August 2011 08 Fall
Summary of Recommendations
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- Regulatory and Legal Environment
- Science, Technology and Inspirational Goals
- Infrastructure Investments
- U.S. Education in Science and Technology
- Council on Competitiveness
- Infrastructure Investment
- Long-term impacts of reducing the corporate income tax rate include the following
- Corporate income tax policy simulation
Summary of Recommendations (from the Report): Tax Policy 1. Institute overall tax reform and provide long term clarity and stability in corporate tax policies. 2. Enhance and make R&D tax incentives permanent. 3. Diminish the cost of repatriating earnings. 4. Develop more globally competitive corporate tax rates. Energy Policy 1. Outline a comprehensive energy policy that encourages reinvestment in current infrastructures, pursues energy efficiency and conservation, and balances investment across a diverse portfolio of all fuel sources – including solar, wind, and nuclear – while tapping critical U.S. assets in coal, natural gas, and offshore oil. 2. Immediately begin planning to increase the use of nuclear power. 3. Increase collaboration with businesses when drafting new regulations to ensure that they are cost- effective, attainable, and employ available technologies. 4. Improve and modernize the U.S. electric grid to increase short and long term reliability and develop the infrastructure needed to facilitate the inclusion of the significant amounts of energy expected and to deliver considerable energy from alternative sources. 5. Incentivize the use of cleaner and more abundant fuels, like natural gas, to supplement the transition away from of oil and coal. Trade Policy 1. Develop a new trade promotion and fast-track authority. 2. Create a more comprehensive and competitive export trade control process. 3. Ensure U.S. rights under existing trade agreements are enforced, and ensure compliance with WTO rules and regulations. 4. Create pro-business relationships with all trading partners, especially emerging market countries, and aggressively pursue closure of a commercially meaningful WTO Doha Agenda.
1. Collaborate with government and business leaders to create policies enabling appropriate evaluation to be conducted through a lens of global competitiveness in place of a U.S centric view. 2. Develop a benchmarking process to analyze the impact of regulations from a holistic global competitiveness perspective. 3. Diminish the cost and complexity of regulatory compliance. Science, Technology and Inspirational Goals 1. Establish a consortium of business, university, labor, and public sector leaders to establish daring long term goals with a 15 to 20 year development horizon and then work collaboratively to craft policy, investment, and development programs - as well as education and other physical, technology, and intellectual infrastructures - that support progress towards those goals. 2. Strengthen intellectual property protection, particularly in emerging markets, and ensure investments in science, technology, and innovation provide maximum long term return to the U.S.
1. Improve ports, railroads, roads, nuclear facilities, the electric grid, and IT infrastructures. Priority should be given to projects that improve export capabilities and efficient movement of goods in, out, and throughout the U.S. 2. Increase incentives for infrastructure projects within the private sector and encourage more private- public partnerships.
1. Reform visa and green card processes that create backlogs which block access to talent. 2. Benchmark visa best practices from other countries that are successfully attracting and retaining top science, technology, engineering, and mathematics (STEM) talent. 3. Create opportunities for scientists and engineers born outside the U.S. to become an integral part of U.S. competitive capabilities instead of focusing primarily on border protection. U.S. Education in Science and Technology 1. Focus educational curricula on developing STEM skills. Develop flexible education tracks that foster STEM literacy through community colleges, vocational trade schools, work training programs, etc. 2. Empower performance-based legislation, such as the America COMPETES Act, the Elementary and Secondary Education Act, Investing in Innovation, and Race to the Top and Teacher Incentive funds. 3. Develop federally funded programs that promote and market manufacturing as a high-value and vital industry with rewarding long term career opportunities for high school and college students in the U.S. 4. Subsidize state universities’ efforts to attract higher caliber students to STEM programs and increase the number of graduates.
