The Competitive Edge -- A To-Do List for the Manufacturing Czar

Bloom should avoid protectionist measures and push for policy change that fosters innovation.

On Labor Day, President Obama elevated Ron Bloom, the former "auto czar," to a new position in the White House as "manufacturing czar." This is good news in the sense that manufacturing will have an advocate in the White House -- where all policy in this Administration is set -- and Mr. Bloom certainly knows the industry, having worked with the Steelworkers prior to being put in charge of the auto rescue plan last winter.

What should Mr. Bloom advise the President? Following are a few suggestions:

First, priority should be given to stabilizing the economy before introducing massive new changes -- for example, in health care, energy regulation or taxes. We are not out of the woods despite recent good news. We could see new shocks from the banking system worldwide, massive new liquidity could lead to inflation, and the automatic tax increases slated for 2011 could help trigger a second leg down for a fragile economy.

Second, remember that U.S. manufacturing has been, and should be in the future, an engine for economic growth and increases in our standard of living. It is a source of much of the innovation in our economy; it has a much higher rate of productivity growth than other sectors; it has a much lower rate of inflation in its products (due to productivity and international competition) and thus helps raise our standard of living; it is the leading export sector; and it still provides some of the best jobs and benefits in our economy. Hence, priority should be given to policies to help the sector regain its footing.

Third, give serious consideration to policy initiatives to boost the sector. Some of the most important are: increase federal support for basic and applied research, which spills over to the private sector in new technologies; incentivize innovation by expanding the research and development tax credit to include new manufacturing processes and investment in human capital; facilitate better training of skilled workers and researchers through our education system; and promote adoption of environmentally friendly domestic energy sources such as nuclear, natural gas, clean coal and renewables when they are competitive.

Another priority would be to become re-engaged in opening foreign markets to American goods, while avoiding trade-inhibiting policies. Asian countries are furiously building a series of free-trade agreements amongst themselves and with Europe. Unless we play in this game, our exporters will be at a serious disadvantage in the fastest growing region of the world. And we need to keep focused on currency misalignment, especially the Chinese yuan, which materially harms our exporters.

Finally, adopt the Hippocratic Oath: "do no harm" to the ability of manufacturers to innovate and to compete abroad. Because the American consumer cannot drive global growth due to needed deleveraging, we have to concentrate even more on reaching global markets. U.S. corporate taxes, including on smaller S-corporations, are among the highest in the world, and the gap is increasing as others lower their tax rates. We ought to avoid adding to the tax burden, as well as to other cost pressures, such as those related to health care, tort costs, and regulation, if we want to compete effectively for both domestic and global consumers.

Reports of the demise of U.S. manufacturing are still premature: It accounts for more than 20% of value added in world manufacturing, about the same as in 1980. We can maintain this pre-eminent position through the right policies, which allow American ingenuity and perseverance to prosper in the future.

Dr. Duesterberg is president and CEO of the Manufacturers Alliance/MAPI, an executive education and business research organization in Arlington, Va.

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