Manufacturing and U.S. Competitiveness

An Interview with Deborah L. Wince-Smith, President and CEO of the Council on Competitiveness

As president and CEO of the Council on Competitiveness - a coalition that includes leaders from business, labor and academia - Deborah L. Wince-Smith speaks about her organization's work to make the United States more competitive globally.

What has been the response to the report, MAKE: An American Manufacturing Movement? What effects are being felt from it?

The critical importance of manufacturing as a driver for future U.S. prosperity, economic growth and national security cannot be overstated. For some time, there was the view that we could focus on high-end design and advanced R&D and outsource manufacturing to the rest of the world because of a lower wage strategy. That thinking has now been debunked; productivity gains at home and the rising cost of doing business abroad, among other things, have shifted the focus to domestic manufacturing, and the Council on Competitiveness has played a very important role in that change. If we do not maintain advanced manufacturing throughout the nation's industrial base, we will lose our next generation innovation capacity and will see a lower standard of living.

We were very pleased that President Obama made manufacturing a big part of the 2012 State of the Union address. There are initiatives in the administration now as well as in both parties in congress related to opportunities for manufacturing.

The Council has played a role. Two years ago, as part of our emphasis on manufacturing, we released the first ever study, which we did with Deloitte, about what global CEOs are thinking about manufacturing competitiveness. Those concepts, in an overall strategic sense, were center stage in the State of the Union address.

There is a big thrust right now, which is very exciting, to take the recommendations of our report, "Make: An American Manufacturing Movement," across talent, technology, investment and infrastructure, and actually work at the state and regional level with Council members - our university presidents, our CEOs and our labor leaders, in addition to our nation's lab directors - to begin to develop regional hubs for this manufacturing transformation.

One of the important contributions we've made in the report and in this work is to paint a picture of what 21st century manufacturing is. It is not just the mid-20th century work of making something in an assembly line environment with standardized skills and commodity output. We're talking about today's most advanced modeling and simulation tools, automation and intelligence in the actual design and fabrication of things. It's a really exciting convergence of technology, operations and new business processes.

As an example, a company like Walmart is in effect a manufacturer because it is determining, through its huge market demand and supply chain, a lot of the parameters and standards about how things are going to be made and designed and what some of their features will be. That demand-driven part of manufacturing is very important. In the past, manufacturing was very much separated, in a silo, away from core ideation, concept, design and R&D. You'd make a prototype and it would be thrown over the fence to someone to manufacture. That's still true in some industries and companies where they finish a prototype and then outsource it to contract manufacturers all over the world. But, increasingly, the advanced players are integrating all of the process.

What is the most important "Make" report recommendation to advance the competitiveness of U.S. manufacturing?

Overall, I think the most important report recommendation is that we have to move away from a capital cost and regulatory environment, that focuses on consumption and the short term, to an innovation-centric environment that rewards and provides incentives for long-term investments and deployment at scale. That recommendation gets into tax issues and regulatory issues that, according to our work, demonstrate - in spite of the U.S. advantages in talent and R&D - our very noncompetitive capital cost structure and regulatory environment vis-à-vis our global competitors. In the near term, this is a really critical recommendation: that we enact fiscal reform, transform our tax laws and reduce the regulatory and structural costs that impede job creation and advanced manufacturing deployment here.

We have very specific recommendations for the longer term, and the administration is moving on reducing the corporate tax rate and some other things, but we still have a punitive double taxation of revenues and profits for goods that are made outside the United Sates. There is more than $1.3 trillion of overseas profit from U.S. companies that is not being repatriated back to the United States because of our double taxation system.

The other really important priority is to focus again on efforts to double our exports and reduce the trade deficit. Part of that is in the standards base. In addition, longer term issues that relate to R&D, investment, our talent and workforce are absolutely critical, but change is not going to occur overnight.

The manufacturing imperative is so important to our nation's prosperity and national security that, at the Council, we're working on this as a nonpartisan, nonlobbying, nontrade association. The Council on Competitiveness is unique in bringing together university presidents, CEOs and labor leaders - and partnering with lab directors - to work toward political consensus around some issues that we can and need to address now. We don't need to have product liability laws that are pulling more than 2 percent of the gross domestic product out of our economy. We don't need to have the highest capital cost and innovation-hostile investment climate in the United States. Republicans and Democrats are going to have to come together and each give up some of their sacred cows so that we can move forward as a country.

We chose to call this a manufacturing movement because we have to work together so that all Americans realize manufacturing is not dirty, dumb, dangerous and disappearing. American manufacturing is smart, safe, sustainable and surging. Manufacturing careers, whether you're a skilled welder or operating an incredibly sophisticated piece of robotics in a fabrication center, are fabulous careers. The jobs will be different than the jobs today, but they're going to be high value jobs if we do this right.

How do standards lead to improved competitiveness? What are the key MAKE recommendations with regard to standards?

