[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                       MANUFACTURING R&D: HOW CAN
                      THE FEDERAL GOVERNMENT HELP?

=======================================================================

                                HEARING

                               BEFORE THE

                SUBCOMMITTEE ON ENVIRONMENT, TECHNOLOGY,
                             AND STANDARDS

                          COMMITTEE ON SCIENCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 5, 2003

                               __________

                           Serial No. 108-11

                               __________

            Printed for the use of the Committee on Science


     Available via the World Wide Web: http://www.house.gov/science


                                 ______

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                            WASHINGTON : 2003
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                          COMMITTEE ON SCIENCE

             HON. SHERWOOD L. BOEHLERT, New York, Chairman
LAMAR S. SMITH, Texas                RALPH M. HALL, Texas
CURT WELDON, Pennsylvania            BART GORDON, Tennessee
DANA ROHRABACHER, California         JERRY F. COSTELLO, Illinois
JOE BARTON, Texas                    EDDIE BERNICE JOHNSON, Texas
KEN CALVERT, California              LYNN C. WOOLSEY, California
NICK SMITH, Michigan                 NICK LAMPSON, Texas
ROSCOE G. BARTLETT, Maryland         JOHN B. LARSON, Connecticut
VERNON J. EHLERS, Michigan           MARK UDALL, Colorado
GIL GUTKNECHT, Minnesota             DAVID WU, Oregon
GEORGE R. NETHERCUTT, JR.,           MICHAEL M. HONDA, California
    Washington                       CHRIS BELL, Texas
FRANK D. LUCAS, Oklahoma             BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois               LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland         SHEILA JACKSON LEE, Texas
W. TODD AKIN, Missouri               ZOE LOFGREN, California
TIMOTHY V. JOHNSON, Illinois         BRAD SHERMAN, California
MELISSA A. HART, Pennsylvania        BRIAN BAIRD, Washington
JOHN SULLIVAN, Oklahoma              DENNIS MOORE, Kansas
J. RANDY FORBES, Virginia            ANTHONY D. WEINER, New York
PHIL GINGREY, Georgia                JIM MATHESON, Utah
ROB BISHOP, Utah                     DENNIS A. CARDOZA, California
MICHAEL C. BURGESS, Texas            VACANCY
JO BONNER, Alabama
TOM FEENEY, Florida
VACANCY
                                 ------                                

         Subcommittee on Environment, Technology, and Standards

                  VERNON J. EHLERS, Michigan, Chairman
NICK SMITH, Michigan                 MARK UDALL, Colorado
GIL GUTKNECHT, Minnesota             BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois               LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland         BRIAN BAIRD, Washington
TIMOTHY V. JOHNSON, Illinois         JIM MATHESON, Utah
MICHAEL C. BURGESS, Texas            ZOE LOFGREN, California
VACANCY                              RALPH M. HALL, Texas
SHERWOOD L. BOEHLERT, New York
                ERIC WEBSTER Subcommittee Staff Director
            MIKE QUEAR Democratic Professional Staff Member
                  JEAN FRUCI Professional Staff Member
                 OLWEN HUXLEY Professional Staff Member
                MARTY SPITZER Professional Staff Member
               SUSANNAH FOSTER Professional Staff Member
       AMY CARROLL Professional Staff Member/Chairman's Designee
                ELYSE STRATTON Majority Staff Assistant
                MARTY RALSTON Democratic Staff Assistant


                            C O N T E N T S


                              June 5, 2003

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Vernon J. Ehlers, Chairman, 
  Subcommittee on Environment, Technology, and Standards, 
  Committee on Science, U.S. House of Representatives............     9
    Written Statement............................................    10

Statement by Representative Mark Udall, Minority Ranking Member, 
  Subcommittee on Environment, Technology, and Standards, 
  Committee on Science, U.S. House of Representatives............    10
    Written Statement............................................    11

Prepared Statement of Representative Nick Smith, Member, 
  Subcommittee on Environment, Technology, and Standards, 
  Committee on Science, U.S. House of Representatives............    12

Prepared Statement of Representative Jim Matheson, Member, 
  Subcommittee on Environment, Technology, and Standards, 
  Committee on Science, U.S. House of Representatives............    13

                               Witnesses:

Mr. Thomas W. Eagar, Professor, Massachusetts Institute of 
  Technology
    Oral Statement...............................................    14
    Written Statement............................................    15

Mr. Lawrence J. Rhoades, President, Extrude Hone Corporation
    Oral Statement...............................................    19
    Written Statement............................................    21

Mr. Herman M. Reininga, Senior Vice President, Special Projects, 
  Rockwell Collins
    Oral Statement...............................................    23
    Written Statement............................................    24

Mr. Jay R. Dunwell, President, Wolverine Coil Spring
    Oral Statement...............................................    44
    Written Statement............................................    46

Mr. Jason Farmer, Director of Advanced Technology, nLight 
  Photonics Corporation, accompanied by Scott Keeney, President 
  and CEO, nLight Photonics
    Oral Statement...............................................    50
    Written Statement............................................    51

Discussion
  Issues in International Competition............................    54
  Transforming Research into Development.........................    55
  Engineering Degrees and Employment.............................    55
  Addressing the ``Valley of Death'' Issue.......................    56
  The Role of ATP in Product Development.........................    57
  Developing a High-Tech Manufacturing Workforce.................    58
  Lifelong Workforce Education...................................    59
  Successful Competition Against Low-Cost Labor..................    59
  The Role of Vocational Training Programs.......................    61
  Developing a National Manufacturing Policy.....................    62
  Investing in Development and Deployment........................    62
  The Need for More Applied Research.............................    64
  Employment in Local Economics..................................    64
  Industries in Transition.......................................    65
  Is ATP Helping Manufacturing?..................................    66
  Directing Applied Research in Federal Funding..................    68
  The Need for Incentives........................................    69
  Expansion of Existing Federal Programs.........................    69

  Appendix 1: Biographies, Financial Disclosures, and Answers to Post-
                           Hearing Questions

Mr. Thomas W. Eagar, Professor, Massachusetts Institute of 
  Technology
    Biography....................................................    74
    Financial Disclosure.........................................    75
    Response to Post-Hearing Questions...........................    76

Mr. Lawrence J. Rhoades, President, Extrude Hone Corporation
    Biography....................................................    78
    Financial Disclosure.........................................    79
    Response to Post-Hearing Questions...........................    81

Mr. Herman M. Reininga, Senior Vice President, Special Projects, 
  Rockwell Collins
    Biography....................................................    83
    Financial Disclosure.........................................    84
    Response to Post-Hearing Questions...........................    85

Mr. Jay R. Dunwell, President, Wolverine Coil Spring
    Biography....................................................    88
    Financial Disclosure.........................................    89
    Response to Post-Hearing Questions...........................    90

Mr. Jason Farmer, Director of Advanced Technology, nLight 
  Photonics Corporation
    Biography....................................................    91
    Financial Disclosure.........................................    92

 
        MANUFACTURING R&D: HOW CAN THE FEDERAL GOVERNMENT HELP?

                              ----------                              


                         THURSDAY, JUNE 5, 2003

                  House of Representatives,
      Subcommittee on Environment, Technology, and 
                                         Standards,
                                      Committee on Science,
                                                    Washington, DC.

    The Subcommittee met, pursuant to other business, at 10:15 
a.m., in Room 2318 of the Rayburn House Office Building, Hon. 
Vernon J. Ehlers [Chairman of the Subcommittee] presiding.



                            hearing charter

         SUBCOMMITTEE ON ENVIRONMENT, TECHNOLOGY, AND STANDARDS

                          COMMITTEE ON SCIENCE

                     U.S. HOUSE OF REPRESENTATIVES

                Manufacturing Research and Development:

                  How Can the Federal Government Help?

                         thursday, june 5, 2003
                         10:00 a.m.-12:00 p.m.
                   2318 rayburn house office building

Purpose

    On Thursday, June 5, 2003, at 10:00 am the House Science 
Committee's Subcommittee on Environment, Technology, and Standards will 
hold a hearing to review the most serious problems facing U.S. 
manufacturing with a particular focus on federal research, development, 
and technical assistance programs.
    Manufacturers are raising concerns that the United States is losing 
its competitive advantage in manufacturing technology, and that this 
will contribute to permanent job losses to oversees competition. The 
manufacturing community, industry analysts, and economists believe that 
significant, extensive changes are afoot in the manufacturing sector 
beyond the effects of the recent recession. Although U.S. firms, 
particularly the small and medium-sized manufacturers, cannot compete 
with the wage differential in many foreign countries, they can compete 
through factors influenced by the application of technology, knowledge, 
and skills. There are federal programs designed to help firms develop 
these capacities. Although effective, the funding levels of these 
programs have been controversial.
    The Subcommittee plans to explore several overarching questions, 
including:

        1) What are the most serious long-run problems facing U.S. 
        manufacturing? To what extent do these represent significant 
        structural problems beyond the recession?

        2) To what extent can these problems be alleviated through 
        greater investment in research and development related to 
        manufacturing products and processes?

        3) To what extent can federal R&D programs help alleviate the 
        problems faced by manufacturing firms, including small and 
        medium-sized businesses?

Witnesses:

Thomas Eagar, Thomas Lord Professor of Materials Engineering and 
Engineering Sciences, Massachusetts Institute of Technology, Cambridge, 
MA.

Larry Rhoades, President, Extrude Hone Corporation, Irwin, PA.

Herman Reininga, Senior Vice President, Special Projects, Rockwell 
Collins, Cedar Rapids, IA.

Jay Dunwell, President, Wolverine Coil Spring, Grand Rapids, MI.

Jason Farmer, nLight Photonics Corp., Vancouver, WA.

Background

I. Increased globalization has allowed larger firms to divest 
themselves of their in-house manufacturing capabilities, exposing 
smaller supply firms to increased foreign competition.

    U.S. manufacturers face immediate and growing challenges from 
foreign competition. These challenges vary from country to country. 
Many of our trade partners have the advantage of much lower wage rates 
that enable their firms to trade goods at much lower prices. Some--but 
not all--nations engage in unfair trade practices such as dumping, or 
failing to or choosing not to enforce standards of intellectual 
property. However, many of our trade partners, for example in Europe, 
Japan, and Singapore, compete with the U.S. based on the quality, 
technological advantages, or customer services they offer, despite 
their lack of a distinct wage advantage. The other ``less advanced'' 
countries are investing billions of dollars in their human capital and 
technology to catch up.
    In response to price competition, many large companies are 
divesting themselves of their in-house manufacturing capabilities and 
have turned to outsourcing--ordering component parts and raw materials 
from other companies--to reduce their costs of production (the 
``foundry'' model of manufacturing). This has created large and 
elaborate supply chains. Globalization, facilitated by advances in 
communications technology and reductions in transportation costs, has 
enabled firms to do business with each other across borders and oceans 
with increasing ease. This has allowed the internationalization of 
supply chains, as firms around the world are able to sell intermediate 
goods to larger manufacturers. Since the U.S. is the world's biggest 
market, foreign firms naturally turn to it for the greatest profit. 
Many U.S. firms have benefited greatly from this arrangement since they 
are able to purchase what they need at lower prices. But it has exposed 
thousands of small and medium sized firms in the U.S. to fierce 
competition for which they are unprepared. Lately, many large companies 
in a range of different industries have located their newest factories 
or entire supply chains abroad.
    There are some disadvantages to this dispersed model, most 
obviously that the risks to just-in-time manufacturing are much greater 
when the shipping time for components is three to six months and 
subject to delays, as it is for the automotive supply chain when 
importing components from Asia or Europe by container. In addition, 
there are advantages to geographical proximity for product and process 
development synergies, problem-solving, and generally closer working 
relationships. The development of clusters, such as information 
technology in Silicon Valley, California, the automotive industry in 
Detroit, Michigan, and biotech in Research Triangle Park in North 
Carolina, was a success because it maximize these advantages. The U.S. 
is considered to be the model for other countries for clusters, and 
also for federal-industry-university research and development 
partnerships and consortia, which can provide a nucleus around which 
clusters can be developed. Several U.S. states, and many foreign 
countries, are pursuing their own cluster strategies, with varying 
success. However, with the loss of key industries or factories, 
clusters can dissolve, too.

II. Investments in research, development and education are important 
to increases in productivity in the long-term, but industry's research 
efforts, which represent the bulk of all domestic investments in R&D, 
have begun to shrink.

    According to the Bureau of the Census, between 1988 and 2000, the 
manufacturing trade balance for advanced technology products remained 
positive (though shrinking), whereas all other products went from an 
annual deficit of $100 billion to more than $300 billion. This may 
indicate that a key to the U.S.'s exports strength in the long run may 
lie in higher technology goods rather than lower.
    Technology and education drive productivity growth. Sustained 
productivity growth requires sustained investment in research, 
development, and education. Our trade partners are making new and 
significant efforts towards increasing the education level of their 
workforces, investing in manufacturing-specific research and 
development, and creating a generally attractive technological 
environment for manufacturers to site manufacturing and, recently, 
research and development facilities. The U.S., although still advanced 
in many areas, does not have all the technological and educational 
advantages it once did. Increasing global technological capabilities do 
not bode well for the long-term prospects for the moderate and low R&D-
intensive portions of U.S. manufacturing are not good, and even the 
more ``hi-tech'' industries are likely to experience increased 
competitive pressure. Nevertheless, industry experts and economists 
suggest that the U.S. can compete successfully in global markets in the 
less R&D-intensive industry areas, like the transportation sector 
supply chains, by improving supply chain management. The more R&D-
intensive industries can compete more successfully, they say, by 
developing and implementing technology more effectively. For example, 
in the consumer electronics industry, Sony is famed for its ability to 
quickly translate new technological developments into improved 
displays, sound quality, and miniaturization, incorporate them into its 
model updates, and get them to market faster than other companies.
    Today, industry conducts 75 percent of all U.S. R&D, of which the 
manufacturing sector contributes approximately 70 percent. Industry-
based R&D has generally focused on short or mid-term, goal-oriented 
research, while proposal-driven, long-term research is supported by the 
Federal Government. Between these two stages of development is the so-
called ``Valley of Death,'' where ideas and basic research that 
theoretically could become useful products are thought to languish for 
lack of funding. For the private sector, supporting these types of 
projects is too risky, according to some, and if good ideas are to be 
turned into useful products, the government must step in to provide 
funding. For others, the government should play no role in the 
development stages beyond basic research.
    Generally speaking, the Federal Government today does not fund 
manufacturing-specific research and development, and its commitment to 
applied manufacturing-related research has declined. As industrial 
competition becomes more fierce, the trend in industrial research has 
been to cut research budgets and focus on an even narrower horizon of 
innovation. Long-term, high-risk research is what fosters sustained 
growth, according to most economists. They believe that companies' 
ability to grow and develop will suffer from these R&D cutbacks.

III. A number of federal programs help manufacturing, but support for 
some has been weakening.

    There are federal programs whose mission is to support 
manufacturing. The Department of Commerce houses several programs 
within the National Institute of Standards and Technology (NIST) as 
well as the NIST laboratories themselves, which have a direct impact on 
manufacturing technology and practices. NIST's two laboratories, one in 
Boulder, CO, and the other in Gaithersburg, MD, and its extramural 
grant program have a mission that includes the enhancement of 
productivity and facilitation of trade. They do this on a budget of 
approximately $380 million a year. NIST is also responsible for 
implementing the Enterprise Integration Act of 2002, the purpose of 
which is to develop and implement standards and protocols to enable 
major manufacturing industries and their suppliers to electronically 
exchange product- and standards-related information. This would be an 
important part of strengthening domestic supply chains and other 
relationships between firms. Last year, however, Congress allocated no 
additional funding for this program, and none was requested by the 
Administration for FY 2004.
    Also within NIST is the Manufacturing Extension Partnership program 
(MEP). Although not exclusively a technology program, it does assist 
small and medium-sized manufacturers in areas involving technological 
change, lean manufacturing (``lean'' principles include perfect first-
time quality, waste minimization by removing all activities that do not 
add value, continuous improvement, flexibility, and long-term 
relationships), and acquisition of equipment, as well as business 
organization, and is considered critical in maintaining the 
competitiveness of small and medium-sized manufacturers. MEP is funded 
at $106 million in federal funds and requires a state match, but its 
budget is in jeopardy every year because some see it as a service that 
would be more appropriately provided by the private sector. In 
addition, the state budget crisis is threatening the state match for 
many MEP programs.
    The Advanced Technology Program (ATP) supports emerging and 
enabling technologies for improved products and industrial processes 
that promise significant commercial payoffs and widespread benefits to 
the Nation. It has been funded in the range of $150-$180 million. ATP 
has been controversial because some believe that the government has no 
role in providing funding for research beyond basic research.
    Beyond the Department of Commerce, in the Department of Energy, is 
the Office of Industrial Technology (OIT) whose mission is to increase 
the energy efficiency of the 12 most energy-intensive industrial 
sectors in the economy, most of which are manufacturing industries, and 
some of the DOE laboratories have some manufacturing programs. OIT also 
runs the Industries of the Future (IOF) program. The Department of 
Defense has various programs including the Defense Advanced Research 
Programs Agency (DARPA), and the ManTech program, which are oriented 
towards technology development and the domestication of the defense 
supply chain, respectively, but are only peripherally associated with 
commercial products. The Small Business and Innovation Research program 
(SBIR), funded at approximately $1.5 billion, is a multi-agency grant 
and contracting program intended to assist the commercialization of the 
products of basic R&D to advance the missions of the agencies. Although 
not manufacturing-specific, some of the SBIR projects have impacts on 
products and processes. Some companies say they have found that the 
size of the SBIR grants is not sufficient to cover the costs of doing 
research.

IV. Our trading partners also support manufacturing assistance 
programs.

    Our trading partners are starting or are have already established 
manufacturing-specific R&D initiatives, many of which are modeled on 
U.S. programs. There are also efforts afoot by such countries as China 
and India to lure U.S. industrial R&D oversees, where there is an 
increasing number of highly-trained workers with Ph.D.s and valuable 
technical skills.
    Some examples of manufacturing-specific, non-basic R&D efforts in 
other countries include: Taiwan's Industrial Technology Research 
Institute (ITRI), whose nanotechnology initiative alone is $660 million 
over six years. MITRE Corporation, a U.S. national security research 
contractor, has recently signed an agreement with the ITRI to establish 
an innovative R&D center to work on aerospace communications 
technology. France has a program modeled on the U.S.'s ATP, called the 
Fund for Technological Research (FRT), funded at approximately $200 
million and requiring a 50 percent non-government match. Israel also 
has an ATP-like program, called the Magnet Program, currently funded at 
$65 million and requiring a 66 percent non-government match. Japan has 
an Industrial Technology Development Support Program, which has a 50 
percent cost-share requirement, funded at around $380 million. The 
Netherlands created a new program in 2001 called the Technology 
Cooperation Program, merging several business and manufacturing-
oriented programs. The program will be funded this year at 
approximately $70 million with a 50 percent cost-share.
    While some of these totals may be small relative to U.S. 
expenditures, for example President Bush has requested $847 million for 
the U.S. nanotechnology initiative for FY 2004, as a proportion of 
these countries' GDP and total R&D, the applied sciences get a greater 
share of government funding than in the U.S. because these countries 
have articulated policies of economic growth in terms of increased 
technological competitiveness.

Related Issues

Employment and Productivity
    Manufacturing employment has changed little since the 1970s, 
ranging between 17 million and 21 million workers. Manufacturing's 
share of the total workforce has declined steadily since the 1950s. 
This is due in part to the increasing productivity of the manufacturing 
sector (measured in output per worker), which now contributes 17 
percent to U.S. GDP and $1.5 trillion in annual profits. During the 
economic expansion of the 1990s, the dollar output of the manufacturing 
sector grew by 47 percent. Simultaneously, productivity rose 31.6 
percent, which was more than twice the productivity gains for the rest 
of the non-farm economy. Real productivity gains are achieved in two 
ways: technological development, and education. Productivity increases 
are a double-edged sword, however. Although it increases the efficiency 
of an company or industry, this efficiency means the industry needs 
less workers to meet the same demand, one of the reasons why 
manufacturing employment has remained stagnant, whilst output has 
increased.

The Economic Downturn
    Manufacturing's effect on the economy is bi-directional, as it can 
lead an economy both into and out of recession. Manufacturing 
indicators gave the first warnings of the economic slowdown when 
employment in that sector peaked in 1998. Since then over 2.6 million 
manufacturing jobs were shed as factories slowed production, closed, or 
implemented efficiency measures to try to cut production costs. The 
manufacturing sector accounts for more than 90 percent of the jobs lost 
since the beginning of the recession. The lack of strength in 
manufacturing is considered by most economists to be the most important 
hurdle to getting the economy going again. Durable goods orders fell 
2.4 percent in April--the largest amount in seven months--a figure that 
included a 3.0 percent drop in orders for new automobiles. The 
continued manufacturing slump has had a profound effect on the 
economies tied to manufacturing, particularly in the communities where 
manufacturing plants are located.

The Trade Deficit
    The trade deficit is 16 times larger today than it was 20 years 
ago. The U.S. monthly trade deficit rose to its second-highest level 
ever in March, at $43.5 billion. (The highest monthly deficit was in 
December of 2002.) The import of manufactured good constituted $36.5 
billion, or 84 percent of the total deficit for the month. Contributing 
to this figure were the high oil prices, but overall imports of foreign 
goods were at their highest historic level of $126.3 billion. Of the 
manufactured goods, computer and electronic equipment, transportation 
equipment, and apparel posted the largest deficits. The five highest 
individual country/region deficits were: Western Europe $7.8 billion, 
China $7.7 billion, Japan $5.8 billion, Canada $5.2 billion, and OPEC 
$5.0 billion. In 2000, the latest year for which data was available, 14 
percent of U.S. imports were from foreign affiliates of U.S. companies. 
Another 20 percent were imports from the foreign ``parents'' of U.S.-
located companies.
    The trade deficit has been exacerbated by the strength of the 
dollar, which makes it cheaper to buy products from abroad and more 
expensive for other countries to import U.S. goods. The dollar 
appreciated 33 percent in international value between 1995 and 2003. 
The recent fall in the value of the dollar is expected to have a 
moderate effect on trade. However, this change has not offset the 
dollar's gains in recent years. Furthermore China and several other 
Southeast Asian countries considered a threat to U.S. manufacturing 
have pegged the value of their currencies to the dollar, and thus U.S. 
trade with many of these nations will not be immediately affected.

Questions for Witnesses

Questions for Thomas Eagar, Professor of Materials Science and 
Engineering, Massachusetts Institute of Technology.

        1) To what extent is manufacturing a critical component of the 
        U.S. economy?

