MANUFACTURING A Comprehensive Strategy to Address IN the Challenges to U.S. Manufacturers AMERICA U.S. Department of Commerce Washington, D.C. January 2004 ISBN 0–16–000000–0 For sale by the U.S. Government Printing Office, Superintendent of Documents Internet: http://bookstore.gpo.gov Telephone: (202) 512–1800 Mail: Stop SSOP, Washington, DC 20402–0001 Stock number: 003–009–0073X–X Federal Recycling Program Printed on recycled paper January 2004 2 U.S. DEPARTMENT OF COMMERCE Contents Introduction ................................... 7 One Competing—and Winning—in a Global Economy ............................... 13 Two Challenges Facing American Manufacturing ................................. 33 Three Recommendations and Next Steps ...................................... 59 Appendix List of Manufacturing Roundtables and Participants ................................ 81 MANUFACTURING IN AMERICA 3 Message from the Secretary of Commerce President Bush is committed to making sure every American who wants to work can find a job. In the third quarter of 2003, the U.S. economy grew at 8.2 percent—the strongest growth in nearly 20 years. Over the past five months, more than 250,000 new jobs have been created and the December 2003 unemployment rate of 5.7 percent was significantly below the 30-year average of 6.4 percent. Thanks to the President’s pro-growth policies, America’s economy is strong—and growing stronger. The recent economic downturn hit the U.S. manufacturing sector particularly hard, but now our manufacturers are beginning to experience the benefits of the President’s pro- growth policies. Factory activity is at its highest level in 20 years and new orders are at the highest level since 1950. Strengthening American manufacturing is a top priority for the President. America's manufacturers provide our nation and our people with good jobs, a better quality of life, and inventions that have established our national identity. Manufacturing is the backbone of our economy and the muscle behind our national security. To make sure the administration is doing everything possible to help American man- ufacturers, last year I ordered a comprehensive review of our manufacturing sector. Our goal is to help the American manufacturers compete and win in the 21st century. Through the Manufacturing Initiative, we will redouble the administration’s efforts on behalf of the millions of Americans who work in the manufacturing sector. The Initiative organized over 20 public roundtables to solicit input from American manufacturers. Our question was simple: How can government help manufacturers compete? This report includes a series of recommendations aimed at unleashing the full potential of American manufacturers. It is an important first step toward strengthening American manufacturing and creating new jobs. In the coming weeks and months, the Department of Commerce will continue to work with manufacturers, other state and federal agencies, and Congress to help U.S. manufacturers become more competitive in the global marketplace. American manufacturing has a rich history. After traveling the country and meeting with hundreds of factory workers, executives, and experts, I am confident it will have an equally rich future. Donald L. Evans Secretary of Commerce MANUFACTURING IN AMERICA 5 Introduction American manufacturers are a cornerstone cutting-edge manufacturing techniques. of the American economy and embody Perhaps most importantly, productivity in the best in American values. They enhance manufacturing has continued to rise sig- U.S. competitiveness while improving lives nificantly. domestically and internationally. Even as U.S. manufacturers engage in APresident Bush’s concern for the men global competition with singular and women who work in manufacturing strengths, they also face unprecedented and the critical contribution they make challenges. These challenges are both to the U.S. economy is the driving force cyclical and structural. The most recent behind this report. Manufacturers are full recession in the business cycle—a down- partners in the effort to build the future turn that first began to be felt in 2000— of the country in the marketplace for new hit U.S. manufacturers and their workers products and ideas. Simply put, a healthy hardest. Output fell 6 percent in manu- manufacturing sector is key to better jobs, facturing even though the recession was fostering innovation, rising productivity, relatively shallow overall. Employment and higher standards of living in the fell by 2.6 million jobs in manufacturing, United States. accounting for all of the net job losses The United States is the world’s lead- from the fourth quarter of 2000 through ing producer of manufactured goods. the third quarter of 2003. Standing alone, the U.S. manufacturing Today, as the overall U.S. economy sector would represent the fifth-largest expands strongly, much of the manufac- economy in the world—larger than turing sector continues to operate well China’s economy as a whole.1 The U.S. below its previous peak. For example, manufacturing sector also leads in inno- while automobile production remains vation, accounting for more than 90 per- strong, many of the industries that sup- cent of all U.S. patents registered annu- port this production, such as the machine ally.2 Investments in technology create tools and tool and die industries, con- new industries and careers in manufactur- tinue to lag behind the rest of the econ- ing as U.S. firms introduce products and omy by a wide margin. As difficult as the recession has been for U.S. manufacturers, the sector faces MANUFACTURING IN AMERICA 7 even more significant structural chal- create the economic conditions that foster lenges from the effects of rapidly chang- a healthy and competitive manufacturing ing technology and adjustment to a sector and spur economic growth? What global economy. Barriers to trade have are the best means of removing the im- fallen rapidly over the past decade. Inno- pediments that government action has vations in communications, computing, contributed to in the form of increased and distribution have accelerated the de- energy and healthcare costs and high or sign, production, and delivery of goods. distortionary tax and regulatory compli- Improved production processes have ance burdens that make it harder for U.S. spread rapidly throughout the world. Pri- manufacturers to attract investment and vate investment now flows largely unim- compete? How can government policy peded across national borders as investors foster an environment in which American seek the highest rates of return. All these manufacturers and their workers are the factors equate to unprecedented global best trained in the world? And, equally competition for capital and markets. Be- important, how can America ensure that cause manufactured goods make up the success in the global marketplace is based bulk of international trade, the competi- on economic strength, rather than on tion is especially strong. Taken together, government intervention that creates arti- the effects of technology and globaliza- ficial advantages? tion accelerate the competitive pressures The Manufacturing Initiative to lower costs and increase productivity. In a March 2003 speech to the Na- The challenges facing U.S. manufac- tional Association of Manufacturers in turers raise important questions for both Chicago, U.S. Secretary of Commerce industry and government. For industry, Donald Evans launched the Manufactur- the question is how best to reinforce the ing Initiative to begin answering those sector’s strengths and maintain its com- questions. Secretary Evans called for a petitive edge in an increasingly competi- comprehensive review of issues affecting tive global economy. The competitive the competitiveness of the U.S manufac- pressure on U.S. manufacturers has forced turing sector. The goal of the review was them to cut costs, to adopt lean manufac- to develop a strategy designed to ensure turing techniques, and to implement “that the government is doing all it can to quality assurance programs that guarantee create the conditions” necessary to foster zero defects in production. Innovation in U.S. competitiveness in manufacturing products, processes, and services has be- and stronger economic growth at home come a key determinant for success. and abroad. Fostering a competitive manufactur- Secretary Evans directed the U.S. De- ing sector also requires a different way of partment of Commerce to seek the help of looking at government policy. The right American manufacturers themselves in policies in Washington, D.C.—and across identifying the roots of the manufacturing the nation—can unleash the great poten- sector’s current challenges and the specific tial of the U.S. economy and create the obstacles that government policy might conditions for growth, prosperity, and job pose to U.S. manufacturing competitive- creation. For government, the ultimate ness. To that end, the Department of question is whether the actions that it Commerce held over 20 roundtable events takes help or hinder American manufac- with manufacturers, in which the advice turers as they compete in global markets. of individual attendees was sought and What steps should government take to obtained. These nationwide discussions included representatives from the aero- 8 U.S. DEPARTMENT OF COMMERCE space, auto and auto parts, biotechnology, Paper Association, Motor and Equipment semiconductor, chemical, pharmaceutical, Manufacturers Association, Aerospace In-