[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                         ASSEMBLING THE FACTS:
                         EXAMINING THE PROPOSED
                          NATIONAL NETWORK FOR
                        MANUFACTURING INNOVATION

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

                                HEARING

                               BEFORE THE

               SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                         THURSDAY, MAY 31, 2012

                               __________

                           Serial No. 112-86

                               __________

 Printed for the use of the Committee on Science, Space, and Technology


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



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              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                    HON. RALPH M. HALL, Texas, Chair
F. JAMES SENSENBRENNER, JR.,         EDDIE BERNICE JOHNSON, Texas
    Wisconsin                        JERRY F. COSTELLO, Illinois
LAMAR S. SMITH, Texas                LYNN C. WOOLSEY, California
DANA ROHRABACHER, California         ZOE LOFGREN, California
ROSCOE G. BARTLETT, Maryland         BRAD MILLER, North Carolina
FRANK D. LUCAS, Oklahoma             DANIEL LIPINSKI, Illinois
JUDY BIGGERT, Illinois               DONNA F. EDWARDS, Maryland
W. TODD AKIN, Missouri               BEN R. LUJAN, New Mexico
RANDY NEUGEBAUER, Texas              PAUL D. TONKO, New York
MICHAEL T. McCAUL, Texas             JERRY McNERNEY, California
PAUL C. BROUN, Georgia               TERRI A. SEWELL, Alabama
SANDY ADAMS, Florida                 FREDERICA S. WILSON, Florida
BENJAMIN QUAYLE, Arizona             HANSEN CLARKE, Michigan
CHARLES J. ``CHUCK'' FLEISCHMANN,    SUZANNE BONAMICI, Oregon
    Tennessee                        VACANCY
E. SCOTT RIGELL, Virginia            VACANCY
STEVEN M. PALAZZO, Mississippi       VACANCY
MO BROOKS, Alabama
ANDY HARRIS, Maryland
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY
                                 ------                                

               Subcommittee on Technology and Innovation

                  HON. BENJAMIN QUAYLE, Arizona, Chair
LAMAR S. SMITH, Texas                DONNA F. EDWARDS, Maryland
JUDY BIGGERT, Illinois               FREDERICA S. WILSON, Florida
RANDY NEUGEBAUER, Texas              DANIEL LIPINSKI, Illinois
MICHAEL T. McCAUL, Texas             BEN R. LUJAN, New Mexico
CHARLES J. ``CHUCK'' FLEISCHMANN,    SUZANNE BONAMICI, Oregon
    Tennessee                        VACANCY
E. SCOTT RIGELL, Virginia                
RANDY HULTGREN, Illinois             EDDIE BERNICE JOHNSON, Texas
CHIP CRAVAACK, Minnesota
RALPH M. HALL, Texas


                            C O N T E N T S

                              Hearing Date

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

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

                           Opening Statements

Statement by Representative Benjamin Quayle, Chairman, 
  Subcommittee on Technology and Innovation, Committee on 
  Science, Space, and Technology, U.S. House of Representatives..     8
    Written Statement............................................     9

Statement by Representative Donna F Edwards, Ranking Minority 
  Member, Subcommittee on Technology and Innovation, Committee on 
  Science, Space, and Technology, U.S. House of Representatives..     9
    Written Statement............................................    11

                               Witnesses:

Dr. Patrick Gallagher, Under Secretary of Commerce for Standards 
  and Technology and Director, National Institute of Standards 
  and Technology
    Oral Statement...............................................    12
    Written Statement............................................    15

Discussion                                                           23

             Appendix 1: Answers to Post-Hearing Questions

Dr. Patrick Gallagher, Under Secretary of Commerce for Standards 
  and Technology and Director, National Institute of Standards 
  and Technology.................................................    39

             Appendix 2: Additional Material for the Record

Materials Submitted by Subcommittee Ranking Member Donna F. 
  Edwards........................................................    44

Article Submitted by Subcommittee Chairman Benjamin Quayle.......    72


                         ASSEMBLING THE FACTS:
                         EXAMINING THE PROPOSED
                          NATIONAL NETWORK FOR
                        MANUFACTURING INNOVATION

                              ----------                              


                         THURSDAY, MAY 31, 2012

                  House of Representatives,
         Subcommittee on Technology and Innovation,
               Committee on Science, Space, and Technology,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10:03 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Benjamin 
Quayle [Chairman of the Subcommittee] presiding.

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    Chairman Quayle. The Subcommittee on Technology and 
Innovation will come to order.
    Good morning. Welcome to today's hearing entitled 
``Assembling the Facts: Examining the Proposed National Network 
for Manufacturing Innovation.''
    In front of you are packets containing the written 
testimony, biographies and Truth in Testimony disclosures for 
today's witness. I will now recognize myself for five minutes 
for an opening statement.
    U.S. manufacturing's global market share has held steady at 
around 20 percent for nearly the last 30 years and still 
represents the largest manufacturing sector in the world. In my 
home State of Arizona, manufacturing contributes approximately 
$20 billion to our economy. Almost 60 percent of all U.S. 
exports are in manufactured goods. Though there are some areas 
in decline, contrary to popular belief, the manufacturing 
sector is far from vanishing. Technology has the potential to 
continue dramatically changing the sector. Both the skills 
needed by workers, and the number of workers necessary could 
look very different from the assembly lines of the past. 
Innovative processes such as additive manufacturing, which 
enable low-volume, adaptable production, are transforming the 
future of manufacturing.
    We don't make it easy for manufacturers in the United 
States. While all of our major global competitors have been 
lowering their corporate tax rates, ours has been essentially 
unchanged for the past 20 years, and is now the highest in the 
industrialized world. Rising costs in health care, 
environmental compliance, and litigation all discourage 
manufacturing from thriving domestically. According to the 
Manufacturing Institute, ``U.S. industry is faced with the 
highest pollution abatement costs compared to its major trading 
partners, even higher than the so-called green economies of 
Western Europe.''
    In the first three years of the Obama Administration, the 
Federal Government has imposed 106 new regulations with annual 
costs of more than $46 billion. When we are discussing 
manufacturing and innovation, the conversation is really about 
the conditions that create a better business environment. Yet 
rather than focusing on these issues, the Administration has 
again chosen to create a new $1 billion dollar program, the 
details of which have yet to be provided to Congress.
    Today we will examine the proposed National Network for 
Manufacturing Innovation. The proposed network would create up 
to 15 centers around the country focused on different areas of 
advanced manufacturing. During the current fiscal year, the 
Administration has also moved forward with a pilot institute, 
supported by up to $45 million in fiscal year 2012 funds from 
multiple agencies, including three within this Committee's 
jurisdiction: NIST, NSF, and the Department of Energy.
    I firmly believe that manufacturing is important to our 
economy and innovation, but I am troubled by the continued 
reliance on politically driven research and development. I 
think that the best thing we can do to help domestic 
manufacturers is to trust our markets and reduce the costs of 
doing business in the United States. I look forward to hearing 
more about the proposed NNMI, and I hope that today's 
conversation helps to provide more detail for Members of this 
Subcommittee as to why the Administration believes this 
initiative is necessary.
    We thank Under Secretary Gallagher for being here today and 
we look forward to your testimony.
    [The prepared statement of Mr. Quayle follows:]

