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



                                                        S. Hrg. 112-109

MANUFACTURING IN THE USA: WHY WE NEED A NATIONAL MANUFACTURING STRATEGY

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 22, 2011

                               __________

          Printed for the use of the Joint Economic Committee














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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE                               HOUSE OF REPRESENTATIVES
Robert P. Casey, Jr., Pennsylvania,  Kevin Brady, Texas, Vice Chairman
    Chairman                         Michael C. Burgess, M.D., Texas
Jeff Bingaman, New Mexico            John Campbell, California
Amy Klobuchar, Minnesota             Sean P. Duffy, Wisconsin
Jim Webb, Virginia                   Justin Amash, Michigan
Mark R. Warner, Virginia             Mick Mulvaney, South Carolina
Bernard Sanders, Vermont             Maurice D. Hinchey, New York
Jim DeMint, South Carolina           Carolyn B. Maloney, New York
Daniel Coats, Indiana                Loretta Sanchez, California
Mike Lee, Utah                       Elijah E. Cummings, Maryland
Pat Toomey, Pennsylvania

                 William E. Hansen, Executive Director
              Robert P. O'Quinn, Republican Staff Director







                            C O N T E N T S

                              ----------                              

                      Opening Statement of Members

Hon. Robert P. Casey, Jr., Chairman, a U.S. Senator from 
  Pennsylvania...................................................     1
Hon. Kevin Brady, Vice Chairman, a U.S. Representative from Texas     8

                               Witnesses
                                Panel I

Hon. Debbie Stabenow, a U.S. Senator from Michigan...............     2
Hon. Charles F. Bass, a U.S. Representative from New Hampshire...     4

                                Panel II

Dr. Mark Zandi, Chief Economist, Moody's Analytics, Philadelphia, 
  PA.............................................................    11
Mr. Alex Brill, Research Fellow, American Enterprise Institute 
  for Public Policy Research, Washington, DC.....................    13
Mr. Jay Timmons, President and Chief Executive Officer, National 
  Association of Manufacturers, Washington, DC...................    15
Mr. Scott Paul, Executive Director, Alliance for American 
  Manufacturing, Washington, DC..................................    17

                       Submissions for the Record

Prepared statement of Representative Kevin Brady.................    38
Prepared statement of Senator Debbie Stabenow....................    40
Prepared statement of Representative Charles F. Bass.............    41
Prepared statement of Dr. Mark Zandi.............................    43
Prepared statement of Mr. Alex Brill.............................    56
Prepared statement of Mr. Jay Timmons............................    62
Prepared statement of Mr. Scott Paul.............................    76
    EPI Briefing Paper article titled ``The Benefits of 
      Revaluation''..............................................    86
Prepared statement of Representative Daniel Lipinski.............    99

 
MANUFACTURING IN THE USA: WHY WE NEED A NATIONAL MANUFACTURING STRATEGY

                              ----------                              


                        WEDNESDAY, JUNE 22, 2011

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, persuant to call, at 10:16 a.m. in Room 
216 of the Hart Senate Office Building, the Honorable Robert P. 
Casey, Jr., Chairman, presiding.
    Senators present: Casey, Klobuchar, and Lee.
    Representatives present: Brady, Duffy, and Mulvaney.
    Staff present: Gail Cohen, Will Hansen, Colleen Healy, 
Jesse Hervitz, Christina Forsberg, Jane McCullough, and Robert 
O'Quinn.

  OPENING STATEMENT OF HON. ROBERT P. CASEY, JR., CHAIRMAN, A 
                 U.S. SENATOR FROM PENNSYLVANIA

    Chairman Casey. The Committee will come to order.
    This morning we are going to go in an order which we 
normally do not. We will have statements after our first two 
witnesses. We are really honored today to have Senator Stabenow 
and Congressman Bass. We will start with Senator Stabenow, and 
I will do an introduction of both of our first witnesses.
    Senator Stabenow is the Chair of the Senate Agriculture and 
Nutrition and Forestry Committee. She is also a member of the 
Senate Energy Committee, the Finance Committee, and the Budget 
Committee. She serves as the Co-Chair of the Bipartisan Senate 
Manufacturing Caucus, and was appointed to the President's 
Export Council by both President Bush and President Obama. She 
has sponsored many initiatives to revitalize our manufacturing 
sector, including the Retooling Loan Program for Advanced 
Manufacturers that is bringing jobs back to the United States. 
Also I want to make sure that I mention she represents the 
State of Michigan, and I know she is very proud of that. And I 
know as a new Senator, she was here a number of years ahead of 
me, she was a mentor to new Senators and continues to serve in 
that capacity.
    Senator, we are grateful you are here with us this morning.
    I would also like to welcome Representative Charles Bass 
from New Hampshire's Second Congressional District. 
Representative Bass has promoted clean alternative energy, and 
serves on the House Energy and Commerce Committee. Prior to 
being elected to Congress in 2010, Representative Bass served 
on the Board of Managers at New England Wood Pellet in Jaffrey, 
one of the leading producers of clean-burning wood pellets.
    Representative Bass previously held the same seat in 
Congress from 1995 until 2007.
    So we will start with Senator Stabenow. We are grateful 
that the Senator and the Congressman are with us today.

STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR FROM MICHIGAN

    Senator Stabenow. Well thank you so much, Chairman Casey, 
and Vice Chairman Brady. It is really wonderful to be here with 
you. And I want to thank you for recognizing the importance of 
manufacturing in this country, and having this hearing.
    I think this is a very, very important hearing and I very 
much appreciate our friendship and working relationship, and 
how you fight for Pennsylvania; but I very much appreciate, as 
Chair and Vice Chair, that you are both focused on 
manufacturing in this country. So thank you.
    We of course understand in Michigan. This is a critical 
issue for us, as it is for your state. In order to have a 
middle class in this country, I firmly believe that we need to 
make things and grow things. And if we make things here and we 
grow things here, the jobs are here. That is pretty fundamental 
philosophy that I operate under, and I think is one that makes 
sense for us.
    We are very proud in Michigan in the last century to be the 
heart of American manufacturing, and are rightfully proud of 
our role in creating the middle class of this country. But for 
too long, we have seen a situation where our companies are 
actually competing against countries. That is really what is 
happening.
    It first started with Japan and their huge investments in 
advanced battery manufacturing, that then allowed their 
automobile companies to be able to move more quickly in terms 
of hybrids and electric vehicles, because they were funding 
that and investing in that--their government was doing that. 
But we are now seeing China, and we all know there are a 
thousand different challenges around China and India have a 
manufacturing strategy. Germany, a very different economy, has 
a manufacturing strategy. They are aiming to compete with us 
because they want what we have had: a robust middle class and a 
strong economy for the majority of their citizens.
    In the years between 1979 and 2009, the United States 
unfortunately lost more than 8 million manufacturing jobs. And 
Michigan alone has lost more than 300,000 manufacturing jobs 
just in the last 10 years.
    During that time, countries like China have been investing 
heavily in emerging technologies, and frankly if they don't 
create it, they'll just steal it from us. They don't seem to 
understand patent law, and we have a number of different 
challenges with China.
    But they have certainly been focusing on renewable energy. 
And we all have been watching that happen. In the next two 
years alone, China will invest almost $15 billion in advanced 
battery technology to compete with us.
    Japan paid, as I said, for almost all of the initial 
research for Toyota to create the batteries for their vehicles. 
And last year, China again invested over $20 billion in their 
solar industries--in their solar industry. Unfortunately, part 
of China's manufacturing strategy, as I indicated, is stealing 
intellectual property and putting up barriers to American 
manufacturers, which is a part of what we need to address in 
terms of fair trade, the ability to have doors open, and to be 
able to have the rules apply on both sides of the door. So 
breaking down international trade barriers is very important 
for us.
    We need to hold China accountable and devote additional 
resources to trade enforcement, and there are a number of bills 
that Senator Graham and I have introduced, and others have 
joined us, to be able to address that.
    But we also have to make strategic investments in clean 
energy technologies. President Obama has challenged us to put 1 
million electric cars on the road by 2015. We all realize that 
by investing in electric vehicle innovation we can create jobs 
in America, and frankly get us off of foreign oil and address a 
number of other issues, including national security.
    So I would urge that we look at what we have done in the 
last two years; we invested $2 billion in the Recovery Act in 
advanced battery innovation and manufacturing. That unleashed 
tens of billions of dollars in private investment.
    While other countries around the world are investing much, 
much more, we found that public/private partnerships create new 
jobs and new industries. In fact, by 2015 we will have gone 
from 2 percent of the world's advanced battery manufacturing to 
the capacity to produce 40 percent of the world's batteries 
because of the public investment unleased to work with the 
private sector.
    Since January 2010, we've created nearly a quarter of a 
million manufacturing jobs. And that is the first increase in a 
decade. Why? Because we've begun to do a few things. And I see, 
as my time is coming to a close, I will just briefly say that 
we have done a number of things focusing on clean energy, both 
advanced clean energy loans that we have done in order to make 
sure capital is available--you mentioned the retooling loans, 
Mr. Chairman, that we did in the Energy Bill in 2007 that has 
actually allowed a number of companies to expand. I will 
mention one great company in Michigan, Ford Motor Company, that 
retooled a large truck plant to bring back the small vehicles, 
the Ford Focus Electric and other Ford Focus options. They are 
bringing jobs back from Mexico related to that production 
because we partnered with them to retool plants.
    So whether it is battery innovation, retooling plants, the 
advanced manufacturing tax credit which we dubbed as 48(c), we 
are in a situation now where we are beginning to see some 
changes because we are investing.
    The only manufacturing tax credit we have on the books 
right now is the 30 percent credit for clean energy 
manufacturing for equipment and buildings that we passed two 
years ago called 48(c). And I would strongly conclude by saying 
we should strongly invest in those things that have begun to 
work. The Advanced Manufacturing Tax Credit now has enabled 
companies in 43 states to be able to open and expand in new 
kinds of technologies.
    And let me just say one final thing. That is, while China 
has 5- or 10-year plans, our policies are too unpredictable. We 
do things a year at a time, if we are lucky. Other countries 
are looking at 5 years, 10 years, or longer.
    For our private sector to have the confidence to invest--
and these are major investments--to create jobs, we need 
longer-term policies. Innovation, fair trade, longer-term 
policies, and I truly, truly believe that if we make the right 
investments, partnering together in a global economy where 
every single company is competing against countries right now, 
we will reinvigorate and create an advanced manufacturing 
economy that is critical for us as we move forward and have a 
strong middle class in this country.
    Thank you very much.
    [The prepared statement of Senator Debbie Stabenow appears 
in the Submissions for the Record on page 38.]
    Chairman Casey. Senator Stabenow, thank you very much. I 
should have mentioned at the beginning of your testimony that 
your statement, your full statement, will be made part of the 
record. And that obviously would apply to the Congressman, as 
well. Congressman Bass.

