The Future of American Manufacturing

In his State of the Union remarks, President Obama rightly linked domestic manufacturing to overall competitiveness and highlighted how far we still need to go to spur our industrial recovery. As we at the Information Technology & Innovation Foundation have noted, the U.S. lost 5.6 million manufacturing jobs in the 2000s. But most importantly, President Obama laid out an agenda for renewal that focused on government support of innovation, R&D, and productivity.

Arguably, the most exciting of President Obama’s policy proposals was the call for a National Network of Manufacturing Innovation (NNMI):

“Our first priority is making America a magnet for new jobs and manufacturing … Last year, we created our first manufacturing innovation institute in Youngstown, Ohio … tonight, I’m announcing the launch of three more of these manufacturing (centers) … And I ask this Congress to help create a network of 15 of these hubs and guarantee that the next revolution in manufacturing is made in America.”

However, the “devil will be in the details.” Each NNMI institute should focus on a significant, industry-defined challenge. Manufacturers will be the main “consumers” of the innovations produced and should drive the conception and operation of the institutes. In addition, rather than seeking to contribute to a global pool of scientific knowledge, the institutes should build an interconnected web of skills, knowledge, and capabilities that can quickly transform innovation into market applications.

Most of the 15 institutes being planned are likely to emphasize a particular type of manufacturing process, but whatever technologies they focus on, the choice should be driven by industry interest and “willingness to pay” to support these centers. While the president indicated that the administration will move forward with at least three centers without Congressional approval and funding, Congress needs to pass NNMI legislation this year in order to make the full network a reality.

NNMI is an important step, but not enough to revitalize U.S. manufacturing by itself. The president also presented proposals related to international trade, research and development, tax policy, and STEM training. That being said, we had hoped he would go farther in promoting additional investment in domestic innovation.

We also argue that any trade policy reform must specifically address the anti-free trade, innovation mercantilist practices of our global competitors. Even if we develop robust innovation initiatives and cut corporate taxes, America cannot revive domestic manufacturing if we are not operating on a level global playing field.

Still, President Obama’s efforts to enhance the nation’s manufacturing innovation infrastructure are an important step in the right direction. Unfortunately, some manufacturing associations, such as the National Association of Manufacturing (NAM), appear to believe that all will be solved if we just get government off the back of our manufacturers, particularly by reducing their costs. Manufacturers in the U.S. do pay among the highest effective corporate taxes, but NAM’s own studies show that our costs are lower than many competitors, including Germany and Japan. Yet these two nations continue to outperform U.S. manufacturing.

To believe that all government has to do is to get out of the way is an illusion. What we need is a better manufacturing business climate combined with government support for a robust manufacturing innovation infrastructure.