[Senate Hearing 113-664]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-664
.                                                        
                      THE ROLE OF MANUFACTURING HUBS IN A 
                      21ST CENTURY INNOVATION ECONOMY

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

                                HEARING

                               BEFORE THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 13, 2013

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation                             
                             
                        
                          
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
       
                      ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK WARNER, Virginia                DAN COATS, Indiana
MARK BEGICH, Alaska                  TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
EDWARD MARKEY, Massachusetts         RON JOHNSON, Wisconsin
CORY BOOKER, New Jersey
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on November 13, 2013................................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator Thune.......................................     3
Statement of Senator Blunt.......................................     7
Statement of Senator Booker......................................    19
Statement of Senator Pryor.......................................    21
Statement of Senator Cruz........................................    22
Statement of Senator Ayotte......................................    24
Statement of Senator Blumenthal..................................    26
Statement of Senator Markey......................................    31

                               Witnesses

Hon. Sherrod Brown, U.S. Senator from Ohio.......................     5
Hon. Penny Pritzker, Secretary, U.S. Department of Commerce......     9
    Prepared statement...........................................    10
Eric A. Spiegel, President and CEO, Siemens Corporation..........    33
    Prepared statement...........................................    35
Professor Martin A. Schmidt, Acting Provost, Massachusetts 
  Institute of Technology........................................    37
    Prepared statement...........................................    39
Michael S. Garvey, President and CEO, M-7 Technologies...........    43
    Prepared statement...........................................    45
Dr. Terry Brewer, President, Brewer Science, Inc.................    47
    Prepared statement...........................................    48

                                Appendix

Letter dated November 18, 2013 from Dr. Stephen Grubb, Infinera 
  Fellow.........................................................    65
Letter dated November 20, 2013 from Julie Sheridan Eng, Ph.D., 
  Senior Vice President, Transceiver Engineering, Finisar 
  Corporation....................................................    66
Response to written questions submitted to Hon. Penny Pritzker 
  by:
    Hon. Amy Klobuchar...........................................    67
    Hon. Roger F. Wicker.........................................    68
Response to written question submitted by Hon. Amy Klobuchar to:
    Eric A. Spiegel..............................................    68
    Dr. Terry Brewer.............................................    68

  THE ROLE OF MANUFACTURING HUBS IN A 21ST CENTURY INNOVATION ECONOMY

                              ----------                              


                      WEDNESDAY, NOVEMBER 13, 2013

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:30 p.m. in room 
SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. I am going to give my opening statement. Then 
Senator Thune will get here and he will give his. And then 
Sherrod Brown is going to speak and then your cosponsor on our 
committee, Roy Blunt, will speak, and then we will go to the 
Secretary of Commerce, Penny Pritzker. And this is going to be 
a wonderful hearing.
    Today the Committee seeks a solution to our Nation's 
economic drift away from our commitment to manufacturing. This 
drift threatens our long-term growth, our position at the 
forefront of global technology, innovation, and our national 
security.
    Just last week we held what, I thought, was a very good 
hearing about how investments in basic research and development 
really are the core of American ingenuity. If we are going to 
continue to lead and compete in the global economy, we have to 
protect our lead in science and research, but the flow of 
Federal funding just does not seem to be very certain these 
days.
    That is why we have hearings in this committee. When things 
are going awry--in this case, I would finger the sequester--we 
have hearings and we bring it out. And if people who are 
elected respond, that is good, but at least the audience will 
have a chance to.
    So we are worried about the path that this country is on, 
and we desperately want to help. Today's hearing builds on the 
last conversation we had at the last hearing. Just as R&D will 
lead to new scientific discoveries and product innovations, 
these investments are crucial for the long-term growth of the 
manufacturing sector, a favorite subject of the Senator from 
Ohio.
    Innovation and manufacturing have long come together to 
form the backbone of the American economy. Great ideas 
conceived by American scientific minds were molded and built by 
American hands. The steel we milled, the automobiles and planes 
that we produced, and the computers that we made won us world 
wars, spurred our economy, and secured the livelihoods of a 
great middle class.
    But, unfortunately, success stories are becoming all too 
rare. In the last decade, we have wasted promising scientific 
research and have failed to translate technological success 
into manufacturing growth and jobs. Factories have vanished 
across our country. It is a terrible sight. If you come from a 
Rust Belt-type State and factories vanish, they vanish but the 
superstructure doesn't. If you have been to Bethlehem, 
Pennsylvania, they have got about 5 miles of rusted-out ex-
Bethlehem Steel Corporation buildings. Now, that has all been 
turned into modern shopping malls and all the rest of it.
    But I remember my sister and I went up, as we do every 
year, for the Bach Festival, and it was just a stunningly sad 
sight. Miles of rusted, empty factories and something called 
steel. And when these factories are gone, we have lost the 
jobs, and then we lose the know-how and the infrastructure that 
feed the manufacturing sector and many, many of our local 
communities.
    The list of products we have already lost is too long to 
recite. Laptop computers, flat panel displays, lithium-ion 
batteries, solar cells, and semiconductors are all examples of 
products that were invented here but are now produced overseas. 
They all have driven and will continue to drive the global 
economy, but the skilled workers and the infrastructure and the 
knowledge to manufacture them are no longer based in the United 
States.
    Meanwhile, foreign countries are taking the technology 
innovations created by American hands and American brains and 
using them to their economic advantage. I cannot blame them for 
that, but we are allowing that to happen. And these countries 
are investing in even greater support for their manufacturers 
to help them bring new, better, and cutting-edge products to 
the market.
    The United States must do the same. It must continue to 
invest in programs that help keep production in the United 
States and commercialize technology wherever they are 
conceived. Experts say a key problem for U.S. manufacturing is 
the so-called ``valley of death,'' the gap between invention 
and commercialization that dooms so many manufacturers today. 
It is vital that we bridge this gap; that is, we must help 
transform the brilliant scientific discoveries taking place in 
university laboratories, many places, into real world 
applications on the factory floor.
    Today we will be hearing about proposals that seek to 
bridge that very gap and by folks who are doing it. The 
proposals would establish a public-private network of 
manufacturing hubs, each dedicated to a particular technology 
that holds promise to help Americans stay ahead of our global 
competitors. In short, these hubs would help our economy by 
lending a hand where the free market just does not work well--
the risky and uncertain period that stands in the way between 
great inventions and great commercial products. These hubs 
would leverage our scientific research and close the valley of 
death if we follow through as is being tried in Youngstown, 
Ohio.
    Already the pilot institute in Youngstown, Ohio has shown 
the economic promise of this proposal. That institute has 
brought together the private sector, the public sector, and 
academia to solve common problems in additive manufacturing, 
also known as 3D printing, which absolutely blows my mind. It 
is the most amazing thing I have ever heard of. I am still not 
prepared to believe it is true.
    [Laughter.]
    The Chairman. But I am going to by the end of this hearing.
    This institute is bringing us closer to the day when 
household products, industrial parts, artificial limbs, and 
even human tissue can easily and cheaply be created from 
scratch from a digital code that involves no assembly or parts.
    The implications of this technology are enormous and, 
because of the pilot institute, may soon play a role in 
strengthening our manufacturing sector and the rest of the 
Nation's economy.
    I very much look forward to hearing from the witnesses 
today on this initiative and their ideas to strengthen U.S. 
manufacturing, and I thank them for appearing before this 
committee. And I have always particularly thanked the Ranking 
Member, John Thune. And we did a good job yesterday. Did we 
not?

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. We did. Thank you, Mr. Chairman. Yes, good 
work on your part.
    Did you want these guys to go before me, or do you want me 
to make my opening statement?
    The Chairman. I want you to speak.
    Senator Thune. All right, very good. I will do that.
    I also want to send my welcome to the new Senator from New 
Jersey to the Committee, Senator Booker.
    Mr. Chairman, I thank you for holding this hearing on 
efforts to promote U.S. manufacturing and advance our 
innovation economy. There is no question that manufacturing is 
critical to our Nation's economy and our global 
competitiveness. We see evidence of this in each of our States.
    In my home state of South Dakota, more than 1,000 
manufacturing firms support more than 41,000 jobs, or roughly 
10 percent of the state's workforce. Manufacturing comprises 
9.4 percent of South Dakota's economy, contributing $4 billion 
to our state's GDP. And in 2012, as reported by the Governor's 
Office of Economic Development, South Dakota had the fifth 
largest increase in manufacturing among the 50 states.
    I would add that South Dakota is a great partner when it 
comes to providing low cost of doing business. In fact, CNBC 
ranks South Dakota as the top state for business in 2013. This 
is attributable not only to the low tax burden--no individual 
or state income taxes and low sales and property taxes--but 
also to the low utility rates and favorable legal and 
regulatory climate.
    South Dakota, like most of our states, also participates in 
programs managed by the Department of Commerce to promote 
domestic manufacturing. For example, in January of this year, 
the Manufacturing Extension Partnership, or MEP, run by the 
Commerce Department's National Institute of Standards and 
Technology awarded cooperative agreements of $400,000 to South 
Dakota Manufacturing and Technology Solutions to support the 
first MEP center in the state in 10 years. The new center is 
based at the University of South Dakota in Vermillion and is 
part of a Small Business Development Center network.
    So I appreciate that the Federal Government has a role to 
play in promoting U.S. manufacturing. Today we will begin an 
examination of what that role should be with a particular focus 
on the Administration's proposal to create a network of 
manufacturing hubs, a proposal that is largely embraced in 
legislation introduced by Senators Brown and Blunt.
    I welcome Senator Brown to the Committee today. I look 
forward to hearing from him and our colleague on the Committee, 
Senator Blunt, about their legislation, which enjoys the 
support of groups like the National Association of 
Manufacturers and Semiconductor Equipment and Materials 
International (SEMI).
    I also want to welcome Secretary Pritzker back to the 
Committee for her first appearance since being confirmed, and I 
look forward to the perspective of our impressive panel of 
industry witnesses, several of whom are experienced at turning 
cutting-edge research into commercial products.
    I hope that as we examine the issue of how best to ensure 
U.S. leadership in advanced manufacturing, we will do so with 
an eye toward maximizing value for the taxpayers and avoiding 
duplication with the host of existing Government programs.
    Also, while perhaps outside the scope of this committee's 
jurisdiction, if we admit any limits to our jurisdiction, we 
should acknowledge that there are several policies that may 
hold even greater promise for incentivizing innovation and 
manufacturing. These include eliminating barriers to free 
trade, enacting meaningful tax reform, including the 
competitive territorial tax system that will strengthen the 
ability of U.S. companies to compete with global competitors, 
not to mention the long overdue need to reinstate Trade 
Promotion Authority that until recently has not been a priority 
of the current Administration.
    We also cannot ignore the importance of regulatory reform 
when it comes to our competitiveness in manufacturing. Just 2 
weeks ago, the National Association of Manufacturers announced 
that our former colleagues, Blanche Lincoln and George Allen, 
will co-chair the Manufacturing Competitiveness Initiative, an 
effort aimed at examining and highlighting the competitiveness 
challenges facing manufacturers. Among the first issues this 
bipartisan initiative will address is the impact of 
unnecessarily burdensome regulations on U.S. manufacturers.
    With that said, Mr. Chairman, I thank you again for calling 
today's hearing and I thank the witnesses for their testimony. 
I see we already have Mr. Blunt here, our colleague from the 
Committee, Mr. Chairman, to join Senator Brown and look forward 
to both of their statements.
    The Chairman. Thank you, Senator Thune.
    Well, Sherrod Brown is not on the Committee. Can we 
actually let him speak?
    [Laughter.]
    Senator Thune. You can give him special dispensation, Mr. 
Chairman.
    [Laughter.]
    The Chairman. All right. Special dispensation to the 
distinguished Senator from Ohio, provided that equally special 
dispensation, totally unneeded, go to Senator Blunt. And 
Secretary Pritzker, we apologize but these two folks really 
care about manufacturing. OK?
    Senator Brown?

               STATEMENT OF HON. SHERROD BROWN, 
                     U.S. SENATOR FROM OHIO

    Senator Brown. Thank you, Mr. Chairman. It is a pleasure to 
be in front of your committee again. And thank you for your 
leadership. Senator Thune, thank you. And, Senator Booker, 
congratulations on your first hearing. Senator Fischer, thank 
you.
    West Virginia and Ohio share a border, and citizens of one 
State often work in manufacturing in the other. Citizens in 
Ironton work in Huntington. People in Parkersburg work in 
Marietta. I have always been proud to stand shoulder to 
shoulder with Senator Rockefeller in defending our glass and 
steel manufacturers against unfair trade practices. I 
appreciate the Commerce Department and the ITC and what it has 
done to enforce trade rules. I look forward to promoting new 
technologies that are the subject of this hearing.
    I would like to acknowledge Senator Blunt who is as strong 
an advocate for American manufacturing as there is in this 
Senate. I am proud to partner with him in writing legislation 
that the Committee is considering today. I particularly 
appreciate the Commerce Committee staff, majority and minority, 
for stepping up on this hearing and putting this together as 
quickly as you could under Senator Rockefeller's leadership.
    Senator Blunt and I spoke on the Senate floor a few days 
ago about the kind of bipartisan effort we have in 
manufacturing. He asked the right question. How can we have a 
strong economy if we do not produce, if we do not make things? 
In Ohio and Missouri and I think in New Jersey and Nebraska and 
South Dakota and West Virginia, we understand that 
manufacturing is a key to the middle class. That is why I am 
pleased today to be followed by Secretary Pritzker, by Mike 
Garvey who is the CEO of M-7 Technologies in Youngstown, Ohio, 
and by Eric Spiegel who is the North American CEO of Siemens, 
also a Youngstown, Ohio native, if you catch the thread going 
through this conversation, Senator Rockefeller.
    [Laughter.]
    Senator Brown. But that is not the end of my statement.
    The Chairman. Your subtlety has come through.
    Senator Brown. Washington has made choices, I believe, that 
have left manufacturing behind, whether it is a bias towards 
finance at the expense of manufacturing, whether it is trade 
deals or not enforcing trade laws or unfair taxes or a failure 
to focus on innovation and technology. As a result, we have 
seen communities like St. Louis and Cleveland and Kansas City 
and Lordstown and Beckley and Charleston--all over our states--
live with the consequences, between 2000 and 2010, of 60,000 
plant closures and 5 million lost manufacturing jobs. This 
devastates manufacturing communities. You know what happens to 
a city of 30,000 or 40,000 or 50,000. Our states, particularly 
Missouri, Ohio, and West Virginia, have a number of cities, 
30,000, 40,000, 50,000, where when one or two plants close, the 
devastation of those communities, particularly when a husband 
and wife work at the same plant--we know the damage it does.
    The Commerce Department tells us every dollar in final 
sales of manufacturing products supports $1.48 in output from 
other sectors. That money is taken out of an economy when a 
plant closes, taken out of a community, put into a community 
when a plant hires more people. It is the largest economic 
multiplier of any sector.
    We have seen an up-tick in manufacturing job growth for the 
first time since the 1990s. But for too long we have been 
suffering from the syndrome of innovate here, invent it here, 
develop it here, but make it elsewhere. Now, more than ever, we 
need to do more to retain and attract new manufacturing jobs, 
which is what Senator Blunt's and my legislation is all about.
    A few years ago, I toured the largest yoghurt manufacturer 
in North America. It is a plant in Minster, Ohio near Neil 
Armstrong's home of Wapakoneta north of Dayton. Several hundred 
worked there until only a few months before I visited. The 
supplier would sell plastic cups to the plant. They had these 
large silver vats that they would squirt the fermented milk, 
the yoghurt, into these little plastic containers. A young 
industrial engineer and two people that had worked on the line 
for a decade or so figured they could be more efficient and 
find a much better way. The line was about 50 feet. They took a 
roll of plastic. They fed the sheet of plastic on the line, 
heated it, extruded it, then slowly cooled it, and squirted the 
yoghurt.
    The point of that story is not that an engineer could 
figure things out like that. The point of the story is the 
innovation so often takes place on the shop floor, and when we 
innovate and then make it elsewhere, we lose the edge we have. 
We lose the innovation both on the process of manufacturing and 
on the product that is manufactured. That is fundamentally the 
importance of what Senator Blunt and I are trying to do to help 
these companies find ways to do this manufacturing in this 
country.
    Along the Ohio Turnpike from Toledo, through Lorain south 
of Cleveland, Akron, Youngstown is really in many ways the auto 
belt in this country. Glass coming out of Toledo. Steel in 
Cleveland. Rubber tires in Akron. Assembly in Youngstown. The 
point of thinking of these manufacturing hubs is sort of like 
teaching hospitals where the innovation and the research is 
taking place, and the kind of job spin-offs and commercial 
activities happen nearby. It is what has happened in Toledo and 
Akron. Toledo, once a glass center, has become one of the top 
two or three cities in the country in solar production. Akron, 
the tire center of the universe at one point, certainly of our 
country and of the world, has become a leader in polymers in 
large part because of what they have learned.
    What we are doing in Ohio to expand our skills is beginning 
to catch the Nation's attention. President Obama tomorrow is 
going to Arcelor Mittal, a steel plant in Cleveland, the first 
place ever that steel has been produced where a 1 person-hour 
has been able to produce 1 ton of steel. Workers in this plant 
are now making advanced high strength steel used in the auto 
industry, used for appliances. Great news for the nearly 
800,000 jobs in Ohio tied to auto manufacturing.
    Our proposal and network for manufacturing innovation would 
expand upon recent successes to create these kind of public and 
private partnerships focused on bridging the commercialization 
gap for technologies identified by industry. These regional 
industry-led institutes will leverage local expertise and 
provide stable, high wage employment for millions of next 
generation workers.
    In August, the first ever--and Chairman Rockefeller 
mentioned this--National Additive Manufacturing Innovation 
Institute opened in Youngstown. The institute is driven by a 
tech belt corridor crossing Ohio, the northern panhandle of 
West Virginia, and Pennsylvania, supported by $30 million of 
Federal funding, matched by $40 million of private funding 
aimed to accelerate the 3D printing commercialization. The 
Youngstown center directly addresses the ``innovate here, make 
it there'' syndrome by tying together manufacturing supply 
chains with product development. Nations that we compete with 
have made tremendous efforts to develop the exact type of 
public-private approach embodied in Youngstown and embodied in 
our legislation.
    In 2002, the U.S. trade deficit in advanced technology 
products was over $91 billion. This balance has not been 
positive since 2001. It is time we seize this opportunity. That 
is why our common sense bipartisan legislation has been 
endorsed by the National Association of Manufacturers, the 
Semiconductor Equipment Manufacturers, the Information 
Technology and Innovation Foundation, the AFL-CIO, and lots of 
other groups. We are at a moment of great opportunity for 
manufacturing. This legislation and the interest of this 
committee can help us get there.
    And I particularly again thank Senator Blunt for his work.
    The Chairman. Thank you, Senator Brown.
    Senator Blunt?

                 STATEMENT OF HON. ROY BLUNT, 
                   U.S. SENATOR FROM MISSOURI

    Senator Blunt. Thank you, Chairman.
    And I am glad to be working on this with Senator Brown. He 
and I were secretaries of state together, and I have actually 
worked with Senator Brown longer than anybody else in the 
Senate because of that relationship that goes back a number of 
years.
    I would also like to be able to speak second because 
Senator Brown does such an expansive job of explaining what we 
are trying to do here.
    The Chairman. This is the shortest I have ever heard.
    [Laughter.]
    Senator Blunt. Well, me too. It was the shortest I had ever 
heard Senator Brown speak as well.
    We were on the floor the other day talking about the 
importance of a country that focuses on making things again and 
how many policies have to come together for that to happen. I 
think when you look at the overall picture of the economy, we 
are really at a breakthrough moment where, my belief is, a 
decade from now, we are going to look back in a lot of areas 
and think how could we have made this much progress this 
quickly as we figure out how to do a better job of putting 
things together, of taking advantage of the opportunities that 
we have in front of us.
    The idea that this bill really focuses on is manufacturing 
hubs for high-value manufacturing industries like aerospace 
technology, biotech, pharmaceutical technology, automotive, 
semiconductor equipment. All of that could fit into that view 
of what we think can happen here. And it is really just 
bringing more of our tools together and creating a way that 
that can happen.
    A lot of the countries we compete with are really focused 
on state-sponsored entities. So it is very easy for them to put 
all this together and very easy for them to do whatever they 
need to rulemaking-wise, regulation-making-wise, whatever else 
they need to do to be sure they are out there cutting through 
all the red tape and getting through the obstacles.
    We think this bill does that by using the public-private 
partnership model. You know, even at the Youngstown effort that 
Senator Brown was talking about, the University of Missouri is 
one of the places that is involved with them in talking about 
how to use engineering and other things that we have some 
unique perspectives on in our state. But we are excited about 
making things in Ohio as well and West Virginia and a country 
that makes things again.
    We are beginning to see a return to manufacturing. We have 
seen at least a 10-year decline in manufacturing and beginning 
to see those numbers head the other way. The opportunities for 
our workers to compete, for our workers to use the kind of 
technology, even in yoghurt making that Senator Brown was 
talking about, to where you may not be adding any new jobs when 
you do that, but you are securing every single job you have got 
and producing more in that facility in a more competitive, more 
effective way, and you are saving those jobs that we all know 
are so important to families. When a business goes out of 
business and those families lose that income, it makes a big 
difference.
    So we are looking here for things that ensure that the 
limited resources that the Government has really pack the 
greatest punch. To develop the workforce of the future, we can 
combine efforts to reach out early to students, bring together 
industry, small business, large companies, academic 
institutions in a way that I believe we both think meets 
today's demands better than some of the existing programs. I 
think a lot of our programs, while well-intentioned and 
effective at one time, do not quite grasp how many things can 
come together now to make us more competitive and create more 
opportunities.
    And so, again, I am pleased to be working with Senator 
Brown on this. I am grateful to the Committee for holding this 
hearing, and I am particularly pleased that Secretary Pritzker 
and the witnesses, the two panels we have today, are here to 
talk about what they think this legislation could do.
    The Chairman. Thank you, Senator Blunt. And thank you both 
because you have introduced something which is very close to 
you and which is sometimes overlooked in the swirl of world 
events and political crises and all the rest of it. Thank you 
both a lot.
    We have actually today two panels. The entirety of the 
first panel is Secretary Penny Pritzker, who has vast 
experience in what we have been talking about and is very 
enthusiastic about it. And so, Secretary Pritzker, we welcome 
you. As was pointed out, this is your first appearance here. It 
was hard enough to get you confirmed. But you are here and that 
is all that matters. And you are raring to go and you are a 
can-do person. I have known you a long time and you are 
terrific. So please proceed.

