Obama Places Manufacturing at Forefront of Strengthening Country

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U.S. Manufacturing

As part of the cornerstone to his re-election campaign, President Obama placed American manufacturing on a pedestal, saying that it is the "blueprint to prosperity" for this country. And like a design engineer with specific plans in hand, Obama pointed to innovation, re-shoring, and filling high-tech jobs as key components to manufacturing an improved country.

Studies have shown that Americans ardently support a strong manufacturing industry, both in terms of its role in strengthening the U.S. economy and jobs creation. Obama has put manufacturing in the limelight, hoping that a focus on bringing jobs home, investing in innovation, and addressing the skills gap will not only get the public's attention, but reboot the U.S. economy.

Skills Gap Widening, but Has Administration's Attention

The issue of finding the talent to fill high-tech manufacturing jobs is not new, but has become more pronounced in recent years as most manufacturers have redesigned and streamlined their production lines while implementing more process automation. Obama recently noted that the need to fill high-tech manufacturing jobs has reached a boiling point. "I also hear from many business leaders who want to hire in the United States, but can't find workers with the right skills. Growing industries in science and technology have twice as many openings as we have workers who can do the job."

As an example of how businesses and community colleges can team up, Obama told the story of a single mom from North Carolina who, after being laid off as a mechanic, attended a community college for laser and robotics training through a program and was later hired by Siemens to work at its new gas turbine factory. The relationship between Siemens and the Central Piedmont Community College should be used as a model, the president said, for colleges and companies to team up and become "community career centers" that teach people skills that local businesses are looking for, especially in high-tech manufacturing.

The National Association of Manufacturers (NAM) zeroed in on workforce issues as part of its recent report outlining four goals for economic growth, calling for nationally-portable, industry-recognized skills credentials that will provide employers with national skills certification to verify they are hiring a skilled, technical workforce. NAM also called for an investment in science, technology, engineering, and mathematics (STEM) education to equip the 21st century workforce to adapt to new technologies and a rapidly evolving manufacturing process.

With a national 8.1 percent unemployment rate, it's hard to believe so many people are still looking for work while manufacturers are pressed to fill jobs, said Chad Moutray, chief economist for NAM. "We need to do a better job convincing young people coming out of high school and college that it's a high-paying, high-skilled job that's not the stereotype that a lot of people have when they think about manufacturing," he said, adding that NAM has a skills credentialing program in which they work with community colleges around the country. The effort needs to be encouraged at the federal, state, and local levels in order to be effective, and, as a nation, there needs to be an educational focus on the value of science, technology, and engineering careers. "President Obama himself endorsed our skills certification program last June at Northern Virginia Community College, so I think that helps. But also having government officials out there talking about the importance of manufacturing is also helpful," he said.

Trade organizations, such as the National Tooling and Machining Association (NTMA) and the Society of Manufacturing Engineers (SME), have worked hard to address the skills-gap issue, said Michelle Nash-Hoff, an industry expert who has written extensively on manufacturing issues in the press and is the author of the book, Can American Manufacturing Be Saved?

"They all have extensive programs and are working with the community colleges. But right now, all of the budget cuts at the state and local level are hurting that kind of education," she said from her office in San Diego, where she also works as a manufacturing representative. "We need to have more support for going to the community colleges to get specific training," she noted. "If we don't provide the training for them to get real jobs that industry needs, then we will continue to have a skills gap. Project Lead the Way is leading an effort to get middle school and high school students interested in manufacturing and engineering careers."

The federal government can set the tone for state and local government, but federal dollars get too filtered down to create much direct support, she said. The Manufacturing Institute, an affiliate of the National Association of Manufacturers (NAM), recently launched a five-year program to award 500,000 industry-based credentials that will position individuals to fill high-demand manufacturing jobs. During the past year, the Institute has awarded 84,738 certifications to high school and college students to work towards filling the approximately 600,000 manufacturing jobs that go unfilled today.

Innovative Steps Taking Hold

Noting that "innovation is what America has always been about," Obama cited it as the driving force behind job creation, global competition, and economic growth. Government-supported research and development can help create new jobs and new American industries.