      Prepared Statement of Subcommittee Chairman Benjamin Quayle

    Good morning. I would like to welcome everyone to today's hearing.
    U.S. manufacturing's global market share has held steady at around 
20 percent for nearly the last 30 years and still represents the 
largest manufacturing sector in the world. In my home state of Arizona, 
manufacturing contributes approximately $20 billion to our economy. 
Almost 60 percent of all U.S. exports are in manufactured goods. Though 
there are some areas in decline, contrary to popular belief, the 
manufacturing sector is far from vanishing. Technology has the 
potential to continue dramatically changing the sector--both the skills 
needed by workers and the number of workers necessary could look very 
different from the assembly lines of manufacturing's past. Innovative 
processes such as additive manufacturing, which enables low-volume, 
adaptable production, is transforming the future of manufacturing.
    We don't make it easy for manufacturers in the United States. While 
all of our major global competitors have been lowering their corporate 
tax rates, ours has been essentially unchanged for the past 20 years. 
Rising costs in health care, environmental compliance and torts all 
discourage manufacturing from thriving domestically. According to the 
Manufacturing Institute, ``U.S. industry is faced with the highest 
pollution abatement costs compared to its major trading partners--even 
higher than the so-called `green economies' of Western Europe.'' In the 
first three years of the Obama Administration, the Federal Government 
has imposed 106 new major regulations with annual costs of more than 
$46 billion. When we are discussing manufacturing and innovation, the 
conversation is really about the conditions that create a better 
business environment. Yet, rather than focusing on these issues, the 
Administration has again chosen to create a new, $1 billion dollar 
program, the details of which have yet to be provided to Congress.
    Today we will examine the proposed National Network for 
Manufacturing Innovation. This initiative would create up to 15 centers 
around the country focused on different areas of advanced 
manufacturing. During the current fiscal year, the Administration has 
also moved forward with a pilot institute, supported by up to $45 
million in fiscal year 2012 funds from multiple agencies, including 
three within this Committee's jurisdiction: NIST, NSF, and the 
Department of Energy.
    I firmly believe that manufacturing is important to our economy and 
innovation, but I am troubled by the continued reliance on politically 
driven research and development. I think that the best thing we can do 
to help domestic manufacturers is to trust our markets and reduce the 
burdens and costs of doing business in the U.S. I look forward to 
hearing more about the proposed NNMI, and I hope that today's 
conversation helps to provide more detail for Members of this 
Subcommittee as to why the Administration believes this initiative is 
necessary.
    We thank Under Secretary Gallagher for being here today and we look 
forward to your testimony.

    Chairman Quayle. I want to now recognize the Ranking 
Member, Ms. Edwards, for her opening statement.
    Ms. Edwards. Thank you, Mr. Chairman, and thank you so much 
for holding today's hearing to examine the proposed National 
Network for Manufacturing Innovation. I would like to thank Dr. 
Gallagher--it is good to see you again--for being here this 
morning and for your leadership both at NIST and as part of the 
Administration's current efforts to revitalize American 
manufacturing.
    Although we have heard time and time again in this 
Committee about the crucial link between economic growth and a 
vibrant U.S. manufacturing sector, I think it bears repeating. 
American manufacturing employs more than 11 million Americans 
in high-paying jobs. As recently as 2010, manufacturing 
contributed $1.7 trillion to the Nation's economy and accounted 
for 60 percent of all U.S. exports. Manufacturers account for 
nearly two-thirds of U.S. investment in research and 
development. And for every manufacturing job we create, we add 
five additional jobs along the supply chain. And for every 
dollar in manufacturing value added, we create $1.40 in new 
value in other sectors.
    Advanced manufacturing is also expected to create even more 
jobs. In fact, a study by the Milken Institute has shown that 
every job created in electronic computer manufacturing 
generated an additional 15 jobs. And, finally, innovation in 
U.S. manufacturing enables our companies to develop new 
technologies and new products and helps keep the United States 
competitive. Simply put, ``Made in America'' equals American 
jobs and a strong economy.
    Unfortunately, this Committee has also heard that the 
United States' competitive edge in manufacturing has slipped. 
According to the Council on Competitiveness, the United States 
ranks fourth in global manufacturing competitiveness and is 
expected to fall to fifth place in five years. Countries such 
as Korea, Japan and Germany have a larger share of the advanced 
manufacturing sector than the United States. If we do nothing 
and settle for the status quo, our position will almost 
certainly decline further and our economy will continue to 
struggle.
    Thankfully, the Administration has renewed its commitment 
to American manufacturing and is focused on ensuring that the 
United States is the global leader in advanced manufacturing. 
The truth is that the perception of manufacturing as low-
skilled, assembly-line work is outdated and no longer applies. 
The future of manufacturing is in fact advanced manufacturing, 
a high-tech endeavor that uses sensors, robotics, and cutting-
edge modeling and simulation. Biomanufacturing and 
nanomanufacturing processes are, and will be, conducted by 
high-skilled and highly trained technicians in lab-like 
environments.
    If we want to create high-paying jobs and help this country 
keep its competitive edge, then we need to move forward with 
policies and programs that will expand and support the 
development of advanced manufacturing. One such proposal, the 
National Network for Manufacturing Innovation, or NNMI--we are 
all going to get confused about that--is the topic of today's 
hearing.
    The purpose of the proposed NNMI program is to establish up 
to 15 public-private manufacturing institutes across the 
country. These institutes will serve as centers of 
manufacturing excellence that will accelerate innovation in 
manufacturing and help transition cutting-edge manufacturing 
technologies from the lab to the marketplace.
    As I understand it, the NNMI is modeled after the 
successful Fraunhofer Institutes in Germany, and Germany has 
been able to withstand the global financial crisis in large 
part due to its focus on innovative technologies as a key 
driver to economic growth. The Fraunhofer Institutes are widely 
considered to be a central and key component of the country's 
effective high-tech strategy.
    Based on Germany's success, a number of organizations, 
including the Council on Competitiveness, the Manufacturing 
Institute at the National Association of Manufacturers, the 
President's Council of Advisors on Science and Technology, and 
the Information Technology and Innovation Foundation, have all 
called for the establishment of a similar network of public-
private manufacturing centers in the United States to 
accelerate the development and deployment of advanced 
manufacturing technologies.
    I believe the concept has significant merit, and I am 
excited by the Administration's proposal. I am eager to learn 
more today about how NIST and the Administration plan to 
execute this initiative, and I am specifically interested in 
learning how the proposed additive manufacturing pilot 
institute will be structured and how it will be coordinated 
with the broader network to ensure that lessons learned will be 
applied. I am also looking forward to learning more about how 
the interagency partners are working together to make this 
network a reality.
    Certainly, the challenges facing U.S. manufacturers are 
urgent. The truth is that we simply can't afford to wait. If we 
are committed to a vibrant manufacturing sector and to 
improving our competitive position in advanced manufacturing, 
it is precisely the time for bold ideas and devoted leadership. 
I look forward to working with Dr. Gallagher, the Chairman, and 
my colleagues on implementing this initiative and ensuring that 
it is effective and successful.
    Thanks, again, Mr. Chairman, for calling this important 
oversight hearing, and I yield the balance of my time.
    [The prepared statement of Ms. Edwards follows:]