         STATEMENT OF HON. PENNY PRITZKER, SECRETARY, 
                  U.S. DEPARTMENT OF COMMERCE

    Secretary Pritzker. Well, thank you, Chairman Rockefeller, 
Ranking Member Thune, and members of the Committee. I really 
appreciate your calling this very important hearing. This is a 
subject near and dear to my heart. So I welcome the opportunity 
to draw attention to the need for the National Network for 
Manufacturing Innovation. And the Administration is pleased to 
support bipartisan legislation introduced by Senators Sherrod 
Brown and Roy Blunt.
    So let me begin with a brief anecdote. In the 1980s, you 
may recall that we were at risk of losing our competitiveness 
in the semiconductor industry. To ensure that did not happen, 
the U.S. Government made a major investment and partnered with 
a dozen chip companies.
    On one of my first trips as Secretary, I went to Albany, 
New York where you can see how that collaboration is now 
bearing fruit. There, would-be rivals are jointly engaging in 
what we call pre-competitive research. Along with a local 
college, they have fostered a global hub of innovation where 
scientific breakthroughs are leading to better American 
products and stronger U.S. competitiveness. As a result, that 
region is now attracting billions of dollars in global business 
investment and thousands more jobs. I am convinced that we can 
replicate that model of success through the NNMI.
    With 27 years of business experience, I came to the 
Commerce Department with the belief that our efforts should 
largely be driven by industry needs. NNMI is not a Government 
idea. It comes from a group of 12 top CEOs and six top 
university presidents, along with input from about 1,700 of 
their peers. They saw that the private sector was not filling 
key gaps. The path from R&D to market had eroded. Production 
processes were outdated, and workers were not ready for the 
next generation of high tech and advanced manufacturing jobs. 
They looked to places like Albany and saw that we could bring 
together companies, universities, community colleges, and local 
governments to address these problems by co-investing in 
institutes that unleashed the full potential of burgeoning 
local industrial ecosystems.
    They also saw that other countries, particularly in Asia 
and in Europe, were making major investments like this, putting 
us at risk of losing our competitive edge. None of us here 
today wants that to happen.
    The good news is that the Federal Government can provide 
relatively modest seed funding that will both attract co-
investment and catalyze the growth of these institutes. In 5 to 
7 years, those hubs will be self-sustaining. You will be 
hearing shortly from business leaders who know that this is a 
strategically sound approach. The NNMI will help American 
manufacturing leapfrog into the 21st century at a moment when 
we need it most.
    And we must remember the crucial importance of 
manufacturing in our economy. Manufacturing accounts for 70 
percent of U.S. research and development, 70 percent of 
patents, and the vast majority of U.S. exports. Manufacturing 
jobs earn 17 percent more than those in other sectors, helping 
our middle class stay strong. And with about a half million 
manufacturing jobs added over the past 6 years, we clearly have 
some momentum.
    As you know, we already launched a Department of Defense 
institute focused on 3D printing, a technology that is 
flourishing among entrepreneurs and established companies 
worldwide. In the coming months, the Department of Defense and 
Energy are launching three more pilot institutes: one in 
lightweight metals, another in digital manufacturing and 
design, and a third in power electronics. We need to lead in 
these emerging fields, as well as many other fields beyond 
defense and energy. The Brown-Blunt legislation would allow us 
to move forward in a smart and comprehensive way. The NNMI is a 
truly game-changing approach to 21st century American 
manufacturing, an approach crafted by our country's own leading 
minds in this sector.
    So I look forward to working with this committee to make 
the NNMI a reality, and I look forward to your questions.
    [The prepared statement of Secretary Pritzker follows:]

         Prepared Statement of Hon. Penny Pritzker, Secretary, 
                      U.S. Department of Commerce
Introduction
    Chairman Rockefeller, Ranking Member Thune, and members of the 
Committee, thank you for calling this important hearing to examine the 
role of manufacturing hubs in a 21st Century innovation economy.
    I welcome the opportunity to discuss a proposed National Network 
for Manufacturing Innovation (NNMI), and am supportive of the approach 
in the bipartisan legislation recently introduced by Senators Sherrod 
Brown and Roy Blunt on this topic.
    The NNMI legislative proposal would largely implement 
recommendations by the first Advanced Manufacturing Partnership (AMP) 
Steering Committee, a task force of 12 leading company CEOs and six 
university presidents, with input from 1,700 members of industry and 
academia. Co-chaired by Dow CEO Andrew Liveris and former Massachusetts 
Institute of Technology (MIT) President Susan Hockfield, the AMP 
Steering Committee issued a report to the President in July 2012 
entitled Capturing Domestic Competitive Advantage in Advanced 
Manufacturing. Among its findings was the need for a network of 
manufacturing innovation institutes. These institutes would allow 
companies to collaboratively invest in precompetitive research to 
tackle manufacturing challenges they cannot address individually. The 
institutes would provide companies, including small manufacturers, 
access to capital equipment and facilities to conduct testing and 
research in order to accelerate to the market new cutting edge 
technologies. A new generation of our manufacturing workforce would be 
trained in an environment similar to a ``teaching hospital'' for 
advanced manufacturing, where engineers, researchers, and workers are 
able to gain new skills and capabilities working on state-of-the-art 
equipment and new manufacturing challenges.
Manufacturing Innovation
    It is an exciting vision that has been widely embraced. Just two 
weeks ago, the National Association of Manufacturers (NAM) and other 
organizations including Semiconductor Equipment and Materials 
International, publicly announced that they are supporting this effort.
    Before elaborating on this vision, I would first like to discuss 
the commercial problems these institutes are meant to solve. As you 
know, I come to the Department of Commerce as a business person, 
particularly sensitive to market demands. Many in private industry have 
embraced the institute concept because they see a need for industry 
leaders to collaborate on advanced technology challenges in order for 
the United States to secure a competitive edge. Others believe it will 
spark economic development in regions that have been hard-hit by 
previous recessions. And these private sector leaders wholeheartedly 
endorse the Institutes as a critical national investment to rebuild 
manufacturing capabilities and strengths that have eroded over the last 
decade as manufacturing went offshore.
    In fact, since 2001, the United States has lost production across a 
range of advanced technology industries where the United States had 
previously been dominant. This phenomenon was caused largely by 
companies' increased reliance on global supply chains, which has 
allowed companies to tap specialized manufacturers from other countries 
to produce high-performance parts. Over the long-run, this reliance 
shifted production and often innovation overseas as well.
    As a recent MIT study points out, innovation occurs not only at the 
point of invention, but at every stage of product development and 
delivery. This was the rationale behind the iconic Bell Labs where 
engineers co-located beside technicians to develop and continually 
improve production processes for telecommunications equipment. Or at 
companies like DuPont, where partnerships between design and production 
specialists led to an affordable manufacturing process for Kevlar in 
1970--finally making the material marketable, five years after it had 
been invented.
    On the other hand, when a company's inventors and design engineers 
are separated from the production process, that company may be hindered 
in its abilities to improve products or develop new goods and services. 
This separation is why scholars now suggest that certain industries 
created in the United States--such as flat panel displays and certain 
consumer electronics--have moved entirely offshore. In some of these 
cases, manufacturers built assembly facilities in Asia which made it 
attractive for parts suppliers to re-locate there as well. Soon, entire 
supply chains were migrating out of the United States, and we lost our 
ability to lead in the innovation and production of these types of 
products.
    The NNMI will allow the United States to rebuild the dense networks 
of capabilities that it lost during the past two decades of 
manufacturing offshoring. Bringing large manufacturers, universities, 
and small businesses together in institutes will help restore U.S. 
competitiveness in manufacturing. This is critically important for 
boosting U.S. innovation and exports, and it will facilitate middle 
class job growth. Indeed, the manufacturing sector accounts for 70 
percent of U.S. private-sector research and development, 70 percent of 
patents, and the vast majority of U.S. exports. Manufacturing jobs 
provide a key pathway into the middle class, with workers earning 
between wages and benefits 17 percent more than their counterparts in 
other sectors.
    Catalyzing industry to strengthen American manufacturing 
capabilities has worked for us in the past. Twenty-seven years ago, the 
Reagan Administration sounded the alarm over a crisis in the 
semiconductor industry. We were fast losing market share and would 
eventually lose our entire industry if nothing was done.
    For the Department of Defense this posed a national security risk. 
As a result, SEMATECH was born; the Pentagon invested $500 million into 
a small consortium of U.S. companies, allowing industry rivals to 
collaborate in road-mapping the future of semiconductor chip technology 
and to develop the manufacturing processes necessary to mass produce 
those chips. Instead of each semiconductor manufacturer spending money 
to design its own equipment in isolation, SEMATECH provided a forum for 
companies to work together and develop common standards for next 
generation chip manufacturing technology.
    Just this last July, I visited SEMATECH at its new home on the 
seven-year old campus of the College of Nanoscale Engineering of the 
State University of New York (SUNY) in Albany, New York. SEMATECH has 
not received Federal matching funding for over fifteen years, having 
evolved into a self-sufficient enterprise--and having grown to include 
over a hundred international players.
    What I found particularly fascinating were some of the College's 
other partners. Unlike SEMATECH, which focuses on research into 
manufacturing processes, the College's other partners are helping 
transition additional emerging research into actual manufacturing 
capabilities--in the same vein that we are proposing for NNMI. One such 
initiative is the Global 450 Consortium--an effort to make the surface 
on which we make chips--called wafers--bigger. This could bring down 
costs and add more functions to our smartphones, tablets, and car 
electronics.
    This consortium, started up just in the last two years, is 
comprised of IBM, Intel, Samsung, TMSC, and Global Foundries as well as 
the State of New York. Each company recognized this effort was high 
risk, extremely expensive, and beyond the capability of a single 
company. But, on this great college campus, these companies are now 
pooling resources and sharing risk to try to develop manufacturing 
equipment together. By collaborating they advance the ``pre-
competitive'' technology that can be inserted into final products that 
are more proprietary. Because this work goes on here, the innovation, 
company growth, and high tech jobs are here. Additionally, students at 
various levels on the campus will have an opportunity to train on how 
to use this equipment and develop new production techniques. The 
College itself functions as a trusted third party, not only providing 
the space for conducting collaborative research, but also managing 
complex arrangements for sharing intellectual property. The College is 
in effect coach, convener, and arbiter--and has developed a successful 
model for protecting companies' proprietary interests.
    The innovations taking place at this facility are breathtaking. So 
much so, that semiconductor companies from around the world are 
investing tens of billions of dollars to build factories in that region 
and creating thousands of new jobs, just to be close to the College and 
tap the collaborative research and scholars available nearby. In fact, 
just this year Global Foundries--the second largest chip maker in the 
world--announced another $7 billion expansion of its multi-billion 
dollar facility in neighboring Saratoga Springs.
    Companies in this industry are flocking to the region because they 
believe being a part of this industrial ecosystem is critical to their 
long-term competitiveness; in turn they are building multi-billion 
dollar complexes. This case shows what can happen when the Government--
whether Federal or state--provides initial seed funding, and helps 
convene industry and university partners to collaborate in 
manufacturing research and workforce training. In my view, this should 
be an inspiration for aspiring NNMI institutes.
The Missing Middle
    What is transpiring in upstate New York can and must take place 
elsewhere around our country. The United States has long invested 
public dollars in initial or basic research, and, in many industries, 
companies are likely to invest in late-stage development--once a 
product has been proven and a market is beginning to materialize. But 
what about that middle stage--when a technology has been invented but 
there is no established process for scaling up its production?
    To lead the world in advanced manufacturing means to lead not just 
in initial invention but all the way through production. Other 
countries, particularly in Asia and Europe, have been investing 
billions of dollars in such ``technology transition'' for decades, and 
have their own programs analogous to NNMI. It is time to find a 
uniquely American solution to the challenges associated with moving 
technology from lab to shop.
National Network for Manufacturing Innovation
    A uniquely American solution must be led by the private sector. The 
Administration relied on the advice of 1,700 members of industry and 
academia who provided inputs into the AMP report. The NNMI program will 
eventually be wholly owned and operated by companies and universities--
not the Federal Government. However, as evidenced by history, these 
endeavors will require seed funding to make it possible for companies, 
universities, community colleges, nonprofits, and others to join a 
manufacturing innovation consortium. Our proposal is for the Government 
to provide that ``patient capital'' for about five to seven years, and 
then allow an institute to operate on its own. In essence, the public 
investment is in the U.S. innovation ecosystem--to create the space for 
industry and academia to solve industry-relevant problems. In the 
process, the institute will need to prove that it can and will be self-
sustaining long after the Government ends its investment, and that it 
can meet critical market demands. There is indeed a demand for this 
sort of program. I have seen it firsthand in Albany. But I can assure 
you, there is a hunger for these institutes all across the country. 
This is evidenced by the great interest and robust competitions for new 
manufacturing innovation institutes being held by the Departments of 
Defense and Energy right now.
    As members of this committee are aware, last year, the Department 
of Defense led a competition to establish a pilot institute. The 
institute focuses on additive manufacturing and 3D printing--an area of 
great importance both to the Armed Forces and the broader economy. This 
technology is literally something out of ``Star Trek''--allowing 
individuals to use a computer to design intricate structures and shapes 
traditional manufacturing processes simply could not make, and then 
``printing'' or ``beaming'' them layer-by-layer into existence with 
unprecedented precision.
    The Air Force and Navy want to use this technology to build high-
performance aircraft and engine parts. The Army and Defense Logistics 
Agency might use this technology to have instant access to spare parts 
in-theater, when combat vehicles break down, or to recreate replacement 
parts that have been out of stock for decades. And in the commercial 
market, one can conceive of virtually endless applications for these 
tools--ranging from automotive and medical device production to fashion 
and apparel. These sophisticated and expensive production machines are 
far from perfect--and the institute is a big part of making them 
better. It is also important to develop the standards for 3D printed 
parts, training programs, and the skilled workforce needed to support 
new businesses. Improvements in these production machines are spilling 
over to consumer markets, where inexpensive printers for schools and 
homes are rapidly expanding. But much remains to be done to bring the 
technology fully into the mainstream.
    Moreover, if the United States is going to be a global leader in 
advanced technologies, such as 3D printing, we are going to need to 
bring all of our leading industry and university resources to bear. We 
need to recognize that the rest of the world is not sitting on the 
sidelines. I assure you, many other countries are investing heavily in 
3D printing as well as a host of other advanced manufacturing 
technologies. We need to get this right to remain globally competitive.
    Fortunately, there is high demand in the United States to do just 
that.
    From what I am told, competition was fierce for the pilot 
institute. In the end, the Government put $30 million on the table, and 
the winning consortium matched this sum with an additional $40 million. 
That money is going towards funding labor, equipment, and applied 
research projects. The pilot institute was formerly known as the 
National Additive Manufacturing Innovation Institute, and was recently 
renamed America Makes. Its headquarters is now open for business in 
Youngstown, Ohio. Consortium members included, among others, Northrop 
Grumman, Honeywell, IBM, Timken, and RTI International; university 
participants included Case Western, Carnegie Mellon, Penn State, and 
Youngstown State--as well as Marshall University in your home state, 
Mr. Chairman. And membership continues to grow. While many feel the 
future promise of this technology is certain to be astonishing, what is 
far from certain is where the global innovation hub for 3D printing and 
additive manufacturing will be located. The mission of our pilot 
institute is to ensure this hub is in the United States.
    But what exactly happens at an institute?
    The answer is: ``A lot.'' Industry members are crafting detailed 
roadmaps of their technology needs, collectively defining milestones 
and then developing strategies to meet those goals. Institute members 
are collaborating on applied research projects, developing facilities 
to evaluate nascent technologies and improving equipment and processes 
for unproven technology to be scaled up to production. By using shared 
facilities, manufacturers can pool their risk, and drive down the cost 
of commercialization. Working with university researchers and design 
engineers, manufacturers can accelerate the insertion of these critical 
technologies into mainstream manufacturing. Through this process, 
institute members are establishing new business networks, coordinating 
their actions, and redefining supply chains and business practices. In 
particular, institutes offer opportunities for small and medium-sized 
enterprises to enter these supply chains and access equipment they 
ordinarily would not be able to afford to use. Finally, community 
colleges and universities are training new generations of workers on 
cutting edge technology available at the institute and establishing 
pipelines for U.S. employers to hire skilled workers. By engaging with 
colleges and universities, the institutes will both incent and support 
educators to assure the knowledge and skills of our workforce--building 
additional science, technology, engineering and mathematic (STEM) 
career pathways for youth and adults. This aspect of the institutes 
will be essential to keep the manufacture of new products from moving 
offshore.
    The institute itself provides facilities, equipment, and software 
for collaborative research. It also helps arrange intellectual property 
sharing, both to advance technology breakthroughs as well as protect 
members' proprietary rights. As illustrated below, institute members 
can range from research universities and national laboratories to 
community colleges; large manufacturing companies to small and medium-
sized enterprises and start-ups; and state and local governments to 
economic development organizations.


    Ultimately, the Administration envisions a collection of these 
institutes forming a network. Institutes will thrive not only from 
collective action within their own consortia, but also through cross-
pollination across industries. All parties involved in these institutes 
will advance competitiveness in their respective technology fields as 
well as more broadly support our economic and national security 
interests.
    The pilot institute currently underway has demonstrated the great 
demand for these capabilities among all of these actors. Applied 
research projects co-financed by the Government, industry, and 
universities are well-underway. And the institute continues to see its 
membership and private investment rise. For example, in May of this 
year, Siemens announced a $440 million in-kind grant to Youngstown 
State University to help train the next generation of 3D printing 
manufacturers. I am eager to see how it matures over the next several 
years.
    Meanwhile, the Departments of Defense and Energy have launched 
three more competitions. The Pentagon solicited proposals for consortia 
focused on lightweight and modern metals as well as digital design in 
manufacturing. Energy's new institute will focus on enabling more 
powerful, efficient, and more cost effective power electronics. These 
are critical endeavors, and we are eagerly awaiting the announcement of 
competition winners. These new institutes, like the pilot, will 
continue to help us hone this model and, more importantly, address 
critical manufacturing technology needs for our country.
    In sum, by developing these institutes in partnership with industry 
and academia, the Government will address two critical issues industry 
leaders say they cannot solve without assistance. First, it will 
incentivize companies and universities to work together in promoting 
innovation and production here at home. Second, it will help companies 
within an industry ensure that U.S. supply chains are effective and 
well-integrated.
Congressional Authorization
    In order to enable this program to reach its full potential, 
Congressional action is required to authorize this program and provide 
the necessary funding. The ``Revitalize American Manufacturing and 
Innovation Act of 2013,'' sponsored by Senators Blunt and Brown, would 
authorize Commerce to award funds to assist in planning, establishing, 
or supporting the centers for manufacturing innovation, which will 
constitute the network. It would also establish a National Office of 
the Network for Manufacturing Innovation Program within the National 
Institute of Standards and Technology to oversee and carry out the 
program. These are both important steps in meeting the President's call 
for the NNMI.
    Although the institutes being developed under the leadership of the 
Departments of Defense and Energy under existing authorities are 
important, at present we have no Federal program exclusively focused on 
identifying emerging technologies with broad potential impact and 
bringing together companies in associated industries to improve 
technology transition. Instead, we are meeting our Nation's demand by 
tapping existing Federal programs. By relying on these mission 
agencies, we are confining the institutes' topics to areas that are 
relevant primarily to these agencies' missions, which exclude many 
other topics with significant potential impact on manufacturing.
    Ultimately, these institutes need to be driven from the bottom up; 
we need to empower U.S. industries to identify where their comparative 
advantage lies and where the need is greatest to collaborate in 
manufacturing innovation institutes. Our role should be to support 
those decisions, help them underwrite risk when we can, and thus help 
unleash the full might of the American innovation economy.
    This question was posed to industry in five different public events 
along with a request for public comment--``What are the topics that are 
most important to industry, appropriate for an institute, and that 
industry would co-invest in?'' The response was overwhelming--135 
topics. Which should be established? Let consortia teams put together 
proposals based on market needs--not a Federal agency's requirements. 
Awards will be made through merit-based competition that selects the 
best business case to receive start-up funding and become part of the 
network. Additionally, we will continue to rely on the private sector, 
through forums such as the Advanced Manufacturing Partnership, to 
ensure NNMI meets industry needs and advances American competitiveness.
    In Fiscal Year 2014, the President's Budget has called for $1 
billion for up to 15 institutes built over multiple years to jumpstart 
the vision shared by AMP, NAM, and so many other leaders across 
industry. This proposed multi-year funding will provide the consortia 
the certainty needed for members to commit to fully matching the 
Government contribution. As the concept has developed, so has the 
demand. In fact, the Administration believes the network could 
ultimately reach a total of 45 institutes. As a comparison, Germany has 
60 Fraunhofer Institutes--similar in concept to NNMI--despite having an 
economy a fraction of the size of ours. It is critically important that 
we make the NNMI a reality. The approach in the Brown-Blunt bill is an 
important step in advancing this conversation.
    I look forward to working with this committee to move this 
important legislation forward.
Conclusion
    Today, manufacturing remains critical for both economic and 
national security. As I discussed at the outset, addressing the 
challenges facing America's manufacturing sector is absolutely 
essential both for our ability to employ skilled workers as well as for 
our ability to maintain our competitive edge in the world economy.
    Innovation is America's comparative advantage. It is the lifeblood 
of advanced industries that are fundamental to our Nation's future--
from nanomanufacturing to cyber-technology. But to truly stay out front 
in these exciting new fields, it is not enough to invent new products--
we can and we must strengthen the ability to make these products too. 
Establishing the National Network for Manufacturing Innovation is 
essential to doing just that. I look forward to working with you to 
realize this vision.
    This is just one piece of the Administration's manufacturing 
agenda; I look forward to returning to talk with you about other 
exciting initiatives in the near future.
    Thank you for the opportunity to appear before you today. I look 
forward to answering your questions.