        2) What are the most serious long-run problems facing U.S. 
        manufacturing for both large and small firms? To what extent do 
        these represent significant structural problems beyond the 
        recession?

        3) To what extent can these problems be alleviated through 
        greater investment in research and development related to 
        manufacturing products and processes? What role should the 
        Federal Government play in this effort?

Questions for Larry Rhoades, President of Extrude Hone Corporation.

        1) What are the most serious long-run problems facing U.S. 
        manufacturing? To what extent do these represent significant 
        structural problems beyond the recession?

        2) Is there anything in the existing inventory of Federal or 
        State research and development programs that could play a more 
        significant role in establishing a stronger manufacturing-
        specific R&D and technical assistance base?

        3) In addition to current efforts, please provide specific 
        suggestions of what the Federal or State governments could do 
        to assist manufacturing with research, development, and 
        technology in meeting their long-term needs.

Questions Herman Reininga, Senior Vice President for Special Projects, 
Rockwell Collins.

        1) What are the most serious long-run problems facing your 
        industry?

        2) To what extent can these problems be alleviated through 
        greater investment in research and development related to 
        manufacturing products and processes?

        3) How much of your research and development is geared towards 
        manufacturing?

        4) How much do you work with the small firms in your supply 
        chain on manufacturing issues?

Questions for Jay Dunwell, President, Wolverine Coil Spring, Grand 
Rapids, Michigan.

        1) What are the most serious challenges facing your business? 
        What role does technology play in addressing these challenges?

        2) Please describe the differences in the problems faced by 
        small-to-medium-sized manufacturers versus large manufacturers.

        3) How did the Manufacturing Extension Partnership (MEP) 
        program help you become more competitive?

        4) What problems facing small and medium-sized manufacturers 
        today and in the future are beyond the capabilities of MEP to 
        solve? Do you have any suggestions of how the Federal or State 
        governments can help meet these challenges?

Questions for Jason Farmer, nLight Photonics Corp., Vancouver, WA.

        1) What are the challenges facing your business now and in the 
        immediate future? For small high-tech start-up manufacturers 
        are most of your competitors domestic or international? If 
        international, do these companies have any inherent advantages 
        over U.S. companies?

        2) What are the challenges in raising venture capital for 
        small high-tech firms? How do you convince venture capitalists 
        to provide funding in the gap between a research concept and 
        making a demonstrable product or does the so-called ``valley of 
        death'' really exist?

        3) What changes have you seen in the start-up, high-tech 
        sector during the past few years? What role, if any, can 
        government provide to assist small, high-tech start-up 
        companies?

        4) How did the SBIR program assist in the initial development 
        of nLight's technology? What are the good points of the SBIR 
        program? What improvements or changes do you think should be 
        made to the SBIR program?
    Chairman Ehlers. I will call the hearing to order. I am 
pleased to begin today's hearing on manufacturing research and 
development: what can the Federal Government do? That reminds 
me of my standard joke when I go back home and speak to my 
people and say, ``I am from the Federal Government, and I am 
here to help you.'' But we truly mean it here, and we are very 
diligently trying to do what we can to improve the 
manufacturing research and development climate in this country.
    Manufacturing is a subject dear to my heart, and more 
importantly, to the hearts of my constituents in Grand Rapids, 
Michigan, a hive of manufacturing activity since the Industrial 
Revolution and currently the proud bearer of the title 
``Furniture Capital of the Nation.'' Over roughly 50 percent of 
all office furniture made in the United States is made within 
20 miles of Grand Rapids' city center.
    This hearing is an opportunity to discover the most serious 
long-term problems facing U.S. manufacturing and whether these 
are structural problems beyond those caused by the recession. 
In addition, we will learn today whether or not these problems 
can be solved through a greater investment in research and 
development. Finally, we will hear about what federal role 
research, development, and technical assistance programs could 
play in ensuring the long-range sustainability of U.S. 
manufacturing.
    Grand Rapids, like communities all over the U.S., has been 
struggling with multiple threats to its industries. 
Globalization is rapidly changing the way business is done and 
where materials and components are purchased. And small and 
medium-sized firms, in particular, are at the mercy of this 
process. More and more frequently, large companies are 
purchasing components for their final products from firms 
overseas where the cost of labor is lower and those components 
are therefore cheaper.
    While the U.S. cannot compete on the wage differential, it 
must draw on its other assets to keep manufacturing at home. 
Today, we will look at our research and development assets and 
how they help manufacturing. The private sector accounts for 75 
percent of total R&D investment in the United States, of which 
manufacturing contributes 70 percent. The vast sum of our 
national investment, both public and private, in scientific 
research would suggest that America will always have the 
technological edge on other nations in commerce, as we have in 
military capability.
    Indeed, productivity growth in the U.S. during the last 
decade was unprecedented, largely as a result of technological 
change. And that growth, I might add, also led to incredible 
economic growth during that same period. But the global 
challenge to U.S. manufacturing has come partly as a result of 
other nations achieving technological parity with the U.S. They 
have been investing specifically to build themselves into 
manufacturing powerhouses and sell their products here in our 
country.
    We are in a potentially worrisome situation today with the 
prospect of losing many different industries to foreign 
competition together with their supply chains and ultimately 
our R&D. It is my hope that by the end of this hearing, we will 
have a better idea of what is happening to manufacturing today, 
what role technology plays in maintaining our competitive edge, 
and what federal programs of research, development, and 
technical assistance could be brought to bear on the problems 
that confront U.S. manufacturers.
    I look forward to hearing from our witnesses about this 
important topic, and I am especially pleased to have Jay 
Dunwell, President of Wolverine Coil Spring, which is located 
in the Grand Rapids, Michigan area, my Congressional District.
    [The prepared statement of Mr. Ehlers follows:]

              Prepared Statement of Chairman Vernon Ehlers

    I am pleased to begin today's hearing on ``Manufacturing Research: 
What Can the Federal Government Do?'' Manufacturing is a subject dear 
to my heart and, more importantly, to the hearts of my constituents in 
Grand Rapids, Michigan, a hive of manufacturing activity since the 
industrial revolution and proud bearer of the title of Furniture 
Capital of the Nation.
    This hearing is an opportunity to discover the most serious long-
run problems facing U.S. manufacturing, and whether these are 
structural problems beyond those caused by the recession. In addition, 
we will learn whether or not these problems can be solved through a 
greater investment in research and development. Finally, we will hear 
about what role federal research, development, and technical assistance 
programs could play in ensuring the long-run sustainability of U.S. 
manufacturing.
    Grand Rapids, like communities all over the U.S., has been 
struggling with multiple threats to its industries. Globalization is 
rapidly changing the way business is done and where materials and 
components are purchased, and small- and medium-sized firms in 
particular are at the mercy of this process. More and more frequently, 
large companies are purchasing components for their final products from 
firms overseas where the cost of labor is lower and these components 
are therefore cheaper. While the U.S. cannot compete on the wage 
differential, it must draw on its other assets to keep manufacturing at 
home. Today we will look at our research and development assets, and 
how they help manufacturing.
    Industry accounts for 75 percent of total R&D in the U.S., and is 
also why manufacturing contributes such a large share--70 percent--of 
this private research and development funding, The vast sum of our 
national investment, both public and private, in scientific research 
would suggest that America would always have the technological edge on 
other nations in commerce, as we have in military capability. Indeed, 
productivity growth in the U.S. during the last decade was 
unprecedented, largely as a result of technological change. But the 
global challenge to U.S. manufacturing has come partly as a result of 
other nations achieving technological parity with the U.S. They have 
been investing specifically to build themselves into manufacturing 
powerhouses and sell their products here. We are in a potentially 
worrisome situation today, with the prospect of loosing many different 
industries to foreign competition, together with their supply chains, 
and ultimately, our R&D.
    It is my hope that, by the end of this hearing, we will have a 
better idea of what is happening to manufacturing today, what role 
technology plays in maintaining our competitive edge, what federal 
programs of research, development, and technical assistance could be 
brought to bear on the problems that confront U.S. manufacturers.

    Chairman Ehlers. I now recognize the Ranking Member, Mr. 
Udall from Colorado for an opening statement.
    Mr. Udall. Thank you, Mr. Chairman. I, too, want to welcome 
all of you to today's hearing, and I want to thank you for 
taking time away from your companies to appear before the 
Subcommittee. I hope that you will feel that this time will be 
well spent as we seek your advice on how the Federal Government 
can better assist our manufacturing base.
    Chairman Ehlers has already outlined the importance of 
manufacturing to our economy and employment base. He has also 
cited the challenges facing small and medium-sized 
manufacturers and the significant job loss that has occurred in 
this sector over the past two years. I hope that our hearing 
today will begin the start or mark the start of concrete 
actions by the Federal Government to assist our manufacturers. 
I don't want to fall into the trap, I don't think any of us up 
here do, of--that we have in Washington of studying the problem 
and then not taking action. Study alone won't stem the erosion 
of our manufacturing base.
    Lots of other parties have carried out studies that can 
guide us in our actions. The Manufacturers' Council, the 
National Coalition for Advanced Manufacturing, and the National 
Association of Manufacturers have all made a number of 
recommendations on how the government can assist the 
manufacturing community. One recommendation that they all make 
regarding direct assistance is to fully fund the Manufacturing 
Extension Partnership, the MEP, and the Advanced Technology 
Program, the ATP. However, we in the Federal Government 
continue to send very mixed messages to the manufacturing 
communities and to the states. There is a bipartisan consensus 
that we need to fund both the Manufacturing Extension 
Partnership and the Advanced Technology Program yet the 
Administration continues to target these programs for 
elimination. And although the Administration has announced that 
it is studying the long-term health of manufacturing, it will 
not issue a report until later this year.
    I believe that we need now to provide appropriate 
assistance to our manufacturers. Any serious economic growth 
strategy has to take measured, targeted steps to provide 
support to the firms that tend to provide the greatest 
innovation. I hope that the Science Committee will 
substantively engage the Administration, developing a unified 
and coordinated agenda to assist our small and medium-sized 
manufacturers. That certainly has been the tradition in the 
history of the Science Committee.
    So Mr. Chairman, I want to thank you, and I look forward to 
hearing from our witnesses today. I would yield back any time I 
have remaining.
    [The prepared statement of Mr. Udall follows:]

            Prepared Statement of Representative Mark Udall

    I want to welcome everyone to this morning's hearing, and I want to 
thank our witnesses for taking time away from their companies to appear 
before the Subcommittee. I hope they will feel that this is time well 
spent as we seek their advice on how the Federal Government can better 
assist our manufacturing base.
    Chairman Ehlers has already outlined the importance of 
manufacturing to our economy and employment base. He has also cited the 
challenges facing small- and medium-sized manufacturers and the 
significant job loss that has occurred in this sector during the past 
two years.
    I hope today's hearing will mark the start of concrete actions by 
the Federal Government to assist our manufacturers. I don't want to 
fall into the Washington trap of studying the problem and then not 
taking action. Study alone won't stem the ongoing erosion of our 
manufacturing base. Many other parties have carried out studies that 
can guide us in our actions: the Manufacturer's Council, the National 
Coalition for Advanced Manufacturing, and the National Association of 
Manufacturers have all made a number of recommendations on how the 
government can assist the manufacturing community. One recommendation 
they all make regarding direct assistance is to fully fund the 
Manufacturing Extension Partnership and the Advanced Technology 
Program.
    However, the Federal Government continues to send very mixed 
messages to the manufacturing community and the states. There is a 
bipartisan consensus in the Congress that we need to fund both the 
Manufacturing Extension Partnership and the Advanced Technology 
Program, yet the Administration continues to target these programs for 
elimination. And though the Administration has announced that it is 
studying the long-term health of manufacturing, it will not issue a 
report until later this year. I believe that we need to provide 
appropriate assistance to our manufacturers now.
    Any serious economic growth strategy has to take measured, targeted 
steps to provide support to the firms that tend to provide the greatest 
innovation. I hope that the Science Committee will substantively engage 
the Administration in developing a unified and coordinated agenda to 
assist our small- and medium-sized manufacturers.

    Chairman Ehlers. The gentleman yields back his time. 
Without objection, all additional opening statements submitted 
by Subcommittee Members will be added to the record. Without 
objection, so ordered.
    [The prepared statement of Mr. Smith of Michigan follows:]

            Prepared Statement of Representative Nick Smith

    I'd like to thank Chairman Ehlers for holding this hearing to 
examine America's investment in manufacturing research and development. 
I've been meeting with workers and employers in my district. They and I 
are troubled about the continuing decline in manufacturing in Michigan 
and the whole country. Products from China and other countries are 
taking away our business. The manufacturing sector accounted for 41 
percent of non-farm employment in 1946, 28 percent in 1980, 18 percent 
in 1990, and just 12 percent in 2002. This means that millions of 
people are being pushed out of manufacturing jobs into service sector 
jobs that often pay less. With other sectors of the economy weakening--
we lost 560,000 high tech jobs in 2001 and 2002 alone--we need those 
manufacturing jobs now more than ever.
    Manufacturing is especially important to the economy because it is 
a leader in innovation. Manufacturing contributes 57 percent of total 
U.S. research and development funding. These new technologies often 
spill over into other sectors of the economy. For example, the 
technology in ATM machines originated with equipment used on the 
factory floor.
    Manufacturing has made up an almost constant share of total U.S. 
GDP since the late 1940s. Over that period, it has varied between about 
20 and 23 percent of total U.S. output. Recently however, efficiency 
and productivity growth in the manufacturing sector--much stronger than 
in the economy as a whole--has created a situation where output has 
increased at a faster rate than employment. This productivity has grown 
by 3.4 percent annually since 1983 and risen even higher recently, with 
manufacturing productivity surpassing 4.7 percent per year from 1996 to 
1999.
    With these aggressive improvements in efficiency, we would expect 
the manufacturing sector to be growing faster in the international 
market. But it has been under attack from foreign competition, much of 
which seems to be unfair. I've spoken with constituents who say that 
Chinese companies sell products for less than the raw materials are 
worth here. Many suspect that these companies are receiving covert 
subsidies from the Chinese government. We think that a variety of other 
governments use similar underhanded methods to boost their sales here 
and reduce our sales in their home markets.
    Another problem is the overzealous regulation and taxation imposed 
by government. One especially harmful action has been the steel tariff 
imposed by the Administration. Though the increased price of steel has 
protected some steel workers from foreign competition, it has also 
resulted in more layoffs in the steel-using industries than the total 
employment of the steel making industry. With prices rising by 50 
percent or more, hundreds of manufacturers that use steel have simply 
let workers go or have transferred production out of the country where 
steel is cheaper.
    It isn't healthy to have too much of a service economy where we 
import most of our goods and fewer and fewer people actually build 
products. One way to improve things for our manufacturers is to do a 
better, more careful job of negotiating trade treaties and then 
enforcing them. Another is to end counterproductive tariffs like the 
one on steel. We need to make sure our taxes and regulations avoid 
putting our manufacturers at a significant disadvantage. If we don't do 
something, we could weaken our economy and lose our productive 
capacity.
    In this hearing, we will examine the role that manufacturing 
research and development plays in improving American productivity and 
global competitiveness. I recently signed a letter to President Bush 
asking him to establish a panel of experts to analyze the factors 
causing the recent decline in U.S. manufacturing. I look forward to 
learning what this panel of experts think is the problem and why they 
feel that increasing investment in manufacturing R&D can play a major 
role in reinvigorating the American manufacturing industry.

    [The prepared statement of Mr. Matheson follows:]

           Prepared Statement of Representative Jim Matheson

    Mr. Chairman and Ranking Member Udall, thank you for your 
consideration. Our nation is facing a protracted economic downturn, and 
manufacturers have been particularly hard hit. It is crucial that the 
Federal Government assists the smaller manufacturing businesses, which 
contribute significantly to the economy particularly in my home state, 
Utah. This is why I am a supporter of the Manufacturing Extension 
Partnership (MEP) program.
    Many small businesses in Utah have benefited substantially from the 
MEP and in its absence, it is unclear where these companies can go for 
information, resources, and assistance. Unless the Federal Government 
is prepared to invest in another, similar program in the immediate 
future, I am wary of efforts to dismantle or eliminate the MEP.
    I agree with many of my colleagues in Congress that if the Federal 
Government is content to merely study the problems of manufacturers, 
without providing a plan of action or tangible assistance, then our 
efforts to improve local economies will necessarily fall short.
    I hope that this hearing sheds light on why Federal Government 
assistance is crucial to small businesses in general and why 
manufacturers depend on this program in particular, thank you.

    Chairman Ehlers. At this time, it is my pleasure to 
introduce our witnesses for today. And we have a star-studded 
cast present. I am very pleased to have all of you here, 
ranging from the theoretical to the practical. First we have 
Thomas Eagar. He is the Thomas Lord Professor of Materials 
Engineering and Engineering Sciences at the Massachusetts 
Institute of Technology in Cambridge, Massachusetts. He is also 
a member of the National Academy of Sciences Board on 
Manufacturing and Engineering Design, which is running a new 
program entitled, ``New Directions in Manufacturing.''
    Our second panelist is Larry Rhoades, the President of 
Extrude Hone Corporation located in Irwin, Pennsylvania. He 
chairs the Association for Manufacturing Technology, and is 
also a member of the National Academy of Sciences.
    Third we have Herman Reininga. He is a Senior Vice 
President for Special Projects with Rockwell Collins in Cedar 
Rapids, Iowa. His company is a member of the National Coalition 
for Manufacturing Technology.
    Next is Jay Dunwell, whom I have previously mentioned, and 
I am pleased to introduce him. He is the President of Wolverine 
Coil Spring located in my Congressional District in Grand 
Rapids.
    Finally, we have Jason Farmer, who will be introduced by 
Representative Baird.
    Mr. Baird. I thank the Chairman for this opportunity to 
introduce Jason Farmer, who is Director of Advanced Technology 
at nLight Photonics. This is a semiconductor laser plant 
operated in Vancouver, Washington, my home District. Jason is 
responsible for all aspects of advanced technology at nLight, 
including exportation of new concepts, applications, and 
opportunities that will allow fundamental advances in the field 
of semiconductor lasers. He was a principle scientist at 
Aculight Corporation, holds a BS from University of California 
at Santa Barbara, and an MS from the University of Colorado at 
Boulder. The products this company makes have the opportunity 
to revolutionize the telecommunications industry as well as 
defense and homeland security. And it is precisely this kind of 
manufacturing opportunity that I think will move us forward 
into the next economic burst that we are hopeful to see.
    And I thank the Chairman for hosting this hearing.
    Chairman Ehlers. Thank you for the introduction. Just a 
brief word about the ground rules. I presume you are all aware 
that your testimony is limited to five minutes. We have some 
lights there and there, which will show green during the first 
four minutes, yellow during the fifth minute, red indicating 
you should stop. I have borrowed a laser light saber from Mr. 
Farmer. And so if you stay in the red too long, you are going 
to be in deep trouble.
    We will start our testimony with Mr. Eagar. Could you turn 
on your microphone, please?

  STATEMENT OF MR. THOMAS W. EAGAR, PROFESSOR, MASSACHUSETTS 
                    INSTITUTE OF TECHNOLOGY

    Mr. Eagar. Mr. Chairman Ehlers, Members of the Committee, 
ladies and gentlemen, it is an honor to speak with you this 
morning to provide my views on the role of technology on 
manufacturing competitiveness in the United States. Mr. 
Christopher Musso, a doctoral student at MIT in the engineering 
systems division, is here with me and has assisted me in 
organizing our thoughts, many of which relate to his doctoral 
thesis on innovation in manufacturing industries.
    Some people note that manufacturing in the United States is 
in crisis. If crisis means that the number of direct labor jobs 
in manufacturing has been decreasing for several decades, then 
I must agree. But if crisis means that American manufacturing 
is less abundant and is losing its ability to compete for the 
best manufacturing jobs in the world today, then I take strong 
exception to the word ``crisis.''
    Over the past 50 years, we have experienced a manufacturing 
revolution in the United States at least equal to the 
Industrial Revolution of the 19th century. An American worker 
today produces four times as much as her father or grandfather 
produced in 1950. Over the past two decades, manufacturing 
productivity has exceeded the gains of all U.S. business by 
more than one percent per year.
    ``To live well, a nation must produce well,'' and we have. 
Our productivity gains are a phenomenal success, but they have 
their difficulties. Growth in consumption and exports has not 
matched these great strides in productivity. As a result, 
direct labor employment has dropped. Factories have over-
capacity, prices have decreased in real terms, and corporate 
profits have been squeezed or eliminated. This trend is not 
new. In 1820, 85 percent of the workforce was farmers. Today, 
it is three percent and declining. We have lost textiles, 
shipbuilding, consumer electronics, much of our steel industry, 
and we are starting to decline in semiconductors. I submit that 
this is a natural process as these industries grow, mature, and 
decline, resulting in producing commodities on the world 
market.
    The only way for us to survive is to innovate and create 
new, high-value industries to replace these maturing 
industries. Technology is the engine that drives the innovation 
process. Manufacturing is critical to the U.S. economy, because 
it not only provides new sources of employment, but in the 
automotive sector, it provides over six spin-off jobs for every 
direct labor job, according to a University of Michigan study 
in 1998. The U.S. economic census notes that the U.S. 
manufacturing payroll is 14 percent larger than the next two 
largest sectors, even though manufacturing employs 15 percent 
fewer people. This 30 percent pay differential matters to many 
Americans. A nation without manufacturing is like a car without 
gas: it will not move forward.
    The most serious challenge for U.S. manufacturing is the 
continuing ability to innovate. The world admires our capacity 
and flexibility to innovate and create new industries. There 
are three things necessary for innovation: technology, capital, 
and people. We must have all three. When I ask audiences which 
of these three is the most difficult, I get near unanimous 
agreement that the greatest need is in educating our workforce. 
We must change the cultural premise that learning ends upon 
graduation from high school or college. Learning is a lifelong 
process, and the best jobs go to those who never cease their 
education.
    What can the government do to help innovate new industries? 
We can improve the continuing education of the workforce. We 
must strive for 100 percent literacy and numeracy. No worker 
can be left behind. We must balance the non-military federal 
R&D ratio to avoid the ``valley of death'' in longer ranged 
development projects of the 5- to 20-year horizon. The ATP and 
SBIR programs are steps in the right direction. We must ask our 
R&D researchers to consider a cost benefit return on investment 
of taxpayers' dollars. The taxpayers deserve a return on their 
investment. Knowledge for its own sake is a wonderful goal, but 
it doesn't necessarily give a return.
    In closing, I hope that you will be able to state, as once 
did Henrico Fermi, ``Before I came here, I was confused on this 
subject. Having listened to your lecture, I am still confused 
but on a higher level.''
    Thank you very much.
    [The prepared statement of Mr. Eagar follows:]
                 Prepared Statement of Thomas W. Eagar
    ``To live well, a nation must produce well.'' \1\
---------------------------------------------------------------------------
    \1\ Dertouzos, Michael, Lester, Richard, Solow, Robert (1989), Made 
In America, The MIT Press, Cambridge, MA, page 1.
---------------------------------------------------------------------------
    A manufacturing revolution has emerged in the past 50 years that is 
as significant as the industrial revolution of the 19th century. From 
1950 to 2000, the average productivity growth in manufacturing in the 
United States was 2.8 percent per year, and this figure has been 
accelerating for the past two decades as manufacturing productivity 
growth has exceeded the average of other sectors by more than one 
percent per year (please see table below). Stated more simply, a U.S. 
manufacturing worker can produce four times as much per hour today as 
compared with fifty years ago. This gain has resulted from competitive 
pressures, the advent of new technologies, and a series of product and 
process innovations. It has also resulted in a much higher standard of 
living for Americans, as products become more useful and more 
affordable. In order to utilize this new manufacturing capacity, U.S. 
firms (and others) have expanded their marketing abroad, creating rapid 
increase in global trade.