   Prepared Statement of Subcommittee Ranking Member Donna F. Edwards

    Thank you, Mr. Chairman, for holding today's hearing to examine the 
proposed National Network for Manufacturing Innovation. I'd like to 
thank Dr. Gallagher for being here this morning and for his leadership 
both at NIST and as part of the Administration's current efforts to 
revitalize American manufacturing.
    Although we've heard time and time again in the Committee about the 
crucial link between economic growth and a vibrant U.S. manufacturing 
sector, I think it bears repeating. American manufacturing employs more 
that 11 million Americans in high-paying jobs; in 2010, manufacturing 
contributed $1.7 trillion to the Nation's economy and accounted for 60 
percent of all U.S. exports; manufacturers account for nearly two-
thirds of U.S. investment in research and development. For every 
manufacturing job we create, we add five additional jobs along the 
supply chain. And for every dollar in manufacturing value added, we 
create $1.40 in new value in other sectors. Advanced manufacturing is 
expected to create even more jobs. In fact, a study by the Milken 
Institute has shown that every job created in electronic computer 
manufacturing generated an additional 15 jobs. And finally, innovation 
in U.S. manufacturing enables our companies to develop new technologies 
and new products and helps keep the U.S. competitive.
    Simply put, ``Made in America'' equals American jobs and a strong 
economy.
    Unfortunately, this Committee has also heard that the United 
States' competitive edge in manufacturing has slipped. According to the 
Council on Competitiveness, the United States ranks fourth in globabl 
manufacturing competitiveness and is expected to fall to fifth place in 
five years.
    Countries such as Korea, Japan, and Germany have a larger share of 
the advanced manufacturing sector than the U.S. If we do nothing and 
settle for the status quo, our position will almost certainly decline 
further and our economy will continue to struggle.
    Thankfully, the Administration has renewed its commitment to 
American manufacturing and is focused on ensuring that the U.S. is the 
global leader in advanced manufacturing. The truth is that the 
perception of manufacturing as low-skilled, assembly line work is 
outdated and no longer applies. The future of manufacturing is advanced 
manufacturing, a high-tech endeavor that uses sensors, robotics, and 
cutting-edge modeling and simulation. Biomanufacturing and 
nanomanufacturing processes are, and will be, conducted by high-skilled 
and highly trained technicians in lab-like environments.
    If we want to create high-paying jobs and help this country keep 
its competitive edge, then we need to move forward with policies and 
programs that will expand and support the development of advanced 
manufacturing. One such proposal, the National Network for 
Manufacturing Innovation (or NNMI), is the topic of today's hearing.
    The purpose of the proposed NNMI program is to establish up to 15 
public-private manufacturing institutes across the country. These 
institutes will serve as centers of manufacturing excellence that will 
accelerate innovation in manufacturing and help transition cutting-edge 
manufacturing technologies from the lab to the marketplace.
    As I understand it, the NNMI is modeled after the successful 
Fraunhofer Institutes in Germany. Germany has been able to withstand 
the global financial crisis in large part due to its focus on 
innovative technologies as a key driver to economic growth. The 
Fraunhofer Institutes are widely considered to be a central and key 
component of the country's effective high-tech strategy.
    Based on Germany's success, a number of organizations--including 
the Council on Competitiveness, the Manufacturing Institute at the 
National Association of Manufacturers, the President's Council of 
Advisors on Science and Technology, and Information Technology and 
Innovation Foundation--have called for the establishment of a similar 
network of public-private manufacturing centers in the United States to 
accelerate the development and deployment of advanced manufacturing 
technologies.
    I believe that NNMI concept has significant merit and am excited by 
the Administration's proposal. I am eager to learn more today about how 
NIST and the Administration plan to execute this initiative.
    I am specifically interested in learning how the proposed additive 
manufacturing pilot institute will be structured and how it will be 
coordinated with the broader Network to ensure that ``lessons learned'' 
will be applied. I am also looking forward to learning more about how 
the interagency partners are working together to make this Network a 
reality.
    Certainly, the challenges facing U.S. manufacturers are urgent. The 
truth is that we simply can't afford to wait. If we are committed to a 
vibrant manufacturing sector and to improving our competitive position 
in advanced manufacturing, it is precisely the time for bold ideas and 
devoted leadership. I look forward to working with Dr. Gallagher, the 
Chairman, and my colleagues on implementing this initiative and 
ensuring that it is effective and successful.
    Thank you again, Mr. Chairman, for calling this important oversight 
hearing. I yield back the balance of my time.

    Chairman Quayle. Thank you, Ms. Edwards.
    If there are Members who wish to submit additional opening 
statements, your statements will be added to the record at this 
point.
    At this time I would like to introduce our witness. Dr. 
Patrick Gallagher is the Under Secretary of Commerce for 
Standards and Technology and the Director at the National 
Institute of Standards and Technology. Thanks for being here 
this morning. As our witness should know, spoken testimony is 
limited to five minutes. After presenting your spoken 
testimony, Members of the Committee will have five minutes each 
to ask questions.
    I now recognize our witness, Dr. Patrick Gallagher, for 
five minutes.

              STATEMENT OF DR. PATRICK GALLAGHER,

                UNDER SECRETARY OF COMMERCE FOR

             STANDARDS AND TECHNOLOGY AND DIRECTOR,

         NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY

    Dr. Gallagher. Thank you very much, Chairman Quayle and 
Ranking Member Edwards and Members of the Committee. It is a 
privilege for me to be here and have the opportunity to talk 
about the Administration's proposed National Network for 
Manufacturing Innovation. I appreciate this opportunity to 
update you because there has been a lot of progress on 
implementing the President and Secretary's vision to ensure 
U.S. basic and applied research and development is optimally 
leveraged to benefit U.S. industry. Manufacturing matters, Mr. 
Chairman. As the President has said, an economy built to last 
demands that we keep doing everything we can to keep 
strengthening American manufacturing.
    ``A manufacturing strategy for the 21st century should 
focus on making the industry sector globally competitive.'' 
That is a quote from the American Enterprise Institute, and we 
agree. A robust manufacturing sector is in everyone's interest 
and of importance in everyone's district. The Administration 
and NIST are critical partners in this effort and have been 
hard at work on this issue.
    The stage was set last summer in a report on advanced 
manufacturing by the President's Council of Advisors on Science 
and Technology, PCAST, and it reminded us why manufacturing 
remains essential. Manufacturing that is based on new 
technologies can provide high-quality, good-paying jobs for 
American workers. It is critical to our balance of trade. It 
represents 60 percent of U.S. exports and it drives 
technological innovation, accounting for some 70 percent of 
private sector research and development activity in the 
economy. The report also made it clear that the government 
should play an important role through the development of an 
innovation policy as opposed to an industrial policy, and the 
difference is crucial.
    Given the breadth of manufacturing, the report looked at a 
broad range of approaches to help sustain and grow the sector. 
In addition to research and development, the report looked at 
areas such as taxes, trade, workforce, regulations, small 
business and education policies and how they either can help or 
hinder the health of the manufacturing sector.
    Another consequence of a focus on manufacturing is the 
importance of an effective interface between the public and 
private sectors, and because of this, when the PCAST report was 
released in June of last year, the President also announced the 
formation of the Advanced Manufacturing Partnership, whose 
purpose is to bring together industry, universities and the 
Federal Government to work together to invest in the emerging 
technologies that will create high-quality manufacturing jobs 
and enhance our global competitiveness. To complement the 
public-private partnership, the Administration also 
strengthened the interagency coordination on advanced 
manufacturing, and in that context, NIST was asked to play a 
key role.
    In February, the National Science and Technology Council 
had an interagency working group on advanced manufacturing and 
it issued a report that said that the acceleration of 
innovation for advanced manufacturing requires bridging a 
number of gaps in the present U.S. innovation system, 
particularly the gap between research and development 
activities and the deployment of technological innovations in 
the domestic production of goods, and other organizations 
ranging from the Information Technology Innovation Foundation 
to major U.S. companies such as Dow and GE have each expressed 
their support of an approach to address these gaps in a 
strategic and targeted way.
    The NNMI is the Administration's approach to meeting the 
challenges of addressing these gaps. The President's proposed 
network would create up to 15 Institutes for Manufacturing 
Innovation, or IMIs, around the country, and these IMIs would 
bring together industry, universities, community colleges, 
federal agencies, regional and state organizations all working 
together to accelerate innovation by investing in industrially 
relevant manufacturing technologies with broad applications.
    The President also announced that the Administration will 
take immediate steps to launch a pilot demonstrating an 
Institute for Manufacturing Innovation but based on existing 
programs within the Department of Defense and potentially also 
including the Energy and Commerce Departments, NASA and the 
National Science Foundation. These are two distinct efforts but 
have an important relationship between them, and I would like 
to briefly expand on this.
    The NNMI program has not yet begun. It will require 
legislation enacted to fund and carry out this program, and 
currently the Administration is working under requirements and 
principles of that legislation to support Congressional efforts 
on a potential bill. I am looking forward to working with this 
Committee on that effort.
    The principles outline the basic features of the NNMI 
program that would be established under competitive grants 
through the program, and we are working on developing these 
principles with extensive input from our agency partners and 
from the private sector through a series of regional meetings 
and through a request for public information and, importantly, 
through the pilot.
    The pilot program that the President announced is a way for 
us to demonstrate the concept of multiple agencies, industrial, 
and academic consortia jointly executing a single program. That 
is the essence of these institutes. And it is really a 
demonstration effort based entirely on existing programs within 
the participating agencies. There is much we will learn through 
the process of standing up an institute with our federal 
partners and enable us to use those lessons to benefit the 
eventual design of the NNMI. It is an area that cuts across 
different agency missions, and each agency brings their own 
expertise. NIST has been asked to play a critical role in both 
its interagency capacity and because of its mission.
    Mr. Chairman, I want to thank you for the opportunity to 
testify today and I am looking forward to our discussion.
    [The prepared statement of Mr. Gallagher follows:]

