providing to perhaps the
automotive industry that are similar to what would be needed
in----
Chairman Brown. Do you need an official request from DOT to
begin that process, the way you worked it with DOE?
Mr. Kilmer. We have actually started some conversations
with DOT, but again, it is very preliminary at this point. Any
help would be useful, but I think, quite honestly, they
understand the need and we are something that can help them.
Chairman Brown. And I think they understand that if we are
going to--there is talk of over the next 20 years building some
25,000 rail cars and low thousands, I don't know if it is 1,000
or 2,000 locomotives, for high-speed and less than high-speed
rail and streetcars and we don't have the capacity to do that
while other countries have both the engineering sophistication
and experience and capacity. But there is no reason we can't be
doing more of, obviously, the supply chain here. Thank you for
that and we will follow up on that.
Ms. Lamb-Hale, partly coming out of Senator Warner's first
comments about wages and manufacturing in some number of
European countries contrasted with ours, I want to talk a
little bit about Germany and get your thought on making a
comparison and sort of where we go. German exports came to $1.1
trillion in 2009, roughly $125 billion more than our exports,
than we exported. Their unemployment has dropped from 9.1
percent to 7.6 percent. Their yearly trade balance went from a
deficit 12 years ago of $6 billion to--a trade deficit of $6
billion to a surplus of $267 million in a decade. Our trade
deficit that same year, in 2008, was $569 billion and something
close to $600 million, $700 million a day from China
bilaterally alone. And Germany's annual growth rate per capita
exceeded ours.
What do we learn from that? What is missing? What are they
doing we are not doing in manufacturing, and how do you figure
out a strategy that, as you put together manufacturing policy
for President Obama and for all of us, what do we learn from
them?
Ms. Lamb-Hale. Well, I think that we learn about the
importance of exporting. I think as has been--the comments that
have been made today have suggested, and I think it is true
that often, because of the position, the strong position that
the United States has traditionally had with respect to our
internal markets, we haven't focused on exporting as much, and
that is why the President announced the National Export
Initiative with the goal of doubling exports in 5 years to
support, we believe, two million new jobs.
I think we need to look for new markets. I think that
Germany has been particularly successful in exporting and I
think we need to focus on that. And we are working very hard to
make sure that small- and medium-sized businesses understand
the tools that are available to help them to do that.
One of the things that we are really excited about is in
terms of the launch of Manufacture America is that it is going
to really take to the communities themselves, particularly
communities who have been hardest hit by manufacturing job
losses, the resources that are available that many don't know
about, and that is not their fault. That is our fault.
So the Manufacture America initiative will include exposing
small- and medium-sized businesses to exporting tools that are
available through the USIACs and other agencies. It will talk
about best practices, like sustainable manufacturing practices.
It will highlight success stories of small- and medium-sized
businesses who have successfully retooled to new markets or to
new products. I think that it is really important for us to
ensure that the information and the resources that are
available, both through the Federal Government and State and
local governments are known to small- and medium-sized
businesses, and exporting is key to that.
Chairman Brown. Good. Thank you. I appreciate your emphasis
on small companies exporting, as Senator Warner talked about,
because that sort of seems to me the biggest hole in this
picture.
The other hole in this picture is, and I will not ask you
to answer this, but when we have appealed to the Administration
on some currency issues on individual industries, China, for
instance, has pretty much just from scratch started up a whole
paper industry, coated paper industry. While China may have
invented paper some centuries ago, they really didn't have much
of a coated paper industry. Ohio does. New York does. I think
Virginia does. I assume maybe Oregon certainly has a paper
industry, I don't know if they have a coated paper industry.
But China imports all of its wood pulp from Brazil, brings it
to China, processes it, and sends it to us, and clearly it is
gaming the system.
We need--again, I am not asking you, this is not in your
jurisdiction--but it is very important the Administration move
on investigating currency practices on those kinds of issues,
because these companies will simply go out of business if this
continues when they were always very competitive before that.
And if they are out of business, they are not part of the
President's export program, obviously.
Senator Warner.
Senator Warner. Thank you, Mr. Chairman.
I want to come back to that comment in a moment, but I want
to just reiterate a point that I think both Ms. Lamb-Hale and
Mr. Kilmer made, and that is the real dire problem we have got
in terms of getting the manufacturing business access to
capital, I think we are at a crisis mode right now. Large
capital companies are sitting with the healthiest balance
sheets they have had in years right now and the supply chain, I
know that the Chairman has talked about in Ohio, but those
small- to mid-sized companies in the supply chain are dying on
the vine right now, and not because the large companies or the
manufacturers know they are going to come back and make orders
at some point, but their supply chain, if they can't get their
credit lines renewed during this period, those companies are--
the traditional small businesses that get washed out in a
recession had been washed out.
Now we are cutting into companies who have many, many long
years of history. Ultimately, if they get washed out, our
economy will revitalize them, but the ability to get a true
robust recovery will be undermined by their failure to have
access to capital.
And I wish my colleagues from the other side of the aisle
were here. This small business initiative, which has the
lending pool, which has the targeted small business State
initiatives that have a proven track record, the SBA programs,
the tax breaks for small businesses, all geared at access to
credit for small businesses, particularly manufacturing
businesses. If we can't accomplish that, this place is pretty
darn broken.
I know both my colleagues have been big supporters of that.
I really wish we would do it. I hope if we are not able to
get--we have that continued intransigence, that you will
continue to look at other initiatives, because waiting another,
at least in my State and I know probably in Oregon and Ohio, as
well, another year-plus of delay, even if you have got a
healthy, a relatively healthy cash-flow, you are not even going
to be able to expand. You may have to shut down.
I also, and I know I am giving more of a speech and a
testimony here, I want to ask Ms. Lamb-Hale, following up again
on the aspect of what you were talking about in terms of--the
Chairman was talking about in terms of ability to try to get
assemblage of an area like, for example, high-speed rail, one
of the things, my former job as Governor was economic
development recruitment and Virginia did a pretty good job when
we were competing against even my colleagues in Oregon or Ohio.
But when we came against South Korea or when we came against
China, we came against Brazil, where their Federal Government
was able to intervene in terms of the economic development
sweetener package, in terms of site locations, we fell down.
Ms. Lamb-Hale, we have talked to Secretary Locke at some
point about this. We have got legislation called the America
Recruits Act that would layer on up to $10,000 additional per
job that would go on top of an already existing State and local
economic development effort to try to bring jobs back into this
country. These would be foreign-based jobs coming back in, or
jobs that might locate otherwise abroad targeted directly at IT
and at manufacturing. And many of our rural communities now
have become much more price competitive than they were, say, a
decade or two ago in manufacturing, and I would just echo what
the Chairman has said.
If we are going to make the kind of investments we are
going to make in high-speed rail, which I hope we will, we sure
as heck would love to be able to have some of that
manufacturing done here in this country, and that site
location, that initial site location of where that assemblage
would be made, to be able to be competitive, no matter what
kind of tax breaks Ohio offers or Virginia offers or Oregon
offers, without that initial kind of extra incentive on the
front end--and this would be only available for jobs coming
into the country, so it wouldn't supplement the battles between
Ohio and Virginia or versus Oregon, it would be those jobs that
are otherwise going to go to India or going to go to China or
going to go to South Korea, bringing them back.
I would again ask you to go back, and Secretary Locke has
been initially supportive, but we would love to see more
support on that type of an issue from the Commerce Department,
from the Administration.
Ms. Lamb-Hale. Oh yes, definitely. And I just wanted to
mention that one of the things that we are doing is we are
really increasing our interagency cooperation, and particularly
to the point you raised on access to capital, with the Treasury
Department.
In response to a request of our former Manufacturing
Council--the new one will be announced this afternoon--but as
part of the recommendation of our prior Manufacturing Council,
we have included as an ex officio member the Treasury
Department, and we will have active participation of that
Department to try to address access to capital issues. So I
think that that is very important. That is something that was
really a request directly from our Manufacturing Council and
that is something that we are doing to really try to see what
the Administration can do to make sure that those issues are
addressed.
Senator Warner. I would also just--I applaud that, and I
know the vote has started and I am going to have to head off,
but I would also urge you, again, let us look at what we can do
in terms of creative incentives onsite location.
Ms. Lamb-Hale. Yes.
Senator Warner. You know, it is no longer Ohio versus
Virginia.
Ms. Lamb-Hale. It is true.
Senator Warner. It is America versus the rest of the world,
and we have got to have the same kind of tool box that other
countries offer. Thank you.
Chairman Brown. Thank you, Senator Warner.
Senator Merkley.
Senator Merkley. Thank you very much, Mr. Chair, and thank
you all for the testimony.
One of the things that we keep confronting are nontariff
barriers to American manufactured products. We had last year
the ``Cash for Clunkers'' program to encourage and help sustain
the production and sale of cars here. A story was circulating
around Capitol Hill that whereas we did not require the cars
that were being subsidized to be built in America because of
international treaty obligations, that China had turned around
and done something very similar but had restricted it to cars
made in China.
I am not sure if that story was exactly correct or not, but
it is an example of the type of stories we hear often of
barriers to American products abroad. How much truth is there
to nontariff barriers and why is it we seem to have such a hard
time playing hardball to get a fair, level playing field for
American products?
Ms. Lamb-Hale. Is that question addressed to me, Senator?
Senator Merkley. To either or both of you.
Ms. Lamb-Hale. OK. First, I would like to say that the
Obama administration is committed to enforcing our trade laws
and we are working very hard to do so. I think that, certainly,
we believe that American products are very competitive and can
beat other products from other countries if they are given a
fair chance, and we work very hard through our Import
Administration and in cooperation with USTR to enforce our
trade laws to ensure the level playing field that you describe.
