The Competitive Edge -- A Manufacturing To-Do List for the Next President

April 16, 2008
The manufacturing sector could be the engine propelling us out of recession -- but do the candidates recognize that potential?

Apart from jibes about losing out to unfair foreign competition and unpatriotic corporate leaders, the 2008 presidential campaign has paid little attention to manufacturing. Given the current perilous state of the U.S. economy, this is surprising. There are good reasons we should expect a closer look at what could help manufacturing in the years ahead.

As we anticipate a recovery from the current recession, the economy is likely to be driven by different motors than in the recent past. Residential construction (and related sectors) will not repeat the kind of boom we saw in the last 15 years. Moreover, consumers will have to find another prop than home equity loans to support their relentless march on the shopping malls and auto showrooms. And Wall Street will have to find a different cash cow than housing finance. With a looming return to record government budget deficits, priming the pump with fiscal policy is also increasingly unrealistic.

Manufacturing has been something of a laggard in the growth picture -- until the last two years. As the current crisis has unfolded, the dollar has steadily lost value. Fortunately, growth outside the United States, led by India, China and Southeast Asia, has picked up the pace. According to economist David Hale, developing countries accounted for 52% of global growth in 2007, and consumer purchasing power in these countries is now about two-thirds that of the United States. All of this is good news for lean and innovative U.S. manufacturers who have chalked up annual export growth of 12% since 2003. Total manufactured goods exports should grow again by double digits in 2008 to over $1 trillion, and the trade account will be a positive addition to U.S. GDP in both 2007 and 2008, for the first time since 1991.

So manufacturing is poised to remain a solid pillar of the U.S. growth machine in coming years. It already is the source of the vast majority of new research and development spending and of patents granted in the United States. We will probably see a halt or even a reversal of the long-term decline of manufacturing as a portion of GDP due to soaring goods exports.

Despite these optimistic signs, the remaining presidential candidates have offered little in the way of constructive ideas to aid a sector facing increasingly sophisticated competition from China, India and Brazil. Instead, we hear populist rhetoric about the need for protectionism, "patriot companies," "Benedict Arnold CEOs," polluting industries, outsourcing and tax-evading corporations. As candidates compete to see who can lavish more subsidies on an agricultural sector enjoying the greatest boom since the 19th century, they fall mute and become defensive about policies that might help lagging manufacturing industries.

What is needed today is not subsidy and regulation, which manufacturers have traditionally eschewed in favor of free markets and a light hand of regulation. If the presidential contenders want to help industry take advantage of this unique moment in recent economic history, here are some ideas:

First, cut corporate taxes, which rank at the top of the world scale.

Second, work on cutting policy-induced structural costs, such as those related to our tort, regulatory and healthcare systems.

Third, adopt a more production-oriented program on energy independence, taking advantage of our huge domestic reserves of oil and gas, and promoting technology to advance nuclear, wind, solar and other new energy sources.

Fourth, strengthen our education networks at all levels, especially programs related to math and science.

Fifth, keep up federal investment in basic research and development related to our technology-oriented economy, and in the physical and legal infrastructure that allows it to function smoothly.

Finally, keep opening foreign markets where hundreds of millions of new middle-class consumers can benefit from the competitive products offered by U.S. manufacturers.

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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