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    Chairman Quayle. Thank you very much, Dr. Gallagher.
    I want to remind Members that Committee rules limit 
questioning to five minutes. The Chair will at this point open 
the round of questions and I recognize myself for five minutes.
    Dr. Gallagher, I agree with you in terms of the importance 
of manufacturing to our economy, to our exports, to providing 
good, high-paying jobs here in the United States, but one of my 
concerns is, with the focus, especially on a policy basis, 
addressed specifically to the manufacturing sector, why 
shouldn't we just be focusing on broader applications, broader 
policy decisions that affect all businesses? I don't think I am 
alone in this. I think Christina Romer in a recent article 
stated that, you know, not seeing any specific market failures 
within the manufacturing sector, we should be focusing on 
policy decisions that affect all businesses so they can be 
successful and they can grow and they can expand.
    What do you see that is different that is a special need 
for the manufacturing sector, especially seeing that we haven't 
lost out and we have been holding steady in manufacturing since 
1980?
    Dr. Gallagher. So that is a great question, and it is 
actually central to almost every policy discussion we end up 
having about manufacturing. In fact, recently Gene Sperling, 
the President's lead economic advisor within the White House, 
had a speech about this, talking about the role of government 
in manufacturing-related activities, and actually made the 
observation, this is a place where otherwise like-minded 
economists can even disagree, and I think it comes from--it 
stems from a natural discomfort in talking about any one sector 
in the economy and the issue of broad-based policy.
    But the PCAST report actually laid out a compelling reason 
why we need to actually take a look at manufacturing, even if 
we don't have manufacturing-specific policy solutions. And I 
agree with you, a big part of this is laying out the general 
conditions for business of which manufacturing is part of and 
making sure that in that context we have a business climate, 
whether that is through taxes, trade, regulations and so forth, 
is as supportive as possible because these businesses are 
competing in very robust globally competitive markets, and that 
is clearly part of the Administration's policy focus as well 
and it was outlined in the NSTC report.
    The interesting thing about manufacturing, though, is it 
plays a couple of unique roles as a sector. Some of them have 
been longstanding policy areas. One is how it supports our 
national defense capabilities and the need for domestic 
manufacturing capacities in fact entwine with our ability to 
secure and protect our country. Additionally, the manufacturing 
sector is rather unique in how it interfaces with our Nation's 
capacity to innovate. Most of the R&D investments and 
performance in this country are not done by the Federal 
Government, they are done by the private sector. And 70 percent 
of that private sector activity is in manufacturing-based 
activities, so it plays a disproportionate role. And in fact, 
that is one of the reasons these public-private partnership 
issues are automatically brought up in manufacturing, because 
on one end, as a country, we support through public investments 
basic research, even applied research. In some areas where 
there is an overriding mission need, like in defense or energy 
and others, we go farther. But there has to be an effective 
transition of this know-how to the private sector if it is 
going to reap the full economic benefit to the country.
    Chairman Quayle. You bring up some interesting points. In 
looking at what the Administration did, they devoted a 
significant amount of resources to manufacturing activities at 
many different federal agencies. For example, just this week, 
the Administration announced that the Advanced Manufacturing 
Jobs and Innovation Accelerator Challenge, which is a multi-
agency, $26 million effort to assist the development and 
implementation of regionally driven economic development 
strategies that support advanced manufacturing in cluster 
developing. So I am trying to figure out what I am missing 
here, because this sounds really similar to NN--it is 
difficult, Ms. Edwards--NNMI. So what am I missing? How is this 
different? Are we having--putting just more redundancy, more 
overlapping programs that are trying to actually have the same 
goals and accomplish the same goals?
    Dr. Gallagher. Only to the extent that there are a number 
of programs that touch on manufacturing but the programs 
themselves are quite different. So the interesting thing about 
manufacturing from a federal policy perspective is that it is a 
big enough and diverse enough set of activities that it touches 
federal programs in a number of ways. It will touch workforce, 
it touches training and education, it touches innovation, it 
touches economic development, small business support. One of 
the focus points has been, how do you bring disparate different 
federal efforts into alignment so that you can have greater 
synergy, and that was certainly the focus of the announcement 
this week, to look at a regional manufacturing strategy, 
another theme that came up as we talked to industries across 
the country. That is the point of integration. That is where 
everything comes together. That is where a company and its 
supply chains and the educational infrastructure and the small 
business support, the banking industry, the VC funding, 
everything needs to be in place to have this whole-greater-
than-the-sum-of-the-parts effect.
    And so the announcement in that context was, how do you 
bring different programs into alignment so you have that larger 
effect. The NNMI is basically, very simply, about creating 
shared R&D infrastructure. It is a place where different 
companies can work together alongside national lab and 
university researchers to effectively bridge this gap between 
one part of the research community that is largely operating on 
public funding and one set of institutes and a set of 
organizations that are all private sector funded that are 
working in different businesses, so that is basically what the 
NNMI is. It is shared R&D infrastructure.
    Chairman Quayle. Okay. Thank you very much.
    I now recognize Ms. Edwards for five minutes.
    Ms. Edwards. Thank you very much, Mr. Chairman, and I would 
note that I guess Dr. Gallagher has been saying NNMI for a long 
time because you seem--it seems to roll off your tongue.
    Before I begin my questions, Mr. Chairman, I would like to 
ask unanimous consent to include a few items in today's hearing 
record. The first is a statement from the Council on 
Competitiveness outlining some of its recommendations for 
revitalizing manufacturing in the United States and expressing 
support for the National Network for Manufacturing Innovation 
Proposal.
    The second: as you may be aware, late last year the 
Manufacturing Institute, that is the educational and services 
arm of the National Association of Manufacturers, and EWI 
jointly developed a proposal to establish a network of advanced 
manufacturing application centers across the country, similar 
actually to what is being proposed in NNMI, and I would like to 
submit the PowerPoint presentation that was delivered by EWI 
and the Manufacturing Institute just this past December that 
clearly articulates the need for these centers and outlines a 
critical role for the Federal Government in providing support 
for the network. In fact, in the submission, the manufacturing 
application centers point specifically to capital equipment and 
core capabilities funded by the Federal Government, essentially 
recommending 20 percent of that kind of funding balanced by 
competitively bid programs, and I would like to note that 
yesterday, EWI's CEO specifically encouraged its member 
companies to get behind the Obama Administration's NNMI 
proposal.
    And the third item I would like to introduce for the record 
is a press release from the Information Technology and 
Innovation Foundation applauding the NNMI, and in the press 
release, the foundation's president, Rob Atkinson, claims that 
the NNMI is ``one of the most important steps this or any 
Administration has taken in recent years to revitalize American 
manufacturing.''
    Mr. Chairman, I would like to add those to the record.
    Chairman Quayle. Without objection.
    [The information may be found in Appendix 2.]
    Ms. Edwards. Thank you.
    And then to Dr. Gallagher, in your testimony, as we have 
heard time and time again, manufacturing is closely tied to 
competitive and innovative capacity of our Nation. Undoubtedly, 
manufacturing creates well-paying jobs and is key to our 
economic growth. What is less clear is what gap or need NIST is 
trying to fill through the establishment of the National 
Network for Manufacturing Innovation, and so I wonder if you 
could describe the need that the network will attempt to 
address.
    Dr. Gallagher. Thank you very much. So the gap in the R&D 
cycle that is being looked at is basically between an area 
where we are quite comfortable with public investment, largely 
at universities or national labs, where we are looking at basic 
or early applied research very clearly pre-competitive and it 
is performed and funded in very different ways than another 
sector, which is very late-stage technological development 
performed by individual companies through their own funds. What 
we are concerned about is that there is both almost no programs 
in the middle bridging those two, and the degree of segregation 
between those two groups of participants has in fact grown 