    The perception of a crisis in American manufacturing is the result 
of one of the most difficult realities of large gains in productivity: 
additional capacity almost always exceeds increased consumption. This 
results in an inevitable shift of labor. Industries become more 
productive as they mature, and competitive pressures increase. These 
two factors require companies to decrease their workforce and often 
result in movement of commodity industries overseas. The end result is 
a loss of jobs in the United States. Displaced workers must shift to 
new occupations, requiring new skills and abilities. History has shown 
that this shift can be either detrimental or beneficial to workers; the 
most important determinant of benefit is the presence of innovative new 
industries, which, create high value for their markets. The 
sustainability of growth in the U.S. manufacturing sector is based on 
the ability of America to continue to innovate. Innovation is the key 
to a vibrant U.S. manufacturing base and continued generation of new 
jobs.
    Industry-creating innovations can come in many forms--from plastics 
to consumer electronics to the Internet--but they all depend on the 
ideas of individuals. As technologies become more complex, the role of 
science and technology education in the creation of new innovations 
becomes ever more important because technological breakthroughs depend 
on the understanding of technology. The greatest challenge facing the 
United States manufacturing sector is the limited knowledge and ability 
of its people to create new innovations. Failure to continuously 
strengthen our knowledge base will result in a declining ability to 
provide for the wants and needs of our people.

The Importance of Manufacturing in the U.S. Economy

    It is difficult to underestimate the importance of manufacturing in 
the U.S. economy. According the 1997 U.S. Economic census, the payroll 
of the American manufacturing sector is 14 percent larger than the next 
two largest sectors (finance and insurance, retail trade) combined, 
despite having 15 percent fewer employees!\2\ Some have said that other 
industries, such as financial services and trade will replace 
manufacturing in the future. An examination of the economic sectors 
refutes this argument. There are only four economic sectors that 
generate material wealth: agriculture, mining, manufacturing, and 
construction. Other sectors, such as services and trade, redistribute 
this wealth, and are built on the products created by the wealth 
generators. Of the four wealth-creating sectors, manufacturing plays a 
unique role because, unlike agriculture and mining, it is not directly 
limited by natural resources and, unlike construction, most 
manufacturing products are easily transferable across national and 
international borders. As a result, manufacturing is and will continue 
to be the fundamental base for the economic health and security of the 
United States.
---------------------------------------------------------------------------
    \2\ 1997 Economic Census: Summary Statistics for United States 1997 
NAICS Basis.
---------------------------------------------------------------------------
    The economic impact of the manufacturing sector is not limited to 
direct employment of manufacturing employees. A recent University of 
Michigan study concluded that more than 6.5 ``spin off'' jobs 
(including trade, service, and indirect manufacturing) were created in 
1998 for every direct automotive manufacturing job.\3\ This illustrates 
the importance of measuring manufacturing as a generator of wealth 
instead of as a source of direct employment. When manufacturing is 
viewed as a generator of wealth, the importance of new innovation is 
clear. Direct employment in many maturing industries will shrink as 
productivity increases, and indirect employment can be expected to 
follow suit. The effects of layoffs in the manufacturing sector will be 
multiplied by layoffs in other sectors. Conversely, if new, high value 
industries are created, the indirect impact of manufacturing can be 
expected to increase, because high value industries create more wealth 
among workers and society. The Federal Government can help the 
manufacturing sector by measuring it as a generator of wealth instead 
of as a direct employer.
---------------------------------------------------------------------------
    \3\ Fulton, Grimes, Schmidt, McAlinden, Richardson, et al. (1998), 
``Contribution of the Automotive Industry to the U.S. Economy in 1998: 
The Nation and Its Fifty States,'' page 28.
---------------------------------------------------------------------------
    Because of its impact on other industries, manufacturing is the 
fuel that drives the economy. In today's world of global competition, 
the economy of a nation without manufacturing will not move forward, it 
will become stagnant and decay over time. States compete for 
manufacturing jobs, and other countries are willing to import any 
capacity that the U.S. doesn't want--manufacturing matters!

The Most Serious Challenge to U.S. Manufacturing: Lack of New 
                    Innovation

    It was mentioned earlier that the growth of new industries is one 
of the key determinants of opportunities for a displaced worker. 
America's workforce wants to work, and takes pride in self sufficiency; 
displaced workers will seek the best opportunities. If innovative, 
high-value industries are present, workers will find jobs within them. 
If they are not present, workers will be forced to take lower paying 
service jobs. Faced with competitive pressures and globalization, U.S. 
manufacturing firms must increase productivity in order to survive. 
However, without nurturing of our knowledge base, there is no assurance 
that innovation will continue producing new industries, and even less 
assurance that those new industries will be based in the United States. 
This is the most serious challenge to the future of American 
manufacturing.
    The United States is the most prolific innovator in the history of 
nations. This success is clearly not explained by abundant natural 
resources or geographic location alone. Previous government policy 
decisions, such as implementation of the free-market system, public 
education, and infrastructure investment have been crucial to economic 
advancement and the generation of new ideas, and have helped to harness 
the willingness and abilities of our people. The attitudes and ideas of 
our people have been our greatest economic assets, and will become more 
important as innovations are required to balance the pace of increasing 
productivity. Future government policy that stimulates innovation will 
help ensure the creation of new industries. We must provide the 
incentives to build the foundation for those new industries.
    Most of the innovation that results in new industries is based on 
the combination of new technology and market needs. Technology can be 
defined as the practical embodiment of knowledge--the useful 
application of basic science. Thus, in order to create new 
technological innovations, our workforce must understand existing 
technology. Education is a lifelong process, and Americans must be 
endowed with technical knowledge to promote continuous improvement. 
This does not mean that everyone needs to be trained as a scientist, 
but rather that a commitment should be made by industry, government, 
and higher education to increase the knowledge of every worker. It is 
the skills of the people that drive us forward, so there should be no 
illiteracy or illnumeracy in manufacturing. Channels and incentives 
should be created to encourage everyone to enhance their skills. Just 
as no child should be left behind in America's elementary education, no 
worker should be left behind in lifelong education.
    This enhancement of skills will require investment on the corporate 
and national level. Any knowledge that is attained in a current job can 
be expected to help people rise to the challenges of future industries, 
and will help everyone. An investment in anyone is an investment in the 
nation. Experience has shown that the confluence of new knowledge and 
existing products and processes results in better products and more 
efficient processes--the fruits of innovation. Better education gives 
workers new tools to improve their jobs, making themselves, their 
companies, and America more competitive in the global market.

Stimulating Innovation by Investing in Development

    The path to commercialization of new technology has three major 
steps: research, development, and innovation. Research is the mechanism 
by which new knowledge is discovered. Development is the application of 
this knowledge into technology that solves practical problems. 
Innovation is the application and commercialization of developed 
technology into specific markets, through which industries are born. 
Each of these steps must be approached differently, and each step 
involves significant risk. The Federal Government has shown a 
willingness to bear the risk of basic research by funding projects 
through agencies such as the NSF and NIH, and has built paths and 
mechanisms to perform such research in national labs and universities. 
Entrepreneurs and existing industries have shown a willingness to bear 
the risk of commercialization of developed technology, and have built 
paths and mechanisms, such as venture capital, to encourage such 
commercialization. However, there are very few organizations willing to 
bear the risk of development, and even fewer mechanisms designed to 
encourage it. This is unfortunate, because investment in research is 
squandered without sufficient development funding to balance the 
research portfolio.
    Development projects have traditionally been viewed as the domain 
of industry, but competitive pressures of the past 20 years have 
resulted in a business climate that places a premium on immediate 
profits. While this push improves many aspects of business, it is 
detrimental to the development of new technology. For various reasons, 
development periods for certain advanced technologies, such as new 
materials, can span 10-20 years.\4\ For a company requiring a 17 
percent return on investment, a 15-year development period means that 
the potential must exist to earn more than 10 dollars per dollar 
invested. This is unreasonable for most industries. Furthermore, entire 
industries can disappear in 15 years, so businesses face significant 
market risk with advanced development projects. In fact, the 
pharmaceutical industry, which has a clear market for its products, is 
one of the few industries that has shown an ability to sustain 10-15 
year development periods.
---------------------------------------------------------------------------
    \4\ Eagar, Thomas, `` Bringing New Materials to Market,'' 
Technology Review, February/March 1995.
---------------------------------------------------------------------------
    Development is considered to be the ``Valley of Death.'' It has 
earned this name for two reasons. First, many scientific results go 
unused because they are unable to attract development funding, and many 
development projects die early because companies are unable to see the 
returns necessitated by long development timeframes. Second, academia, 
where a large portion of federal research is performed, does not 
respect or reward development: following a path of development can kill 
careers. It is virtually impossible to get tenure at a top U.S. 
research university with development projects. Development requires a 
different type of creativity than science, and that type of creativity 
is not valued in the current university environment.
    The Federal Government can help create innovation in the 
manufacturing sector by creating policies that bridge the ``valley of 
death'' by encouraging development of basic science and by implementing 
programs that share the risk of development with the private sector. 
The Department of Defense has an excellent track record of technology 
development, in part because it has the right ratio of research to 
exploratory development--roughly equal shares. The DOD avoids 
squandering its research by maintaining this ratio. The Federal 
Government can improve innovation by encouraging other research funding 
agencies to meet the same R:D funding ratio as the DOD.
    Because the DOD has clear needs, it requires that each research 
proposal include a section on potential applications. This forces 
scientists to focus on realistic and practical uses of new knowledge. 
The Federal Government can improve innovation by requiring most 
research proposals to include such sections, but should also require a 
cost/benefit justification. Taxpayers deserve a return on their 
investment in research.
    Small businesses and individuals have proven to be very effective 
technology developers. Unfortunately, few small businesses can afford 
to engage in long-term development projects because of capital 
constraints. The Small Business Innovation Research (SBIR) and the 
Small Business Technology Transfer (STTR) programs take advantage of 
the intelligence, incentives, and flexibility of small groups by 
sharing the risk of long-term development. The Federal Government can 
improve innovation by expanding these programs to provide incentives 
for risk taking with medium and large businesses, as well.

Conclusion: The Federal Government Can Help Manufacturing

    The manufacturing sector is crucial to the U.S. economy. It is the 
sector with the largest payroll, and every direct job in manufacturing 
creates several indirect and ``spin-off'' jobs. Because of this, 
manufacturing is the economic foundation of other sectors, and cannot 
be measured solely in terms of direct employment.
    Competitive pressures and globalization have forced the 
manufacturing sector to make large investments in improving 
productivity. Increases in productivity and efficiency bring higher 
standards of living to societies and better prices for consumers, but 
also result in reduction of direct manufacturing jobs because capacity 
often outstrips demand. This reduction is an inevitable outcome of 
increases in productivity, and is painful in the short term, since 
workers are forced to find work elsewhere. However, if innovative, 
high-value industries are present, displaced workers can actually 
improve their situation by moving to those industries. Innovation is 
the key to continued increases in the manufacturing sector, and is 
therefore the key to improvements in the overall standard of living of 
America. Conversely, a lack of innovation is the most serious challenge 
facing the U.S. manufacturing base, because global competition will 
continue to force increases in productivity, movement of commodity 
manufacturing overseas, and displacement of American labor.
    The American workforce must understand current technology in order 
to create new product and process innovations. This understanding will 
become more important as technologies become more advanced, and the 
mobility of the workforce will be limited by the knowledge of 
individual workers. The United States must invest in continuing 
education of its workers if it is to maintain its competitive 
advantage.
    Long-term development projects are a ``valley of death'' for many 
advanced technologies, because there are no clear development channels. 
Industry cannot afford the risk of 5- to 20-year development projects. 
Small businesses, which have been the most effective technology 
developers, lack the resources to even attempt such projects. The 
culture of academia is skewed heavily toward science, and the type of 
creativity necessary for development projects is neither encouraged nor 
rewarded.
    The Federal Government can enact structural changes that will 
improve the ability of industry and academia to create industry-
creating innovations. Most of these changes deal with two major 
problems: the limitations of our people in dealing with technology, and 
the lack of technology development structure. These changes include:

         Measuring manufacturing as a generator of wealth 
        instead of as a direct employer, to help policy makers 
        understand the true impact of changes in the manufacturing 
        sector.

         Improving continuing education of manufacturing 
        workers, to help improve direct product and process innovation, 
        and to prepare workers for future industries. Every worker 
        should be numerate and literate.

         Balancing federal research budgets between research 
        and development, so that research expenditures aren't 
        squandered by failure to fully develop the new knowledge.

         Requiring researchers to include potential 
        applications and cost/benefit justification, to ensure a 
        favorable return on taxpayer investment.

    Christopher Musso, Engineering Systems Division, Massachusetts 
Institute of Technology, contributed to this testimony.

    Chairman Ehlers. Thank you very much. And I have heard many 
stories, since I am a physicist, but that is one of the better 
ones.
    Mr. Rhoades.

 STATEMENT OF MR. LAWRENCE J. RHOADES, PRESIDENT, EXTRUDE HONE 
                          CORPORATION

    Mr. Rhoades. Good morning. Manufactured products are the 
currency of international trade. The efficiency and value added 
in a nation's manufacturing operations defines the standard of 
living for the entire nation. America is the world's largest 
and most open market. It is U.S. manufacturers nose-to-nose 
with their competitors on the shelves at Wal-Mart or the 
showroom of your Chevy dealer. Products made in America sit 
side-by-side and must compete to do so with those from Brazil, 
Hungary, India, and China.
    Yet as a nation with one of the world's highest labor costs 
and standards of living, we produce all our food needs and 
export, and why? Agriculture, which was once a very labor-
intensive activity, changed in America to become highly 
automated, highly scientific. The technology and the equipment 
used in agriculture today combine with an infrastructure of 
technical support and the most modern methods made this so.
    We can do the same in manufacturing, but we must find new 
methods, new approaches, new technologies, and we must 
understand how those new manufacturing technologies can be used 
to make new and better products that deliver more value to 
their buyers. We must drive the manual out of manufacturing and 
capture America's innovative spirit to transform it into 
``innofacturing.''
    Emerging industrial nations have clear, national policies 
to encourage the competitiveness of their manufacturing 
sectors. In contrast, the U.S. is in need of a coordinated 
national program sized sufficiently to provide a manufacturing 
technology infrastructure that would enable U.S. manufacturers 
to compete. And U.S. manufacturers could compete. There are 
rational and appropriate responses to the massive loss of 
manufacturing jobs, loss of exports, and loss of federal tax 
revenue that is inherent in this systemic and seismic shift in 
how the world makes things.
    Although tax policy that encourages investment surely 
helps, it does not directly respond to what is happening. In my 
view, we must also mount a national offensive to do the 
following. First, recognize that we are building a national 
manufacturing technology infrastructure, one that is accessible 
to U.S. manufacturers and enables them to make things with 
methods that are appropriate to U.S. economics, with the size 
and dynamics of our markets and that embraces America's unique 
creativity. There must be critical mass to the effort. We are 
building highways and bridges, in a sense, and we need an 
integrated system to really benefit from our investment. As the 
Nation's taxing authority, the Federal Government takes a share 
wherever the benefits of this investment fall within the U.S. 
economy. The private sector can not and will not build the 
needed manufacturing technology infrastructure alone any more 
than they could or would build a road system or a school 
system.
    Secondly, I feel we must focus the investment on 
innovatives. These include universities, and they include the 
manufacturing equipment builders, the specialty material 
suppliers, and the tooling suppliers, and the technology 
support organizations that make up the manufacturing technology 
infrastructure. The act as resources and champions for new 
ideas and new methods that all U.S. manufacturers can turn to 
for implementation support, accelerating the transformation of 
new science into new tools for America's factory floors.
    I feel that we should support, indeed substantially expand 
support for defense manufacturing technology programs to 
strengthen the U.S. defense industrial base, that we should 
expand and strengthen NIST's MEP program that provides critical 
assistance to small manufacturers that now perform the bulk of 
U.S. manufacturing tasks, NIST's ATP program with a special new 
focus on creating a menu of innovative manufacturing processes 
from technology providers along with innovative products that 
are enabled from these new methods from end-product 
manufacturers.
    And finally, support creation and expansion of open-
membership U.S. industry collaborative R&D consortium, like the 
National Center for Manufacturing Sciences, that help their 
members learn how to do cross-industry collaborative 
manufacturing technology development, uniting technology users, 
who design and manufacture end products, with technology 
providers, who pioneer the development of new manufacturing 
methods that enable those products, and together help to define 
and create the manufacturing technology infrastructure of 
tomorrow.
    Thank you for the opportunity to be here and to express my 
concerns and hopes for a manufacturing technology 
infrastructure that would unleash America's ability to build 
its future.
    [The prepared statement of Mr. Rhoades follows:]

               Prepared Statement of Lawrence J. Rhoades

    Manufactured products are the currency of international trade.
    The efficiency, and value added in, a nation's manufacturing 
operations defines the standard of living for the entire nation. 
America, as the world's largest and most open market, pits U.S. 
manufacturers nose to nose with their competitors from all parts of the 
world. On the shelves of WalMart, or the showroom of your Chevy dealer, 
products made in America sit side-by-side, and must compete to do so, 
with those from Brazil, Hungary, India and China.
    This is a boon to consumers. Low cost manufactured goods allow us 
to have ``more for less.'' And, on balance, it is a boon to those 
workers in emerging industrial nations who are fighting their way out 
of subsistence agrarian economies through manufacturing. Manufactured 
products, along with information technology products, provide a special 
opportunity for economic growth because they permit human effort--both 
physical and intellectual--to be moved through space and time--and 
offered half way around the world in a market where that human effort 
has a high value. And this has implications for the entire national 
economy.
    A haircut in Wushi is pretty much the same quality as a haircut in 
Washington. Yet, outside of the fancy hotels, it costs less than ten 
percent of the cost of a Georgetown haircut. Why?
    Because the value of that same labor, the same effort with 
equivalent skills as the barber, working in a manufacturing operation 
has the same relative productivity to his counterpart as the difference 
in the cost of the haircuts. As America loses its manufacturing 
productivity advantage, the Washington barber's ability to buy things 
will fall to the level of his Wushi counterpart. And America is well on 
its way to losing its productivity advantage. Not only is the direct 
labor used in manufacturing less expensive, massive new investment has 
equipped China and Brazil and Hungary with some of the world's newest 
and most modern plants.
    Some say, in time, the market price of labor in those emerging 
industrial nations will rise as well. But consider the scale of the 
labor supply. In the past 25 years, 1.5 billion workers, not just 
people, but workers, have entered the global market from Brazil, 
Eastern Europe, India and China alone. This is nearly three times as 
many people as are in the current G7 countries that make up the bulk of 
the current market for manufactured products. It will be a long time 
indeed for that labor market to see broadly rising labor costs.
    Some say that the more advanced economies will simply substitute 
capital for labor. Yet the data doesn't support this. I chair the 
Association for Manufacturing Technology which comprises America's 
machine tool industry--the companies who build the machines that make 
things on the factory floor. So, I am painfully aware of the plunge in 
U.S. machine tool consumption. In the past five years, U.S. consumption 
of machine tools has fallen by 63 percent so that the USA--the world's 
``strongest'' economy--ranks fifth in its investment in manufacturing 
equipment. The first, of course, is China who last year spent one and a 
half times as much on manufacturing equipment as the U.S.
    To be honest, just buying more capital equipment isn't enough. We 
need new ways to make things, new technologies for manufacturing. And 
our manufacturing enterprises must have dependable guidance in changing 
how they make things--not just advice on the technologies, but help in 
understanding the implications of those technologies on the business 
practices that organize production.
    As a nation with one of the world's highest labor costs--and 
standards of living--we produce all our food needs and export. Why? 
Agriculture, which was once a very labor intensive activity, changed in 
America to become highly automated, and highly scientific. The 
technology of the equipment used in agriculture today, combined with an 
infrastructure of technical support in the most modern methods, made 
this so.
    We can do the same in manufacturing. But we must find new methods, 
new approaches, new technologies--and we must understand how those new 
manufacturing technologies can be used to make new and better products 
that deliver more value to their buyers. We must drive the ``manual'' 
out of ``manufacturing'' and capture America's innovative spirits to 
transform it into ``innofacturing.''
    And, U.S. product designer/manufacturers must embrace these new 
manufacturing processes to make products with features and 
functionality that weren't previously possible.
    Most of U.S. manufacturing today is done by small and medium-sized 
enterprises--a substantial shift over the past twenty years, as large 
Fortune 500 manufacturers ``down-sized'' and ``out-sourced.'' 
Increasingly, it is this sector of the economy that is locked in 
competition with low labor rate emerging industrial nations (and those 
nations have clear national policies to encourage the competitiveness 
of their manufacturing sectors).
    In contrast, the U.S. is in need of a coordinated national program 
sized sufficiently to provide a manufacturing technology 
``infrastructure'' that would enable U.S. manufacturers to compete. And 
U.S. manufacturers could compete. There are rational and appropriate 
responses to the massive loss of manufacturing jobs, exports and 
federal tax revenue that is inherent in this systemic and seismic shift 
in how we make things.
    Although tax policy that encourages investment surely helps, it 
does not directly respond to what's happening. In my view, we must also 
mount a national offensive to do the following:

        1. Recognize that we're building a national manufacturing 
        technology ``infrastructure.'' One that is accessible to U.S. 
        manufacturers and enables them to make things with methods that 
        are appropriate to U.S. economics, with the size and dynamics 
        of our markets, and that embraces America's unique creativity. 
        There must be critical mass to the effort. We are building 
        ``highways and bridges,'' in a sense, and we need an integrated 
        system to really benefit from our investment.

