Issues in Brief

A To-Do List for the President

President and Chief Executive Officer
November 27, 2012

The campaigning and election are (at long last) over; the electorate has spoken. Time for President Obama to turn his full attention to the economic recovery, and more specifically to helping build a stronger, more dynamic American manufacturing base. The pro-manufacturing initiatives of his first term—and there were actually quite a few, including creating an Advanced Manufacturing Partnership, a manufacturing skills certification system in community colleges, and a National Additive Manufacturing Innovation Institute—were sensible, but they were baby steps.

If the president is sincere about (in the words of Dow Chemical's Andrew Liveris) enticing manufacturers to "make it in America," then he needs to address five fundamental issues:

(1) Avoid the Fiscal Cliff. The administration must do everything in its power to steer the government away from the fiscal cliff. It takes a lot to unite the American business community—but the thought of elected officials playing a game of chicken with America's economic future has done the trick. There's no escaping another painful recession should Congress allow the expiration of the Bush-era tax cuts and the $1.2 trillion in domestic and defense spending cuts associated with the Budget Control Act of 2011. The Congressional Budget Office says GDP would shrink by up to 0.5 percent in 2013 and unemployment could climb up to 9.1 percent. Manufacturers could be hit especially hard: a recent MAPI survey of senior finance executives showed almost 9 out of 10 thought Congress' inability to act would negatively impact their companies. The president needs to take a leadership role and bring congressional leaders together to resolve this self-made budget crisis.

(2) Create a More Competitive Tax Code. We must reduce our tax rates and simplify the tax code. The good news is that there is bipartisan support in Washington for such action. No industrial country has a higher corporate rate or a more complex tax system. Nor do any other advanced economies employ a worldwide tax reporting system, which encourages companies to keep their profits overseas rather than repatriating them here.

Of course, there is a predisposition on the part of some policymakers to view the tax code as not just a revenue collector, but also a tool to punish wealth creation. You can't have it both ways. If policymakers want the benefits of a vibrant manufacturing base, including the ability to create wealth, then the administration must work with Congress to create a tax code that encourages production, rewards investment, and delivers sufficient (not confiscatory) revenues to the federal coffers.

(3) Overhaul the Regulatory System. While the administration skirted the issue during the president's first term, it must undertake a thorough review of the regulatory system. The current system has no political or managerial disciplines—indeed, a recent MAPI-NERA Economic Consulting study demonstrated how even in the worst of economic times, regulatory costs continue to rise for manufacturers. According to the study, the almost 2,200 federal rules that American manufacturers must contend with could reduce their shipments by up to $500 billion this year alone.

Unfortunately, up to this point the Obama administration has brushed off manufacturers' protests. A White House official, talking to manufacturing CEOs recently, rationalized that since the broader society benefits from these regulations, manufacturers should suck it up and live with the burden. This is, pure and simple, bad economic policy: after all, the regulatory benefits are widely disseminated throughout society, but the costs are narrowly concentrated on manufacturers. If society is trying to discourage a practice, such as smoking or gambling, then this is an effective application of policy. But I don't think the president wants to discourage manufacturing. If the goal is to "make it in America," the administration should require agencies to employ the most cost-effective means to achieve their regulatory goals, and the Office of Management and Budget should adopt a more integrated approach to its oversight, including instituting managerial disciplines that link new regulations to the state of the economy.

(4) Ramp Up Trade Promotion. Ninety-five percent of consumers live outside the United States, but most countries have far higher trade barriers than we do. That's why free trade agreements (FTAs) are such a critical part of any strategy to expand our exports. In fact, NAM claims that the Obama administration's goal of doubling exports by 2014 could add 2 million new jobs to the economy.

A good place to start would be with Asia, where a disproportionate share of global growth is occurring. This country has been slow to reach out to that part of the world: the Brookings Institution has noted that while FTAs with Asian countries rose from 3 at the start of the last decade to 54 at the end, only two of these involved the United States. Thus the importance of the Trans-Pacific Partnership—involving 11 Pacific Rim countries with a gross GDP of $20 trillion and combined population of 650 million. If Japan joins the talks, the partnership would represent the most economically significant agreement since NAFTA two decades ago.

The Obama administration should also continue with its plans for an even larger prize—a U.S.-EU trade agreement. Talks are expected to commence this spring.

(5) Fix the Educational System. If U.S. manufacturers are to compete globally, they need a more skilled, better-educated workforce. If that is to happen, the nation's educational system needs fixing. For many years, American students have been falling behind in science, technology, engineering, and math (STEM) relative to students in other OECD countries. Why? Because for the past half-century this nation de-emphasized science and math studies in its K-12 schools (along with a de-emphasis in manufacturing careers). Students who were once tops in the world on aptitude tests in these subjects are now middle-of-the-pack at best.

That's not a formula for success on advanced manufacturing shop floors. According to a Manufacturing Institute–Deloitte study, because of declining knowledge and skills, upward of 600,000 American manufacturing job openings sit unfilled at any point in time. Tens of thousands of high school students who aren't bound for college could find jobs in manufacturing—if only our schools could better prepare them for the rigors of modern manufacturing. While the nation's school system is highly decentralized, the administration can play a leadership role in re-emphasizing the importance of these critical skills—and encouraging the education establishment to take up the challenge of moving American students back to the top of the list.

Faced with trillion-dollar deficits, ever-climbing debt, continued high unemployment rates, an economy nearing stall speed, and no foreseeable economic help from the rest of the world, the United States faces as critical a test today as at any time in recent history. President Obama must make an American economic resurgence a priority, and the shortest path to that goal is through policies that encourage a manufacturing renaissance.

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