 STATEMENT OF HON. CHARLES F. BASS, A U.S. REPRESENTATIVE FROM 
                         NEW HAMPSHIRE

    Representative Bass. Thank you very much, Mr. Chairman, and 
I would like to have my statement made a part of the record. I 
appreciate the opportunity to testify before the Committee 
today.
    My home State of New Hampshire I believe is an excellent 
example of a state with a diverse economy and a diverse 
manufacturing sector. We have low unemployment, less than 5 
percent, 4.7 percent the last statistics. We have a highly 
educated, highly skilled work force, and a lower tax rate than 
49 other states in America.
    We have small government, and we have an economy I think 
that benefits from those factors. I hope that my perspective, 
both as a manufacturer and as a Representative of the State of 
New Hampshire, will be useful in this discussion.
    We have large employers. BAE Systems, employing more than 
5,000 people in the defense industry. In fact, 11 percent of 
the total output of our economy is directly associated with 
manufacturing. But it has not always been that way or, put it 
this way, the output has not been the same.
    My ancestors settled in the State of New Hampshire in the 
mid-1700s. They were farmers, and they grew flax. And it was a 
miserable existence. Their children built the Phoenix Mill in 
Peterborough, New Hampshire, which was a manufacturer of--it 
was a textile manufacturer. They took the sheep, and so forth, 
and started making clothing.
    Throughout the next 200 years, the economy evolved in the 
State as a manufacturing economy in textiles, in shoes. In the 
1950s, New Hampshire was one of the leading defense contractors 
in the country. In the early to late 1990s, New Hampshire was 
number two in the Nation for high-tech employees. And now where 
are we today?
    Well, as Senator Stabenow so articulately discussed, we are 
hoping to be able to lead the way in the development of 
technologies in the area of alternative energy. And it is one 
of my passions in my, shall we say my new life here in the U.S. 
Congress.
    All in all, we survived because we have an environment 
where we create the ability for manufacturers to thrive in an 
environment that supports entrepreneurship. It believes that 
capitalism is not a dirty word. Where the need for a safe 
workplace, for good environmental controls, for good access to 
products--and make sure they are what they are supposed to be--
where that is balanced with the need not to tie down our 
business community to the extent that they are spending 
unnecessary sums of money in labor trying to meet regulations 
that are not necessarily in the best interests of anybody.
    I ran for Congress in 1994 because--or the tipping point 
was in my company. I went to the Xerox machine one day--this 
was in 1994--and there was this enormous placard over the 
machine that the Xerox maintenance guy had put up there, and it 
explained chapter, after chapter, after chapter about how I 
needed to do this or that in order to copy paper because the 
toner that was in there might harm me forever. And I had been 
using this machine for 10 years. I felt fine.
    And I could not believe--I asked the Xerox guy, and he 
said: Oh, we have to put that up there now. It's part of the 
rules, and you have to read it, and we are going to have to 
tell you about it.
    I said, something is wrong here. Something is wrong. And we 
owned a manufacturing facility that was in full compliance with 
OSHA, then MOSHA appeared. Now it's in a state that starts with 
``M.'' MOSHA's regulations were different from OSHA's 
regulations. So we didn't know which set of regulations in our 
factory we were supposed to follow. Because if we followed 
MOSHA, we might be in noncompliance with OSHA, and vice versa.
    It was very perplexing. This is not good for manufacturing 
in America. Now I am as much in favor as anybody of a safe 
workplace, but we have to apply a level of cost/benefit to all 
the interrelationship between government and manufacturers.
    Like many of us here, I watch occasionally shows on TV. 
There's one I recall called ``How It's Made.'' And if you can 
get by the obnoxious music, it is really quite extraordinary, 
the level of sophistication that we have in manufacturing, and 
every one of those little shows is about American manufacturing 
and how diverse we can be.
    If we can keep our tax rates competitive globally, if we 
can balance regulations so that the consumers and public and 
working Americans are safe, yet we can compete with other 
manufacturers around the world, we will stay ahead of China. We 
are well educated. We are like 10 to 1 more productive on a 
per-capita basis than Chinese workers. But we need to have a 
good, competitive workplace. We need to be able to trade, and 
we need to be able to continue to have a well-educated 
workforce. We do not need the government to tell us how to 
succeed in manufacturing. I have done it, and I did it without 
any help from the U.S. Government.
    Thank you very much.
    [The prepared statement of Representative Charles F. Bass 
appears in the Submissions for the Record on page 39.]
    Chairman Casey. Congressman, thank you very much.
    As is often the case when Members of the House and the 
Senate testify, we usually do not have a lot of questions 
because I know you are busy, unless Congressman Brady, our Vice 
Chair, has questions? I just wanted to thank you for your 
testimony. If we have any--and I will speak for myself--I will 
submit them. But I know you might have places you need to get 
to.
    Vice Chairman Brady.
    Vice Chairman Brady. No, I agree with you. I just want to 
thank you for holding this hearing, and to thank you for this 
testimony. It is real-life testimony, and we need to hear it as 
we look at how do we revive this economy and how do we keep a 
very strong, important part of our sector, manufacturing, 
moving forward.
    So I want to thank Senator Stabenow and Congressman Bass 
for being here today and leading off this hearing.
    Representative Bass. Thank you.
    Senator Stabenow. Thank you very much.
    Chairman Casey. Thank you, both.
    As we are moving to our second panel, I will begin my 
opening statement so we can keep things moving in the right 
direction.
    First of all I want to thank everyone for being here to 
discuss a critically important issue--manufacturing in the 
United States of America. The subtitle for our hearing is: Why 
we need a national manufacturing strategy.
    I am pleased to hold this hearing today, along with Vice 
Chairman Brady, to discuss the critical role that manufacturing 
plays in the United States economy and the actions Congress can 
take to strengthen and revitalize the manufacturing sector.
    For decades, manufacturing has been a pathway to the middle 
class for millions and millions of American families. We made 
world class products over many years, whether it was steel, 
cars, clothes, or furniture. And the people who made these 
products were paid good wages with solid benefits at the same 
time.
    But in the past three decades, more and more of these jobs 
have moved overseas to developing countries with abundant 
supplies of cheap labor. The unfortunate reality is that our 
trade policies have failed to protect our workers from unfair 
trade practices such as currency manipulation, loose 
enforcement of intellectual property rights, and lax 
environmental protection in other countries.
    When we lose these jobs overseas, of course, we lose jobs 
which we need. We also jeopardize U.S. leadership in research 
and development, as well as innovation which created the 
opportunities in the first place.
    The numbers tell a worrisome story. Manufacturing 
employment peaked in the United States in 1979 at 19.6 million 
workers. Today we are down to 11.7 million people employed in 
manufacturing. Again, that is 19.6 to 11.7--a decline of 40 
percent just in those few short years.
    The last 10 years have been extremely tough for U.S. 
manufacturing overall. From January of 2001 until May of 2011 
the United States lost 5.4 million manufacturing jobs--just in 
those 10 years-- including 285,000 in my home State of 
Pennsylvania.
    Most of these losses occurred between February 2001 and 
February 2009 when 4.6 million U.S. manufacturing jobs 
disappeared in just that 8-year period.
    In the past year-and-a-half, manufacturing as a sector has 
gained strength. That is a little bit of good news. It has also 
regained some of the jobs lost during the previous decade. 
Since the end of 2009, manufacturing has added 250,000 jobs 
approximately--important progress to be sure, but we need to do 
a lot more in the months and years ahead.
    This hearing is about how we build on the recent progress 
and lay the groundwork for future growth in manufacturing. It 
is clear that we need to take actions that have both an 
immediate and a long-term benefit just over the horizon. The 
starting point should be a national manufacturing strategy, not 
just a set of policies here and there, but a real strategy.
    While other countries, including Germany, India, China, and 
Japan, have marshalled their resources and laid out a strategy, 
the United States has stood silent. The U.S. needs to develop a 
comprehensive national manufacturing strategy built from the 
input of small and large businesses, labor, and other key 
stakeholders in this strategy.
    It must be updated regularly, and it must ensure that we 
are responding to new challenges and seizing new opportunities. 
This will allow us to effectively coordinate our resources and 
maximize our effort.
    But there are other steps we can take. As we have discussed 
at our Joint Economic Committee hearing on the Life Sciences 
Industry, we should make permanent the research and development 
tax credit to give companies the certainty that they need to 
make long-term R&D investments here in the U.S.
    And it is time to crack down on China's currency 
manipulation and other unfair trade practices so that American 
companies and workers have a fair shot. The under-valuation of 
the yuan provides a significant subsidy, as much as 40 percent, 
to China's exports.
    It is as if in a 100-yard dash you give your opponent, or 
your competitor, a 40-yard headstart. It would not be fair in 
that instance, and we should not let the Chinese get away with 
a 40 percent headstart in currency.
    Currency manipulation is costing our workers jobs, and it 
needs to be stopped. We need to stop talking about it and do 
something about it. We must extend trade adjustment assistance 
to help workers who have lost their jobs based upon unfair 
foreign competition, and we need to find new strategies to 
increase employment.
    In Pennsylvania alone, almost 24,000 people receive the 
help the TAA provides. TAA strengthens the safety-net 
protections for our workers, and it needs to be extended before 
we consider any trade agreements with South Korea, Colombia, 
and Panama. Earlier this week I introduced legislation to 
extend Trade Adjustment Assistance for five years, and we need 
it.
    Finally, we must continue to invest in science, technology, 
engineering, and math--the STEM disciplines, each of which are 
very important to our education system, so that our young 
people are prepared for the high-skilled and high-paying jobs 
of the future.
    These are a few of the concrete steps we can and should 
take. Even with all the losses, manufacturing is still the 
heart and soul of our economy. Even though our manufacturing 
employment has declined significantly since the 1970s, the U.S. 
remains the world's manufacturing leader, producing one-fifth 
of manufactured products worldwide.
    As a Nation we have not done enough to support and protect 
our excellent manufacturing companies and workers. It is time 
for that to change, and changing means charting a new 
manufacturing strategy which will strengthen our economy and 
help create new jobs and new opportunities.
    I believe that hearings like todays can build a bipartisan 
consensus; we saw that today on our first panel consisting of a 
Democratic Senator and a Republican House Member. We can build 
that consensus on the core elements of a comprehensive strategy 
to support manufacturing and strengthen our middle class.
    Today's hearing is the first in a series of hearings that 
the Joint Economic Committee will hold to determine the best 
strategies for revitalizing manufacturing and rebuilding that 
base.
    We are fortunate today to have with us a distinguished 
panel of experts who bring with them a deep knowledge of 
manufacturing and a valuable perspective on the steps we can 
take to re-energize this vibrant sector of the American 
economy.
    So we look forward to our panel's testimony today. We are 
grateful for their testimony. I will be introducing our panel 
members in a moment, but I wanted to hear, as well, from our 
Vice Chairman, Chairman Brady. We are grateful for the hearing 
he chaired yesterday on the House side, and we are especially 
grateful that he made the journey over to this side of the 
Capitol today, and we are grateful for his opening statement.

 OPENING STATEMENT OF HON. KEVIN BRADY, VICE CHAIRMAN, A U.S. 
                   REPRESENTATIVE FROM TEXAS

    Vice Chairman Brady. My pleasure. Thank you, Chairman, 
again, for calling a hearing on this important topic. I 
appreciate this distinguished panel being here, as well.
    The U.S. manufacturing sector has changed dramatically over 
the last several decades. Manufacturing productivity in America 
has soared. What took 1,000 workers to produce in 1950 now 
takes only 184.
    Today U.S. manufacturers produce two-thirds of what our 
country consumes, down from 80 percent three decades ago. Many 
consumer goods, as we know, that were manufactured here are now 
imported. In the 1960s, U.S. manufacturers made 98 percent of 
America's shoes, but today it is the opposite: 90 percent of 
those shoes are brought in.
    During the same time, entirely new manufacturing industries 
have arisen in America--such as in computer chips. Today, 
chemical products, food, computers, and electronics, fabricated 
metal products, and machinery are the top five manufactured 
products in America.
    While technology and productivity has shrunk the American 
manufacturing workforce over the past 40 years, manufacturing 
remains an important part of our economy. U.S. manufacturers 
produce about 12.5 percent of our gross domestic product and 
employ about 9 percent of our workers. That translates into 12 
million manufacturing jobs and nearly 7 million related jobs, 
many of them in small businesses.
    By transitioning to higher-value products, America leads 
the world in manufacturing output and is the world's largest 
manufacturing economy, producing 21 percent of global 
manufactured products. China is second at 15 percent, and Japan 
is third at 12. However, China is quickly becoming a contender 
for the top spot.
    Manufactured goods account for more than half of what 
America sells to other countries. We rank third in the world as 
a manufacturing exporter, following the European Union and 
China.
    Today, as America's economic recovery struggles, regional 
indicators suggest that manufacturing growth has recently 
stalled in many parts of our country.
    In light of these dramatic changes, the issue at this 
hearing is whether Congress should adopt an industrial policy 
for manufacturing under the modest fabric of a national 
manufacturing strategy. It is a timely question.
    My concern is that, while often well intentioned, an 
industrial policy can morph into a form of central planning 
which requires the replacement of the invisible hand of the 
free market with the visible hand of the government. Driven by 
understandable but too often misguided political considerations 
and buttressed with incomplete data and outdated perceptions, 
it can result in the undesirable: rent seeking, corporate 
cronyism, and economic stagnation.
    In countries around the world, industrial policy has 
repeatedly failed. Instead of fostering new products and 
technologies, old firms in declining industries inevitably 
capture industry policy to protect themselves at the expense of 
the consumer and ultimately economic growth.
    As President Reagan once observed of government's view of 
business: If it moves, tax it. If it keeps moving, regulate it. 
If it stops moving, subsidize it.
    President Carter's Chairman of the Council of Economic 
Advisers, Charles Schultz, observed, quote:
    ``One does not have to be a cynic to forecast that the 
surest way to multiply unwarranted subsidies and protectionist 
measures is to legitimize their existence under the rubric of 
industrial policy. The likely outcome of an industrial policy 
that encompassed some elements of both `protecting the losers' 
and `picking the winners' is that the losers would back the 
subsidies for the winners in return for the latter's support on 
issues of protectionism.'' End quote.
    As we listen to testimony today from our distinguished 
lawmakers, economists, and business leaders, my thought is that 
instead of a Washington-centric industrial manufacturing 
policy, Congress should instead adopt pro-growth economic 
policies that raise the competitiveness and opportunity for all 
economic boats in our country.
    One, to ensure businesses do not bear higher tax costs, 
Congress should adopt a comprehensive plan to reduce federal 
spending relative to the size of our economy, reform our 
entitlement programs to make them sustainably solvent, and 
gradually bring the federal budget back into balance.
    Two, to increase competitiveness around the globe, Congress 
should reform our corporate tax system. The United States has 
the second-highest corporate income tax rate in the world. 
Congress should reduce the after-tax cost of new investment by 
expensing most equipment and shortening the depreciation 
schedules for buildings. Congress should move to a territorial 
tax system. Until then, Congress should act now to allow U.S. 
corporations to repatriate stranded American profits to invest 
in new jobs, research, investment, and financial stability here 
at home.
    Three, to find new customers for American manufacturers, 
farmers and service companies, Congress should immediately 
approve the three outstanding free trade agreements with 
Colombia, Panama, and South Korea and seek more opportunities 
to open growing markets to American workers.
    And fourth, to reduce unit costs and keep American 
companies located in America, Congress should repeal laws that 
drive up costs--such as the new national health care law and 
unnecessary federal regulations. To help erase the estimated 18 
percent cost disadvantage for U.S. manufacturers compared to 
their global competitors, Congress should act now to modernize 
our patent system and to reform our tort system to reduce those 
excessive costs in frivolous lawsuits.
    I believe adopting these economic policy changes would 
benefit U.S. manufacturers, their customers, their suppliers, 
and their workers far more than any national manufacturing 
strategy.
    A final point: Lawmakers and policymakers need much better 
information on trade flows, on product networks, and global 
supply chains that better reflect the manufacturing marketplace 
of today.
    For example, traditional trade statistics fail to account 
for the trade-in-value added among two or more countries. Our 
Bureau of Labor Statistics can track a job gained or lost in a 
local pub but cannot identify a job gained or lost from trade. 
We are using eight-track stereo statistics in an iPod world 
that do not reflect the activity or changes occurring in this 
fast-growing global marketplace. Accurate, timely and real-
world data is a bipartisan goal I am convinced we can all work 
together toward.
    I look forward to hearing today's witnesses, and again I 
thank Chairman Casey for holding this important series of 
hearings.
    [The prepared statement of Vice Chairman Kevin Brady 
appears in the Submissions for the Record on page 41.]
    Chairman Casey. Vice Chairman Brady, thank you very much. 
Unless there are other statements from our Members, we can move 
to our witnesses. I will introduce each of the witnesses and 
then we will go one by one.
    Let me start on the audience's right and our left on the 
panel here with Dr. Mark Zandi. Dr. Zandi is the Chief 
Economist of Moody's Analytics where he directs the company's 
research and consulting services to businesses, governments, 
and other institutions. Dr. Zandi's research includes 
macroeconomics, financial, and regional economics. In addition, 
he conducts regular briefings on the economy and isfrequently 
quoted in national and global news outlets. Dr. Zandi received 
his Ph.D. at the University of Pennsylvania. I'll stop and 
pause there for a moment.
    [Laughter.]
    We are proud of that. And he received his Bachelor's Degree 
from Wharton School at the University of Pennsylvania, as well, 
and we are grateful you are here, Doctor. Thank you very much.
    Mr. Alex Brill is currently a Research Fellow at the 
American Enterprise Institute where he studies the impact of 
tax policy in the U.S. economy. He was formerly the senior 
adviser and chief economist to the House Ways and Means 
Committee. And he also served on the staff of the President's 
Council of Economic Advisers, in Congress, and at the CEA. Mr. 
Brill worked on a variety of economic and legislative policy 
issues, including international tax policy and U.S. trade 
policy. Mr. Brill graduated from Tufts University with a B.A. 
in Economics, and received his Masters in Mathematical Finance 
from Boston University. We are grateful you are here, and thank 
you for that, as well. My wife is a Massachusetts native, so 
I'm glad I mentioned both institutions.
    Mr. Jay Timmons is the President and CEO of the National 
Association of Manufacturers, or so-called NAM, the largest 
manufacturing trade association in the United States, 
representing small and large manufacturers in every industrial 
sector. He became the National Association of Manufacturers 
President in January 2011. Mr. Timmons is a leading advocate 
for nearly 12 million Americans employed directly in 
manufacturing, educating the public, and policymakers on issues 
that affect this critical sector of the U.S. economy. He 
previously served as Chief of Staff to a Congressman, a 
Governor, and to Senator George Allen of Virginia from 1991 to 
2002. Mr. Timmons graduated from the Ohio State University. 
Welcome, Mr. Timmons.
    And finally, Scott Paul. Scott N. Paul is the founder and 
Executive Director of the Alliance for American Manufacturing, 
which was launched in April of 2007. AAM is a nonpartisan, 
nonprofit partnership established by some of America's leading 
manufacturers and the United Steelworkers to explore common 
solutions to challenging public policy topics such as job 
creation, infrastructure investment, international trade, and 
global competitiveness. Mr. Paul served as a staff member to 
the late Representative Jim Jontz from the State of Indiana and 
former Representative Peter Barca from the State of Wisconsin, 
and as the Chief Foreign Policy and Trade Adviser to then-House 
Democratic Whip David E. Bonior from the State of Michigan. Mr. 
Paul earned a B.A. in Foreign Service and International 
Politics from Penn State University--I mention that, as well; 
as well as an M.A. from Georgetown University's School of 
Foreign Service. Mr. Paul, we're grateful you are here.
    So we will start with Dr. Zandi and then we will just go 
left to right.