    The Chairman. Thank you, Secretary Pritzker.
    I will have a few questions and then Senator Thune and then 
by order of arrival our other two members, and hopefully others 
will come to join us. This is a very important hearing.
    The mindset and the rhetoric that revolves around research 
and development and manufacturing--you do not find it on front 
pages. You find it in economic journals, but it just has not 
grabbed in this maelstrom of whatever it is that we are about 
up here and in the world. It gets lost. It is totally 
devastating. It takes down communities and families like 
anything I have ever heard, and it lasts for many, many years 
after the damage has been done, even if something else comes to 
replace it. People lose confidence.
    We have great stories to tell. Manufacturing is making a 
comeback, as you have pointed out. But we need to be serious 
again about making real investments if we are to succeed in the 
long term.
    So, Secretary Pritzker, what is the Department doing to 
capitalize on American ingenuity and the manufacturing research 
that you have talked about that we have seen in the past few 
years, and how does the manufacturing hub proposal contribute 
to that effort?
    Secretary Pritzker. Thank you, Senator, for that question. 
You know, if you think about manufacturing, it begins with 
basic research, and it goes all the way through to what do we 
produce and how do we get it to market. And the Department of 
Commerce plays a role in a number of places along that 
spectrum.
    First, at NIST, we engage in basic research and we also set 
standards, which is very important to manufacturing.
    We also are active in the supply chain and enhancing the 
supply chain with the MEP efforts. We are focused there on 
process improvement.
    In the International Trade Administration, we focus on 
export promotion.
    And then with the IMCP effort, which is a really economic 
development reform, we play a role with our EDA, our Economic 
Development Administration, in making sure that our investments 
in distressed communities are coordinated so that those 
communities can receive investment that can be productive and 
be successful for the people who live in those communities.
    But what is missing is, as you pointed out in your opening 
statement, this area from basic research to the marketplace. It 
is sort of a lab to market or the pre-competitive research, as 
I like to call it. But this area of applied research where it 
is too early for the private sector to come in because the 
issues are too risky and they cannot do it alone. They need 
help from the academic institutions in order to get over the 
hump. And this is an area that, obviously, this legislation 
focuses on and one that we at the Commerce Department are 
enthusiastic about because it fills a gap in a spectrum of 
support that can be given to the manufacturing industries in 
our country.
    And what I particularly think is so valuable about it is it 
is also industry-driven. To date, our pilots have been driven 
by the Department of Defense or the Department of Energy, which 
is great. I mean, 3D printing is an obvious place for us to 
focus or composite materials or things like that. But we need 
it to be broader to where industry thinks that they can take 
our country and our manufacturing to the next generation.
    The Chairman. It is interesting that between, I guess, 
about 2000 and 2010, the country lost about 6 million jobs, but 
during that same period, manufacturing jobs increased by half a 
million. Now, who talks about that? Very few people but people 
who care do and are proud of it and have worked for it. And in 
that period, the Government has made investments, as have 
others who will be testifying on the second panel.
    I want to put to rest as soon as I can an argument which is 
often used, and that is we do not think that the Government 
should be in the business of picking winners and losers. And 
that is used as kind of a blanket denunciation of virtually 
anything to do with manufacturing or research and development, 
even though it is private sector, public sector, and academia. 
Can you kind of lay that one to rest?
    Secretary Pritzker. Yes. This is not about picking winners 
and losers. In fact, what is so exciting about the legislation 
and the proposal ahead is, one, it is competitive. Two is it is 
taking the best business plans, and three, they are generated 
by the private sector. The ideas are generated by the private 
sector, and the solutions are generated by a consortium made up 
of academia, of local governments, of the private sector.
    And if you take the pilot that exists in Youngstown, Ohio, 
it began with a small investment, $30 million of taxpayer money 
matched by $40 million of local, private sector, and other 
money. And it has blossomed from--I believe four different 
educational institutions were involved--to many more and from 
60 companies now to over 100 companies involved. This is in a 
year. And this is around one subject.
    And so you can see the potential that can happen as 
companies as diverse as, take, Northrop Grumman and IBM and 
small companies like RPM and others coming together to say how 
do we take this technology and how do we maximize its potential 
for all different kinds of industries, everything from 
airplanes to shoes.
    And so this is the kind of thing where I think the return--
if you look at the return that we got for our investment in the 
semiconductor industry, which we did in the 1980s, it is 
something like, in taxpayer dollars, we put in $500 million, 
and we got more than 11 times our money back in terms of tax 
revenue. That is without all the people who got jobs and 
everything else. So this is one that has great potential for 
this country.
    The Chairman. Thank you.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    Madam Secretary, I understand that in July of this year, 
the Administration expanded its NNMI proposal from 15 to 45 
regional manufacturing innovation institutes. And it sounds 
similar in scope to the existing NIST Manufacturing Extension 
Partnership, MEP program, which I was referring to as ``MEP'' 
and I was corrected, which has centers located in every state. 
Descriptions of the NNMI also sound very similar to the NIST 
Advanced Manufacturing Technology Consortia (AMTECH) program.
    The Department said that the AMTECH program ``will provide 
cost-shared funding to industry-led consortia that will develop 
technologies to address major technical problems that will spur 
the adoption of advanced manufacturing capabilities in the 
United States.'' And that is a quote.
    The question is, on top of the existing MEP program, the 
AMTECH program, and numerous other Federal Government 
manufacturing initiatives, how do you ensure that NNMI does not 
duplicate existing manufacturing initiatives?
    Secretary Pritzker. So thank you for the question.
    So the Manufacturing Extension Partnerships. I really think 
of them as, first of all, they are consulting with small and 
medium-sized enterprises to help them have the most up-to-date 
manufacturing processes so they can stay globally competitive 
and do not get replaced by some other provider in some other 
place either in the United States or in the world. So that is a 
very different function. It is working with existing companies.
    The NNMI institutes. First of all, they are a place where 
cutting-edge research is occurring, where you are bringing 
together the private sector and academia to say we need to 
focus on a particular technology that has enormous potential, 
but it is not at the point where it is in the marketplace. It 
is really going from the lab not quite to the market. It is 
filling this gap that exists from I have a basic research idea, 
but now what I want to do is I need to get that concept to a 
point where companies are willing to invest in its development. 
So they are very, very different.
    The AMTECH program is a very tiny, little program that is 
about some technologies, but it is not a place. It does not 
have the kind of scope that we are talking about. It does not 
have the kind of matching funds that we are talking about.
    This is really to me--and the reason to expand from 15 to 
45 is there is enormous demand around this country to do this. 
I have heard from mayors and different private sector leaders 
about how excited they are to participate in these consortia 
because they are an ability to bring these kinds of cutting-
edge ideas to a place where then companies can run with them 
into the marketplace.
    Senator Thune. Well, if you kind of go back to the MEP 
centers again, they were originally envisioned to become 
financially sustainable over time, but they still require some 
amount of base Federal funding to exist today. How would you 
ensure that the NNMI institutes would not similarly become 
reliant on Federal dollars, particularly if you are going to 
increase the number from 15 to 45?
    Secretary Pritzker. Well, I think as conceived, the concept 
is this is seed dollars to get them up and running and that 
they are required by their business plans to develop a business 
plan that makes them self-sustaining over 5 to 7 years. The 
MEP's are a match funding where a third of the dollars is by 
the Federal Government and two-thirds is locally, and it is 
very much embedded in the local marketplace.
    Here, I think that the private sector is the key. You have 
got private sector companies who want to see this research 
occur but they cannot afford to do it all by themselves.
    Senator Thune. In your prepared testimony, you discussed 
how investment in innovation is going to create jobs in the 
U.S. However, there are some economists who argue that advanced 
manufacturing, which is the type of manufacturing that the NNMI 
program would seek to support, may only create jobs for a 
skilled few. Christina Roemer, who served as the chairwoman of 
President Obama's Council of Economic Advisors, stated that the 
President's manufacturing plan will probably have only a small 
effect on job creation.
    So the question is how do you respond to those economists 
who suggest that programs like NNMI will only have a marginal 
impact on job creation and employment?
    Secretary Pritzker. Well, I think that manufacturing, first 
of all, creates good jobs and it has an extraordinary 
multiplier effect, as I think Senator Sherrod Brown was talking 
about. So today in this country, we have 11.5 million 
manufacturing jobs, 500,000 of which have been created over the 
last several years. To support those 11.5 million jobs are 5.7 
million jobs in logistics and software, the highest multiplier 
effect of any of our industries. The jobs also are a key path 
to the middle class for Americans because the wage and benefits 
in advanced manufacturing are 17 percent higher than other 
sectors. So this to me is a great place for investment because 
I think we are creating very good jobs, stable jobs.
    One of the important things to keep in mind is this notion 
of we need to keep production close to home, and the reason is 
because of the virtuous cycle that occurs on the, if you will, 
factory floor which is the innovation that is talked about. It 
is extremely important, as we produce here, that innovations 
occur by those who are actually there producing. And that is 
something, whether it is the yoghurt conversation that we were 
just having or others. And that has been widely studied, the 
importance of keeping manufacturing here.
    You know, also frankly we do know that innovation is a key 
driver to economic growth. As I said earlier, two-thirds of R&D 
comes from the private sector. 70 percent of that is in 
manufacturing. So this all helps our economy remain globally 
competitive.
    Senator Thune. Thank you, Mr. Chairman. My time has 
expired.
    The Chairman. Thank you, Senator Thune.
    Senator Booker?

                STATEMENT OF HON. CORY BOOKER, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Booker. Thank you very much, Mr. Chairman.
    First and foremost, I want to thank the Chairman for this 
great opportunity. I am told that when you are as low in 
seniority as I am, about 101st in seniority in the United 
States Senate, that you do not always get the committees that 
you want. This is something I have been dreaming about being a 
part of since I first started running for the United States 
Senate. It is an honor to have you as chairman. And frankly, as 
I look at the issues facing the United States of America as a 
whole, I know that the future of our country's strengths and 
power will not be determined by our military, but will 
ultimately be determined by the power of our economy. And the 
privilege to serve on this committee that to me touches that 
very core problem we have with jobs, economic growth, is truly 
a privilege. And I thank you for this opportunity.
    The Chairman. We are glad you are here.
    Senator Booker. Thank you.
    Of course, to Ranking Member Thune, I want to thank you as 
well for this opportunity to serve.
    This is an issue--first, I feel like we are both sitting in 
our first Commerce hearing. So thank you. You have been 
somebody who has been a friend and someone who I have respected 
for a long time.
    You know, in Newark, when I was Mayor, we focused on this 
idea of job creation in every single way. It was the biggest 
issue that my residents would talk to me about on a daily 
basis, looking for jobs and opportunity. We did a lot of 
analysis on our economy. And one of the things we discovered 
was the incredible importance of our manufacturing base within 
Newark. Now, in Newark alone, we have about 400 manufacturers. 
In New Jersey as a whole, we are an amazing manufacturing 
state, over 9,100 manufacturers. They provide over a quarter of 
a million jobs within our state. That is direct jobs, not the 
ancillary jobs in transportation and logistics. It adds about 
$38 billion to our gross State product.
    And one of the things I did as Mayor was to bring in the 
Brookings Institution to begin to help us to analyze this 
sector in a very pragmatic way. We wanted to grow, grow, grow 
and find ways to create more and more jobs. And we found a lot 
of practical things that rolled out about it that I felt 
actually a little bit impotent to deal with as a mayor, which 
were really national issues. And I am really grateful to have 
this chance to bring what we see as some of the biggest drivers 
to manufacturing growth to have a discussion with you.
    One of the first things that becomes obvious is while 
American consumption is pretty significant, 95 percent of all 
consumers globally are outside of America. And one of the first 
things that we saw with our manufacturers is that we were not 
doing enough to help expand American exports. Now, there is 
obviously a lot going on, but when you talk to manufacturers in 
States like New Jersey, obviously they are going to have issues 
with export financing, navigating the complex web of rules of 
the foreign markets, and then finding specific partners 
overseas, which there is a demand out there, but a lot of those 
are difficult to deal with.
    Now, obviously, the Foreign Commercial Service is 
critically important. But the one area I want to hone in on and 
ask you a question on is Commerce's U.S. Export Assistance 
Centers, or USEACs as they are called. What I see is that there 
is a broad difference in quality in the USEACs. And as mayor, I 
realized that we can develop a real dashboard on specific 
metrics within my city departments whether it is Comstat and 
the police department and elsewhere, once people know they are 
being measured and what they are being measured on, if you are 
a manager, you measure the things you care about because people 
care about how they are being measured.
    I am wondering if you would be willing to work with 
Senators like me to help develop a dashboard which creates much 
greater transparency for the expenditure of taxpayer dollars 
but I think would really start to drive the standards overall 
in terms of the different USEACs that are out there and help us 
to really be more productive in that connective tissue for 
manufacturers.
    Secretary Pritzker. Senator, I would be delighted to work 
with you on that. Making sure that our USEACs are all 
performing at the highest level is a top priority for me and 
for the Department and something that I want to make sure that 
we get right. And helping our companies export is a huge 
priority for me. Tomorrow I will roll out our strategy for the 
Department, and you will find that it is very consistent with 
the goals that you are talking about because I think this is an 
enormous opportunity for just the reasons you talked about for 
our companies at this time and for our country, frankly. 
Foreign direct investment is another great opportunity because 
of all the good things that are happening here. So I would be 
delighted to work with you.
    Senator Booker. That is fantastic.
    With my time running out, hopefully I will get another 
chance to ask another question.
    The Chairman. Senator Pryor?

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman.
    And, again, welcome to the Committee. It is great to see 
you again.
    Secretary Pritzker. Good to see you, Senator.
    Senator Pryor. Thank you for what you are doing.
    Let me just say at the outset I like this idea of this 
National Network of Manufacturing Innovation Centers. I think 
it is important.
    But I would also like to slow down here for just a minute 
and ask some specifics. So one thing is there is about maybe a 
billion dollar price tag on this. And Congress has already 
authorized and appropriated money for research parks. You may 
not know this. This kind of predates your time there. But none 
of that money has been released. My understanding is OMB is 
basically saying that they are too risky. In fact, I think they 
put them at the same risk level as nuclear power plants, which 
does not make any sense to me, but I think if you look at the 
numbers, that is where they are.
    Do you know much about why the research parks have not been 
funded yet? Are you aware of that?
    Secretary Pritzker. No, Senator, I do not know why the 
research parks have not been funded. I do not know, but I will 
look into it.
    Senator Pryor. Yes. I will tell you what. Let's circle back 
around----
    Secretary Pritzker. I would be happy to do that.
    Senator Pryor. Again, this is part of the same goal that we 
are all trying to accomplish here, you know, trying to get 
innovation and research and a lot of these research parks--they 
do not have to be, but a lot of them will be affiliated with 
universities.
    Secretary Pritzker. Is this the program that is part of the 
America COMPETES Act, the loan guarantee program?
    Senator Pryor. Yes.
    Secretary Pritzker. So I do have an update on that, which 
is what is happening is EDA has been working with--since EDA 
did not have the expertise to stand up or we had not developed 
the expertise in the loan guarantee program--we have been 
working with Treasury who does to help us. By the end of the 
year, we will have a contractor in place to begin to put that 
in place. So that is as far as we have gotten with that effort. 
But I do not know about OMB's judgments on this, and I am happy 
to get back to you about that.
    Senator Pryor. That would be great. We can talk about that. 
I do not want to take all the Committee's time. But thank you.
    And also, if I understand the numbers, the administration 
is asking for an additional 15 centers that will be funded for 
7 years. I am kind of curious about 7 years because typically 5 
years is how we do something like this. And also I am wondering 
about cost-share and kind of logistically how this will work.
    Secretary Pritzker. So as I understand the way the program 
is proposed, the cost-share is--first of all, it is a race to 
the top type program in the sense that there has to be matching 
funding. And what we have seen in the first pilot is that the 
Federal Government put up $30 million. The local participants 
and the private sector put up $40 million, including the 
universities. Now what you are seeing is--and you will hear 
later from the American CEO of Siemens--you are getting 
contributions of value in the hundreds of millions of dollars. 
So it really is the classic sort of venture capital kind of 
money that the Federal Government and the taxpayers are putting 
up. It is serving as a catalyst for bringing people together 
that want to see this research occur. So I think it is, from a 
money standpoint, a terrifically good investment.
    In terms of becoming self-sustaining, that is where judging 
the business plans becomes important because you have to make 
an assessment, do you believe that these things will ultimately 
support themselves. And that is a requirement.
    The other exciting part about it that we have not really 
talked about is there is also a workforce training aspect 
because the hope is it will be like what happened in Albany, 
which is you begin to create a center of excellence or an 
institute, and then what has happened in Albany is you have 
billions of dollars of investment going in around the 
semiconductor industry. And I talked to not just the 
semiconductor manufacturers who are there, but I talked to 
everybody from networkers and others who were supporting the 
supply chain of the semiconductor industry. And you have got 
this flourishing economic ecosystem that is going on. And I 
would envision that what is happening--and you will hear from 
those who are participating in a few minutes. You know, that 
should happen in Youngstown and in our other institutes as we 
stand them up. They build on one another, and particularly when 
you have the number of private sector participants who want to 
see this kind of technology get to a point where they can then 
put it in their products.
    Senator Pryor. One last thing. This is supposed to be part 
of a national network. Is that defined? Do we know sort of what 
the roles are and how the coordination will work?
    Secretary Pritzker. I think the concept is that the 
Commerce Department will serve as sort of a convening of the 
networks so that best practices can be shared and things like 
that. But each institute has to be self-sustaining itself.
    Senator Pryor. Thank you.
    The Chairman. Senator Cruz? My apologies.

                  STATEMENT OF HON. TED CRUZ, 
                    U.S. SENATOR FROM TEXAS

    Senator Cruz. Thank you, Mr. Chairman.
    Madam Secretary, welcome back.
    Secretary Pritzker. Thank you.
    Senator Cruz. It is good to see you.
    Secretary Pritzker. It is good to see you.
    Senator Cruz. At your confirmation hearing, we had a very 
good conversation on a number of issues, and one of the things 
we discussed at your confirmation hearing was that at the time 
I asked if you would commit, during your first 100 days as 
Secretary, to identifying at least three regulations that were 
overly burdensome and that were impeding economic growth. And 
you very graciously responded at the time and agreed to do so. 
Indeed, what you said at the time was that it is extremely 
important to look at the regulatory environment and that you 
would enthusiastically work to identify those regulations that 
could be either streamlined or repealed to allow for the 
private sector to generate economic growth.
    It has now been 100 days and you are back before the 
Committee. So I wanted to give you the opportunity to report on 
the progress of those efforts.
    Secretary Pritzker. Well, Senator, I appreciate that. Let 
me put it in the context of, first, the President's regulatory 
look-back and then talk about the things at the Department of 
Commerce that I have personally looked into.
    So in the President's regulatory look-back, there have been 
about 500 initiatives to reduce costs and simplify processes, 
saving about $10 billion. So, for example, at the Department of 
Labor, they simplified hazard warning for workers and yet, at 
the same time, added greater safety, and that had a value of 
about $2.5 billion.
    What I did at the Department of Commerce is--there are a 
couple of areas, since what we regulate is in certain areas. So 
I went to the various areas that we regulate and asked what are 
we doing to make it easier for commerce to occur. I talked 
personally and met with a team, the Under Secretary at BIS. We 
are in the process of implementing export control reform. We 
are removing 1,000 items which had a more onerous licensing 
process requirement, removing thousands, not 1,000, but 
thousands of items. And what that allows an exporter to do is 
to export items faster, those that require a license, and they 
no longer pay a per-item fee. And as well, it also strengthens 
our defense because it allows for greater interoperability 
because our allies have been shying away from using American 
parts because of the licensing process. And so this is helping 
to make our parts supply just easier frankly.
    So at BIS, I got very involved in trying to understand what 
we were doing and working with them, as well as the Director of 
our Patent and Trade Office. The America Invents Act requires 
us to provide more certain and timely patents. And I had 
explicit conversations personally with the Acting Director at 
the time of the Patent and Trade Office and talked about, OK, 
we have this backlog. What are we doing to address the backlog 
and what are we doing to create greater certainty in the 
patents that we are giving so that there is less vulnerability 
to those who receive them.
    The patent backlog is affected by a number of things, the 
number of people that we have to adjudicate patents, and we 
have a number that can allow us to address the backlog over a 
couple of years, bring that backlog down to an inventory that 
we would like. Right now we have a backlog of about 560,000 
patents. We would like to be running with an inventory of 
350,000 patents. We have about 80,000 patent adjudicators. They 
can each do a certain number. And so we know precisely how long 
it will take us to reduce our backlog.
    And so I am very focused on the metrics so that I can pay 
attention so that we can get--you know, innovation depends on 
us being able to deliver this quickly. And so I am working with 
the director and keeping track of what is happening there.
    I do have to say sequester is hurting that process because 
even though we are a fee-for-service, we have money that is 
sitting in the bank account that we cannot access that is 
affecting our IT spend, which would allow us to get at this a 
bit faster. So that is a challenge we are facing because of 
sequester.
    Senator Cruz. Let me ask, if I can, one final question 
because my time is expiring.
    I just came from a gathering of a number of franchisees who 
were small business owners, owners of fast food restaurants, 
burger chains, that are experiencing very significant hardship 
because of the burdens of Obamacare, and they are having 
difficulties. They are forced to reduce their employees to 
part-time work, to 29 hours a week, which is impacting the most 
vulnerable among us.
    And we have also seen in recent weeks now over 5 million 
people across this country losing their health insurance, a 
significant number of whom are small business owners who were 
in the individual marketplace.
    And so I wanted to ask your judgment for those 5 million 
people who are losing their health care--in your judgment, 
should they be able to keep the plans that they have now?
    Secretary Pritzker. Well, Senator, you know, I have to 
confess that that has not been my area of focus, the precise 
structure of Obamacare. But what I would say is that the goal 
is for everyone to be covered and the goal is for--Obamacare 
has also been set up in a way to bring deficits down. So I 
think we have to take a bit of the long view right now and get 
the problems solved that we are facing so that we can see the 
programs actually work as intended.
    Senator Cruz. But do you think that people should be able 
to keep the plans that they have now and that they like?
    Secretary Pritzker. You know, there is a knee bone/shin 
bone question here which is what is available and how does it 
work and how does it affect the actuarial numbers. So I do not 
really know how to answer a question for 5 million people 
except to say that it has to be a system that is integrated 
that can work. Obamacare has to offer--make sure that if 
someone has a certain quality--the goal is for there to be a 
certain quality of health care, as well as that it is such that 
we have enough participants that the insurers can cover 
everyone.
    Senator Cruz. Thank you, Madam Secretary.
    Secretary Pritzker. Thank you.
    The Chairman. Thank you, Senator.
    Senator Ayotte, you have barely had a chance to sit down, 
but you are up.

                STATEMENT OF HON. KELLY AYOTTE, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Ayotte. Here I am.
    So thank you very much, Secretary Pritzker. It is an honor 
to have you here.
    And my first question is a pretty easy one for you. Will 
you come to New Hampshire?
    Secretary Pritzker. I'd love to come to New Hampshire.
    Senator Ayotte. OK, very good, because we really are a 
small business state and I think that certainly the insight you 
will hear from our manufacturers, which is the topic of today's 
hearing, but other small businesses in the state, will be very 
helpful. And I really want to get you to New Hampshire to talk 
to our fishermen because I am concerned, as you and I talked 
when you were nominated, about the impact that the catch share 
regulation is having on them. So if you say yes, I will take it 
at that. I appreciate it. We would love to have you. And I know 
I speak for my colleague, Senator Shaheen, who would like to 
have you there as well, and we can do a joint visit to the 
state.
    What I would like to ask you about is the issue of spectrum 
and where we are in terms of the sharing of spectrum, 
particularly the issue that we have across government sectors 
between DOD and your position as a new Secretary of Commerce 
trying to lead the sharing of spectrum and/or auctioning off 
more spectrum for the private sector. And as you know, the 
Administration has had a goal of freeing up about 500 megahertz 
of spectrum within 10 years.
    Where do you think we are on this? Can you update us? And 
what do you think you can do to move this forward? Because I 
feel like we have had a lot of discussions on it, but we are 
not really making progress.
    Secretary Pritzker. So, Senator, what I would love to do is 
give you a specific update. I do not have that with me. So I 
would like to make sure your office has it.
    What I have done is, working with our Under Secretary at 
NTIA, is to make sure he understands how important this is and 
that we are moving the ball forward to free up more spectrum, 
which is an objective not only of you but also of the 
President. And so this has been a high priority for us.
    I do not have at my fingertips the latest statistics but I 
will get that to your office.
    Senator Ayotte. Perfect. I appreciate the update on it and 
appreciate your leadership in helping us move forward with 
this. I think it helps everyone. It helps us in terms of the 
issues. Obviously, we need to protect our national security 
with the DOD access that they need, but also the opportunities 
for economic growth that we need to make more spectrum 
available.
    And then finally on the fisheries issue, I know I am going 
to have you come to New Hampshire, but since you have been in 
your position, do you have any thoughts on how we can better 
help our fishermen with what they are dealing with regarding 
the catch share policies? And particularly, obviously, in New 
Hampshire last year, there were 22 active boats in the fishery 
and this year we have only had 14 and really only 4 boats are 
actually fishing right now. So I just want them to continue to 
exist and to thrive and grow.
    Secretary Pritzker. Well, Senator, I know how challenging 
the catch share is, and I understand the impact it is having on 
fishermen, on their families, on the culture in New Hampshire. 
And I appreciate your efforts working on the disaster relief 
effort as well.
    You know, one of the things that I did after my 
confirmation hearing and after I was sworn in was we did put 
John Bullard in place as our Northeast Administrator to work 
with the fishermen every day on trying to manage through what 
is a challenging period.
    The other thing we have done is we have been covering 
observer costs for both 2013 and 2014, and we want to work with 
you as the Magnuson comes up for reauthorization as to how to 
best proceed with that.
    Senator Ayotte. Good. Appreciate it.
    Now, you had tremendous private sector experience before 
you came here. with issues that impact the growth of 
manufacturing in this country. Would you agree with me that our 
tax code has an impact on the growth of manufacturing in terms 
of tax rates and our competitiveness around the world and, 
obviously, our regulatory climate as well? Are those two key 
issues we have to get at if we want to grow manufacturing in 
the country?
    Secretary Pritzker. Well, I will start with the tax code. 
You know, I support the President's position on corporate tax 
reform, to bring the rate down and particularly bring the rate 
down as well for manufacturers to the 25 percent area. I think 
that can be very helpful in terms of stimulating manufacturing 
and keeping our companies not just in manufacturing, but our 
companies in general globally competitive. I think it is 
extremely important.
    Senator Ayotte. Thank you.
    The Chairman. Thank you, Senator.
    Senator Blumenthal?

