Revitalizing U.S. Manufacturing: What’s It Going To Take?

1. April 9, 2013 Revitalizing U.S. Manufacturing: What’s It Going To Take? Dr. Rob Atkinson President, ITIF ratkinson@itif.org

2. The Information Technology and Innovation Foundation (ITIF) is a Washington, D.C.-based think tank at the cutting edge of designing innovation policies and exploring how innovation will create new opportunities to boost economic growth and improve quality of life. ITIF focuses on: Innovation “verticals”: energy, life sciences, telecom, manufacturing, and Internet and IT transformation Innovation “horizontals”: trade, tax, talent, and tech policy “Innovation economics” as an alternative to mainstream economics

3. Today’s Presentation Where are we? 1 2 What should we do? 3 How to get it done? 3

4. Dramatic Manufacturing Job Losses in the 2000s

5. : Worse Than Most Competitors (1997-2010) Source: Worse Than the Great Depression, ITIF, 2012

6. Because US Manufacturing Value Added Fell, 2000-2010

7. 13 of 19 Manufacturing Industries Producing Less in 2010 Than in 2000

8. And Growth in Manufacturing Capital Stock Stalled

9. With Manufacturing’s Share of U.S. Profits Declining

10. As the U.S. Trade Deficit Exploded Source: Innovation Economics, ITIF, 2012

11. What Reshoring Miracle? Manuf trade balance worsened by 11% between 2010 and 2012. 3) Foreign capital flowing into U.S. manufacturing increased by 6% between 2010 and 2011 while U.S. capital to foreign manufacturing industries increased by 28%. Just 10% of U.S. manufacturing job growth from US manuf reshoring. (Harry Moser, Reshoring Initiative) Manuf jobs down 3,000 in March.

12. Today’s Presentation Where are we? 1 2 What should we do? 3 How to get it done? 12

13. Three Major Camps Do Nothing Since Manufacturing Doesn’t Matter

14. Three Major Camps 2. Manufacturing Matters; we Just need to Get the “Business Climate” Right If we just get our costs low enough, American manufacturing will be fine

15. But U.S. Manufacturing Lags in Technological Intensity Manufacturing Sector Composition by Technological Intensity

16. And Manufacturing Costs Are Not Higher Source: Numbers Based on Analysis of Data from on MAPI and Manufacturing Institute 2011 Report on The Structural Cost Of U.S. Manufacturing. October, 2011

17. Three Major Camps 3. Manufacturing Matters; But We Need to Compete through innovation and productivity

18. What To Do: We Need a “RAFTTTT” • Regulatory reform • Analysis • Financing • Technology • Tax • Talent • Trade

19. U.S. Lacks an Institutional Framework for Pre-competitive, Industrially Relevant Applied Research

20. Approach Being Increasingly Adopted Internationally • Germany invests $2.5 billion/yr in Fraunhofer System • 60 Centers and 18,000 staff for 80M Germans • Japan’s New $117B Stimulus Package (1/10/13) • $2 billion to promote university-industry collaboration, including $ to equip universities to conduct industrially relevant research • UK Catapults (January 2013) • £1bn investment in technology and innovation centers • The High-Value Manufacturing Catapult will be “a catalyst that transforms brilliant manufacturing ideas into valuable products and services” • Finland’s SHOKs (Strategic Centers of Science, Tech, and Innovation)

21. We Need a National Network for Manufacturing Innovation • 15 Manufacturing Institutes accelerating innovation by investing in industrially relevant advanced manufacturing sectors and technologies with broad applications. • Mission: Enhance U.S. industrial competitiveness by supporting development of technologies enabling U.S. production facilities to gain global market share. • Pilot Institute

22. What NNMIs Would Do • Provide a platform for joint pre-competitive applied research; • Develop sector & technology-specific roadmaps that identify technical hurdles and work to solve them; • Provide shared facilities for rapid prototyping and demonstration; libraries & databases; and validation and testing equipment; • Develop and disseminate training technologies/curricula; support credentials, certifications, and skills standards development; • Help restore the industrial commons in key manufacturing product and process technologies.

23. NNMIs Could be Established Across a Range of Key Cross-Cutting Technologies • Advanced Materials/Composites • Additive Manufacturing • Bio Manufacturing and Bioinformatics • Nano-Manufacturing • Flexible Electronics Manufacturing • Industrial Robotics • Advanced Forming/Joining/Welding Technologies • Advanced Sensing, Measurement, & Process Control • Visualization, Informatics and Digital Manufacturing Technologies • Advanced Manufacturing & Testing Equipment • Chemical Processing

24. Technology: Designate 25 Manufacturing Universities • Revamp engineering programs to focus on manufacturing engineering and work that is more relevant to industry. • More joint industry-university research projects and student training incorporating manufacturing experiences (co-ops). • Receive annual award of at least $25M from NSF plus priority on universities’ applications for NSF grants.

25. Technology: Ramp up ERC & I/UCRC programs • Get more ERCs & I/UCRCs focused on manufacturing: ▫ Currently only 4 of 17 ERCs and 7 of 56 I/UCRCs are. • Double funding for both programs. • Require all ERCs to have at least a 40% industry match by 2017 or lose their federal funding.

26. Technology: Increase Funding for MEP Despite positive returns, U.S. underinvests in MEP compared to peer countries (and historical U.S. levels). Country Investment in Manufacturing Extension Services as Percent GDP

27. Talent Policies • Increase adoption of industry-recognized, nationally portable credentials, such as those produced by the MSSC. • Fund more engineering fellowships and co-op programs between universities and industry.

28. Tax Policies • Accept that Corporate Tax Reform will cost money, at least when scored statically. • Preserve and enhance key manufacturing tax incentives (e.g., R&D tax credit; accelerated depreciation; domestic production deduction). • Implement a quasi-incremental American Innovation and Investment Tax Credit.

29. Trade Policies • Get much tougher on foreign “innovation mercantilists.”

30. Conclusion: Smart Policies Matter 30% of all German companies attribute their innovations “to improved research and innovation policies at the federal level.”

31. Thank you Robert Atkinson ratkinson@itif.org Follow ITIF: Facebook: facebook.com/innovationpolicy Blog: www.innovationpolicy.org YouTube: www.youtube.com/user/techpolicy Website: www.itif.org Twitter: @robatkinsonitif