        2. Recognize that it is an appropriate investment on behalf of 
        the U.S. taxpayer and one that cannot rationally be made by the 
        private sector, who must recognize that a solo investment in 
        the manufacturing technology menu is unlikely to be able to be 
        ``harnessed'' to allow the pioneer, who risked the investment, 
        to ``toll'' the benefits of that investment and reap a reward. 
        The benefits will pass largely to the technology users and 
        their customers and ultimately to the end product consumers, 
        who will enjoy more functional and cost effective products and 
        who, in the end, are the taxpayers. Patents and copyrights on 
        manufacturing methods do not provide, cannot provide, 
        sufficient protection to allow this recovery and reward for the 
        innovator--typically a small focused company.

             As the Nation's taxing authority, the Federal Government 
        takes a share wherever the benefit falls within the U.S. 
        economy. The private sector cannot and will not build the 
        needed manufacturing technology infrastructure alone, anymore 
        than they could or would build a road system or a school 
        system.

        3. Focus the investment on innovators in industry and research 
        centers (e.g., universities). The innovations lead to pilot 
        production sites which lead to full production facilities and 
        finally to industry ``clusters'' in the U.S.

        4. Structure the investment so that it includes research 
        centers generating ``new science'' and influential (and 
        probably large) product designer/manufacturers who will design 
        products that exploit innovative manufacturing techniques. But 
        center the investment on the usually smaller companies that act 
        as the ``technology providers'' to the U.S. industrial base. 
        These are the manufacturing equipment builders, the specialty 
        materials and tooling suppliers, the technology support 
        organizations that make up the ``manufacturing technology 
        ``infrastructure'' of the Nation. They act as resources and 
        champions for new ideas and new methods that all U.S. 
        manufacturers can turn to for implementation support, 
        accelerating the transformation of ``new science'' into ``new 
        tools'' for America's factory floors.

        5. Support, indeed substantially expand:

                (a) Defense manufacturing technology programs to 
                strengthen the U.S. defense industrial base.

                (b) NIST's MEP program that provides critical 
                assistance to the small manufacturers, that now perform 
                the bulk of the U.S. manufacturing tasks, so they can 
                identify, understand and successfully implement modern 
                manufacturing methods and practices that are 
                appropriate--indeed that exploit--U.S. manufacturing 
                capability advantages.

                (c) NIST's ATP program with a special new focus on 
                creating a menu of innovative manufacturing processes 
                from technology providers along with innovative 
                products that are enabled by these new methods at 
                influential (i.e., probably ``large'') end-production 
                designer/manufacturers who are technology users.

                (d) Support creation and expansion of open membership 
                U.S. industry collaborative R&D consortia, like the 
                National Center for Advanced Manufacturing, who help 
                their members learn how to do cross industry 
                collaborative manufacturing technology development, 
                uniting technology users who design and manufacture end 
                products with technology providers who pioneer the 
                development of new manufacturing methods and together 
                help to define and create the manufacturing technology 
                infrastructure of tomorrow.

    Thank you for the opportunity to be here and to express my concerns 
and hopes for a ``manufacturing technology infrastructure'' that would 
unleash America's ability to build its future.

    Chairman Ehlers. Thank you very much.
    Mr. Reininga.

  STATEMENT OF MR. HERMAN M. REININGA, SENIOR VICE PRESIDENT, 
               SPECIAL PROJECTS, ROCKWELL COLLINS

    Mr. Reininga. Good morning, Mr. Chairman, Subcommittee 
Members. Thank you for this opportunity.
    Rockwell Collins is an avionics and communications provider 
for both the military and commercial aviation industry. Fifty 
percent of our business is military and is doing quite well 
today. All airlines, at the present time, are losing money. The 
domestic and global economies remain sluggish since 9/11, and 
our European competitors are receiving large governmental 
supplements in aviation. The Far East customers want offsets to 
build their products in their country. Capital investments have 
been delayed. Research investments and manufacturing process 
have been reconfigured, and our supply chain is now under new 
vulnerabilities and weaknesses.
    Even with this environment, we are performing at the 90 
percent level of our markets, but maintaining this position 
creates major challenges for Rockwell Collins. Investments in 
manufacturing processes and technologies are required for the 
utilization of new technology projects. Manufacturing is the 
transformational link, bringing new ideas, technology advances, 
and creativity to the market. Public and private leadership, 
linking manufacturing to innovation, is a key step to future 
productivity improvements and a competitive advantage.
    We can compete on new technology if we have developed it, 
especially if that is disruptive technology. We have minimal 
display technology and manufacturers in the U.S. We procure our 
CRTs and our LCDs from the Far East. Display glass is almost 
entirely produced in the Far East. Projection displays, or 3-D 
holographics, are examples of disruptive technologies that we 
can compete on.
    Rockwell Collins has targeted five areas for manufacturing 
research and development. We will invest in emerging 
technologies and intelligent enterprise systems, utilize the 
common factories for both military and commercial products. The 
old models for time to market and unique factories to do work 
are no longer a requirement and will not work today. And we 
require new advanced transformation concepts. Technologies, 
such as nanotechnologies or embedded parts and circuit cards, 
are examples, which we are pushing. We can not compete on raw 
printed circuits, which we produce today. Ninety-five percent 
of the circuit cards are produced outside the United States.
    We can compete for circuit card production if the process 
is for embedding parts or mass customization or production at 
the point of need are successfully obtained and affordably met. 
Keys to meeting these requirements are enabled by eliminating 
hand-offs and making all intelligent systems and knowledge 
management processes seamless.
    Fifty percent of Rockwell Collins' material comes from 
small businesses. With the reduced number of new aircraft and 
the reduced retrofits, our supply base is changing. With the 
lower volumes and the change in type of parts due to new 
technologies, it has forced our suppliers to look to different 
markets. We utilize our supply chain during our design process, 
which improves our interoperability and our availability, but 
our increase in military avionics has not been able to offset 
the decrease in our commercial operations. And that gap is 
continuing to widen.
    Small enterprises sometimes lack the incentive, finances, 
and technical resources to improve cost and cycle times. The 
Air Force's ManTech program used for the JDAM missile is an 
exception and it provided cycle time reductions of 60 percent 
and 45 percent for inventory reductions and may be used as a 
model.
    What can the Federal Government do? Rockwell Collins is 
working with a consortium called the Defense Manufacturing 
Technology Program, which is recommending increased 
collaborative development and funding for DOD ManTech. I have 
attached to my notes a report, which describes the industrial 
transformation key to sustaining productivity boom. This was 
derived from a planning session of 44 companies and 26 other 
organizations on increasing manufacturing productivity and 
competitiveness in the U.S. industry. Rockwell Collins 
obviously participated.
    And I have attached a proposal for the Next Generation 
Manufacturing Technologies Initiative, transforming the U.S. 
manufacturing base. The proposal includes the need for a high-
level advocate for manufacturing within the Administration, 
which would help stimulate public/private collaboration. Taking 
such steps, you would accelerate the rate of manufacturing 
innovation, stimulate investments in manufacturing equipment, 
improve the workforce skills, and create a voice in the Federal 
Government to ensure continuation of manufacturing productivity 
and growth.
    Thank you.
    [The prepared statement of Mr. Reininga follows:]

                Prepared Statement of Herman M. Reininga

    Good Morning.
    Rockwell Collins is an avionics and communications provider for 
both the military and commercial airline industry. Fifty percent of our 
business is military and is doing quite well. All airlines at the 
present time are losing money; the domestic and global economies remain 
sluggish since 9/11. European competitors are receiving large 
government supplements in aviation and the Far East customers want 
offsets to build products in their country. Capital investments have 
been delayed, research investments in manufacturing processes have been 
reconfigured, and our supply chain now has new vulnerabilities and 
weaknesses. Even with this environment, we are performing in the 90 
percent level of our markets and S&P 500 Peers. Maintaining this 
position creates major challenges for Rockwell Collins.
    Investments in manufacturing processes and technologies are 
required for utilization of new technology products. Manufacturing is 
the transformational link: bringing new ideas, technology advances and 
creativity to market. Public and private leadership, linking 
manufacturing to innovation, is the key step to future productivity 
improvements and a competitive advantage. We can compete on new 
technology if we have developed it, especially disruptive technology. 
We have minimal display manufacturers in the U.S. We procure our CRT's 
and now our LCD's from the Far East. Display glass is almost entirely 
produced to in the Far East. Projection displays or 3-D Holographics 
are examples all of disruptive technologies where we can compete.
    Collins has targeted five key areas for manufacturing research and 
development. We will invest in emerging technologies to intelligent 
enterprise systems and that are utilized in common factories for both 
military and commercial products. The old models for time to market and 
unique factories do not work and require new advanced transformation 
concepts.
    Technologies such as nanotechnology's or embedded parts in circuit 
cards are areas which we are pursuing. We cannot compete on the raw 
printed circuit cards which we produce today. Ninety-five percent of 
circuit cards are produced outside the U.S. We can compete for circuit 
card production if new processes for embedding parts, mass 
customization and production at point of need are successfully and 
affordably met. Keys to meeting these requirements are enabled by 
eliminating handoffs and making all intelligent systems and knowledge 
management processes seamless.
    Fifty-five percent of Rockwell Collins materiel comes from small 
businesses. With the reduced number of new aircraft production and 
reduced retrofits--our supply base is changing. With the lower volumes 
and the change in type of parts--due to new advanced technology--it has 
forced our suppliers to look to different markets. We utilize our 
supply chain during our design process, which improves our 
interoperability and availability. BUT--our increase in military 
avionics has not been able to offset the gap established by the 
downturn in commercial avionics. Small enterprises typically lack the 
incentive, finances and technical resources to improve costs and cycle 
times. The Air Force's MANTECH program as used for the JDAM missile, is 
an exception and provided cycle time reductions of 60 percent and 45 
percent inventory reductions and can be used as a model.

What can and the Federal Government do???

    Rockwell Collins is working with a Consortium called the coalition 
for defense manufacturing technology which is recommending increased 
collaborative development and funding for DOD MANTECH. I have attached 
to my notes a report from NACFAM which described the ``Industrial 
Transformation Key to sustaining the productivity boom.'' This was 
derived from a planning session of 44 companies and 26 other 
organizations on increasing manufacturing productivity and 
competitiveness of U.S. industry. Rockwell Collins participated. And I 
have attached a proposal for generating the Next Generation 
Manufacturing Technologies Initiative for transforming the U.S. 
manufacturing base. The proposal includes the need of a high level 
advocate for manufacturing within the Administration which would help 
stimulate public-private collaboration. In taking such steps you would 
accelerate the rate of manufacturing innovation, stimulate investments 
in advanced manufacturing equipment, improve work force skills and 
create a voice in the Federal Government to ensure the continuation of 
manufacturing productivity and growth.
    Thank you for your time.

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chairman Ehlers. And thank you.
    Mr. Dunwell.

  STATEMENT OF MR. JAY R. DUNWELL, PRESIDENT, WOLVERINE COIL 
                             SPRING

    Mr. Dunwell. Good morning, Mr. Chairman, and Members of the 
Subcommittee. I am Jay Dunwell, President of Wolverine Coil 
Spring Company located in Grand Rapids, Michigan.
    Wolverine Coil Spring is a 57-year-old, third-generation, 
family-owned business employing over 50 highly skilled 
individuals in the design and manufacturing of custom metal 
fabricated products. Besides my role with Wolverine, I also 
serve as the vice-chair of the Manufacturers Council, an active 
network of 35 manufacturers in the Grand Rapids area, who 
volunteer their time to organize and lead the advancement of 
the manufacturing industry. The Council is supported and 
organized by the MEP and its Michigan Manufacturing Technology 
Center and the Local Office, The Right Place, Inc. The Council 
published a 100-page paper in 2002 entitled, ``A Growth and 
Innovation Agenda for Manufacturing'', which can be found on 
the web at the address noted in my statement. I have brought 
copies of the executive briefing of this paper, much smaller, 
and I request that the Subcommittee enter this executive 
briefing into the record of this hearing.
    My statements today will reflect two perspectives: first, 
my personal experiences; and secondly, the recommendations of 
the Manufacturers Council.
    Our competitive situation: Wolverine follows a business 
model of operational excellence and customer intimacy. 
Wolverine does not pursue a product leadership position typical 
of many larger manufacturers. The products we manufacture are 
the components or subassemblies of larger products.
    The focus for the past decade of many operationally 
excellent companies has been to continuously improve our 
manufacturing processes and techniques to eliminate waste, 
reduce scrap and inventories, and to strive to be the low-cost 
producer. As a second and third-tier automotive supplier, 
Wolverine is constantly under pressure to reduce prices. Annual 
price givebacks, Internet auctions, and market tests are 
becoming regular events. In some cases, Wolverine has told our 
customers to move the business, because we can not compete 
below certain price levels.
    Wolverine also incorporates into our mission statement that 
we must evolve as our customers' needs evolve. If new products 
or new capabilities are needed, Wolverine realizes that we must 
evolve to meet those changing needs or jeopardize our close 
relationships and customer base.
    The most significant serious challenge facing our business 
is customer migration to Asia. According to Industry Week, 
foreign companies invested $52 billion into China in 2002. I 
don't know how many jobs each billion dollars of investment 
equates to, but my fear is that it represents significant loss 
of American jobs.
    One of our customers, a pump manufacturer, requested 
Wolverine's design assistance. Unfortunately, from the outset, 
the pump manufacturer had plans to produce this pump in Asia 
and only needed Wolverine for the design and prototype phase. 
We were asked to charge accordingly for our engineering 
services but not to anticipate any production runs. This is a 
particularly disturbing example. If more of our customers move 
their production overseas and only require Wolverine's design 
assistance, our business model will evolve dramatically: more 
engineers and dozens less manufacturing setup technicians and 
machine operators.
    Technology plays an important role in Wolverine's business 
model. New CNC manufacturing equipment reduces setup times, 
provides more value-added capabilities, and increases pieces 
produced per hour. Wolverine has implemented in-process sensors 
and vision systems to ensure zero defects in a world striving 
for quality levels measured now in rejected parts per billion.
    Technology helps make communication with customers and 
suppliers more efficient every day. Through Internet-based 
websites, Wolverine can manage our customers' inventory with 
real-time access to their production plant operations.
    Although technology improves operational excellence, 
operational excellence is not enough. Innovative breakthroughs 
and process technologies or how we manufacture parts will not 
make a difference if larger product-leadership companies 
migrate either their supply base or their assembly operations 
overseas.
    Although many small manufacturers face different challenges 
than their larger partners in manufacturing, together we face 
the common threat of remaining competitive in the United 
States. Typically, small manufacturing issues include price 
strategy, being the low-cost producer, even return on 
investment. Plante and Moran reported that many small 
manufacturers in the automotive supply chain are not making 
enough return on their investment to continue support of levels 
of that investment.
    Larger manufacturers often have international operations, 
and I assume, struggle with what new products to introduce and 
in which of their plants around the globe to produce them. I am 
not a trade expert, but when U.S. steel tariffs make it less 
expensive for my customers to manufacture outside the U.S. and 
import a finished assembly, Wolverine has lost another 
opportunity.
    MEP supports Wolverine in numerous ways around shared 
learning and peer-to-peer networking, most of which Wolverine 
has been very involved with. Examples include user groups, 
workshops, sunrise breakfast series, tours of best practices, 
economic development, and of course, workforce development.
    Building close relationships with dozens of other 
manufacturers has been the most important aspect of MEP's 
support. Often I will call another company to discuss an issue 
and be granted plant tours or, ``Come and see how we did it,'' 
experiences. Some of my long-term employees have seen for 
themselves how some challenges can be met can be extremely 
helpful in making organizational improvements.
    The MEP's efforts to improve the manufacturing environment 
in our region and our country are extremely valuable. Their 
support has led to competitive improvements and reduced setup 
times, smaller inventories, shorter lead-times, and improved 
quality. Funding for such a valuable program should not be 
reduced, rather increased.
    Trade policies, tax incentives, healthcare, and other 
insurance costs are all examples of issues I feel are beyond 
the focus of MEP's support of small and medium-sized 
manufacturers. Issues of this scope require a national economic 
strategy. The position paper makes specific strategic 
suggestions. This paper is not about subsidies or handouts. We 
do want federal, state, and local support for an innovative 
infrastructure. The paper makes it very clear that operational 
excellence will not sustain the manufacturing base in the U.S., 
rather we must reevaluate our position and pursue a national 
economic strategy that will ensure that innovative and high 
value-added manufacturing remains the purview of U.S. 
manufacturing firms.
    The paper highlights six recommendations: the appointment 
of a Secretary or Undersecretary for Manufacturing, increased 
federal investments in manufacturing-related research and 
development, expand collaborative research consortia and R&D 
partnerships, rebuild the dwindling pool of scientists and 
engineers, and provide economic develop support to 
manufacturing that is proportionate to its contribution and to 
the economy, and finally to drive strategies to strengthen 
regional clusters of innovation.
    To conclude, as my comments have highlighted, small 
manufacturing companies face their own set of challenges in 
today's changing world. Yet both large and small manufacturers 
are concerned about the increase in foreign manufacturing and 
face the very important challenge of building a successful 
infrastructure to sustain and improve manufacturing here in the 
U.S. federal support of this innovation infrastructure will 
assist all manufacturers and the health of the U.S. economy.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Dunwell follows:]

                  Prepared Statement of Jay R. Dunwell

Introduction

    Good morning, Mr. Chairman and Members of the Subcommittee. I am 
Jay Dunwell, President of Wolverine Coil Spring Company located in 
Grand Rapids, Michigan. Thank you for inviting me to speak about the 
challenges facing manufacturing companies and how the Federal 
Government can help.

Background

    Wolverine Coil Spring Company is a third-generation, family-owned 
business, employing over 50 highly-skilled individuals in the design 
and manufacturing of custom, metal-fabricated products. We specialize 
in springs, stampings, wire forms, and assemblies. Founded 57 years ago 
by my grandfather, Raymond Carlberg, Wolverine supplies products mainly 
to the automotive and office furniture markets. Wolverine is registered 
to the ISO and QS-9000 quality standards.
    Besides my role with Wolverine, I also serve as the vice-chair of 
the Manufacturers Council, an active network of thirty-five 
manufacturers in the Grand Rapids area who volunteer their time to 
organize and lead the advancement of the manufacturing industry. The 
Manufacturers Council is supported and organized by the MEP and its 
Michigan Manufacturing Technology Center (MMTC) and the local office--
The Right Place, Inc. The mission of the Manufacturers Council is to 
promote, facilitate, and enable implementation of ``world-class 
manufacturing'' principles and practices among manufacturers. To 
fulfill this mission, the Council follows three basic strategies:

         Provide a forum for interaction among executives to 
        network

         Articulate and prioritize the needs of area 
        manufacturers

         Improve the preparation of the local workforce and 
        the workforce development systems (I co-chair the workforce 
        development subcommittee)

    The Manufacturers Council published a 100-page paper in 2002 
entitled: ``A Growth and Innovation Agenda for Manufacturing: A 
Manufacturers Council Position Paper'' which can be found on the web 
at: www.rightplace.org/Info-Center/library.shtml. I have 
brought copies of the Executive Briefing of this paper, and I request 
that the Subcommittee enter this Executive Briefing into the record of 
this hearing.
    My statements today will reflect two perspectives. First, my 
personal experiences as the leader of Wolverine Coil Spring Company and 
the issues facing our small business. Secondly, the recommendations of 
the Manufacturers Council paper and its broader view of the 
manufacturing industry.

Competitive Situation

    Wolverine follows a business model of operational excellence and 
customer intimacy. Wolverine does not pursue a product leadership 
position typical of many larger manufacturers. The parts we manufacture 
are components or sub-assemblies of larger products.
    The focus for the past decade of many operationally excellent 
companies has been to continuously improve our manufacturing processes 
and techniques to eliminate waste, reduce scrap and inventories, and to 
strive to be the low-cost producer. As a second and third-tier 
automotive supplier, Wolverine is constantly under pressure to reduce 
prices. Annual price give-backs, Internet auctions, and market tests 
are becoming regular events. In some cases, Wolverine has told our 
customers to move the business, because we cannot remain profitable 
below certain price levels.
    Wolverine also competes within a customer intimacy model. Through 
strong and close customer relationships, Wolverine strives to create 
customer loyalty. Ken Blanchard, author of ``Raving Fans'' describes a 
level of customer service so exemplary that customers rave about their 
experiences to friends and coworkers. Wolverine pursues this ``raving 
fan'' customer satisfaction in our approach to customer service. In 
fact, our true competitive advantage lies solely in our customer 
relationships. To support ``raving fan'' customers, Wolverine provides 
design and engineering assistance at the start of our customers' 
projects as well as other services.
    Wolverine also incorporates in our mission statement the principle 
that we ``. . .must evolve as our customers' needs evolve.'' If new 
products or new capabilities are needed by our customers, Wolverine 
realizes that we must evolve our product offerings and services to meet 
those changing needs or jeopardize our close relationships and customer 
base.

Serious Challenges Facing Our Business

Customer Migration to Asia
    According to Industry Week magazine's June 2003 issue, foreign 
companies invested $52 billion into China in 2002. I do not know how 
many jobs each billion dollars of investment equates to, but my fear is 
that it represents a significant loss of American jobs. Further, this 
investment is expected to multiply in the coming years. The migration 
of manufacturing to Asia, and in particular China, is gaining steam 
with no end in sight.
    One of our customers, a pump manufacturer projecting to make 20,000 
units per year of a new pump, requested Wolverine's design assistance. 
Unfortunately, from the outset, the pump manufacturer had plans to 
produce this pump in Asia and only needed Wolverine for the design and 
prototype phase. We were asked to charge accordingly for our 
engineering services, but not to anticipate any production runs.
    This is a particularly disturbing example. If more of our customers 
move their production overseas and only require Wolverine's design 
assistance, our business model will evolve dramatically--more engineers 
and dozens less manufacturing setup technicians and machine operators.
    Typically, Wolverine and our competitors do not charge for design 
assistance, choosing rather to fold the cost into the production 
tooling or piece price, thereby recouping the cost when the production 
phase begins. Many customers may not be as forthright with their 
intentions to source their production quantities overseas as this pump 
manufacturer was, leaving Wolverine with the difficult customer 
relationship issue of whether to charge for design services or not.
    The pace of this overseas migration is moving like a wildfire. Just 
last month, an airplane full of office furniture managers toured Asia 
in search of new supply chain opportunities. Wolverine has been in 
business for over fifty years, and we will evolve and survive. But will 
we have only engineers, CAD operators, and prototype production 
capabilities? As a component manufacturer, the migration of each final 
assembly to an overseas production line represents one less assembly 
requiring component pieces. Will a market remain for component 
manufacturers--typically the small and medium-sized manufacturers?
Attracting Students to Careers in Manufacturing
    From my work with the workforce development systems in Kent County, 
I continue to see an aversion to careers in manufacturing. Parents, 
counselors, teachers, and administrators often portray careers in 
manufacturing as they have been portrayed for years--dark, dirty, 
dangerous, and dead-end. Rather, today's manufacturing often requires 
highly-skilled individuals to work with the latest in technology in 
bright, clean work environments. Without a good supply of talented, 
technically-skilled individuals, the strength of manufacturers will be 
reduced.