wider. It has grown wider by shifts in funding both on the 
federal side in terms of the balance between applied and basic 
R&D, and it has also become a larger gap in terms of the nature 
of what private industry funds. And so the answer appears to be 
creating a vehicle where companies can leverage each other, in 
other words, create--pool the risk and address--because we want 
to move the private sector into the earlier stage research to 
begin to perform that, and we also want to put it in a place 
where the folks doing the early-stage research have access. So 
you are creating a mixing zone.
    So it is really trying to address this very important gap 
between two different communities, and that is one of the 
reasons I believe that we are hearing such broad support from 
across industry, from across academia, and from across all 
these associations that this type of entity is really quite 
important.
    Ms. Edwards. Thank you, Dr. Gallagher, and I wonder if you 
could share with us (because I think a lot of us have questions 
about this, given that NIST has historically focused mostly on 
intramural research): in addition to the funding level that is 
proposed for the program, it really dwarves NIST's entire 
current annual budget. Can you explain why NIST is the best 
equipped to oversee the implementation of the network?
    Dr. Gallagher. So it is a great question. You know, since 
prior to the late 1980s NIST research funding was all 
intramural. You are correct. And the addition of intermural 
programs largely came in the late 1980s. So NIST does have some 
experience running these programs. One thing to emphasize, 
though, is that the NNMI is envisioned as a multi-agency 
effort. This is really not about giving NIST a unique program. 
This is designed to support, because manufacturing supports a 
wide variety of agencies. This ability to act in concert to 
bring a spectrum of efforts and looking at manufacturing from 
the Defense Department, from the Energy Department, from NASA, 
from National Science Foundation and NIST is critically 
important.
    That being said, from a clear accountability perspective, 
it was viewed as, while we will build in strong interagency 
vehicles to make this work as a multi-agency effort, somebody 
has to basically be on the hot seat for making sure this is 
done right; and in particular, since the idea is to have a 
network, something that links these different entities together 
so that again there is a whole greater than the sum of the 
parts, an ability to disseminate best practice. NIST has 
tremendous experience in networking manufacturing-related 
activities together. That is really what MEP is, and we have 
had experience at running these types of programs, and I think 
the consensus from the interagency community was that it really 
made the most sense for NIST because of its broad mission to 
support the competitiveness of U.S. manufacturing was the 
natural sort of home, but this really is done through a multi-
agency effort.
    Ms. Edwards. Thank you.
    My time is expired. Thank you, Mr. Chairman.
    Chairman Quayle. Thank you, Ms. Edwards.
    I now recognize the gentleman from Texas, Mr. Smith, for 
five minutes.
    Mr. Smith. Thank you, Mr. Chairman.
    Dr. Gallagher, first of all, let me thank you for the good 
work you have been doing, particularly in regard to scientific 
research and developing standards. I think NIST has done an 
outstanding job in those areas, and you get the credit.
    However, in regard to NNMI, I wish the Administration were 
more interested in creating jobs the old-fashioned way, which 
is to say, either lowering taxes or keep taxes low. That 
encourages businesses to invest and produce and create jobs 
that way, and also in reducing the burden of regulations on 
small business, or any business as far as that goes. As you 
know, this Administration has broken all kind of records with 
its proposed regulations, I think over 200 in 2011 alone, each 
of which would cost businesses over $100 million, and here we 
have President Obama twice publicly, I think first in his State 
of the Union address and the second during an address to a 
joint session of Congress, talking about the need to reduce the 
burden of these stifling regulations on businesses. We have 
heard the words and yet his actions contradict those words. And 
so like I said, I wish this Administration were more committed 
to creating jobs by reducing regulations and keeping taxes low.
    I hope this NNMI initiative is not just another example 
of--or a smaller version, for instance, of the stimulus plan, 
$800 billion there, which we saw did not work, did not keep 
unemployment below eight percent, and in fact, even the 
President admitted there were very few shovel-ready jobs 
created and very few jobs created as a result.
    In this case, you have come out with a one-time-only one-
year mandatory spending of $1 billion. I don't know why we 
expect this to be any better or to perform any better than 
other stimulus bills that the Administration has advanced that 
have not particularly worked. And I think this follows up on a 
question you were asked earlier. Why is it that we haven't seen 
any specific legislation, legislative language in regard to the 
NNMI program? And when are we going to see that language?
    Dr. Gallagher. Thank you very much. So let me focus on the 
why is this one time and what is the path forward.
    Mr. Smith. Well, actually if you will answer that last 
question first, and then you can go back to that. But why 
haven't we seen language and when are we going to see language 
specifically proposed by the Administration?
    Dr. Gallagher. Very good. So the Administration did not 
intend to send over a ready-to-enact piece of legislation. The 
reason being for that is we believe that the best vehicle to do 
this would be to come up with a legislative proposal that can 
have broad bipartisan support.
    Mr. Smith. Okay. Who is going to write that, or who are the 
people working on that?
    Dr. Gallagher. Well, I think we are hoping that that effort 
would be led from the Hill and that we would work with any 
interested committees that would be willing to do that 
including----
    Mr. Smith. Has the Administration approached any 
Congressional leaders yet, and if so, who have they approached?
    Dr. Gallagher. The approach--the Administrative strategy 
has been led by the White House, and I am sure they have had 
discussion with manufacturing caucus-related groups. I don't 
have a list of who they have specifically talked to at this 
point. From my perspective, we have been talking with everyone 
who has expressed an interest and has wanted to talk about the 
proposals. And the NIST focus has been to try to outline those 
parts of the program that would be required to be defined in 
legislation that would make these institutions function 
effectively. The issues of how to identify the costs, the 
outlays and the offsets is not something within NIST we have 
been specifically focused on.
    Mr. Smith. Okay. Not specifically focused on worries me a 
little bit. When you had the Administration propose a new 
program and you can't say who they talked to in Congress and 
you can't say specifically where the money is going to come 
from, that begins to look more and more like a political 
election-year-eve initiative that is not really serious or is 
not conceived to be a piece of legislation that will actually 
pass. Do you understand why we might think that when you can't 
say who you have approached and you can't give us any 
specifics?
    Dr. Gallagher. I can see why, but I have to say, it is my 
failure to communicate effectively, not a signal of the 
Administration's intent and priority to this program. I think 
our goal would be to find a vehicle, a piece of legislation 
with as broad as support as possible. I don't think this is 
being done for any political----
    Mr. Smith. I am sure the Congressional leaders would 
welcome that approach when and if it occurs, and can you tell 
us again where that likely source of the $1 billion might be 
since it is going to be redirected from other programs? What 
other specific programs will be cut?
    Dr. Gallagher. So my understanding is that the 
Administration's 2013 budget has identified a number of 
potential offsets.
    Mr. Smith. You mentioned that a while ago, but you can't 
tell us specifically where those offsets are?
    Dr. Gallagher. No. I think there were several hundred 
million dollars worth of offsets that were identified, was my 
understanding, and I at this point could not do that, but I 
would be happy to follow up with you.
    Mr. Smith. Okay. I hope you will follow up where the 
specific offsets might occur, what language--surely the 
Administration's legislative shop has some specific ideas, but 
until they come up with the specifics, I think I am slightly 
skeptical about how serious the Administration is.
    Thank you, Dr. Gallagher.
    Dr. Gallagher. Thank you.
    Chairman Quayle. Thank you, Mr. Smith.
    At this point, I would actually like to ask unanimous 
consent to put into the record the recent article in USA Today 
by Dan Ikenson regarding various policies to help the 
manufacturing sector and the broad business sector. Without 
objection, it will be included as part of the record.
    [The information may be found in Appendix 2.]
    Chairman Quayle. I now would like to go to--recognize Ms. 
Bonamici from Oregon for five minutes.
    Ms. Bonamici. Thank you, Mr. Chair.
    Dr. Gallagher, thank you so much for being here today to 
talk about the importance of manufacturing and the critical 
role that we can play at the federal level to support 
innovation in manufacturing. I know last week was Small 