     STATEMENT OF DR. MARK ZANDI, CHIEF ECONOMIST, MOODY'S 
                  ANALYTICS, PHILADELPHIA, PA

    Dr. Zandi. Thank you, Senator Casey, and Congressman Brady, 
and the rest of the Committee for the opportunity to be here 
today.
    I am an employee of the Moody's organization, but these are 
my views that I am expressing today. Just so you know that I am 
not just an egghead, I did start my own company and grew it 
into a pretty good sized small business, and sold it to the 
Moody's organization about five years ago. So I have also been 
a business person as well.
    Let me make two broad points in my remarks. First, 
manufacturing plays a vital role in our economy, in the 
business cycle and in the economy more broadly. And that is 
clearly evident in the current economic recovery. Manufacturing 
has been key to the growth that we have experienced over the 
past two years. The economic recovery is now two years old.
    In fact, just to give you a few statistics, in terms of 
output, GDP, manufacturing has accounted for over half the 
growth in GDP over the past two years. In terms of wages and 
salaries, it is about one-fifth of the growth. And in terms of 
jobs, one-tenth--although many of the temporary help jobs that 
have been created in the recovery are also very, they are on 
the factory floor. So I think the contribution is even greater 
than that.
    One other interesting point: Manufacturing's contribution 
to this recovery, at least so far, has been greater than in any 
other economic recovery since World War II. So this is very 
important to our current economic prospects in terms of job 
creation and the growth in output.
    Manufacturing's role in the economy also is key for a 
number of other reasons. It is very important to middle income 
America. There are no better jobs for middle class Americans 
than manufacturing. Just to give you a few more statistics, the 
average wage and salary per employee across the economy is just 
under $50,000 a year. That is the average across all industries 
and occupations.
    The average in manufacturing is over $58,000 a year. Just 
for context, the highest-paying industry is in mining at 
$90,000 a year. The lowest paying is in the leisure and 
hospitality industry of just over $20,000 a year. So 
manufacturing jobs are very, very important to supporting 
middle-income households. We need these jobs to help support 
the middle class.
    It is also important to recognize manufacturing's role in 
many small communities across the country in more rural areas, 
what I would call ``quasi-urban areas,'' particularly from 
Pennsylvania, your home State, Senator, all the way across the 
country: Ohio, Indiana, Illinois, Iowa, Wisconsin. And then 
from Michigan in the north all the way down to Alabama and 
Georgia. That region is very dependent, and these are economies 
that are small. They are not very diverse. There is not a lot 
going on. These folks that lose jobs in these communities are 
stuck, in a sense, and many are under water on their homes. It 
is very difficult for them to move. And I think it is very 
important to these communities, this part of the country, to 
revive and support manufacturing because this is key to their 
economic wellbeing.
    I should say, going back to the recovery, growth in these 
economies has been quite strong--and this is where a lot of the 
economic growth has been over the past two years.
    Finally, one other point about the role of manufacturing. 
It is vital to innovation and productivity growth. This is the 
fountain of our growth in our living standards. Manufacturing 
productivity growth has been about 3 percent per annum over the 
past decade, compared to about 2 percent in the rest of the 
economy. More importantly than that, a lot of what is produced 
in manufacturing goes to supporting productivity growth in the 
rest of the economy.
    So, for example, my business is economic consulting. I 
build a lot of models, and I rely on very sophisticated 
telecommunications equipment and other kinds of computer 
technology, data processing, and I could not do it unless I had 
a very productive manufacturing base.
    So point number one is that manufacturing is very 
important.
    Point number two--and I am not going to go into any detail; 
I am sure we will in the Q&A--but there are in my view a number 
of things that policymakers can do to help support 
manufacturing in terms of opening up global trade. You 
mentioned the Chinese currency. I think that is absolutely 
vital to address. Nothing is more important from a macro 
economic perspective for manufacturing than to get these 
currencies better aligned. They are not aligned, and that is a 
significant competitive disadvantage for all manufacturers--and 
increasingly other businesses as well.
    Also, policies to lower the cost of doing business. Cost of 
labor, cost of capital--going back to corporate tax reform; 
cost of transportation and distribution. This goes to our 
infrastructure, which is sorely lacking. And finally the cost 
of energy. Manufacturers are very energy-intensive industries 
and we need to focus on trying to provide lower-cost energy 
sources--for example, using the natural gas resources that are 
clearly evident in many parts of the country and is quite cheap 
and can fuel our manufacturing firms long into the future.
    So I would be very happy to discuss a range of policy 
options with regard to all of those things, but I think you 
have a very important role in supporting the manufacturing 
base, and that is vital to our long-term economic future.
    Thank you.
    [The prepared statement of Dr. Mark Zandi appears in the 
Submissions for the Record on page 43.]
    Chairman Casey. Doctor, thank you very much. I should have 
mentioned, your full testimony will be part of the record, and 
that is the case of all of our witnesses. You were very close 
to the five-minute mark, and that is good.
    Mr. Brill.

    STATEMENT OF MR. ALEX BRILL, RESEARCH FELLOW, AMERICAN 
ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH, WASHINGTON, DC

    Mr. Brill. Thank you very much, Chairman Casey, Vice 
Chairman Brady, other Members of the Committee:
    Thank you for the opportunity to appear this morning to 
discuss the manufacturing sector and my perspectives on sound 
fiscal policies to promote fundamental long-run economic 
growth.
    I would like to stress two points in my remarks this 
morning.
    First, while manufacturing employment is and has been in 
decline, productivity growth in the sector is robust.
    Second, policymakers should seek to establish broad 
economic policies that permit the U.S. economy to evolve as 
market forces dictate, and not pursue narrow industry-specific 
economic policies.
    Manufacturing, a wide-ranging set of industries, including 
automotive parts, semi-conductors, and food production, has 
long been a significant driver of economic growth in the United 
States and abroad. Total manufacturing output declined during 
the recession and has yet to fully recover. But true to its 
reputation for driving economic growth, manufacturing labor 
productivity increased 4.1 percent over the last four quarters.
    Manufacturing employment, as others have noted, was hit 
particularly hard by the recent recession. Nearly 2 million 
jobs were lost in the 18 months ending December 2009, but 
manufacturing employment has been declining in the U.S. since 
its peak in 1979, even in nonrecessionary periods.
    In light of this, we should not expect a sizeable increase 
in employment in this sector, even as the economy recovers more 
fully and output increases. The explanation is productivity 
growth. While the ability to produce more output with less 
labor input can reduce employment in manufacturing, such 
productivity growth is the means by which our standard of 
living increases.
    In short, the manufacturing sector today is evolving 
similarly to the agriculture sector a century before. The 
downward trend in manufacturing employment prompts some to 
conclude that the government should give special assistance to 
this sector. This approach in my opinion is ill advised. 
Policies aimed at steering research toward one sector can harm 
other sectors as resources are misallocated from one activity 
to another.
    The significance and importance of manufacturing in the 
United States economy is undeniable, but it is critical to 
recognize that manufacturing is but one sector of a large and 
robust U.S. economy.
    The role of policymakers should be to establish broad, 
effective, and stable policies that permit the U.S. economy to 
grow as market forces dictate. Given that objective, 
policymakers should not seek to develop targeted subsidies or 
narrowly tailored economic policies for a single sector.
    Instead, long-run economic growth should be pursued by 
improving the U.S. business environment as a whole. Pursuing 
such structural reforms will benefit the manufacturing sector 
directly by improving our competitiveness and reducing costs 
and impediments, and indirectly by encouraging growth across 
the entire economy and thereby increasing demand.
    It is important to recognize the myriad distortionary non-
neutral policies that already exist. One clear indication that 
the Federal Government has taken a special interest in the 
manufacturing sector is the creation of the Commerce 
Department's manufacturing initiative and the establishment of 
www.manufacturing.gov, a website address name which I consider 
to be an oxymoron in a free-market economy. But policies that 
favor manufacturing over other industries go beyond dedicated 
website and agency initiatives. One such policy is a specific 
tax preference. Section 199 of the Internal Revenue Code allows 
for producers of manufactured goods to claim a deduction 
approximately equal to 3 percentage points reduction in the 
income tax rate on such income.
    One way to reduce the distortion described above and 
mitigate other important harmful distortions of the corporate 
income tax system would be to significantly reduce the U.S. 
corporate tax rate. Replacing Section 199 with a simple and 
significant reduction in the corporate rate, perhaps to 25 
percent, would both level the playing field between 
manufactured and nonmanufactured production, and improve the 
general competitiveness of all U.S. corporations.
    Corporate tax reform is not the only necessary change, just 
one critical step that would go a long way toward achieving a 
more neutral fiscal policy which would be to the long-term 
benefit of the manufacturing sector and the economy at large.
    I believe that we cannot subsidize our way to prosperity; 
rather, we need sound business policy that facilitates a level 
playing field for all industries and promotes general economic 
growth.
    [The prepared statement of Mr. Alex Brill appears in the 
Submissions for the Record on page 56.]
    Chairman Casey. Thank you, Mr. Brill.
    Mr. Timmons.