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thank you, Mr. Chairman. Thank you for 
having this hearing.
    Thank you, Madam Secretary, for being here today and for 
the great work that you have done so far and your willingness 
to serve in this very, very important role.
    I would like to focus on the Manufacturing Extension 
Program--I know you are familiar with it--which I believe is a 
key example of how public-private partnerships can help our 
manufacturers invest and grow.
    We have in Connecticut CONNSTEP which has delivered 
critical business assistance to about 467 businesses with only, 
believe it or not, about $2 million in combined funding and 
about a $591 million impact on the overall bottom line in 
retained sales. So the Connecticut Center for Advanced 
Technology is also a nonprofit that provides critical 
individually tailored support to those kinds of businesses with 
a focus on technological innovation.
    I guess my question is how can we make sure that more 
small-and medium-sized manufacturers have access to programs 
like CONNSTEP and CCAT in Connecticut, as well as other 
programs nationwide, that help them with both business 
innovation and technological innovation. And can we expect that 
manufacturers would benefit from that kind of public-private 
partnership in your view?
    Secretary Pritzker. Senator, I think the Manufacturing 
Extension Partnerships provide a really vital service to our 
small and medium-sized enterprises. They work to help those 
enterprises stay globally competitive by sharing with them the 
best practices that exist so they can remain robust 
participants in the supply chain for the OEMs. So I think it is 
an extremely important undertaking that we have.
    The Manufacturing Extension Partnerships Advisory Board did 
produce a report suggesting--today we fund--about a third of 
the Manufacturing Extension Partnership work is funded 
federally and about two-thirds is funded locally. They 
recommended that we move from a 1-to-2 to a 1-to-1 funding. 
Obviously, that requires legislation, and that would be 
something we would be open to working with you if that is 
something that you thought would----
    Senator Blumenthal. Great. I would welcome an opportunity 
to work with you on it.
    Let me ask about another area that is really of interest to 
me, and I am sure that you know much more about it than I do. 
3D printing is an incredible technology. As you know very well, 
the National Additive Manufacturing Innovation Institute, 
recently renamed ``America Makes,'' is a really important and 
unique place where a lot is happening, and 3D printing could 
fundamentally change our national security and workforce needs.
    How can we make sure that our investment in these kinds of 
programs translate into more jobs, which is such a challenge 
for us? Even at a time of heightened and increasing 
productivity, there is still a need for more jobs. And I know 
training plays a role, job skill development. I would be very 
interested in your perspective.
    Secretary Pritzker. Well, Senator, this is an issue that is 
near and dear to my heart. And what I so support and the 
administration so supports in the Brown-Blunt bill is that one 
of the criteria for selecting different institutes is that it 
incorporates training and skill training. And what is so 
exciting about what has been happening in Ohio is they have 
begun by exposing--they are only a year into it, but 
kindergartners through post-graduates are engaged in the 
program, the NAMII program in Youngstown. So you have young 
children being inspired by what is the possibility of 3D 
printing and then you have workforce training being offered, 
whether it is Siemens making available hundreds of millions of 
dollars worth of software so that we can train a workforce in 
that area to be able to support the manufacturing of different 
types of products all the way through post-graduates that are 
being trained. So that is an extremely important part of these 
institutes that are being proposed. It is not just the 
research. It is not just bringing it to market, but it is also 
making sure that we can have a supply chain and a workforce 
that can support all that.
    Senator Blumenthal. Thank you. My time has expired, but 
this whole area is tremendously exciting and I really want to 
thank you for your leadership on it. Just your interest and 
commitment I think will hopefully inspire others to be 
interested and committed as well. So thank you very much, Madam 
Secretary.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Blumenthal.
    First of all, I want to give a little buck-up to the second 
panel. We know you are there and we want your spirits to remain 
high. If you need a Coke or something, that can be easily 
provided. But we do have the Secretary here and there are a 
couple of more questions that some of us would like to ask her, 
and we have lots of time in the afternoon.
    I want to get again at this thing which sort of bugs me, 
and you mentioned it with the sequester problem, and that is 
the idea that if Government somehow is involved, the process is 
polluted, not really American, or something of that sort. You 
had a lot of experience in the private sector. Some of the 
skeptics say that the manufacturing hubs are too costly or they 
say that there is no need for a direct Federal role because you 
have academia and you have the private sector. Now, my own view 
is much of this skepticism is based upon ideological opposition 
to the Federal Government's involvement.
    My question is: as a former CEO and in your capacity as 
Secretary of Commerce what do you think of this argument? Does 
it make a practical business sense for the Government to step 
back from the investments in innovation and manufacturing?
    Secretary Pritzker. No. From my experience in the private 
sector, there are some things the private sector cannot do 
itself, and they are either too risky or too complicated. And 
they need the help of the Government to be a catalyst, and this 
is what the NNMI does. It is a great structure because it is 
forcing the private sector to invest in an area it is 
interested in but in an area where it is not going to do it all 
by itself. This is a good role for the Government to play. And 
I would say that as a private sector representative, as well as 
Secretary of Commerce, because this is not research that any 
one company will undertake by itself.
    In Youngstown, there are 60 companies that came together to 
make this happen, and they matched it with $40 million of 
funding and people, and universities came to the fore to bring 
their intellectual capital and the research that they are 
doing, as well as then you have workforce training, et cetera.
    So to me, this is exactly the kind of role the Federal 
Government can play. Otherwise, it is not going to happen. And 
that is why I used the example around semiconductors. If you 
speak to the Intels and the IBMs and the Global Foundries in 
Albany, they would not do that work themselves. They are trying 
to expand. The work that is going on in Albany today is they 
are trying to create a 450-millimeter chip wafer. Currently 
chip wafers are 300 millimeters. It will allow for 50 percent 
more computing power or 50 percent faster computing power. No 
one of those companies will address that issue by themselves. 
The machine just to test if it works cost $100 million. It is 
too risky. So this is exactly the kind of thing that we should 
be doing, and I think that the return on investment has been 
proven in Albany and is being proven right now today in 
Youngstown. And this is the kind of thing that the Federal 
Government can do and it has got great return for the 
taxpayers' dollar.
    The Chairman. I thank you.
    Senator Thune?
    Senator Thune. Mr. Chairman, I will pass.
    The Chairman. Oh, Senator Blunt has reappeared.
    Senator Blunt. I have, but I will assume the questions I 
was going to ask have been asked.
    The Chairman. You are going to assume that? OK. 
Bipartisanship.
    Senator Booker?
    Senator Booker. Thank you very much.
    I really appreciate your point, Madam Secretary, that this 
is not philosophy. It is really about where can we invest and 
get the biggest return. It is all about the ROI [return on 
investment], and frankly, our competitor nations are making 
these investments and pushing past us in areas they should not 
push past us. But, obviously, as I talk to manufacturers on the 
ground in New Jersey, one of the biggest concerns, again, is 
this idea of concentrated costs, diffuse benefits so people 
will not necessarily make those costs.
    But one of the costs that we are not doing a good job in 
America--because when I talk to manufacturers, they are worried 
about a skills mismatch. There are actually job openings. There 
is a lot of job openings, and there is a lot of people looking 
for jobs in America. And so what I see in New Jersey from 
talking to manufacturers is there is this mismatch. There are 
high-paying middle class jobs available, but we are not 
preparing them.
    Now, looking around the country, there are some great 
examples of people stepping up to do these. These are islands 
of excellence when what we really need is a hemisphere of 
progress. And so you see places like Chicago, the Austin 
Polytechnic Academy which is doing a great job at the lowest 
levels. You have already mentioned that. We are talking K 
through 12 education, preparing people for these very high 
paying jobs and internships toward those jobs, which you do not 
need to go to higher education to get a well-paying middle 
class job. Like the manufacturing of old, you can raise a 
family on these jobs. And in Buffalo I am seeing that as well. 
But it is too small. We need to get bigger.
    And so I really would love to hear from you about what the 
Federal Government can do, understanding this concept of ROI 
that the private sector gets but we do not seem to get 
necessarily in Washington. What can we be doing to correct for 
that mismatch and prepare our workforce for 21st manufacturing 
jobs?
    Secretary Pritzker. Well, Senator, I really appreciate the 
fact you mentioned Chicago, which is my hometown, and actually 
the skills mismatch program in Chicago is one that I started.
    Senator Booker. I was told it was paid. It could be a 
little obsequious in these hearings.
    Secretary Pritzker. Mayor Emmanuel came together with the 
private sector to fund an effort to take the longer-term 
unemployed and help them get the skills to meet--in Chicago--I 
know the statistics there--there are 240,000 unemployed and 
200,000 open jobs. At least that was the case when I left. I 
hope it is better than that today. And how do we address that 
problem? Right? That is the problem you are talking about.
    And it began with really going to companies and dealing 
with the perception issue. It is more than a perception issue. 
One is, will you hire someone who has been unemployed for over 
6 months? Recruiters are not rewarded for doing that. It begins 
there and then started with, OK, who could actually fill a job 
today and who needs training, then arranging the training, once 
you have the employer who is willing to actually hire the 
unemployed. So there is a number of things that could be done.
    What could the Federal Government do now? It is really a 
question of, I think, looking at workforce funding and on-the-
job training dollars and making it more flexible. What we 
found, it was very difficult to access the WIA money to 
actually support those efforts that have high effectiveness. 
And so that would be an area that I would say that is worth 
exploring.
    I think the other is to celebrate the structures that are 
working. You know, it is to do what you are saying. Here are 
places, centers of excellence. How do we get to something--you 
know, you said it. It was very articulate. I cannot remember 
exactly. But how do we really explode those excellent offerings 
and make sure that they are occurring in every city so that we 
can address this problem? Because what I heard on my listening 
tour was one of the number one things that every single CEO 
said to me--and I met with hundreds of CEOs during the first 
100 days of my being in my position--was I have a skilled labor 
challenge. It is across the country. It did not matter if I was 
in Albany, Portland, Nashville, or Orlando and everywhere in 
between. Everybody talks about this problem.
    And what is exciting to me is you are starting to see that 
industry is really stepping in to also fill this void. They are 
recognizing that they need to play a greater role, which is 
what we were hoping for.
    Senator Booker. If I can push on you just a little bit and 
beg for a moment more from the Chairman. That is great for 
large industries, but most manufacturers are very small and it 
is very hard for them to make investments in filling that gap. 
So, therefore, there are some programs which you seem to allude 
to that are Government investments that have a tremendous 
payoff, whether it is WIA dollars, which are flexible, as I 
have learned as a mayor. So, therefore, we must have a role--
the Federal Government. If everybody is hearing, if you have 
heard as Secretary, a chorus of people saying there is a skills 
gap, there is a skills gap, and I heard it with small 
manufacturers in places like Newark, there must be a role here 
for the Federal Government.
    Secretary Pritzker. I think flexibility and on-the-job 
training dollars is one. Another is working with the community 
colleges. But that is a local effort that needs to go on which 
is to really get industry members in a local area to come 
together and agree on criteria for training, put curricula 
together, and have recognized credentials that can be used 
across so that one manufacturer does not have to support it all 
themselves, but they can work together. And those solutions--we 
can be a catalyst I think at the Federal level, and it is 
something--the Department of Commerce--I am committed to make 
as part of our agenda is really to be a catalyst for those kind 
of local solutions coming together because I think ultimately 
on the ground it has to occur locally.
    Senator Booker. In other areas we see in the Federal 
Government incentive pools of Federal dollars that motivate 
people to come together and create those coalitions.
    Secretary Pritzker. Right.
    The Chairman. Thank you, Senator.
    Senator Blumenthal, I do not want to pass over you, but I 
do not dare pass over Senator Markey.
    Senator Blumenthal. I will certainly yield to Senator 
Markey.
    The Chairman. Will you?
    Senator Blumenthal. Absolutely.
    The Chairman. Reserving your time.
    Senator Markey?

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. Thank you, Mr. Chairman. Thank you, 
Senator, very much.
    You know, the whole key here is we have to find a way of 
ensuring that we link up the investors with the inventors, the 
professors with the producers and create kind of an environment 
where innovation is at the heart of what is happening. And that 
is what we were able to do in the 1990s in telecommunications. 
And the chairman and I in the House and the Senate--we passed 
three bills that ultimately led to $1 trillion worth of private 
sector investment that created Google, eBay, Amazon, Hulu, 
YouTube, and the first generation and now Twitter and Facebook 
in the second generation, just unleashed it because we created 
the right policies and passed those three laws which unleashed 
it, created the broadband revolution and the spectrum-based 
revolution.
    And energy gives us kind of a similar kind of opportunity 
because we know that by the end of the 21st century, there is 
going to be a huge revolution in the kinds of energy that we 
use. And we know that it is the same types of people who led 
the way, those investors, those young venture capitalists, 
those young technology gurus who are ready to go, ready to 
invent this new way in which we produce energy in our country.
    I have introduced legislation to kind of look at this 
Consortia-Led Energy and Advanced Manufacturing Networks Act. 
It is very similar to Senator Brown's and Senator Blunt's 
legislation kind of focusing upon this issue. In the Waxman-
Markey bill back in 2009, we actually included a whole hub 
program for energy across 10 universities, 10 different parts 
of the country in those metropolitan areas where companies, 
universities, States could apply so that we could change the 
culture and bring in people, break down the barriers and make 
it possible.
    So from my perspective, what we are talking about here 
today--and Professor Schmidt from MIT on the second panel is 
kind of representative of who we think we are in Massachusetts. 
We are the Bay State, but we are also the ``Brain State.'' We 
focus upon these areas, and we know that at the end of the day, 
there are going to be thousands and thousands of very small 
companies that come up with the ideas, but you got to create 
the culture where you draw the smartest young people and they 
are able to do it.
    So I guess from my perspective, what I would ask you is 
just to step back for a second and tell us what is the one 
thing you want us to remember from your testimony. What is the 
large picture you want us to take away from this in terms of 
where our country has to go in this area?
    Secretary Pritzker. Well, Senator, I think the most 
important thing for us to remember is there is a gap that 
exists in the process of going from basic research to product 
and that that gap can only be filled with a public-private 
partnership. It requires us to bring together the private 
sector, universities, local governments, and Federal funding 
can be the catalyst for that kind of initiative to then take 
off. And we see it in Youngstown. And so that is fundamentally 
what I think is--this is a role, an important role, for the 
Federal Government to play, and the return on investment is 
high.
    Senator Markey. Yes. And, you know, I agree with you. And 
let's be honest. OK? The incumbent industries are averse to 
investments in new technologies, competing technologies. And 
that is just the nature of all of these industries. The 
telecommunications industry--they were very happy with us still 
have black rotary dial phones 60 or 70 years after they 
invented them, renting them from them. That model was not going 
to change. And the same thing is true in this energy field. 
Thank God that Alexander Graham Bell would no longer recognize 
his telephone network, but he could in 1996. And we have to 
actually aspire to a day where Thomas Edison could not 
recognize his electricity grid, but right now he can. It looks 
a lot like the original design.
    And so we just have to put in place the policies to create 
the incentives where that change takes place. That is where the 
wealth generation is going to occur in our country. And it is 
really what I think this administration has been all about, 
smart grid, investment in wind and solar, biomass, geothermal, 
investment in new electric vehicles, investment in ways in 
which you can partner a cable and a telephone company with 
their smart technology, with energy efficiency in homes.
    So all of this is all part of the culture we have to create 
in the hubs in all parts of the country because all parts of 
the country can contribute. I think they are central to having 
our economy be the generator of the vast bulk of these jobs. 
And I really do praise your administration because you have 
been at the cutting edge of putting together these kinds of 
consortia.
    And I thank you, Mr. Chairman, for holding this hearing.
    The Chairman. Thank you, Senator Markey.
    Senator Blumenthal?
    Senator Blumenthal. Thank you.
    I just have a quick question because I want to be 
respectful of the next panel.
    The Chairman. We are past that point.
    [Laughter.]
    Senator Blumenthal. I still want to be respectful of the 
next panel.
    [Laughter.]
    Senator Blumenthal. To go from Senator Markey's very 
eloquent global perspective to the more narrow what can we do 
in terms of practical measures to enable job creation, 
recognizing that funds are going to be limited, at least for 
the foreseeable future, I have proposed as a method of creating 
funds for job training and capital investment that there be a 
manufacturers' reinvestment account similar to what is done by 
individuals in saving tax-free so that they can then use money 
for retirement. If manufacturers or others are enabled to, in 
effect, take money from their revenues and profits without 
taxing it, save it, then invest it in either equipment or job 
training at a lower tax than they would have otherwise paid, 
there may be incentives but also the ability to save for, let's 
say, 5 years, which is the amount of time contemplated.
    So I would encourage the administration, joining in Senator 
Markey's praise, to be continuing to innovate and to be 
creative in the way that you have and the way that you did in 
Chicago when you were there.
    Thank you.
    Secretary Pritzker. Well, thank you. And innovation and job 
creation are top of mind for this administration and a high 
priority.
    Senator Blumenthal. Thank you.
    The Chairman. Secretary Pritzker, you have been terrific. I 
have a number of friends in the Commerce Department and they 
all think that you are too.
    Secretary Pritzker. That is very kind.
    The Chairman. What I think they appreciate and what I know 
I appreciate is the force that you bring in terms of personal 
experience, personal willingness to make decisions and move 
forward. And we have not had that for a while, but we have that 
in you.
    And I really appreciate your taking the time to come and 
testify.
    Secretary Pritzker. Thank you very much. Thank you, 
Senators. I appreciate it.
    The Chairman. Now I have to do my best to get in good with 
the second panel. It is such an important subject, I think the 
second panel actually is not going to be upset by having to 
wait just a bit.
    Eric Spiegel is the President and CEO of Siemens 
Corporation, Washington, D.C. That is a rather amazing 
corporation.
    Dr. Martin Schmidt, who is Associate Provost and Acting 
Provost, Professor of Electrical Engineering, Massachusetts 
Institute of Technology in some place called Cambridge, 
Massachusetts.
    Michael Garvey, President and CEO of M-7 Technologies, 
Youngstown, Ohio.
    And Dr. Terry Brewer, President of Brewer Science, Inc., 
Rolla, Missouri.
    And we welcome you all. You are sort of the manifestation 
of all that we have been talking about. So once the water is 
poured, I am going to call on you, Mr. Spiegel.

   STATEMENT OF ERIC A. SPIEGEL, PRESIDENT AND CEO, SIEMENS 
                          CORPORATION

    Mr. Spiegel. Thank you, Chairman Rockefeller and Ranking 
Member Thune and the rest of the members of the Committee, for 
having me here to testify today on the role of manufacturing 
hubs in the U.S.
    Let me just start off by saying that Siemens is a strong 
supporter of the concept of manufacturing hubs, and let me give 
you a couple of reasons why in my time here.
    One is Siemens is one of the largest technology and 
manufacturing companies in the world. We operate in 190 
countries. We have well over $100 billion in revenue. We have 
over 375,000 employees. But the U.S. is our biggest market. It 
is about 25 percent of Siemens. We have 60,000-some employees, 
130 manufacturing plants, and we do about $25 billion worth of 
work here. And we are a net exporter of several billion 
dollars.
    The concept of manufacturing hubs we think is very viable. 
If you take a look at Germany, which I think a lot of people 
would say is one of the world's leaders in manufacturing and, 
in particular, advanced manufacturing, and has a huge export 
machine of manufactured products, they have long had for 
decades a concept similar to these hubs called the Fraunhofer 
Institutes. In fact, they have over 50 of them. So we are 
talking about going from maybe 1 to 15 to 45, but in Germany we 
have 54 just in Germany alone, which is a much smaller country 
than, of course, the U.S.
    The bigger thing is that Siemens has invested in the last 
10 or 12 years about $25 billion here in the U.S. So why do we 
invest here in the U.S.? Obviously, it is a big market, but we 
want to get close to customers and we want to get close to our 
suppliers. Second, we want to be close to a skilled work force. 
We want to have access to world-class R&D. We want to have a 
modern infrastructure, and finally, we want to see policies and 
programs and legislation that really encourage investment, and 
in particular, since we are one of the world's largest 
manufacturing companies, in manufacturing. So we really support 
this kind of a program, this kind of legislation because it 
would really encourage more investment from a company like 
Siemens. So that is one big reason why we think this is a good 
thing, but also experience shows that it really works.
    The second key point is if you take a look around the U.S., 
manufacturing is growing again, albeit it very slowly, most of 
it in energy-intensive industries really driven by low-cost 
gas. But we think in the longer run the real resurgence of 
manufacturing in the U.S. is going to be in what we call 
advanced manufacturing. And why is it that we think advanced 
manufacturing is going to be a strong grower? It is because 
advanced manufacturing is really driven by software and the 
software revolution. It allows us to do more flexible 
manufacturing, higher productivity, lower cost, faster speed to 
market across all industries.
    So what does that mean for the U.S.? The U.S. is the 
world's leader by far in the development of industrial 
software. The company that we use here in the U.S. is one of 
the largest industrial software companies in the world. It is 
called Siemens PLM and we acquired it here in the U.S. We 
spread the software across the U.S. and we are now exporting it 
globally.
    What does Siemens PLM do? Well, it does all the things I 
mentioned before that software can do. For example, it was used 
to design the Mars Rover. It was able to test and simulate the 
entire flight of the Mars Rover, both the flight and the 
landing on Mars which, as you may remember, was a very 
difficult task. It allows Ford to manufacture millions of 
varieties of the F-150 at about the same cost they could 
manufacture any one model of the F-150--that software. The 
third is it allows things like 3D printing which we are using 
to do artificial knees and hips, basically computerized knees 
and hips 3D printed going forward. You know, that is something 
that I think a lot of us in the room probably will be needing, 
and I know, Senator Booker, you and I, given all of our years 
playing football may need more than the rest. So this software 
enables lots of different technologies.
    And so advanced manufacturing we think is the way the U.S. 
needs to go. It has big advantages, but we need to encourage it 
more. I think Secretary Pritzker did a good job of highlighting 
that. And we think the innovation hubs are a way to drive the 
inventions we have here in the U.S. and then to innovate them, 
which we really think of as how do we make these things 
commercially viable and scaleable. There are a lot of little 
islands, I think Senator Booker mentioned, around the U.S., but 
we have got to learn to scale this stuff or we are going to 
fall behind other countries.
    The America Makes program, the National Additive 
Manufacturing Institute in Youngstown is a good example, that 
on 3D printing. We donated $440 million of software to 
Youngstown State University that they are going to use to train 
people at the university and also at the Additive Manufacturing 
Institute. And we did that because we want to see that prosper, 
but also it is good for us because it trains people to use our 
technology, and we have 70,000 customers in the U.S. and around 
the world who use that.
    So we think, given all of these reasons, that this concept 
of manufacturing hubs readiness and the Brown-Blunt 
Revitalization of American Manufacturing Innovation Act is a 
very strong sign that the U.S. really wants to get into the 
game of global advanced manufacturing, and we would support 
that.
    Thank you very much.
    [The prepared statement of Mr. Spiegel follows:]

       Prepared Statement of Eric A. Spiegel, President and CEO, 
                          Siemens Corporation
    Chairman Rockefeller, Ranking Member Thune, and Members of the 
Committee:

