Viewpoints: If I Were The Manufacturing Czar
There are glimmers of hope for recovery in the world's economies. Not that we're out of the woods by any means. There's still a lot of work to do. To that end, our president has appointed a manufacturing "czar" to construct a policy to resurrect, redirect, and revitalize US manufacturing. I've thought a lot about this role, and the challenges the czar faces.
If the US economy were a patient entering an emergency room, he/she would be in pretty bad shape. Vital signs are down, and there are many injuries and maladies to deal with. Triage demands that we treat the most severe threats first. And this patient's heart—manufacturing—is in severe distress.
For 30 years, gradual neglect has resulted in severe pressures and distress to the heart—small and medium-sized manufacturers (SMMs). Many say the heart is healthy, and point to productivity numbers and economic performance as they are relative to those of other countries. But the patient has relied on a heart strong enough to supply the support (revenue) it needs to function and grow.
As manufacturing czar, to stabilize US manufacturing and begin its recovery, I would recommend the following treatments immediately:
Tax laws as they relate to US manufacturing have remained basically unchanged since 1986. As such, US manufacturing businesses suffer arguably the highest tax rates of any industrialized nation—higher than those imposed by many emerging nations. Worse, the tax rate on manufacturing is reportedly more than 10x the rate on financial businesses (where little wealth is actually created). This is inexcusable, and completely out of whack.To correct this situation, I would recommend an intelligent, considerable tax holiday for manufacturing. There is no quicker, more efficient way to spur innovation, development, and creativity than to significantly lessen the tax burden on manufacturing. By doing so, the resources needed to invest in technologies, infrastructure, training, and new products are placed in the hands of those who can use them most efficiently. And the playing field as it relates to foreign currency manipulation is leveled. Overnight.
Venture capital can't be found, and credit lines necessary to sustain and grow manufacturing businesses have been tightened or eliminated altogether for many SMMs. I would recommend immediate TARP funding to establish low-interest assistance for training, technology, and enabling manufacturers with the tools—intellectual property protection and management, patent acquisition, logistics and supply chain management training, and business development guidance—to spur exporting to emerging middle-class consumer markets.
Special Economic Zones (SEZs) like Free Trade Zones have been established in China, India, and even in Iran. By designating SEZs with reduced tax burdens, relaxed or (in some cases) altogether eliminated regulatory requirements, and streamlining bureaucracy and administrative compliance, we can begin to attract real investment and encourage growth outside of that attained merely through a falling dollar. I would also investigate the possibility of helping states develop regional SEZs to distribute technologies or create industrial clusters. This could also have the ancillary effect of delivering high-paying jobs to regions in distress.
I'm a capitalist, and a strong believer in open, fair, and free trade. It is not in our long-term interest to rely on tariffs and value-added taxes (VAT) on products or services. Further, such taxes create retaliation and acrimony that are unproductive. Our policies should enable our industrial base to perform to its optimum, and get out of the way. While tariffs and VAT may feel good at first, they rarely spur meaningful growth, and only serve as Band-Aids. Tariffs are instruments, but are no substitute for a complete, lucid, well-thought national policy.
By implementing these initiatives as part of a broad manufacturing strategy, several ancillary issues could begin to improve. For example, our national strategy to pursue and dominate green-energy manufacturing and technology development should produce results where tax reductions and SEZs are established.
Believing that wealth is not manufactured, and at the same time pursuing and extolling the long-term strategy of a consumer economy, seems contradictory to me. US manufacturing became the greatest in the world in part because it served the strongest consumer market in the world. And the US only became the world's greatest consumer market because its wages were paid by manufacturing.
To ensure this patient returns stronger and healthier than before, the heart needs immediate attention. We must call on the new manufacturing czar to push for a policy that acknowledges the direct and indirect wealth generated by a strong manufacturing base that is free to create, innovate, and compete.
This article was first published in the February 2010 edition of Manufacturing Engineering magazine.