U.S. Manufacturing Agenda

An essay and invitation.

It's been a tough start to the 21st century, especially for manufacturers. As if on cue, a heartbeat after we turned the lights out on our "we survived Y2K" parties, the last of a decade-long celebration of the "new" economy, someone -- something -- pulled the plug on what had been the nation's longest economic expansion in history. The economy screeched into a skid, that, stunningly, we're only beginning to pull out of four years later. Still trying to find traction, the U.S. economy enters 2004 having watched 3.3 million jobs disappear. As if that weren't enough, the downturn came just as President George W. Bush, bringing the promises of free trade expansion and limited government, took office. The President's strong free market positions revived a long-standing debate about the government's role in U.S. business success. At the most extreme, two camps have formed. One side thinks the government plays an active and vital role. To them, government funding, laws and regulations, and outright intervention have catalyzed entire industries, maintained a fair and level playing field, and, yes, even helped rescue companies and industries from near-certain extinction. The other side believes the government should play as small a role as possible. To them, those same actions have inefficiently picked winners, hamstrung companies' ability to compete internationally, and coddled mismanaged companies that deserved to die. Caught in the crossfire are manufacturers that are experiencing fundamental structural shifts that have devastated entire industries, thrown 2.7 million people out of manufacturing jobs and once again revived the stark questions: Is manufacturing still relevant in the U.S.' advanced economy? What, if anything, should the government and executives of U.S. manufacturing companies do to foster a strong manufacturing sector? Now, heading into an election year and an uncertain recovery, that debate threatens to devolve further into a shouting match of ever-more extreme diatribes and political maneuverings that could stall or even halt progress toward resolution. Already, factions have formed: small, local companies verses large, multinational firms; steel consumers verses steel producers; engineers who are U.S. citizens verses engineers who are immigrants working under H-1B and L-1 visas. Already the jockeying for advantage between the Democratic presidential candidates and Bush has resulted in some uncharacteristic policies. Most prominently, the Bush Administration seems to have come unmoored from its just-get-government-out-of-the-way business policy, represented by tax cuts, deregulation and strong push for expanding free trade. Startling his most ardent supporters, Bush has doled out subsidies to farmers and leveled tariffs on textiles from China and on steel from a number of countries. Also, the Bush Administration has wavered in its promises to address manufacturers' concerns. A "manufacturing initiative" that was scheduled for release in September has been delayed repeatedly, most recently from mid-November to January; some skeptics don't think it will ever be released. Similarly, a promised assistant secretary of manufacturing announced with great fanfare by the President in September remains unnamed. The administration's perplexing policies careen from one side to the other for one simple reason: It mirrors the general public's, the business community's and the manufacturing sector's uncertainty about what, if any, amount of government involvement is good for the U.S. economy or its manufacturing sector. Instead, the administration appears to have no overriding business or manufacturing agenda, taking each situation as a case-by-case basis. To be fair to the President, the Democratic presidential candidates, Congress and business leaders have not yet addressed the question in its entirety either. IndustryWeek spent the last year intensely researching and reporting the difficulties U.S. manufacturers are facing during this globalization growth spurt (Manufacturing's Global Future). As part of this, we listened and participated in the public policy debate about whether or how government should intervene in the economy to help "save" manufacturing. We also addressed what executives need to do to strengthen their companies in the face of intense competition from low-labor-cost countries. Noting the rising tempers, the finger-pointing and the increasingly unproductive arguing, we called for the manufacturing community to stop the bickering and to start reasonable debate on the issue. With this article, we hope to begin that debate and more. We call on the manufacturing community to come together to create an agenda for our nation's manufacturing future -- an agenda that builds on the contributions from and cooperation of our nation's workforce, business executives and labor leaders, public policy makers and research institutions. To be successful, we must address head on what is certain to be the most divisive aspect of the agenda: the government's role. Whether we like it or not, the government plays a big part in determining the country's business environment, so we must begin by working toward some of the points on which we can agree. Somewhere on the continuum between the two opposing sides is where we'll find ways that our government can help to strengthen our nation's manufacturing sector. So bear with me as I seed our dialog with a few ideas. Funding and Failure: We must acknowledge that government spending on industrial research programs has yielded some whopping failures as well as some phenomenal successes. Opponents of funding for the National Institute of Standards and Technology's (NIST) Advanced Technology Partnership, for example, point to the failed investment of $900 million in the Supersonic Transport plane and the $1 billion cost of the Synthetic Fuels