```

[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]

       END OF SESSION REVIEW ON THE STATE OF U.S. MANUFACTURING

=======================================================================

                         ROUNDTABLE DISCUSSION

                               before the

                      COMMITTEE ON SMALL BUSINESS
                       HOUSE OF REPRESENTATIVES7

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                    WASHINGTON, DC, OCTOBER 29, 2003

                               __________

                            Serial No. 108-A

                               __________

         Printed for the use of the Committee on Small Business

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                                 ______

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                            WASHINGTON : 2003
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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)

                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Brogan, Molly, Government Affairs Manager, National Small 
  Business Association...........................................     1
Carr, Kevin, Director, Manufacturing Extension Program, National 
  Institute for Standards and Technology.........................     1
Darien, Kristie L., Director of Government Affairs, National 
  Association for the Self-Employed..............................     1
Freedenberg, Paul, Vice-President, Government Relations, 
  Association for Manufacturing Technology.......................     1
Gaskin, Bill, President, Precision Metalforming Association......     1
Howell, Thomas, Partner, Dewey Ballantine, LLP...................     1
Jarrett, Jim, Vice-President of Worldwide Government Affairs, 
  Intel Corporation..............................................     1
Kopenhaver, Janet, Director of Government Affairs, American Wire 
  Producers Association..........................................     1
Vargo, Franklin J., Vice-President for International Economic 
  Affairs, National Association of Manufacturers (NAM)...........     1
Wessner, Dr. Charles W., Director, program on technology and 
  Innovation, National Academy of Sciences.......................     2
Wellham, Mike, Senior Vice-President, RTI International Metals, 
  Inc............................................................     2
Calamaro, Ray, Partner, Hogan & Harston, LLP, Outside Counsel, 
  RTI International Metals, Inc..................................     2
Coffey, Matthew B., President and COO, National Tooling and 
  Machining Association..........................................     5
Green, The Hon. Mark, a Representative in Congress from the State 
  of Wisconsin...................................................     6
Peterson, The Hon. John E., a Representative in Congress from the 
  State of Pennsylvania..........................................    16
Ryan, The Hon. Timothy J., a Representative in Congress from the 
  State of Ohio..................................................    19

                                 (iii)

 
        END OF SESSION REVIEW ON THE STATE OF U.S. MANUFACTURING

                              ----------                              

                      WEDNESDAY, OCTOBER 29, 2003

                          House of Representatives,
                               Committee on Small Business,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 2:01 p.m. in Room 
2360, Rayburn House Office Building, Hon. Donald Manzullo 
presiding.
    Present: Representatives Manzullo, Millender-McDonald, 
Majette, Shuster, Schrock, Ballance, Chocola, Kelly.
    Chairman Manzullo. Good afternoon. We are going to begin 
the hearing. Will everyone go around the table and introduce 
themselves?
    Ms. Brogan. Good afternoon. My name is Molly Brogan, 
Government Affairs Manager, National Small Business 
Association.
    Mr. Carr. I am Kevin Carr, Director, National Institute of 
Standards and Technology Manufacturing Extension Program.
    Ms. Darien. I am Kristie Darien, Director of Government 
Affairs, National Association for the Self-Employed.
    Mr. Freedenberg. I am Paul Freedenberg, Vice-President, 
Government Relations, Association for Manufacturing Technology.
    Mr. Gaskin. I am Bill Gaskin with Precision Metalforming 
Association. We are the trade association of metal stamping, 
fabricating, roll forming, spinning companies that make parts 
for virtually every manufactured product. It is a $41 billion 
industry. We have about 1,200 member companies.
    Mr. Howell. My name is Tom Howell. I am a lawyer with the 
firm of Dewey Ballantine, LLP. We represent a range of American 
manufacturing industries.
    Mr. Jarrett. I am Jim Jarrett. I am Vice-President of 
Government Affairs for Intel Corporation. We are based in Santa 
Clara, California. We are the world's largest manufacturer of 
semiconductor chips for computers and network equipment and 
cell phones, et cetera.
    Ms. Kopenhaver. Good afternoon. I am Janet Kopenhaver. I am 
Director of Government Affairs for the American Wire Producers 
Association, which as the name connotes, we represent 
manufacturers of wire and wire products and our Association 
represents over 85 percent of the domestic industry.
    Mr. Vargo. I am Frank Vargo with the National Association 
of Manufacturers, representing 14,000 American manufacturers, 
large and small.
    Mr. Wessner. Hi. I am Chuck Wessner. I work with the 
National Academy of Sciences and will be providing some 
information from our reports. I underline that my remarks are 
my own.
    Mr. Wellham. Good afternoon. I am Mike Wellham. I am the 
Senior Vice-President with RTI International Metals. We are 
located in Niles, Ohio and we are a titanium producer.
    Mr. Calamaro. Mr. Chairman, hi. I am Ray Calamaro I am 
outside counsel to RTI, here accompanying Mr. Wellham.
    Chairman Manzullo. Let us see. Kevin, you came in late. 
Okay.
    Mr. Carr. Hi. I am Kevin Carr. I am the Director of the 
Manufacturing Extension Partnership at the National Institute 
of Standards and Technology, which is part of the Department of 
Commerce.
    Chairman Manzullo. Thank you. You have to talk into the 
mike.
    Ms. Darien. Hi. I am Kristie Darien. I am the Director of 
Government Affairs for the National Association for the Self-
Employed and we represent the self-employed and micro 
businesses with ten or less employees. Thank you.
    Chairman Manzullo. That is great. Did we get everybody? 
Okay. Good afternoon and welcome to this roundtable discussion 
looking at the current state of U.S. manufacturing. A special 
welcome to those of you who have come a long distance today to 
join us.
