Rebuild America Act Advances Range of Critical Policies to Revitalize U.S. Manufacturing

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On Thursday, March 29, 2012, Senator Tom Harkin (D-IA) introduced new legislation in the Rebuild America Act that contains a number of important policy provisions to revitalize American manufacturing. In particular, the legislation requires the President to develop a national manufacturing strategy and submit that strategy to Congress. (While the Obama Administration did release A National Strategic Plan for Advanced Manufacturing in February 2012, the Bill would ensure that this is not a one-off occasion, and that the strategy should be updated on an ongoing basis by future Administrations). An ideal U.S. manufacturing strategy would ensure the United States implements smart policies regarding the “4Ts”—tax, technology, trade, and talent—as ITIF calls for in the Charter for Revitalizing American Manufacturing in order to ensure that the United States offers the world’s most competitive and attractive manufacturing environment.

One of the best proposals in the Rebuild America Act is its call for the creation of sector-based Technology and Innovation Centers (TICs). These Technology and Innovation Centers would be centers of applied research and development on specific technologies or sectors (such as robotics, wireless technologies, optics, foundries, etc.) that would particularly help small and medium-sized (SME) manufacturers bridge the gap between R&D and manufacturing efficiency at scale. The Bill’s proposal calls upon the Secretary of Commerce to provide grants to coalitions of stakeholders that would partner with national laboratories or institutes of higher-education to launch the TICs. While the actual centers might be located near the geographic center of gravity of an industry—such as locating a TIC for optics near Rochester, NY—the critical point is that the TICs would serve firms beyond their local/regional footprint, so that an optics center might be in Rochester, but would serve optics firms or firms with optics needs around the nation.

Senator Harkin’s TIC proposal bears much in common with the Obama Administration’s recent call for a National Network of Manufacturing Innovation (NNMI). Both proposals arise from the recognition that the United States sorely needs a stronger institutional system to connect universities and industry through a platform where joint, pre-competitive applied research can translate scientific and technological discoveries into commercializable products. Between the TIC and NNMI proposals, there is now strong support from both Congress and the Administration to develop a sophisticated national network of institutions to support R&D and innovation around the next generation of technologies that can empower advanced manufacturing in the United States, and ITIF encourages Congress to pass such legislation in 2012.

Another vitally needed proposal in the Rebuild America Act is its call to double funding for the Manufacturing Extension Partnership (MEP), a program housed at the Department of Commerce’s National Institute of Standards and Technology that works with SME manufacturers to boost their productivity, competitiveness, and innovation potential. As ITIF demonstrated in its report,International Benchmarking of Countries’ Policies and Programs Supporting SME Manufacturers, while the MEP program—like its counterparts in almost a dozen nations around the world—has proven highly successful at helping SME manufacturers create and retain jobs, boost exports, and increase sales, the U.S. significantly underfunds the MEP compared to investments made by competitor nations. In fact, as a share of GDP, Japan invests almost forty times more in its Kohsetsushi Centers, Germany twenty times more in its SME manufacturing support programs, and Canada ten times as much in its Industrial Research Assistance Program (IRAP). Not only does the United States invest less than its peers in supporting the competitiveness of its SME manufacturers, its investment is less today than it was a decade ago: as a share of GDP, the United States invested 1.28 times more in supporting its SME manufacturers in 1998 as it did in 2009. The Rebuild America Act appropriately calls for significantly increased support for MEP, which will help the program bolster the competitiveness and export activity of U.S. SME manufactures, which account for 99 percent of all U.S. manufacturing establishments.

Vitally, the Rebuild America Act calls for increasing the U.S. research and development (R&D) tax credit to 20 percent and making it more permanent (the credit would have to be renewed every five years under the Harkin plan, as opposed to every two years currently, and there would be a bonus if a company increases employment in the United States). New data shows that the United States has fallen to 27th in the world in R&D tax credit generosity—behind even Brazil, China, and India—and shows that countries like France and Spain have R&D tax credits more than five times as generous as that of the United States, despite the fact that, as recently as 1992, the United States boasted the world’s most generous R&D tax credit. Increasing and making permanent the R&D tax credit is critical to ensuring America’s sustained manufacturing competitiveness, especially since manufacturers account for 70 percent of the industrial R&D performed in the United States.

The Act also calls for greater use of skills credentialing for the American manufacturing workforce. It would provide support to broaden and extend existing industry-led programs to develop nationally portable manufacturing skills standards for specific manufacturing disciplines, such as welding, tooling, computer numerically controlled (CNC) machine coding, etc.

Finally, the Act also contains several innovative proposals to assist SMEs having a difficult time attracting credit from financial institutions. In particular, it would create a 95 percent loan guarantee program for small manufacturers under the SBA 7(a) guarantee program.

While there are some provisions of the Bill we would omit, (especially ones related to taxation of foreign earnings) the provisions discussed above will go a long way to restoring American manufacturing competitiveness and to help spur the creation (and retention) of well-paying jobs that can help rebuild America’s squeezed middle class.

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About the author

Stephen Ezell is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF), with a focus on innovation policy, international information technology competitiveness, trade, and manufacturing and services issues. He is the co-author with Dr. Atkinson of "Innovation Economics: The Race for Global Advantage" (Yale, 2012). Mr. Ezell comes to ITIF from Peer Insight, an innovation research and consulting firm he co-founded in 2003 to study the practice of innovation in service industries. At Peer Insight, Mr. Ezell co-founded the Global Service Innovation Consortium, published multiple research papers on service innovation, and researched national service innovation policies being implemented by governments worldwide.