    Thank you for inviting me to testify at this hearing on the role of 
manufacturing hubs in a 21st Century innovation economy.
    Siemens is one of the world's largest technology companies. We 
operate in the energy, healthcare, infrastructure, and manufacturing 
sectors. For more than 165 years, we have built a reputation for 
leading-edge innovation and the quality of our products, services, and 
solutions. I like to say that Siemens is the oldest, biggest company in 
the world. There are a few that are older, but not as large. There are 
a few that are bigger, but they do not have a history dating back to 
1847. We became the oldest, biggest company in the world because we 
stayed true to the vision of our founder, Werner von Siemens. As both 
an inventor and an innovator, he knew how to make things useful and 
commercially successful. He recognized early on that our success would 
be determined by our ability to anticipate and engineer the future.
    As CEO of Siemens USA, I am proud to serve on the Business 
Roundtable's Education and Workforce Committee and the steering 
committee of the Advanced Manufacturing Partnership 2.0, which is a 
working group of the President's Council of Advisors on Science and 
Technology. U.S. manufacturing is growing again and becoming more 
competitive. There is a lot of investment in existing and new 
manufacturing plants due to low energy prices--driven by the 
development of shale gas--as well as rising labor rates in emerging 
countries, and increased productivity in the U.S. This means that more 
companies are bringing manufacturing facilities back to the U.S. We 
have already seen over $90 billion in new manufacturing investments 
being planned, especially in energy-intensive industries like 
chemicals, steel, and aluminum.
    Siemens itself, which has been doing business in America since 
1854, has invested more than $25 billion in the U.S. in just the last 
12 years. We have over 130 manufacturing sites here, export about $6 
billion worth of products each year, and are proud to be part of the 
local fabric of communities in every one of the 50 states, the District 
of Columbia, and Puerto Rico, employing nearly 60,000 people in the 
U.S. Today, the U.S. is not only by far our largest national market, 
but also an extremely vital production location, one of our most 
important research centers, and a key base from which we export to the 
rest of the world.
    As a global company, when we are looking for a new place to 
manufacture a product, we take five main considerations into account: 
First, we want to be close to our customers in the leading markets. 
Second, many of the positions in our company require highly skilled 
workers, so we look for areas with a commitment to workforce 
development and higher education.
    Third, we want to be close to world-class R&D that we can link to 
our innovation engine and our supply chain at our manufacturing sites, 
particularly for early-stage technologies. Fourth, we look for strong 
infrastructure to get our goods and services to our customers. Fifth, 
we look for government policies that encourage investment, like the 
Production Tax Credit, the research and experimentation tax deduction 
and credit, and the manufacturing innovation institutes being proposed 
in the Revitalize American Manufacturing and Innovation Act.
    For many years, conventional wisdom said that because labor was 
cheaper elsewhere, manufacturing in America was more-or-less doomed. 
But that conclusion assumed two things that have turned out to be 
wrong: first, that cheaper wages would always translate to lower 
production costs; and second, that the products of the future would 
essentially be commodities, the kind that could be built of equal 
quality, with equal technology, anywhere in the world.
    Those assumptions were right when it came to making things like 
textiles and furniture--relatively low-technology products that require 
relatively little innovation on the front end and relatively minimal 
precision on the back end. But the assumptions were largely wrong when 
it comes to high-end products, which require highly skilled workers, 
high-precision assembly, intensive research, and complex technology.
    If you are in the business of building high-technology products--
the kind of products that will eventually emerge from the work done in 
these innovation institutes--then the wages you pay are usually a less 
significant line-item on your income statement. That makes it possible 
to build them in America, as cost-competitively as anywhere else, 
because access to innovators is far more important than access to cheap 
labor. But here is the catch. If we cannot improve the products we 
build here, through each new generation, we will not succeed. Constant 
innovation is the only way to stay ahead of competitors. That means 
that success in American manufacturing will require us to build 
technologies and processes that we can constantly improve to stay ahead 
of our competitors.
    That is both the opportunity and the goal of these proposed 
manufacturing hubs: to take an American invention and innovate it to 
make it useful, scale-able, and commercially viable. Siemens is in the 
process of donating $440 million worth of state-of-the-art software and 
training to the College of Science, Technology, Engineering, and 
Mathematics at Youngstown State University. The university will use our 
gift to support the America Makes manufacturing innovation hub in 
Youngstown, Ohio, which is devoted to incorporating 3-D printing into 
mainstream American manufacturing. While 3-D printing has been around 
for decades, the optimization of 3-D printing in the manufacturing 
process will drive innovation, lower costs in design, and improve 
overall efficiency and quality in the manufacturing industry.
    That is the kind of competitive advantage that innovation 
institutes can start bringing to American manufacturing. With each 
institute focusing on a particular aspect of advanced manufacturing, we 
can accelerate the commercialization of innovations in the U.S.--which 
would defy recent decades of conventional wisdom about U.S. 
manufacturing.
    One of the reasons Germany is currently a world leader in the use 
of robotics in manufacturing and in high-end industrial engineering is 
that the country has long had dozens of hubs, called Fraunhofer 
Institutes, each of which brings businesses, university departments, 
and targeted government funding together to tackle the challenges of 
commercializing a particular aspect of advanced technology that has the 
potential to strengthen that nation's manufacturing strength.
    The manufacturing strength in the U.S. is being driven by 
software--helping companies increase flexibility and productivity, 
while shortening time to market for goods.
    The software Siemens is donating to Youngstown State University is 
called Product Lifecycle Management, or PLM. Siemens PLM is an American 
success story. The original software was developed in the U.S., by a 
U.S. company that became part of the Siemens family in 2007. PLM 
software can bring the real and virtual worlds together in a way that 
collapses the boundaries between the two. Recently, our PLM software 
was used to digitally design, test, and assemble NASA's Mars Rover 
Curiosity and Elon Musk's SpaceX. This is the same system that Chrysler 
uses to make cars, Dyson uses to make its vacuum cleaners, and Calloway 
uses to make golf clubs. This bridging of the real and virtual worlds 
continues to drive innovation and stimulate the resurgence of 
manufacturing in America.
    The U.S., as the world's leader in software development, has a leg 
up in the global manufacturing race, but we need a skilled workforce 
for advanced manufacturing, which is dramatically different from 
traditional manufacturing. Images of men in overalls carrying their 
lunch buckets to a factory, hot warehouses, dirty work, and assembly 
line production have been relegated to the movies. The reality is, 
today's manufacturing economy is the most sophisticated, forward-
looking, and innovative business function in the world today. 
Customized production has largely replaced mass-production assembly 
lines, advanced robotics are increasingly doing the dirty, dangerous 
works of manufacturing, and sophisticated software systems now run huge 
industrial machinery. Today's factory workers have strong technical and 
analytical skills, and are just as likely to carry a tablet computer as 
a wrench. But there is a significant gap in the skills needed for these 
advanced manufacturing environments and the education and training that 
today's students and workers receive.
    Siemens' donation in support of the America Makes institute in 
Youngstown includes training in the use of PLM software, and the 
institute's work includes a large workforce-training element. The 
software will be used to educate students and prepare them for careers 
in fields ranging from robotics design to computer-aided engineering to 
additive manufacturing in a multitude of industries around the world, 
including aerospace, automotive, defense, energy, high-tech 
electronics, machinery, and oil and gas. The hub will help prepare a 
modern workforce in the Cleveland-Pittsburgh TechBelt and throughout 
the U.S. The America Makes institute is just a short distance from the 
YSU campus and the school is now attracting students from across the 
country seeking advanced manufacturing, materials, and engineering 
degrees.
    It is this type of training and partnership that we need to enable 
more Americans to excel in high-tech manufacturing environments. My 
participation in the new Advanced Manufacturing Partnership 2.0 is 
focused on closing this training gap. These new manufacturing 
innovation institutes can and should incorporate into their work the 
development of workforce training programs, just as the Fraunhofer 
Institutes in Germany have a consistent training element to ensure a 
workforce for their innovations.
    This is how we can make manufacturing work in America. But I do not 
want to paint too rosy a picture. The truth is that innovation is not 
happening only here. The major advances being made right now in wind 
and solar technology are being made in Europe. Major advances in bio-
fuels are happening in Brazil. The same can be said for batteries in 
Asia. If we keep taking a back seat on innovation in such critical new 
industries, there will be a point where we are no longer the leader in 
innovation. Without a relentless dedication to innovation, the U.S. 
will be outmatched on the global stage, without recourse.
    To prevent that from happening, we must all work together to make 
the right kind of investments, right now. The Brown-Blunt Revitalize 
American Manufacturing and Innovation Act and the resulting innovation 
institutes form an important part of U.S. manufacturing maintaining its 
edge.
    If we get this right, the story of the next decade will not be 
another one about the decline of manufacturing. It will be about how 
American manufacturing, once again, saved America's middle class.
    I applaud Senators Brown and Blunt for introducing the Revitalize 
American Manufacturing and Innovation Act. I thank Chairman Rockefeller 
and Ranking Member Thune for holding this hearing and for inviting me 
to testify.

    The Chairman. Excellent. Thank you very much.
    Dr. Schmidt?

   STATEMENT OF PROFESSOR MARTIN A. SCHMIDT, ACTING PROVOST, 
             MASSACHUSETTS INSTITUTE OF TECHNOLOGY

    Dr. Schmidt. Chairman Rockefeller, Ranking Member Thune, 
and members of the Committee, thank you for inviting me today 
to discuss the role of manufacturing in an innovation economy.
    At MIT, we have just completed a 2-year study on 
manufacturing, and we also played a leading role in the 
Advanced Manufacturing Partnership, and I would like to share 
with you what we learned through those exercises.
    The importance of manufacturing is often said in the 
context of jobs, economic and national security and innovation. 
And I want to focus my comments this afternoon on the 
innovation issue.
    MIT's manufacturing study was data-driven. We interviewed 
and surveyed more than 1,000 firms in the U.S. and around the 
world. I want to highlight several of the findings from our 
work.
    First, that our manufacturing sector has thinned out.
    Second, that there is, indeed, a critical linkage between 
our innovation capacity and our manufacturing capabilities. And 
I will refer to that as our production ecosystem.
    Last, we need to improve our ability to rapidly scale up 
products, production of new products based on advanced 
technologies, and a robust production ecosystem is critical to 
that.
    Regarding thinning out, the most tangible example of this 
is that we have lost some 5.8 million manufacturing jobs, one-
third of the U.S. manufacturing jobs in total, in the decade 
between 2000 and 2010. As a result, there are far fewer people 
and places making things in the U.S. This impacts our ability 
to innovate and ultimately make new products.
    The underlying story is the migration away from highly 
vertically integrated firms. Three decades ago, our large firms 
housed in one organization all the skills and capabilities to 
design and manufacture their products. However, capital markets 
have compelled these firms to be far more capital efficient and 
focus on their core competencies, consequently becoming asset 
light.
    This has had two important consequences. First, the 
disappearance of the small and medium enterprises that 
supported these vertically integrated firms in their regions, 
as well as the loss of the trained workforce in that region. 
This has thinned out the production ecosystem in those regions, 
and as my colleague, Professor Suzanne Berger at MIT likes to 
say, these remaining firms are ``home alone'' in the U.S. 
struggling to advance.
    Regarding the linkage of manufacturing and innovation, the 
success of some firms that have outsourced manufacturing leads 
to the question of why can we not innovate here and manufacture 
elsewhere. And Apple is a frequently cited example of a firm 
that does this well. However, we believe that this is possible 
only in certain sectors like consumer electronics.
    The Gillette Company, I think, is actually an interesting 
example of how production and innovation are tightly 
integrated. The disposable razor that you might have used this 
morning, if it was from Gillette, was first manufactured near 
some of the most expensive real estate in downtown Boston at 
the World Shaving Headquarters. Why is that the case? Well, 
believe it or not, that disposable razor brings together some 
very sophisticated advanced technology from diamond-like carbon 
coatings, laser welding, custom-formulated polymers, and 
precision molding. And Gillette has learned that in order to 
innovate in these new products, they have to bring together the 
innovation in manufacturing. And we see this story repeat in 
many sectors that we studied.
    In summary, we find that in most sectors, innovation and 
production come hand in hand, and if the production shifts 
abroad, the innovation is likely to follow.
    Finally, with respect to scale-up, we found that most firms 
that are trying to rapidly scale up production face challenges. 
For Main Street firms, the challenges come in the form of 
access to capital, particularly aggravated by the disappearance 
of local banks.
    Scale-up is also an issue for startups, and I can give you 
a very specific example from our work at MIT. This is a product 
made by a company that spun out of MIT. It is called ``Nectar 
Power.'' What it is it is a portable power generator that can 
recharge your mobile phone when you are off the grid. It will 
recharge it 20 times, so over about a 2-week period you can use 
this. This single fuel cartridge packs enough power to be 
better than by an order of magnitude than the world's best 
battery. This work was started by DOD funding at MIT, but the 
product has taken more than 10 years to develop and in excess 
of $100 million in venture capital. Much of this time and money 
was needed to fill in the production ecosystem. And this firm 
is still not out of the woods yet, and they are challenged to 
get the scale-up capital.
    We found this story repeats in many sectors as these 
companies attempt to bring advanced technology products to 
market where access to capital for late-stage production ramps 
is a big challenge and often leads to foreign investments or 
transfer of the production offshore.
    To summarize, in order to capture new markets, our firms 
must be able to scale up production rapidly and the ecosystems 
and access to capital are key enablers. We have to fill these 
gaps.
    The recommendations of the Advanced Manufacturing 
Partnership are very much in finding with the MIT study, namely 
the formation of the network or the hub manufacturing 
institutes that we are speaking of; second, recommendations 
around strengthening workforce development that I would be 
happy to speak to in the Q&A and last, around the development 
of advanced manufacturing technology strategies.
    Let me, in closing, say that I think there is reason for 
optimism. Rising wages in other parts of the world and low-cost 
domestic energy are putting the wind at our back as we think 
about strengthening our production ecosystem. In addition, I 
think we are seeing a generation of people that are truly 
interested in making things, perhaps best embodied by the maker 
movement. So now is the time to focus on addressing the 
structural problems that are constraining our ability to 
accelerate our innovation economy.
    Thank you very much.
    [The prepared statement of Dr. Schmidt follows:]

  Prepared Statement of Professor Martin A. Schmidt, Acting Provost, 
                 Massachusetts Institute of Technology
    Chairman Rockefeller, Ranking Member Thune and members of the 
Committee:

    Thank you for inviting me today to discuss the role of 
manufacturing collaborations in our innovation economy. As requested, I 
will review key findings on that issue from MIT's just-released study 
on Production in the Innovation Economy--``PIE,'' as well as the 
Advanced Manufacturing Partnership--``AMP''--project. I have had the 
privilege to serve for three years on the faculty committee that 
prepared this MIT advanced manufacturing report, and have also served 
as the Technical Co-Lead on the university side for the Advanced 
Manufacturing Partnership.
    Very often, the importance of a robust domestic manufacturing base 
is expressed in three contexts; jobs, economic and national security, 
and innovation.
    At MIT, we have chosen over the past 3+ years to focus on the 
innovation question. Specifically, is a production ecosystem vital to 
our innovation processes, what level of production is needed, and how 
can we strengthen this area? This is not to say that matters of 
security and jobs are not very important, but on innovation we believe 
we have something particular to say, and further, as you know, 
technological innovation is the dominant factor behind economic growth 
and therefore jobs.
The MIT Production in the Innovation Economy (PIE) Study
    MIT's manufacturing study was led by 20 members of the MIT faculty 
from a wide range of fields--engineering, science, economics, political 
science and management. It was data driven, undertaken over three 
years. It included interviews with over 250 manufacturing firms, small, 
medium and large. We conducted firm interviews in 21 states, but 
focused particularly on in-depth interview efforts in 4 states--Ohio, 
Massachusetts, Georgia and Arizona--which have quite different 
manufacturing economies and sectors. We also studied production in some 
150 startup and entrepreneurial firms. We conducted interviews with an 
additional 78 firms in 7 other countries, and tried particularly to 
understand the manufacturing success of firms in Germany and China. We 
conducted, too, a major survey on workforce needs, sampling hundreds of 
manufacturing firms. Our report was recently released in book form; a 
second volume will come out this winter with the detailed backup 
chapters for the first overview volume. A preliminary summary of the 
MIT report can be found at: http://web.mit.edu/press/images/documents/
pie-report.pdf.
Summary of Three Key Findings
    We found three important developments.

  (1)  Our manufacturing sector is thinning out--we need to find ways 
        to strengthen the supporting ``infrastructure'' in our 
        manufacturing sector.

  (2)  There is a critical relationship between our innovation 
        capability and our production capability.

  (3)  We need to improve our ability to rapidly ``scale up'' 
        production of new products based on advanced technologies.

    I'll briefly summarize each finding, and then discuss how the 
Advanced Manufacturing Partnership effort ties to these findings.
(1) Thinning Out
    First, our report found that the U.S. manufacturing sector was 
thinning out. We lost some 5.8 million manufacturing jobs--about 1/3 of 
all U.S. manufacturing jobs--in the decade between 2000 and 2010. There 
are ongoing debates about the origin of these losses from productivity 
gains to outsourcing. However, one fact is indisputable; there are far 
fewer people and places `making things' in the U.S. than there were in 
2000. This translates to a thinning out of the production eco-system 
that we rely on for innovation in new products and a corresponding loss 
of investment in plants and equipment that position us to capture the 
manufacturing of these products.
    But there is an underlying story here--the disappearance of the 
vertically integrated firm. Three decades ago our large firms housed 
under one organization all the skills and capabilities needed to design 
and manufacture their products. This was complemented by integrating 
complex value chains of supplier firms. However, capital markets have 
pushed these large firms to be far more capital efficient. This 
required them to thin down to their ``core competencies'' and to go 
``asset light.'' As a result, the role larger firms played in bringing 
best production practices to their industry, and forming workforce 
training systems for their supplier systems, declined. This means that 
our firms are now more ``home alone''--their shared industrial 
infrastructure has thinned out.
    In contrast, we looked at Germany--which has 20 percent of its 
workforce in manufacturing compared to our 11 percent, pays some 66 
percent more in wages and benefits to its manufacturing workers 
compared to ours, and runs a very large trade surplus in manufactured 
goods (including with China), compared to our huge deficits. During the 
same period when the U.S. manufacturing ecosystem was thinning out, 
Germany worked to intensify its shared industrial infrastructure--
closely connecting its small and large firms and tying them to 
technical institutes and a rigorous system of workforce training, with 
a very collaborative system. German manufacturing is a very different 
system from ours, but their success may hold some lessons for us.
(2) The Connection Between Innovation and Production
    For a time, U.S. manufacturing thought we could distribute 
manufacturing--we could innovate here and produce there. And to stay 
strong our major firms needed to be participating in major markets 
abroad.
    This view is perhaps best embodied in Apple, a company that no one 
would dispute has an exceptional track record at delivering highly 
innovative new products, but is able to do this without keeping its 
manufacturing under one roof, let alone in the same country. We found 
that this separation of design from manufacturing can work for firms in 
a sector such as consumer electronics, where there has been tremendous 
standardization of the production processes and development of robust 
digital design environments, In addition, in the case of Apple, their 
huge market clout allows them to form unique partnerships with 
suppliers that emerging companies are not able to replicate.
    But in most sectors--particularly where we are producing complex, 
high value goods--the study found that there were very close, critical 
links between innovation and initial production stages. Moving from 
innovation to product design can take years and is highly creative--
there are critical feedback loops where the innovation is reworked as 
the product idea emerges. If you shift production abroad, we found that 
in many cases innovation capability has to follow it, or the innovation 
process is severely slowed down.
    The Gillette company provides an example of production-innovation 
integration. It's is hard to imagine that a commodity product (e.g., a 
disposable razor) is manufactured first on a 30-acre waterfront site in 
downtown Boston, just two blocks from some of the most expensive office 
real-estate. Why is this the case? Well, in fact, razor blades turn out 
to be a highly complex good--they use, among other things, nanoscale 
diamond-like carbon coatings deposited in high vacuum (to keep the 
blades sharp), laser-welded materials, custom-formulated polymers for 
the blade suspension, and high-precision molded parts. All of this new 
production capability has to come together to manufacture these parts 
in high volume. Differences of pennies in the manufacturing costs can 
translate to significant profits or losses in this multi-billion dollar 
market. What Gillette has learned is that they must make these products 
in the same location where they interact with their customers and where 
they design the next generation products. This linkage of production to 
innovative design is critical to the success of Gillette. We have also 
seen this in a recent study we have done at MIT on advanced 
biomanufacturing. For example, in one sector of biomanufacturing, we 
found that 80 percent of all clinical production facilities are within 
100 miles of the company's R&D center.
    Innovation has been the U.S. strong suit--it's what we do best. But 
if important parts of innovation have to follow production, we could be 
affecting our innovation strength. And it is innovation that is the 
critical factor behind growth.
(3) The Scale-Up Problem
    We found that part of our problem in linking innovation and 
production is because we have growing difficulties in rapidly scaling 
up production.
    We have many manufacturing sectors, but basically three kinds of 
firms--large multinationals; small and mid-size Main Street firms; and 
entrepreneurial, start-up firms.
    Our large multinationals are global; they can cut production costs 
to compete by locating in lower cost and wage markets abroad, and they 
need to be in these markets to compete world-wide. Most of the top ten 
firms in revenues in the world are still U.S. firms. They face intense 
global competition but overall are doing well--but increasingly they 
produce abroad.
    The majority of U.S. manufacturing is performed by some 300,000 
small and mid-sized firms--what we called Main Street firms. The Main 
Street firms in our study had survived two tough recessions. So they 
had to be risk adverse, and could not finance much R&D. But we found in 
our 200 plus interviews that to survive they also had to be quite 
innovative--particularly in areas like manufacturing process and 
repurposing existing product lines for new markets. We found they had 
trouble with a particular stage--scaling up their innovations into 
production. With the demise of local banking in the face of national 
banking system models, they had real trouble obtaining financing for 
scale up of their innovations. Generally, the only option was to fund 
growth out of ongoing revenues. This slowed them down and limited their 
growth. In contrast, comparable competitors in Germany and China can 
tap external resources and are able to scale up production much more 
quickly. So ``scale-up'' is a growing issue for U.S. Main Street firms.
    Scale-up is an issue, too, for our entrepreneurial and start-up 
firms that are commercializing innovations. We studied a group of 150 
innovative firms that were able to obtain significant venture capital 
support. The venture support stayed in these firms beyond the 5 to 7 
years we expected--it could extend 10 years or sometimes longer. But 
these firms faced obstacles when they reached the critical stage of 
product design, and asked their venture partners for funding to scale 
up production of their innovative new product. They were generally told 
that the venture firm had difficulty investing in production scale-up 
and were instead directed to contract manufacturers abroad or sometimes 
to sovereign wealth funds.
    Innovation at scale is not a short-term process. Most new products 
cannot be replicated at near-zero marginal cost like software. Getting 
support for production scale-up of manufactured goods has become a 
significant problem for our entrepreneurs.
    As an example, I'd point to a start-up firm I've had experience 
with: Lilliputian Systems. This is a firm that spun out of my lab at 
MIT in 2001. It was founded based upon research done at MIT under DARPA 
and Army support, as well as technology from Livermore Labs. Just this 
past winter, Lilliputian was finally able to demo their first product, 
which I have here. It burns a fuel (butane) in a completely safe way 
and generates electricity to recharge your mobile device when you are 
`off the grid'. In fact, this product, when powered by a disposable 
fuel cartridge, will repeatedly recharge your mobile phone for 2-3 
weeks, meaning that ``pound-for-pound'' it has an order of magnitude 
more energy than the best battery you can buy. However, it hasn't been 
easy to get to this point. It's taken more than 10 years (a common time 
frame for disruptive new products using new technologies), it's 
required well in excess of $100M, and even today the company is working 
hard to identify investors to support the scale up of this fully 
functioning device to volume production.
    Many of the challenges Lilliputian Systems faces are those that we 
hear over and over again. Namely: it takes a long time (especially if 
you need to rely on offshore production and development capacity) and 
domestic sources of capital for production infrastructure are hard to 
find (which encourages companies to seek foreign investment and to 
transfer production overseas).
    Today, to get through this stage small U.S. firms increasingly do 
need to reach abroad. But remember the PIE study showed us clearly that 
in many industrial fields innovation and production need to be 
integrated. So unless we can solve this scale up problem, I worry that 
tomorrow's innovative industrial companies--built on the next 
generation of technology advances--may increasingly come from abroad.
The Connections Between the PIE Findings and AMP
    The key findings of the PIE study link quite closely with the 
Advanced Manufacturing Partnership (AMP) project, the collaboration 
between industry and universities that Secretary Pritzker has 
described.
Re: Rebuilding the infrastructure--
    AMP's July 2012 report recommended industry-university-state and 
local government collaborations in which the Federal Government would 
cost-share, built around ``Manufacturing Institutes.'' These would be 
joint efforts to advance the development of critical new production 
technologies that could be transformative across multiple manufacturing 
sectors. They would support applied research, technology demonstrations 
and testbeds, and build collaborations between small and large firms 
and researchers. They are somewhat similar to the Fraunhofer Institutes 
so key to Germany's production system.
    These manufacturing institutes fit with the MIT PIE recommendations 
on rebuilding our industrial infrastructure--they could fill a critical 
gap.
    While the MIT PIE report found we didn't have a critical skilled 
workforce problem at this time, we will need new training and education 
if we are to shift to advanced manufacturing, If we don't have the 
trained talent to move into these new areas, we'll never get there. AMP 
recommended expanding the role of community colleges for this role. We 
can also apply the lessons we are learning in online education to 
develop new highly effective training modules for both workforce and 
engineer education.
Re: Linking Innovation and Production--
    The network of Manufacturing Institutes, particularly through their 
testbed role, could also help link innovation with production.
    In addition, a major step recommended by AMP is to develop 
collaborative industry-university-government manufacturing technology 
strategies. We need to look at the whole innovation system from 
research through production to figure out together how we can actually 
implement these breakthrough production technologies, along with their 
related processes and business models. The Manufacturing Institutes are 
part of these strategies but we need to look at R&D feeding into the 
Institutes, and the next stages of implementation, as well.
    We will need technology strategies and roadmaps to develop new 
production paradigms around technology advances--like digital 
manufacturing, additive manufacturing, mass customization, and advanced 
materials--to give us new efficiencies and productivity to compete with 
lower cost competitors.
Re: Scale-up
    AMP will be looking hard in coming months at policy to fill the gap 
in our innovation system around the production scale-up problem.
    Here again, manufacturing institutes will be an important strategy. 
They can help prove out the efficiency and costs of new production 
technologies, making it easier for smaller firms to obtain financing. 
But other approaches must be considered as well.
Congressional Action
    I'm pleased to see that you and your colleagues are considering 
actions to help implement one key recommendation of the AMP report. Two 
of your colleagues, Senator Brown of Ohio and Senator Blunt of 
Missouri, have introduced legislation that would establish a Network 
for Manufacturing Innovation Program, built around Centers for 
Manufacturing Innovation much like the Institutes the AMP team 
envisioned. Congressman Kennedy from my own state of Massachusetts and 
Congressman Reed from New York have introduced a companion bill, so 
there is now bicameral, bipartisan momentum building behind these 
ideas.
Conclusion
    Creating an America that will work better for ourselves, and work 
well for our children, will not be easy. The MIT study found that if we 
want to ensure that America's future is enriched by a robust 
manufacturing sector, as our past has been, creating better ties from 
our innovation system to our production system will be essential.
    The Advanced Manufacturing Partnership suggested that public-
private partnerships are the right model to create such ties in the 
U.S.--industry, colleges and universities, and local and state 
governments can work together to build strong industries taking 
advantage of regional assets and expertise. Federal programs can 
support regional economic development, the sharing of best practices, 
and the development of capabilities essential to defense and other 
national needs.
    With the AMP effort moving into its next phase and Congress giving 
serious consideration to the role of manufacturing in maintaining U.S. 
competitiveness, we have a real opportunity to strengthen our 
innovation ecosystem in ways that will help rebuild our economy.
    Thank you.