Senator Merkley. So do you think we are there, or are
there, in fact, significant challenges? I must say, often, the
reaction among some is a hesitancy to hold other nations
accountable for their nontariff barriers for fear of triggering
a trade war on the short-term problems that that might create.
But how do you go about holding countries accountable that are
creating barriers to favor their own companies to the
disadvantage of the United States?
Ms. Lamb-Hale. I think that you maintain vigilance in
pursuing the enforcement of trade laws, and that is what the
Obama administration has committed to do. We continue to do it.
I mean, much of what we do is the subject of pending cases that
we can't speak to specifically, but certainly vigilance is what
is important and we are committed, because we understand what
that does to--you know, the lack of that will do to our
manufacturing base in this country, and we are committed to
making sure that it is strong and that American products can
compete on a level playing field.
Senator Merkley. Is there anything you would like to add,
Mr. Kilmer?
Mr. Kilmer. Not really. That would not be the area that I
would be that familiar with.
Senator Merkley. All right. Andy Grove wrote a recent
article about the loss of manufacturing in the United States,
and one thing that he observed is that while there are firms
such as Intel that have established sizable manufacturing
operations, and we are fortunate to have a couple of those in
Oregon, that there are a lot of firms, younger firms that are
designing products but immediately, as soon as the designs are
done, set up production facilities offshore, and that that
compromises the ability to scale up here in the United States
and create significant, substantial manufacturing jobs here.
Is this an issue that we are focused on, and how does it
affect both the production of manufacturing jobs and how does
it affect our national security and how do we change that
dynamic?
Mr. Kilmer. I would agree that there needs to be a strong
connection between the basic research, the design and
development aspects of it and the actual production. I do know
that that certainly is a challenge. I think the things that we
are starting to see is when you look at the total manufacturing
enterprise, not just the labor costs, that you are seeing a
tendency to reevaluate that and to bring some of that effort
back to the U.S. to tie the actual manufacturing process more
closely to the customer base that it is serving.
There is a ways to go on that, but I do see a change in
thinking where it really is critical to look at the entire
enterprise from beginning to end and all of the components of
cost, not just the labor element, but certainly the logistics,
et cetera, that go along with that.
Ms. Lamb-Hale. And, Senator, I would just like to add
that--and this is partly in response to Senator Warner's
comments about making sure that America is competitive for site
selection and such--the Secretary is working very hard on an
initiative that we hope to stand up very shortly that will help
in that regard, because we do know that our States are
competing with countries. So we have to make sure that, where
appropriate and not choosing winners and losers among the
States, that the Federal Government weighs in so that our
siting manufacturing in the United States is more competitive.
So we look forward to working with you on that, because I
think that is critical to what Mr. Grove spoke about, as well,
is just making sure that the whole package is competitive so
that companies can locate here and that we can create the jobs
that we need to do to sustain our growth in the 21st century.
Senator Merkley. Thank you.
Chairman Brown. Thank you, Senator Brown.
We have been called to a vote, so I thank you both very
much for being here. Ms. Lamb-Hale, I appreciate your comments
about enforcing trade law. Your administration has gone further
than the administrations of either party, of your predecessors
in either party, both on manufacturing policy and enforcement
of trade law. But, frankly, the jury is still out on how
aggressive this Administration is enforcing trade law. Being
better than previous administrations is a very low bar on
enforcement. We need to see a more aggressive posture from your
Department, not your specific portfolio but your Department and
the Treasury Department and USTR, so we will talk more about
that later.
I know my colleagues may have other questions they can
submit for the record. The record will remain open for 7 days
for Mr. Strauss or either of you on this panel to submit any
other information.
Mr. Strauss, we appreciate your staying and listening to
other panelists. I appreciate all of your being here.
The Subcommittee will adjourn.
[Whereupon, at 11:35 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF WILLIAM A. STRAUSS
Senior Economist and Economic Advisor, Federal Reserve Bank of Chicago
August 5, 2010
Chairman Brown and Members of the Economic Policy Subcommittee, I
am pleased to share with you some perspectives on long-term trends in
manufacturing and some observations about how the recent recession and
recovery are affecting manufacturing. My name is William Strauss, and I
am a Senior Economist and Economic Advisor for the Federal Reserve Bank
of Chicago. The Chicago Federal Reserve District comprises parts of the
States of Indiana, Illinois, Michigan, and Wisconsin, as well as all of
Iowa. The Midwest economy was built upon the superior distribution
channels that allowed manufacturing to become a vital part of the
region. While the Midwest has been diversifying its economy over time,
manufacturing remains one of the key industries that distinguishes our
region from other regions of the country. My specialty is tracking the
performance of the Midwest Economy, and in particular, the
manufacturing sector. This information is shared within the Federal
Reserve and helps provide an assessment on how the economy of this
important region is performing. It also adds to the mosaic of
information that policymakers need in order to craft the most
appropriate monetary policy for the country.
I use a variety of tools to assist me in providing this insight
into the performance of the manufacturing sector. I analyze the
multitude of data, both Government and private sector statistics that
we as economists are fortunate to have available to us. In addition, I
organize a series of industrial and manufacturing roundtables, held
throughout the year, that brings together representatives from
manufacturers and other key firms to discuss how conditions within
their industry have changed over the recent period; to provide their
outlook for their business; and to share any concerns that they might
have about issues affecting their business.
In the early part of the past decade, there was great concern that
we were losing our manufacturing base, and I proceeded to look at
longer-term trends as a way of gauging whether the losses in
manufacturing were cyclical or structural. My conclusion at that time
was that it was far more likely to be a cyclical rather than a
structural issue facing the sector. While manufacturing output fell by
6.4 percent between September 2000 and November 2001, by May 2005
manufacturing output was at an all-time high, and by December 2007
manufacturing output in the United States was 11.4 percent higher than
its previous peak.
Is U.S. Manufacturing Disappearing?
When discussing the health of the manufacturing sector one major
issue is whether we should be taking into account the number of people
employed in the sector or looking at the amount of output created in
manufacturing. Interestingly, each leads to the opposite conclusion
about the strength of manufacturing in the United States. Let us start
off with employment.
Manufacturing employment as a share of total employment in the
United States has been declining over the past 60 years. In 1950,
nearly 31 percent of nonfarm workers were employed in manufacturing:
this share has been declining at an average rate of 2 percent per year,
falling to 28.4 percent in 1960, 25.1 percent in 1970, 20.7 percent in
1980, 16.2 percent in 1990, 13.1 percent in 2000, and 9.1 percent in
2009. Even with this downward trend in manufacturing's share of jobs,
employment in manufacturing has on average been fairly stable over the
past 60 years, averaging -0.1 percent per year. In contrast, the
increase in nonfarm employment averaged 1.9 percent per year, and this
led to the reduction in manufacturing's share of jobs. However, there
is a break that occurs during this period. Between 1950 and 1979,
manufacturing employment increased on average by 1.4 percent per year
(over the same time period nonfarm employment was rising on average by
2.4 percent per year), and between 1980 and 2009, manufacturing
employment declined on average by 1.6 percent per year (over the same
time nonfarm employment growth slowed, rising on average by 1.3 percent
per year). In 2006, we had about as many workers in manufacturing as we
had in 1950, just over 14 million workers. So looking at manufacturing
employment leads one to believe that the sector is in decline or at
best stagnant.
However, you get a very different conclusion if you focus on the
amount of goods being produced by the manufacturing sector. While
employment has changed very little over the past 60 years, output in
manufacturing has increased at an annual rate of 3.4 percent.
Manufacturing output in 2007 (the recent peak in manufacturing output)
was over 600 percent higher than in 1950.
Productivity Is the Key
So how was manufacturing able to see output surge over the past 60
years with little change in its employment? The answer can be found by
looking at productivity. The increase in both the number of machines
and the quality of the machines over time has allowed manufacturing
sector output to rise. Productivity growth in the manufacturing sector
has averaged 2.9 percent over the past 60 years. This means that
because of improving efficiency in the manufacturing sector, output can
rise each and every year by around 2.9 percent without the need to add
any workers. What took 1,000 workers to produce in 1950 was able to be
produced by 184 workers in 2009. Between 1950 and 1979, productivity
growth in the manufacturing sector was matched by the productivity
growth of the nonfarm economy--both averaged a rate of 2.5 percent each
year. However, with the adaptation of CNC (Computer Numerical Control)
manufacturing during late 1970s, productivity growth in the
manufacturing sector increased. Productivity growth in the
manufacturing sector increased to average 3.3 percent per year between
1980 and 2009 while productivity growth in the nonfarm economy declined
to average 2 percent per year over the same time period. Manufacturing
output between 1950 and 1979 increased on average by 4.2 percent per
year, and then between 1980 and 2009 manufacturing production growth
slowed, averaging 2.2 percent per year. (Similarly, real gross domestic
product (GDP) growth in the United States slowed down: Real GDP growth
between 1950 and 1979 was 3.8 percent per year, and then between 1980
and 2009 real GDP growth slowed averaging 2.8 percent per year.) So
over the past 30 years relatively slower manufacturing output growth
and faster productivity growth led to a declining manufacturing labor
force.
Between 1950 and 1979, productivity growth rates in both durable
manufacturing and nondurable manufacturing were nearly identical,
averaging 2.6 percent and 2.7 percent per year, respectively. However,
between 1980 and 2009, productivity growth for durable manufacturing
surged, to average 3.9 percent per year, and productivity growth for
nondurable manufacturing declined, to average 2.4 percent per year.
Durable goods manufacturing makes greater use of machinery, and it was
clearly aided by the advancements in the capabilities of machines over
this period.
