Manufacturing: Driving Growth at Home and Competition Abroad, Remarks by David Chavern Chief Operating Officer U.S. Chamber of Commerce

As Prepared for Delivery

USCC November Board Meeting

The Outsize Impact of Manufacturing

Thank you, Ed. And good morning everyone.

A few months ago, Tom Donohue asked me to spend some time focusing on an issue that is vital to our domestic economic strength and imperative to our competitive standing in the world—manufacturing.

Manufacturing isn’t just another business sector—it has an outsize impact on our broader economy and influences the environment in which we all operate.

It generates $1.7 trillion in value each year—equivalent to nearly 12% of our GDP.

About 12 million Americans—or 9% of the workforce—are directly employed in the manufacturing industry.

And for every 100 direct jobs, manufacturing supports about 58 indirect jobs. Millions of Americans work in industries that supply, support, or serve manufacturers.  So we are easily talking about at least 20 million jobs that are currently dependent on the U.S. having a vibrant manufacturing sector.

The sector also drives more innovation than any other. U.S. manufacturers are responsible for two-thirds of all private R&D in the country.

Many other business sectors derive benefits from the advancements and innovations being pioneered by manufacturers.

Manufacturing is simply vital to our entire economy.

That’s why the Chamber must be engaged … and that’s why the business community should care about the state of American manufacturing and put some serious thought and effort into vastly expanding it.

Surveying the State of U.S. Manufacturing

To have a thoughtful dialogue about its role and future of manufacturing, we need to have a clear view of what it is…and what it isn’t.

We need some truth-telling and some myth-debunking in a debate that is often muddled by political interests and even nostalgia.

Misconceptions about manufacturing abound. One is the myth that we don’t make anything in America anymore.

Those who believe that often see the broader world as more of an economic threat than an opportunity—and that’s a mindset for failure in our global economy.

In reality, we still make a lot in America.

U.S. manufacturing output on a value-added basis actually rose by 73% between 1993 and 2011.

And in 2011, at 4% growth, U.S. manufacturing output grew at more than twice the rate of the overall economy.

The United States remains the world’s largest manufacturer, accounting for 21% of world manufacturing value added in 2010—a share greater than that of China, India, Brazil, and Russia combined.

So why do so many people think that American manufacturing is in decline?

Because manufacturing jobs have dropped sharply from the 1979 peak of 19.5 million to a new low of 11.4 million jobs in 2010.

Where did those jobs go? Mostly to a country called “productivity.”

Technological advancements and automation have enabled firms to boost output even as some have cut payrolls.

These advancements are allowing us to make high-value-added products that drive growth, innovation, and competitiveness.

But they have also shifted the industrial labor market and fundamentally altered the concept of a “good manufacturing job.”

For earlier generations, unskilled workers could count on making a stable living at a factory. Today those opportunities are disappearing.

Factory jobs are wonderful and we want a lot more of them in the U.S., but we need to understand that in the future most will require advanced skills and training.

Put simply, the U.S. manufacturing sector is never again going to be a guaranteed source of unskilled employment …nor can it be considered a fail-safe cure-all for underperforming public schools.

So when our leaders in Washington yammer about bringing back “good manufacturing jobs,” they should also be honest about what those jobs entail and will require in a competitive global economy.

Another facet of manufacturing that is often misunderstood and demagogued is offshoring.

Companies often decide to locate facilities or operations overseas in order to access or build new markets.

And what’s made abroad, stays abroad. More than 90% of the production of foreign affiliates of U.S. multinationals is sold outside the United States. It isn’t displacing U.S. production.

The choice to locate a facility offshore can sometime come down to simple cost-savings.

That’s one of the main reasons we don’t make many of the low-value, labor-intensive consumer goods that we used to—and probably never will again.

So, yes, we’ve lost some jobs in low-value manufacturing industries because it’s too costly to produce those goods here.

But it is important to note that the numbers of U.S. jobs that have gone overseas have been greatly exaggerated. Survey data consistently show that less than 1% of layoffs can be attributed to offshoring.

And statistics show that offshoring as a traditional cost-cutter is actually trending downward … particularly as wages in countries like China continually increase.

So offshoring is generally mischaracterized and oversold as a threat.

However, there are legitimate dangers to too much off-shoring – and there are certain things that we must continue to make here no matter what—particularly high-tech, high-value products.