  STATEMENT OF MR. JAY TIMMONS, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON, DC

    Mr. Timmons. Well thank you very much, Chairman Casey and 
Vice Chairman Brady, as well as Members of the Committee:
    I really appreciate having the chance to speak to you today 
about manufacturing in the United States because I truly 
believe in the power of manufacturing, not just for families 
but for our country as well.
    Back in the 1930s, my grandfather left the farm and he 
stood in line for six months at a local manufacturer waiting 
for a job at that facility because he knew then what so many 
manufacturing employees know today: that a manufacturing job 
paves the way to the middle class. And it did so for my family 
at that time.
    Today I am President of the National Association of 
Manufacturers and, Mr. Chairman, as you mentioned, we are the 
largest manufacturing trade association in the country. We 
represent about 12,000 members of all sizes, and we are the 
voice of 12 million Americans who work in manufacturing.
    I think it is safe to say that we are all frustrated with 
the pace of the economic recovery. In fact, a recent Washington 
Post poll found that a majority of Americans actually think the 
recovery has yet to begin.
    Manufacturing can lead the recovery in the months ahead. 
Since the end of 2009, as some have already mentioned, 
manufacturers have created about a quarter of a million new 
jobs. That is about 14 percent of employment growth. But that 
number really pales in comparison to the 2.2 million jobs in 
manufacturing that were lost during the recession.
    But the slightly brighter picture simply cannot be taken 
for granted. After months of consistent job gains, 
manufacturers actually lost 5,000 jobs in May. So clearly we 
have a lot of work to do.
    As this Committee considers ways to improve the business 
climate in the country, I ask that each of you focus on a very 
basic and fundamental question: Will this policy--whatever 
policy you are deliberating--help our country create jobs and 
compete successfully in the international marketplace?
    Today it is 18 percent more expensive to manufacture a 
product in the United States than it is in other industrial 
economies. Other countries are racing ahead and adopting pro-
growth policies and leaving the United States behind.
    For instance, the corporate tax rate. The United States is 
moving in the wrong direction. As other countries have reduced 
their rates, the United States is standing still. We currently 
have the second-highest corporate tax rate in the world, behind 
Japan, which recently delayed its rate cut that would have 
pushed the United States into the number one position.
    Another concern is our regulatory burden. Onerous 
regulations stifle jobs and economic growth. They are a 
trillion-dollar-plus weight on job creators.
    Then there is trade. The Colombia, Panama, and Korea Free 
Trade Agreements have languished for four years. The Wall 
Street Journal recently reported that Colombia is looking to 
increase trade ties with China, noting that the agreement with 
the U.S. is, quote, ``the deal we want more than any other,'' 
the Colombia trade minister said ``we can no longer sit'' with 
its arms crossed waiting for the United States to act.
    This trade agreement will enhance manufacturers' already 
significant market in Colombia. Manufacturers simply are 
waiting for action, and we cannot allow these barriers to 
growth and jobs to continue to stand.
    There are 120 other Free Trade Agreements being negotiated 
around the world, but the U.S. is only party to one of those. 
We are ceding our market share to our competitors.
    There are so many other policies that are causing us to 
stand still, but there are also policies that are actually 
turning the clock back. Permitting is time consuming and 
discourages additional investment. Excessive new regulations 
continue to mount.
    For example, the Environmental Protection Agency's proposed 
ozone standards. Once these rules are on the books, communities 
across the Nation would suddenly be in violation of the Clean 
Air Act. Many manufacturers would have to put their plans to 
expand or modernize on hold.
    According to a study by the Manufacturing Alliance, these 
new rules could cost as many as 7.3 million jobs by 2020 and 
add up to $1.1 trillion in regulatory costs annually between 
2020 and 2030.
    Our competitors are not trying to hamstring their economies 
and job creators this way. They are actually looking for ways 
to take our mantle of economic leadership away from us, and we 
ought not to be unintentionally helping them do so.
    Mr. Chairman, I can't recall that I've ever met an American 
who complains that our country manufactures too much. Support 
for manufacturing transcends ideology and party lines as we see 
here today, but we have got to take that broad support and turn 
it into action.
    Whatever policies Congress and the Administration 
ultimately decide to adopt, they should be designed with the 
specific purpose of making the United States the best place in 
the world to innovate, to manufacture, and to do business.
    I have outlined a number of specific policy proposals in my 
written testimony that I invite you all to review. American 
manufacturers are unmatched in their ingenuity, innovation, and 
resourcefulness. Manufacturing is poised for a renaissance that 
can lead to a robust economic recovery, and our government 
simply must enable that to happen.
    Thank you so much.
    [The prepared statement of Mr. Jay Timmons appears in the 
Submissions for the Record on page 62.]
    Chairman Casey. Thank you, Mr. Timmons.
    Mr. Paul.