    The Chairman. Thank you very much. It is a terrific panel.
    Michael Garvey, President and CEO, M-7 Technologies in 
Youngstown.

    STATEMENT OF MICHAEL S. GARVEY, PRESIDENT AND CEO, M-7 
                          TECHNOLOGIES

    Mr. Garvey. Thank you, Chairman Rockefeller, Ranking Member 
Thune. Thank you to the Committee members and staff for 
inviting me to testify on the use of manufacturing hubs to 
foster innovation.
    But before I present my testimony, I would like to take a 
minute to tell you about myself and a little bit of my 
background.
    I am the President and CEO of M-7 Technologies, a small 
manufacturing, engineering, and applied research company in 
Youngstown, Ohio. We currently have 35 employees. We service 
the manufacturing sector of the United States. I am third 
generation in a family business that began in 1918. We are a 
founding member of the National Additive Manufacturing 
Innovation Institute, America Makes, and currently hold a seat 
on their governance board.
    Even though manufacturing has always been in my blood, it 
was not my first choice when deciding on a career. I had 
different aspirations. Shortly after graduating from Michigan 
State, I accepted a job on the trading floor of the New York 
Stock Exchange. About 2 years into this dream job, I got bad 
news. Back in Ohio, my father had been admitted into the 
hospital and was critically ill. Long story short, I left a 
promising career on Wall Street and returned home to help my 
parents rebuild their manufacturing business, one that had been 
devastated by the rapid decline of the domestic steel 
production. That was in 1985.
    Since then, I have developed a deep appreciation for 
manufacturing, especially American manufacturing. It provides 
the weapons systems that protect our freedom and the equipment 
that powers our country. It is sophisticated and complex. It 
presents problems that require brilliant solutions. It is a 
very satisfying career and I encourage anyone with interest in 
math and science to consider it. The last 25 years, I have 
realized that a career in making things is more important than 
a career in trading things because when American makes, America 
works.
    In 2001, my wife and I decided to transition our company to 
a technology-based business leveraging a skilled workforce to 
create a sustainable business model. This decision has since 
led me to work with several universities and leading research 
institutions. We have partnered with businesses in both the 
Middle East and Western Europe. We anticipate additional 
partnerships with firms in Southeast Asia to be finalized in 
quarter one of 2014 as we begin the commercialization of our 
technology.
    Through this process, I have been exposed to both domestic 
and international models for innovation. The differences are 
very intriguing but become disturbing when studied closely. In 
the United States, basic research is funded by several sources, 
primarily government organizations. Then, typically a resource 
issue develops as entrepreneurs attempt to transition to 
commercial application. Resources in scant supply can include 
equipment, people, and money, or all three. As a result, 
tremendous amounts of valuable technology never make it to 
market. It is akin to leaving the baby at the door.
    This does not happen in other countries, which are our 
global competitors. Other countries have established 
manufacturing hubs to address these resource issues. An example 
are the Fraunhofer Institutes in Germany.
    The National Additive Manufacturing Innovation Institute, 
America Makes, is the pilot project of the proposed national 
Network of Manufacturing Institutes, the United States' answer 
to other countries' manufacturing hubs. M-7 is a full member of 
America Makes and pays annual dues of $50,000 a year. Although 
this may sound expensive, it is not when compared to what M-7 
would need to invest or to duplicate the equipment, expertise, 
and relationships available at America Makes. This model 
neutralizes the resource issue and makes the valley of death 
less intimidating. It allows us to focus on the real issues of 
creating commercially viable applications of our technology. 
Those commercially viable applications create jobs and provide 
a tax base.
    In addition to member benefits such as these, the 
accomplishments of America Makes in the first 14 months are 
nothing short of remarkable. They include:
    Approving membership applications for 82 organizations 
resulting in a total annual dues revenue stream of $3.2 million 
and growing.
    The creation of a national road map for additive 
manufacturing technology development.
    Organized and active participation in the ASTM 
International Standards Development Committee F-42 which will 
ensure consistent and rapid commercial adoption of the 
technology as it develops.
    The establishment of a national repository for all additive 
manufacturing technology and information through the creation 
of a digital estate.
    The development of a curriculum platform to transition the 
current and future workforce to 21st century skill sets. This 
effort was underscored with Mr. Spiegel's donation to 
Youngstown State University of PLM software in the amount of 
$440 million and yesterday's announcement by Maker Bot donating 
5,000 3D printers to school systems across the country. This 
was facilitated by America Makes.
    Funding the management of six projects with total value of 
close to $10 million, with the anticipated initial commercial 
value of $200 million. It is a 20-to-1 return on the investment 
and over 700 jobs created or retained.
    And a planned private investment of approximately $350 
million for the creation of a SmartPark to facilitate the 
commercialization process of America Makes members with a 
customer-focused, commercially driven, proximity-based co-
development environment for additive manufacturing 
applications.
    None of these accomplishments would be possible without the 
creation of the National Additive Manufacturing Innovation 
Institute, America Makes, the pilot project of the National 
Network for Manufacturing Institutes, our answer to others' 
manufacturing hubs.
    Thank you.
    [The prepared statement of Mr. Garvey follows:]

      Prepared Statement of Michael S. Garvey, President and CEO, 
                            M-7 Technologies
    Thank you Chairman Rockefeller and Ranking Member Thune. And thank 
you to the Committee Members and staff for inviting me to testify today 
on the use of manufacturing hubs to foster innovation.
    But before I present my testimony, I'd like to take a minute to 
tell you about myself and my background.
    I am the President and CEO of M-7 Technologies, a small 
manufacturing, engineering, and applied research company in Youngstown 
Ohio. We currently have 35 employees. We service the manufacturing 
sector of the United States. I am third generation in a family business 
that began in 1918. We are a founding member of The National Additive 
Manufacturing Innovation Institute, America Makes and currently hold a 
seat on their Governance Board.
    Even though manufacturing is in my blood, it was not my first 
choice when deciding on a career. I had other ideas. Shortly after 
graduating from Michigan State, I accepted a job working on the trading 
floor of The New York Stock Exchange. About two years in to my dream 
job, I received some bad news. Back in Ohio, my father been admitted to 
the hospital and was critically ill. Long story short, I left my firm 
in New York, and returned home to help my parents re-build their 
manufacturing business. That was in 1985.
    Since then, I have grown to love manufacturing and the challenges 
it presents, especially when technology is introduced in the 
manufacturing process. And, I have realized that a career in 
manufacturing can be more rewarding than one on Wall Street.
    So, as a result, my wife and I decided to build a technology driven 
manufacturing business, leveraged with a skilled workforce, to create a 
sustainable business model. This decision has since led me to interact 
with several universities and leading research institutions. We have 
partnered with businesses in both the Middle East and Western Europe. 
We anticipate additional partnerships with firms in South East Asia to 
be finalized in Q 1 of 2014 as we begin the commercialization of the 
technology we have recently developed.
    Through this process, I have been exposed to both domestic and 
international models for innovation. The differences are very 
intriguing but become disturbing when studied closely. Typically, in 
the United States, basic research is funded by a several sources, 
primarily government organizations. Then, a resource problem develops 
when entrepreneurs attempt to commercialize their technology. The 
commercialization process can be very expensive and time consuming. 
Investors are not willing make the necessary investments without 
assurance that their investment will yield a return, but the 
entrepreneur has yet to receive an order for his technology. So, 
tremendous amounts of technology never make it to market. This is why 
they call it ``the valley of death''. This does not happen in other 
countries, our global competitors. Other countries have established 
manufacturing hubs to address this issue. One typical example is the 
Fraunhofer Institute in Germany.
    The National Additive Manufacturing Innovation Institute, America 
Makes is the pilot project of the proposed National Network of 
Manufacturing Institutes, the United States' answer to other countries 
manufacturing hubs. M-7 is a lead member of America Makes and pays 
annual dues of $50,000. Although this may sound expensive, but, if M-7 
were to duplicate the capabilities and equipment available at America 
Makes, it would have to invest sustainably more to have similar assets 
in house. This neutralizes the resource issue and makes the valley of 
death less intimidating. It allows us to focus on the real issues of 
creating commercially viable applications of our technology. Those 
commercially viable applications create jobs and provide a tax base.
    In addition to member benefits such as these, the accomplishments 
of America Makes in the last 14 months are nothing short of remarkable. 
These include:

   The creation of a National Roadmap for additive 
        manufacturing technology development

   Organized and active participation in the ASTM International 
        Standards Development Committee F-42 which will insure 
        consistent and rapid commercial adaption of the technology as 
        it develops

   The establishment of a national repository for all additive 
        manufacturing technology and information through the creation 
        of a Digital Estate

   The development of a curriculum platform to transition the 
        current and future workforce to 21st century skill sets. This 
        effort was underscored with yesterday's announcement of Maker 
        Bot donating 5,000 3-D Printers to school systems across the 
        country. This donation was facilitated by America Makes.

   Funding and management of six projects with total value of 
        close to $10.0 million with anticipated initial commercial 
        value of $200 million, a 20-to-1 return on investment, and over 
        700 jobs created or retained.

   And, planned private investment of approximately $350 
        million for the creation of a SmartPark to facilitate the 
        natural progression of America Makes members with a customer 
        focused, commercially driven, proximity based co-development 
        environment for Additive Manufacturing applications.

    None of these accomplishments would be possible without the 
creation of The National Additive Manufacturing Innovation Institute, 
America Makes, the pilot project of The National Network for 
Manufacturing. Our answer to others manufacturing hubs.
    Thank you very much.

    The Chairman. Thank you, sir. Thanks for giving your 
background. That is a fascinating--you being a trader on the 
floor and then your father gets sick and your company is in 
trouble. You just pick up and go home and start out a whole 
other incredibly useful life. As you say, making is better than 
trading.
    Mr. Garvey. I realized that I would not have achieved the 
level of success in New York if it had not been for my parents.
    The Chairman. Yes. Good son.
    Dr. Brewer?

           STATEMENT OF DR. TERRY BREWER, PRESIDENT, 
                      BREWER SCIENCE, INC.

    Dr. Brewer. Chairman Rockefeller, Ranking Member Thune, the 
rest of the Committee members, and distinguished guests, my 
name is Terry Brewer and I am President of Brewer Science, 
first generation in this case, an advanced technology innovator 
and manufacturer located in Rolla, Missouri. I appreciate the 
opportunity to speak today.
    First of all, I also need to give you a little bit of 
background on Brewer Science, the company. I founded the 
company in 1981 and established the headquarters in Rolla, 
Missouri. Brewer Science is a major innovator of high 
technology processes and materials that are used to create most 
of today's ultra-small circuits that are used in most 
electronic devices from tabletop computers to smartphones to 
televisions, displays, et cetera. These circuits find their way 
into most of the advanced digital technology products that we 
all use today. You will find them in your pocket right now--
most of you will, anyway--hopefully turned off as part of your 
cell phone. None of these devices would be possible without the 
technology developed and manufactured by Brewer Science. We 
also continue to create new levels of technology for these 
devices.
    Historically speaking, I think our success was fostered by 
the U.S. Government, which played a large role in helping that 
success take place by creating an environment that encourages 
entrepreneurs to take the risk and go out into the marketplace 
with their new ideas and new products. A real good example that 
has been brought up several times today is, of course, Silicon 
Valley. The semiconductor industry is a great example of a 
group of entrepreneurs taking some risk and, with some 
Government support, created an entire industry that has changed 
the world.
    I think that the driving force in this public-private 
partnership is really impacting the development of technology 
but also is impacting the economy of the United States. And I 
think technology innovation is really key.
    The questions now are--I have heard them already today--so 
how does the Government continue to foster great U.S. 
technology business as we move forward, and also, how can we 
sustain and grow our global technology leadership? We have 
heard lots of good ideas, lots of comments and information 
today, which can lead us in that direction.
    There are many answers, however, when it comes to how we 
really engage and promote our manufacturing success in the U.S.
    So other than the proposed manufacturing centers, I think 
we have to look at other answers such as tax reform, 
particularly making the R&D tax credit permanent, and I think 
broad-based Federal regulation relief is important. I also 
think intellectual property law enforcement is really 
important. The Secretary was here today and we have made many 
visits to Washington to talk about that subject not only 
regarding the intellectual property laws themselves but about 
international trade agreements, which often are made without 
any real teeth in their enforcement. I think these are all 
areas that could help U.S. business.
    Regarding STEM support. We are very much in favor of, 
encourage this, and spent a lot of time supporting STEM.
    Of course, this legislation, which really promotes advanced 
manufacturing centers, I think, is a great idea. We are also 
really supportive of this approach.
    But remember there are many different ways that we can 
encourage improvement in our economy, our environment, and in 
our manufacturing competitiveness.
    When you think about STEM, I think it is important to think 
about one thing, and that is the students will be attracted to 
STEM when they see clear value for themselves as an outcome. 
STEM itself is not really a job creator. Industry and 
manufacturing that use these skills are the job creators. So as 
valuable as STEM might be, it is only half the circle. I think 
this is a very important point. If you want to keep the best 
talent in the United States, make sure the best opportunities 
for them reside here. This is really, really key.
    Also, I want to applaud the authors of the legislation, the 
bipartisan advanced manufacturing legislation, particularly 
Senator Blunt and Senator Brown, who were here in the 
beginning. They have done a very good job of constructing this 
legislation. One of the most powerful elements of the bill is 
that it does not attempt to prescribe technology or location 
winners. I think part of the issues in the past have been 
programs that are prescribed programs for technology. I think 
it is up to industry and business to determine where success 
can occur, and one of the real strong features of this bill is 
it does not prescribe. I think that is really key, very 
important.
    In conclusion, I think the leaders that have constructed 
this legislation should be praised for their willingness to 
invest once again in the great U.S. manufacturing engine. I 
think a show of confidence and belief that this engine is still 
strong and will succeed is an important message to send to 
America, and I think this bill and your committee is doing 
that.
    As the Commerce Committee, I am sure that you must also be 
aware of the importance of sending this message back to the 
United States. Very important.
    So thank you for your interest and for allowing me to share 
my perspective with you. And I would really be pleased to talk 
further and have further discussions about this. Thank you.
    [The prepared statement of Dr. Brewer follows:]

Prepared Statement of Dr. Terry Brewer, President, Brewer Science, Inc.
Introduction
    Thank you Chairman Rockefeller, Ranking Member Thune, Committee 
members, and distinguished guests. My name is Terry Brewer, and I am 
President of Brewer Science, an advanced technology innovator and 
manufacturer located in Rolla, Missouri, which is located halfway 
between St. Louis and Springfield, Missouri. We support our customers 
worldwide with a service and distribution network in North America, 
Europe, and Asia. I appreciate the opportunity to speak with you today, 
and I want you to know the support of advanced manufacturing is of 
great interest to me, my company, my industry, and my community.
Brewer Science History
    I founded Brewer Science in 1981 and established its headquarters 
in Rolla, Missouri. Brewer Science is a major innovator of high-
technology processes and materials used to create ultra-small circuits 
that enable devices such as tablet computers, smartphones, digital 
cameras, and flat-panel monitors and TVs. The stringent specifications 
of these products provide Brewer Science with opportunities to leverage 
the company's experience and creative capabilities to develop needed 
advances in technology for both government and private sectors. Our 
product line encompasses unique materials, processes, and equipment 
that are used to give devices more capability in less space for lower 
cost. Most microelectronic devices we rely on in our daily lives, 
including the smartphones you are using, would not be possible without 
the technology we deliver and continue to develop at Brewer Science.
Fostering Success
    Historically, the Government has helped to create an environment 
where entrepreneurs can succeed, allowing the private sector to 
successfully develop emerging technologies, which lead to new products 
and new advanced manufacturing jobs. Public-private partnerships have 
also had a big impact on developing many technology-focused aspects of 
our economy. For example, Silicon Valley would not have become a global 
driving force in microelectronics development and manufacturing if not 
for government support. So, how can our government continue to foster 
great U.S. technology business development? How can we sustain and grow 
our global technology leadership? These important challenges can be 
surmounted through several approaches, including tax reform, 
particularly if it includes making the R&D tax credit permanent; broad-
based Federal regulatory relief; long-term authorization and continued 
oversight of the SBIR program; enforcement of the existing intellectual 
property laws and international trade agreements; continued support of 
STEM education programs; and establishment of a select number of 
advanced manufacturing centers that support diverse innovations and 
locations throughout the United States.
Tax and Regulatory Consistency
    As both an innovator and a business owner, I confront many 
challenges in both managing my business and innovating tomorrow's 
technology. One area where Congress could make a big impact is tax 
reform. As it stands now, the tax code is too complicated, which 
results in higher compliance costs for smaller businesses like mine. In 
addition, long-term planning is very difficult when many pieces of the 
tax code expire after a couple of years and have to be renewed--
sometimes many months after they have expired. For example, the R&D tax 
credit is vital to both my company and the economy as a whole, as it 
encourages people to take risks and deploy capital, which is almost 
always limited, to new ideas. It is difficult for me to do the type of 
long-term planning that, ideally, I would like to do, when faced with a 
regular expiration of the R&D credit.
    Enforcement of our intellectual property laws is also vital to the 
success of the American entrepreneur. I strongly encourage Congress to 
continue to push the regulatory agencies to enforce these protections. 
In a global economy, it's very easy for companies and state-backed 
entities abroad to steal our ideas and inventions.
Access to Innovation
    Location or size of a community is no longer a necessary factor for 
a successful business. Brewer Science is proof of this, and we are not 
alone. Brewer Science could be located anywhere in the world, but I 
chose rural Missouri. Not everyone in the United States associates 
rural Missouri with advanced, high-technology manufacturing, but that 
is changing--and the reason is, simply, innovation. The ease of user 
access to technology we have in the United States is key to making our 
country the global innovation leader. Our strengths in workforce 
development, education, and community growth programs have one thing in 
common--innovation with freedom of location. By diversifying the 
location of the proposed advanced manufacturing hubs throughout the 
country, you are taking advantage of this innovation development 
strength.
Applied STEM--U.S. Advanced Manufacturing:
    Much attention has been given to support of STEM-related education 
programs and to attract more students to the STEM fields. I also fully 
support these efforts. However, I would like you to consider this--
students will be attracted to STEM fields when they can clearly see the 
value of participating in these areas. Science, Technology, 
Engineering, and Mathematics do not create jobs by themselves. Industry 
and manufacturing that require these skills do. By supporting the 
creation of advanced manufacturing centers, you will be providing 
places for people to implement STEM. If you want to keep the best 
talent in the United States, make sure the best opportunities for them 
are located here.
Diverse Technology Solutions
    There are many different approaches to fostering advanced 
manufacturing in the United States. I applaud the authors of the 
proposed bipartisan advanced manufacturing legislation, including 
Senator Blunt and Senator Brown. In particular, one of the powerful 
elements of this bill is that it does not attempt to determine 
technology winners. By not prescribing the specific technology 
solutions, you are encouraging our business and scientific minds to 
explore and determine the best and most needed solutions. The approach 
outlined in this bill leverages the experience and capabilities of our 
best talent, while auditing and encouraging those companies that 
deliver results.
Conclusion
    In conclusion, the leaders that have constructed this bill should 
be praised for their willingness to invest in the great U.S. 
manufacturing engine that is so vital to our people, our communities, 
and our Nation. Other countries see the value of attracting the 
businesses and people that embrace advanced manufacturing to their 
locations. When our government provides the leadership and support 
needed to coordinate the establishment of advanced manufacturing hubs 
that embrace diversity in location and technology in the United States, 
our people, communities, and businesses will grow and provide the 
foundation for us to solve our next unforeseen challenges. The same 
confidence, intelligence, and belief in the values and principles that 
have built our great, great nation are demonstrated in this bill and 
will continue to sustain and enhance our great quality of life.
    Thank you for your interest and for allowing me to share my 
perspectives with you. I would be pleased to discuss this further.