Business Week, and I spent the district work period touring 
small businesses across northwest Oregon, and the topic of 
manufacturing and innovation naturally came up often, as it is 
directly related to small business job growth and job creation 
in my district. I was in Astoria, Oregon. I had a great 
discussion with a small business that was recently able to 
start canning their own product, allowing them to sell their 
product throughout the Northwest. I am proud to share this 
example with my colleagues here today. There are a number of 
efforts and opportunities in place that seek to leverage 
federal resources through partnerships with State and private 
sector stakeholders to boost manufacturing.
    Dr. Gallagher, can you share with us how the proposed 
National Network for Manufacturing Innovation as part of the 
comprehensive manufacturing innovation strategy will help small 
businesses like the one in my district continue to grow?
    Dr. Gallagher. I am delighted to, and I appreciate your 
comments and observations about the MEP program in Oregon. That 
is great to hear.
    So there are a couple of overlaps between interactions the 
existing MEP program and the NNMI. The NNMI, as I said, is 
really about creating shared research capacity. One of the 
interesting developments is that we tend to think of industrial 
R&D as largely based out of big companies. That is not true 
anymore. The small and midsized manufacturers have become 
centerpieces of innovation and manufacturing technology, 
process, new materials, and that is particularly true in 
emerging technology areas. So one of the things that we 
envision is that the NNMIs, the Institutes created under this 
program would be specifically designed to foster and 
incorporate small business participation, small manufacturing 
participation, and one of the ways that they can provide that 
outreach is by creating partnerships with the local MEP 
programs, which are already networks to tens of thousands of 
local manufacturers from across the country. So you have an 
existing network that is working with existing small businesses 
and supporting their competitiveness including looking at, you 
know, diversification, introduction of new technologies 
supporting trade, and we are talking about a network of 
research capacity which brings together companies and academia 
to work on enabling technology. These two networks, of course, 
can feed off each other, and that is probably the biggest 
synergy between these two programs.
    In fact, the concept of a network to disseminate not only 
best practice between the institutes, but to have sort of 
shared metrics so that as these institutes evolve, you know, 
they grow and they develop in a way that is most supportive of 
their goals, something we learn from MEP.
    Ms. Bonamici. Thank you very much. And also we know that in 
order to maintain a strong manufacturing base in this country, 
we need to develop advanced manufacturing technologies, 
processes and materials--but we also need to develop a highly 
skilled workforce that is capable of filling the high-
technology and manufacturing jobs of the future. Can you 
explain how workforce development will be incorporated into the 
National Network for Manufacturing Innovation Programs?
    Dr. Gallagher. Yes, I can. So I think the interaction with 
workforce, which, as you point out, is one of the key things 
that comes up when we talk to every manufacturing entity, 
really has sort of two aspects to it. As a shared R&D 
infrastructure, you know, and manufacturing employs some 70 
percent of the private sector researchers, engineers and 
scientists in the United States, there is a direct tie with 
that type of workforce development. This is a venue for 
bringing in top research talent working on industrially 
identified and relevant programs and it creates clear pathways 
to that workforce need.
    But the other interaction is a more indirect one, that 
these institutes are expected to be magnets for co-location for 
synergies between the manufacturer activity itself and the R&D 
activities including technical scale-up. So, you know, we 
envision, you know, technical and vocational training programs 
including community colleges, that there will be opportunities, 
the knowledge creation that is happening to these institutes to 
support broader workforce training programs in these regions 
that would be around these institutes.
    Ms. Bonamici. Thank you very much.
    I yield back.
    Chairman Quayle. Thank you, Ms. Bonamici.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Hultgren, for fve minutes.
    Mr. Hultgren. Thank you, Mr. Chairman. Thank you, Dr. 
Gallagher.
    I am confused about the purpose of the institutes. The 
Administration Website states that they may conduct basic and 
applied research, but other documentation suggests that the 
institutes will focus on applied research in order to scale up 
new technologies in the United States. This definitely would 
squarely place such work outside the basic research domain. 
Which is it?
    Dr. Gallagher. Both. So the intent is to have--the 
institute program is designed to stand up and form these 
institutes where you can have mixed--you can bridge this gap 
between basic and applied and between much more developmental 
activities. So the institutes themselves need to support a 
broad range of research activities. I think one of the key 
questions you are raising is, where is the federal funding 
going? The federal funding for those research activities would 
be done on a project-by-project basis. So it would certainly be 
appropriate for some project being done maybe at the institute 
to be supported by federal funding if it was in basic--in 
appropriate basic or applied window, but if it is really out in 
an area that is getting closer to technology development for a 
particular company, we do not envision that to be something 
that would be publicly funded. In fact, one of the major 
objectives of these institutes is that they create a venue, a 
vehicle that is attractive for increasing investment in R&D by 
companies.
    Mr. Hultgren. Would there be a check on that? Because I 
really do think at a time like this, when resources are so 
tight, I am a strong proponent of supporting basic scientific 
research, but it is really that application where the private 
sector has shown an ability and a willingness to do it. How are 
we going to make sure that we are not spending federal dollars 
in an area that we shouldn't be?
    Dr. Gallagher. So there are two tensions here. The way I 
think this will play out in practice is through the actual 
cooperative agreements that cover project-specific activities, 
and that is how we will ensure that, you know, federal funding 
doesn't go for something that is inappropriate. There is going 
to be a mixture of activities in these institutes, and that 
can't be a recipe for inappropriately mixing funding against 
what it was purposed for.
    That being said, you know, you are raising this important 
issue, which is in tight times, we focus to mission unique, and 
the government provides basic research, and that is part of 
what has been driving this strong segregation of participation. 
So we are fighting--you are exactly right. You don't want 
inappropriate funding, but you also still need to create a 
vehicle where that proximity and that technical interaction can 
continue to occur, and that is kind of the key question.
    Mr. Hultgren. I do wonder, and I can go on to the next 
point, you know, would we really need such direct support for 
manufacturing applied research and development? Would it even 
be necessary, you know, if government intervention was directed 
instead at reducing general taxes, regulatory burdens that 
really are hindering American companies? I wonder if there is 
another way at getting this accomplished rather than some of 
the direct support?
    Dr. Gallagher. So I am going to--you know, my take on that 
would be, there are two issues here. One is, I would agree with 
you entirely that for manufacturing to be competitive, we have 
to do all these things. It is not enough to simply have access 
to good ideas and technology if you can't compete and sell it 
in a global market. No question. The institutes are a piece of 
a larger puzzle and the piece that they are after is making 
sure that the transfer of knowledge is as efficient as possible 
between the investments we do make as a country in basic and 
applied research and what we hope to be a commercial use in 
manufacturing.
    That gap is real, and I think even doing things like 
lowering R&D--increasing the R&D tax credit and things of that 
type, while it supports efforts by individual companies to 
enhance and grow their research investments, the missing issue 
is how to get them to work in longer intermediate-range 
research where individual companies have been reluctant to make 
those longer-term commitments, and we believe that by working 
together in these type of shared research institutes and this 
type of shared research infrastructure that you facilitate that 
because they leverage each other's investment, and that is 
really the idea both behind consortia and behind the call for 
this type of infrastructure.
    Mr. Hultgren. My time is running low, but if I can try and 
get one more very specific funding question. Information on the 
fiscal year 2012 funding for the pilot institute has been 
unclear as to the total amount of funding available and which 
agencies are supporting the pilot financially. In some cases, 
at least $45 million has been posted while another up to $45 
million. I wonder if you could please clarify briefly the 
amount that has already or will be spent from fiscal year 2012 
funds on the pilot and which agency funds are being used.