Efficiency Leads to Lower Prices
Another interesting observation about manufacturing's long-term
position in the U.S. economy is that, as stated previously, between
1950 and 2007 (prior to the severe recession) manufacturing output was
just over 600 percent higher, while over the same period, growth in
real GDP of the U.S. was a smaller 560 percent. Yet, the manufacturing
share of GDP declined over this period. In 1950, the manufacturing
share of the U.S. economy was 27 percent, and by 2007 it had fallen to
12.1 percent. How did a sector that experienced growth at a faster pace
than the overall economy become a smaller part of the overall economy?
The answer again is productivity growth. The greater efficiency of the
manufacturing sector afforded either a slower increase or an outright
decline in the prices of this sector's goods. As one example, inflation
(as measured by the Consumer Price Index) averaged 3.7 percent between
1980 and 2009, while at the same time the prices for new vehicles
averaged 1.7 percent. So while the number of manufactured goods had
been rising over time, their relative value compared with what other
sectors had produced or provided did not keep pace. This allowed
manufactured goods to be less costly to consumers and led to the
manufacturing sector's declining share of GDP.
The Rising Tide of Output Does Not Lift All Boats Equally
The rise in overall manufacturing has not translated into an
increase in every manufacturing sector. One of the great strengths of
the U.S. economy is its ability to ``re-invent'' itself over time.
Industries that are experiencing rising demand are able to gain access
to capital and labor, while those industries that are struggling are
forced to either become more competitive or risk going out of business.
This is the model of our economy that has allowed to U.S. to become the
largest economy in the world.
Over the past 20 years, manufacturing output has risen on average
by 2.2 percent per year, yet manufacturing's performance ranged from
15.0 percent growth per year for computer and electronic components
manufacturing to -7.0 percent per year for apparel. The durable goods
manufacturing sector output increased on average by 3.5 percent per
year, while the nondurable goods manufacturing sector's increase was at
a more tepid 0.4 percent per year.
The more intensive use of capital by the durable goods
manufacturing sector has afforded its businesses the greater use of CNC
manufacturing technology. Over the past 20 years, productivity in the
manufacturing sector increased by 96 percent, yet durable goods
manufacturing productivity rose by 123 percent compared with 64 percent
for nondurable goods manufacturing productivity.
Analyzing the Current Manufacturing Downturn and Recovery
The recent recession had a very negative impact on the economy.
Real GDP fell 4.1 percent between the second quarter 2008 and the
second quarter of 2009--the largest drop in output since the 1930s.
Employment declined by 6.1 percent during 2008 and 2009, representing
nearly 8.4 million workers. Manufacturing output, which peaked in
December 2007, fell 17.5 percent, bottoming in June 2009. With this
severe loss of output, manufacturing jobs declined by 16 percent during
2008 and 2009. Over 2.1 million manufacturing workers lost their jobs,
representing 26 percent of all job losses.
A greater loss in manufacturing during a recession is not unusual.
Outsized reductions in manufacturing output and jobs are typically
observed. For example, during the two previous post-World War II deep
recessions, during the mid-1970s and early 1980s, real GDP declined 3.2
percent and 2.6 percent, respectively. During these two severe
recessions, manufacturing output fell 15.7 percent and 11.6 percent,
respectively. Even when the economic downturn is not too sharp for the
overall economy, manufacturing tends to take a bigger hit. For example,
during the recession of the early 1990s and 2001, real GDP declined by
a fairly moderate 1.4 percent and 0.3 percent, yet manufacturing output
fell by a more significant 3.8 percent and 6.4 percent, respectively.
Economic output began to expand in the third quarter of 2009, and
over the past year output has risen 3.2 percent. However, a large part
of the gain has been due to the inventory cycle. The change in
inventories has contributed 60 percent of the growth over the past
year. The increase in real final sales (real GDP less the change in
inventories) was a more reduced 1.2 percent over the past year. In
contrast, manufacturing has experienced an extremely robust recovery,
rising by 8.9 percent, and it has recovered 42.3 percent of the loss
experienced during the recession. In fact, this year the manufacturing
sector has added jobs each and every month, for a total of 136,000
jobs, representing nearly 1 out of every 4 (23 percent) private sector
jobs created this year.
Industry Cycles
The 17.5 percent reduction experienced by the manufacturing sector
was not equally shared among its subsectors. While all manufacturing
industries experienced a decline, some were harder hit than others. The
two industries most adversely affected during the recent recession were
motor vehicles and parts and primary metals, whose output fell nearly
49 percent and 44 percent, respectively. Similarly, the 8.9 percent
increase in manufacturing over the past year has not been equally
distributed. For example, the two industries that have experienced the
largest increases over the past year were the same industries that had
been the hardest hit, motor vehicles and parts and primary metals, with
gains of over 52 percent and 46 percent, respectively. These two
industries are quite important to the Chicago Fed District. Our
District produces around 30 percent of all the vehicles and over 30
percent of all the steel in the country. This has allowed the Chicago
Fed Midwest Manufacturing Index to increase over the past year at a
faster rate than the overall economy. While manufacturing output was
8.9 percent higher over the past year, manufacturing output in the
Chicago District was 13.2 percent higher.
The U.S. Appears To Be Positioned To Continue Experiencing Strong
Productivity Gains
Since much of the gains in U.S. manufacturing have been due to
strong productivity, a natural question to raise is whether these gains
will continue into the future. Often we think that advancement in
technology will lead to such productivity gains. Spending by the U.S.
on research and development can be used as a proxy for the effort being
devoted to new technology. On this front, the U.S. appears to be in
relatively good shape as we continue to invest heavily in research and
development. As a percent of our GDP, research and development has
averaged 2.5 percent between 1953 and 2008. Between 1999 and 2008 it
has averaged 2.7 percent, with 2008 at 2.8 percent.
The private sector has played an ever-increasing role in research
and development spending. Fifty years ago the majority of research and
development was being undertaken by the Government. However, more
recently, the private sector has taken over as the major spender for
research and development. The privately funded share of research and
development averaged 36 percent during the 1960s; 47 percent in the
1970s; 54 percent in the 1980s; 66 percent in the 1990s; and 72 percent
between 2000 and 2008.
Every 2 years, Chicago hosts one of the premier manufacturing shows
in the world, the International Manufacturing Technology Show (IMTS).
It is breathtaking to see the cutting-edge technologies that are
available to manufacturers. I typically ask exhibitors of more standard
manufacturing equipment to explain to me the differences between the
new equipment compared with what was displayed 2 years earlier. The
response is almost universal: The new pieces of equipment are more
accurate, faster, more versatile, and less expensive than their
predecessors.
I often have the opportunity to tour manufacturing production
facilities, and I am impressed by the continuous improvements in
technology that companies employ. I always ask these producers the
following question: Can they envision being able to be even more
productive? Nearly all of the manufactures without hesitation tell me
they absolutely can become even more efficient, and many then launch
into a description of their near-term plans that will make them even
more productive.
Back to the Future
The transition that the manufacturing sector has been undertaking
over the past 60 years is not the first time the U.S. has experienced
an outsized increase in productivity driving output higher and
employment lower. Something very similar has been taking place in the
American agricultural industry over the past century.
In 1870, just over half of employment was dedicated to agriculture.
Farm output today is higher than ever before (take, for instance, 2009
gross value added: farm business was over 400 percent higher than in
1950), yet we are able to produce all this output with only 1.6 percent
of our employment dedicated to farming.
Conclusion
The manufacturing sector remains a vibrant and innovative industry
in the U.S. Manufacturing output has been rising at a solid pace over
time, although it has been more affected by business cycle downturns
than the overall economy. Most of this growth, especially over the past
30 years, has been achieved by improving productivity. This increase in
productivity has been a double-edged sword. On the one side, increasing
productivity has fostered a globally competitive sector with the
ability to produce an ever-increasing amount of goods with relatively
lower price increases relative to the overall economy. On the other
side, being more productive means that a producer can increase output
without the need to add labor. If productivity is quite strong, the
employer can actually achieve production goals using fewer workers.
The movements in output, productivity, and labor have not been
occurring just over the past few years but have been taking place for
decades. If the manufacturing sector follows the example offered by the
agricultural sector, we can look forward to an industry that will
continue to produce an ever-increasing amount of output, contributing
to a stronger U.S. economy, with manufacturing employment representing
a smaller share of the overall U.S. labor market.
______
PREPARED STATEMENT OF NICOLE Y. LAMB-HALE
Assistant Secretary for Manufacturing and Services, Department of
Commerce
August 5, 2010
Chairman Brown, Ranking Member DeMint, and Members of the
Subcommittee, thank you for this opportunity to testify before you
today on the President's Manufacturing Agenda and what we at the
Department of Commerce are doing to promote U.S. manufacturing. The
Department of Commerce is committed to promoting this important sector.
We do this every day by working to create the right business
environment to help manufacturers sustain and grow their companies and
create jobs.
In December 2009, the Obama administration released a manufacturing
strategy entitled A Framework for Revitalizing American Manufacturing.
The framework, based on input from all Federal departments and agencies
whose work impacts U.S. manufacturers, focuses on effectively targeting
cost drivers that affect manufacturing in the United States. Department
of Commerce programs directly address three of the seven framework
components: investing in the creation of new technologies and business
practices; helping communities and workers transition to a better
future; and ensuring market access and a level playing field. In
addition, the Department is working with other agencies, such as the
Department of Transportation, the Treasury Department, and the Small
Business Administration to address other Framework elements.
As the Framework recognizes, exporting goods is a key component for
revitalizing U.S. manufacturing. In this year's State of the Union
address, President Obama announced the National Export Initiative (NEI)
and set the ambitious goal of doubling U.S. exports in 5 years,
supporting several million jobs. Secretary of Commerce Gary Locke is
part of the President's Export Promotion Cabinet that is working hard
to reach these goals. The Department and the International Trade
Administration (ITA), of which my unit is a part, are strategically
developing initiatives and improving the implementation of existing
programs to support the National Export Initiative goals. We are also
strengthening interagency coordination by working with other agencies
through the Trade Promotion Coordinating Committee (TPCC).