"Most new jobs are created in start-ups and small businesses," Obama said in a recent speech to the nation. "So let's pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. Expand tax relief to small businesses that are raising wages and creating good jobs."

Last March, Obama proposed setting aside $1 billion to create a new National Network for Manufacturing Innovation (NNMI), in which up to 15 Institutes for Manufacturing Innovation (IMI) "hubs" around the country will bring together industry, universities and community colleges, federal agencies, and states to accelerate innovation by investing in industrially-relevant manufacturing technologies with broad applications to bridge the gap between basic research and product development. It will provide companies, particularly small manufacturers, access to cutting-edge capabilities and equipment, and educate and train students and workers in advanced manufacturing skills.

The President's budget for the fiscal year 2013 proposes the $1 billion investment by the National Institute of Standards and Technology (NIST) to create the new NNMI. The Innovation Network will be a collaboration involving the Departments of Commerce, Defense, and Energy, as well as the National Science Foundation, but requires congressional authorization. To strengthen the information base for Congressional consideration, participating agencies led by NIST are leading a series of "Designing for Impact" workshops this year, including a workshop at Rensselaer Polytechnic Institute in Troy, N.Y., last April and another at Cuyahoga Community College in Ohio last July. Workshop participants, including representatives from industry, academia, state and local government, and economic development organizations, discuss the principles and concepts behind the NNMI in order to decide how to best structure the network and the IMI hubs.

"There are different ways to organize each of these hubs," said Mark Bello, head of NIST public affairs. "And what people are suggesting in these workshops and from responding to these requests for information we hand out, they're suggesting topics or technology focuses for the hubs."

As examples, Bello said the administration has highlighted several areas of innovation that could benefit from the innovation network, based on responses. These include developing lightweight materials, such as low-cost carbon fiber composites (CFCs) that will provide fuel efficiency, performance, and corrosion resistance for the next generation of automobiles, aircraft, ships, and trains. They also include refining standards, materials, and equipment for 3-D printing to enable low-cost, small-batch production using digital designs that can be transmitted from designers located anywhere. Another area of innovation is to create a smart manufacturing infrastructure that lets operators make real-time use of "big data" flows from fully-instrumented plants in order to improve productivity, optimize supply chains, and improve energy, water, and materials use.

Also in March, Obama set up a new public-private partnership that will deliver $4.5 million in grant funding to help small- and medium-sized manufacturers in the Midwest compete in a global economy. Some of the grant money--$2 million from the Commerce Department's Economic Development Administration (EDA) and $2.5 million from private-sector partners--will be used to form the National Digital Engineering and Manufacturing Consortium to develop software, purchase time on supercomputers, and train small- and medium-sized manufacturers in the use of this technology. The goal of the initiative is to foster collaboration between large manufacturing firms and their small- and medium-sized supply chain manufacturers and provide advanced manufacturing modeling and simulation resources that use high-performance computing (HPC) technologies.

One goal out of NAM's four-point plan for economic growth and jobs to make the U.S. more globally-competitive is to become the world's leading innovator. In its "Manufacturing Renaissance" report, NAM warns that "other nations are eager to take our place (as world's leading manufacturer) and are establishing R&D incentives that are far more attractive than those offered by the U.S." One of the initiatives NAM calls for in order to strengthen innovation is to increase the current simplified Research and Experimentation Tax Credit (R&D tax credit) to 20 percent and make it a permanent part of the tax code.

"The challenge with the R&D tax credit is we keep turning it on and turning it off. It has already expired at the end of last year. We're hopeful it can be restored because it's one of the tools that helps keep us competitive. It's something a lot of manufacturers continue to count on," said NAM's Chad Moutray. A permanent R&D tax credit is essential, he said. "It has to continually be upped to be renewed. It has expired, and if you're planning over the next few years and don't know whether that R&D tax credit will be there or not, you have to simply assume. Whether or not it will be there adds a level of uncertainty to your calculations."

It is important to set up an R&D tax credit in order to help keep companies from offshoring, Nash-Hoff said. "There are companies now setting up R&D in other countries because the reality is you need to have your R&D near your manufacturing," she explained. "It (tax credit) is critical. The rule of thumb is you have to know how to make something to know how to make the next generation of it."