The Role of Technology in Addressing these Challenges

    Technology plays an important role in Wolverine's operational 
excellence and customer intimacy business model. New CNC manufacturing 
equipment reduces setup times, provides more value-added capabilities, 
and increases pieces produced per hour. Wolverine has implemented in-
process sensors and vision systems to insure zero defects in a world 
striving for quality levels measured in rejected parts per billion.
    Technology helps make communication with customers and suppliers 
more efficient every day. Through Internet-based web sites, Wolverine 
can manage our customers' inventory with real-time access to their 
production plant operations and product demand schedules. Electronic-
based financial transactions have replaced the invoicing and accounts 
receivable paper process of year's past. Engineers work collaboratively 
with customer and supplier CAD drawings connected via the Internet. 
Even quality issues can be addressed more quickly and accurately when 
the digital picture of the problem arrives moments after discovery.
    Although technology improves operational excellence, operational 
excellence is not enough. Innovative breakthroughs in process 
technologies, or how we manufacture parts, will not make a difference 
if larger, product-leadership companies migrate either their supply 
base or their assembly operations overseas.

Different Challenges Faced by Small-to-Medium Sized Manufacturers 
                    versus Large Manufacturers

    Although many small manufacturers face different challenges than 
their larger partners in manufacturing, together they face the common 
threat of remaining competitive in the U.S. Typical small manufacturing 
issues include:

         Price strategy. With the economic slowdown and 
        increased migration to foreign soil, many small companies are 
        lowering prices in a desperate attempt to keep their machines 
        running and doors open.

         Lowest-cost producer. Small manufacturers are 
        implementing lean manufacturing principles.

         Return on investment. Plante and Moran reported that 
        many small manufacturers in the automotive supply chain are not 
        making enough return on investment to continue to support the 
        levels of investment. Consolidation will continue until excess 
        capacity is reduced.

    Larger manufacturers often have international operations and I 
assume struggle with what new products to introduce and in which of 
their plants around the globe to produce them. I am not a trade expert, 
but when U.S. steel tariffs make it less expensive for my customers to 
manufacture outside the U.S. and import a finished assembly, Wolverine 
has lost another opportunity.
    Small companies often struggle with small staff sizes where each 
individual wears many hats. This organizational structure makes it 
difficult for small manufacturers to keep informed of important, 
bigger-picture issues. The MMTC/Right Place has been very helpful in 
keeping manufacturers, of all sizes, informed of broader issues.

MEP/Michigan Manufacturing Technology Center (MMTC)/The Right Place, 
                    Inc. Support

    MMTC/Right Place has further supported Wolverine in numerous ways. 
The Right Place, Inc. organizes many opportunities for shared learning 
and peer-to-peer networking, most of which Wolverine has been involved 
with. Examples of MEP support include:

         User Groups--(setup time reduction, lean 
        manufacturing, QS-9000, Family Owned Business)

         Workshops--(strategic planning, working in teams, 
        workplace organization, continuous improvement techniques)

         Sunrise Breakfast Series--(supply chain management, 
        economic forecasting, automotive industry analysis)

         Tours of Best Practices--(plant tours to dozens of 
        manufacturers highlighting a particular best practice)

         Economic Development--(position papers, manufacturing 
        industry policy, renaissance zone, plant renovation)

         Workforce Development--(skills needed in today's 
        manufacturing, work-based learning www.workpaths.com, 
        guaranteed diploma, advisory boards and committees)

    Building close relationships with dozens of other manufacturers has 
been the most important aspect of MEP support for Wolverine. Often I 
will call another company to discuss an issue and not only have I been 
greeted with sincere support, but I have often been granted plant tours 
or ``come-and-see-how-we-did-it'' experiences. For some of Wolverine's 
20-year plus employees, seeing for themselves how some challenges can 
be met can be extremely helpful in making organizational improvements.
    The MEP's efforts to improve the manufacturing environment in our 
region and our country is extremely valuable. Their support has lead to 
competitive improvements in reduced setup times, smaller inventories, 
shorter lead times, and improved quality. Funding for such a valuable 
program should not be reduced, rather increased.

Problems Beyond the MEP Capabilities and How the Federal or State 
                    Government Can Help

    Trade policies, tax incentives, health care and other insurance 
costs are all examples of issues beyond the focus of MEP's support of 
small and medium-sized manufacturers. Issues of this scope require a 
national economic strategy. The position paper, ``A Growth and 
Innovation Agenda for Manufacturing,'' makes specific strategic 
suggestions.
    Let me now turn our focus to the paper and its innovation theme. 
This paper is not about subsidies. We are not looking for handouts. We 
do want Federal, State, and local support for an innovation 
infrastructure. The paper makes it very clear that operational 
excellence will not sustain the manufacturing base in the U.S. Rather 
we must reevaluate our position and pursue a national economic strategy 
that will ensure that innovation and high value-added manufacturing 
remains the purview of U.S. manufacturing firms.
    The paper highlights six recommendations:

        1. Increase the visibility and priority of the manufacturing 
        sector within the Federal Government, including the appointment 
        of a Secretary or Undersecretary for Manufacturing.

        2. Increase federal investments in manufacturing-related 
        research and development.

        3. Expand collaborative research consortia within the private 
        sector, and R&D partnerships between industry and the public 
        sector (via higher education, federal laboratories, and 
        others).

        4. Rebuild the dwindling pool of scientists and engineers 
        starting at the K-12 level and including support for 
        undergraduate and graduate training in technical disciplines.

        5. Provide economic development support to manufacturing that 
        is proportionate to its contribution to the economy.

        6. Drive strategies to strengthen regional clusters of 
        innovation.

Conclusion

    As my comments have highlighted, small manufacturing companies face 
their own set of challenges in today's changing world. Yet both large 
and small manufacturers are concerned about the increase in foreign 
manufacturing and face the very important challenge of building a 
successful infrastructure to sustain and improve manufacturing here in 
the U.S. Federal support of this innovation infrastructure will assist 
all manufacturers and the health of the U.S. economy.
    Thank you, Mr. Chairman and Members of the Subcommittee, for 
providing me the opportunity to address you today. I will be happy to 
answer any questions.

    Chairman Ehlers. And thank you, Mr. Dunwell. And let me 
just mention on the one point you raised, there is a bill in 
the House currently to create a new position of Undersecretary 
for Manufacturing in Commerce Department. I think it is badly 
needed. The Commerce Department has, in a sense, lost its focus 
on that partly because 71 percent of their budget goes into 
science and only 29 percent goes into commerce at this point. 
We hope that will change.
    Mr. Farmer. Microphone.

STATEMENT OF MR. JASON FARMER, DIRECTOR OF ADVANCED TECHNOLOGY, 
NLIGHT PHOTONICS CORPORATION, ACCOMPANIED BY SCOTT KEENEY, CEO 
          AND PRESIDENT, NLIGHT PHOTONICS CORPORATION

    Mr. Farmer. Oh. Mr. Chairman, and Members of the Committee, 
thank you for having me here today. Today I am here with our 
CEO and President, Scott Keeney, to talk to you about our 
experiences with the SBIR program and the company nLight 
Photonics that that program enabled us to found. The challenges 
that we face, moving forward, and also outlined our thoughts on 
how the government can help.
    A little bit on my background, I was the principle 
investigator on, perhaps, a half a dozen SBIR programs that 
enabled us to move a new technology in high-powered 
semiconductor lasers from a concept to a real working 
technology demonstrator, a prototype device. That device 
enabled us to raise over $55 million to found a new company to 
manufacture that technology.
    High-power semiconductor lasers have many important 
applications in defense, medical, and industrial markets. In 
defense markets, those applications are not only crucial today, 
they are also crucial in the future. Today, high-power 
semiconductor lasers are used for illuminators, for target 
designators, and precision-guided weaponry, as well as for 
night vision equipment. In the future, this technology will 
also be used in tactical weaponry and advanced systems that 
will enable us to continue to be leaders.
    In the medical arena, there are applications that range 
from dermatology, actually removing acne, tattoo removal. There 
are a lot of applications in surgery, therapeutic applications, 
treating cancer, and many other leading edge applications that 
will enable new medical applications.
    In the industrial markets, these high-power lasers are used 
for cutting and welding in a wide variety of manufacturing 
areas.
    This technology, high-power semiconductor lasers, was 
really invented in the United States and first demonstrated in 
the United States. There was government funding that led to the 
initial developments in the communications industry that saw 
such explosive growth in the late '90's, not only to send data, 
but also to pump fiber amplifiers that continue the data on its 
transmission, on its path through many thousands of kilometers 
across the Nation. When that industry imploded recently, all of 
the big manufacturers in the United States exited that business 
and have moved overseas. The large competitors in this area 
today are either headquartered or have--most of them, large 
parts of their facilities overseas in Europe and Japan.
    The current leaders in the United States are largely small 
businesses. The technology still exists in the United States, 
but moving forward, there are challenges that these small 
businesses face. These small businesses, I believe, are largely 
in that ``valley of death'' that you described in the hearing 
introduction. This ``valley of death'' is about bringing the 
technology to market and continuing to improve the technology, 
maintain U.S. leadership and enable these new applications that 
will enable the markets for semiconductor--high-powered 
semiconductor lasers to expand.
    The government can execute on a very different strategy 
than the equity markets can today. The venture capital funding 
that is available today is focused on very near-term 
applications and markets. The government is in a different 
position in the sense that it can execute a more strategic 
plan. That strategic plan can focus on the right technology for 
long-term markets that will enable the U.S. to maintain a 
leadership position in high tech.
    Specifically with respect to the SBIR program, I believe 
that there are two key points. One is improved and external 
governance for that program. This will not only enable that 
program to continue to focus on the right technologies for the 
future, it will also provide the--I am sorry. I lost that 
thought.
    The other key thing that I believe can be helpful in the 
SBIR program is to improve or increase phase one funding 
levels. Phase one funding levels today are at such a level, at 
$70 to $100,000, that it is difficult for companies to execute 
on and make meaningful progress on a program of that size. 
Further, at companies that focus on SBIR funding to 
commercialize technology, they can often wind up with numerous 
phase one programs that are oftentimes unrelated. That makes it 
very difficult with a team of people focused on different 
technologies or having a variety of small programs to execute a 
focused commercialization strategy for their technologies.
    In summary, I think that improving external governance for 
the SBIR program and continuing to involve and increase the 
involvement of product centers within the services as well as 
external, perhaps, commercial boards to review the program as 
well as improving phase one. And, perhaps, phase two funding 
levels would go a long way to enhancing the commercialization 
rates of SBIR technologies.
    Thank you.
    [The prepared statement of Mr. Farmer follows:]
          Prepared Statement of Jason Farmer and Scott Keeney

I. EXECUTIVE SUMMARY

    Semiconductor diode lasers are a crucial part of U.S. high tech 
industry with important applications in defense, industrial, medical 
and telecom markets. However, the U.S. industry is now threatened due 
to the current recession in the technology and telecommunications 
sectors and many of the key companies have either exited the market or 
moved offshore. Federally funded programs such as the SBIR and the 
MANTECH programs have had a significant impact on the development of 
this industry. Increasing the funding in these programs would play a 
crucial role in this industry during this severe downturn.

II. BACKGROUND ON THE SEMICONDUCTOR LASER INDUSTRY

Technology Overview
    Semiconductor lasers are crystalline devices that convert 
electricity directly into light. Semiconductor laser manufacturing 
processes are very similar to those used to fabricate semiconductor 
integrated circuits (ICs), however unlike an IC that manipulates 
electrons, lasers primarily manipulate photons. This leads to a 
different set of technology issues that are faced by the laser 
industry. Because the wavelength of electrons is far smaller than the 
size of individual transistors within an IC, the key issue driving the 
electronics industry is size reduction. Photons, on the other hand, 
have much larger wavelengths and fabricating devices on this size scale 
can be done with standard semiconductor processing equipment. The key 
issues in the semiconductor laser industry surround performance issues 
such as output power, efficiency of conversion of electrons to photons, 
and long-term reliability.
Key Markets--Telecom Applications
    While there are a wide range of applications for high power 
semiconductor lasers, semiconductor lasers have received a great deal 
of publicity as the crucial enabling technology for telecommunications 
providing the extraordinary expansion in bandwidth in fiber optic 
systems over the last ten years. These lasers not only send data 
through fiber optic cables by blinking on and off as many as 10 billion 
times per second, they are also used to optically pump fiber amplifiers 
that amplify these signals as they are absorbed and scattered through 
thousands of kilometers of fiber optic cable. Both of these 
technologies were largely developed in the U.S. and allowed the 
explosive growth in this industry; between 1999 to 2000 the whole 
market grew by nearly 200 percent. Currently this market is in a major 
recession as this extraordinary expansion in capacity has led to a glut 
of bandwidth. Over time, this market will again become important as 
lasers will remain a crucial technology for meeting the ever-increasing 
demands for data transmission.
Key Markets--Defense Applications
    While telecommunication applications have been highly volatile, 
there are many other applications that are equally important to the 
U.S. and have continued to experience strong growth. Most recently the 
defense applications have received significant attention, as 
semiconductor lasers have been crucial in transforming the modern 
battlefield. Today semiconductor lasers are used in precision-guided 
weaponry, target designators, night vision equipment, and counter 
measure devices to defend aircraft against shoulder fired heat sinking 
missiles. Without semiconductor lasers, which, as an example provided 
night time covert illumination for Coalition Forces, recent conflicts 
in Afghanistan and Iraq would have been very different indeed. In the 
future, semiconductor lasers will play an ever-increasing role in the 
military. Perhaps one of the most important new applications for high 
power semiconductor lasers is in the directed energy weapons arena 
where they could be used to defend high value assets against missiles 
and other highly maneuverable threats. To date, semiconductor laser 
technology has provided our war fighters with vastly superior 
capabilities on the battlefield. Future improvements in the technology 
will be crucial to maintain and improve upon this advantage.
Key Markets--Industrial and Medical Applications
    Semiconductor lasers are also important in a wide range of 
commercial applications in both industry and medicine. In industry, 
semiconductor lasers are one of the fastest growing market segments as 
they replace other, older technologies currently used in welding, heat 
treating, and semiconductor processing applications. In medicine, 
semiconductor lasers are used in a wide range of diagnostic and 
therapeutic applications in such fields as ophthalmology, cardiology, 
oncology, and dermatology. Many of these applications will benefit from 
the cost reductions occur as the manufacturing technologies are 
improved and production levels increase.

III. CURRENT CRISIS IN THE U.S. SEMICONDUCTOR LASER INDUSTRY

    Despite these important applications, the current U.S. 
semiconductor laser industry is undergoing a severe downturn. While 
this downturn has been driven in part by a downturn in the general 
technology sector, the semiconductor laser industry has been hit 
particularly hard by the unprecedented downturn in the 
telecommunications sector. As a result most of the major manufacturers 
in the U.S. have closed down their manufacturing operations and laid 
off tens of thousands of employees. Two years ago the U.S. had a 
significant lead over the rest of the world in semiconductor lasers. As 
a result of the downturn, the biggest semiconductor laser fabrication 
facilities are now in Europe and Japan while China is beginning to 
expand into this market.
    Although the U.S. still has state-of-the-art technology, most of 
the semiconductor laser companies in the U.S. are now small businesses 
struggling to survive.
Changes in U.S. Venture Capital
    The U.S. venture capital industry provided the primary source of 
funding for many new companies that were formed in the last five years. 
However, the downturn has led to significant changes in venture funding 
and it is currently extremely difficult to get funding for 
semiconductor laser engineering and manufacturing improvements--let 
alone get funding for any new technology developments. As recently as 
two years ago, venture capitalists were more focused on distinctive 
technology that could dominate a large market, whereas today they are 
more focused on investing in companies with current sales in near term 
markets. This has created a ``valley of death'' for many small 
companies that can't bridge the chasm between new technology prototypes 
and products ready to enter commercial markets. In particular, the 
funding for optical components (including semiconductor lasers) has all 
but disappeared relative to the investments of just two years ago.

IV. POTENTIAL AREAS OF SUPPORT FROM FEDERAL GOVERNMENT

    Over the past thirty years the semiconductor laser industry has 
received funding for critical technologies from a wide range of Federal 
Government programs--including SBIR, MANTECH, and ATP. This has enabled 
the U.S. to lead not only in defense applications of semiconductor 
lasers but also in many commercial applications. As venture capital 
funding has diminished, continued federal support is crucial to 
maintain a strong competitive advantage. Indeed, with a few focused and 
effective investments through programs such as these, the Federal 
Government can play a significant role in strengthening this and other 
key industries within the U.S.
SBIR Program Example
    The SBIR Program was established by the Small Business Innovation 
Development Act of 1982. It invests over $1.3 billion dollars a year in 
a wide range of technologies through ten government departments and 
agencies. This early stage funding for new concepts and technologies, 
is an important example of how the government can impact small 
businesses competing in high tech markets. While this program has been 
highly effective in commercializing numerous technologies continuing to 
improve the governance and increasing the flexibility in funding levels 
will make this program even more successful.

            1. Governance
    As with any successful technology development program, it is vital 
to have a strong governance system that ensures the technology meets or 
exceeds the requirements of the end application. Recently, governance 
of the SBIR program has been significantly improved by increasing the 
involvement of product centers within the services. Such efforts need 
to be continued and increased to ensure successful commercialization. 
Historically, without such governance, many small businesses with SBIR 
funding have become merely extensions of the research labs supporting 
them and thus not fulfilling the commercialization objectives of the 
SBIR program. A focused strategy to improve governance across the SBIR 
program will enhance the productization rate of SBIR technologies.

            2. Increased Award Levels
    Increasing the size and reducing the number of individual awards 
would dramatically improve the commercialization SBIR technologies. The 
SBIR program plays a critical role helping small businesses to 
commercialize new and innovative technologies. With the current lack of 
venture funding and other investors, the SBIR program is more important 
now than it ever has been.
    Increasing the funding level of Phase I efforts to $300 to $500k 
would enable small businesses to produce a meaningful result and to 
execute a focused commercialization strategy. The typical funding level 
for a Phase I SBIR program is between $70k and $100k, sufficient to 
support one full time technical employee for three to five months. With 
such limited funding it is challenging to produce a meaningful result. 
Further, a company that targets SBIR funding to develop new technology 
inevitably wins numerous Phase I awards that are often unrelated. 
Managing many small and disjointed technology development programs 
makes it exceptionally difficult to execute a focused commercialization 
strategy.
    Phase II SBIR programs are typically funded at just under $750k and 
support one and a half to two full time technical employees. While this 
level of funding is often sufficient to produce a device that 
demonstrates key aspects of the new technology, there are many cases 
where it is insufficient. In these cases, a ``bucket of parts'' is 
delivered with a final report and the investment is lost. Increasing 
the flexibility of Phase II funding levels would alleviate this issue.
    At the conclusion of a successful Phase II, the technology is at 
the edge of the ``valley of death.'' Turning the new technology into a 
product requires a sustained engineering effort that goes beyond the 
scope of a Phase II. Increasing the involvement of entities capable of 
providing Phase III funding is critical to keeping these new 
technologies from languishing in the valley of death.

V. SUMMARY

    SBIR, MANTECH, ATP, and other technology programs have shown a high 
return on investment, especially in the area of lasers and electro 
optics. Recently, significant U.S. semiconductor laser capacity has 
been shut down and the competitiveness of the U.S. industry has 
diminished. However, crucial capabilities still reside in a number of 
smaller firms. Increased flexibility in Phase I and Phase II funding 
levels and a concomitant focus on effective governance would produce 
much higher commercialization rates of SBIR technology. Further, 
bringing a new technology to market requires funding levels that exceed 
that of the SBIR program. With higher their funding levels, the MANTECH 
and ATP Programs as well as agencies with Phase III SBIR funding, will 
play a crucial role in revitalizing the U.S. semiconductor laser and 
other vital industries and ensure that U.S. technology continues to be 
competitive.

VI. BACKGROUND ON NLIGHT PHOTONICS

    Light Photonics was founded in 2000 to commercialize novel high 
power semiconductor laser technology that was originally developed on 
several small SBIR programs. nLight has raised over $55 million from 
premier U.S. venture capital firms and has established a world-class 
diode laser fabrication facility in Vancouver, WA. After the downturn 
in the telecommunications industry, nLight successfully leveraged its 
high power semiconductor laser technology to enter medical, industrial 
and defense markets. nLight Photonics is representative of the small 
businesses that are trying to maintain and improve this critical 
technology within the U.S. Unlike larger businesses that ceased U.S. 
operations and a plethora of the other small businesses that continued 
to focus on the telecommunications industry and were subsequently shut 
down, nLight and a few others have survived by refocusing their 
technologies on important new applications.

                               Discussion

                  Issues in International Competition

    Chairman Ehlers. Thank you. And thank you to all of the 
witnesses for your testimony. Thank you, also, for abbreviating 
your statements. And without objection, all of your complete 
statements will be entered into the record.
    The--I have a host of things I could ask questions about. 
Let me make a few comments. First of all, Mr. Eagar, I totally 
agree with you that the greatest need is education. And I have 
spent a good share of the last--of my entire life working on 
this problem, but particularly the last five years of my 
political life trying to improve math, science, engineering, 
and technology education in the K-12 system, where I think the 
greatest need is. I see things starting to turn around. 
Certainly, I have been able to get greater funding in for 
teacher training in those areas, but it is a major national 
problem, and that has to continue. So I appreciate your 
emphasis on that.
    I especially appreciate your emphasis on the--that learning 
is a lifelong process. As you might expect, I get asked to make 
a lot of commencement addresses, and I generally include a 
statement along the line that this diploma you have received is 
not a union card. It is a learners' permit. And I think we 
really have to view that into our students. But the purpose of 
education is to learn how to learn and to learn how to think. 
It is not to acquire a body of knowledge and say, ``Okay. That 
is it.'' I--and so I really appreciate your emphasis on that.
    Mr. Reininga, on your one comment you made about an 
opportunity to analyze all of these different aspects that are 
troubling to American business, but the one you raised about 
difficulty to compete with other nations because of subsidies, 
I assume you mean primarily the European nations, in this case. 
I have heard this a great deal about Airbus versus Boeing, but 
I haven't--I hadn't realized that this was carrying over into 
the avionics field as well. Can you expand on that a bit? What 
subsidies are you referring to, and to what extent do you 
believe they might violate the current free trade laws that we 
have?
    Mr. Reininga. I can not tell you whether they violate any 
laws or not. That I can not tell you, but I can tell you that 
what I am referring to is the heads-up display that Airbus 
currently put in--just procured. And they competed against one 
of our companies, called Kaiser Electronics--I am sorry, Flight 
Dynamics. And obviously, we have pretty much cornered that 
market up to this point, about 95 percent of it. Tallus has 
very little, if any, production in that and design 
capabilities. And they received a sizable offset with the 
French government to go build that capability and therefore won 
the program. It was pretty much out in the open and told us 
that is what happened.
    Chairman Ehlers. That is interesting. That is a useful 
example for us to keep in mind. That argument continues with 
the French. It is one of several that we have with them.

