[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
U.S. GOVERNMENT PRINTING OFFICE
67-529 WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
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.