Capacity: 21st Century Manufacturing

Spring 2010

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Where Do We Go from Here?

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A deep national recession and an energetic new administration in the White House have spurred the federal government to aggressive economic activism on many fronts – stimulus spending, climate change, health care, tax increases and aid to stabilize the auto companies and financial industry. The pace of action in the nation’s capital today is more intense than I have ever seen before.

There is no question that the dire economic situation called for aggressive action, and the National Association of Manufacturers (NAM) supported the original stimulus legislation. But it is vitally important that we not allow the economic downturn to serve as a pretext for abandoning our traditional reliance on the private sector as the primary engine of economic growth, and it is equally important that we rein in unprecedented budget deficits as quickly as we can to avoid burdening future generations with mountains of untenable debt.

The seriousness of the economic situation cannot be denied. This recession is already in the books as the deepest and longest since the Great Depression that lasted throughout the 1930s. But the situations then and now differ sharply. During the worst of the Great Depression, as many as one in every four workers was unemployed in a time when there was no social safety net to speak of. Each worker out of a job represented a family in dire straits. Millions of Americans are suffering today, but not on that scale. We’re in a recession, not a depression.

In the long term, we need to think beyond the recession to what is needed to restore our nation’s economic vigor and confidence in the future. In their efforts to address the nation’s economic problems, the White House and Congress need to more fully consider the effect of their actions on America’s global competitiveness.

Economic stimulus serves a purpose. It helps keep people working and money in circulation. In the case of infrastructure investment, it can contribute to competitiveness. But every action the federal government takes that imposes new costs, regulations, taxes, and managerial burdens on business makes it more difficult to compete. These actions add up, bill by bill, regulation by regulation, making it ever more difficult for the United States to remain the world’s economic leader when the recession finally ends.

Today we compete in the global marketplace, and global competition is more intense than ever before. Our competitors are working to overtake our economic lead and establish economic dominance. Their strategy is to adopt long-term policies that will make their economies more competitive. They clearly understand what’s at stake and are determined to outperform us.

Meanwhile, here in our own country, we see spending proposals like health care reform that the Congressional Budget Office (CBO) estimates will cost $1.6 trillion and would not come close to providing everyone with health insurance. The prospect of a government-run system competing with the private sector also raises the question whether we will be able to sustain the quality of health care. And the last thing business needs today is more expensive government mandates driving the cost of health insurance even higher.

We see regulatory proposals like cap-and-trade to control emissions of carbon dioxide that by definition will raise the costs of energy. The impact on manufacturing could be severe. Many companies would be forced to relocate overseas. Tens of thousands of jobs would be lost. And as Martin Feldstein, former chairman of the Council of Economic Advisers, said in The Washington Post, since the U.S. share of global CO₂ is now less than 25 percent and falling, the result of this massive expenditure would be to lower global CO₂ output by less than 4 percent.

And we see political proposals to expand the power of labor unions, trial lawyers and unelected bureaucrats. The so-called Employee Free Choice Act (EFCA) in particular would turn traditional labor relations upside down, making it easy for unions to organize more companies and forcing those companies to accept contracts dictated by federal arbitrators. This can only foster animosity between management and labor, raise the cost of production and undermine productivity.

The Chinese character for crisis is a combination of two other characters, one for danger and the other for opportunity. The current economic crisis presents us with an opportunity to pursue a real competitiveness agenda that should include the following:

A comprehensive energy policy: The carbon debate is at its heart an energy debate. If we impose a strict capand-trade regime for carbon without a credible plan to meet the economy’s growing energy needs, the exodus of critical industries could become a flood. The push for renewable fuels is laudable, but our nation’s industry is fueled by coal, oil, natural gas and nuclear power. Federal policies should encourage their exploration and production while also allowing a true renaissance of clean nuclear power.

A pro-growth tax system: Our system of taxation, state and federal, should be seen as a tool to encourage economic growth and job creation, not just fill budget shortfalls. The U.S. corporate tax rate is the second- highest income tax rate in the world (after Japan) and today our government is considering a proposal to impose new taxes on foreign earnings. If we want our private sector to flourish, create jobs and innovation, our tax system must reflect the realities of global competition.

Fostering innovation: To compete in the global marketplace, we must rely on our greatest strength – creativity. Manufacturing is a wellspring of innovation, accounting for two-thirds of all private sector research and development. Yet every year sees a struggle in Congress to renew the modest R&D tax credit. And we must become more aggressive defending intellectual property rights in the international arena, investing the resources needed to deter piracy.

Trade expansion: The United States, which is still the world leader in manufacturing, exports about $60 billion in manufactured goods each month. Exports in recent years have been a major factor in economic growth. In 2008, we had a $21 billion trade surplus in manufactured goods with our free trade partners. Our marketplace is global, and Congress should recognize the opportunities that trade represents.

Equitable labor policies: Labor and human resource policies must strike a balance between the legitimate needs of workers and employers. Extreme proposals such as the EFCA – encouraging forced unionization and government-imposed contracts – would drive up costs, drive out jobs and harm our ability to compete.

Restoring confidence: In the midst of the deepest recession since the Great Depression, it’s important that policymakers act in a way that restores predictability and stability to our economic system. Long-term business and investment decisions, often involving hundreds of millions of dollars, cannot be made in an environment of uncertainty and risk.

We need a spirited public debate of all these issues, but one that appreciates the global context that U.S. business must operate in. By all means, yes, let’s have an energetic, active government – but one that acts on behalf of U.S. competitiveness. That is the key to our nation’s economic future.

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