Corp. Proponents of that very same program cite successful ventures, such as one that helped develop the diagnostic chip technology credited with jump-starting the industries based on genomics and others that sped commercialization of XML and other e-commerce technologies. Most successful business executives view failure -- even spectacular failure -- as inevitable and even necessary to success in business, so we should not be surprised to find it in government. Failure in business and government is a sign of risk-taking (though it also often exposes ineptitude). Further, risk-taking is often seen as crucial to our nation's continued economic vitality. Should the U.S. government continue to try to spur technological innovation by sharing investment risks in selected instances? If so, what criteria should guide government funding agencies so that they make the best possible investments to foster innovation and economic growth, not simply protect powerful political constituents? What guidelines will ensure that decisions about investment are made based on market forces, not political favoritism? Are there some industries we must particularly strengthen in the name of national security and military might? If so, which ones? Government Intervention: We must acknowledge that safety nets provided by the U.S. government support and encourage the risk-taking that is crucial to our nation's market economy, giving individuals and companies time to regroup after misfortune or failure. Yet such intervention also can be so protective that it stifles the business innovation and individual motivation that is demanded by market forces. Worker's compensation and unemployment insurance that were designed to assist the injured and the unemployed can be abused, for instance. Intervention in international markets can give industries facing a surge in imports a chance to reorganize to meet new competitive challenges, yet it also could allow companies to prosper while under the protection and create a disincentive to make needed changes. Should the U.S. government continue to intervene in certain situations, or would U.S. citizens and corporations be more competitive if they weathered market gyrations on their own? Or perhaps we should change the level of government intervention so that it better boosts innovative activity and spurs economic growth while discouraging misuse or abuse. Laws and Regulation: We must acknowledge that government intervention is carried out through laws and regulations that impose significant costs on businesses, especially manufacturers. Because many other countries do not provide such safeguards, and thus do not regulate business as closely as the U.S., our nation's manufacturers can be placed at significant disadvantage. Yet such laws and regulations also serve to describe and ensure the type of society in which we wish to live. We abhor and thus limit child labor. We seek equal opportunity for all and thus enforce equal employment rules. We agree that some part of our nation's natural environment is a national treasure to be preserved for future generations, so we limit development in those areas. Do we give up a few decimal points of GDP to accomplish these? Probably. Are the laws and regulations onerous compared with those of developing countries? Absolutely. We must review and debate the degree to which laws and regulations help or hurt U.S. industrial competitiveness. Or perhaps we could simplify regulations in a way that would reduce the cost of compliance. As we work through the public policy issues, we'll also discuss ways that other stakeholders -- business executives, labor leaders, the workforce and research and educational institutions -- can more effectively work independently and together to strengthen our nation's manufacturing future. We'll ask tough questions: Does Wall Street hinder U.S. manufacturers' long-term competitiveness with its short-term demands? Should U.S. executives counter such demands, and, if so, what strategies are most effective? How much responsibility should large U.S.-based multinational manufacturers have for meeting the needs of their employees or their communities? Should U.S.-based multi-national companies be concerned about the competitiveness of their smaller, U.S.-based suppliers? What strategies should executives pursue to counter low-labor cost competition? Is there an R&D funding gap, and, if so, how can we most effectively address it? Will a smaller manufacturing base weaken our military strength, and with it our national security? Are some sectors that are more "strategic" to our military and economic strength, and thus deserve more government attention? How can business work with our nation's research and academic institutions to bring to market and capitalize on emerging technologies? How can business executives work with other educational institutions to ensure a well-qualified, highly skilled and flexible workforce? These are a few of the many questions we need to ask ourselves with completely open minds as we develop a U.S. Manufacturing Agenda. A few forward-thinking manufacturing associations and think-tanks already have created proposals seeking new legislation or changes to existing government programs that they believe will strengthen U.S. manufacturing. We'll post those on our Web site (www.industryweek.com/iwinprint/agenda) and will seek and post others. We're looking for ideas from across the political spectrum and across industries to incorporate into a thoughtful, complete agenda. Also, we'll provide a forum for you to respond to posted proposals. As we create this agenda, we must step back and review how each group -- the government, business executives, academics, researchers and the workforce -- have helped make this nation's business environment the envy of the world. Then we must work together to make it better.

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