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The report concludes that China has assumed leadership of global manufacturing competitiveness. It states: “China’s ascent to the top of the list is not surprising, given its rising eminence in the manufacturing sector over the past ten years, particularly as a regional hub for foreign outsourced production, foreign direct investments, and joint ventures. Executives see China as possessing strength along most of the top drivers of competitiveness. An abundance of highly skilled workers, scientists, researchers, and engineers contributes to a high rating for talent-driven innovation. The government’s dedication to investments in science, technology, and manufacturing physical infrastructure is aimed at accelerating the technological value-add of Chinese production and innovation. Couple this advantage with a relatively low-cost base that is geographically mutable, and China has a clear leadership position, taking the top spot for manufacturing competitiveness, now and in the near future. Because of the speed and magnitude of change over the past two decades, China’s role as a manufacturing superpower has been solidified.” In contrast, the report summarizes the view of those interviewed for the report that the U.S. is now in fourth place: In the United States in the “late 1980s and early 1990s was a period of manufacturing renaissance …as manufacturers became proficient in world-class manufacturing practices, especially as they took a global leadership position in quality and business process management. Today, the GMCI shows that the United States ranks fourth-place overall. Despite this position on the index, the United States can still boast high labor productivity and remains the largest manufacturing economy, with 20 percent of the world’s manufactured outputs, followed by China with12 percent. Estimates suggest technology advancement has accounted for as much as 85 percent of the U.S. growth in its per capita income. However, this study provides some empirical evidence that the competitive dynamics are changing in the downward direction for U.S. manufacturing, as the U.S. ranking drops off to fifth in five years. This is consistent with a Milken Institute report that states “there is no denying that the dominance of U.S. manufacturing has been steadily eroding.” Competing in U.S. manufacturing has changed dramatically. Globalization and technological progress, especially in advanced communications, have put American workers in an unprecedented level of direct competition with its lower-wage counterparts as well as with rising leading-edge talent pools available worldwide. Much of this projected decline has been attributed to the hollowing out of manufacturing by the outsourcing of not only millions of U.S. manufacturing jobs, but also, increasingly, the export of research and development and customer support to foreign partners and subsidiaries. Many manufacturing skills—such as welding, software development for numerically controlled machines, and quality management—have a high degree of accumulated tacit knowledge, and, if lost, is difficult, if not impossible,to recover. Moreover, the added complexity costs of long supply chains are not well understood. The projected decline can also be seen as driven in part by a perception that a services sector can sustain prosperity without the vital support of a strong manufacturing sector and from a lack of a cohesive national policy on manufacturing competitiveness.”
[Module 1 – technologies (including government mfg. R&D efforts and a review of existing programs] This survey describes R&D efforts at four federal agencies, DOD (DARPA and ManTech), NIST, NSF, and DOE (EERE), directed toward advanced American manufacturing. “The four leading agencies have a combined FY2010 budget of roughly $700 million (see Appendix A), predominantly for manufacturing R&D with some implementation (such as through NIST’s MEP and aspects of DOD’s ManTech).” This 2010 survey of federal manufacturing efforts is drawn largely from agency materials and websites, and concludes that “their work could benefit from further collaboration – not only with each other, but with universities and industry as well, in developing a common technology R&D and implementation strategy.” Since the survey an interagency working group has been formed and the PCAST report cited above recommended a joint industry-university-agency partnership effort. A brief summary of work at the four agencies follows: Defense: “The Department of Defense (DoD) performs manufacturing research, prototype and implementation work, in the Office of the Secretary and in the services. This summary reviews work in two major areas: through the Defense Advanced Research Projects Agency (DARPA) and the Manufacturing Technologies Program (ManTech).” DARPA performs high risk but high payoff research for potentially game-changing technological advances. One such research effort is called Disruptive Manufacturing Technologies. This program’s purpose according to DARPA is to “develop and demonstrate manufacturing capabilities that are affordable at small volumes and with reduced delivery times. These concepts will be extended to polymer matrix composites, advanced metallic turbine blades and ceramic body armor upgrades.” The focus of this program is manufacturing time and cost saving of components for existing Defense systems and future military-related manufacturing processes. Another DARPA manufacturing program cited in the survey has recently issued a BAA around “Open Manufacturing,” seeking collaborative industry-university efforts that also encompass prototyping facilities. Manufacturing Technologies Programs (ManTech) are “located