The President has proposed to make permanent the Research and Experimentation Tax Credit while enhancing and simplifying the credit. About 70 percent of the benefit directly supports jobs in the United States, and every dollar spent encourages U.S.-based investment as only research and experimentation in the United States is eligible.

Strengthening the Office of IP Enforcement is important to supporting innovations as well, Moutray said, adding that the U.S. IP is worth more than $5 trillion and the continuing global trade in counterfeit products results in the loss of hundreds of thousands of U.S. jobs annually.

"The government must continually protect IP," he said. "I think that anything we can do to make sure the patent trade mark office operates efficiently and effectively is important. They have a huge time lag there. I think anything we can do to make sure it happens as fast as it can, should be done. And to make sure our IP is protected globally is certainly in the manufacturer's best interest," Moutray said.

Benefits for Reshoring Companies on Agenda, Including Tax Breaks

President Obama made an appeal to business leaders to bring jobs back from overseas, saying the movement to bring manufacturing back to America is growing and that business owners should "seize" the opportunity. Saying he refuses to go back to an economy weakened by outsourcing, the President said his blueprint for an economy that's built to last should be built on "American manufacturing, American energy, skills for American workers, and a renewal of American values."

"We have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed," Obama said in his State of the Union address earlier this year.

What that entails, the president stressed, is to stop giving tax breaks to companies that outsource jobs and start using that money to cover expenses for companies who "decide to bring jobs home."

Obama was quick to point out that the rebirth of the U.S. automobile industry has created about 160,000 American jobs, with General Motors back on top as the world's leading automaker and Ford having recently reshored about 12,000 jobs from Mexico, China, and Japan. Ford also plans on investing $16 billion in the U.S., including $6.2 billion for Ford plants in the U.S. to develop new and redesigned vehicles by 2015.

Recent reports, including one by the Boston Consulting Group, have noted a "manufacturing renaissance" in which re-shoring is gaining momentum in the U.S., projecting that within the next five years, the U.S. will become a low-cost country for manufacturing, creating up to three million U.S. jobs.

"I think what really has changed is that the U.S. is now seen as a viable option for locating a facility, whereas a few years ago, it might not have been," NAM's Moutray said. "What will be the deciding factor, though, is all of those other factors besides labor that kind of fill themselves into where you locate: the tax environment, and the regulatory environment. All of those conditions matter on the margins."

Obama has called for a number of tax initiatives that will matter on the margins, including the removal of tax deductions for shipping jobs overseas. The tax code currently allows companies moving operations overseas to deduct their moving expenses and reduce their taxes in the U.S. as a result. Obama is proposing that those deductions be denied while giving a 20 percent income tax credit for the expenses of moving operations back into the U.S. to help companies bring jobs home. He is also supporting corporate tax reform, closing loopholes, and making companies who ship jobs overseas pay a minimum tax for profits.

"We have the highest corporate tax rate in the world now, and that certainly puts us at a disadvantage," Moutray said, adding that the U.S. is also at a disadvantage because it taxes income globally regardless of where it was earned. "We need to switch to a territorial tax system as a result," he said. "When I talk to a lot of manufacturers, they're sitting on a lot of cash overseas that they have no intention of bringing over to the U.S. because if they brought it in, they'd have to pay a huge tax penalty to do so."

"I agree with having a territorial tax so you're not double taxed, which is what's happening right now," said Nash-Hoff. "They're (companies) keeping it where the taxes are lower, but my recommendation is to reduce the corporate taxes to 25 percent because that's where studies have been done to show that's the most effective tax rate for generating enough revenue and for generating compliance where people are not trying to avoid it."

Nash-Hoff went on to add that it is important to simplify the tax code and close loopholes. "I was just outraged when I found out we're giving tax incentives to offshoring. I mean that's just unbelievable," she said. "We need to get back to strengthening the Buy American requirements, especially for federal procurements for our defense departments and military. They were weakened back in 1993-94. We need to strengthen those, and if companies buy American, it will strengthen American manufacturers. We have put industries out of business because we've relaxed the Buy American requirements."

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