 STATEMENT OF MR. SCOTT PAUL, EXECUTIVE DIRECTOR, ALLIANCE FOR 
             AMERICAN MANUFACTURING, WASHINGTON, DC

    Mr. Paul. Thank you, Chairman Casey, Vice Chairman Brady, 
and Members of the Committee:
    I want to thank you for inviting me to testify today on 
behalf of the Alliance for American Manufacturing, and I first 
ask permission to include supplementary materials into the 
record.
    Chairman Casey. They will be included.
    Mr. Paul. Thank you. AAM is a partnership formed by some of 
America's leading manufacturers and our largest industrial 
union, the United Steelworkers, with one goal: strengthening 
American manufacturing, and therefore our Nation's economic and 
national security.
    In an increasingly intense partisan climate, we believe 
that our labor-management approach can help identify 
appropriate avenues for cooperation. I will say that the idea 
of a manufacturing strategy is hardly a radical concept, and a 
robust strategy has been at the core of American economic 
policy for all but a few brief periods of our history.
    Today's dearth of public policy to boost manufacturing is 
the exception, not the rule, dating all the way back to our 
Founding Fathers. Indeed, Alexander Hamilton constructed 
America's first industrial policy in 1791. I encourage you to 
read it. A policy that continued until the end of World War II. 
Globalization and economic approaches favoring imports and 
domestic consumption over exports and production have helped to 
steadily erode manufacturing as a percentage of our GDP, 
private sector employment, and other key measures.
    The idea of a manufacturing strategy is also not a partisan 
one. President Reagan, spurred on by a Democratic Congress, 
adopted a flurry of measures to counter a grossly imbalanced 
trade relationship with Europe and Japan in the 1980s. The 
Plaza Accords, which raised the value of currencies in Japan 
and Europe relative to the dollar in a managed way, had a 
positive effect in lowering our current account balance over 
time.
    Key government investments under the Reagan Administration 
in the semiconductor industry and other technologies spurred 
their development in commercialization. President Reagan signed 
into law enhanced Buy America requirements for certain 
infrastructure projects to boost domestic employment.
    More recently, President Obama and Congress worked together 
to provide loans and breathing space for our domestic auto 
industry, which they needed to rebuild and thrive. The effort 
wasn't perfect, but it was a necessary step to stabilize one of 
the support structures for domestic manufacturing.
    As important as that step was, it was an emergency room 
strategy and not a long-term effort to grow manufacturing jobs 
capacity and output. The case for a permanent manufacturing 
strategy could not be stronger when one considers that no 
matter how innovative or competitive individual manufacturers 
may be, there are some problems that simply cannot be solved on 
their own--as recently articulated by Jared Bernstein at the 
Center on Budget and Policy Priorities. For instance, research 
and development can be very expensive and hard to capture 
profits, for instance, in advanced batteries.
    No single firm could possibly coordinate national projects 
like the smartgrid or the Internet. Firms often need assistance 
in applying academic innovations to the production process. 
Manufacturers often face barriers to accessing credit for 
entry, expansion, and innovation. And manufacturers need 
assistance in exporting as well as pushback against unfair 
trade practices.
    We need a robust manufacturing strategy because the fate of 
the industrial sector of our economy is too important to be 
left to a gaggle of competing and ultimately unsatisfying 
theories of why it has been declining.
    The decline of manufacturing is not inevitable, desirable, 
nor can it be explained solely through theories of churning 
capitalism, advances in productivity and technology, high 
regulatory tax and compensation costs, or inefficiency.
    For instance, let's look at Germany. Germany's global 
shares of manufacturing output and exports have held steady 
over the past decade, while America's have declined and China's 
have risen sharply. Yet Germany is not a low-cost country in 
which to manufacture. Average manufacturing wages in Germany 
are $48 an hour; in the United States they are $32. Germany has 
an integrated strategy for boosting manufacturing focusing on 
skills, technology investment, demand side incentives, labor/
business/government collaboration, and aggressive trade 
policies which allow it to successfully compete.
    Germany is a world leader in advanced manufacturing in 
solar production because it wants to be, and all stakeholders 
work together to make it successful. How does Germany have a 
balanced trade relationship with China when the U.S. runs 
monthly trade deficits more than $20 billion? Because it 
matters in Germany more than it does here.
    What does America need to create more manufacturing jobs? I 
will summarize these recommendations which are included in my 
written testimony.
    First, we have to deal with Chinese currency manipulation. 
Dealing with this manipulation would have a far more reaching 
impact than passing any individual free trade agreement. The 
benefits to GDP, to employment, and to deficit reductions would 
be extraordinary.
    Second, we need to counter China's other cheating on 
indigenous innovation, its web of industrial subsidies, and 
state-owned enterprises, its rare-earth minerals export 
restrictions, and its rampant intellectual property theft.
    The simple truth is, when we act, when we stand up and 
enforce our trade laws, we do get results. And it is helping 
companies all across our Nation, including those in 
Pennsylvania and in Texas.
    Second, we should retool the Obama Administration's export 
initiative to focus on a zero trade deficit, rather than merely 
increasing our imports. We should also make positive tax 
changes. Senator Stabenow outlined some of these, as well as a 
number of members from the dias here, including accelerated 
depreciation. But what we do not want to do is offset a 
corporate tax rate reduction with reductions in deductions for 
manufacturing.
    Ernst & Young estimates that such an approach could sock 
manufacturers with a $48 billion bill and be a windfall for 
Wall Street.
    Fifth, while we should eliminate unnecessary and 
duplicative regulations, winning a race to the bottom is 
something that the United States does not want to engage in.
    Sixth, we need to invest in infrastructure and establish a 
national infrastructure bank.
    And finally, we need a skills and training infrastructure 
that is far more advanced than it is today. We are simply 
falling far behind.
    We look forward to working with the Committee as 
manufacturing strategy hits the agenda in the Congress. Thank 
you very much.
    [The prepared statement of Mr. Scott Paul appears in the 
Submissions for the Record on page 76.]
    [The EPI Briefing Paper article titled ``The Benefits of 
Revaluation'' appears in the Submissions for the Record on page 
86.]
    Chairman Casey. Thank you, Mr. Paul. Everyone was close to 
their time, and you were actually under time. That is pretty 
impressive. We are grateful for that.
    I will start the questions, and then Vice Chairman Brady 
will go. By way of order of appearance, I will get that list so 
that Members of the Committee know when their turn will come 
up.
    Mr. Paul, if you don't mind, if you will take your breath 
for two seconds, I wanted to start with you. I was glad you 
walked through those recommendations because I think today we 
get a sense from everyone who has spoken from a microphone that 
we have all diagnosed the problem, and that there is certainly 
more analysis and more diagnosis we could do. But I think it is 
time for all of us to move to the list of ways to improve this 
picture on manufacturing.
    One of the--and I am glad you went through some of your 
recommendations, and I will ask our other witnesses, as well, 
but one of the points you made, and you were able to make part 
of it, but I was noting in your testimony, when you start on 
page 6 with the recommendations, the first one you make is, and 
I am quoting:
    ``First, pass legislation to allow American workers and 
firms to seek relief from the effects of currency manipulation 
by China and other countries using our existing trade laws.'' 
Unquote.
    Later in that paragraph you say that America would see a 
significant boost in GDP, up to 1.9 percent, 2.25 million more 
jobs, and $71 billion annually in deficit reduction. And I 
would ask: By doing what?
    Mr. Paul. Sorry, let me turn on the microphone here.
    A number of economists, and Dr. Zandi identified Paul 
Krugman, but it actually extends--in fact, Alan Greenspan 
mentioned this last week--that China's currency manipulation is 
one of the most harmful policies out there, preventing not only 
manufacturing growth in other industrialized and 
industrializing countries, it not only affects the United 
States, it affects countries like Brazil as well, but it is a--
it contributes to global imbalances and hot money flows.
    And it becomes a vicious cycle that is hard to get out of. 
I will say that a year ago China announced that they would 
revalue the yuan, and they did take it off of peg, and it has 
appreciated, although arguably not nearly enough, and it still 
remains, as you indicated, grossly undervalued, somewhere 
between 30 and 40 percent.
    We have tools within our trade laws that we can deploy, 
that we have deployed on subsidies, that we have deployed 
against dumping, that with a couple of tweaks we can also apply 
to currency manipulation. And it could certainly produce 
results, but it would at least give our industries, our 
workers, a tool in the trade laws that they do not have 
currently to deal with this unfair currency manipulation from 
China.
    I mean, a desirable approach--and I will be candid about 
this--would be for the Administration to negotiate with China 
in a manner similar to the ``Plaza Accords.'' I have not seen 
that willingness, and so I think we need to see Congress step 
up to the plate.
    There is bipartisan legislation, I would add. It passed the 
House of Representatives overwhelmingly last year. There were 
not many bills that got overwhelming Democratic support and 
attracted 99 Republicans, and I think that is something the 
Congress should do immediately.
    Chairman Casey. I am glad you focused on that. I think it 
is critically important. The important point here is I think 
sometimes when people here, folks like us in Washington talking 
about China currency, I guess it can sound like a, oh, I don't 
know, a Congressional complaint, a pointing a finger at a 
country, but the reality is just as you and so many others have 
stated.
    This is--if it is not the key thing we have got to do, it 
is in the top two or three. And the evidence is irrefutable. 
And as you noted, there is bipartisan support. But one of the 
most important things you said was, as much as I and many 
others are working on new legislation, we can do a lot right 
now. The Treasury Department can do more.
    The Commerce Department can do more. This Administration 
can do a lot more to aggressively enforce existing law.
    And again let me say it for the record, in your testimony, 
you were referring to the Economic Policy Institute, correct?
    Mr. Paul. [Nods affirmatively.]
    Chairman Casey. If China appreciated their currency at a 
market-based level over the next two years, America would see a 
GDP increase of 1.9 percent, 2.25 million jobs, and a $71 
billion deficit reduction impact annually.
    Let's say they are wrong by a little bit. If we got a 
fraction of that from one policy, it would still be 
dramatically significant. So we will get to more questions 
about this and other recommendations from our other three 
witnesses, but I wanted to make that point.
    I am out of time on this round, but I will turn to our Vice 
Chairman Brady.
    Mr. Paul. Thank you, Mr. Chairman.
    Vice Chairman Brady. Thank you, Mr. Chairman. I do think, 
if America's manufacturing policy is going to be to blame China 
for our manufacturing challenges, we will be sorely mistaken.
    It is one in a plethora of challenges facing American 
manufacturing, many of them home-grown, unfortunately. And I 
think that is what this hearing has already revealed. You know, 
I appreciate Germany's leadership. Your mention of Germany's 
leadership during the global financial crisis, it was a leader 
in the G-20 to encourage countries to wind down their fiscal 
stimulus and to begin to get their financial house in order.
    Unfortunately, America was the outlier in that discussion. 
I wish we had listened more closely to them. I am not a fan of 
the Stimulus. Here we have spent eight hundred and some billion 
dollars. We actually have 1.5 million fewer workers today than 
when all that Stimulus began.
    Our factory orders are down. Consumer confidence has 
receded to its point six months ago. Manufacturing is 
struggling in four of our key Reserve Board regions. 
Unemployment was projected, if we spent all that money, to be 
6.5 percent this quarter. Unemployment, long-term unemployment 
is at near record highs.
    The Stimulus missed, in my view, by a mile. And now we have 
13.5 million people still without jobs. So I disagree with the 
assessment that the Stimulus has succeeded.
    So my question I guess, to begin with Mr. Timmons, 
listening to your manufacturing members, are your members 
clamoring for another jobs bill out of Washington? Or are they 
anxious for Washington to get out of the way of this recovery, 
to reduce the costs and regulations and barriers that would 
allow them to make the private business investment that allows 
jobs to be created? What is their view?
    Mr. Timmons. Well I think if you enact legislation that 
reduces costs and barriers, in effect that is a jobs bill. As I 
mentioned in my testimony, it is 18 percent more expensive to 
manufacture in this country than it is in other industrialized 
nations. And that is when you take out the cost of labor. I 
think that is a very important distinction.
    That 18 percent includes several factors, but the majority 
of that cost is related to our tax burden, our energy costs, 
our regulatory burden, and our tort burden.
    We have the capacity here in this country to reduce many of 
those costs and barriers on our own. You mentioned that we 
cannot simply blame other countries--let's say China--but the 
policies in those countries do make a difference. And some of 
the points that were made here about China's inability to 
protect intellectual property, or the production of counterfeit 
goods, and certainly currency manipulation are large factors.
    Those are things, though, that are obviously more difficult 
for us to deal with. The things that we have asked Congress to 
really focus on are those other areas that I just mentioned: 
taxes, energy cost, regulation in particular, as well as acting 
on the three pending trade agreements, and enabling the 
President to negotiate other trade agreements around the world 
so that we are not ceding market share to other countries.
    Vice Chairman Brady. This Congress is looking at a policy--
you mentioned trade. As you know, it is not enough to simply 
buy American anymore, we have to sell American all throughout 
the world.
    Mr. Timmons. Exactly.
    Vice Chairman Brady. We find the world tilted against us. 
Trade agreements take one-way trade into the United States and 
create a two-way trade, and create jobs as a result.
    Mr. Brill, how important is it to America's manufacturing 
that we aggressively open new markets, pass trade agreements to 
level that playing field, and seek more opportunities 
especially in the Asia Pacific, the growing Asia Pacific region 
so our manufacturers can compete and win in those areas?
    Mr. Brill. Vice Chairman Brady, it is critical that we have 
a trade policy, one that not only relates to our manufacturing 
sector but to all our sectors that engage in global trade, one 
that is reducing barriers and opening markets.
    As others have noted, and as you noted yourself, the 
pending agreements before Congress are long overdue. The policy 
seems to be a wait-and-hold policy, unfortunately. By delaying 
the implementation of the pending agreements, we are 
disadvantaging our ability to advance our exports.
    However, more concerning is, as Mr. Timmons noted, the lack 
of TPA, lack of the ability to create new agreements going 
forward. Eventually I hope we will get the agreements that are 
pending, but I am concerned by the fact that we do not have the 
tools to further open new markets.
    Vice Chairman Brady. Right. Thank you, Mr. Chairman.
    Chairman Casey. Congressman Duffy.
    Representative Duffy. Thank you, Mr. Chairman.
    Thank you, panel, for coming in today. This phrase of 
uncertainty may be overused over the last year, but it is a 
term that I continue to hear as I am in my District talking to 
our manufacturers. And when I ask them to explain what do they 
mean when they talk about uncertainty--because a lot of them 
are saying they are making more money, they are more 
productive, but they are not rehiring. And I think we are 
seeing that across the country.
    And oftentimes they will, in different terms, talk about 
the debt. And I will say, well what does that mean to you? Well 
they are concerned then about inflation. They are concerned 
about interest rates going up in the long term. They are 
concerned about tax increases that have been discussed here in 
Washington. We do not have a long-term tax policy. We seem to 
be going year by year.
    And in my area--I am in the northwest quarter of 
Wisconsin--there is a lot of concern about what is happening 
with the EPA. We have a large forest products industry in my 
District, and all those things are coming together and creating 
uncertainty. They are not taking the risks they normally may 
take.
    Are you all seeing that in your studies, or your 
conversations, that the uncertainty not necessarily from the 
business side of things but actually from the government side 
of things is affecting our willingness of our manufacturers to 
expand and grow?
    I will throw it out to the panel as a whole for anyone who 
wants to take a stab.
    Mr. Zandi.
    Dr. Zandi. Yes. I think there is something to that 
argument, yes. I think that American businesses in aggregate 
are in very good financial shape. You know, we had to make a 
distinction between the very large companies and smaller 
companies that are not doing quite as well.
    But in their totality, they are very profitable. Their 
profit margins are very wide. They did an admirable job getting 
their cost structures down during the recession. It is really 
no longer in my mind a question of can businesses hire more. It 
is really a question of willingness. And that goes to 
confidence.
    There are, I am sure, a melange of things that weigh on 
confidence. Part of it is we went through the Great Recession. 
You do not forget that quickly if you are a business person. 
And I do think policy uncertainty has played a role.
    Some of the policies come to fruition--health care reform--
and I am not speaking to the merits of any of the policy 
itself--but just the fact that we have gone through these very 
significant debates and discussions. Health care reform, 
financial regulatory reform. We did not nail down the Tax Code 
until the very end of last year. We debated things, Congress 
debated things that did not come to fruition but made business 
people nervous: cap and trade, immigration policy, card check.
    I do think that the policy uncertainty is fading. There has 
not been a major legislative initiative in the last six months. 
But I do think the one thing that--and I speak to a lot of 
business people in my work in lots of different industries all 
across the country--the one thing that makes them very nervous 
at this point is they cannot construct a narrative in their 
mind as to how Congress and the Administration are going to 
come to terms on first the debt ceiling, and then ultimately on 
our fiscal situation.
    And unless they can figure that out, they are not going to 
fire people, but they are going to be very slow to hire people. 
Because as you point out, that means potentially higher 
interest rates; it means potentially higher taxes. It could 
mean massive changes in government programs. And those things 
make people very nervous, and that needs to be nailed down.
    Representative Duffy. And to piggyback on that point, I 
think what we are seeing is more of our manufacturers asking 
their current employees to work overtime, or they are asking 
for temporary workers, instead of engaging in some long-term 
hiring, even though the work may be there. And they are talking 
about these same issues that I brought up, but also what you 
referenced as the health care bill as well.
    What is it going to cost in health care to hire a new 
employee? I mean, just specifically are you guys aware of the 
EPA's Boiler MACT proposed regulation? In paper manufacturing 
we use industrial boilers. And at a time when we are under 
immense competition from China, which I think is unfair 
competition, we are struggling to stay alive in central and 
northern Wisconsin with our paper manufacturers, and it is a 
huge part of our economy.
    And these proposed regulations, which are going to increase 
American standards which are already far above Chinese 
standards, in the end are going to drive American jobs 
overseas. And I think if we look at our environment, we are all 
drinking the same water and breathing the same air. And to send 
our jobs and our manufacturing to China where they have far 
less standards than we do just does not make sense.
    And again, I think the policies are coming from Washington 
that are making it more difficult for our manufacturers to 
compete on the global stage.
    And obviously you guys are aware of the Boiler MACT 
proposal.
    Mr. Timmons. Boiler MACT could severely harm the paper 
industry. It is good that there is a bit of a delay there, but 
there are several other regulations that are coming down the 
pike. I have already mentioned the ozone regulations. There's 
potential regulation of carbon dioxide from the EPA. The recent 
decision by the NLRB to cite Boeing and try to tell them where 
they can locate a production line, all of these things factor 
into a business's decision on where they are going to do 
business. You know, are they going to do business in the United 
States, or are they going to emigrate? Or are they going to 
evaporate?
    And I do not think anybody in government wants to see 
businesses evaporate or emigrate. So our job really needs to be 
to provide certainty and stability, deal with the Tax Code, 
including provisions that expire at the end of the year and 
deal with the regulatory over-reach that we have seen from so 
many agencies in order to make the business climate more stable 
for American business.
    Representative Duffy. And I would agree with that. And, Mr. 
Chairman, I would yield back the remainder of my time.
    Chairman Casey. Thanks so much.
    Congressman Mulvaney.
    Representative Mulvaney. Thank you, Mr. Chairman.
    Gentlemen, I will begin by saying that as we talk about 
manufacturing policy, I am one of the ones who would tend to 
focus on leveling the playing field as opposed to having the 
government get involved in specific programs.
    We heard some testimony from Senator Stabenow before, and I 
think one of you gentlemen mentioned the Japanese policies on 
advanced batteries. I think for every success story that a 
government can point to like that, there are more and more 
failures.
    I remember when I was a kid I think the Japanese government 
was involved in the beta research for Betamax, and then more 
recently I think they were heavily invested in plasma TVs 
versus LEDs, or something like that. So I think every time 
there is one of those success stories, there are a lot more 
failures. The government simply does not have the information 
or the proper motivation available to it to make decisions 
about where investments are properly made.
    So I am one of those landscape, level the playing field 
type of guys. So I want to talk about that for a few minutes 
and see if there are a couple of things that we can agree on as 
a panel.
    One of the things that seemed to be consistent across all 
of your testimonies was the importance of any government policy 
to allow business to be more efficient, to lower its labor and 
capital costs, to lower its transportation costs, in order to 
encourage it to grow.
    Dr. Zandi, you mentioned specifically something that I am 
familiar with, having been in the housing industry, about 
people being stuck in a particular location. And I think the 
free flow of labor and capital is one of the things that any 
government policy should rightly encourage.
    Is there anybody, by the way, who disagrees with that?
    [No response.]
    Representative Mulvaney. Good. Like I said, I am new here 
so I am still trying to figure out a way to find things that we 
can agree on. As we sit here and say--there are folks here that 
Democrats have invited, folks the Republicans have invited, 
there are folks here who consider themselves to be 
Independent--as we sit here and say that the free movement and 
labor and capital should be the goal of all government policies 
on this, is there anybody here who wants to defend what the 
NLRB is doing to Boeing? And I will put that to anybody.
    [No response.]
    Representative Mulvaney. I will take your silence as 
support for the fact that it is absolutely wrong; that what is 
happening here is the government is telling this business where 
it can do business. And I just wonder if anybody thinks--I want 
suggestions on how to fix this, gentlemen.
    As we sit here today and talk about a manufacturing policy, 
what can we do in order to encourage the free flow of labor and 
capital? And if getting rid of the NLRB is an answer, let me 
know about it. But I would throw it open to the panel as to 
what you think we can do in order to accomplish exactly what 
you gentlemen have suggested.
    Mr. Paul. Mr. Mulvaney, if I----
    Representative Mulvaney. Mr. Paul, and then Dr. Zandi.
    Mr. Paul [continuing]. Sure. I want to turn your question 
on its head a little bit. One of the peculiar aspects of our 
economic strategy in the United States is that we have a lot of 
interstate competition for jobs.
    And I am not saying that is unique in the world, but we 
engage in this race through incentives, either positive or by 
reducing regulations between states. Ultimately, we have to 
compete with Mexico, China, and other countries that will be 
able to have lower labor costs, and lower regulatory burdens.
    To think we lack that other countries do, and they do it 
successfully, is not an economic development strategy. And it 
does not mean the government is telling you where you can put 
your factory. It does not mean that at all. But it does mean 
some sort of a national strategy is needed with the knowledge 
that we are competing against other countries.
    There is a bill that Senator Warner and Congressman Wolf, a 
bipartisan team, introduced that said if you want to reshore 
work to the United States, the Federal Government will match 
that in a way to provide an incentive. That is what other 
countries do.
    We are pretty unique in the fact that we do not have an 
economic development strategy like that.
    Dr. Zandi. I think the way you articulated it was exactly 
right with regard to the free flow of capital and labor, and I 
think that would define a national manufacturing strategy, 
policies that can help facilitate this free flow of capital and 
labor.
    Let me just focus on labor for a second and give you a 
couple of ideas that might help with respect to that.
    First is reform in the Unemployment Insurance system. I 
think manufacturers have very high Unemployment Insurance costs 
particularly in the current context because many states 
obviously have had to take on loans from the Federal Government 
to pay for their UI, and this bill is coming due, and that bill 
is going to be paid by businesses, particularly manufacturers. 
The cost to them is going to be quite significant. So you could 
provide some relief to help in that regard in the near term.
    And then I would also make some broader changes to the UI 
system. One reason why the German economy that has come up in 
this context a couple of times has done so well is because they 
have a work-share program in UI so manufacturers do not have to 
lay off workers. They can distribute the pain among older 
workers by cutting back hours, and so they do not lose very 
skilled workers and laborers in a recession. They can hold on 
to them. And that is very important for manufacturers because 
these are very skilled employment.
    Also, we should reform our UI system to allow unemployed 
workers to get those benefits for their own retraining. So 
there are programs that we have been testing, that Congress has 
been testing in this regard. So the UI program is a really good 
place to look in terms of trying to help manufacturers.
    Second, immigration policy. I think the hidden gem in our 
economy is our university system. It is going to take 100 years 
for any country on the planet to replicate what we have done in 
our university systems. That is our significant comparative 
advantage.
    I think if any foreign student comes to our country, gets a 
degree from the University of Pennsylvania, Ohio State, or the 
University of Wisconsin, they should get a visa to stay. 
They've earned it. These are the best and the brightest in the 
world, and they are going to be the fountain of the future 
business formation and job creation in manufacturing.
    And third, just thinking a little outside the box for you 
again with regard to labor costs, there is this really 
interesting movement that I have observed among manufacturers 
and universities. The manufacturers are saying, look, I've got 
a big skill mismatch problem here, particularly because my 
workforce is old, it is aging, it is going to retire, and the 
young folks that are coming up, they are just not interested in 