In a broad sense, the report covers the whole set of issues about how countries use standards to advance industry; it also covers nontariff barriers. We call for a more robust, accelerated, public-private partnership with the private sector in the leadership role to begin to develop, in an aggressive, accelerated way, standards for next-generation manufacturing processes and materials so that we are ready as those products move into the global marketplace.

Standards relate to intellectual property as well, and the report contains strong recommendations on dealing with intellectual property on the reform side, but also very important, how it is treated with our global trading partners, which includes increasing intellectual property protection through the Anti-Counterfeiting Trade Agreement.

Some time ago, Japan actually required government procurement of infrastructure with standards that they set to support their industry. That was really a violation of World Trade Organization agreements. Such situations also enable the advancement of the strategy that the Chinese have called indigenous innovation - their way of saying that for their industrial investment and growth, China wants to use Chinese-developed products and companies. One of our recommendations is that China and other rapidly advancing countries should adhere to WTO disciplines with regard to government procurement, the standards process and IP protection.

Our report shows that the diversity and consensus-based solutions of the private sector-led standards system is part of our strength. When you have too much government involvement in setting standards, you also undercut innovation. I'll give you an example. Some years ago, we were dealing with the whole transition to high definition television, and there was a big effort from the companies that wanted to push analog systems to have the government to adopt their standards. At the same time, others felt that the government shouldn't be picking winners and losers. What ultimately happened is a wonderful example of the public-private partnership. What the government did, through the U.S. Securities and Exchange Commission, was say that the future standards should be digital, but it didn't dictate beyond setting that hurdle. It unleashed a huge amount of innovation and competition to go to digital.

Today, we need to be moving aggressively to consensus on standards in emerging areas - everything from electric vehicles to cybersecurity and renewable energy. I think that cybersecurity is one area where, to the extent that we can lead the standards-setting process and establish consensus, standards will have a huge impact on manufacturing and the security of supply chains because cyberthreats now exist in every economic activity.

Standards need to be elevated at the board level and to the attention of CEOs. We need to ensure that we have a good set of incentives and rewards to encourage bright, technology-savvy young people to get into the standards-setting enterprise.

Emerging economies are developing significant manufacturing and innovation capabilities. What lessons might the United States learn and apply from other nations?

I think the most important lesson that we should learn and apply is one that most countries around the world understand: if you do not make things, you lose the ability to grow your talent and move to higher value activities.

Countries all over the world, whether Brazil, Singapore, Turkey, or others, have very sophisticated public-private partnerships to attract high value investment for manufacturing and infrastructure development. At the same time, these countries are moving ahead very aggressively to train their work force and create a regulatory environment to attract companies worldwide when they look for places to establish next-generation facilities, in addition to being very important markets. We have had a much more laissez faire attitude in the United States; we are just now beginning to increase a focus on efforts to invest in America.

Another factor is most countries have sophisticated and capitalized national development and infrastructure banks. We have the Export-Import Bank of the United States, which supports loan guarantees for exports and is very important, but we don't have any capacity for an infrastructure bank to contribute to the long-term, extremely large investments required for increasing our advanced manufacturing infrastructure capacity.

For example, the Brazilian development bank - BNDES - regularly disburses more, on an annualized basis, than the World Bank. It is capable of taking startup companies and rapidly scaling them. In the United States, we have a fabulous engine of startup capacity, but startup companies have to move through various rounds of venture capital funding that take a long time unless the company can create a huge market overnight. That situation really affects how we can grow and develop technology in the United States to deal with the greatest challenges and opportunities facing our nation.

Large multinational corporations often make headlines and garner extensive press coverage, but what role should small- and medium-sized enterprises play in the continued transformation and success of U.S. manufacturing?

Small- and medium-sized enterprises are absolutely critical parts of the supply chain as well as important innovators for game-changing technologies and capabilities.

We need to ensure that we have a capital and regulatory environment that accelerates SME development and to forge closer partnerships between large enterprises and small and medium firms in the supply chain and as marketing partners. That's a place where I think we're weak in the United States.

One of the things we have highlighted and are working on is a project we co-created: NDEMC, the National Digital Engineering and Manufacturing Consortium. The project involves four original equipment manufacturers - Lockheed Martin Corporation, Deere & Company, General Electric Company, and Procter & Gamble - who are investing in an economic development partnership with the federal government to propagate modeling and simulation tools through the supply chain of these companies' small- and medium-size suppliers in the Midwest. We're already seeing tremendous success with new product orders, job creation and more, in just six months. That model is going to be extended throughout the country.

Deborah L. Wince-Smith is president and CEO of the Council on Competitiveness, Washington, D.C., the distinctive group of industry, university, and labor leaders dedicated to driving U.S. innovation and economic growth, and raising living standards for all Americans.She also serves on the board of directors of NASDAQ-OMX Inc., the Oversight Board of the Internal Revenue Service and the U.S. Department of State's Advisory Committee on International Economic Policy. Wince-Smith previously held federal government positions in science, technology policy and international economic affairs.

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