    Dr. Gallagher. So the quickest way for me to give you the 
full breakdown will be to share a table with you afterwards, 
which I am happy to do.
    Mr. Hultgren. Thank you.
    Dr. Gallagher. But it is up to 45. The amount that is part 
of the joint call, which is part of a joint solicitation that 
is being carried out by the Defense Department, NSF, NASA and 
DOE is 30, and then what we have identified is once the 
institute is established, it would be a likely candidate for 
additional funds on a competitive basis, and that is where the 
``up to'' comes from, but I think the table will answer your 
question most succinctly.
    Mr. Hultgren. Okay. Good. Thanks, Dr. Gallagher.
    Thank you, Mr. Chairman. I yield back.
    Chairman Quayle. Thank you, Mr. Hultgren.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Lipinski, for five minutes.
    Mr. Lipinski. Thank you, Mr. Chairman.
    I want to thank Dr. Gallagher for your work and for your 
testimony. I certainly think the NNMI is a very good and 
important concept, and I think you have been doing a good job 
of explaining why that is. I think one of the things that we 
really have to look at is: we invest a tremendous amount in 
research. The Federal Government invests a lot in research. And 
right now, one of the biggest barriers to advanced 
manufacturing commercialization is that the development of new 
technologies are sometimes too risky or too long-term for 
industry to develop on its own, and that is what it sounds like 
to me what you are aiming at doing here.
    I have pushed the Federal Government to develop a national 
manufacturing strategy. We are actually having a hearing in 
Energy and Commerce tomorrow on a bill I have to implement a 
national manufacturing strategy. I have also championed 
programs like one that just began at the NSF called the 
Innovation Corps, which helps to teach researchers how to 
commercialize research that they have had funded already by the 
Federal Government.
    So I think the NNMI certainly can help, but obviously we 
need to work through these things. I am looking forward to 
working with you to figure out how exactly we are going to 
implement the NNMI. It is my understanding from your written 
testimony that this model has been successfully deployed on 
other countries. You have looked at that. I know the Fraunhofer 
Institute in Germany is one example. I know a lot of their 
funding, much of their funding comes from doing contract 
research. This is not something that you had mentioned, or at 
least I hadn't noted it. Do you anticipate that that will be 
part of this initiative?
    Dr. Gallagher. I think the answer is yes. You know, the 
development of a stable business model for these institutes is 
going to be something that will need to be played out in the 
solicitation review and award process for this program. We 
envision this as a one-time investment with the government 
playing this convening and coordination role and allowing some 
time for the private sector entities that are going to work 
together in these institutes to develop the vehicles for a 
sustainable business model. The way it has played out in many 
countries is a combination between support to the institute, 
what I would call base funding to keep the institute's overall 
functions working, and the research activities that are covered 
on a project-by-project basis. You can call that contract or 
grant or cooperative agreement, but there would be, you know, 
specific funding. And I think that is probably going to be the 
case here just because of the diversity of types of research 
that are going to be done there and addressing the need to make 
sure that federal funding is used for the purposes of federal 
funding, and private-sector funding that is brought in is for 
used for the companies that want to use it for.
    So I think you are right. This is a shared infrastructure 
and there will have to be some base funding of some type, 
probably through some collective action on the part of the key 
participants. Whether it is consortia-type program, I don't 
know. We envision no long-term role for the Federal Government 
supporting that, and then a collection of project-specific or 
contract-type work that would cover the different types of 
research efforts underneath the institute. That seems like a 
realistic assumption to make on how a possible business model 
would go. This is, by the way, the subject of questions under 
the request for information that is ongoing now.
    Mr. Lipinski. Well, obviously, there are a lot of things 
that we have to work on. I want to take the last minute to ask 
one other question.
    What can be done as we develop this initiative to ensure 
that we are not just helping the Chinese to build better iPads? 
How do we--what steps can we take to make sure that products 
that are developed from work at the NNMI are commercialized 
here in America?
    Dr. Gallagher. So one part of my answer would be, we should 
build these institutes because to not do it is actually 
enabling foreign competition to reap the very open and diverse 
output that we have from our basic and applied research simply 
because we are not taking steps to nurture that next stage, 
which is the translation of that know-how and knowledge into 
the commercial sector. So I would argue right now, we actually 
do disadvantage ourselves by basically doing one part of it, 
publishing it wide open and then stopping and not providing 
vehicles for the efficient translation into companies.
    Mr. Lipinski. I agree with that, but the iPad was really 
developed here but now it is all being manufactured overseas.
    Dr. Gallagher. And so this points to the synergy that 
happens between the actual manufacturing activity and the 
innovation. The reason these are physical institutes for 
research and development around manufacturing is to support and 
drive this collocation synergy. We would want to see 
manufacturing and their suppliers and this ecosystem being 
built around these activities. That is the best thing we can do 
to ensure that the know-how that we generate in this country is 
translated into the actual maximum economic benefit by 
producing, selling and making these commercial products. A good 
example of that is what is happening in Albany, New York, in 
the nanotechnology arena where this shared research capacity 
looking at this emerging area of nanomanufacturing is driving 
very strong attraction by other companies to want to be located 
near that to reap the benefits of both the knowledge that is 
being created and the talented researchers in that area, and so 
I think we are doing a lot in that case. That region is doing a 
lot to capture as much as possible that knowledge and ensure 
that we benefit from it.
    Mr. Lipinski. Thank you. I yield back.
    Chairman Quayle. Thank you, Mr. Lipinski.
    The Chair now recognizes the gentleman from Minnesota, Mr. 
Cravaack, for five minutes.
    Mr. Cravaack. Thank you, Mr. Chair. I appreciate being 
recognized, but since I just came in from another committee 
meeting, I would like to yield my time to Mr. Palazzo.
    Mr. Palazzo. Well, thank you, Mr. Chairman. Thank you, Mr. 
Cravaack, for doing so.
    Dr. Gallagher, thank you for being here today. As I see it, 
you are coming in, or the Administration is requesting $1 
billion, and I have tried to review everything, and what I keep 
coming back to is, I would much rather spend $1 billion on 
roads and bridges or possibly even $1 billion into the NASA 
Heavy Lift program.
    But with all that being said, I would like to say a 
couple--provide a statement for you, and I think it will be 
pretty clear. You may have heard some of these questions 
earlier. But Thomas D. Hopkins, a researcher for the Small 
Business Administration, said in his report, a Survey of 
Regulatory Burdens, ``Compliance with regulation imposes 
burdens on businesses for which they receive no explicit 
benefits or compensation.'' The National Association of 
Manufacturers asserts that their industry is at a significant 
competitive disadvantage in the global marketplace as a result 
of the corporate tax rate in America, which is the highest 
among developed nations. Also, a recent Small Business 
Administration study showed that U.S. manufacturers bear $162 
billion annual burden to comply with federal regulations. These 
are dollars manufacturers are not spending on capital 
investment or hiring new workers. So you are asking for a one-
time investment of $1 billion, but as a former small business 
owner and a CPA, I would be trying to remove these hurdles to 
job creation and American competitiveness before I invested $1 
billion.
    And so with that, in the face of the uncertain future of 
taxation and the regulatory environment on manufacturers in 
America, what is the NNMI going to do to reduce these burdens 
on U.S. manufacturers?
    Dr. Gallagher. So I would agree with you that in 
manufacturing, we have what I call a chain of performance 
problem, that all of these things have to work in concert, and 
I am actually in agreement with you that we have to look at the 
business condition that these companies are operating in 
including the tax rate. We agree. We have to lower the 
corporate tax rate for these businesses. We want to provide 
incentives for them to do research and development. We have to 
address trade promotion, make sure the barriers are down so 
they can sell into global markets. We have to make sure they 
have access.
    So one of the challenges we will face in working together 
on manufacturing is that it always brings up a very broad 
spectrum of issues and they really have to work in concert. The 
NNMI is really about one type of barrier that they face and the 