learning these skills.
    So these companies are going to universities and saying, 
hey, I will give you money. You take that money. You go hire 
faculty. You build a lab. You build an office building. And 
just let me have an input into your curriculum process. And, 
you know, this solves a lot of problems.
    I think policymakers can really help facilitate this. And 
there are different ways of doing it, but one way is provide 
matching grants to universities that participate in this kind 
of process. And I think that would be very helpful in 
addressing this jobs skill mismatch. That is going to take a 
little bit of work to iron out all the details on sort of a lot 
of issues with respect to, you know, universities are very 
sensitive about ceding any kind of academic freedom, and I'm 
there. I understand that. But I think this would be a good way 
to solve a lot of problems.
    Representative Mulvaney. Thank you, gentlemen. Good ideas. 
Thank you, Mr. Chairman.
    Chairman Casey. Thanks very much. Dr. Zandi, and our whole 
panel, I know we are running low on time, but I wanted to ask 
you again about parts of your testimony and the dos and don'ts. 
I will be affirmative and focus on the dos. But I need to 
correct one thing for the record. When you mentioned great 
universities, and I am glad you said Penn when you mentioned 
Ohio State, which is a great university, I wanted to make sure 
that Penn State gets in there too.
    Dr. Zandi. Well I thought that would be piling on, if I, 
you know----
    [Laughter.]
    Vice Chairman Brady. Did you leave Texas A&M out by 
accident?
    Dr. Zandi. Absolutely.
    [Laughter.]
    Vice Chairman Brady. Thank you.
    Chairman Casey. But thank you for the reference to Ohio 
State. Appreciate it. That won't come out of the Vice 
Chairman's time. He has got plenty of time.
    But, Dr. Zandi, can you go through some of the dos in what 
we should do in your testimony? I know you referred to one or 
two, but maybe just by way of a quick list and then maybe I can 
open it up to the others, as well.
    Dr. Zandi. Sure. I focused on labor in my previous remarks, 
but I think we can also do things to help facilitate the flow 
of capital, lower the cost of capital with respect to lowering 
the cost of transportation and distribution which is so very 
important to manufacturing. And also energy, as I mentioned.
    In terms of the cost of capital, I would focus on two 
things--and then I will stop because I do not want to take too 
much time--but I do think corporate tax reform is vital. And I 
think it needs to be considered in a comprehensive way, that I 
think our goal should be to flatten the tax base--you know, try 
to scale back as many deductions, or eliminate any deductions 
and credits in the Code that we can so that we can bring down 
the marginal rates, and we can lower the marginal and the 
effective corporate tax rate for American businesses.
    I know there is a lot of debate, and you can hear it here, 
about how high are corporate taxes. It is almost irrelevant to 
me. It is a plus if we can lower them, and that is what we 
should work to do, and I think we can do that by addressing the 
Swiss cheese in our Tax Code.
    The other thing I would do is, now going to small 
manufacturers, and one of the beauties of manufacturing for our 
broader economy is it is not only big companies. You know, 
people don't realize this: there are a lot of small 
manufacturers tucked away that are very productive. They have 
got a market niche. They are very competitive. They are sitting 
in Lancaster County, or around Pittsburgh, or in Ohio, and 
Wisconsin. You know, all those forest product companies, they 
are not big. These are small to midsized companies.
    I think--and there has been a lot of discussion about how 
these companies cannot get a loan, debt capital, going to the 
bank and getting a loan, and I think that has been an issue. I 
am less concerned about that now. I think it is starting to 
improve itself. But the one thing that really worries me in 
this regard is there is a lack of equity capital--that this is 
where the dearth is.
    We do not have investors taking an equity stake in these 
companies. And there's a lot of reasons for that, but I think 
there is a role perhaps for government to play here not 
directly making equity investments--I would not advocate that--
but actually helping finance indirectly through different means 
to provide equity capital to--and don't pick winners. Don't try 
to pick winners and losers, but let the professionals do it; 
let the marketplace do it; but help facilitate that process.
    So those are two things I think we need to focus on in 
terms of the cost of capital, and I will stop right there.
    Chairman Casey. Anyone else? I've got a little more than a 
minute.
    Mr. Brill. Sure. Thank you. I would just make a couple of 
quick points. Obviously in my opening remarks I talked about 
the importance of corporate tax reform and bringing down rates.
    I would like to endorse Dr. Zandi's comments about the 
values and opportunities from UI reform. That is an opportunity 
I think where we can really improve our labor markets in 
manufacturing and elsewhere.
    With regard to your comments earlier, Congressman Mulvaney, 
about capital, I think that was an excellent point. I think we 
need to pursue strategies to facilitate the mobility of 
capital. And that would include inbound investment, 
encouraging--reducing--lowering barriers to encourage 
foreigners to invest here in the United States, ``in-sourcing'' 
as it is commonly referred to.
    But we also have to recognize that there are benefits for 
U.S. firms to be investing abroad, as well. There are a number 
of concerns that I share with regard to China and some of their 
activities, but we should also recognize that China is a large 
customer for U.S. manufacturing, and we will all be better off 
if we are facilitating both inbound investment and permitting 
U.S. manufacturers and others to appropriately invest globally.
    Mr. Timmons. Mr. Chairman, I would like to----
    Chairman Casey. Mr. Paul, you are down to 22 seconds.
    Mr. Timmons [continuing]. I would like to respond to your 
question, but I also want to point out skills curriculum at 
universities that was mentioned by Dr. Zandi. We are really 
pleased that the President endorsed the skills' certification 
system that NAM set up. It is a national skills' certification 
system, and it involves community colleges. And I think it is 
very important that we do not overlook the importance of 
community colleges that can help us with addressing our skilled 
workforce issues.
    Comprehensive tax reform clearly, corporate tax rate 
reduction, is at the top of our list. Also, an energy policy 
that enables us to utilize our domestic resources. That is 
going to require some active engagement by Congress and the 
Administration.
    And then I would suggest that Members of Congress ask 
really hard and pointed questions, as well as provide the 
proper oversight to the regulating agencies. One very quick 
example.
    OSHA recently withdrew a proposed regulation to require 
manufacturing facilities to purchase hundreds of millions of 
dollars worth of noise abatement equipment to accomplish the 
same goals that are achieved through those little five-cent 
foam pieces of ear protection equipment.
    It did not make any sense. They did eventually withdraw it, 
but the real question is who had the time to come up with this 
in the first place. We need some very, very careful and strong 
oversight by Congress on what the regulatory agencies are doing 
right now.
    Chairman Casey. Congressman--I want to have Congressman 
Mulvaney jump ahead. Mr. Paul, we will try to give you some 
extra time.
    Representative Mulvaney. Thank you, Mr. Chairman. I have 
got one last question, gentlemen. I appreciate, again, you 
sticking around. I have heard, again, across the entire panel 
today a consistent message about corporate tax reform.
    Dr. Zandi, I think you used the word ``comprehensive.'' You 
also mentioned the role of smaller-sized manufacturers.
    Mr. Timmons, I put this to you. How critical is it when we 
sit and talk about corporate tax reform here that it goes just 
beyond the C corporation level and moves down to the S 
corporation level?
    Mr. Timmons. Well thank you for asking that question, 
because it is critical. Seventy-two percent of manufacturers 
file as S corporations or other pass-through entities. So when 
there is discussion to raise individual rates at the end of 
2012, that will have a huge and direct and negative impact on 
manufacturers.
    The corporate tax rate is clearly a competitive 
disadvantage for us right now, but raising individual rates 
would be a severe competitive disadvantage for us as well.
    Representative Mulvaney. Dr. Zandi, do you have the same 
position?
    Dr. Zandi. Yes, in the sense that I also think we need to 
have comprehensive reform of the personal income tax code as 
well. And all of these issues need to be considered in a 
broader context.
    Representative Mulvaney. And the reason I asked the 
question is that it seems up here that we have two debates. We 
have a debate about corporate tax reform, and then we have a 
separate debate about individual tax reform. And the message 
that I am trying to get out, and I am hoping you gentlemen 
agree with, is that there is an area in between. And it is with 
the S corporations, that really it is a corporation in terms of 
what it does, but it gets taxed as an individual.
    So what I am hoping that we can do here, Mr. Chairman, is 
have an understanding that corporate tax reform includes small 
businesses and S corporations.
    Dr. Zandi. Yes. And I think it is important. The way I kind 
of think about it, cutting across businesses and individuals, 
is looking at the tax expenditures in the tax code, the 
credits, and deductions in the code that make it very complex, 
reduces its efficacy, and just creates bad incentives. And the 
strategy should be to scale back or eliminate, as best we can, 
so that we can raise more revenue but also lower marginal 
rates. And then we accomplish everything that we need to.
    Mr. Brill. Congressman, I would just add that the notion of 
a corporate tax where a small large corporation and a large 
small corporation face completely different tax systems is 
completely illogical. The high tax rate for many individuals 
who are business owners is a distortion. It is a distortion 
that is taxing and both discouraging the supply of labor as 
well as the supply of capital.
    I would also note, however, that addressing these issues 
separately, while not ideal, does not disadvantage our smaller 
businesses. The customers of our small businesses are often 
large businesses. And so while we should work to both reduce 
the individual marginal rates to help S corps, partnerships, 
and sole proprietors, we should--the advantages of a corporate 
tax reform are good unto themselves.
    Mr. Paul. Mr. Mulvaney, I don't want to be the skunk at the 
garden party here, but I have a slightly different perspective.
    Representative Mulvaney. Sure. That's what we're looking 
for.
    Mr. Paul. I do think that we need to look at the effective 
corporate tax rates among manufacturers. They vary widely. They 
vary from about zero percent to somewhere in the mid-20s, to in 
some cases a little higher. I don't think I am burdened by 
economics training in saying that I do believe that targeted 
tax assistance can be effective.
    For instance, in industries that we are attempting to 
incubate, you often need public incentives to have those 
industries thrive. The Clean Energy Manufacturing Tax Credit, 
which Senator Stabenow mentioned, had a great deal of uptake 
and really helped to establish battery facilities, wind 
turbines, solar panels. I think that we should encourage other 
energy development, too, including nuclear.
    But the point is that, for the sake of an elegant economic 
tax system, we would make a lot of sacrifices. I do think it 
makes sense to target tax relief for manufacturers that are 
actually making things in the United States instead of overall 
income.
    And the last thing that I would add, very briefly, is I 
think it misses the larger debate, which is, virtually every 
other country we are competing against has a value-added tax 
system that has rebates for its exporters.
    The United States, almost exclusively among industrialized 
countries, does not have a system like that, and I am not 
saying that we need to adopt a system precisely like that, but 
it does put our exporters at somewhat of a competitive 
disadvantage.
    Representative Mulvaney. Mr. Paul, that brings us back full 
circle to where I started, though, which is that every time you 
sit and you give the example of a successful government policy 
on encouraging a particular industry, there are four or five 
that have failed miserably, and my fear is that we sit here and 
we are actually practicing what you've preached. We are giving 
tremendous incentives to various green energy segments, and my 
fear is that we are siphoning capital and simply siphoning 
creativity away from what actually might be working.
    We are sitting here today, for example, encouraging wind. 
My concern is that, by doing so, we are drawing resources away 
from something that might be more productive than wind energy. 
So again, that is part of the overall debate.
    But I think to your first point regarding the effective tax 
rate, I think that is exactly what Dr. Zandi was getting at, 
which is that because of all the loopholes, because of all the 
incentives, because of all the subsidies in the Tax Code 
itself, you end up with small companies paying a much higher 
rate than large companies, and you end up with some industries 
paying much higher rates than other industries.
    And I think what Dr. Zandi and folks like myself have been 
encouraging is a system that simply does away with that so the 
effective rate is actually the actual rate at the same time.
    Dr. Zandi. Can I just make one quick point?
    Representative Mulvaney. At the Chairman's discretion, 
because I am out of time. So, sorry.
    Chairman Casey. Can we make that in--because we want to 
keep moving.
    Dr. Zandi. That's fine.
    Chairman Casey. Congressman, thank you very much.
    Dr. Zandi. I can speak three days or three minutes.
    Chairman Casey. Senator Stabenow--or Senator Klobuchar. We 
had Senator Stabenow here earlier and----
    Senator Klobuchar. I would just end there, if you're trying 
to explain.
    [Laughter.]
    You know, you're two women Senators, is that----
    Chairman Casey. I have a long introduction of Senator 
Klobuchar which I will give another day.
    [Laughter.]
    Senator Klobuchar [continuing]. In any case----
    Chairman Casey. You get an extra minute now.
    Senator Klobuchar [continuing]. It is good to be here with 
you, Senator Sherrod Brown--no.
    [Laughter.]
    All right. I wanted to thank all of the witnesses. I am 
sorry, we had a hearing in Judiciary on intellectual property, 
which is also a piece of this, making sure that we are 
protecting all of the things that we make. But I truly believe 
the way that we are going to get out of this downturn is by 
making stuff again, by exporting to the world, by thinking 
again.
    And so all of the focus of this hearing I think is a very 
good one. It is certainly the way that my State of Minnesota 
has been able to--while we are not where we want to be, we are 
now at 6.6 percent unemployment, significantly below the 
national average.
    A lot of that has to do with manufacturing. I suddenly 
realized this year I could visit some of our factories on the 
weekends because they were going through the weekends. A lot of 
it has to do with exports. We have a huge history with Cargill, 
and 3M, and Medtronic, and other companies with export markets 
that has really expanded down into some of our small- and 
medium-sized businesses, because they think this is the way to 
go.
    And it is just the ag community, as well, which is now 
doing quite well exporting all over the world from pork to 
sugar beets to, yes, turkey. We are number one for turkey.
    So I wanted to focus here on the work in manufacturing. We 
exported $17.2 billion in goods last year, an increase of 17.3 
percent over 2009; and a sector recently reported 12-month job 
gains of 7,800, outpacing the Nation.
    So I think I will start with you, Mr. Timmons. I know it is 
not that rosy all over the place. I am well aware of it. But 
one of the things I have noticed, I was down at AgCo in 
Southern Minnesota, in Jackson, employing nearly 1,000 people 
now, because there's a lot of work in that area going on. They 
can't find a welder in southern Minnesota right now. And I 
spend a lot of time at our technical schools: a 96 percent 
placement rate out of Alexandria Tech. This is no longer your 
grandpa's tech schools. They are not just fixing cars. They are 
actually learning how to run computer systems that run the 
assembly lines at Boise Cascade and other places.
    And I would like to see a greater emphasis--Scott Brown and 
I have a bill called Innovate America--a greater emphasis on 
these two-year degrees and how our businesses and manufacturing 
can work with these two-year community and technical colleges 
to figure out what their needs are, literally within a year, 
and get kids into those programs, as well as workers who have 
lost jobs.
    Could you comment on the need for workers trained in where 
there is actually the openings?
    Mr. Timmons. That is music to my ears, Senator. And if I 
could just divert for just a second, Mr. Chairman, you did ask 
earlier what can be done to help manufacturing. And one of 
those things is to ensure that all elected officials spend time 
in a manufacturing facility and see real people in the real 
world doing real things.
    I bring this up because Senator Klobuchar is a perfect 
example of that. She has visited many of our member 
manufacturing facilities in Minnesota, and they have a very 
personal and good relationship with her. So thank you, Senator, 
for your commitment to manufacturers.
    I would say that you are exactly right on. One of the 
things I hear about from my members around the country, besides 
the big three that I mentioned already--taxes, energy policy, 
and regulatory burden--is the lack of a skilled workforce.
    There are jobs that are available, and there are companies 
that are not able to fill those jobs. I mentioned earlier, and 
I think it bears repeating, we have a partnership with the 
Administration. The President endorsed the National Association 
of Manufacturers' skills certification program, which is a 
national set of standards to help potential manufacturer 
workers ensure that they have the skills necessary for the jobs 
of the future and the jobs that are available today.
    So I look forward to reading a summary of your legislation, 
but the issue is right on. And we are working on that from the 
NAM perspective and a good public-private partnership with the 
government I think is very helpful in this regard.
    Senator Klobuchar. Well thank you. And another piece of 
this, obviously, that you focused on is exports of manufactured 
goods. I have some strong views on that, as well. I've headed 
up the Export Subcommittee of Commerce, but that having our 
embassies around the world make this their major focus is 
helping when companies are trying to get either private 
contracts or government contracts in other countries. But also 
not closing the door on the small- and medium-sized especially 
manufacturing firms that need help from the foreign commercial 
service.
    Senator LeMieux and I got tacked on the Small Business bill 
last time some help in that regard because it is worth its 
weight in gold. Could you just comment on small- and medium-
sized businesses and their need to be part of this growing 
export market?
    Mr. Timmons. Small and medium enterprises are a very fast-
growing part of the export platform in this country. And in 
fact at the NAM we have a loaned executive, if you will, from 
the Department of Commerce whose sole function is to help 
reduce barriers for export opportunities around the world for 
small and medium enterprises. So I agree with you that that is 
an important part of the puzzle, as well.
    Senator Klobuchar. And Dr. Zandi, I appreciate you being 
here, as well. And I know that you see the export market as 
key. And just one piece of this is, as we look at that export 
market, one of the things that becomes clear to me--and Mr. 
Timmons mentioned this--is we are competing in these markets 
against companies in other countries that sometimes are newer 
competitors. They have new rules. They have been able to start 
fresh.
    And I am becoming increasingly concerned with some of our 
rules and regulations. I just look at medical devices where a 
lot of the investment is going to Europe now because China is 
requiring country-of-origin labeling. No one would have even 
guessed this two decades ago.
    So because the European system will say it goes faster, a 
third of that venture capital money has been going to Europe. 
Or tourism, because it takes so long to get the visas to come 
to America versus Great Britain; we have lost 16 percent of the 
international tourism market since 9/11, not necessarily just 
because we put the security rules in place but because we 
haven't adjusted in terms of how we handle those applications.
    So I just wondered if you could comment about the economics 
of changing some of these rules and regulations because we no 
longer compete in a vacuum.
    Dr. Zandi. Yes, you make an excellent point. I think it is 
clear that going forward the key source of economic growth will 
be exports; that for the past quarter century we have relied on 
U.S. consumers to purchase the things that we produce that 
drove our growth in the global economy, frankly. And that is 
one of the inflection points, as a result of what we've been 
through, that going forward we cannot count on that. We have to 
look to selling what we produce to the rest of the world.
    And we sell manufactured goods to the rest of the world 
now, and those manufacturing companies that survived what we 
went through I think have to be very competitive. They have to 
have a good cost structure, and have a good market niche. So I 
think we are well poised.
    But one thing that clearly would help in their effort to 
sell to the rest of the world is to be cognizant of these 
regulatory costs and constraints. And when we think about 
regulation, there are good reasons for regulation, but we need 
to think about them through the prism of what they actually 
mean with respect to export growth. Because, again, at the end 
of the day that is our key source of growth long run.
    Senator Klobuchar. Very good. Thank you very much. I 
appreciate it.
    Chairman Casey. I want to make sure Senator Klobuchar had 
some extra time after I referred to her as Senator Stabenow.
    Senator Klobuchar. I would let it go because no one really 
noticed it out there.
    [Laughter.]
    Chairman Casey. We could add more time. This panel is 
willing to be here all day.
    [Laughter.]
    I know we have to wrap up. I wanted to pose one more 
question, and then give each of you a chance, if you wanted, to 
add something, but it tells you how closely folks up here 
listen.
    Our staff came up with a great question: Based upon part of 
your testimony, Mr. Zandi, and Mr. Brill part of your 
testimony, this question is about the impact during this period 
of recovery that manufacturing jobs have had, that 
manufacturing as a sector has contributed mightily to the 
recovery--I guess about half of the growth--but in terms of the 
job gains, it is about one-tenth? Is that what you said, Dr. 
Zandi?
    Dr. Zandi. That's correct, right. One-tenth. If you include 
the temp jobs, many of which are in manufacturing, it is at 
most one-fifth.
    Chairman Casey. So juxtaposing that, or putting that along 
with this point that Mr. Brill made about productivity, there 
would be pretty substantial productivity gains. The question I 
have is, how much--when you consider the productivity gains 
with manufacturing contributing one-tenth of the job gains--
what has happened with regard to wages?
    It seems that, even though we have had a pretty substantial 
uptick in productivity, I wonder how much workers have 
benefitted from that? What can you tell us, if anything, about 
the wage growth in that, say in the 2009 to 2011 time period?
    Mr. Brill. Senator, I can't speak to that specific set of 
years. What I can tell you, however, is there is some research 
in this area, including some work by staff at the Bureau of 
Labor Statistics. The productivity growth in the manufacturing 
sector has outpaced the wage growth in that sector.
    That is true. And is, fairly, legitimately something that 
policymakers may be concerned with. It is unclear what the 
explanation for that trend would be. Congress is certainly 
familiar and comfortable with the fact that productivity growth 
and wage growth don't necessarily move hand in hand, certainly 
not over the short run. However, over the long run there should 
be a strong correlation between the two.
    And over a number of years we have seen a lag in wage 
growth. I would also note, however, that some of that may be 
attributable to some labor policy burdens and rising 
compensation costs, rising health care costs. And so we have 
observed, for example, a decline in the share of wages as a 
share of total compensation across our entire economy. Workers 
are being paid more and more in nondollars. They are being paid 
in fringe benefits. And that could be a contributing factor, 
particularly in manufacturing.
    Dr. Zandi. I looked at the data in preparation, and average 
hourly earnings in manufacturing have gone nowhere since the 
recovery began. There are other measures of wages, but that is 
the most timely consistent measure that we have.
    So they have been flat. Now that, combined with the 
increase in output, means profits are up. So if you look at 
profits at manufacturers, they have returned to prerecession 
levels. So most of the benefit of this improvement in 
manufacturing has come in the form of jobs, some jobs. It has 
also come in the form of more hours, right, for those people 
who are working. But most of the benefit--at least so far--has 
accrued to businesses.
    Now let me say one other thing. That is not atypical in a 
recovery. That is how it works, generally. You know, a 
recession hits, businesses panic, they cut costs, they cut 
labor, they try to get their margins up. They get a little bit 
of sales growth, and it goes right to the bottom line. And then 
historically, with that better profits and better stock prices, 
that gets businesses to go out and expand and hire. They take a 
risk.
    And that is where we are right now. And it is not 
happening. And that is the problem we have. That is why this 
recovery is not engaging. It is not only manufacturing; it is 
across the economy. So this is the crux of the matter.
    Why is it that businesses are not acting on their better 
profitability? Now my sense is that they are going to have to, 
because you cannot continue to grow earnings, profits, and 
maintain your stock price by cutting costs. That is done. They 
have done it. So now they need revenue growth. They need to 
look for opportunities.
    So hopefully we will see it. We just need, I think, a 
little bit of luck and some really good policymaking to make 
sure that we nail down this uncertainty, particularly with 
regard to the deficit, and the debt, and the debt limit. And I 
think it will come together for us in terms of jobs.
    Chairman Casey. Yes, we hear a lot about that uncertainty 
across the board. I know we are ready to wrap up, unless 
Senator Klobuchar has any more questions?
    Senator Klobuchar. No.
    Chairman Casey. Okay. And if our panel has anything you 
want to say before we wrap up? We are pretty close on time. 
Anyone, before we--and of course the record will be open not 
only for individual members to submit questions for you to 
answer for the record, but of course if you want to submit 
additional material.
    Mr. Paul.
    Mr. Paul. Mr. Chairman, just very briefly. Thank you for 
having this hearing. It is very important. One word about 
productivity and wages. This has been a long-term trend dating 
back to the early 1980s, and it has been unique in the post-
World War II period.
    One possible explanation that needs I think further 
discussion is the productivity measure itself, and the degree 
to which intermediate inputs, especially those that are 
imports, are seeping into the productivity data. It may be 
skewing it slightly, and some economists at Upjohn Institute as 
well as Michael Mandel, who used to be the chief economist at 
Business Week, have identified that. I think that is worth 
exploring much more greatly.
    But I do think that one thing that the recession revealed 
is that there were some structural impediments to growing 
manufacturing in this country even after the acute nature of 
the decline in demand. The skills' infrastructure which Mr. 
Timmons identified is something that is critical. Rebuilding 
our logistical infrastructure in this country to move goods is 
also very important--access to credit.
    But I think those were the strong foundations for a 
manufacturing strategy.
    Thank you.
    Chairman Casey. That is a good note to end on. We do need a 
strategy. We do not have one, and one hearing does not a 
strategy make, but I think we have had a lot of good ideas 
here.
    And I think it is worth repeating, as I said at the outset, 
that this will be one of several hearings we will have in the 
Joint Economic Committee to best determine those strategies to 
revitalize manufacturing and to rebuild this base of our 
economy.
    I do want to thank both panels who are with us today, and 
especially those who traveled a great distance to be here. And 
as I said, the record will be open for five business days for 
any Member to submit a statement or additional questions, and 
that would apply to the witnesses, as well.
    So unless there is anything else to come before us, we are 
adjourned.
    [Whereupon, at 12:08 p.m., Wednesday, June 22, 2011, the 
hearing was adjourned.]
                       SUBMISSIONS FOR THE RECORD