Because sometimes even if the bottom-line looks better in the short-term, the long-term consequences of offshoring our knowledge can be far costlier in the end.

Take the semiconductor industry—though it started in Silicon Valley, many U.S. consumer electronics manufacturers decided to move production to Asia because the labor cost differential was so great at the time.

But innovation is often created through commercialization—on or near the factory floor. And because we shipped much of our chip fabrication overseas, we forfeited our lead in silicon-processing skills and lost a lot of the electronics supply chain.

When you allow manufacturing in emerging industries to completely leave the U.S., it is very hard to get those capabilities back.

Here’s the lesson: if we continue to send our core competencies overseas we’ll have to offshore even more manufacturing plants because that’s where the skills, knowledge, and innovation will be. Not here in America.

We can’t let that happen. We need to create the terms, conditions and environment that make the United States the best place in the world to make things – and thereby keep the manufacture of emerging technologies that will drive our future prosperity.

And that will take a real public policy debate. Misconceptions, exaggerations, and demagoguery won’t fill the bill.

The Prescription: The 3 P’s

Over the coming months, in a series of speeches, I’m going to be challenging our leaders to tackle our manufacturing challenges in a serious and thoughtful way.

In my view, it’s going to take three things to propel our manufacturing sector forward and strengthen our global competitiveness.

People, Perspective, and Policies. Let me give you the Cliffs Notes version:

People. The manufacturing industry needs a workforce with the advanced skills and training needed on today’s technology driven factory floor.

There’s a major labor shortage in manufacturing—and it’s a symptom of a malignant skills gap in America.

Broadly, we need to fix our public K-12 education system … emphasize the critical disciplines of science, technology, engineering, and math (STEM) … and reform our irrational immigration system.

More specific to manufacturing, we must do a much better job of preparing young people for today’s “good manufacturing jobs” by adopting customized certification programs and working with trade schools and community colleges.  We need to make working in a factory cool again.

Next, we need the right perspective. And that perspective must be global.

Our political leaders should embrace the idea that the U.S. should be the very best place in the world to do business—and they must advance policies that will make it reality.

Even “socialist” France and “communist” China have comprehensive national strategies for aligning the needs of business and government.

Whether or not you agree with how they do it (and we often don’t), their political leaders are at least committed to the idea that their home country businesses should be internationally competitive and successful.  Are our?

Finally, we need the right policies.

Many of our standing policies have done fundamental, long-term damage to our manufacturing sector.

Manufacturers have done pretty well in spite of this. But think of the potential for growth if we were actually cultivating a strong business environment through good policy.

A strong business environment requires a competitive tax system. It doesn’t burden manufacturers with overregulation and a broken tort system.

It opens markets and embraces trade opportunities around the world.

It is interconnected through a modern and well-maintained infrastructure system.

Finally, a strong business environment will have access to abundant and affordable sources of energy. And this is where we currently have a real advantage.

Bottom line: If we don’t adopt policies that let American manufacturers compete and thrive, the U.S. economy won’t compete and thrive.

Conclusion

But let me end on an optimistic note. With a thriving manufacturing sector driving growth in our economy and sharpening our competitive edge, there’s no reason America can’t reemerge as an undisputed global leader.

And we don’t need to fear the competition. In fact, the international arena represents much more of an economic opportunity than a threat. We can, and should, win in the world.

Why? Just look at our competition. If you look at the fundamentals of long-term economic competitiveness, who would we rather be?

How many countries have better access to natural resources, including energy and water?  Not many.

How many countries have better demographics? Certainly not China, Europe, or Japan.

How many have a better history of entrepreneurship and risk-taking?  Exactly none.

The truth is that if we want it, there is no reason why manufacturing in the United States can’t grow by leaps and bounds – employing millions of additional workers, in knowledge-based jobs that drive expanding prosperity for the middle class and for our nation.

The question is, are we willing to tear down the hurdles of our own making? Are we willing to tackle the policies that hold us back and drag us down? Fundamentally – are we willing to get out of our own way?

I hope that you will not only support the Chamber’s efforts to revitalize this dynamic sector … but also demand that political leaders make the hard choices and do the right things needed to ensure the future of manufacturing – and the strength and competitiveness of our great country.

Thank you.