As Assistant Secretary of Commerce for Manufacturing and Services,
MAS, I believe that it is critical to ensure that our manufacturing
capacity in the United States is strong. Manufacturing is a vital part
of the U.S. economy. Preliminary figures show that the sector supported
11.67 million jobs as of June 2010. \1\ It accounted for about 8.9
percent of total nonfarm employment in the United States. Manufacturing
industries are also responsible for a significant share of U.S.
economic production, generating almost $1.64 trillion in GDP in 2008.
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\1\ Revised figures will be available on August 6, 2010.
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MAS plays an active role in helping to ensure that strong
manufacturing capacity. Our initiatives and programs to promote U.S.
manufacturing, and the ways we work with other Federal and State
Government agencies and the private sector, are strategically developed
to support the needs of the U.S. manufacturing sector, the President's
manufacturing agenda, and the National Export Initiative.
Manufacturing and Services is dedicated to strengthening the global
competitiveness of U.S. industry, expanding its market access, and
increasing exports. MAS helps shape U.S. trade policy, participates in
trade negotiations, organizes trade capacity building programs, and
evaluates the impact of domestic and international economic and
regulatory policies on U.S. manufacturers and service industries. MAS
is also developing sector-specific global strategies to guide policies
to enhance U.S. manufacturing exports.
MAS also works with other U.S. Government agencies in developing a
public policy environment that advances U.S. competitiveness at home
and abroad.
Within MAS, we have a Manufacturing group and a Services group,
each comprised of teams of industry analysts with extensive expertise
in their sectors. Our third group, Industry Analysis, performs economic
and statistical analysis to support U.S. industry competitiveness and
evaluates industry recommendations for trade negotiations.
MAS develops and implement programs and provide decision makers
input necessary to promulgate and implement policies that support U.S.
competitiveness, which, in turn, helps industry create jobs. As part of
the International Trade Administration, we also understand trade and
how the domestic and global markets interact and impact U.S.
competitiveness.
Under my leadership, MAS follows a three-prong approach, which I've
called ``The 3 Cs'': to convene, to collaborate, and to connect. We
convene experts both inside and outside of the Federal Government to
work toward solutions to the problems faced by U.S. industry. MAS also
collaborates with our sister bureaus in the Department of Commerce,
with agencies across the Federal Government, and with State and local
governments to develop solutions that will sustain and increase the
global competitiveness of U.S. industry. For example, MAS developed the
Department's Sustainable Manufacturing Initiative (SMI) and works with
industry, other Federal agencies, and State and local governments to
showcase sustainable manufacturing practices that can help companies
reduce operating costs and damage to the environment.
MAS also works to connect industry through our new Manufacture
America Initiative. Consistent with Secretary Locke's CommerceConnect
initiative, Manufacture America will focus specifically on linking
manufacturers to the resources and tools available in the Federal
Government and elsewhere to help companies rethink, retool, and rebuild
to support jobs in the 21st century economy.
MAS administers the Department's Manufacturing Council, the
advisory committee to the Secretary of Commerce, created to ensure
regular communication between the Federal Government and the
manufacturing sector. The Council also fosters collaboration across all
U.S. manufacturing sectors to promote new ideas for continuously
improving manufacturing competitiveness.
When we renewed the Manufacturing Council's charter this past
spring, we increased private sector membership from 15 to 25 members to
broaden the spectrum of views heard. We also followed the advice of the
previous Council and added the Secretaries of Labor, Energy, and
Treasury as ex-officio (nonvoting) members to better address the cross-
cutting issues this Council will be addressing, such as access to
credit, workforce development, and energy independence.
Today, Secretary Locke will announce the newly appointed members of
the current Manufacturing Council. The new Council is a diverse mix of
people from across the country representing different industries within
the manufacturing sector. The Council members also reflect a balance
between small- and medium-sized enterprises (SMEs) and larger
companies. We expect that the Council will get right to work advising
the Secretary on critical issues affecting manufacturing
competitiveness.
MAS also oversees key Department of Commerce initiatives to address
manufacturers' needs, including the Sustainable Manufacturing and
Energy Efficiency Initiatives. The Sustainable Manufacturing Initiative
identifies U.S. industry's most pressing sustainable manufacturing
challenges and coordinates public and private sector efforts to address
these challenges. Through the Energy Efficiency Initiative, MAS
promotes the use and commercial deployment of energy efficient
technologies and helps manufacturers learn about the resources
available from State and Federal Governments to promote efficiency.
Other DOC bureaus, including the National Institute of Standards
and Technology (NIST), the U.S. Patent and Trade Office (PTO), Economic
Development Administration (EDA), and Minority Business Development
Agency (MBDA), also have programs in place to address manufacturers'
needs. We work closely with our sister bureaus, including the
Manufacturing Extension Partnership (MEP) at NIST, in delivering our
programs. These Departmental programs support businesses and
entrepreneurs throughout the manufacturing life cycle, from innovation
to commercialization to competitiveness. Census, in the Economics and
Statistics Administration (ESA), contributes data for understanding
markets. CommerceConnect and EDA help small- and medium-sized
manufacturers access Commerce programs designed to help them.
Manufacturing.gov, maintained by MEP and MAS, has an online
clearinghouse of information and resource tools dedicated to helping
U.S. manufacturers improve or maintain competitiveness.
With respect to the National Export Initiative, MAS is active in
helping the Secretary and Under Secretary for International Trade,
Francisco Sanchez, implement the Initiative.
Emerging markets--such as China, South Africa, India, Brazil, and
Indonesia--offer key opportunities. Manufacturing export leaders are
likely to be found in high growth sectors such as medical devices,
aerospace, clean energy and energy efficiency, technology industries
and infrastructure, among others.
Secretary Locke led a clean energy mission to China in May of this
year, based in part on the recommendations of industry experts, country
specialists, commercial officers, and others in Commerce. Our various
Commerce offices worked together to organize the mission that
registered immediate sales by mission participants valued at over $20
million. Additionally, the 24 U.S. companies participating on the
mission met with potential business partners in Hong Kong, Shanghai,
and Beijing as well as with officials at every level of the Chinese
government. The mission came at a critical time--when the Chinese
leadership expressed a clear commitment to adopt clean energy
technologies and when U.S. companies are developing and commercializing
technologies related to clean energy, energy efficiency, and electric
energy storage, transmission, and distribution.
This is just one example of how the Department, ITA, and MAS are
already working to meet the ambitious goals of the NEI. During the
first 12 months, we have taken or plan to take a variety of actions.
Secretary Locke has personally spoken with top exporters to discuss
strategies to help them expand their exports. Such strategies include
leveraging Commerce programs to help increase exports; USG advocacy in
support of bids for foreign procurement contracts; the reduction or
elimination of market barriers; or more aggressive promotion of U.S.
goods and services through collaborative efforts with the Office of the
U.S. Trade Representative and other agencies.
MAS is using its analytical capabilities to identify sectors and
markets where American exporters have a competitive edge. We are
conducting outreach to U.S. businesses to educate them about export
opportunities. The Department and ITA are prioritizing existing
programs that seem most effective. One such program is the Market
Development Cooperator Program (MDCP), administered by MAS. An MDCP
award establishes a partnership between ITA and nonprofit industry
groups, such as trade associations and chambers of commerce, to
encourage projects that enhance the global competitiveness of U.S.
manufacturing and service industries.
Also critical to NEI efforts are CommerceConnect, International
Buyer Programs at trade shows, an increased number of executive-level
trade missions, strengthening our strategic partnerships to identify
single market exporters and encourage them to expand into additional
markets, and increasing the number of foreign buyers attending trade
shows in the United States.
But in order to export more, we need to manufacture more products
here at home. In September, I will launch Manufacture America, which I
mentioned earlier. Manufacture America is an initiative to connect
manufacturers in States that have been hardest hit with manufacturing
job losses to resources to help them rethink, retool and rebuild their
operations through exploring new products, markets, processes and
sources of finance. We are collaborating in this effort with our sister
bureaus in the Department of Commerce as well as with other Federal,
State, and local agencies to develop solutions that will sustain and
increase the global competitiveness of U.S. manufacturers.
During 2009, the Manufacturing Council raised the problem that many
small- and medium-sized companies were having in accessing credit--even
those companies that were financially sound. President Obama has
proposed legislation that includes a $30 billion small business lending
fund and a State small business credit initiative. These two items are
part of a small business jobs package the President hopes to sign into
law. Let me reiterate the message I hear every day from small- and
medium-sized manufacturers: Access to capital is one of the primary
concerns for U.S. small- and medium-sized manufacturers today!
For many companies that will participate in the Manufacture America
Initiative, financing is a significant challenge. Through that
Initiative, we will work with the Treasury Department and local banking
groups to help small- and medium-sized manufacturers better understand
the resources available to them, including access to capital.
MAS has also developed tools to help companies better understand
their financing options for participating in international trade. The
``Trade Finance Guide: A Quick Reference for U.S. Exporters'' helps
U.S. companies, especially small- and medium-sized enterprises, learn
the basics of trade finance so that they can turn their export
opportunities into actual sales and achieve the ultimate goal of being
paid--on time--for those sales. Concise, two-page chapters offer the
basics of numerous financing techniques, from open accounts, to
forfaiting, to Government assisted foreign-buyer financing.
These are just some of the most strategic programs that the
Commerce Department is employing to support President Obama's
manufacturing agenda. While manufacturers themselves are best
positioned to sustain and expand their companies and sectors, they
cannot do it in a vacuum. We at the Department of Commerce work to
ensure that the business environments--both domestic and
international--are fair to U.S. manufacturers, their workers, and their
communities.