             Prepared Statement of Senator Debbie Stabenow
    Chairman Casey and Vice Chairman Brady, thank you for the 
invitation to testify at today's hearing on ``Why We Need a National 
Manufacturing Strategy.'' This is a critical issue for my home state of 
Michigan and for our country's economic future.
    In order to have a strong middle class in America, we must continue 
to make and grow things in this country.
    Michigan led the way in the last century as the heart of American 
manufacturing, and we are rightfully proud that we helped create the 
middle class in this country.
    But for too long, we've seen a situation where our companies are 
competing against other countries. Competitors as diverse as Japan, 
China, India, and Germany all have manufacturing strategies.
    Because we have lost our focus, between 1979 and 2009, the U.S. 
lost more than 8 million manufacturing jobs. Michigan alone lost more 
than 300,000 manufacturing jobs between 2000 and 2010.
    During this time, countries like China have been investing heavily 
in emerging technologies, including renewable energy. In the next two 
years alone, China will invest almost $15 billion in advanced 
batteries.
    Japan paid for almost all of the initial research for Toyota to 
create batteries for its vehicles. And last year, China invested over 
$20 billion in its solar industry.
    Unfortunately, part of China's manufacturing strategy is stealing 
our intellectual property and breaking international trade rules.
    We need to hold China accountable and devote additional resources 
to trade enforcement--which is why I have legislation that would create 
a Chief Trade Enforcement Officer.
    We also must make strategic investments in clean energy 
technologies. President Obama has challenged us to put one million 
electric cars on the road by 2015. He realizes that, by investing in 
electric vehicle innovation, we can create jobs in America.
    We know that by supporting American innovation and manufacturing, 
we can bring jobs back--we know it, because it's working.
    In 2009, we put $2 billion toward advanced batteries. Before we 
made this investment, the United States made only 2 percent of the 
world's advanced batteries. By 2015, we will have the capacity to 
produce 40 percent of those batteries.
    Since January 2010, the U.S. has created nearly a quarter million 
manufacturing jobs--the first increase in over a decade.
    These policies were a good start, but they are not enough. We need 
to invest more and be smarter about how we do it. For example, in the 
last decade, our production tax credit for wind turbines expired three 
times. Each time, there was a sharp drop in installations of wind power 
projects.
    While China has five- and ten-year plans, our policies are 
unpredictable. Congress needs to give our manufacturers greater 
certainty on whether the incentives we promise will actually be there.
    Innovation has always been the reason America has the strongest 
economy in the world. To compete in the 21st Century, we need a strong, 
vibrant economy that makes advanced manufacturing a priority.
    America needs to lead in all aspects of advanced manufacturing--
from automobiles and wind turbines to computer chips and 
nanotechnology.
    Opponents of having a manufacturing strategy will say that 
manufacturing's time has passed and should be done in developing 
countries. I disagree. Our workers and businesses are the most 
productive in the world and can compete, and win, against anyone.
    With the right investments, we can create jobs today that will last 
for years to come.
    We're in a race for the future, and I want America to win that 
race. We must have a strong manufacturing strategy to get there.
    Thank you.
                               __________
          Prepared Statement of Representative Charles F. Bass
    Good morning. Thank you for the opportunity to testify before the 
Committee today. New Hampshire is an excellent example of a state with 
a diverse economy and manufacturing sector. We have low unemployment, a 
high-skilled workforce, and a lower tax rate than most states that 
contributes to the success of our state's economy. I hope that this New 
Hampshire perspective, as well as my prior experience in the business 
world, in which I helped to expand several small businesses in New 
Hampshire including a company that manufactures architectural products, 
will be useful.
    In New Hampshire, manufacturing makes an important contribution to 
our state's economy. Whether it is BAE Systems manufacturing advanced 
products that protect our troops, GT Solar manufacturing photovoltaic 
systems, Smiths Medical manufacturing medical devices for the hospital, 
emergency, home and specialist environments, Hitchiner manufacturing 
complete-to-print, high-volume, complex thin-wall investment castings, 
or Timken manufacturing anti-friction bearings, these activities are 
critical to our state's economy and employment.
    New Hampshire manufacturers account for over 11 percent of the 
total output of the state and employ 10.5 percent of the workforce, 
approximately 31,200 jobs. Furthermore, manufacturing compensation is 
67 percent higher than the average annual compensation of other nonfarm 
jobs in the state. In 2009, total output for manufacturing was $6.6 
billion, with the computer and electronic sector leading with $1.9 
billion.
    As in New Hampshire, U.S. manufacturing still remains a success 
story today. While we need to continue to ensure its global 
competitiveness, it is not in need of micromanagement from government. 
We have the most productive manufacturing labor force in the world. 
Even though manufacturing as a percent of gross domestic product has 
been steadily falling and payroll employment as a share of total U.S. 
employment has been declining over the past 60 years, labor 
productivity has grown to historic highs.
    By comparison to other countries, such as China, our closest 
contender, the productivity of Chinese manufacturing workers is only 12 
percent of its American counterpart--meaning that 11 to 12 million U.S. 
manufacturing workers produce nearly the same amount of product as 100 
million Chinese workers, according to the Manufacturers Alliance.
    While there has been much legitimate concern about the outsourcing 
of jobs, the counterbalance of in-sourcing enables foreign direct 
investments to create wealth, employment and exports for the United 
States. In fact, according to the National Association of 
Manufacturers, one in 12 U.S. manufacturing jobs is currently employed 
by a foreign-owned business and, according to the office of the United 
States Trade Representative, nearly one-quarter (23.3 percent) of all 
manufacturing workers in New Hampshire depend on exports for their 
jobs.
    The manufacturing changes we have witnessed over the past several 
decades have resulted not from an unfair playing field with our trading 
partners, but from the massive transformation resulting from innovation 
and technological advancement. This trend in the United States is 
parallel to the changes we've seen in the global manufacturing industry 
as well when measured as a percent of global gross domestic product.
    The United States is manufacturing more sophisticated goods with 
hundreds of parts that come from dozens of countries throughout the 
world. Manufacturing more technologically advanced and innovative goods 
requires more highly skilled labor, and, according to the Heritage 
Foundation, there has been a 44 percent increase in the number of 
workers employed in the U.S. manufacturing sector with an advanced 
degree.
    However, I'm deeply concerned about the current regulatory burden 
on U.S. businesses, and, considering that manufacturing comprises 57 
percent of total U.S. exports, this puts us at a serious disadvantage 
to competition abroad. According to the National Association of 
Manufacturers, costs resulting from high corporate taxes, increasing 
health care and pension costs, federal regulations, and tort litigation 
have resulted in overall cost increases for U.S. manufacturers of 
nearly 18 percent over major trading partners.
    On the other side of the equation, regulatory costs that taxpayers 
pay are increasing too. According to a study out of the Washington 
University's Weidenbaum Center, the federal regulatory budget is 
expected to grow 4.3 percent this year and 3 percent next year.
    As our economy continues to recover from this recession, we must 
give businesses, including manufacturing, a chance to grow and create 
jobs without burdensome interference from the federal government. Our 
guiding principle should be a government that spends less on the 
pathway to sound economic policy, not just for one sector, but for the 
economy as a whole.
    As of 2010, manufacturing contributed to 95 percent of New 
Hampshire's exports, and from 2003-2010, manufactured goods exports 
increased 135 percent, which was above the national average of a 70 
percent increase. Small businesses, the economic engine of our state, 
comprise 88 percent of New Hampshire's exporters as of 2009, and 
account for 42 percent of total state exports.
    The majority of people in New Hampshire and across the nation are 
employed by small businesses, but the excessive government regulations 
and fees on small businesses discourage expansion and job growth. A 
study from the Committee on Oversight and Government Reform found that 
small manufacturers bear a massive regulatory burden of $26,316 per 
employee, more than double the burden on large manufacturers.
    Yet this is only a fraction of the cost that all small businesses 
in the private sector pay when it comes to regulatory burden. When 
considering small businesses at large, the total cost hits $1.75 
trillion, according to the Small Business Administration's most recent 
estimate, 36 percent more than what large businesses pay. That exceeds 
the gross domestic product of Canada, is three times New Hampshire's 
gross state product, and rivals California's gross state product, the 
largest state economy in the United States.
    What is good for the manufacturing industry is good for all 
businesses in the U.S.. Our trading partners are not gaining ground on 
U.S. manufacturing because our manufacturing sector is declining; they 
are gaining ground because our current economic policies are failing 
U.S. manufacturers and businesses in the U.S.
    We cannot use targeted and excessive regulations and policies that 
actively engage in picking winners and losers in the economy in order 
to compete globally. If we wish to continue to attract and retain 
innovative and successful companies, we need to reform many of the 
federal policies that are hampering U.S. companies.
    Thank you and I look forward to your questions.
                               __________
            Prepared Statement of Vice Chairman Kevin Brady
    I thank Chairman Casey for calling a hearing on this important 
topic.
    The U.S. manufacturing sector has changed dramatically over the 
last several decades. Manufacturing productivity in America has soared. 
What took 1,000 workers to produce in 1950 now takes only 184.
    U.S. manufacturers produce 65 percent of what our country consumes, 
down from 80 percent three decades ago.
    Many consumer goods that were manufactured here are now imported. 
In the 1960s, U.S. manufacturers made 98 percent of America's shoes, 
but today 90 percent of shoes are imported. During the same time, 
entirely new manufacturing industries have arisen in America--such as 
in computer chips. Chemical products, food, computers & electronics, 
fabricated metal products, and machinery are the top five manufactured 
products in America today.
    While technology and productivity have shrunk the American 
manufacturing workforce over the past 40 years, manufacturing remains 
an important part of our economy. U.S. manufacturers produce about 12.5 
percent of our gross domestic product and employ about 9 percent of our 
workers--that translates into 12 million manufacturing jobs and nearly 
seven million related jobs, many of them in small businesses.
    By transitioning to higher-value products, America leads the world 
in manufacturing output and is the world's largest manufacturing 
economy, producing 21 percent of global manufactured products. China is 
second at 15 percent and Japan third at 12 percent. However, China is 
quickly becoming a contender for the top spot.
    Manufactured goods account for more than half (57 percent) of what 
America exports to other countries. We rank third in the world as a 
manufacturing exporter, following the European Union and China.
    Today, as America's economic recovery struggles, regional 
indicators suggest that manufacturing growth has recently stalled in 
many parts of the country.
    In light of these dramatic changes, the issue at this hearing is 
whether Congress should adopt an industrial policy for manufacturing 
under the modest fabric of a national manufacturing strategy. It's a 
timely question.
    My concern is that, while often well intended, an industrial policy 
can morph into the form of central planning which requires the 
replacement of the invisible hand of the free market with the visible 
hand of the government. Driven by understandable but misguided 
political considerations and buttressed with incomplete data and 
outdated perceptions, it can result in the undesirable: rent seeking, 
corporate cronyism, and economic stagnation.
    In countries around the world, industrial policy has repeatedly 
failed. Instead of fostering new products and technologies, old firms 
in declining industries inevitably capture industry policy to protect 
themselves at the expense of the consumer and ultimately economic 
growth.
    As President Reagan once observed of government's view of business: 
If it moves, tax it. If it keeps moving, regulate it. If it stops 
moving, subsidize it.
    President Carter's Chairman of the Council of Economic Advisers 
Charles Schultze observed:

        One does not have to be a cynic to forecast that the surest way 
        to multiply unwarranted subsidies and protectionist measures is 
        to legitimize their existence under the rubric of industrial 
        policy. The likely outcome of an industrial policy that 
        encompassed some elements of both ``protecting the losers'' and 
        ``picking the winners'' is that the losers would back the 
        subsidies for the winners in return for the latter's support on 
        issues of trade protection.

    As we listen to testimony today from distinguished lawmakers, 
economists, and business leaders, my thought is that, instead of a 
Washington-centric industrial manufacturing policy, Congress should 
instead adopt progrowth economic policies that raise the 
competitiveness and opportunity for all economic boats in our country:

        1) To ensure businesses do not bear higher tax costs, Congress 
        should adopt a comprehensive plan to reduce federal spending 
        relative to the size of our economy, reform our entitlement 
        programs to make them sustainably solvent, and gradually bring 
        the federal budget back into balance.
        2) To increase competitiveness around the globe, Congress 
        should reform our corporate tax system. The United States has 
        the second highest corporate income tax rate in the world. 
        Congress should reduce the after-tax cost of new investment by 
        expensing most equipment and shortening the depreciation 
        schedules for buildings. Congress should move to a territorial 
        tax system. Until then, Congress should act now to allow U.S. 
        corporations to repatriate stranded American profits to invest 
        in new jobs, research, investment, and financial stability here 
        at home.
        3) To find new customers for American manufacturers, farmers, 
        and service companies, Congress should immediately approve the 
        three outstanding free trade agreements with Colombia, Panama, 
        and South Korea and seek more opportunities to open growing 
        markets to American workers.
        4) To reduce unit costs and keep American companies located in 
        America, Congress should repeal laws that drive up costs--such 
        as the new national health care law and unnecessary federal 
        regulations. To help erase the estimated 18 percent 
        disadvantage in costs for U.S. manufacturers compared to their 
        global competitors, Congress should act now to modernize our 
        patent system and reform our tort system to reduce the 
        excessive costs of frivolous lawsuits.

    I believe adopting these economic policy changes would benefit U.S. 
manufacturers, their customers, their suppliers, and their workers far 
more than any national manufacturing strategy.
    A final point. Lawmakers and policymakers need better information 
on trade flows, production networks, and global supply chains that 
better reflect the manufacturing marketplace of today. For example, 
traditional trade statistics fail to account for the trade-in-value 
added among two or more countries. Our Bureau of Labor Statistics can 
track a job gained or lost in a local pub but can't identify a job 
gained or lost from trade. We are using eight-track stereo statistics 
in an IPOD world that do not reflect the activity or changes occurring 
in this fast-growing global marketplace. Accurate, timely, and real 
world data is a bipartisan goal we can all work together toward.
    I look forward to hearing today's witnesses, and again thank 
Chairman Casey for holding this important hearing.




                                  
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