                 Transforming Research into Development

    The--I forget which one of you made the comment. Something 
to the effect that the U.S. does a good job of developing new 
products, but doesn't always follow through with the 
manufacture. And I have heard that many times. I wonder if any 
of you could elaborate on that and put some meat on those bones 
for me.
    Mr. Rhoades. There is, indeed, a long distance between the 
creation of a new idea and the implementation of that, 
particularly in manufacturing, because manufacturing, as an 
activity, is very complex, as many components, each of which 
having dozens of manufacturing operations to make it, that all 
have to converge and come together to have a final product. So 
there is a lot of resistance and--resistance to change, so the 
implementation of new ideas into--and to actually fabricate 
them and make them is a long step. That--there is more science 
in the world today, far more science, than there are 
organizations that are capable of transforming them into new 
tools that people can use to make things.
    And that is the infrastructure that, in my remarks, I felt 
was a very vibrant opportunity for investment on behalf of the 
U.S. taxpayer. Building that infrastructure would enable the 
accelerated transformation of a new idea in a science level 
into a practical product and manufacturing method that would 
build economic value for the Nation.

                   Engineering Degrees and Employment

    Chairman Ehlers. Let me tie that in with Mr. Eagar's 
comments earlier, and maybe you can discuss that. I have an 
interesting graph, which shows the number of baccalaureate 
degrees given in engineering over the past 20 years. And it 
peaked about 17 years ago and has been going down ever since. 
The graduate degrees have gone up, primarily due to the influx 
of foreign students. But is part of the problem that we are 
just not getting enough engineers, we are not getting bright 
enough engineers, or is it strictly moderate a problem that our 
wage rates are so much higher than other countries that it is 
difficult to put those together? Mr. Eagar.
    Mr. Eagar. If I might address that, I believe there is a 
structural problem that we have. You are right; we don't 
produce as many engineers on a per capita basis. China produces 
two and a half times as many engineers, graduates, per year as 
we do. And on an absolute basis, since they are larger, they 
produce about ten times as many engineers as we do. And that 
investment that they are making is going to pay off in the 
future.

                Addressing the ``Valley of Death'' Issue

    We are investing quite a bit in research, which I define as 
something that has some future payback more than 20 years. 
Companies invest, today, in the--up to five years out. If you 
just look at the profitability of the companies, very few 
companies, except the ones that are sort of semi-monopolistic, 
can not afford to go look more than about five years out. The 
``valley of death'' that people are talking about, and I think 
you have heard it from three or four of the panelists here, is 
the 5- to 20-year horizon. Now the military has 6-1, 6-2 monies 
for exploratory--6-2 is for exploratory development. And when I 
talked about balance, that is what I was talking about. They 
actually spend roughly the same amount of money on development 
as they do on research, which I think is actually--when he is 
saying ``bringing it to market'', that is what I am calling 
``development''. That is the 5- to 20-year time frame.
    To give you an example, about 5 to 10 years ago, a Japanese 
scientist invented Gallium nitride, the blue laser, and this 
goes to Mr. Farmer's, you know, exciting developments in the 
science of laser technology. Well, a lot of people didn't 
realize that what a blue laser allows you to do is to make 
white light. And so there are a few companies now that--this 
thing--this technology has been around for about 10 years, and 
some time about 10 to 15 years from now, you are going to see 
panels that will just be panels of light that will give you new 
architectural possibilities. Not only that, it reduces the 
electricity required by 2/3. And given the fact that about 30 
percent of the electricity we consume in this country is for 
lighting, you are talking about a 20 percent reduction in the 
electricity generating capacity, which is going to have 
wonderful effects on the environment. It is not going to be so 
great for some of the people that make generators, but you 
know, there are going to be displacements because of the new 
technology.
    Who is funding that? Who is going to take the risk? There 
are a few companies taking that risk, because the payoff is so 
huge, but we have lots of technologies that don't have tens of 
billions of dollars of payoff. The ones that have less payoff 
are the ones that are dying. We have done the research, and we 
are squandering the research investment by not doing the 
development in the 5- to 20-year horizon.
    Chairman Ehlers. Thank you for that summary. My time has 
expired. Let me just observe that in the Energy Bill, which the 
House just passed, we did specifically allocate funding for 
that--new sources of lighting. But your point is well taken. 
There is not enough there, and it is going to be too much of 
basic research and very little on the developmental aspects.
    My time is more than expired. I am pleased to recognize the 
Ranking Member, Mr. Udall.
    Mr. Udall. Thank you, Mr. Chairman. Again, I want to thank 
the panel. Your testimony has been very interesting and 
helpful.

                 The Role of ATP in Product Development

    I am drawn to Mr. Farmer for a couple of reasons. He is a 
graduate of the big research university in my District, the 
University of Colorado in Boulder. And Chairman Ehlers spent a 
year at Jilla, which is a consortium attached to the University 
of Colorado, but it also has a relationship with some of the 
federal labs in the private sector.
    We also in Colorado have close to 300 companies involved in 
photonics. And we have a vibrant set of efforts underway there 
in this whole exciting area.
    I had just a couple questions for you. I hear you say that 
the ATP would be a great help to small high-tech companies like 
yours. And there are some in the Congress and the 
Administration that actually make the case that ATP is nothing 
more than corporate welfare. Could you respond to that point of 
view?
    Mr. Farmer. In my view, the ATP program, like the other 
programs with higher levels of funding, are critical to moving 
technologies from product demonstrators like what we built on 
the SBIR program and like what is enabled by a phase one and 
phase two SBIR program and really amplifying that and bringing 
it to market. I believe that many companies today, you know, 
while their thinking may go out five years, don't have the 
funding to actually fund a manufacturing line and to bring the 
technology to the point where it is ready to enter a commercial 
market. And the ATP program, I think there is probably numerous 
examples where the ATP program has supported the sort of 
engineering that is needed to put into technology to really 
make it commercializable.
    Mr. Udall. Yeah, I hear both you and Mr. Eagar and perhaps 
other members of the panel suggesting that, in a sense, ATP, 
SBIR, and some other programs serve as long-term capital----
    Mr. Farmer. Um-hum.
    Mr. Udall [continuing]. That the equity markets are more 
focused, the private equity markets are more focused on short-
term returns, and that this is the important role that the 
Federal Government's monies play. And I think we need to do a 
better job of explaining that to the average citizen as well as 
to other interested parties and to Members of the 
Administration, Members of the Congress. Would you agree?
    Mr. Farmer. I would absolutely agree. I think it is 
actually even more critical today than it ever has been in the 
past. In the past, there was equity funding that could take 
those technologies from the prototype phase to the 
commercialization, the point where you have actually entered a 
commercial market. I think that nLight is an example of that. 
We--on, you know, probably under $2 million, developed a 
commercial--or a technology prototype and then were able to go 
and raise equity capital to cross that ``valley of death''. And 
that is--that equity capital is not there today, and so the 
role of ATP programs and ManTech programs, I think, is of 
heightened importance today.
    Mr. Rhoades. If I may respond to that for a moment.
    Mr. Udall. Sure.
    Mr. Rhoades. My company has received an ATP program to 
support the development of a process invented at MIT that is 
capable of manufacturing functional metal parts with an 
entirely new method that digitally assembles particles of metal 
to make functional parts with very complex geometries that 
enables the ability to make designs directly from a CAD file 
and could transform manufacturing into a methodology that is 
appropriate for the U.S. with little labor that can make parts 
locally, rather than halfway around the world. So the 
difference that the ATP effort made in taking a science from a 
university and transforming it into a way that now makes parts 
commercially for people that walk up and send us a design. We 
can make them a part for so much per pound of any complexity 
they choose that is just as functional as conventionally made 
metal parts. That transformation is precisely what ATP has 
enabled and I think really offers an example of how taxpayer--
U.S. taxpayer investment can have a very high payoff, 
ultimately for the U.S. taxpayer, because this is a process 
that is appropriate to the United States much more so than 
appropriate to a low labor cost country in an emerging 
industrial nation.
    Mr. Udall. That you are saying, Mr. Rhoades, is it works to 
our advantage, works to our strengths in this higher tech 
society and environment in which we find ourselves? It takes 
advantage of that platform off which we are operating?
    Mr. Rhoades. Exactly.
    Mr. Udall. I appreciate the panel's presence here today, 
and hope we get another round of questions, because I didn't 
even get into half of the questions I have. Thank you.
    Chairman Ehlers. The gentleman's time has expired. Next we 
turn to the Congresswoman from Illinois, Mrs. Biggert.

             Developing a High-Tech Manufacturing Workforce

    Mrs. Biggert. Thank you, Mr. Chairman. And thank you for 
all of that information. I think this is an issue that has been 
so important to the Congress and has--really gaining in the 
discussions, like in the small businesses and the financial 
services and the Science Committee. So it is great to have you 
here.
    I was in China earlier this year, fortunately before the 
SARS. But we were there on really national security, but also 
trade involving--certainly manufacturing is a very important 
part of that. And looking at the economic base for the Chinese 
for their income, average income per year is 900 U.S. dollars, 
I believe, and so they obviously are a very labor-intensive 
country, who can get into manufacturing for those kinds of 
products. And certainly, we would like to increase our exports 
to China, but we really don't have the money to purchase the 
kind of exports that we can send to them, because they have all 
of the products that don't cost that much to produce. So it is 
amazing to see, you know, how they have become a real, what I 
would say, a capitalist country and are growing and growing and 
really have a long-term plan in how they are going to do this. 
Now they have had a setback, I guess, with--right now.
    But--and the other thing is that they want our high-tech so 
that they can begin to do that, too, which is where we really 
have an advantage there. How can we continue with innovation 
and I think what you all mention is that we need to have the 
innovation to provide the new products, because the things that 
we used to be able to do, other countries are doing and at less 
cost. How can we increase the innovation and yet keep ahead of 
the other countries, taking--now you know with the CDs and 
things, they say, ``Oh, no, we don't copy those. There is no 
intellectual property that we take over.'' And yet you can go 
two blocks away from the hotel and find those on sale before 
they even are out in the United States. Do you have how we 
develop--you know, you have talked a lot about education, which 
I think is so important. And how we--but how do we actually 
move our workers from those industries and get them into the 
high-tech industries where we are also decreasing the number of 
workers that we need because of the high-tech capabilities that 
we have? Mr. Eagar, you----

                      Lifelong Workforce Education

    Mr. Eagar. Well, one thing on the--I believe some companies 
pay for knowledge. And I would hope that as the minimum wage 
goes up, maybe we would consider paying for literacy and 
numeracy in the workforce. You have got to incentivize the 
worker to go to the lifelong education. It is much easier, you 
know--it is difficult to continue your education while you are 
a full-time worker. And there has got to be some incentive. 
There has got to be some incentive to the companies to do this. 
Right now, a company that has an active educational program for 
their workforce is basically paying an extra tax voluntarily. 
If everyone is doing it, no one--everyone is paying a fair 
share, so there has got to be some incentive for the companies. 
There has got to be some incentive for the worker to learn to 
read and write if they don't know how.
    And we can't just do K through 12. It is important to do K 
through 12, but we need a literate workforce now, not just 20 
years from now. So we have got to look at it from that. So 
maybe the minimum wage is a sliding scale depending on your 
literacy and your numeracy. And you are paying people--you are 
incentivizing the people at the bottom end of the workforce pay 
scale to go out and improve themselves. The people at the top 
end are going to do it anyway. They have already done it. They 
have already invested in education, and many of them continue 
to do it. It is the bottom end of the workforce that we have 
got to help.

             Successful Competition Against Low-Cost Labor

    Mr. Reininga. If you look at the avionics industry, our 
industry, less than three percent of the cost of our product is 
labor. So--and Boeing and Airbus together are only going to 
make about 400 aircraft, so mass production and highly 
automated activities are very important to us, but only from a 
reliability and technology standpoint. So from our standpoint, 
if we can get mass customization using the latest technology, 
we can compete, even with their low labor cost, because the--we 
just need to be able to support our technology. And it will be 
far past where they are coming up at it.
    Mrs. Biggert. Yes.
    Mr. Farmer. I would amplify on that saying that the way 
that we can compete against low-cost labor is with advanced 
manufacturing technologies like the ones that Mr. Rhoades was 
telling us about. And I think that to maintain that and improve 
on that, we need to both enhance the effectiveness of front-end 
research and development on the SBIR program by not only 
ensuring that that program is successful by giving companies 
the flexibility to have the funding there to execute on 
demonstrating those new ideas, but also by keeping important 
programs, like the ATP program, alive that can actually move 
those technologies from prototype to the types of capabilities 
that Mr. Rhoades has brought on line.
    Mrs. Biggert. And then with that theory, since we do--
people need jobs, we are going to have to raise all of the--
through education, raise the base of skill level, too, and then 
have many more products that we can do.
    Thank you very much.
    Chairman Ehlers. The gentlelady's time has expired. Next, 
we recognize the gentleman from Washington, Mr. Baird.
    Mr. Baird. [No response]
    Chairman Ehlers. Okay. I am sorry. We had the order changed 
here. Pleased to recognize Mr. Miller.
    Mr. Miller. Thank you. Dr. Eagar, is that--Dr. Eagar. What 
is that? Dr. Eagar, your testimony is essentially that there is 
a natural kind of evolution of the economy and that there are 
industries like textiles that we should expect will probably 
cease to be American industries and will move, naturally, to 
other parts of the world. But at the same time, there will be 
other industries that will appear instead of industries like 
textiles.
    Mr. Eagar. Yes, but some of the industries can come back. 
Some of consumer electronics, which we lost in the '50's and 
'60's----
    Mr. Miller. Right.
    Mr. Eagar [continuing]. Has come back because of new 
technologies, for example. So you don't lose them forever, but 
when the--when an industry matures and it becomes--they have 
gone down the learning curve and it has become a commodity and 
other people develop the technology, you don't really want that 
industry, because it is commodity pricing. It is not highly 
profitable. You want the profitable, the high-value industries. 
And those are built on new technology.
    Mr. Miller. You know, at some level, I do agree with you, 
on an intellectual level, but I also represent a whole lot of 
textile workers, and I have been in a room and looked at them 
and heard what their concerns are. They went straight from high 
school. Maybe they graduated, maybe they didn't. It didn't much 
matter. They went straight to the mill, the same way their 
parents did before them. They are now middle-aged. Before they 
can be trained for new jobs, they have got to go back and get a 
GED. Your testimony reads a lot better than it reads. Those 
folks are living that transition. And I just--I understand what 
you are saying, and it may be correct. But it may be some value 
to you to go spend some time with the textile workers so you 
can kind of understand, at the pit of your stomach, what life 
is like for the people who are going through that transition.
    Mr. Eagar. Two of my uncles got textile engineering degrees 
from Georgia Tech, so I think I have some knowledge of what you 
are talking about. The transitions that occur are very painful, 
extremely. I am a--I was in the steel industry, and you can go 
talk to--I have talked to steel workers. I know what it is 
like. The problem is, if they have got an education, they can 
go on to the next industry. It is when they are out of the job 
and--completely, and they have no other skills except going to 
McDonald's, that is when the Nation has done a disservice to 
them.
    Mr. Miller. There are only so many McDonald's that 
Rockingham County can sustain, but----
    Mr. Eagar. Right.

                The Role of Vocational Training Programs

    Mr. Miller [continuing]. One of the proposals of the Bush 
Administration is to eliminate the principle source of federal 
funding for vocational training at colleges--at community 
colleges and technical colleges, the Carl Perkins Grant. There 
is supposedly something else out on the horizon that will 
provide some funding, a block grant program that will probably 
end up being more in high schools and technical and community 
colleges. What is your take on how sensible it is for this 
nation to be reducing our support for technical and community 
colleges for vocational training?
    Mr. Eagar. We need to encourage everyone at every level to 
get--to improve their educational level. Whatever level of 
intelligence we gain as a Nation is going to serve us in the 
future, and that is for the country as a whole. We need--and 
frankly, the elite schools like mine, we are going to take care 
of ourselves anyway. My mother was a schoolteacher. My father 
used to tell her, ``You can't help the best students. They are 
going to do it on their own. They may not--you may not be able 
to help the worst, but it is the ones in the middle that really 
need the help.'' And that is the community colleges. Okay.
    We have got to do something. We have got to make it--
incentivize people. Rather than sitting at home, watching TV, 
get out and learn something, read something. I once told a 
bunch of people at my church, if you watch more than five hours 
of TV at night--or a week, you ought to go out and get a second 
job, because you have got too much time on your hands. Okay. 
Well, you know, unfortunately, that is 90 percent of America.
    Mr. Dunwell. I also sit on an----
    Mr. Miller. Yes, sir.
    Mr. Dunwell [continuing]. Advisory council of a community 
college that recently built a new lab that has construction 
trades, automotive trades, and the manufacturing trades in 
these sections of this new lab. And it is a wonderful 
opportunity for students and displaced workers to go and learn 
new skills. And you know, the manufacturing lab has a big 
stamping press where we are, you know, training people not only 
the specific hard skills but also the soft skills, the working 
with teams, the looking at the, you know, continuous 
improvement process. And so it is, you know, the community 
colleges and the support for those programs. I mean, that is 
a--very valuable.
    Mr. Miller. Well, a quick executive summary, then. You 
would agree with me that it is dumber than dirt to be cutting 
back our support for vocational training?
    Mr. Dunwell. Right.
    Mr. Miller. And Dr. Eagar, you agree as well?
    Mr. Eagar. Yes. Yes, I agree.

               Developing a National Manufacturing Policy

    Mr. Miller. All right. One more question, Mr. Dunwell. You 
said that we needed a national policy to be encouraging 
manufacturing, that that is--our economy, our standard of 
living depends upon having a manufacturing base for the 
economy. And Dr. Eagar, I think you said much the same thing. 
Is it your impression that we have anything resembling that 
now?
    Mr. Dunwell. Any type of national policy? Absolutely not.
    Mr. Miller. Right.
    Mr. Dunwell. I mean, I--you know, I think that is why we 
are all here. And it is wonderful to be here. I mean a small 
little manufacturer like Wolverine with 50 employees to be able 
to talk to, you know, the Federal Government about what it 
needs to do is wonderful to know that you are listening to us. 
And you know, as we spoke earlier, you know, the action that 
comes out of this testimony is what we are after. And I know 
that other countries and Asia have very specific national 
policies related to, you know, their manufacturing stature and 
where they plan to go. If we can come up with a technology vent 
and education vent, if we can come up with all sorts of 
different action items to improve the national strategy, let us 
do it.
    Chairman Ehlers. The gentleman's time has expired. Next we 
recognize Mr.--the gentleman from Minnesota, the Great State of 
Minnesota, the home of the Hormel Company, Mr. Gutknecht.
    Mr. Gutknecht. And the manufacturer of the world's finest 
lunchmeat. And we want to thank the Chairman once again for 
stopping this besmirching of that wonderful lunchmeat.
    I want to thank the Chairman and the Staff for putting 
together an excellent panel. And I want to thank all of you for 
coming here today. And I hope that other Members, who could not 
be here for the testimony, will at least get copies and look at 
this, because I found myself in agreement with virtually 
everything you said.

                Investing in Development and Deployment

    And some of the other questions that I was going to ask 
have already been asked. But I really want to throw this out 
for discussion, because it seems to me, in some respects, we 
are talking around this problem. And it seems to me that the 
core of the problem is why are so many of these manufacturing 
jobs leaving. Now I understand that some of the lower end, low-
technology--I mean, I share with my colleague who just spoke, 
the problem. We had a small pajama manufacturing plant in my 
District. You can call that low-tech. They closed and moved to 
Mexico. We lost 200 jobs. The world will go on. But for those 
200 people, that was extremely important. You know. And not all 
of those people are going to be retrained in--engineers or 
computer scientists or are going to sell insurance. I mean, 
ultimately, as policy-makers, it seems to me we have to ask 
bigger questions.
    In fact, let me just throw out something here, because I 
think it is something that this committee even forgets. We 
spend a bundle in this country on R&D. We represent less than 6 
percent of the world's population, and the United States of 
America, between the governments, state, federal, local, 
between universities, foundations, and private corporations, we 
will invest over half of what the world will spend on research 
and development this year. The taxpayers--the best estimate I 
can get between the various departments, NSF, NIH, DARPA, all 
of the other agencies that do research at the federal level, we 
will spend about $29 billion on research this year. Now even in 
Washington, that is a lot of money.
    Now the problem, it seems to me, is many of these ideas, 
and the frustration I think we are beginning to face is within 
6 months of some of these new technologies coming on line, the 
manufacturing is going somewhere else. And it strikes me that 
we have to ask an even more important question, and that is: 
why is this happening?
    And I have some theories, and maybe you can respond to 
them, because for example, this year, the average manufacturer 
saw their health insurance costs go up 13.7 percent. Now I 
don't have an MBA. And I didn't go to MIT, but I know that that 
is unsustainable. I met with a representative of General Motors 
the other night. Do you know how much they are going to spend 
this year--GM alone is going to spend this year on drugs, on 
pharmaceutical prescription drugs? They are going to spend $1.3 
billion. That is for their employees and for their retirees. 
Now I will flat guarantee you Hyundai is not going to even come 
close to that in either category. This year, American industry 
will spend somewhere between $180 and $280 billion on 
liability, in other words, hiring attorneys, buying liability 
insurance. I will flat guarantee you they don't have to worry 
about those things in the Pacific Rim. That is not happening in 
Communist China. And it strikes me that we, as policy makers, 
have to ask these questions. Why are these jobs leaving? 
Because at the end of the day, we can't all sell insurance to 
each other. And I wonder if you guys would like to respond to 
that. And frankly, even if you don't want to respond now, I 
wish on the plane on the way home, you would take a few minutes 
and write the Committee, because these are big questions. We 
are spending a lot of money on research. The problem is, as 
soon as it becomes marketable, they are manufacturing it 
somewhere else and nobody is talking about some of those big 
problems that manufacturers face that they don't have to face 
if they produce somewhere else. Maybe you want to respond now 
or maybe you want to respond in the plane on the way home.
    Thank you.
    Mr. Rhoades. If pajamas are made the same way, and there is 
a high labor content in manufacturing the pajamas, they will be 
made in a market where the value of a unit of labor time is 
worth less than it is here. So the only way to keep the 
production of pajamas in the U.S. is to change the methods so 
that the labor content is lower and the product has some 
functionality, some customization, some special feature that 
overcomes the commodity product. But if we don't change the way 
we make things, then they will migrate to where labor costs are 
lower.
    Mr. Gutknecht. Mr. Rhoades, I don't disagree with that, and 
I understand that. But why did IBM, in effect, spin-off its 
very high technology, disk drive business, and ultimately 500 
jobs in the last year went to Communist China? Why did that 
happen?
    Mr. Eagar. Having worked in disk drive industry, it may be 
high technology to design them. To actually manufacture them is 
very labor-intensive. And so labor-intensive, we have a 
disadvantage. I learned that as a young faculty member. I could 
not compete with the other universities on a research basis at 
the high cost of my university. I had to compete on knowledge, 
not hands, how many hands I could put at the problem.