Again, thank you for this opportunity to testify on the effort of
Department of Commerce and Manufacturing and Services to enhance the
competitiveness of U.S. manufacturing.
______
PREPARED STATEMENT OF ROGER D. KILMER
Director, Hollings Manufacturing Extension Partnership, National
Institute of Standards and Technology, Department of Commerce
August 5, 2010
Chairman Brown, Ranking Member DeMint, and Members of the
Subcommittee, thank you for the opportunity to appear before you today
to discuss the efforts of the National Institute of Standards and
Technology (NIST) Hollings Manufacturing Extension Partnership (MEP) to
support manufacturers based in the United States (U.S.). Today I would
like to highlight a few of the services that MEP offers to assist
manufacturers with growth strategies and access to capital to support
that growth. But first, I would like to give a brief overview of the
program.
MEP Support of U.S. Manufacturers
Since 1989, the MEP program has been working to improve the
competitiveness of U.S. manufacturers. With a nationwide network of
centers in nearly 400 locations, MEP serves as trusted advisors to our
small- and medium-sized manufacturing clients, helping them to
strategically implement business growth opportunities and to improve
their competitive position in the market. We have helped clients obtain
significant and measurable economic impacts. In FY2009, MEP served
nearly 33,000 manufacturing clients and recent results from a client
survey indicate that MEP services resulted in more than $3.6 billion in
new sales, $1.1 billion in cost savings and the creation or retention
of more than 52,000 jobs. \1\
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\1\ The Manufacturing Extension Partnership: Partnering for
Manufacturing Innovation and Growth--2009.
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Today with manufacturing industry markets both contracting in some
sectors and expanding in others and business success factors changing,
manufacturers must establish competitive niches to capture new business
opportunities and MEP is focused on addressing these new challenges and
opportunities facing U.S. manufacturers. Through our next generation
strategy, we are working with manufacturers to harness technology and
innovation that results in new business opportunities. We have outlined
a framework of five critical areas--supplier development, technology
acceleration, sustainability, workforce and continuous improvement--in
which MEP is working not only to help manufacturers' problem-solve to
survive, but also to grow by developing new sales, new markets and new
products.
To support this program, the President's FY2011 request for MEP
builds upon the foundation that the America COMPETES Act (P.L. 110-69)
established, and puts the program on a path grow to $180 million by
FY2015. The proposed budget of $129.7 million represents an increase of
$5 million over FY2010 enacted levels to support the Obama
administration's policy initiatives for reinventing domestic
manufacturing. MEP will assist in creating jobs and responding to
future challenges and opportunities in the manufacturing sector.
Through the locally based Centers, MEP supports the adoption of
technological innovations that spur economic growth and foster
development of new products, expanded markets, and process
improvements. MEP also facilitates the adoption of technological
innovations by smaller U.S. manufacturers, especially clean
technologies and processes that improve manufacturers' competitive
position.
MEP is building upon efforts to implement and provide a number of
new Growth Services to U.S. manufacturers in order to promote
innovation and competitive practices, including:
the acceleration of technology adoption and the development
of new products and processes;
green and sustainable manufacturing practices and products;
market diversification to support development of new
markets and supply chain opportunities; and
an enabled manufacturing workforce that spans all levels of
the organization.
Addressing Challenges Manufacturers Face in Accessing Capital
As we all know, improving manufacturing processes, developing new
products, or accessing new markets often requires capital. For most
small- and medium-sized manufacturers, identifying and securing capital
for sales and growth is often a complex and frustrating process. With
capital becoming significantly scarcer in today's financial climate,
that process has become more difficult for even historically successful
companies. The scarcity of available capital and credit has particular
impact on the manufacturing sector which is capital intensive and often
requires the financing of inventories and receivables over longer
periods of time.
This case is highlighted in the February 2010 report by the
Manufacturing Extension Partnership Advisory Board (Advisory Board),
the program's Federal Advisory Committee, which noted that with the
contraction, restructuring, and impaired capital of the financial
sector of the economy, there is currently a distinct gap in access to
capital for most small manufacturers. The Advisory Board found that
many small manufacturers, even those with orders that are relatively
healthy, have been unable to finance growth or execute business and
product diversification plans in the current environment due to factors
that include: prevailing underwriting practices, devalued assets, and a
risk aversion associated with transforming from legacy products and
practices to investing in new products. \2\
---------------------------------------------------------------------------
\2\ ``Innovation and Product Development in the 21st Century'',
Gary Yakimov and Lindsey Woolsey with Contributions from MEP Staff,
Hollings Manufacturing Extension Partnership Advisory Board February
2010.
---------------------------------------------------------------------------
In his remarks during the Federal Reserve forum, ``Addressing the
Needs of Small Business'' on July 12, 2010, Chairman Bernanke noted
that businesses in Michigan have cited the interconnectedness of the
auto supply chain and the crucial role of stable financing for small
businesses ranging from parts suppliers to independent automobile
dealers as a major factor in the recovery of the auto industry as a
whole. \3\
---------------------------------------------------------------------------
\3\ ``Restoring the Flow of Credit to Small Businesses'', Remarks
by Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve
System, at the Federal Reserve Meeting Series: ``Addressing the
Financing Needs of Small Businesses'' Washington, DC, July 12, 2010.
---------------------------------------------------------------------------
With regard to small companies and product diversification, the
Advisory Board in its report noted the major challenge of offsetting
the lenders perspective of perceived financial deficiencies of
borrowers brought about by asset devaluation and what banks see as
transitional risk to cash flows as companies diversify.
The Advisory Board also observed that access to capital can be
significantly improved through targeted initiatives that mitigate risk
taking or loan losses by lenders, or by loan enhancement programs which
directly reduce specific risks on a loan by loan basis. The Advisory
Board has concluded that the solutions likely lie in the public and
private sector working together in a creative and collaborative effort.
\4\
---------------------------------------------------------------------------
\4\ ``Innovation and Product Development in the 21st Century'',
Gary Yakimov and Lindsey Woolsey with Contributions from MEP Staff,
Hollings Manufacturing Extension Partnership Advisory Board February
2010.
---------------------------------------------------------------------------
Accordingly, MEP has been looking at what actions we can take to
respond to these circumstances and I will discuss a few of those
options below. MEP recognizes that each company must determine its own
funding and finance strategy--one that matches the exact needs of the
business at its particular stage of growth with the most appropriate
financial strategy and sources of capital. In that sense, we see that
many business growth decisions are also investment decisions for our
manufacturers. To support our manufacturers in that decision process,
MEP has been educating and facilitating partnerships, to provide
companies with information on financial resources and strategies.
MEP Assistance to Manufacturers via Financial Services
MEP is tackling this issue from a number of angles. We are
providing information to companies on Federal and State Government
resources, private sources of capital and finance, and strategies for
use of financial services for smaller manufacturers. Today I would like
to give an overview of MEP's ongoing work in this area.
Federal and State Government Sources of Funding
We are working to improve the ability of the MEP system to more
effectively access the myriad of Government programs that can provide
capital to finance smaller manufacturers' growth.
A 2007 study by RSM McGladrey indicated that Federal and State
Government programs remain an underutilized source for company
financing. Many smaller companies still often overlook some of the best
financing options available, especially in the Federal tax areas. \5\
---------------------------------------------------------------------------
\5\ Forging New Partnerships: How To Thrive in Today's Global
Value Chain, The Manufacturing Institute, the National Association of
Manufacturers and RSM McGladrey, Inc., 2007, p. 49.
---------------------------------------------------------------------------
MEP is working to capture and disseminate knowledge of Federal and
State programs that provide loans, grants, and tax incentives to
smaller manufacturers through revolving loan funds, guaranteed loans,
energy grants, or tax credits. We are promoting, throughout the MEP
system and partner agencies, a systematic and integrated sharing of
knowledge of these programs so that the information can be better
utilized by the smaller manufacturers to make sound financial
decisions. MEP uses its participation in the Interagency Network of
Enterprise Assistance Providers, an innovative network that includes
representatives from Federal financial assistance programs such as the
Export Import Bank and the Small Business Administration, to facilitate
the exchange and deployment of knowledge of Federal programs that
provide loans and financial assistance to manufacturers. MEP has also
established a partnership with The Council of Community and Economic
Research (C2ER), a national organization representing economic
development research professionals at chambers of commerce, State
agencies and economic development organizations, to provide MEP centers
and client companies with access to the C2ER database on about 1700
State incentive and financial assistance programs available to U.S.
manufacturers.
MEP has developed a Quick Reference Guide to Growth Financing--to
disseminate information on State and Federal Sources of funding. The
reference guide was developed to assist MEP centers, field staff,
interested partners and manufacturers to better understand some of the
general financing options, programs, and techniques available to small-
and medium-sized enterprises (SMEs) in pursuing growth-oriented
strategies.
Private Sources of Capital and Finance
MEP is also capturing and disseminating information on private
sources of capital and finance. There are a number of private sources
available to smaller manufacturers, and we are working to increase
these opportunities for client companies. For example, MEP is reaching
out to the equipment leasing community to provide manufacturers with
information on leasing strategies as possible financing options for
equipment acquisition. MEP has also engaged the Independent Community
Bankers of America (ICBA), which represents nearly 5,000 community
banks throughout the U.S., to explore ways to harness the expertise of
the financial community to enhance manufacturers' understanding of what
makes a manufacturer ``lendable.'' The intent is to build the knowledge
of what lenders or investors are looking for from manufacturers so we
can help our companies' access capital to grow and expand. Through
these engagements, MEP looks to enhance the financial institutions'
understanding of how the MEP system can serve as a technical resource
on manufacturing issues--thereby supporting manufacturers as a good
investment by these institutions.