in the Office of the Secretary of Defense (OSD), in the office of the Director of Defense Research and Engineering, as well as in each of the military services.” The mission of ManTech is “to anticipate and close gaps in defense manufacturing capabilities makes the program a crucial link between technology invention and industrial applications–from system development through sustainment.” Some ManTech programs include manufacturing work in sensors, armor armaments, electronic and power systems. Energy: The Department of Energy (DoE)’s Energy Efficiency & Renewable Energy Office (EERE) has a subdivision called The Industrial Technologies Program (ITP). ITP seeks to “reduce the intensity of energy use of the U.S. industrial sector through the targeted research, development, and deployment of next-generation manufacturing technologies, and the leveraging of collaborative industry partnerships for the adoption of efficient technologies and process improvements.” In 2006, “ITP states it directly contributed to industrial energy savings of almost 500 trillion BTUs. ITP estimates that technologies developed and activities undertaken since 1977 have cumulatively saved more than 103 million metric tons of carbon equivalent (MMCTe) and over 5.6 Quads of energy.” NIST: The National Institute for Standards and Technology (NIST) within the Commerce Department has an mission to “promote U.S. innovation and industrial competitiveness by advancing measurement science, standards, and technology in ways that enhance economic security and improve our quality of life.” There are two major manufacturing initiatives within NIST, the Manufacturing Extension Partnership and the Manufacturing Engineering Laboratory. These efforts total approximately $158m. NSF: National Science Foundation (NSF) is a major source of funding for basic research, including manufacturing research. NSF’s total budget for FY2011 is $7.35 billion; within that the Engineering Directorate conducts approximately $188m in manufacturing research. Its manufacturing work is more in the basic and early stage applied research areas. [Note: The above numbers reflected FY 09/FY10 funding levels; since the time of this report, these agencies have expanded their manufacturing efforts.] MIT – Roundtable Report Out on The Future of Manufacturing Innovation–Advanced Technologies [Module 1 – New manufacturing technologies] On March 29, 2010, MIT held on campus a roundtable discussion hosted by President Susan Hockfield on potentially innovative technologies that could significantly affect the manufacturing sector. A video of the actual roundtable is available at: http://www.alum.mit.edu/news-views/alumni-news-features/alumni-news-archive/focus-innovation. An 18-page summary of the Roundtable discussion, summarized below, is available at: http://web.mit.edu/dc/policy/Roundtable%20The%20Future%20of%20Manufacturing%20Innovation.pdf. Four underlying questions asked at this roundtable were: • What are the emerging opportunities in manufacturing technologies? • Can we accelerate their entry and their success? • What can we at MIT do beyond the individual research projects? • Particularly, what changes can we recommend to government and industry to create innovation policies that are tuned to the moment? Overviews: Prof. Suzanne Berger (author of How We Compete (2005): American manufacturing companies tend to chase after cheap labor, rather than considering the unit labor costs. One step to improve U.S. manufacturing is to invest in educating a skilled workforce. MIT Political Science Professor Suzanne Berger stated that “in Germany, 22% of the workforce is in manufacturing jobs, hourly compensation is 66% higher than U.S. wages, and they have become an export powerhouse. Germany is not an exception; across Europe wages are on average 20% higher than U.S. wages. The problem is not that the U.S. can’t compete with China on low wages. It is that the U.S has not provided its workers with the kind of education that would allow them to make the kinds of goods that Germans make. And the country has not developed enough of the kinds of manufacturing that could generate both high profits and good jobs.” Dr. Ken Gabriel, Deputy Director of DARPA: He stated that DARPA’s approach to advances in technology is “creative destruction”, breaking and then making new rules. An old approach to manufacturing can be destroyed for a new one, but there will always be a manufacturing. “DARPA is not investing in manufacturing technologies per se, but focusing on what the desired outcome is. That is the heart of what distinguishes DARPA from other funding agencies in Washington.” He described DARPA R&D efforts to push manufacturing to stand up new technologies for DOD much more quickly and cheaply, including through advances that enabled production of small volumes at mass production costs. BioInspired Materials Christine Ortiz, Ph.D. Associate Professor of Materials Science and Engineering “Materials have inherent physical properties. Combining these with morphometric principles learned from comparative and evolutionary biology, and principles from architecture and manufacturing creates hybrid principles of universal design. Incorporating these principles into manufacturing allows the amplification of mechanical properties and functional specificity found in natural systems. For example, natural exoskeletons provide an appealing system to evaluate by this approach. Through understanding of the properties of naturally occurring exoskeletons that provide dynamic flexibility, resistance to extreme conditions, or important optical properties, and integrating these properties into new materials, we can manufacture enhanced protective equipment for military use.”