                   The Need for More Applied Research

    But let me say something about the research investment. You 
are absolutely right; we invest plenty in research in this 
country. The problem is how we are investing it. We are not 
asking for a return on the investment. There are many 
scientists who have come, I am sure, to this room and told you 
knowledge for knowledge's sake is wonderful. They will tell you 
that is how we found the transistor. That is a myth. The people 
working on the transistor were charged with finding a 
replacement for the mechanical switch. They wanted an 
electronic switch that would not wear out as quickly. They 
weren't just looking for knowledge for knowledge's sake. They 
stumbled across an extremely valuable product, just like the 
laser and things like that.
    We need to get a return on our investment on our basic 
research and then have an equal sized investment on the 
development of that into a commercially useful product. I could 
not get tenure at any major university in this country if I 
worked on development projects. It is not scientifically 
acceptable at the universities. Well, who is going to do it? We 
lost the labs. We don't do it in the companies anymore. What 
companies are spending money in the 5- to 20-year horizon? 
Where are the research labs in the companies? There are only a 
couple of them left at the semi-monopolistic, the Microsofts 
and Intels. But even that, you are starting to see some of them 
cut back a little bit. You can't do it.
    We have got to justify where we spend our money. There are 
some huge ticket science items out there. And I am not going to 
start knocking a particular thing, that boy, if I had to vote 
on it as a taxpayer and as a knowledgeable scientist, you 
wouldn't get my vote to--for some of the things that we fund, 
because I can't see a return and in my tenth grandchildren's 
lifetime.
    Mr. Reininga. A question to ask would be how much of that 
29 billion that was spent on R&D was on manufacturing R&D? Very 
little. That is why we are here. That is what we are asking, to 
raise that level in either the DOD or in industry itself or 
NIST or wherever.
    Chairman Ehlers. Okay. The gentleman's time has expired. 
And next we turn to Mr. Baird.
    Mr. Baird. I thank the Chairman. I thank my Ranking Member.

                     Employment in Local Economies

    I am particularly pleased at this hearing, because so often 
we hear about the loss of manufacturing jobs and I think the 
witnesses have done an outstanding job of describing ways in 
which we can help improve our manufacturing competitiveness. 
And I think the points that were just made were very valid. I 
want to use the case in--of nLight Photonics to illustrate that 
a little bit and ask Mr. Farmer, can you describe a little bit 
about how many jobs you have brought to the area with the 
development of your company?
    Mr. Farmer. We raised $55 million and created about 70 
jobs. This is--we are addressing a market. The entire high-
power laser market today is something like $1.3 billion. 
Semiconductor lasers with, you know, smaller sizes, higher 
efficiencies, lower cost can, I think, displace a large portion 
of that and are positioned to grow by a factor of four or five 
and displace most of that market within the next five years or 
so. So I think that if--you know, with the investment in the 
manufacturing technology that we will get those performance 
improvements as well as the manufacturing improvements that 
will lower the cost will enable that to happen.
    Mr. Baird. One of the aspects that particularly intrigues 
me about this and about some of the programs we have described, 
is that they often help cutting-edge companies, who might not 
have the capital in reserves. A large corporation may have 
capital in ready reserve, and it can have its own research 
team, etcetera. But if you have got a new idea, the kind of 
idea I think was referred to maybe as a disruptive technology, 
something that is going to jump us forward, you don't have that 
capital reserve. And yet you actually have the thing that is 
going to take our economy forward or our defense industry or 
homeland security forward. Has that been the kind of experience 
you have had? And after Mr. Farmer speaks, if others can 
comment on that, I would appreciate it.
    Mr. Farmer. Absolutely. I think that is where most of the 
technology innovation is going on nowadays is in the small 
businesses and small companies. And those companies today don't 
have the capital to move these technologies to the point where 
they need to be. And that is where programs like the ATP and 
ManTech are, I believe, of critical importance.
    Mr. Baird. Would anyone else like to comment on that?
    Mr. Rhoades. In this process, I mentioned of digitally 
assembling metal particles with a device that is a lot like an 
inkjet printer printing little droplets of glue that was 
enabled by ATP is now embraced in defense manufacturing to make 
low-volume spare parts for much needed aging weapon systems 
operating at twice their design life. They can't even find the 
tooling for the spare parts anymore. The ability to take a 
computer-designed file or a replica--or a legacy part and then 
make a spare part that is fully functional is saving the 
Department of Defense a great deal of money that will then 
migrate into other markets where the value of a spare part 
isn't quite as high as it is for defense systems. So all of 
that is integrated. And there is a normal commercial path once 
the validation is done. But the validation step, that ``valley 
of death'', that risk area that is not rational for the pioneer 
to take on his own, because most of the benefit goes to the 
users and their customers and ultimately the consumers where 
the Federal Government gets to tax the entire chain, if it 
stays in the U.S.

                        Industries in Transition

    Mr. Baird. Interestingly enough, another company in my own 
District, Windsor Corp., makes display panels. I was thinking 
of Mr. Reininga's comments that--about your need for display 
panels. They are in the same kind of situation. It is a very 
innovative technology. It is exciting. It is fun to visit their 
plant, and yet they are also struggling with that capital 
access. And they have a technology that could move us forward. 
Maybe we could chat later about that link up.
    Part of the reason I raised this, you know, we are in a 
transition, a transition in two ways. Our--Vancouver, 
Washington was the home of the Liberty ships. And I like to say 
that we are moving from Liberty ships to Liberty chips. But at 
the same time, we also are making real strides in the 
manufacturing. And I am thinking of Mr. Dunwell's type of 
company. Maybe a more traditional company, but we need to help 
you be more competitive in your manufacturing. Are there ways, 
Mr. Dunwell, that we can help a company that may have a more 
traditional kind of industry be more efficient, more cost-
effective, etcetera, through government programs?
    Mr. Dunwell. As I have--certainly, as I have stated 
earlier. I mean, the MEP is very great and very helpful in, you 
know, organizing local companies and ideas and best practices. 
So that certainly helps the small manufacturer and the supply 
chain continue to be successful. But I--you know, the bigger 
picture is still that, you know, are we going to wake up some 
day and all of our customers have left? I mean, and that is my 
serious concern is that it is helping companies around me and 
this table that if we can help them be successful, this supply 
chain will survive as well. And you know, but my worry is how 
fast this is happening.
    Mr. Baird. The loss of our manufacturing base is----
    Mr. Dunwell. The loss of the jobs is happening----
    Mr. Baird [continuing]. Terrifying.
    Mr. Dunwell [continuing]. So quickly.
    Mr. Baird. Yeah.
    Mr. Dunwell. And if there is nothing happening to slow that 
down or to prevent this from continuing at the pace it is, 
there are going to be a lot of companies like mine that are 
just going to wake up someday and say, ``Gee, I was the low-
cost producer, I thought, and I thought I was doing a great 
job. And gee, where did all of my customers go?''
    Mr. Baird. I thank the Chairman.
    Chairman Ehlers. The gentleman's time has expired. I am 
pleased to recognize the gentleman from Texas, Dr. Burgess.

                     Is ATP Helping Manufacturing?

    Dr. Burgess. Thank you, Mr. Chairman. And thank you for 
holding this hearing. And you may have already covered this 
when you answered the Ranking Member's question, Mr. Udall's 
question, but I guess the--and at the risk of just sounding too 
pedantic and too basic after all of the educated talk that we 
have heard here today, are we really helping here at our level, 
or are we, in fact, simply delaying the inevitable? Is it 
reasonable to continue to do what we do if we are going to 
continue to do it with such an anemic response, such as the ATP 
program? Would we all be better served if we got out and 
stopped being the enabler and let the private sector work this 
out on its own? Probably, I would ask Mr. Rhoades, because he 
had the--that is a very attractive idea that you have got there 
with the digital building of legacy parts. As a former owner of 
a very old airplane, I can certainly identify with that. But 
are we helping or are we hurting ultimately?
    Mr. Rhoades. You are certainly not hurting. The difficulty 
and the gap that the ATP program fills, and very intelligently 
fills in both where it chooses to invest on behalf of the 
taxpayer and in the recognition that it is, indeed, investing 
on behalf of the taxpayer in selecting its projects, is a 
wonderful model. And the ATP projects that I am aware of, 
have--although they are chosen to be quite risky, have a 
remarkable rate of return on them and not all of them are 
successful, but enough of them are successful that it is a very 
wise investment on behalf of the taxpayer.
    The issue for the private sector, if the government got 
out, then you are asking the private sector to take that risk 
entirely on its own. And the ability to fence the benefits of 
the value created is quite limited. So it is not rational for a 
private sector company to make that investment on their own, 
because most of the benefit, and by--when I say ``most,'' I 
mean 99 percent of the benefit falls to the customers who buy 
the machines that we will sell them to do this and to the 
customers of theirs who will be able to get low-volume spare 
parts without waiting, and ultimately to the consumers who are 
counting on having these products that might have new 
functionality because of the abilities of the process. All of 
that, I can not capture. I am too small. I don't have the 
negotiating position. And ideas and knowledge flow quickly, 
especially within a nation. So consequently, the ATP investment 
on behalf of the taxpayer has a return, because the Federal 
Government is able to tax all beneficiaries within the chain 
who fall within its taxing authority, which is within the 
United States. And by developing processes that are uniquely 
responsive to U.S. imperative advantages in manufacturing as 
opposed to world and low-labor rate markets, then we are able 
to have a strategy that, on behalf of America Inc., makes a 
whole lot of sense with very, very high rates of return, a 
small amount of which I will be able to capture as an 
innovator. But most of that is going to flow to my customers 
and their customers and so on.
    Mr. Reininga. We do see some international companies moving 
into the U.S., back into the U.S.--or into the U.S. We see BMW. 
We see Toyota. And what we are kind of predicting is that that 
is the mass customization is coming back to the U.S. So we will 
be able to take advantage of that. Do we need support from the 
government to help U.S. industry compete? Absolutely. That is 
what we need to continue to drive and improve on.
    Mr. Farmer. I would submit, very quickly, that your role is 
governance and that we are, as we heard, investing $29 billion 
a year in R&D. You need to demand that that results in better 
U.S. technology and manufacturing and provide the governance 
that makes that investment a wise one.
    Mr. Eagar. I would submit it is mostly about risk. Research 
and development is moving into the unknown, and there are 
certain levels of risk. Industry is limited in the amount of 
risk it can assume. The government can help take some of that 
risk, as they do in the ATP where they pay 40 percent and they 
require the companies to pay 60 percent. You just gave us 40-
percent risk reduction. And hopefully the people who are 
administering that will make wise choices. I think they have.
    So it is all about risk. To assume that industry will take 
on any risk possible is sort of absurd. They will not take any 
risk possible. They are only going to take the best risks, and 
if you help them get over certain hurdles, there is one--there 
are some risks they can say, ``Gee, there is a--it is a 
beautiful field over there. It is a lot greener pasture over 
there, but it is just a little bit more than my stockholders 
can afford.'' Well, the government can help them with that, 
because the types of things that the ATP is doing are not just 
helping that one company. You want to say it is corporate 
welfare? As long as it corporate welfare for all of the 
companies that are in--competing in that business, so what. If 
it is corporate welfare for one company, I agree, that is a 
problem. But when it is corporate welfare for the Nation's 
manufacturing base, I am not opposed to that.
    Chairman Ehlers. The gentleman's time has expired. Next, we 
recognize the gentleman from Michigan, Mr. Smith.

             Directing Applied Research in Federal Funding

    Mr. Smith of Michigan. Mr. Chairman, thank you. And I have 
missed a lot of your comments. I have walked in this last time 
when you and Mr. Eagar was--were talking about knowledge for 
knowledge's sake is fine and dandy philosophically, and I just 
wanted to cheer. I have been on the Science Committee now for 
11 years pushing that we have got to have more flexibility in 
terms of moving into the arena of applied research as well as 
basic research. I chair the Subcommittee on Research that 
oversees the NSF. We have made progress. Now we are a little 
more flexible.
    I--by the time I get through my speech, Mr. Chairman, we 
might have finished my time limit. Perfunctory, you usually 
say, ``Thank you for holding this important hearing.'' This is 
probably the damnedest most important thing that the United 
States is going to be facing over the next several years. In 
1949, 41 percent of our non-farm employment was manufacturing. 
Now it is down to a little over 11 percent. We are losing our 
manufacturing base. And what concerns me almost as 
significantly as we sort of change to a service and high-tech 
economy, in the last two years, we have lost 560,000 workers in 
the high-tech arena.
    I met with the Vice President of Motorola. They are moving 
their engineering labs to India. I think, as I have a hearing 
in my Subcommittee on Research on tech transfers out of our 
university, I would like to have all of you be on those panels, 
too. I am not sure what we do. As I meet with Australia and 
some of these other countries and asked for their--how they 
spend their government money, they say that they spend half of 
it on copying what we are doing in basic research in the United 
States and the other half trying to get it applied. So we now 
see other countries that are taking our knowledge for 
knowledge's sake and trying to get it applied faster than we 
do.
    And with that, your suggestions. Just--I have got two other 
Committee meetings going. One discussion was on taxes. We have 
modified our taxes a little bit, trying to make our taxes a 
little more comparable with some of our competitors. Maybe that 
is part of it, but of--the other part is how do we be more 
selfish in terms of our basic research and developing--moving 
that into the application where it is useful. And just go down 
the--maybe go down the row, and you can give me a short 
suggestion of where we go from here.

                        The Need for Incentives

    Mr. Eagar. We certainly need incentives. I am not smart 
enough to tell you whether that is a tax incentive, an 
investment credit, an education break for the--or for the 
companies that fund education, because the--investment 
education is not just an investment and that--working for that 
company. It is a national investment. And the government ought 
to find some way to incentivize the company to do that. You 
ought to--we ought to find ways, like the ATP program or SBIR 
for companies to take higher risks, because with higher risks, 
there is higher payoff. And we have got to do that. Companies 
are risk averse. And I am sorry, you know. I will try to 
irritate everyone here. You know, the universities aren't doing 
their job and the companies aren't doing their job. We are risk 
averse.
    The government needs to encourage and incentivize taking 
higher risks in research and development, not risks that are 
foolish, but risks that have a good potential payoff.
    Mr. Smith of Michigan. Mr. Rhoades.

                 Expansion of Existing Federal Programs

    Mr. Rhoades. I think, first of all, the $29 billion that 
has been bandied about, the vast majority of that has been 
spent on life sciences and a very, very small amount has been 
spent on manufacturing, even as critical as manufacturing is to 
the economy. I think you have structures in place that can be 
expanded to make significant differences in the economy. One is 
certainly the defense manufacturing effort that helps our 
nation's defense industrial base strengthen. The second is the 
MEP program, which helps the small, medium-sized manufacturers 
who carry the bulk of manufacturing tasks in the United States. 
That has shifted over the past 20 or 30 years. And small 
manufacturers are really the people who are doing the--making 
things in the U.S. And the MEP program helps advise them with 
an infrastructure to help them be modern.
    The ATP program, in my view, should be dramatically 
expanded to expand the menu of manufacturing methods that are 
available to make pajamas, make metal parts, make semiconductor 
display--make semiconductors, make panel displays so that we 
have manufacturing methods that are appropriate to U.S. 
economics. And third, and finally, I think encouraging the 
assembly of many--of consortia of product designers and new 
process developers so that the two of them can work together to 
enable products to be made in special ways.
    Mr. Reininga. The ManTech program should definitely be 
expanded beyond where it is at today for the DOD. That would 
help a lot. I was pleased to hear about a central focus point 
for manufacturing at the Cabinet level or at least working for 
the Department of Commerce. That single focal point would be 
outstanding and really help drive and create a national policy.
    Mr. Dunwell. I will reiterate. I mean, the MEP, the NCFAM, 
the National Coalition for Advanced Manufacturing, ATP, I mean 
all of these programs seem to be helping companies. And all of 
us are saying, I think, the same thing: ``Let us do more of it, 
and let us be strategic about it. Let us think about how we can 
put this together better and continue to support that very 
vital manufacturing base for our country.''
    Mr. Smith of Michigan. Mr. Farmer.
    Mr. Farmer. I think that the key difference between tax 
cuts and the programs that we have been discussing today are 
that the tax cuts can help people with larger companies, with a 
more established revenue base. Smaller companies that are 
facing the ``valley of death'' don't benefit greatly from tax 
cuts. And I think the other big difference is that with the ATP 
program and other programs such as that, the government can 
execute a focused strategy to become the real technology and 
manufacturing leaders around the world. And those programs, I 
think, are very important.
    Mr. Smith of Michigan. Thank you very much. Mr. Chairman, 
thank you. Mr. Eagar, I had a job with Bethlehem Steel, and 
then I went home and a farm came up for sale, and I got it at a 
good price, so I became a farmer.
    Thank you all very much. Mr. Chairman, thank you.
    Chairman Ehlers. The gentleman's time has expired, and I 
must say, you made a wise choice, given what happened to 
Bethlehem Steel.
    I had hoped to have a second round of questions. There are 
a number of things that I would like to ask, but as you heard 
bells, we are being called to the Floor for votes. And I don't 
want to detain you here for another half-hour or 45 minutes 
just for a few more questions. So my suggestion is that what 
remaining questions anyone on the panel has, we will send to 
you in writing. If you would be kind enough to respond, then we 
would--are able to conclude the hearing at this point.
    I certainly want to thank you. It has been an excellent 
panel: very, very helpful to me. I have given several speeches 
in the recent past simply stating that manufacturing in the 
United States is in great trouble. That has given me a lot of 
press in the technical press, but I don't have answers yet. But 
you have helped provide some answers.
    One thing I might mention, we just talked briefly about 
taxes. When I wrote a book several years ago trying to develop 
a new national science policy, I emphasized in there the 
essential nature of having a good R&D tax deduction, or better 
yet, a tax credit. And that--this, I think, would be a great 
help, allowing the companies to decide on their own what to 
spend the money on, make it a tax credit, but we have to make 
it permanent. And we have had one that goes year by year, which 
to me, is absolutely useless, because no one is going to invest 
money into research on a year by year basis, because it may 
take 5 or 10 years. So that is one step we could do, but there 
is much more we can do. And I appreciate the suggestions made. 
We will incorporate them into our thinking, and see what we can 
come up with in terms of innovative ideas and approaches to 
solve some of these problems.
    Thank you again. You have been most helpful to us. Your 
testimony has been excellent. And we appreciate you taking the 
time to be here.
    With that, I will recess the--I will adjourn the hearing.
    [Whereupon, at 11:55 a.m., the Subcommittee was adjourned.]
                              Appendix 1:

                              ----------                              


    Biographies, Financial Disclosures, and Answers to Post-Hearing 
                               Questions


                     Biography for Thomas W. Eagar

    Thomas W. Eagar is the Thomas Lord Professor of Materials 
Engineering and Engineering Systems at the Massachusetts Institute of 
Technology. Prior professional assignments at MIT included head of the 
Department of Materials Science and Engineering, director of the 
Materials Processing Center and co-director of the Leaders for 
Manufacturing Program. Professor Eagar has served on various technical 
committees for U.S. governmental departments and agencies, and has held 
numerous positions in many professional associations. Professor Eagar's 
numerous awards include Nelson W. Taylor Lecturer, Pennsylvania State 
University (1995); William Irrgang Award, American Welding Society 
(1993); Henry Marion Howe Medal, ASM International (1992); and Comfort 
A. Adams Lecturer, American Welding Society. Thomas Eagar holds 
Fellowships in the American Welding Society and the American Society 
for Metals International, and the American Academy of Arts and 
Sciences, and has served on many NRC panels and committees. Professor 
Eagar is the author or co-author of over 193 publications in national 
and international journals and the co-inventor of 13 U.S. Patents 
including 3 additional U.S. Patent Pending.



                   Answers to Post-Hearing Questions
Responses by Thomas W. Eagar, Professor, Massachusetts Institute of 
        Technology

Questions submitted by Chairman Vernon J. Ehlers

Q1. How would you define the term ``Manufacturing R&D?'' How does R&D 
for manufacturing differ from basic or applied R&D?

A1. I would define basic research as research in search of knowledge. 
Applied research or applied development has a purpose of producing 
products (other than mere knowledge). Manufacturing R&D has a purpose 
of producing products or aiding in production of products which would 
be marketed and sold. Manufacturing R&D is market driven.
    I would note that I have never heard anyone discuss ``basic 
development;'' basic (or knowledge driven) is a term applied to 
research, rather than to development. I believe the United States is 
well invested in basic research but is significantly under invested in 
development of the fruits of our basic research.

Q2. Based on witness testimony and the discussion during the hearing, 
there was a sense that it would be beneficial for the United States to 
have a manufacturing R&D strategy. How would you recommend such a 
strategy be crafted? Who should be included in the development of such 
a strategy? What would the major elements of such a strategy be?

