Editor's Page -- Manufacturers Take A Beating In Budget

Dec. 21, 2004
Bush's plan slashes valuable programs. Are you ready to respond?

Now that we've learned how the Bush Administration intends to help strengthen and revitalize U.S. manufacturing, executives in the hard-hit sector can get on with the job of pulling hard on their bootstraps. Having determined that the economy is on the mend, and the manufacturing recession has hit bottom, the president calls for cuts in the funding of manufacturing-focused programs in his 2005 budget. No surprise there, since the burgeoning deficit leaves little room to maneuver. Besides, the Commerce Department had already delivered a "manufacturing revitalization agenda" made up of little more than ideas from earlier in his administration, a bit of bureaucratic reorganization and a little money wrapped in a new package. Even with some sound, albeit warmed-over, proposals in the mix, the agenda elicited mostly the hope that, finally, the administration will begin to match rhetoric with action. Fortunately executives of manufacturing companies -- especially the hardest hit small- and midsized ones -- are nothing if not realists. They know government policy won't move mountains; the president's budget and tax proposals establish his priorities, are subject to congressional changes and rarely emerge intact. Still, many think it would have been a boost to see at least a symbolic gesture of support in the budget from the Oval Office. After all, as The Wall Street Journal pointed out, the president boosted funding to other "politically symbolic programs," including $100 million to support charitable organizations, $120 million to fund grants to support "healthy marriage" programs and $200 million to start a program leading to manned exploration of Mars. Instead of even symbolic support, manufacturers got a dose of brutal budget-deficit-cutting reality. The National Institute of Standards and Technology, the only federal agency targeted to improving the U.S. industrial base, gets $521.5 million in the Bush budget, down from the $628 million appropriated in 2004 (but up from Bush's 2004 request of $497 million). Asserting that the Manufacturing Extension Partnership (MEP) was never intended to last forever anyway, the 2005 Bush budget grabbed this timely opportunity to cut its funding to $39.2 million, down from the $39.6 million appropriated in 2004 (but up from Bush's 2004 request of $12.6 million) and the $106 million appropriated in previous years. The budget and revitalization plan also calls, inexplicably, for reforming the MEP program, which is widely considered to be one of the most effective pay-as-you-go government entitlements ever conceived. The Bush budget also eliminates, rather than reforms, the Advanced Technology Partnership, a public-private research collaboration that's designed to fill the funding void between basic research and new product development. Instead the research and development funding in the president's plan is largely earmarked for specific, mostly defense and health-care-related programs. As for tax incentives: While Bush calls for most of his May 2002 tax cuts to be made permanent, his budget allows the 50% enhanced depreciation allowance (which enables manufacturers to write off 50% of capital expense in the year of purchase) to expire on schedule Dec. 31, even though the program adds nothing to the deficit over 10 years. So what's a manufacturing executive to do? Get realistic and focused on your customers and start innovating the products they need, want and are willing to pay for. Sure, many of you will voice your displeasure, spend some effort trying to influence Congress to better address manufacturers' concerns and maybe even throw some weight into the 2004 elections. But changing government priorities will be a long, hard slog with an uncertain outcome. IW has profiled executives who've achieved profitable growth during an economic recession while facing high structural costs, intense competition and what many might call an indifferent government. Control your company's destiny by following their lead. Patricia Panchak is IW's editor-in-chief. She is based in Cleveland.

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