Competitiveness: The government’s role

The U.S. will not be able to experience a renaissance in its manufacturing economy without some help from the government. This is particularly true for what is now called Advanced Manufacturingwhich is based on new technologies and advanced materials.  But it is  also true for conventional manufacturing, where both the Federal and local sectors of the government have an important role to play in creating or maintaining an environment where domestic manufacturing can flourish and where companies decide not to shift manufacturing abroad.  It has long been established that innovation is closely tied to manufacturing. If the U.S. wants to maintain its traditional lead in innovation, it must strive to keep its manufacturing here and to maintain or create a competitive climate.  Some studies have recently been published that speak to U.S. competitiveness and I want to summarize some of the key reasons why government must have a role in this area, no matter what some ideologies say about “getting the government out of the way” in the area of job creation and revitalizing our economy.

A very recent report, Manufacturing’s Wake-Up Call, released by Booz & Company does not speak directly to Advanced Manufacturing, but does forecast U.S. manufacturing industries’ prospects by identifying the strongest sectors both for domesticand export competitiveness.

Source: Booz & Company

The advantaged parts of our economy, which include much of the “high tech” sectors,  account for 53% of Manufacturing Value Add (U.S. $ 1.6 trillion).  Some of these industries are definitely at risk when U.S. companies choose to build abroad. Government policy can help by liberalizing H-1B visa restrictions  and allowing talented foreign students to remain in the U.S. after finishing their educaton. It can help by simplifying and streamlining the tax and regulatory structure. And because industry “clusters” (concentrations of interconnected companies, suppliers, service providers, university research labs first identified by Strategy guru Michael Porter in his landmark book The Competitive Advantage of Nations) have been known to spur innovation and economic development, state and local governments should invest in infrastructure for centers that show promise for becoming important clusters.

A Deloitte study, 2010 Global Manufacturing Competitiveness Index, was very clear in identifying the role of governments in highly competitive emerging nations. “Western nations with more democratic, social and environmental policies are on the decline whereas emerging markets with their large government infusions for manufacturing are on the rise. Within these nascent countries, some manufacturiers are even government-owned. It is clear that a new model is emerging. Governments, in emerging markets are aggressively and cohesively competing with nations to get to the top of the manufacturing pyramid.”

What prompted me to write this post is my attendance at a meeting of MIT alumni in Stamford, Ct where President Hockfield told us that she had recently been appointed (with Andrew Liveris of Dow Chemical) as co-chair of President Obama’s Advanced Manufacturing Partnership. This initiative, lauched in June 2011 and formulated by the President’s Council of Advisors on Science and Technology, addresses the implications of declining U.S. leadership in manufacturing by advancing what is called an “Innovation Policy: Appropriate Roles for the Federal Government”. A key recommendation is aimed at what is called “Overcoming Market Failures: Role of U.S. Investment”. Historically, Federal technology investment – supporting basic research, promoting early commercialization, has been crucial to the creation of many industries in the U.S. (Examples: The Internet, transistor, SEMATECH (next-generation chips), etc. (It is fair to say that the country’s need to make high octane aviation gasoline, synthetic rubber and polyethylene for radar installations was to a considerable extent responsible for creating the petrochemical industry). Many of the top innovations in the U.S.  were supported by a combination of government and industry funding. The report identifies four examples of promising technologies that may face potential market failures without robust government-industry cooperation: Nano-scale carbon materials, next-generation optoelectronics, flexible electronics, nanotechnology-enabled medical diagnostic devices and therapeutics.

This post has been a bit longer than usual, but it is difficult to use the necessarily short blog format to achieve a good understanding of an issue. The linked references will be helpful in gaining a broader picture.

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