Washington, DC – I thank Chairman Casey for calling a hearing on this important topic.

The U.S. manufacturing sector has changed dramatically over the last several decades.  Manufacturing productivity in America has soared, what took 1,000 workers to produce in 1950 now takes only 184. 

U.S. manufacturers produce 65 percent of what our country consumes, down from 80 percent three decades ago.  

Many consumer goods that were manufactured here are now imported.  In the 1960s, U.S. manufacturers made 98 percent of America’s shoes, but today 90 percent of shoes are imported.  During the same time, entirely new manufacturing industries have arisen in America - such as in computer chips.  Chemical products, food, computers & electronics, fabricated metal products and machinery are the top five manufactured products in America today.

While technology and productivity has shrunk the American manufacturing workforce over the past 40 years, manufacturing remains an important part of our economy.  U.S. manufacturers produce about 12.5 percent of our gross domestic product and employ about 9 percent of our workers – that translates into 12 million manufacturing jobs and nearly seven million related jobs, many of them in small businesses.  

By transitioning to higher value products, America leads the world in manufacturing output and is the world’s largest manufacturing economy, producing 21 percent of global manufactured products.  China is second at 15 percent and Japan third at 12 percent. However, China is quickly becoming a contender for the top spot. 

Manufactured goods account for more than half (57 percent) of what America exports to other countries. We rank third in the world as a manufacturing exporter, following the European Union and China.

Today, as America’s economic recovery struggles, regional indicators suggest that manufacturing growth has recently stalled in many parts of the country.

In light of these dramatic changes, the issue at this hearing is whether Congress should adopt an industrial policy for manufacturing under the modest fabric of a national manufacturing strategy.  It’s a timely question.

My concern is that, while often well intended, an industrial policy can morph into the form of central planning which requires the replacement of the invisible hand of the free market with the visible hand of the government.  Driven by understandable but misguided political considerations and buttressed with incomplete data and outdated perceptions, it can result in the undesirable: rent seeking, corporate cronyism, and economic stagnation.

In countries around the world, industrial policy has repeatedly failed.  Instead of fostering new products and technologies, old firms in declining industries inevitably capture industry policy to protect themselves at the expense of the consumer and ultimately economic growth. 

As President Reagan once observed of government’s view of business:  If it moves, tax it.  If it keeps moving, regulate it.  If it stops moving, subsidize it.

President Carter’s Chairman of the Council of Economic Advisers Charles Schultze observed:     

One does not have to be a cynic to forecast that the surest way to multiply unwarranted subsidies and protectionist measures is to legitimize their existence under the rubric of industrial policy.  The likely outcome of an industrial policy that encompassed some elements of both “protecting the losers” and “picking the winners” is that the losers would back the subsidies for the winners in return for the latter's support on issues of trade protection. 

As we listen to testimony today from distinguished lawmakers, economists and business leaders, my thought is that instead of a Washington-centric industrial manufacturing policy, Congress should instead adopt pro-growth economic policies that raise the competitiveness and opportunity for all economic boats in our country: 

1)      To ensure businesses do not bear higher tax costs, Congress should adopt a comprehensive plan to reduce federal spending relative to the size of our economy, reform our entitlement programs to make them sustainably solvent, and gradually bring the federal budget back into balance.

2)      To increase competitiveness around the globe, Congress should reform our corporate tax system.  The United States has the second highest corporate income tax rate in the world.  Congress should reduce the after-tax cost of new investment by expensing most equipment and shortening the depreciation schedules for buildings.  Congress should move to a territorial tax system. Until then Congress should act now to allow U.S. corporations to repatriate stranded American profits to invest in new jobs, research, investment and financial stability here at home.

3)      To find new customers for American manufacturers, farmers and service companies, Congress should immediately approve the three outstanding free trade agreements with Colombia, Panama, and South Korea and seek more opportunities to open growing markets to American workers.

4)      To reduce unit costs and keep American companies located in America, Congress should repeal laws that drive up costs – such as the new national health care law and unnecessary federal regulations. To help erase the estimated 18 percent disadvantage in costs for U.S. manufacturers compared to their global competitors, Congress should act now to modernize our patent system and reform our tort system to reduce the excessive costs of frivolous lawsuits.

I believe adopting these economic policy changes would benefit U.S. manufacturers, their customers, their suppliers, and their workers far more than any national manufacturing strategy. 

A final point.  Lawmakers and policymakers need better information on trade flows, production networks and global supply chains that better reflect the manufacturing marketplace of today.  For example, traditional trade statistics fail to account for the trade-in-value added among two or more countries.  Our Bureau of Labor Statistics can track a job gained or lost in a local pub but can’t identify a job gained or lost from trade.  We are using eight-track stereo statistics in an IPOD world that do not reflect the activity or changes occurring in this fast-growing global marketplace. Accurate, timely and real world data is a bipartisan goal we can all work together toward.  

I look forward to hearing today’s witnesses, and again thank Chairman Casey for holding this important hearing.      

 

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