barrier is access to the ideas and the talent that are the new 
products that they are going to make, and we have seen this. It 
is quite compelling that the manufacturing sector's 
competitiveness is tied to being at the cutting edge of these 
emerging technology areas, and if there are barriers there and 
our companies are at a disadvantage in harnessing the know-how 
that is being created by our scientists, by our engineers, by 
innovators and entrepreneurs, then that is a different type of 
barrier. It may play out on a different time scale than 
immediate barriers like, you know, certain types of tax issues 
or regulation, but it is a barrier nonetheless.
    And that is going to be a challenge, and I think that is 
why we want to work with you across a portfolio of programs, 
but this NNMI won't solve all of these different issues and it 
is not intended to. It is designed to address this one barrier 
that we are concerned about, which is this growing valley of 
death, if you will, between basic public sector-funded research 
and the private sector development.
    Mr. Palazzo. So basically you agreed with me, being 
overtaxed and overregulated, and again, it just comes back. If 
I had, you know, a billion dollars and I was going to invest in 
a company and they had internal control problems, fiscal 
problems, I would want them to clean those problems up before I 
took that kind of an American investment, which is not my money 
to give, it is the America taxpayers', it is the people who get 
up every day, go to work to put food on their table, to provide 
the best education for their children and provide a home, safe 
transportation, and I would expect if they were in here, they 
would be demanding some governmental reforms, you know, like a 
lower corporate tax rate. Removing these obstacles to job 
creation and possibly addressing just the frivolous litigation 
in our society that three of the greatest things, many of them 
generated from former Congresses that are basically providing 
that wet blanket in our economy because I do believe that 
manufacturers free, if we just unshackle them, they would be 
able to go out and compete globally and they will fill any need 
that we need them to fill. So thank you for your time.
    Mr. Chairman, thank you. I yield back.
    Mr. Cravaack. Reclaiming my time, and I will yield back to 
the Chair.
    Chairman Quayle. Mr. Cravaack, do you have any questions? 
Are you ready?
    Mr. Cravaack. If there are no more questions and my time 
allows, I will be glad to.
    Chairman Quayle. Mr. Palazzo, I recognize you for five 
minutes. Do you want to yield to Mr. Cravaack?
    Mr. Palazzo. Thank you, Mr. Chairman. I have to leave, so I 
would love to yield my five minutes to Mr. Cravaack.
    Mr. Cravaack. I just love parliamentary procedures.
    Thank you, Dr. Gallagher, for being here today, and thank 
you for addressing so many very important issues. We are a 
manufacturing giant. We just have to unleash the 
entrepreneurial spirit in this great country and has always 
been in this country, and Mr. Palazzo hit it right on the head 
in regards to--there are two things when I talk to 
manufacturers. There are two things they talk about: taxation 
and regulation. Those are the two main components that they 
talk about.
    So with that said, you know, I want to invest in making 
sure that we have a return on this investment. I understand you 
are getting a billion dollars, but I want to make sure at the 
end of the five years, we have a result of that investment. So 
can you tell me how you are planning to move this forward after 
five years so we don't see you again in five years asking for 
another billion dollars?
    Dr. Gallagher. Yes. I think the way we would like to do 
this is make the development of a sustainable business model 
for these institutes. This is really about the private sector 
being able to work together to cover this gap.
    Mr. Cravaack. When you--sorry. When you say a sustainable 
business model, and you have said that a couple of times, how 
can you produce a sustainable business model without--with 
innovation, of course, making more efficient, better 
productivity, understand that, but until we get to the true 
root cause of why companies go overseas, which is taxation and 
regulation, is that going to be part of your paradigm?
    Dr. Gallagher. Well, look, as I said, we agree that the 
taxation and regulation is part of creating a competitive 
business environment. There is no disagreement there. But the 
reasons companies go overseas, and there have been a number of 
recent surveys that have looked at this, are actually broader 
than just the taxation and regulation or labor cost issues. 
Those are clearly drivers, but one of them is that they are 
following capacity. In other words, if you look at what is 
happening in R&D investment by companies overseas, it is 
growing much faster overseas than it is growing in this country 
and it is growing specifically in those areas where the 
manufacturing sector is growing, so it is Asia, the Asia Eight 
or the Asia Ten or where all the R&D growth is occurring. So 
what is happening in Asia is, they are actually using the 
synergy between manufacturing and research to build their 
research capacity. They are working it the other way. They 
first come in with, you know, the advantage of relatively cheap 
labor and they build their way and move up the value chain and 
so they are building research capacity, and then what happens 
is, you get the synergy effect where it is easier for a company 
or they make a decision just because we have hollowed out a 
capacity in the United States that for those reasons access to 
talent, access to--that they move there, and that is really 
what these are about addressing because we don't want to lose 
that capacity to translate the knowledge that we are creating 
into U.S.-based companies and let them profit from that. And 
what will happen of course is, you are right, and from a 
business perspective, you are looking at short-term cost and 
those conditions matter. I don't disagree with you. But there 
is also strong evidence that you can make a decision that makes 
sense on the short term where you decide to offshore something 
because it is cheaper to make that product, and what we find 
now is that you have actually lost the capacity to generate the 
next generation of product. And that is a long-term tradeoff 
that we are trying to address here.
    Mr. Cravaack. Thank you. We have talked a little bit about 
the public-private partnerships and the co-investment from 
participating entities. Is it expected there is going to be 
funding of an in-kind match? Is there a minimum investment? Who 
is going to invest? How much are they going to invest as part 
of this partnership?
    Dr. Gallagher. So our goal in doing these is to maximize 
the private sector investment in the institutes, and that would 
be both in evaluative criteria in evaluating these proposals. 
It is even true in the pilot that there has been stated an 
expectation, they would like to see at least 50 percent match 
in terms of the participants. And in addition, we want to see 
that match change over time. In other words, we would like the 
Federal Government to not have a mortgage, a long-term role in 
supporting these. We are trying to support the creation of 
these institutes where you can have shared activity among 
companies and then be able to get out, and that has happened 
before. The semiconductor industry and the auto industry where 
the government played a very important convening role to set 
these up has been able to back out over time and those 
companies and sectors continue to enjoy very strong 
interactions across companies and have very strong applied 
research activities, so that is the goal here.
    Mr. Cravaack. If the Chairman would indulge me a little 
bit, do we have--these private-sector entities, have they been 
identified and have they had a commitment?
    Dr. Gallagher. For the pilot?
    Mr. Cravaack. For the pilot.
    Dr. Gallagher. So the pilot right now is basically 
undergoing a call. There was an industry day or proposer's day 
that was hosted by the Defense Department a couple weeks ago. I 
understand there were at least 20 potential groups that were 
looking at forming these, and that is under a very abbreviated 
call. I think it was only 30 or 40 days or something of that 
type. So the interest appears to be exceedingly high. That 
would be my early read.
    Mr. Cravaack. Thank you, Dr. Gallagher. I appreciate your 
time, and I will yield back.
    Chairman Quayle. Thank you very much, Mr. Cravaack.
    I thank Dr. Gallagher for his valuable testimony today and 
the Members for their questions. The Members of the 
Subcommittee might have additional questions for the witness, 
and we will ask you to respond to those in writing. The record 
will remain open for two weeks for additional comments and 
statements from Members. The witness is excused.
    Thank you all for coming. This hearing is now adjourned.
    [Whereupon, at 11:06 a.m., the Subcommittee was adjourned.]

                   Answers to Post-Hearing Questions

Responses from Dr. Patrick Gallagher were not submitted.

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                               Appendix 2

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                   Additional Material for the Record


 Materials Submitted by Subcommittee Ranking Member Donna F. Edwards, 
            House Committee on Science, Space and Technology

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  Materials Submitted by Subcommittee Chairman Benjamin Quayle, House 
               Committee on Science, Space and Technology

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