Gerbrand Cedar, Ph.D. R. P. Simmons Professor of Materials Science and Engineering “The Materials Genome Project will facilitate further technological advances by providing physical properties for materials on a large scale. By predicting these properties using computational approaches, this project will reduce the time dedicated to materials discovery and change the nature of the design process. Information is already available for 30,000 inorganic compounds, and many more organic ones, which has already enabled technological advance.”
Charles Fine, Ph.D. Chrysler LFM Professor of Management Richard Roth, Ph.D. Director of Materials Systems Laboratory “Lightweighting of vehicles offers a lucrative opportunity for manufacturing innovation. Higher manufacturing costs will be offset by increased product efficiency, providing both high wages and increased spending power domestically. It offers a versatile approach to combating our reliance on foreign oil, but needs a strategic vision for implementation.” “Current technologies can already be applied to vehicle lightweighting, but additional development will create dramatic improvements. Developing the subsystem protocols needed to implement vehicle lightweighting will provide the U.S. with significant advantages over foreign countries. Lightweight vehicles will therefore be an exportable good, and work to reverse country’s deficit in manufactured goods. In response to a question from the audience, Professor Fine stated the government should incentivize fuel economy to facilitate these objectives through measures such as tax treatment.
Martin Culpepper, Ph.D. Associate Professor of Mechanical Engineering “Industrial manufacturing processes require extensive technological support. The current dearth of hardware support for nanomanufacturing inhibits process development. Common technology modules and manufacturing principles operating on general hardware components are needed to enable an efficient transition from laboratory discovery to fullscale manufacturing. We need a better understanding of nanoscale tools and technologies before we can efficiently integrate new discoveries into factory level manufacturing.” Five T’s for advancing nanomanufacuturing:
Logistics for Local Manufacturing Sanjay Sarma, Ph.D. Associate Professor of Mechanical Engineering; Director, MITSUTD Collaboration “To really change the cost‐curve for local manufacturing we need innovations that make small‐lot logistics more economical. Sensors, automatic warehousing, and LTL management are all approaches that can benefit local manufacturing. The clothing manufacturer Zara provides a great example. By manufacturing with family cooperatives in Spain they are able to change styles very quickly. Another example of a local company is KIVA Systems, started by MIT graduates, that uses networking and sensors to build automated warehouses. Logistics is a science that can fundamentally change the economics of local manufacturing. The government should take systems research seriously, with investment and maybe subsidies for companies that are innovating in these technologies.”
• Reducing the U.S. corporate income tax rate to match the OECD average would trigger new growth. By 2019, it could boost real GDP by $375.5 billion (2.2 percent), create an additional 350,000 manufacturing jobs, and increase total employment by 2.13 million. • Increasing the R&D tax credit by 25 percent and making it permanent could boost real GDP by $206.3 billion (1.2 percent), generate 270,000 manufacturing jobs, and raise total employment by 510,000 within a decade. • Modernizing U.S. export controls could increase exports in high-value areas. By 2019, these policy adjustments could enhance real GDP by $64.2 billion (0.4 percent), create 160,000 manufacturing jobs, Infrastructure Investment • The proposed investments analyzed in this report, totaling $425.6 billion across 10 projects over three years (with just over half in highway and transit initiatives), translate into $1.4 trillion in total output, including the ripple effects generated across all sectors. • Taken together, these 10 investments have the potential to create 3.4 million jobs directly and, including all the ripple effects, 10.7 million jobs in total (an average annual increase of 3.5 million across three years). • The projects outlined could generate direct earnings of $147.1 billion (and total earnings of $420.6 billion, including all ripple effects). 
Long-term impacts of reducing the corporate income tax rate include the following: • Real GDPgrowth improves by 0.3 percentage point on anannual basis from 2011 to 2013, an average of 0.2 percentage point from 2014 through 2017, and 0.1 percentage point in 2018 and 2019, relative to a baseline projection without a change in tax policy. • Real GDP is $375.5 billion, or 2.2 percent, above the baseline projection in 2019. • Exports respond to the lower corporate tax rate. By 2019, real exports stand at $233.3billion, or 7.8 percent, above the baseline projection. • Real business fixed investment jumps 4.6 percent,or $102.4 billion, above the baseline scenario in 2019. • Industrial production in the rate-cut scenario exceeds the baseline by 3.9 percent in 2019, while total employment increases by 2.13 million (1.4 percent) and manufacturing employment rises by 350,000 (2.7 percent).
Charts illustrating effects of energy infrastructure investments follow below:  
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