A2. The problem with discussion of ``manufacturing strategy'' is that 
everyone knows what they mean personally by manufacturing strategy, but 
the term manufacturing strategy does not have a universal meaning.
    If manufacturing strategy means that the government should become 
involved in picking winning and losing industries within the United 
States, as some countries do within their own borders, then I do not 
favor a government mandated strategy. If manufacturing strategy means 
that the government should implement policies, which permit 
manufacturing industries to grow and develop, then there is a vital 
role. For example, in the entrance hall of NIST in Gaithersburg, MD, 
there is a nearly century old quote that establishments of standards is 
the greatest benefit that government can provide for industry. In our 
increasingly complex world, there are many factors which influence the 
competitiveness of U.S. companies abroad. These should be identified 
and studied, on a continuous basis, by manufacturing leaders for 
government, industry and academia. A forum for such studies already 
exists as the National Research Council of the National Academies of 
Science and of Engineering. The problem is that the finding structure 
of the NRC infrequently provides a forum for the high level strategic 
questions which should assist Congress in making policy. The National 
Academies attract the correct mix and level of people to address the 
questions of National Manufacturing strategy; but, the agencies funding 
the studies are infrequently asking the Academies to address the higher 
level questions of a national manufacturing strategy. If even modest 
continuing funding of such questions were provided to the NRC, Congress 
would see senior level people competing to serve gratis on such panels, 
in hopes of making their voices known.
    Congress should charge the NAS-NAE-NRC-IOM with providing an annual 
report of national needs in manufacturing.
    In my opinion, it would be unwise to create another organization or 
Advisory Panel to define a national manufacturing strategy. The 
organizational structure to vet a wide range of opinions and to prevent 
a few individuals from dominating the agenda, already exists within the 
National Academies. Congress should make more complete use of this 
resource.

Question submitted by Representative Nick Smith

Q1. What do you think the Federal Government should be doing to 
support applied manufacturing research?

A1. I believe that the ATP of NIST within the Department of Commerce is 
well conceived and has been well managed, to support the innovation 
process which will create new industries and new jobs for the United 
States. The view that the ATP is merely welfare for large corporations 
who are getting the government to fund the development that they would 
be doing themselves without government assistance is too simplistic. 
This view pre-supposes that the managers of the ATP are not capable of 
assessing risk and pre-competitive technologies. This view assumes that 
anything, which comes from basic research should move seamlessly, 
without government assistance, to the marketplace. Nearly everyone 
associated with the transition from basic research to a marketable 
product has been saying for decades that this is not true. The ``valley 
of death'' is one of our greatest challenges. The ATP was designed to 
bridge this valley. Without a significant investment in the ATP or ATP-
like programs, we are squandering our investment in basic research. The 
Department of Defense spends more on development than it does on basic 
science, because they recognize the need to assist the development 
process if the newest technology is to be brought to market quickly. 
Without the ATP, the United States has nothing to assist in bridging 
the valley of death for the commercial sector of our jobs creating 
industries.

                   Biography for Lawrence J. Rhoades

    Lawrence Rhoades studied Economics and Mechanical Engineering at 
Brown University and received his M.B.A. from Northwestern University. 
He is President and Chief Executive Officer of Extrude Hone 
Corporation--a leading developer and supplier of manufacturing 
technology and equipment, serving the majority of the world's largest 
manufacturers. Extrude Hone has 22 locations in major manufacturing 
centers throughout the world. He holds patents on more than two dozen 
inventions related to nontraditional manufacturing processes for 
machining, finishing, forming and measurement.
    He has chaired the Advisory Committee of the U.S. Export Import 
Bank, and has served on numerous advisory groups for the U.S. 
Department of Defense and the Department of Commerce, addressing both 
technologies and business practices related to manufacturing. Mr. 
Rhoades has served on the Boards of Concurrent Technologies 
Corporation, the National Center for Manufacturing Sciences, the World 
Trade Center Pittsburgh, the Pittsburgh Regional Alliance, the National 
Institute for Standards and Technology's (NIST's) Manufacturing 
Extension Partnership (MEP) Program, and the Western Pennsylvania's MEP 
Center (Catalyst Connection) which he chaired through 2000. He 
currently serves on the Boards of the Pittsburgh Symphony Orchestra, 
the Society of Manufacturing Engineers' Education Foundation and the 
Association for Manufacturing Technology (AMT) which he currently 
chairs.
    In June of 2001, he was elected a Fellow of the Society of 
Manufacturing Engineers. He is also a member of the National Academies' 
Government-University-Industry Research Roundtable and the Pennsylvania 
Bar Association's Judicial Evaluation Commission.





                   Answers to Post-Hearing Questions

Responses by Lawrence J. Rhoades, President, Extrude Hone Corporation

Q1. What are the most serious long-run problems facing U.S. 
manufacturing? To what extent do these represent significant structural 
problems beyond the recession?

A1. Manufacturing R&D is directed to R&D on the processes used to 
manufacture products

         to make manufacturing tasks more efficient

         more importantly, to enhance the value of products 
        (e.g., by enabling previously unmanufacturable or excessively 
        expensive designs).

    This is connected to, but extends well beyond, most applied R&D, 
which is directed to product design--but constrained by ``design for 
manufacturability'' concerns.

Q2. Is there anything in the existing inventory of Federal or State 
research and development programs that could play a more significant 
role in establishing a stronger manufacturing-specific R&D and 
technical assistance base?

A2. The manufacturing R&D strategy needs to link the product design 
opportunities with the manufacturing process design opportunities--as 
well as the ``new science'' that can be harnessed to become new 
manufacturing processes.
    This suggests--perhaps demands--that rather disparate cultures 
collaborate including:

        A. Influential product designers/manufacturers (usually 
        Fortune 100 industrial firms).

        B. Manufacturing process technology innovators/implementors--
        usually smaller companies who are manufacturing technology 
        providers supplying machines, tools, manufacturing systems, 
        etc., to the Nation's industrial base. They are the focal 
        points and repositories of manufacturing process ``know-how.''

        C. ``New Science'' researchers (mostly universities--also 
        national labs and others).

    Public investment should center on the manufacturing process 
innovators. This is the leverage point. There are only about 350 key 
companies in the U.S. (maybe twice this number). Altogether no more 
than 2000 organizations in the U.S. currently comprise the existing 
manufacturing technology infrastructure. Impacting 10-20 percent of 
these would dramatically improve the Nation's manufacturing technology 
infrastructure and consequently U.S. industrial productivity and 
competitiveness.
    Programs should be directed to the development and rapid, 
widespread implementation of advanced manufacturing processes (i.e., 
the methods used to make products), supported by sound science, which 
are relevant--indeed transformative and enabling--to the much more 
numerous U.S. product manufacturers who use these processes to make 
their products.
    Funding should encourage integrated teams centered on, and led by, 
manufacturing process technology innovators/implementers that link 
research centers (providing breakthrough science, or simply sound 
scientific understanding, related to manufacturing processes) and 
product manufacturers (who can and will design products to exploit the 
new value offered by the developed processes).
    ``Process innovations'' is meant to include new materials and 
applications of materials to manufactured products.
    Many elements of the NIST ATP ``focused program'' model should be 
included, with an emphasis on manufacturing process development, 
seeking widespread economic impact and strategies that can build a 
durable U.S. competitive advantage.

Q3. In addition to current efforts, please provide specific 
suggestions of what the Federal or State governments could do to assist 
manufacturing with research, development, and technology in meeting 
their long-term needs.

A3. Manufacturing activity represents 17 percent of the GDP. The 
inability of manufacturing process innovators to harness the benefits 
of their developments and the product (vs. process) focus of large 
manufacturing enterprises leaves an under-investment in manufacturing 
process development. From a ``USA Inc.'' perspective, this investment 
would provide extraordinary yields to the taxpayer. An investment by 
the U.S. taxpayer of 0.1 percent of manufacturing's share of the U.S. 
economy would be large enough to make a real difference and still small 
enough to focus on very high payoff opportunities that would generate 
manufacturing related profits, jobs and consequent marginal tax 
revenues that are greater than any other investment that the U.S. 
taxpayer could make.




with about half this amount going to the manufacturing process 
technology innovator/implementers.
    Similar investment in education relevant to manufacturing and to 
manufacturing technology implementation (ala MEP, but improved) would 
have similar yields.
    I firmly believe that over a decade these investments would 
reinvigorate U.S. manufacturing and return ten times this investment in 
annual tax revenue that will otherwise be lost.

                    Biography for Herman M. Reininga

    Herman M. (Herm) Reininga is Senior Vice President of Operations 
for Rockwell Collins. Additionally, he is a corporate officer of 
Rockwell Collins. Reininga is responsible for overall management of 
Rockwell Collins' global production and material operations, including 
manufacturing, material, quality, and facilities and manufacturing 
activities. He was named to the position in June 2001.
    Previously, Reininga served as Vice President of Operations for the 
company, a position he was appointed to in 1985. Reininga joined the 
company in 1965 and has held positions of increasing responsibility, 
including director of Operations CTPD and Director of Production 
Operations.
    A native of Waverly, Iowa, Reininga earned a Bachelor of Science 
degree in Industrial Engineering from the University of Iowa. He earned 
a Master of Industrial Engineering degree from Iowa State University.
    Reininga is a member of the following organizations: The National 
Academies Board of Manufacturing and Engineering Design, AFEI 
(Association for Enterprise Integration), Chairman of the U.S. Army's 
Future Combat Systems Critical Manufacturing Technologies Independent 
Assessment Panel; the U.S. Air Force ManTech 2015 ExCom Committee; 
Chairman of the National Center for Advanced Technology (NCAT) and 
Chairman of the Subcommittee on Multi-use Manufacturing; Chairman of 
the Integrated Manufacturing Technology Initiative (IMTI); member of 
the U.S. Air Force ManTech Strategic Planning Executive Committee; 
project reviewer for the U.S. Department of Defense (DOD) Technologies 
Area Review and Assessment for the National Science Foundation and 
National Center of Manufacturing Sciences; appointed member of the 
National Research Council; member of the U.S. Navy's Electronic 
Manufacturing Productivity Facility Advisory Board, industry 
representative on the Electronics Processing and Manufacturing (EP&M) 
subpanel; member of the Aerospace Industries Association (AIA) 
Technical Operations Executive Committee and Electronics Manufacturing 
advisory panels.
    From 1990 until 1992, Reininga served on the Defense Science Board 
(DSB), a 30-member civilian advisory panel composed of leaders from 
industry and academia, appointed by the White House, to provide support 
and guidance to the Secretary of Defense. He testified in front of the 
Senate Armed Services Committee on Defense Technology, Acquisition and 
Industrial Base. Reininga chaired DSB's Production Technology Subgroup 
for Weapons Development Production Technology Summer Studies program 
which developed a manufacturing technology strategy for the U.S. DOD. 
He is called upon regularly to provide perspective for future 
manufacturing strategies.
    In June 2001, Reininga was inducted into the University of lowa 
College of Engineering Distinguished Engineering Alumni Academy. In 
1999, he received the prestigious Meritorious Public Service Citation 
by the Chief of Naval Research, Department of the U.S. Navy. In 1998 he 
was awarded the Defense Manufacturing Excellence award endorsed by nine 
national trade associations and professional societies. He received the 
Professional Achievement Citation in Engineering (PACE) award from Iowa 
State in 1993.
    Reininga is a member of the Armed Forces Communications and 
Electronics Association (AFCEA). He also has developed and taught 
junior college courses on Production Control Master Scheduling.
    Reininga is a member of the Board of Directors for the Cedar Rapids 
Concert Chorale and is Chairman of the Board of Trustees for the Young 
Parents Network. Additionally, he is a member of the University of Iowa 
Engineering Development Council, University of Iowa Interaction 
Advisory Board for Industrial Engineering and the Iowa State University 
College of Industrial Engineering. Reininga is a member of the 
Stewardship Committee for Christ Episcopal Church.



                   Answers to Post-Hearing Questions

Responses by Herman M. Reininga, Senior Vice President, Special 
        Projects, Rockwell Collins

Questions submitted by Chairman Vernon J. Ehlers

Q1. How would you define the term ``Manufacturing R&D''?

A1. Manufacturing technology contains hardware, software, and human 
components. Not only must the future be imagined, it must be 
manufactured. Manufacturing takes the engineering designs loaded with 
the latest technologies, and by using tools, material, software and 
people, create the realization of the design in a product. New 
technology requires new processes, materials, and techniques, 
manufacturing R&D develops those tools. Manufacturing R&D is a set of 
activities that support the design of the product and of the 
development of processes, including tools and techniques.

Q1a. How does R&D for manufacturing differ from basic applied R&D?

A1a. Development programs (with few exceptions) do not plan for, nor do 
they provide timely development of affordable, producible technology or 
their associated manufacturing technologies. Rather in general they 
plan and fund for transition of technology performance. This can hinder 
technology transition resulting in acquisitions and program schedule 
delays. In addition, it can drive cost increases as basic manufacturing 
technology issues have to be solved later in the program, either during 
systems development and demonstration phase or even during production. 
The opportunity to employ a particular technology could, in fact have 
been missed entirely if the associated manufacturing processes were not 
significantly mature. The U.S. government is spending 29 billion plus 
on ``big science,'' in hopes to boost national competitiveness. 
Unfortunately only a small amount is being spent on manufacturing R&D. 
Basic R&D investigates the scientific foundations with a major 
objective of pushing forward the frontiers of intellectual knowledge.
    Applied R&D is a much broader umbrella and may include any activity 
focused on taking knowledge or science to a functional utility of a 
particular new product.
    Manufacturing R&D includes both basic and applied R&D, with a focus 
on 1) creating a capability to make innovative new products 2) 
significantly improving the production efficiency and quality of an 
existing product, 3) reducing total cost of ownership with all factors 
considered, including the impact on the environment.

Q2. Based on witness testimony, the discussion during the hearing 
provided a sense that it would be beneficial for the United States to 
have a manufacturing R&D strategy.

A2. Such a strategy should be crafted by starting with the consensus 
building planning process and moving to implementation. I believe there 
is an opportunity and necessity to do things in a different way than we 
have done them before, enabling delivery of results beyond what we have 
seen before in cycle time and new processes and new materials.

Q2a. How does a strategy get crafted?

A2a. It is important that a broad national consensus be realized. A 
committee to study the problem and write a report will not deliver to 
success that is needed. Therefore, the strategy should focus on 
building a national consensus. Starting with a core group with proven 
success in consensus building, an alliance should be grown to include 
hundreds of invested partners dedicated to delivering a plan for 
national manufacturing success, and ultimately the implementation of 
that plan.

        1) Development of a vision for the future--much like to 
        landing on the moon. This vision, must portray both the use of 
        advanced technology and the development of processes and 
        equipment to acquire that technology. Example, cars that use 
        alternate fuels, require the development of fuel cells that are 
        affordable and reliable.

        2) Establish a high-level focal point within the Executive 
        Branch of the Government for manufacturing productivity. This 
        position would be responsible for inspiring the road map 
        development and stimulating an increase in public and private 
        collaboration. This will provide an effective means for 
        mobilizing the Nation's resources and creating a more 
        supportive infrastructure for the industrial transformation. 
        Establish a well articulated agenda for building new core 
        competencies beyond the boundaries of current product, 
        processes, and/or corporate revitalization plans.

Q2b. Who should be included in the development of such a strategy?

A2b. It is important that this be an alliance of industry and 
government. The Government Agencies Technology Exchange for 
Manufacturing (GATE-M) was created as a grass-roots movement to better 
enable government agencies to work together and manufacturing 
technology. There are several organizations that represent the 
manufacturing technology interests and industry. Several of these 
organizations are already working together. This alliance can and 
should be formalized and a national manufacturing technology alliance 
formed that is broadly inclusive. Some specific examples of 
organizations working in this area are: National Center for 
Manufacturing Science, National Coalition for Advanced Manufacturing 
and Integrated Manufacturing Technology Initiative.

Q2c. What would the major elements of such a strategy be?

A2c. I believe the strategy has multiple steps.

        a. Develop a plan that defines the tools and technologies 
        needed by American industry and what must be done to deliver 
        them.

        b. Provide a clear understanding of what is being done to 
        deliver those tools and technologies.

        c. Conduct a gap analysis to determine future needs that are 
        not adequately being addressed in develop a plan to fill those 
        needs.

        d. Create an industry/government alliance, with investment and 
        funding from all parties, to deliver the solutions.

    Six key areas for R&D investment:

         Emerging technologies

         Intelligence systems

         Model based design and manufacturing

         Enterprise integration

         Knowledge management

         Safe secure and reliable manufacturing operations

Questions submitted by Representative Nick Smith

Q1. What do you think the Federal Government should be doing to 
support applied manufacturing research?

A1. 

         Support funding for the development of the Next 
        Generation Manufacturing Technology Roadmap supported by 
        Mantech.

         Establish a high-level focal point for manufacturing 
        productivity with in the administration.

         Increase support for collaborative development by 
        increasing funding for DOD MANTECH.

        1) The Federal Government should support the development of 
        manufacturing technologies to assure the strong defense of the 
        Nation as well as :strengthening our global competitiveness. 
        The government makes large investments in military systems, but 
        relatively small investments in new tools and technologies to 
        build those systems. The government has traditionally relied on 
        market forces to deliver manufacturing technology advances. 
        However, the current trend in both the defense and commercial 
        sectors has been to in fact sharply cut such investments in 
        order bolster near-term financials. This gap must big filled.

        2) Related to National Defense, the government should invest 
        in producing products that assure the security of homeland and 
        aggressively combat terrorism. These missions demand the rapid 
        design and development of detection devices, response 
        mechanisms and other products that are not now available. New 
        manufacturing technologies are essential in meeting this 
        challenge.

        3) The Federal Government should invest in manufacturing 
        infrastructure that supports the economic strength of the 
        Nation. The U.S. manufacturing sector is under increasing 
        pressure from overseas competition. The U.S. leadership in 
        manufacturing technology is being eroded. We must respond with 
        a strong industry/government commitment to U.S. excellence and 
        design and manufacturing. The government should provide 
        financial assistance to collaborative activities that deliver 
        solutions that benefit all U.S. manufacturers. Pass a 
        collaborative R&D tax credit for joint industry-national 
        laboratory and or university research efforts.

        4) LThe Federal Government should run lean and efficient 
        programs that provide fair opportunities for U.S. companies to 
        compete for applied R&D funding. The SBIR programs and the NIST 
        ATP programs have shown a high return on investment. There are 
        areas for improvement in these programs, but the fundamental 
        models are solid.

                      Biography for Jay R. Dunwell

President, Wolverine Coil Spring Company, 818 Front Ave. NW, Grand 
        Rapids, MI 49504. (616) 459-3504

Currently active on the following boards and committees:

Manufacturers Council--Vice Chair

Manufacturers Council Workforce Development Committee--Co-chair

Spring Manufacturers Institute--Board of Directors

Spring Manufacturers Institute--Education Committee

Kent/Allegan County Workforce Development Board

Workpaths.com Advisory Board

Grand Rapids Community College Tassell M-TEC Advisory Board

Butterball Farms, Inc.--Advisory Board

Grand Rapids Chamber of Commerce Family Business Council

Personal

    Born October 8, 1964 in Grand Rapids, Michigan. Degree in Economics 
from the University of Michigan, 1987. Wife Amy, and two children, 
Scott (8) and Bradley (6), both enrolled in Forest Hills Public 
Schools' Spanish Full-Immersion Program. Enjoys hockey, soccer, 
coaching soccer, sailboat racing, running, and fishing.



                   Answers to Post-Hearing Questions

Responses by Jay R. Dunwell, President, Wolverine Coil Spring

Q1. How would you define the term ``Manufacturing R&D''? How does R&D 
for manufacturing differ from basic or applied R&D? How does R&D for 
manufacturing differ from basic or applied R&D?

A1. To me, ``Manufacturing R&D'' implies a direct focus on the 
improvement of manufacturing through new technology. This ``improvement 
focus'' could be in new products, new processes, new manufacturing 
equipment, better materials, more efficient operations, anything that 
pushes manufacturing to the next level.
    I consider manufacturing R&D to be very similar to applied R&D--
simply the application of the R&D is focused upon manufacturing 
challenges. Basic R&D, as others testified, often leaves a ``valley of 
death'' between the basic discovery and an economically feasible 
application of that discovery. Helping to bridge the ``valley of 
death'' is certainly an opportunity for government involvement.

Q2. Based on witness testimony and the discussion during the hearing, 
there was a sense that it would be beneficial for the United States to 
have a manufacturing R&D strategy. How would you recommend such a 
strategy be crafted? Who should be included in the development of such 
a strategy? What would the major elements of such a strategy be?

A2. Collaboration must be the foundation of any R&D strategy. Simply 
speaking, bringing together those that are advancing technology, making 
discoveries, with those that may possibly invent uses and applications 
for such discoveries needs to better coordinated. I'm sure it happens 
much too often where someone on the East Coast discovers something that 
seems to have no useful purpose, yet that same discovery could solve a 
problem for someone in Colorado. Yet the two never join. If the 
government could establish a system for connecting these parties and 
assisting in putting the disjointed efforts together, this would be a 
major step in the right direction.
    Similarly, the government could assist in establishing new 
consortia with the purpose of pushing new technologies into 
commercialization. As the Manufacturers Council Position Paper 
highlights, expanding collaborative research consortia within the 
private sector and between industry and the public sector will help 
transfer R&D into new products and processes.
    The development of a national strategy must include multiple 
players--federal labs, higher education, research organizations, 
government officials, private sector business, regional economic 
representatives, trade associations, small and medium sized businesses, 
just to name a few.
    The core and most challenging element of a national strategy is the 
transfer of leading edge R&D to other parties. How is this coordinated? 
Who participates? What is the economic model that makes sense? These 
are the challenges that need the attention of our State and federal 
representatives.

Q3. What do you think the Federal Government should be doing to 
support applied manufacturing research?

A3. The Federal Government could and should play a key role in 
supporting R&D in this country. The current decline in federal spending 
on applied R&D must turn around. Increased spending and involvement in 
developing a new infrastructure are key responsibilities of the Federal 
Government. Key points to this include:

         Increase support of current, proven successful 
        programs such as MEP and ATP.

         Renew our national commitment to engineering and 
        physical sciences research.

         Expand research consortia and partnerships between 
        industry and the public sector.

    Manufacturing in the United States is under extreme pressure from 
foreign competition. Without a national strategic agenda supporting the 
manufacturing infrastructure of our country, we risk the loss of 
thousands of jobs and an erosion of our entire economic base. Jobs are 
certainly important, but not just any job will maintain the standard of 
living and quality of life we expect. Without a strong manufacturing 
sector, our quality of life cannot be maintained. The type of job 
matters!
                       Biography for Jason Farmer

Director Advanced Technology, nLight Photonics

    Jason co-founded nLight in 2000 after leading the development of 
high power semiconductor laser technology with SBIR funding from NSF, 
NASA, NIH and the Air Force. Jason is responsible for all aspects of 
advanced technology at nLight including the exploration of new 
concepts, applications, and opportunities that will allow fundamental 
advances in the field of semiconductor lasers. Prior to co-founding 
nLight Photonics, Jason was a principal scientist at Aculight Corp. 
Jason holds a B.S. from the University of California at Santa Barbara 
and a M.S. from the University of Colorado at Boulder.



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