Greater Knowledge and Use of Financial Strategies
MEP is working to educate smaller manufacturers on internal
financial practices and strategies that can leverage company capacity
and enhance chances for accessing outside capital. MEP Centers have
been providing information to clients on how to utilize better cash
management practices, tax incentives (such as the R&D tax credit) and
supplier management strategies to leverage internal capacity to fund
growth. We have been working with technical advisors and private
lenders to understand how a company's values, cash management
practices, and customer management philosophies impact ``lendability''
and ``investment attractiveness.''
It is important to note that MEP works in tandem with the Small
Business Administration (SBA) on financial services to facilitate the
delivery of SBA loans and guarantees to MEP client companies. MEP does
this by educating its client companies and the manufacturing community
on what SBA products are available and helps them be better prepared to
gain access to the SBA loans and guarantees.
MEP--Helping Companies Export
MEP works with companies to enhance their strategies; helping them
identify opportunities for business growth and it is tied to financial
services by developing financial approaches necessary to implement
these strategies. One of our newer service offerings is focused on
providing smaller manufacturers with the tools and knowledge they need
to move into global markets.
In today's economy, more companies are considering expansion into
international markets. In fact, exporting is rapidly becoming the
fastest growing segment of the market. In collaboration with
International Trade Administration's U.S. Export Assistance Centers,
MEP has developed the ExporTech program to assist companies with
developing an international growth plan. The ExporTech program provides
experts who review and comment on the company's export plans, and
connects the company with organizations and resources, including
financial resources, that can move them quickly beyond planning to
actual export sales.
ExporTech is customized to the specific learning needs of the
participants; each workshop is limited to six to eight companies to
provide sufficient time and attention to each company's specific
requirements. The companies meet for three one-day sessions over a 3-
month period, and, between sessions, participants work on developing
their export plans.
The program's small workshop size and customized format focuses on
merging strategy with results. Throughout the program, local experts
knowledgeable in all aspects of exporting are brought in to provide
information and guidance and enable companies to accelerate their
growth plan and speed to market. The program's customized agenda and
small group discussion format ensure that companies walk away with
information and guidance that specifically applies to their business.
In the final work session, a panel of experienced international
businesspeople reviews and provides feedback on each participating
company's export growth plan.
To date MEP has completed sessions in the following 18 States:
Arizona, Colorado, Idaho, Louisiana, Maryland, Minnesota, Missouri,
Nevada, New Hampshire New Jersey, New York, North Carolina, North
Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, and
Washington. MEP is continuing to provide this service for smaller
manufacturers across the country. A few examples of the results of the
work MEP has done with clients under ExporTech are:
A fourth-generation family owned company in Bronx, NY, has
been in business since 1902. A provider and assembler of
hollowware for the hotel and banquet industry, this company
credits ExporTech with revitalizing the company's international
efforts. They more than doubled their international sales by
exploring new opportunities to utilize their existing
infrastructure and sales force in new ways.
A manufacturer of fabricated and machined equipment,
products, and tools in the energy industry looked to expand
their customer base internationally. The company enrolled
ExporTech to help develop and guide their exporting program.
With the logistical knowledge and information of the world
market provided by ExporTech the companies exports went from 8
percent to over 50 percent of their total revenue.
A Certified Small Disadvantaged Business in the defense
industry was looking to expand its 100 percent domestic
customer base and develop new markets internationally.
ExporTech helped provide the resources needed to initiate the
move into the international market and most importantly helped
to accelerate the process of obtaining an export license. The
company grew from no exports to over $250,000 in export sales
in 1 year though the support and knowledge of the ExporTech
program which helped them find international opportunities
Increasing Competitiveness via Energy Efficiency
As an emphasis is placed on renewable energy in our economy, MEP is
delivering technologies and processes that help its clients become more
competitive and energy efficient. MEP is finding for its clients that
`Green' has proven to be complementary to traditional ``Lean''
concepts--already delivered by our Centers--and provides important
production cost savings. The benefits of Lean manufacturing include
reduced cycle time, reduced inventory, reduced work-in-process costs,
increased capacity, improved lead time, increased productivity,
improved quality, and increased profits.
Uniting Lean with Green process concepts opens up additional
opportunities to help improve the balance sheet. Companies that embrace
Lean and Green production processes are seeking to reduce their
environmental impact while simultaneously increasing their efficiency,
productivity, and profitability. Typically this is being done through
reduction of total energy use--waste sent to landfills, greenhouse gas
emissions, and water consumption, among other negative environmental
impacts. This approach aligns with Lean concepts to reduce work-in-
process costs, increase productivity and quality, and increase profits.
While some manufacturers remain skeptical of the words
``sustainability'' and ``green,'' there is a clear indication that
efforts to become more energy efficient and better environmental
stewards have reached a tipping point amongst manufacturers.
While many manufacturers understand what needs to be done, many do
not and require assistance in the identification and navigation of the
path forward. \6\
---------------------------------------------------------------------------
\6\ ``Innovation and Product Development in the 21st Century'',
Gary Yakimov and Lindsey Woolsey with Contributions from MEP Staff,
Hollings Manufacturing Extension Partnership Advisory Board February
2010.
---------------------------------------------------------------------------
E3 (Economy, Energy, and the Environment)
Oftentimes, introducing ``Green Lean'' production processes is not
done alone but in partnership with local, State, and Federal Government
resources, and utilities. E3 is a model that combines the resources of
five Federal agencies, working with local government and utilities, to
enhance sustainability and competitiveness in local and regional
economies and to spur job growth and innovation. Federal and local
resources are being combined to conduct in-depth front-end assessments
and gap analyses of company manufacturing processes, the results of
which are used to develop comprehensive improvement plans on behalf of
and in collaboration with the participating communities. The Federal
agencies involved in this effort are:
MEP (NIST)
Pollution Prevention Program (Environmental Protection
Agency)
Industrial Technologies Program (Department of Energy)
Employment and Training Administration (Department of
Labor)
Small Business Development Centers (Small Business
Administration)
These agencies work with local partners, utilities, and
manufacturers to sustain the manufacturing infrastructure of a region,
make manufacturing plants more energy efficient and cost effective,
reduce the environmental impact of participants, and improve the
economy by creating and retaining jobs.
Green Suppliers Network (GSN)
Most manufacturers agree that greening the supply chain is the next
evolution in achieving improved energy efficiency. From materials to
components to design, finished product, and end use, many original
equipment manufacturers (OEMs) are requesting that their suppliers
adhere to standards of environmental quality and processes. These
developments have seen the supply chain adapt from one of compliance to
environmental mandates by OEMs to one of using Green Lean to create
value or lower costs. Suppliers once viewed environmental quality as
something thrust upon them, but are beginning to understand that by
becoming Lean and Green they are more economically competitive and thus
more likely to survive in a competitive supply chain where all
suppliers are now adhering to environmental quality control. In the new
value chain model of Green, socially responsible suppliers will be the
most successful. A significant challenge over the next several years
will be helping more and more companies make the transition to Green
Lean and fostering growth within the growing green economy.
GSN is an innovative collaboration between the Environmental
Protection Agency, MEP, State and local government, and industry that
focuses on the dual challenge of reducing the negative environmental
impact of small- and mid-sized manufacturing suppliers while
simultaneously increasing those companies' efficiency, productivity,
and profitability. GSN reviewers employ ``Lean and Clean''
technologies, which concentrate on the root causes of waste of one
process line in a facility and provide a framework for achieving
specific, measurable, environmental business objectives. Among other
things companies learn to establish systems to use energy more
efficiently and improve the use and selection of more environmentally
friendly raw materials.
Conclusion
As I have mentioned throughout my testimony, raising capital is one
of the most basic of business activities, but for many smaller
manufacturers it is often a complex and frustrating process. To help
bridge this gap, MEP continues to look at ways to improve
manufacturer's access to financing options.
Smaller manufacturers positioned to move to the next level of
growth--whether it is through the development of new products, markets,
or sales--need to have clear strategies for securing the necessary
capital resources to achieve growth. Many smaller manufacturers do not
discover until the implementation phase of their growth plan that they
may be unable to proceed without additional capital. With our toolbox
of services, MEP is uniquely positioned to provide smaller
manufacturers with a better understanding of the range of financial
options and resources that match their exact needs. The continued
incorporation of this type of service in the MEP toolkit and the
overall MEP Next Generation Strategy will give U.S. manufacturers the
information they need to successfully implement their business growth
strategies, resulting in new sales, expanded markets, technology
adoption and sustainability.
Thank you for the opportunity to testify today on how the MEP
program assists America's smaller manufacturers to increase their
competitiveness. I am happy to answer any questions the Committee may
have.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM WILLIAM A. STRAUSS
Q.1. You claim that increasing productivity can account for
manufacturing output to rise. On one level it makes sense that
what took 1,000 workers to build in 1950 can be built by less
than 200 workers today--however, this doesn't account for the
over 40,000 American plants that have shut down since 1999,
according to the Alliance for American Manufacturing. These are
not jobs making buggy whips either. These are increasingly
high-tech jobs. Where did those jobs go? How can this be
explained only by productivity growth? Don't we have to
consider that some of the lost jobs are due to competition from
manufactured imports and off-shoring?
A.1. There are many factors that have been impacting
manufacturing over the past 60 years. These include improving
productivity, market segment shifts, competition from imports,
offshoring, and outsourcing functions to domestic firms. Over
time, such factors have led to a very dynamic sector--one that
illustrates economist Joseph Schumpeter's ``creative
destruction'' principle.
