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WASHINGTON, D.C. – U.S. Sen. Sherrod Brown (D-OH), chairman of the U.S. Senate Banking Subcommittee on Economic Policy, conducted a hearing today on how best to establish a national manufacturing policy. The hearing, entitled “The U.S. as Global Competitor: What Are the Elements of a National Manufacturing Strategy,” was the second in the Economic Policy Subcommittee on the challenges and opportunities facing U.S. manufacturing.
The hearing featured testimony from Mark Zandi, Chief Economist of Moody’s Economy.com; Leo Hindery, Jr., Managing Director, InterMedia Partners and Chairman of the Smart Globalization Initiative at the New America Foundation; and Scott Paul, Executive Director, Alliance for American Manufacturing.
Manufacturing accounts for $1.6 trillion – nearly 12 percent – of the U.S. Gross Domestic Product (GDP). It accounts for nearly three-fourths of the nation’s industrial research and development (R&D) – with four manufacturing industries alone (computers and electronics, chemicals, aerospace, and autos) accounting for 56 percent of private sector R&D. The industry also accounts for 35 percent of value added in world high technology product production.
Jobs in the manufacturing industry pay 20 percent more on average than service jobs. Each manufacturing job supports 4-5 other jobs throughout the U.S. economy. While employment in manufacturing has steadily declined, one in six private sector jobs is still directly or indirectly tied to manufacturing.
Even before the current recession, manufacturing has faced immense challenges. The Alliance for American Manufacturing reports more than 40,000 factories across the nation closed in the past ten years. Manufacturers, particularly small and mid-sized manufacturers, face difficulty obtaining credit and competing in the global marketplace due to unfair subsidies and currency manipulation. The Manufacturing Alliance/MAPI reports the current recession in manufacturing is the worst since the Great Depression, and forecasts a decline of nearly 12 percent in manufacturing production in 2009.
A copy of Brown’s opening statement, as prepared for delivery, follows:
Not too long ago, middle class families worked hard, played by the rules, and had something to show for it: a good wage, a secure job and home, and the belief that their children would have a future full of opportunity. Our nation and economy relied on workers throughout the country to build cars and appliances and lay down rail lines and highways. We relied on workers to build aircraft, computers, semiconductors, and more high tech manufactured goods. Their work put them squarely in the middle class.
That is no longer the case. Until recently, if you look at actions by Congress, if you look at what makes the news, you’d hardly know that our nation’s largest economic sector is in serious decline. Perhaps years of relative prosperity and economic bubbles hid the fact that our country’s industrial base has been struggling to survive. Since 1987, manufacturing’s share of GDP has declined more than 30 percent. That’s almost exactly the percentage increase in the financial services industry over the same time.
For far too long, the prevailing belief guiding our economic and trade policy in Washington was that an advanced economy like ours no longer needs a strong manufacturing sector. In fact, we’ve heard CEOs and policymakers say that the offshoring of manufacturing industries is part of a natural economic process that fosters new technologies and resources.
Perhaps Washington has caught on to the fact that manufacturing makes a strong middle class, and a strong nation. The risks associated with allowing U.S. manufacturing to wither on the vine– the risks to our economic security, to our energy future, to our national defense – are too great to sit on our hands and let it happen.
For decades, manufacturing has led the economy out of recession because it tends to respond quickly to changing economic conditions. A few weeks ago, a New York Times headline read, “Once a Key to Recovery, Detroit Adds to the Pain.” The auto industry contributed significantly to past recoveries, including the 1981-82 recovery. But this time, we cannot expect autos to lead the way.
In Ohio, a rich auto supply state, our challenge is to help these and other suppliers to retool for the industries that are attracting significant investment, like wind, batteries, and medical IT.
We will be squandering an opportunity to bolster our economy and secure our energy independence if most of the clean technology is made outside of America. This brings us to today’s hearing.
What we are considering today are the elements of a national manufacturing strategy. What policies should Congress consider to help revitalize U.S. manufacturing? Manufacturing towns across the country deserved an answer to this question years ago. Now that it is being asked in corporate board rooms and at the highest levels of government, maybe answers will finally come.
Last month a gathering of top CEOs in Detroit said America cannot count on consumer spending and Wall Street to maintain a high standard of living. General Electric CEO Jeff Immelt said his company has outsourced too much and that the U.S. needs to double the percentage of American workers engaged in manufacturing, from 10 to 20 percent.
Yet while promoting manufacturing may make sense from a public relations perspective during this economic crisis, it is what America’s major companies do, not what they say, that count.
Today, we are fortunate to have witnesses with us who can talk about how we got to this point, and how we can restore our global competitiveness. To restore competitiveness – to keep our middle class thriving – we need a new national manufacturing strategy that fosters an environment in which our manufacturing sector can grow, diversify, and compete on a level playing field in the global marketplace.
To help give shape to a national manufacturing strategy, I’d like to propose five areas of focus. This isn’t an exhaustive list, just a starting point.
1. Innovation – We must create a predictable climate for investment in research and development and establish an Innovation Research Fund for work in clean energy, information technology, defense, and aerospace.
2. Supply Chains - Give supply manufacturers the tools to transition from contracting industries, such as autos, to growing industries, like clean energy. Invest in the Manufacturing Extension Partnership (MEP), as outlined in the Investments for Manufacturing Progress and Clean Technology (IMPACT) Act. The National Innovation Marketplace, as announced by Vice President Biden, is also a positive step in this direction.
3. Skills – We need sector-based systems that link highly-skilled workers with emerging industries to promote long-term competitiveness.
4. Coordination - When there is a natural disaster, the federal government has a strategy and resources to rapidly assist communities in need. When there is a massive disruption in the economy due to layoffs, there is no similar national strategy to assist workers, businesses, and communities.
I propose an office of Community Economic Adjustment modeled after the Defense Department’s Office of Economic Adjustment, which coordinates support for communities faced with a base closure.
5. Fair Trade - Without strong enforcement of our trade laws, our trade deficit continues to grow. We need to defend against unfair trade, initiate more cases at the WTO and through existing trade agreement tools. We also need to ensure our trade negotiations yield meaningful access for our producers.
We must not allow our nation to become dependent on other countries for manufactured goods. Our role in the global economy and the security of our country depend on our ability to produce our own energy, equip our own military, and sustain our own infrastructure. The stakes are that high.
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