As we mentioned in an earlier blog post, the United States is poised for a manufacturing renaissance that is being driven by the changing economics of global production. Costs are rising in China. Given the significantly higher productivity of U.S. workers, and the fact that manufacturing at home eliminates a host of problems inherent in long-distance supply chains, many companies are doing the math and choosing to build new plants in the United States rather than overseas.
While government has had little hand in the revival to date, that's not to say that government couldn't help speed and strengthen the trend. Government at all levels — local, state, and federal — can be an active participant and can help provide additional momentum. This can and should be a shared agenda across the political spectrum and a real opportunity to seize the moment and grow the pie for all Americans.
We see seven areas for focus:
1. Political leaders from both parties should use the bully pulpit to educate the business community and the public on the new math of global manufacturing. The story is simple: In the next few years, for many goods, the delivered costs for Chinese-made products shipped to the U.S. will converge with U.S.-made products consumed in the U.S. Since a factory typically has a useful life of 30 years, choices on location must be made in a longer-term context.
2. The government needs to reform the U.S. tax system, then leave it alone for a while. The U.S. tax code currently is a deterrent to business — not only the level of taxation, but the fact that various incentives, such as the R&D tax credit, come and go. Business decision makers need certainty and stability, not the perpetual threat that next year things are going to be changed again. The tax code's focus should be on growing the pie: providing incentives for companies to create jobs, especially in innovation and manufacturing, which have a strong multiplier effect. One idea to consider is allowing companies to substantially reduce taxes on repatriated overseas profits provided they use the money to create U.S. jobs, by investing in new U.S. factories, for example.
3. Washington needs to get serious about leveling the playing field. While there's always risk of a trade war, all countries need to play by the same rules — and government's job is to enforce those rules.
4. The government needs to rethink regulations. All Americans recognize the need to protect people and the environment from avoidable and unnecessary harm. But there also needs to be a regulatory equivalent to the Hippocratic Oath: regulations should do more good than harm. Washington should conduct a serious inventory of the thousands of federal regulations and cull those that are outdated, redundant, ineffective, and put unnecessary roadblocks in the way of business development. This is a monumental task. At the end of 2009, the Code of Federal Regulations consisted of a reported 157,974 pages in more than 200 volumes. Thousands of additional pages have been added since then. The speed of our regulatory processes must also be addressed; excessive delays encourage shifting investments to other locales.
5. The government needs to focus on talent development to ensure that Americans are prepared for the 21st century workplace. This is an area where we need to think strategically. The federal government, under the Workforce Investment Act of 1998 and other statutes, already spends billions on employment and training. The U.S. Labor Department's Employment and Training Administration (ETA) alone has an annual budget exceeding $10.8 billion. Money is not the main problem; it's how the money is spent. We have two specific recommendations: first, that Washington create a program to help companies that are building or expanding U.S. factories train new workers during the ramp-up period; and second, consider establishing a new breed of hybrid "vocational" colleges, in which students would spend half their time studying liberal arts and half learning a skilled trade.
6. Washington needs to focus on infrastructure. Every infrastructure problem — decaying bridges, congested highways and ports, overcrowded airports and outdated air traffic control systems, weaknesses in the electric grid, and inadequate broadband spectrum — costs us dearly. Rebuilding and modernizing isn't a luxury; it's a necessity. It would not only help the economy broadly, but would help spur creation of more high-performance manufacturing and knowledge clusters like Silicon Valley and Research Triangle Park.
7. Washington should encourage foreign companies to manufacture in the United States. The United States offers the lowest-cost manufacturing platform in the developed world today. We need to put out the official "Welcome" sign. At least nine U.S. government agencies are actively involved in export promotion. How about a single agency to both promote exports and a highly valuable import — foreign factories?
Enhancing U.S. competitiveness and restoring our manufacturing leadership need to be an all-in effort. Everybody has a role to play, and everybody stands to gain.
This post is part of the HBR Insight Center on American Competitiveness.
This blog first appeared on Harvard Business Review on 03/09/2012.
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