Manufacturing is a profitable business. Profits of U.S.
manufacturers tend to outperform profits in the overall
economy. Economies all around the world are evolving and
creating an increasingly larger manufacturing base. Over time,
this has added increasing foreign competition for the U.S. One
solution to this challenge is to allow our manufacturers to be
as globally competitive as we can. At the same time, the U.S.
should be vigilant that the World Trade Organization rules are
being adhered to by our trading partners.
While increased foreign competition has probably slowed
production growth, it has benefited consumers of manufactured
products, offering greater choice and more competitive pricing.
In addition, the greater competition from overseas has fostered
an environment in U.S. manufacturing that pushes producers to
be globally competitive. This increased efficiency of domestic
producers offers them an increased likelihood for their future
success.
Finally, employment losses in the manufacturing sector are
not unique to the United States. Economies all around the world
are experiencing similar trends: Strong productivity growth in
the manufacturing sector is leading to a declining share of
overall employment for this sector. A report by the U.S. Bureau
of Labor Statistics (Monthly Labor Review, July 2005)
highlights that manufacturing employment in China fell from 98
million workers in 1995 to 83 million workers in 2002--a 15
percent drop in 7 years.
Q.2. The growth rate of real value added in manufacturing from
1997-2007 (decade before the Great Recession) was 3.0 percent--
about the same for all private industry. But if we net out
computers and related electronic equipment (NAICS 334) which
accounts for just 9 percent of manufacturing employment, growth
was less than 1 percent over the period (0.9 percent). In
addition, although the computer sector was the big driver of
growth in manufacturing, it was rapidly losing market share to
foreign producers. How could the manufacturing sector be
growing so fast yet losing market share and shedding employment
(almost 30 percent over the decade)?
A.2. Computers have been playing an ever-increasing role in
consumer products and business machines. It is hard to imagine
doing something that does not involve utilizing a high-tech
piece of equipment.
The computer and electronic products sector has exhibited
long-run trends that are similar to those of total
manufacturing. These trends include large output gains,
declining levels of employment, and rising productivity. For
example, between 1997 and 2007, output in the computer and
electronic products industry rose by an exceptionally strong
15.4 percent per year--an increase of 317 percent over the past
10 years. At the same time, employment in this sector fell 2.4
percent per year--a 22 percent reduction over the past 10
years. Productivity in this sector has also been quite strong,
rising by 11.7 percent per year over the same 10-year span.
Strong productivity growth has allowed the computer and
electronic sector's employment to decline, even in the face of
rising output. An industry can experience strong output growth
with declining market share if the total market demand is
rising even faster than domestic production. When this occurs,
both domestic production and imports can increase.
Q.3. Some economists, including Susan Houseman of the Upjohn
Institute, note that because price declines associated with
shifts in sourcing are not picked up in Government price
indexes, offshoring results in an overstatement of output and
productivity growth. What is your assessment? Is the growth
rate of manufacturing real value added overstated and if so, by
about how much?
A.3. Summary: Joint research between Susan Houseman and Federal
Reserve Board economists Christopher Kurz, Paul Lengermann, and
Benjamin Mandel, examined the implications of offshoring by
U.S. manufacturers for official measures of productivity and
value added. \1\ They concluded that the price declines
associated with shifts in sourcing have not been captured in
the input price indexes published by the Bureau of Economic
Analysis (BEA) and, as result, that the real growth of imported
intermediate inputs has been understated. If input growth has
been understated, it follows that the growth in multifactor
productivity and real value-added have been overstated.
Specifically, the authors find that from 1997 to 2007, the
published average annual growth rate of multifactor
productivity growth in manufacturing, at 1.3 percent, may have
been overstated by 0.1 to 0.2 percentage point; similarly, the
average annual increase in real value added, at 3 percent, may
have been overstated by 0.2 to 0.5 percentage point.
---------------------------------------------------------------------------
\1\ Houseman, Susan, Christopher Kurz, Paul Lengermann, and
Benjamin Mandel, ``Offshoring Bias in U.S. Manufacturing: Implications
for Productivity and Value Added'', Federal Reserve Board,
International Finance Discussion Paper (forthcoming, 2010).
---------------------------------------------------------------------------
Detail: Price declines associated with the shift to low-
cost foreign suppliers generally are not captured in the BEA's
intermediate input price index, which is itself an amalgam of
two Bureau of Labor Statistics (BLS) price indexes, the
Producer Price Index and Import Price Index. This measurement
issue is analogous to the widely discussed problem of outlet
substitution bias in the Consumer Price Index (CPI). Just as
the CPI fails to fully capture lower prices for consumers due
to the entry and expansion of big-box retailers like Wal-Mart,
import price indexes and the intermediate input price indexes
based on them do not capture the price drops associated with a
shift to new low-cost suppliers in China and other developing
countries.
The bias to the input price index is proportional to the
growth in input share captured by the low-cost foreign supplier
and the percentage discount offered by that supplier. Although
the actual input price changes from offshoring are not
systematically observed, evidence from import price microdata
from the BLS, industry case studies, and the business press
indicate that there are sizable discounts from offshoring to
low-wage countries.
Provided this evidence is representative of the actual
discounts manufacturers realized from offshoring, the authors
conclude that the growth in the real value of intermediate
inputs used by U.S. manufacturers has been significantly
understated. This understatement implies that between 1997 and
2007 average annual multifactor productivity growth in
manufacturing may have been overstated by 0.1 to 0.2 percentage
points and real value-added growth may have been overstated by
0.2 to 0.5 percentage points. Furthermore, although offshoring
bias represents a relatively small share of real value-added
growth in the computer industry, the authors find it may have
accounted for one-fifth to one-half of the growth in real value
added in the rest of manufacturing.
------
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM NICOLE Y. LAMB-HALE
Q.1. MAS was established in 2004 as part of the Bush
Administration's manufacturing initiative. In December 2009,
the Obama administration released its manufacturing framework.
What role did MAS play in the current Administration's
manufacturing agenda? How has the transition to a new
Administration and the release of its new framework affected,
if at all, the mission and function of MAS?
A.1. The Obama administration's ``A Framework for Revitalizing
American Manufacturing'' (Framework) established a clear
outline for revitalizing and enhancing the competitiveness of
U.S. manufacturing. Manufacturing and Services (MAS)
participated in the interagency discussions that resulted in
the Framework. MAS is actively engaged in Department of
Commerce programs that directly address two of the seven
Framework components: helping communities and workers
transition to a better future and ensuring market access and a
level playing field. MAS is also working with the Department of
Transportation and other agencies to address additional
Framework components.
To address the challenges U.S. manufacturers face as a
result of the economic downturn and changes in the global
business environment, we have given considerable thought to how
to help U.S. manufacturing revitalize itself. We have redoubled
our efforts to meet with industry to hear about its concerns
and suggested solutions through our 20-plus private sector
advisory committees, to connect industry representatives with
Federal and State programs that will help them meet their
needs, and to develop partnerships and resources--collaborating
both with public and private sectors--that are accessible and
results-oriented, especially for SMEs.
For example, through our new initiative--Manufacture
America: Rethink, Retool, and Rebuild to Support Jobs--we are
developing road shows and follow-up activities that will
provide information to manufacturers, especially small- and
medium-sized manufacturers, on access to capital and the
benefits and methods of exporting. To meet the goals of the
President's National Export Initiative (NEI) and help U.S.
companies find new demand, we, as part of the International
Trade Administration (ITA), are helping manufacturers export to
new foreign markets which offer an expanded demand for their
products.
Q.2. The stated mission of MAS is to enhance the global
competitiveness of U.S. industry, expanding its market access,
and increasing its exports. What activities does MAS conduct to
achieve this mission? To what extent has MAS met its own
performance goals for this effort?
A.2. MAS fulfills its mission and goals by combining its
analytical capabilities, in-depth industry knowledge, and
interaction with industry to provide assessments,
recommendations, and programs that improve U.S. business
competitiveness and export performance. Specifically, MAS
provides critical trade-related economic and policy analysis
and information, ensures appropriate industry input into trade
and domestic policy discussions, advocates for U.S. industry on
standards issues, identifies and addresses industry-specific
trade barriers, and reaches out to industry to explain the
benefits of and opportunities for exporting to enhance U.S.
competitiveness.
MAS meets its performance goals in several ways. We develop
industry-specific recommendations for trade policies to
eliminate trade barriers and open markets, based on advice from
our private sector advisory committees and our industry and
trade expertise. We work with other units in ITA to monitor the
implementation of trade agreements and explain to industry the
opportunities to export, including trade finance options. For
example, we have organized several roundtables with industry to
explain trade finance options and availability.
We develop initiatives that help industries increase
exports, such as the Sustainable Manufacturing Initiative
(SMI), the Market Development Cooperator Program (MDCP), and
the Civil Nuclear Public-Private Partnership. Through the SMI,
companies learn about sustainable manufacturing practices that
can lower operating costs, making their products more
competitive in other markets. The MDCP provides financial and
technical assistance to nonprofit industry groups to support
projects that enhance the global competitiveness of U.S.
companies, especially small- and medium-sized enterprises. Our
Civil Nuclear partnership supports U.S. industry's involvement
in the global expansion of nuclear energy, while partnering
closely with other countries to shape their civil nuclear
programs in ways most conducive to nonproliferation.
We also work with other agencies to ensure that, for
regulations that affect export-dependent sectors, relevant
agencies consider all viable alternatives so that regulatory
goals are achieved without unnecessarily harming U.S.
competitiveness globally.
Q.3. How does MAS identify the needs of manufacturers? Does it
target specific sectors? To what degree does MAS seek to
identify broad policy factors such as access to credit that may
be of concern to manufacturers? How do you plan to involve
Congress in this discussion?