    The Chairman. Dr. Brewer, thank you. And just let me say to 
each of you, your four presentations were as good as I have 
heard in a number of years here, all totally focused. You 
actually all stopped at 5 minutes, which is kind of historic, 
but you said everything that you wanted to say.
    You made the point about STEM, Dr. Brewer. One of the 
problems is that people do not see the value for them at the 
end of STEM, but I would posit that if there is anything that 
is clear--and you said so yourself--there is an enormous need 
for them in the workplace. I mean, they have to know that.
    Dr. Brewer. You know, you would hope they would know it. 
They have to know it? I do not think so. I think you heard some 
testimony last week that said for women to go into computer 
programming, they had to make it fun, they had to make it the 
most favorite course at the university. So I think that, 
indeed, young people are not aware that the outcome from STEM 
is necessarily valuable in their lives.
    The Chairman. Then that is a tremendous shortfall. We are 
all concentrating like crazy on it.
    Dr. Brewer. Yes.
    The Chairman. America COMPETES, everything. I mean, laws 
are passed. You are all adamant about it. And somehow that has 
just got to reach them because we need them and we need them 
here.
    Dr. Brewer. Yes. And I think businesses must do their part 
to show manufacturing today is not like it used to be. It is 
not the Rust Belt, and in Asia it is still done in mega-
factories. But in lots of places in the United States, 
manufacturing is not done in mega-factories. It is done with 
computers, software, and technology. This is a different world, 
I think a world that maybe the young people are not aware of.
    The Chairman. OK.
    Can I ask just one more question that interests me? Mr. 
Schmidt, maybe you can help me on this. MIT concluded a study 
on the subject of commercialization and found that innovation 
and manufacturing are closely linked. That would be self-
evident. But then you said if we start losing one, we will lose 
the other as well. And then the reason that you give is very 
interesting to me. Many innovations take place on factory 
floors with incremental improvements to product design and 
functionality as the process moves along. And your point there, 
of course, is that when production moves overseas, all of that 
incremental improvement, as well as the knowledge, just is not 
available. It is a very interesting point to me. Could you just 
elaborate a little bit?
    Dr. Schmidt. Yes, I would be happy to. The point really is 
to bring some of these products to market, you need a lot of 
complementary skills and assets, not the least of which is 
people that understand how it is going to get built. In my 
experience in the transfer of technologies out of our labs and 
in the startups we have been involved with, it always comes 
down to people that have been there and done that and know how 
to stitch together a lot of different capabilities, a lot of 
different knowledge for a unique product. And when you lose 
that, it just slows things down, if not make it impossible to 
do it there. And so I think as that capability--you mentioned 
semiconductors in your opening remarks. That is an area where 
much of the semiconductor infrastructure is elsewhere, and so 
it makes it challenging for us to develop products, derivative 
products, based on that core manufacturing technology. And so 
that is the challenge we face, is keeping some of that raw 
capability here so that we can innovate in the next generation 
product based on that manufacturing capability.
    The Chairman. Thank you, sir.
    I have another question, but Senator Thune.
    Senator Thune. Thank you, Mr. Chairman.
    And I too want to just compliment the panel. Thank you for 
sharing your experience and insights. It was very helpful and a 
wealth of experience represented at the table today.
    Dr. Brewer, in your submitted testimony, you emphasized the 
tax and regulatory consistency issue be at the forefront of 
efforts to stimulate manufacturing growth. And specifically, 
you advocated for the permanent extension of the R&D tax credit 
and enforcement of intellectual property and trade laws. Can 
you share examples of how the R&D tax credit uncertainty and 
lax enforcement of IP and trade laws have hindered your 
company's long-term planning and ability to profit from some of 
your innovations?
    Dr. Brewer. Yes, that is a great question, and it does show 
that the problem is much more complicated than you think.
    In terms of R&D tax credits, about 9 percent of that tax 
credit goes directly for hiring people, and if that tax credit 
does not show up until the end of the year or after the end of 
the year, like it gets retroacted in January for the year 
before, it means we will not hire people the credit would have 
supported. If we knew the tax credit was there, we could invest 
in the people to do the research or do the development. So if 
you do it a year behind time, it is really not going to be 
utilized very well, at least to generate salaries for people.
    In terms of the intellectual property and not having much 
teeth in it, I can share some data that came from the 
semiconductor industry. That is my industry. I am in the U.S. 
in the semiconductor industry, and we do successfully compete 
in our technology worldwide, so it is not all gloom because a 
lot has moved overseas.
    But in that example, the semiconductor industry, in terms 
of material suppliers to the industry, there was a 100 percent 
violation of intellectual property by customers or others to 
the semiconductor suppliers. 100 percent. It means that every 
single company saw patented technology that they own get 
inappropriately used or borrowed or misused by other companies. 
And there is not much action that can be taken as a result of 
current laws. If you go to Asia and try to go to court, for 
example, in Korea, it takes years and years and years to 
achieve results, and it then becomes a moot point at the end of 
that period of time.
    And so like the Korean trade agreement, which was passed a 
year or so ago, there were absolutely no teeth, absolutely no 
enforcement of intellectual property protection in the trade 
bill. And even though there have been efforts to add that kind 
of stuff to the trade bill, there is then a need to rush it 
through to just make something happen, and it all goes. And so 
we end up with, time after time, getting trade bills that put 
no teeth into the intellectual property enforcement. That is 
particularly challenging for the semiconductor industry because 
60 percent of my marketplace is in Asia, and number one, two, 
and three in terms of the countries that violate intellectual 
property patents are Korea, Taiwan, and China. So no teeth in 
that legislation is very much a problem.
    However, they did a really good job of improving trade 
secret protections--strengthening trade secret protection in 
this last intellectual property bill, and that really had a 
good impact for us and I think most companies in the United 
States. But I go up to the Hill every year and to the Commerce 
Department to talk about enforcement of trade issues and 
enforcement of intellectual property issues. And I think there 
is a lot of willing people but very little action has come from 
it.
    So that takes care of those two things.
    The third element that you talked about was?
    Senator Thune. Trade IP and R&D tax credits.
    Dr. Brewer. OK, those two. So I think that kind of covers 
those areas.
    Senator Thune. Thank you.
    Mr. Spiegel, can you talk a little bit about the impact of 
the medical device tax on your business and industry generally? 
I mean, we are told that it is $30 billion and possible as many 
as 43,000 jobs that are impacted, and that could, obviously, 
lead to reduced R&D budgets as well.
    Mr. Spiegel. Yes. There is a 2.3 percent medical device 
tax. We are one of the largest manufacturers of medical devices 
in the world. This last year can have a direct impact. It says 
$30 million there. Long-term we see it more as being something 
like $60 million a year. If you take a look at that as a 
percentage of your profit, it takes a big cut out of your 
profit. And so, of course, management wants to know how are we 
going to make that up. The market is not growing. Right now the 
market is pretty flat. People are trying to figure out where 
the world is going with the new Affordable Care Act, and so we 
are not seeing a lot of growth in new medical devices and 
things. Maybe that will happen later.
    Of course, we were counting on more people getting signed 
up to come on to the program, but we have not seen that yet. So 
the demand is kind of flat, and therefore, we have got to find 
other places or slow down R&D, a lot of which we do in 
Princeton, New Jersey. We do a lot of R&D located very close to 
our manufacturing plants, which we talked about here. But our 
biggest R&D facility and a lot of our health care R&D is done 
in Princeton, New Jersey. So the basic thing is you got to look 
for opportunities to reduce costs, reduce head count, reduce 
R&D. You got to find some way when you lose millions of dollars 
in profit.
    So it is definitely having a big impact, and I know across 
a lot of our suppliers, it is having a big impact and also our 
competitors as well. So it is definitely having an impact on 
spending and growth.
    Senator Thune. Mr. Chairman, my time has expired. Thank 
you.
    The Chairman. All right. Now I am presented with a 
quandary. Senator Booker was here before----
    Senator Booker. Mr. Chairman, I will make it easy for you. 
I will yield to my more senior Senator, Mr. Blunt.
    The Chairman. Do you want to yield?
    Senator Booker. I will reserve my time and yield to the 
more senior Senator.
    Senator Thune. He is learning quickly, Mr. Chairman.
    [Laughter.]
    Senator Blunt. He not only came and came early, but then 
yields time. Thank you, Senator, and welcome to the Committee. 
I am glad you are here and glad this is one of your first 
hearings. I hope it is something that we really can move 
forward on.
    Again, Chairman, thank you for holding the hearing--you and 
the Ranking Member--on this bill.
    Mr. Spiegel, in the medical device area, what percentage of 
the Siemens' market for medical devices does the United States 
comprise?
    Mr. Spiegel. I think it is about 25-plus percent of our 
medical device market globally. It is the biggest market in the 
world by far.
    Senator Blunt. It is your biggest market but still 75 
percent or so of your market is in other places.
    Mr. Spiegel. Yes. I think 70-75 percent is outside the U.S.
    Senator Blunt. We hear some of the people who are even more 
in this market that the tax is even a bigger thing for them 
because it is----
    Mr. Spiegel. Yes. If you are more U.S.-focused and, for 
example, you are not in Europe or in Asia in a big way, the 
U.S., of course, is a much bigger part.
    Senator Blunt. It has a bigger impact on what you can do 
and how you can do it and what your overall profit picture is.
    You mentioned the R&D. A lot of your R&D was in Princeton. 
Because of the centers in Germany that you described, how much 
work is done there that might be somewhere else if there was a 
competitive hub environment like we are talking about. Do you 
have a sense of that?
    Mr. Spiegel. Well, it is hard to say. We spend probably $6 
billion to $7 billion U.S. a year on R&D. We are one of the 
biggest spenders on R&D of any industrial company in the world, 
and we spend over a billion dollars in the U.S. alone.
    To the point that one of the other panelists was making, if 
you go back to the years when we did not have as much 
manufacturing here--we now have 130 manufacturing facilities--
we spent very little on R&D. The R&D comes with the 
manufacturing. So if we push for these manufacturing hubs, like 
the investments that you heard that we are making around the 
Youngstown, the National Additive Manufacturing Innovation 
Institute, the more of these hubs that come in the areas that 
we are trying to push, the more dollars we would put into it, 
the more investment that would come. And, of course, R&D comes 
natural.
    One of the reasons you want to do these hubs is get 
suppliers, customers, research companies, the Government, 
schools, universities. We do a lot of research with the 
universities and also with the national labs. So hopefully they 
are going to be attracted, and they already have been I think 
you heard from the numbers. So it is a natural place for us to 
put more R&D dollars.
    Senator Blunt. Right.
    And, Dr. Brewer, you mentioned that you were pleased that 
this was not really location-specific as some programs are. In 
fact, Chairman Rockefeller and I are sponsoring the extension 
of the New Market Tax Credit Program which does actually give 
benefits to low-income areas. And, Chairman, I was in Kansas 
City last week at a family-owned facility that had doubled its 
70-year-old business in size using those new market credits, 
and it was in one of the areas that qualified.
    But specifically, when we decided on this one, we would let 
the dynamics of those hubs coming together be the qualifying 
factor. And I know in the case of your decision to be in Rolla, 
I am just wondering how much impact it had that the Missouri 
University of Science and Technology is located there, and 
either formally or informally, how has that advantaged the 
ability of your company to attract people and compete?
    Dr. Brewer. Of course, it has helped. It is a very strong 
engineering school and very strong in the sciences, and having 
access to young students, idealistic and enthusiastic and low-
paid, is a very big advantage, of course.
    But I think it has a lot of secondary ripples also because 
we work with that university, and they have people that work 
with other universities. And so it becomes kind of a network 
infrastructure value in addition to simply the location itself.
    Back to the nature of the bill, it is not prescriptive. I 
think that is one of the genius things that you have done with 
this bill that you do not often see. We had a lot of success in 
early days with the SBR program. At that time, it was a very 
non-prescriptive kind of a program across a lot of agencies and 
it was very instrumental in us developing our products.
    But in today's world, where you are located, the size of 
your community, even the size of your company has very little 
meaning to your impact back onto the economy. So size and 
location, which is what you used to think of as the keys to 
business, are a whole lot less important today. And I think 
that insight is built into your legislation, which I think is a 
great step forward.
    Senator Blunt. Well, I hope it is. And actually, I think 
that is a very good point about sort of what I described 
earlier as the breakthrough moment that we are in. The things 
that used to be defining, whether you can compete or not and 
where you are located and other things, no longer in this 
moment are nearly as defining as they have been in the past. 
Bringing the right elements together, big or small, is what 
matters in how you compete rather than the things that we may 
have thought 20 years ago were the key elements of how you 
compete.
    Mr. Chairman, I have used my time and possibly part of 
Senator Booker's time up. So I will stop.
    The Chairman. Thank you, Senator Blunt.
    Senator Booker?
    Senator Booker. Thank you very much.
    And, gentlemen, I just want to echo. Incredible testimony. 
It is really an honor to be before you all not only from the 
research that has been done but the true contribution you all 
have made in helping to grow the American economy. So thank 
you.
    Real quick, a few things. I was really impressed that all 
heads shook up and down when we were talking about one of the 
key things Government should do is create a climate of 
predictability when it comes to things like tax credits and 
research tax credits. So the alternative simplified research 
credit, the ASC, which is something that I believe in--making 
that permanent would really help you. Yes? Mr. Spiegel?
    Mr. Spiegel. Absolutely. I think all of these, the R&D tax 
credit, the manufacturing investment tax credit, all of those 
things, if you know those things are permanent, it makes it 
much easier. For me, for example, my objective is to grow our 
U.S. business. And for me to make the case back to the parent 
company in Germany to invest more money here, they want to 
know, OK, well, what is the advantage of investing there versus 
other places. And if it is on again, off again, it makes it a 
much more difficult story.
    Senator Booker. Let me go one step further because if I 
were to tell you we were to make a decision to increase that 
tax credit from 14 percent to, say, 20 percent, that would 
relate to more research being moved here and expanding jobs. 
Correct?
    Mr. Spiegel. Absolutely, yes.
    Senator Booker. Would you agree with that, obviously, Mr. 
Brewer?
    Dr. Brewer. Yes. In fact, we rank like 27th or 30th in the 
world in terms of our R&D tax credit. It is embarrassingly low 
compared to almost everybody else. We could all move to Canada 
and double our R&D tax credit immediately.
    Senator Booker. Right. And so that is something I think 
that is really important to talk about.
    Second, Dr. Schmidt, I really appreciate what you said 
about, again, workforce development, something that I have seen 
on the ground for 7 years as a Mayor that we really have a 
problem with, especially when it comes to STEM education. We 
are falling behind, way behind, the rest of the globe and our 
competitor nations in producing engineers. Even in fact, 
unfortunately, we have sunk dramatically in just people with 
BA's, not to mention in STEM subjects.
    One of my colleagues who I really have a lot of respect 
for, Rush Holt, is working on some things for the Defense 
Department's smart scholarships that I think is a really 
creative idea.
    But, Dr. Schmidt, what are some of the things that you 
think we should be doing as a Federal Government to really --
again, we are now in a global knowledge-based economy. The 
strong economies of the future are those that are going to be 
producing those valuable natural resources we have, which is 
the genius of our people in science, technology, engineering, 
and math.
    Dr. Schmidt. Thank you, Senator Booker. Actually you 
mentioned in your earlier questions, talked about some of the 
challenges faced by small and medium enterprises. There are a 
number of things that we have learned and recommendations that 
are embedded in the Advanced Manufacturing Partnership report 
but also in the study that MIT did.
    But let me pick one that I think is really compelling, 
which is when we studied this issue, the skills gap that you 
referenced earlier, one of the things that comes up is for a 
lot of firms, it is the people that are trained at the 
community college level. And I will tell you this in the form 
of an anecdote.
    We had a really exciting event at MIT a couple years ago. 
We had 250 people come to campus, government leaders, industry 
representatives, small, medium, and large, and educational 
institutions. We had a CEO of a precision machining firm in 
Nashua, New Hampshire that stood up and implored community 
colleges to train more workers in the kind of skills that he 
needed because all of his employees had gray hair and he was 
not sure where the next generation was going to come from. No 
sooner had he made that statement, than a president of a 
community college that was in the audience stood up and said I 
just had to cancel that class. This was stunning to me.
    But what you realize is that these are really specialized 
training. And furthermore, the community college system is 
optimized to shorten the commute time because these people are 
doing things between day jobs and family responsibilities and 
other things and that is a fundamental conflict. And the 
question is how do you break that.
    When we think about it and we look at some of the 
revolution that is occurring on our campus and other places and 
this use of online education, we think there is an opportunity 
there. So imagine a situation where these students can take 
what they need to learn in the book sense, they learn it online 
which we know can be extraordinarily effective, but then do not 
make them come to campus twice a week. Have them go on the 
weekend somewhere and get the necessary hands-on skills. And 
maybe it is not just at a community college, but maybe it is a 
local manufacturer that opens up its facilities for training 
purposes. So there are a lot of great ideas out there, and I 
think that is one of them.
    Senator Booker. I am sorry. Mr. Spiegel, do you have 
something?
    Mr. Spiegel. Yes. I just wanted to say that we have had 
this problem as we have built new manufacturing facilities 
here. We built a new, world-class gas turbine plant in 
Charlotte, 800 new jobs. We could not find the workers there. 
So we had to bring over professors from Germany. We worked with 
the local community college, Central Piedmont. We set up a 
program to train 500 or 600 people over a period of a year in 
what we call mechatronics so they could work in one of these 
modern plants.
    The second thing we did was set up an apprentice program 
going forward because we needed a pipeline. We hire high school 
kids. They go to school part-time. They work in our plant part-
time. We pay them to go to school. They get a 2-year college 
degree. They get a journeyman's certificate, and they are 
guaranteed a job if they pass through the course. Two things to 
understand about that. There is no debt. They are guaranteed a 
job, and the starting salary is $55,000 a year, which was more 
than the average for liberal arts graduates in the State of 
North Carolina.
    Senator Booker. May I ask this point and ask the Chairman 
for just 2 seconds?
    That is the challenge I worry about, Dr. Schmidt. The 
average manufacturers are not your size. The average 
manufacturers in the United States employ 36 people. The 
average manufacturers in my State employ 14 people. And so the 
solutions you can bring about because of the scale of your 
company cannot be brought about by these small manufacturers 
that are the average manufacturers in the United States.
    So if I can beg the Committee's generosity, could you just 
address that for me? How do we solve that problem because of 
the small manufacturers that are really the bulk of 
manufacturing in the United States?
    Mr. Garvey. Senator Booker, so M-7 Technologies has a 
tuition reimbursement plan for all employees in the company. 
And the way the program goes is anybody who gets an A, they get 
a 100 percent reimbursement. Anybody who gets a B, they get 
about a 75 percent reimbursement; a C, 50 percent 
reimbursement. Anything below that, we do not reimburse. So 
this program is open to everyone. And we have had employees go 
all the way from associates degrees. They are now studying 
their masters in industrial engineering. So that is just one 
way that small manufacturers can help the skill shortage.
    Senator Booker. Yes, sir?
    Dr. Brewer. Is it OK if I can respond?
    Senator Booker. Dr. Brewer, please.
    Dr. Brewer. Oh, OK. Thank you.
    You know, it is an interesting question, but I guess I 
disagree that small business cannot do something or play a 
role. We do. We bring in 50 to 60 summer interns every year 
from college and some from high school, from all over, mostly 
of course Missouri, but outside also. We also do it in all of 
our offices around the world, so Hong Kong, Shanghai. We bring 
people in and we give them jobs that are meaningful for the 
summer. They really have a problem that they have to solve. And 
so they come back for the summer. Some of them stay over during 
the year, work a few hours, particularly people that need to 
work to support their education. They come back again next 
summer, and by 2 to 3 years, we have people that are trained 
and we have people that have the skill set we need. And we also 
know who are the best performers. They get tutoring and get 
involved in leadership and management training programs while 
they are with us at the same time. So basically we grow our 
own, and it works really well.
    Senator Booker. The Chairman almost pitched a perfect game 
and I just messed it up by going over time. Sorry, sir.
    The Chairman. You did, indeed. But a perfect game speaks 
for itself.
    I would like to close with a question and a hope, a 
responsibility that I think you all have. They are not 
represented here, but there are a lot of people in the Senate 
who think that by definition anything that the Government gets 
involved in is somehow going to get skewered or abused or 
corrupted or whatever. And that has not been the testimony that 
you have given, and I would like you to affirm why you do not 
fall under that category. I cannot assume all of you are 
liberal Democrats.
    [Laughter.]
    Mr. Spiegel. Maybe I can take that on first.
    First of all, I just think the evidence is out there that 
we are falling behind. We are falling behind in these areas of 
manufacturing. We mentioned advanced manufacturing. We are 
falling behind in skills. Our infrastructure is falling way 
behind. And it is pretty clear that the marketplace itself is 
not going to solve this problem. Again, some of it requires 
pretty significant investments.
    But more importantly, these things really need to bring a 
lot of different people together if you really want to scale 
these. There are lots of good examples of one-off things and 
islands that are growing. But if you bring the people together, 
the Youngstown example you mentioned where we now have 80-90 
companies involved there. You have universities. You have 
research companies. You have manufacturers, big and small. That 
is how you are going to scale this thing. That is what has 
worked in Germany and other places. Everyone off doing this on 
their own, letting the free market work is not going to get us 
there. And by the way, even if it did, it is going to take a 
hell of a long time.
    And so I think that is why this thing can jump start this 
thing and get it scaled quickly. And we do need to let the 
market decide what are the right technologies and locations. I 
think letting that happen naturally I think will help this 
thing grow even faster.
    The Chairman. And the Government sort of coming in at the 
beginning, and it being Government, academia, and private 
sector, there is nothing that says the Government is going to 
pick winners and losers.
    Mr. Spiegel. No, absolutely not.
    The Chairman. Dr. Schmidt?
    Dr. Schmidt. I think Mr. Spiegel summed it very well. So I 
would just say I think we have a tremendous opportunity to 
accelerate our innovation, and it is going to take coordinated 
action and everybody has a role to play in that. I think what 
is laid out in this bill I think is very spot-on in terms of 
accomplishing that.
    The Chairman. Mr. Garvey?
    Mr. Garvey. Well, unfortunately, we are made to pay for the 
sins of those that came before us that were possibly 
unscrupulous or whatever that abused some of the Government 
funding, and that is not always the case. There are good people 
out there and we can man these centers and we will man these 
centers, and we will make America great again.
    The Chairman. And you put in $50,000.
    Mr. Garvey. Pardon me?
    The Chairman. You put in a lot of money.
    Mr. Garvey. We put in $50,000 a year.
    The Chairman. Dr. Brewer?
    Dr. Brewer. Yes. I think whether we like it or not, the 
design of the United States always has married business and 
Government at the hip someplace. And I think it is not a 
question of should they be involved or not, but how they are 
involved. I think the cleverness and also the design of how the 
Government and industry work together is what is key. And that 
has got to change because the world is changing right now. The 
connection cannot go away. It is not an issue of should the 
Government be involved or not. Of course, it is because it 
always has been. It is the design of our society.
    But I think we have got to continue to challenge, both of 
us--business and Government. We need to continually challenge 
each other and say, okay, the world is changing every day now. 
What is the right way to address that? To make assumptions 
like, well, let's take a big pot of money and go over here and 
throw it on rocket ships or something, you know, maybe that was 
right at one time, but maybe it is not right today.
    So I think your program that does not try to prescribe, 
that does not try to give us the answers--you guys should be 
asking us the questions. Ask business the questions and let us 
try to find the answers. Sometimes we will do it successfully; 
sometimes we will not. But to prescribe the answer is going 
down the primrose path in the wrong direction.
    Business and industry will always work together. There is 
no such thing that it is not. I think it is how it works 
together and what does the model look like. And again, what are 
the questions that you are asking and we need to be able to 
solve?
    The Chairman. One of the problems we are facing in 
cybersecurity is should the Government be involved in helping 
with standards. And I have not found really anybody who can 
figure out a way to do what the National Institute of Science 
and Technology does in terms of a gold standard for what works 
and what does not work. It does not make it preemptive, but it 
makes it very helpful.
    I will close with this, and then I noticed a presence on my 
right.
    I think you have a responsibility as a business community 
as never before to get rid of this monkey business in 
Washington, D.C. and in our Congress, that the only thing that 
you can do to help America is to make Government smaller and to 
keep the sequestration right in place which will undermine at 
flat levels all levels of activity. And we will think about NIH 
and NSF and NIST and other things of that sort and then we will 
also think of food stamps and kids starving because they cannot 
get food under the SNAP program, et cetera. It is a riveting 
ideological ruination as far as I am concerned.
    And I think that the business community has an obligation 
to bomb us out of that, just as you have been helpful to us in 
the cybersecurity question. You were not at first. The U.S. 
Chamber of Commerce really sort of ruined the whole thing. The 
Business Roundtable did not. The U.S. Chamber of Commerce 
changed its view, and now I think there is more hope toward 
cybersecurity, which is important to all of us and all of you 
in many ways.
    You see, if the budget keeps getting smaller, somehow we 
will be forced to get smarter. I cannot think of a lot of 
examples over history where that has worked. And if the 
Government is a part of the Youngstown experience, then you 
want to make sure that it continues to be a part of it as it 
expands to 45 other places. But it does mean that you have a 
responsibility to get us out of our ideological frenzies, which 
are absolutely frustrating and are preventing us--we are now, I 
think, at 9 percent popularity, which is a lot better than the 
8 percent that we were at.
    [Laughter.]
    The Chairman. But part of the reason is we are not doing 
anything. And part of the reason is we do not contemplate doing 
anything, and a lot of the energy in this Congress is toward 
making sure that we do not do anything. That is the way you 
punish the President. That is the reason that you get a message 
that everybody repeats time after time, don't have any new 
revenue.
    I mean, you are worrying about Obamacare. I think that is 
the last of your worries. That is going to work. That is going 
to work. It is an inevitability. The rollout and numbers of 
people who have signed up is the least of the measures that you 
have to worry about. The future of the Affordable Care Act is a 
very, very good one. It is going to have an enormous effect on 
our economy and the number of people working. And stability 
will be there for you, Mr. Spiegel, I promise you.
    Do you agree basically with what I am saying, that if you 
just say we spend less money and somehow we will be a better 
country really does not help? Because that is where we are.
    Dr. Brewer. Well, can I respond?
    The Chairman. Yes.
    Dr. Brewer. Perhaps it is a little bit risky. But let me 
look at it from another standpoint.
    Brewer Science started as a bootstrap operation. We did not 
have any money. A lot of the reasons we were successful is 
because we did not have money and we had to work hard and be 
clever and do things that other people did not do to be a 
success. Now, literally we started with nothing. You know, I 
lived in an RV, and 31 years later, the majority of the world 
is using our technology to build microelectronic devices.
    So from my standpoint, money is not the solution or the 
answer. It is not even necessary to be the solution or the 
answer. I know that makes it a difficult challenge. I 
understand that.
    But lots of times I have seen a lot of companies go out of 
business that have been supported by venture capitalists. We 
are not. Venture capitalists dump in the money. They spend it 
quick, fast, and not very well, and the companies are gone. 
They want quick solutions and quick returns. I think that is 
the danger of seeing money at the center of any solution.
    The Chairman. I am over my time, but I am not making money 
the center point. I am making participation, thrust, momentum 
my center point. I mean, you were talking about STEM people not 
seeing a future for themselves, and so they do not take it 
seriously. Well, what in heaven's name do you think is 
happening at the National Science Foundation? When the 
Government was shut down, 99 percent of their people were 
furloughed. Most of them have not recovered and a lot of them 
have lost any sense of a stable future and are leaving and 
going elsewhere. And I understand that. Three weeks of a 
shutdown produces disastrous effects. That is the mentality 
that some of our colleagues here are in.
    And I am just saying at some point you can--you know, they 
had this horrible thing in the Philippines and we had to send 
over aircraft carriers and all kinds of help and all kinds of 
things. I mean, the world does not stay still, and there are 
lots of problems out there and we have got to solve them. And 
having revenue means something. That is all I am simply trying 
to say. And, Dr. Brewer, you have responded to me and I 
appreciate that.
    I call now to conclude the questions on Senator Markey.
    Senator Markey. Thank you, Mr. Chairman, very much.
    Mr. Spiegel, let's talk about wind power. Let's talk about 
what you are doing at Cape Wind. Let's talk about the kind of 
common perception, well, you know, renewables--they are nice 
but they are not the answer. This year, 12,000 new megawatts of 
wind, 3,000 new megawatts of solar. Incredible. Why do you not 
talk a little bit about what innovation means and how a little 
bit of governmental support on the price and the conditions 
under which you are able at Siemens to innovate off our 
shoreline means in terms of your investment but what it could 
mean for America in terms of taking leadership in wind off our 
shores?
    Mr. Spiegel. Maybe just talk about wind generally and then 
I can talk offshore for a second.
    The wind business--we acquired a small company in Denmark 
about 7 or 8 years ago for a couple hundred million dollars. We 
now have something around a $20 billion backlog around the 
globe. About $13 billion of that is offshore wind, of which we 
have never had an offshore project here in the U.S.
    If you take a look in the U.S. in the years when there is a 
production tax credit, a lot of wind gets developed. In years 
when there is not, it does not get developed.
    Now, we have also brought the cost down tremendously, about 
40 percent in the last 5 or 6 years. In many of the projects we 
do now in the U.S. onshore, wind is competitive now with other 
technologies in those regions, especially if you get into a 
region with high wind. High wind regions where you get 
consistent wind blowing, is very competitive in some areas of 
Texas and other places. So it is getting more and more 
competitive. If gas does not stay at $3 for a long time, if it 
goes back up to $5 or $6, a lot more of this wind is going to 
be competitive.
    We are doing the same thing with the offshore wind site 
where we have a huge backlog, a lot of it being built over in 
Europe in the North Sea and the North Slope. So we are pushing 
that. Of course, we are hoping that a major project is built 
here in Massachusetts, the Cape Wind. And it has been, I think, 
9 years in the planning here. So here we are 9 years in. A lot 
of money has been spent by a lot of people to get this thing 
through the gate, and other countries around the world----
    Senator Markey. What could it mean, though, precedentially 
if we do successfully construct something----
    Mr. Spiegel. Yes, well, I think it will be a landmark 
project. And I know from talking to Governors up and down the 
coast, including New Jersey, for example, I know there is a lot 
of excitement about offshore wind. There is a huge amount of 
opportunity off the Atlantic coast. Again, we know we have got 
to keep working to bring the cost down, but again, the idea of 
starting off with a production tax credit to help this thing, 
if that can be kept in place for a few more years, I think we 
are going to be close to parity in many places.
    Senator Markey. I agree with you. It is happening. And it 
is still not understood. Conventional wisdom is still, oh, that 
is kind of exotic. That can never really play a big role. But 
we know it can be 25 percent of all electricity, wind and solar 
and other renewables, within the next 10 years.
    Mr. Spiegel. Yes, wind and solar and batteries. All these 
things are interesting because they were originally developed 
in the U.S. years and years ago, a lot of them, by some of the 
national labs and things. And then we kind of dropped the ball 
on them, and other countries picked it up, innovated them, 
drove them, and now they are bringing them back to the U.S. And 
we keep talking about wanting to take and develop and innovate 
technologies and build them into big export markets. Well, you 
are not going to do that unless you take the time to innovate 
it and develop it. And that is something these innovation hubs, 
I think the manufacturing hubs we are talking about----
    Senator Markey. Where did the fracking technology come 
from? DOE investment. Where did the Internet come from? Federal 
investment in DARPANET. And where do a lot of these new 
cutting-edge technologies that the private sector does not want 
to invest in come from? It is the Federal investment in the 
basic research that kind of sets the environment where young 
people say they want to move.
    Over at MIT, Dr. Schmidt, there are 2,000 kids who have 
joined the Energy Club at MIT. So they are saying, put me in, 
coach. I am ready to go. But can you please create the 
environment where I do not have to work over in fossil fuels? I 
want to work in the technology sector that allows me to really 
make a difference in inventing a new way that we are going to 
be producing energy in the 21st century.
    And that is not to put down fossil fuels because there are 
ways of actually developing new technologies that can actually 
capture carbon, that can make traditional fossil fuels 
consistent with our goals of making this a cleaner and safer 
planet.
    So can you just talk a little bit, Dr. Schmidt, about what 
role, kind of some Government investment can make in new 
technological processes that reduce cost and make it easier to 
gain entry into a marketplace that can be prohibitively 
difficult, especially in the energy sector?
    Dr. Schmidt. Sure, I would be happy to do that, Senator 
Markey.
    First of all, obviously, the R&D investments that feed the 
basic research are incredibly important to all of this. But 
then I think as we move out--you know, I think we talked about 
wind energy. I think it is a very interesting example, the fact 
that the State of Massachusetts has a wind turbine blade 
testing facility. That is a very interesting example because 
that is a capability that any firm that is going to develop 
these blades needs, but it is something that may be beyond 
their ability to attract the capital to create. And the fact 
that they can go to Massachusetts and test these, they are 
going to set up shop there, they are going to build that 
ecosystem that I talked about earlier. So I think these sort of 
infrastructure investments are incredibly enabling.
    And the hubs that we talked about, the manufacturing 
innovation institutes that we talked about in this session, I 
think are another really important example. They fill in that 
gap where universities, research labs cannot go and where it is 
too risky for individual actors to pick up a technology and put 
it into production. These innovation institutes I think are 
going to fill that gap, allow us to advance these technologies, 
and actually let everybody participate, small and medium 
enterprises, large firms, startups. And I think they are also 
going to be great incubators for training and workforce 
development in those sectors.
    Senator Markey. I agree with you. You know, the same wind 
that drove the pilgrims to our shores in Massachusetts is the 
same wind that we can now capture to innovate in the wind area. 
And with Siemens, we are doing that, and I think it is going to 
be breakthrough program not just for Massachusetts, but for the 
whole country and the world when this is successfully mounted. 
But it needs some governmental help in terms of create the 
precedent that then will create tens of thousands more jobs all 
across our country, all along the coastlines of our country.
    And for me, that is really what this is--it has to be all 
about that because otherwise we are going to lose to Germany. 
We are going to lose to China. They have a business plan in 
China. We do not have to fear them, but we should respect them. 
They do have a plan. They want to be number one in all of these 
areas. But they are behind us, and a lot of what they are doing 
is using our own technology against us. The basic research we 
actually invested in but we did not create the bridge then 
toward manufacturing, towards actual production and job 
creation. So without that plan, which these other countries are 
putting in place, our workers will be the losers, and I think 
that will be the real tragedy of this whole story.
    It is all there. We need a business plan for America for 
the 21st century, and you have laid it out for us. And I thank 
you very much.
    And I thank you, Mr. Chairman, for having this very 
important panel.
    The Chairman. It has been a good hearing.
    Actually there is something I really want to say but I 
promised that I would not, so I will not. No, I will.
    [Laughter.]
    The Chairman. Mr. Spiegel, you said that--I am just going 
off his time here. You said that it would be great to see the 
industrial tax credit, various tax credits, R&D tax credits 
made permanent. I am on the Finance Committee. I have been 
there for 26 years, and we have talked about doing that often 
and we never do it. So we do it year by year by year by year. 
Why? Lack of revenue.
    I am going to give you an example, which is going to be 
infinitesimally and amazingly boring but instructive, if you 
listen closely.
    We have something called the SGR problem, the sustainable 
growth problem. That is called the doc fix. How are we going to 
pay doctors so that they will stay in Medicare and Medicaid and 
the rest of it? And nobody can come up with a way to do it. 
There is a very simple way of doing it. If we completely, for a 
10-year period, make the doc fix, the sustainable growth rate, 
it will cost $138 billion over a 10-year period. Now, there is 
a way to do that, which gets back to a point that you made 
earlier about if you do not get credits, it eats away at the 
bottom line.
    This had to do with the pharmaceutical industry. There is 
something called dual eligibles. Those are people who are so 
poor they are on Medicaid and so old that they are on Medicare. 
They all used to be paid for by Medicaid. And back in 1993, I 
was in a conference committee over in the House with Waxman and 
Stark and a whole bunch of people, and we said that the 
pharmaceutical companies under Medicaid, which is a huge 
program, would accept lower payment because we had a bulk 
product to offer them. And they just could not say, well, what 
product do we want because they would not get the bulk product. 
So they had rebates. Costs were lower.
    Then when we did something called Medicare Part D--I am 
sorry about all this language--we shifted all of those 9 
million fragile, old people and their incredible costs from 
Medicaid to Medicare. In so doing, we did not continue the 
rebate, the lower costs, which was incredibly foolish on our 
part.
    Now, if we were to do that in the Finance Committee, which 
I have been trying to get done, we would get $141.2 billion and 
pay off all the doc fix for the next 10 years. All right? But 
the answer--and this gets back to what you said, no, we cannot 
do that because it will clobber our R&D money and we will have 
to spend less, and it will hit our bottom line. We did a lot of 
research on that, and we found that the pharmacy companies 
handling Medicaid with a rebate had just as active an R&D 
program as when they had lost their rebate and therefore had 
much more money to spend. No more money went into R&D in the 
pharmaceutical companies. No more money went into R&D.
    Do you see the point I am making? It is that you cannot 
just get consistency, belief in the future, a sense of 
constancy without a plan to do it. And if you want an R&D tax 
credit, Corey and Jay and Ed are all for it. We are going to 
have to pay for it, which is the whole question of revenue. 
Please think about that.
    And you have been an absolutely fabulous group of four 
people.
    And this hearing is adjourned.
    [Whereupon, at 5:20 p.m., the hearing was adjourned.]
                            A P P E N D I X

