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Industry Policy Should Not be Black and White

Jan. 15, 2014
For the US to develop an effective national manufacturing strategy, manufacturers will have to move beyond their often knee jerk opposition to government and recognize the ways governments at all levels can promote business development and growth.

Several years ago the Information Technology and Innovation Foundation decided to bring together key stakeholders in Washington who might support a national manufacturing strategy.

In our view it was clear that U.S. manufacturing had suffered significantly in the 2000s, losing one-third of its jobs and over 10% of its output, and that we desperately needed a national manufacturing strategy to reverse these fortunes.

Do we put together a group of stakeholders from a wide range of organizations and political orientations from the AFL-CIO Manufacturing Council to the National Association of Manufacturers.

The very first lunch meeting had an inauspicious beginning: a representative from one organization pressed to have “card check” legislation included in our joint recommendation (a measure to make it easier for unions to organize). Another pressed to have Congress pass national “right to work” legislation. 

Needless to say there was no way to reach a compromise on such polarized positions.  But once we made it clear that we were interested in areas where we could reach consensus and that contentious, divisive issues like this were off the table, we made relatively good progress.

For example, the “left of center” organizations were able to sign on to support expanded trade measures and significant tax cuts on manufacturers, particularly for investing in new machinery and R&D.

The “right of center” groups were able to support limitations on trade, such as limiting government procurement to goods from nations that had signed the WTO Government Procurement Act. And everyone supported measures like better support for manufacturing technician training. 

The result was a joint Charter for the Revitalization of American Manufacturing. It is by no means a perfect document, but it is progress and represents what can happen when people of good will get together to put the U.S. national interest first.

I say this because in my experience this process was the exception, not the rule. I recently had the honor of being asked to make a presentation on manufacturing policy to a national manufacturing association’s annual conference. When we got to the Q&A period I happened to mention that Democrats had proposed a good idea to help manufacturing. You would have thought I was saying that earth was square. My simple assertion met with not just incredulity but scorn and ridicule. Have we really gotten to the point where most people think only one political party has the ideas we need to move the nation forward? I am afraid we have.

The Politics of Policy

Two things to set the record straight. First, ITIF is a strictly non-partisan organization—our co-chairs are former Members of Congress, one Democrat one Republican. Second, we believe that each party has good and needed ideas to help revitalize US manufacturing and by extension, the U.S. economy. Many Republicans champion needed ideas like smarter regulation, tort reform, lower taxes, and more global trade engagement. And many Democrats champion more investment in science and technology, support of science and engineering education, and funding for manufacturing specific programs like the National Network of Manufacturing Innovation. To be sure all these ideas have support on both sides of the aisle, but I believe my generalization is reasonably accurate.

The problem is that too many in U.S. manufacturing see government only as the problem, not as an enabler. Often this is a result of historical amnesia. They have worked incredibly hard to build their company against formidable odds, and often forget that it often “takes a village.” A few cases in point: the current natural gas revolution would have been stillborn without early-stage, high-risk research funding from the Department of Energy. In addition, the development of many of the IT technologies powering leading US IT companies came from government R&D. And America’s leadership in pharmaceuticals and life science came in part from our early leadership in funding life science through the National Institutes of Health.

I understand that government can be a burden and a barrier. But too often ALL of the problems facing business and the economy are laid at the foot of government. Over a decade ago, when I was asked by the Republican Governor of Rhode Island to lead his new Rhode Island Economic Policy Council, we worked closely with a number of key industries in the state to get a better understanding of t the problems they were facing and what government could do to assist.

One big industry for the state was the jewelry industry. As a result, a dozen or so of the top industry CEOs volunteered their time to participate in an informal industry working group. We began our first meeting with a discussion of what was troubling the industry.  And out came a long litany of factors—all outside their control. The TV show Dynasty going off the air has caused women to wear less jewelry (actually jewelry consumption was increasing, not decreasing). High corporate taxes were a drag (actually Rhode Island had the 37th lowest tax rate in the nation – its cost problems were largely due to workers compensation and unemployment insurance taxes). And on and on.

Finally, one CEO mentioned that one problem was that the industry had not taken full advantage of new production technology and “cellular” systems to boost productivity.  And after that the conversation shifted to what the real problems were and how the state could help (such as setting up a jewelry apprenticeship program, instituting a generous investment tax credit to help firms replace antiquated equipment, reforming unemployment insurance, etc.)

My point is that if the United States is to develop a sophisticated and effective national manufacturing strategy, U.S. manufacturers will have to do what Rhode Island jewelry manufacturers did. Move beyond their often knee jerk opposition to government and recognize the ways governments at all levels can promote business development and growth (through R&D assistance, education and training programs, infrastructure investment, trade enforcement and promotion, etc.)

Absent this maturation, we can only expect more of the same: each side talking past each other, building up resentments, and getting nowhere as our competitors are laughing all the way to the bank.

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