A.3. MAS manages over 20 private sector advisory committees
that provide information and recommendations on a wide variety
of topics that impact manufacturers. For example, the
Manufacturing Council advises the Secretary of Commerce on
Government policies and programs that impact U.S.
manufacturing, including access to capital, energy policy, and
regulatory and tax reform. In 2009, the Council recommended to
Secretary of Commerce Gary Locke that the Administration take
steps to ensure that domestic manufacturers have access to
credit that had been restricted as a result of the economic
downturn. This recommendation was a top priority of the Council
because access to capital is necessary for manufacturers to
finance day-to-day operations and expand domestic operations.
As a result, MAS elevated the issue of access to capital in the
policy debate and Congress is currently considering the Small
Business Jobs Bill Package that includes a provision to provide
$30 billion in capital for small- and medium-sized firms. The
Council has also noted that the uncertainty over making the R&D
tax credit permanent has contributed to the slowness in
creating manufacturing jobs. We are pleased to be able to
discuss with the Council that President Obama supports making
the R&D tax credit permanent.
In addition, the 16 Industry Trade Advisory Committees
(ITACs) provide advice to the Secretary of Commerce and the
United States Trade Representative on U.S. trade policy and
negotiations. Thirteen of the ITAC committees focus on specific
industry sectors in order to provide expert advice on those
sectors and how they are or would be affected by specific
negotiating positions and implementation policies. Three
committees focus on issues that cut across all industries:
intellectual property rights, customs, and standards.
The President's Export Council (PEC) advises the President
on broad policy issues that hinder or help U.S. companies to
export. Five Senators and five members of the House of
Representatives serve as members of the PEC, along with
representatives from the private sector and Executive Branch
Departments and agencies.
In addition to the Congressional representation on the PEC,
I have personally met with representatives from the Senate and
House Manufacturing Caucuses. I plan to continue this proactive
dialogue with members to keep them up-to-date on what we are
hearing from manufacturers.
In addition to our work with the advisory committees, MAS
industry analysts maintain in-depth knowledge through
discussions with industries and research about the challenges
and trends that industries face. Based on that expertise, MAS
helps industries become more competitive. For example, our
industry specialists and economists analyzed the provisions of
the Manufacturing Enhancement Act of 2010 prior to its
enactment. This analysis provided policy guidance to the
Administration and Congress on those provisions that reduce or
eliminate duties on imports used by U.S. manufacturers without
harming domestic producers. Reduction or elimination of import
duties on manufacturing components helps reduce operating costs
and makes U.S. companies more competitive globally.
Our domestic regulatory analysis program analyzes proposed
regulations that affect export-dependent sectors to ensure that
all viable alternatives are considered so that regulatory goals
are achieved without unnecessarily affecting U.S.
competitiveness globally. For example, we are reaching out to
industry and working with other agencies to ensure the proposed
rule on industrial boilers (``National Emission Standards for
Hazardous Air Pollutants for Major Sources: Industrial,
Commercial & Institutional Boilers and Process Heaters'') meets
human health and safety concerns without putting an undue
competitiveness burden on export dependent industries, such as
the U.S. forest and paper industries.
Q.4. Innovation has historically been a cornerstone of U.S.
economic competitiveness. Commerce's Manufacturing in America
report, issued several years ago, highlighted the vital role
support for research and innovation plays in creating a strong
manufacturing sector. These themes have continued to be
stressed in recent discussions of a framework for promoting
U.S. manufacturing. To what degree has MAS focused on
understanding where our Federal Government could play a more
effective role in assisting innovative firms in expanding
market opportunities to meet the demands of U.S. consumers and
to export? What opportunities do you see for the U.S. Congress
to work with agencies in increasing that effectiveness?
A.4. Under the National Export Initiative (NEI), I have co-led,
with Assistant Secretary of Energy for Policy and International
Affairs David Sandalow, an interagency effort in the Trade
Promotion Coordinating Committee (TPCC) to identify actions by
departments and agencies that will help increase U.S. exports
in the innovative and emerging sectors of renewable energy and
energy efficiency. We expect our strategy to be announced this
fall, and agencies to begin work immediately thereafter.
MAS is also planning to increase funding for awards under
the Market Development Cooperator Program (MDCP). These awards
provide matching funds and technical assistance to
organizations to help develop new markets. The program has
proven to be an effective tool to help small- and medium-sized
companies develop markets for their cutting edge products.
MAS has helped lead the development of a number of studies,
drawing on experiences of OECD member countries, that look at
the conditions necessary for an innovative economy. These
studies examine policies and best practices in the areas of
access to capital, regulations, standards, and Government
procurement that Federal or local governments can adopt to help
firms innovate.
MAS worked with other agencies to develop the President's
new National Space Policy designed to energize competitive
domestic industries, develop innovative technologies, and
foster new industries. This Policy will keep U.S. business at
the cutting edge and competitive in the global market.
MAS recognized an opportunity for Federal agencies to
better communicate to U.S. industries the broad range of
Federal programs that further sustainable manufacturing. MAS
worked with several Departments and agencies to develop the
Sustainable Business Clearinghouse (www.manufacture.gov/
sustainability). This interactive Web site gives companies
access to information on Federal programs that companies can
use to develop innovative products and services that further
sustainable manufacturing.
Through its Sustainable Manufacturing in America Regional
Tours (SMART), MAS spotlight innovative products and processes
that U.S. companies have adopted to manufacture in a
sustainable fashion. We work with other agencies and local
governments to organize these tours, and Congressional members
have helped in organizing and attending several such tours.
In addition to participation in our SMART project, we
welcome Congress's continual interest in and work to improve
the domestic and global business environment for all U.S.
manufacturing companies. Often time, when MAS officials are
doing an event across the United States, we invite members of
Congress to participate. We would encourage greater
participation at these events as they give members an
opportunity to hear directly from industry constituents on
specific topics and also to learn more about the programs and
services that MAS has to offer.
Q.5. According to the United Nations, the recent financial
crisis severely affected manufacturing production of major
industrialized countries in 2009, but generated comparatively
milder impact for developing countries such as China and India.
How do you assess the impact of the recent financial crisis on
U.S. Manufacturing? To what degree can you identify actions
Congress can take to improve the performance and trends in the
U.S. manufacturing sector?
A.5. The recent financial crisis has had a number of
deleterious effects on U.S. manufacturing. First, it reduced
lines of credits that are used to pay for intermediate inputs
in advance of sales. As a consequence, production had to be
pulled back. Second, it reduced lines of credit to U.S.
manufacturing's customers, so that demand for U.S. manufactured
products was significantly cut. Both of these factors tended to
reduce profitability during the worst of the crisis. Third,
worsening profitability and tighter credit also impaired U.S.
manufacturers' ability to invest. China and India may have
avoided much of the financial stress in the global economy
because their economies are less reliant on international
capital markets. Although their economies did not slip into
recession, they did grow more slowly than the trends suggested.
We welcome Congress's continued interest in and your
efforts to enhance the global competitiveness of U.S.
manufacturers, such as support for the Small Business Jobs Bill
Package that would improve access to capital for small- and
medium-sized businesses. Specifically, in the trade arena,
Congress should continue to engage the Administration and
stakeholders to address outstanding concerns regarding pending
trade agreements with Panama, Colombia, and South Korea.
Q.6. Through the Recovery Act, Congress and the Administration
have invested billions into renewable energy production, mass
transit and high-speed rail, and medical IT among other
initiatives important to Americans. How do we ensure that we do
not depend on other countries for the manufacturing of these
kinds of goods and services? How do we help develop domestic
capacity for wind and other renewable energy manufacturing?
A.6. Clear policies and initiatives are critical for
stimulating domestic development of these sectors. Above all,
comprehensive energy reform is needed to build the clean energy
economy by setting a price on carbon that will jumpstart
private sector investments and innovation in clean energy.
In addition, stimulating development of these products in
the U.S. can be furthered through reducing the barriers and
impediments to these products and services in other markets.
For example, international harmonization of standards and
improving the regulatory environment in markets that are
difficult to penetrate can improve the ability of U.S.
companies to sell abroad and ultimately help U.S. sectors grow.
As demand grows, U.S. manufacturers will need to be
prepared to compete. MAS's Manufacture America Initiative is
designed to help companies find ways to retool their
manufacturing processes to make new products in high demand and
to rethink which markets they can supply, including export
markets. Our Manufacture America road show that we are planning
for Pittsburgh, PA, in late September will focus on
opportunities in the energy sector.
MAS leads ITA's Civil Nuclear Trade Initiative. Through
this Initiative, we are strongly supporting U.S. industry's
involvement in the global expansion of nuclear energy, while
partnering closely with other countries to shape their civil
nuclear programs in ways most conducive to nonproliferation.
For example, we are preparing a guide for U.S. civil nuclear
companies on how to export their products. We also are working
to resolve problems the industry faces globally as well as
promoting and advocating for U.S. exports through trade and
policy missions and consultations with other governments.
Q.7. What can we do to recapture or create jobs lost to
imports? Recent figures show American consumers are still
spending, but how do we help U.S. manufacturers more
competitive vis-a-vis imports?
A.7. Successful firms are our engines of employment growth. Our
analysis shows that successful firms share a number of
characteristics, such as exporting, investing larger shares of
their revenue, and engaging in more research and development
than less successful companies.
In working to meet the goals of President Obama's National
Export Initiative (NEI), the Department of Commerce is
encouraging companies to increase the number of markets to
which they export. We, in MAS, are providing information to
help companies become more competitive globally. Our
Manufacture America Initiative, will help companies learn about
ways to rethink, retool, rebuild their operations to be more
competitive against imports and to be competitive globally.
Through our Sustainable Manufacturing Initiative, firms learn
best practices for becoming more energy efficient and for
reducing waste, thereby lowering operating costs and enhancing
their competitiveness against imports. Ensuring that U.S.
companies find and use Federal programs designed to improve
their competitiveness or increase their opportunities to export
is critical.