                                                   Infinera
                          Annapolis Junction, MD, November 18, 2013

    I am writing this letter of support on behalf of Infinera, a U.S.-
based supplier of Telecommunications systems. Thank you Chairman 
Rockefeller, Ranking Member Thune and members of the Committee for this 
opportunity to give input to the Committee on Commerce, Science, and 
Transportation as part of the hearing on ``The Role of Manufacturing 
Hubs in a 21st Century Innovation Economy'' on Novem-
ber 13, 2013.
    Infinera is a leader in Intelligent Transport Networks. Intelligent 
Transport Networks help carriers respond to the increasing demand for 
cloud-based services and data center connectivity as they advance into 
the Terabit Era. Infinera uses semiconductor technology to deliver 
large scale Photonic Integrated Circuits (PICs) and the applications of 
PICs to vertically integrated optical networking solutions that deliver 
the industry's 500 Gb/s FlexCoherent super-channels. The solutions 
offer network operators a simple, scalable and efficient option that 
deploys quickly, reduces operational costs and helps increase long-term 
revenue growth.
    The demand for these solutions comes from the growth in bandwidth 
needs. Examples include Netflix streaming, iTunes downloads, YouTube 
viewing, Google searches, stock trades, FAA flight plan data, and even 
mobile phone traffic, which are all transmitted over optics-based 
equipment and fiber. Over many years, achievements in optics, 
electronics, and optical systems engineering have increased performance 
and reduced communications costs.
    Despite impressive technical advances that have fueled the 
exponential growth in data traffic, companies are seeking innovative 
new solutions to meet the continuing growth in demand. Simultaneous 
improvements are needed in data rate, power consumption, and cost. 
Without these improvements, demand will outstrip capacity, which may 
lead to higher costs and possibly even constraints on the greater U.S. 
economy.
    A key manufacturing challenge in this particular industry is the 
high cost of fabrication and assembly of integrated photonic circuits. 
This emerging technology is used by Infinera for long haul 
telecommunication networks, and will be a key enabling technology in 
communications and other important industries well into the future. 
However, as you have heard from previous testimony, commercializing new 
products remains expensive, restricting its commercialization and 
adoption. One solution would be major investments in new photonics 
integrated circuit (PIC) domestic commercial-grade fabrication 
facilities. Founded as an industry and government partnership, the PIC 
facility would enable U.S. suppliers to explore new photonics circuit 
designs and translate into commercial components.
    This and other solutions to lower the barriers to commercialization 
will increase the ability of the U.S. to regain leadership in the 
communications industry. In addition, it will help secure the supply of 
optical components for national security and other needs, plus create 
jobs and strengthen U.S. innovation and manufacturing in spinoff 
applications.
    Infinera is one of the many significant U.S.-based companies that 
is supporting the National Photonics Initiative (NPI), along with five 
leading scientific and engineering societies. Our goal is to partner 
with funding agencies and explore private sector support for these 
proposed solutions. It's critical that the U.S. Government work with 
U.S. industry to resolve the ``the valley of death'' challenge to keep 
this important telecommunications industry within the US.
    Thank you for providing this opportunity for Infinera to voice to 
the Senate Committee on Commerce, Science, and Transportation on 
current and future technical challenges in the United States.
            Sincerely,
                                         Dr. Stephen Grubb,
                                                   Infinera Fellow.
                                 ______
                                 
                                        Finisar Corporation
                                                  November 20, 2013

    Thank you Chairman Rockefeller for organizing the hearing on ``The 
Role of Manufacturing Hubs in a 21st Century Innovation Economy'' on 
November 13, 2013. We at Finisar are convinced that effective 
collaboration between the U.S. Government and industry is vital to 
foster innovation and strengthen the photonics sector in the United 
States, particularly in our industry of telecommunication and 
information technology (IT).
    The IT and telecom industry is estimated to be a $4.7 trillion 
global market accounting for about 6 percent of the total world GDP.\1\ 
Today, approximately 2.5 billion people use the Internet to help them 
in their daily lives. U.S. based companies such as Google, Amazon, 
Facebook, Twitter, Yahoo, Microsoft, and Apple are businesses that are 
critically reliant on the telecommunications infrastructure. These U.S. 
companies have a total market capitalization of approximately $1.5 
trillion and supply over 300,000 jobs.
    Finisar Corporation (NASDAQ: FNSR) is the world's largest supplier 
of fiber optic components. We are a global technology leader for fiber 
optic subsystems and components that enable high-speed voice, video and 
data communications for telecommunications, networking, storage, 
wireless, and cable TV applications. For 25 years, Finisar has provided 
critical optics technologies to system manufacturers to meet the 
increasing demands for network bandwidth. And indeed, the demand for 
network bandwidth is growing at the remarkable rate of 60 percent per 
year, which means that within a decade the telecommunications industry 
will need to expand the Internet bandwidth and data handling capacity 
by a factor of 100. To date, U.S. companies have been leaders in 
supplying the key technologies and innovations, which support the 
current telecommunications/internet infrastructure. However, we feel it 
is important for the U.S. Government to make this a national priority 
and to take concrete actions to preserve this critical technology and 
know-how within the United States of America.
    Historically, the transmission of digital data occurred over copper 
wire but over the past few decades, due to the ever-increasing volume 
of transmitted data, transmission now primarily occurs using light 
transmitted over fiber optic cables. Expanding the transmission of data 
using light (i.e., photons) over fiber cables instead of electrons over 
copper wire has provided the needed increased bandwidth to match the 
demand for transferring ever-increasing amounts of data.
    Currently, much of this transmitted data is directed through data 
centers. One of the major innovation challenges for the 
telecommunication industry is increasing the deployment of optical 
technology for data transfer within these massive data centers. 
Presently, these data centers each incorporate tens of thousands of 
fiber optical cables and as many as 100,000 lasers. The next generation 
of improved optical data interconnects will help provide the 100 fold 
increase in capacity required over the next decade as well as achieve 
major increases in energy efficiency. Today, the IT sector uses roughly 
7 percent of the worldwide electrical power, and this percentage is 
expected to grow substantially over the next decade, making 
improvements in the energy efficiency of data centers a primary goal.
    The most critical component in optical communication is the laser, 
which generates the light that carries the signals. Finisar has laser 
manufacturing facilities in the U.S. (in Texas and California) and in 
Europe (in Sweden). Some of our competitors have moved their laser 
fabrication facilities out of the U.S. to Asia to reduce cost. We 
believe it is important for the United States to retain manufacturing 
capability for these critical components and believe the U.S. should 
work to retain these important facilities in the country.
    Historically, much research for the photonics industry was 
conducted at AT&T Bell Labs, Nortel, and other large telecommunications 
companies at their in-house labs. Over time, those companies focused 
more on software, and many of them dismantled to a large extent their 
large research brain-trusts. All this knowledge and expertise is now 
spread out, from start-ups to universities to industry to government 
labs. As venture capital spending in photonics and telecommunications 
has declined, and as government investment in this space has declined, 
the burden of financing the next generation of photonics research has 
largely fallen on a few publicly traded companies. As the world's 
largest optical component supplier, Finisar has one of the largest 
research and development budgets. However, with fierce competition both 
within the U.S. and abroad, and exploding bandwidth that requires 
tremendous research efforts and hence costs to meet, Finisar has to 
pick and choose what research to fund. We believe that higher level of 
U.S. investment in research and advanced development in photonics is 
critical for the U.S., and should be targeted at products in the next 
3-10 years, funding publicly traded companies as well as universities 
and SBIR/start-ups.
    Finally, we believe it is critical for the U.S. to value and retain 
these high technology photonics research and development (R&D) jobs. 
Companies are increasingly moving knowledge worker R&D jobs offshore to 
decrease costs, which is their fiduciary duty to their shareholders. In 
addition, other countries are actively wooing our new photonics 
technologies and R&D jobs with research grants. We believe the U.S. 
should value this technology and work to retain these skilled R&D jobs 
to retain U.S. leadership in the photonics component industry.
    To this end, Finisar is supporting the National Photonics 
Initiatives, along with five leading scientific societies and a number 
of major U.S. companies.\3\ We feel that the U.S. Government could help 
to ensure that this critical technology is vibrant and that key 
technology, manufacturing, and high skilled R&D jobs are retained in 
the U.S.
    Thank you for providing this opportunity to Finisar to endorse the 
goals of the Senate Committee on Commerce and to encourage the U.S. 
Government to work in concert with U.S. industry to maintain U.S. 
leadership in the strategically important information technology and 
telecommunication industry.
            Sincerely,
                                 Julie Sheridan Eng, Ph.D.,
                    Senior Vice President, Transceiver Engineering,
                                                   Finisar Corporation.

    \1\ Telecommunications Industry Association, ICT Market Review and 
Forecast, 2012.
    \2\ Optics and Photonics Essential Technologies for Our Nation, 
http://www.nap.edu/catalog.php?record_id=13491
    \3\ The National Photonics Initiative, www.lightourfuture.org
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                          Hon. Penny Pritzker
    Question. Secretary Pritzker, as members of the President's Export 
Council you and I have heard from many companies about how we can do 
more to encourage and boost U.S. exports to move our economy forward. 
How do you specifically see these manufacturing hubs helping the U.S. 
increase exports?
    Answer. The National Network of Manufacturing Innovations (NNMI) is 
widely supported by companies, large and small, that believe a stronger 
manufacturing innovation infrastructure will promote competitiveness in 
new products manufactured in the United States for export to other 
countries. By strengthening our ability to competitively scale-up 
innovative technologies by developing the necessary manufacturing 
processes in the United States, U.S. manufacturers will accelerate 
development of new high-value products. The United States will then be 
in a stronger position to innovate the next generations of emerging 
products, and manufacture those products domestically, further 
facilitating the export of goods.
    One example of the effectiveness of such ``Institutes for 
Manufacturing Innovation'' is SEMATECH. In the 1980s, the U.S. 
semiconductor industry was in danger of collapse, with much of the 
industry moving overseas. With an infusion of $500M of matching funds, 
the Defense Advanced Research Projects Agency (DARPA) helped stand up 
SEMATECH, a central research facility where U.S. semiconductor 
companies worked together to develop manufacturing processes that 
accelerated the scale up of computer chips from laboratory to mass 
production. By 2010, according to the U.S. National Science Foundation, 
the United States exported more than $49 billion in semiconductors and 
semiconductor-dependent goods and ran a trade surplus of over $17 
billion in the sector.
    The United States is the envy of the world in basic research and 
invention, with the help of substantial Federal support. The NNMI 
facilitates the transition of inventions to products by expediting the 
development of new manufacturing processes to scale up the production 
of these goods domestically. Without a stronger U.S. ``industrial 
commons'', it would be too risky and expensive for many companies to 
scale-up production in the United States, especially medium- and small-
size enterprises that are directed by private investors to reduce risk 
by scaling up overseas. By strengthening the competitive position of 
U.S. firms, the NNMI will enhance the ability of these companies to 
compete globally and expand exports.
                                 ______
                                 
   Response to Written Question Submitted by Hon. Roger F. Wicker to 
                          Hon. Penny Pritzker
    Question. I, along with several businesses and universities in my 
home state of Mississippi, have been following with interest the plans 
for the National Network for Manufacturing Innovation. Can you briefly 
outline the site selection process and highlight the procedures and 
mechanisms in place to ensure the process is impartial and gives 
meritorious proposals from all regions of the country a fair and equal 
chance to participate?
    Answer. Thank you for your question. In the context of the NNMI 
proposed under current authorization bills, a detailed site selection 
process has not yet been defined. However, our intention is to run a 
full and open competition with external peer review, where the NNMI is 
industry-led. We look to empower U.S. industries to identify where 
their comparative advantage lies and where the need is greatest to 
collaborate in manufacturing innovation institutes. The overarching 
goal is the development of innovation ecosystems supporting 
manufacturing, which is best accomplished by seeking meritorious 
proposals from all regions of the country.
    We envision that the program will promote the competition broadly 
and solicit proposals from all parts of the U.S., holding Proposer 
Conferences and providing other support to potential proposers to 
maximize the submission of competitive proposals for NNMI Institutes. 
Evaluation criteria would include:

   Potential to advance domestic manufacturing by development 
        and scale-up of transformational technologies, which will, in 
        turn, have national impact on economic competitiveness.

   Commitment of continued financial support, advice, 
        participation, and other contributions from non-Federal 
        sources--especially from Industry--to provide leverage and 
        resources to promote stability and sustainability.

   Engagement with small and medium-sized manufacturing 
        enterprises, to improve the capacity of such enterprises to 
        commercialize new processes and technologies.

   Incorporation of education and workforce development plans 
        meeting U.S. industry needs for that topic.

   Engagement of regional organizations, assets and talent to 
        maximize the potential of an existing--or creation of a wholly 
        new--manufacturing hub, which would have national impact.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                            Eric A. Spiegel
    Question. As an AMP 2.0 steering committee member yourself, how do 
other countries' manufacturing hubs give a leg up to our competitors?
    Answer. Senator Klobuchar, I'm happy to serve on the AMP 2.0 
steering committee. Along with Dr. Annette Parker at South Central 
College in your state, I serve as co-chair of the Workforce Development 
Committee. Our committee has made significant progress in identifying 
best practices to promote, including the development of manufacturing 
hubs as one way to address the skills gap component of workforce 
development. At the Youngstown hub, community colleges and universities 
work with industry to develop curriculum needed to address the 
technology education gaps. One country model that I commend to you is 
Germany's Fraunhofer Institutes. Germany has over 50 of these 
institutes. The institutes work in different regions of Germany, with 
industry, the Federal and state government, and universities working to 
build the curriculum, identify the appropriate industry focus, and 
provide resources collectively to spark innovations that can be 
commercialized.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                            Dr. Terry Brewer
    Question. Dr. Brewer, I have visited many companies like yours on 
my Made in Minnesota tour. Companies who could be located anywhere but 
chose to operate in and export from rural Minnesota. How can the 
concept of manufacturing hubs help rural economies and manufacturers 
continue to thrive and become even more competitive?
    Answer. Senator, thank you for that question. More than 30 years 
ago, I founded Brewer Science in a predominantly rural area and I must 
tell you, many people are surprised that we have continued to thrive 
and grow in rural Missouri. However, if you take another look, it's not 
that surprising. Technology has and will continue to connect us more 
and more, which makes business location less and less relevant. For 
this reason, we can then focus on the quality of life for our 
employees. In Rolla, Missouri, where our main facility is located, we 
have access to many activities, experiences and open space not readily 
available to those in other locations. These advantages allow us to 
foster a productive environment that promotes creativity, exploration 
and focus--which benefits our employees, their families and Brewer 
Science.
    With respect to the Brown-Blunt bill, I believe that rural areas 
will have outstanding opportunities to thrive under this measure. I 
know of a number of research universities that are located in rural 
areas; the partnership this legislation encourages between academia and 
industry will create new employment opportunities for workers and the 
next generation of graduates to stay and grow in these communities, 
triggering more economic development and helping them prosper.
    Attracting top talent for high-tech manufacturing jobs continues to 
be a challenge and I believe companies in rural locations have a 
distinct advantage because of the excellent quality of life that these 
communities can provide.

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