    We all know why we are here. It is because despite our best 
efforts, manufacturing in the United States is in rough shape. 
Unless we do something about it, the effects will be 
catastrophic.
    You can ask any one of the 2.8 million Americans who have 
lost their manufacturing jobs over the past 38 months. We lost 
three factories in one week in Rockford, 1,200 people. The jobs 
are gone. That is just in one week.
    Our unemployment is officially 11.1 before the layoffs. It 
is probably over 12 percent. Effectively it is 15, 16, 17 
percent, because the people have been off the unemployment 
roles because they have been unemployed for such tremendous 
periods of time.
    The problem goes deep. It is crucial this Congress fosters 
an environment that keeps Americans working. Our continued 
prosperity depends on keeping Americans at the job.
    We have a continuous effort with the Defense Department 
that turns a deaf ear to the pleas of our nation's 
manufacturers. More and more contracts go to foreign companies 
to the exclusion of U.S. companies. It all started with the 
infamous four and a half hour hearing on the black berets, 
where three Generals came and testified and I carry that black 
beret in my briefcase. It is made in China.
    The other 614,999 are in a warehouse in Mechanisburg, 
Pennsylvania, because I decided that those berets made in China 
should not be distributed to our men and women in uniform, 
because what good does this serve their morale when they take 
off that beret and find out that it is made in China?
    Anyway, we have been having a very interesting time. We 
have had probably 30, 35 hearings on manufacturing. The only 
Committee in Congress that is devoted to trying to figure out 
why we are having a destruction of our manufacturing base. We 
talk about manipulation to currency.
    Frank, a year and a half ago, we held the first hearing in 
Congress on the RMB, and today there is a bill going on that I 
am probably going to have to miss Congressman Manzullo's Sense 
of Congress resolution urging our administration to use every 
tool possible in order to keep the currency from being 
manipulated.
    I just got back from the Milan, Italy international machine 
tool show. I was there two days and absolutely totally 
remarkable what is going on in European countries compared to 
American countries.
    We met with the Lombardi Society. It is about 6,200 
corporations and manufacturing in Italy is mostly medium and 
small businesses. There is one town of 25,000 people that has 
2,000 manufacturing jobs. That is the intensity of it.
    Because these are small and medium corporations, the people 
who run them have their families in them and they are more 
concerned about long-term planning, the jobs being solid and 
taking care of their children and grandchildren than they are 
about the value of the stock.
    It is very interesting to see how that culture takes a look 
at manufacturing and that is one of the reasons we believe that 
they have succeeded in keeping these corporations so 
profitable.
    We have a lot of things to talk about and I am just going 
to throw it up. Whoever wants to talk about any topic first, 
just raise your hand and you will choose the first topic. Who 
will be the first to go? Good, then I will have to say then who 
will be the second and that gets a hand up. Mike, go ahead and 
put the mike close to your mouth so we can hear you. Then if 
you want to talk for a couple of minutes and anybody wants to 
join in, just raise your hands. It is very, very informal.
    Before you do that, we have two members here, Congressman 
Green and Congressman Ballance. Did either of you have any 
opening statement that you would want to make? You are all set.
    Congresswoman Sue Kelly just joined us. Sue, did you have 
any opening statements you want to make? Okay. Thank you for 
coming.
    Mr. Wellham. Thank you, Mr. Chairman. The comments I would 
like to make today are tied to the procurement issues of the 
Department of Defense. I would like to discuss two issues as 
they relate to the titanium industry in general The first one 
being the Berry Amendment or the Specialty Metals Clause and 
the second one is the preferential trade treatment provided to 
foreign countries.
    Chairman Manzullo. Mike, you need to pull it closer to your 
mouth.
    Mr. Wellham. Preferential trade treatment provided to our 
foreign competitors. In regards to the Berry Amendment, there 
have been waivers granted that have adversely affected the 
domestic titanium industry and for those of you that may not be 
aware of what the Berry Amendment is, it simply says that 
specialty melted products that are used in defense applications 
must be procured from U.S. sources and must be melted in the 
United States.
    Today there are efforts by the Department of Defense and 
others to undermine the Berry Amendment. The Berry Amendment 
was originally adopted to ensure the continued strength of the 
U.S. Defense Industrial Base and compliance with the Berry 
Amendment is critical for the survival of the U.S. titanium 
industry.
    In addition to the critical challenges to the Berry 
Amendment that our industry faces, it is important to note that 
our trade policy now favors high-tech defense critical jobs in 
Russia over those in the U.S. through misplaced preference, 
known as GSP for imports of Russian titanium. There is no 
reason Russian titanium imports should have this preference 
over U.S. products.
    For both the Berry Amendment and GSP, all the U.S. needs to 
do is to enforce existing safeguards and disallow inappropriate 
preferences, but for reasons we cannot understand there seems 
to be opposition to both.
    So Mr. Chairman, I thank you and the Committee again for 
allowing RTI to participate in this discussion.
    Chairman Manzullo. Okay. Anybody want to comment on that? 
Yes, Charles.
    Mr. Wessner. I would be grateful, because I think the first 
speaker has raised a question that has some broader 
ramifications. There is actually a certain irony, because I 
think in Clyde Prestowitz's book, in 1986, he pointed out that 
a gentleman by the name of Frank Vargo, who I think is sitting 
not far from me, was raising concerns about the trends in 
American trade balance.
    I think it is very important that this session not be 
considered what some would see as a simple-minded expression of 
protectionist sentiment. Questions about trade are often 
characterized in very absolutist terms.
    On the one hand, there are right-thinking ``free trade'' 
advocates, and on the other hand are wrong-thinking 
``protectionists''. But in reality, trade issues, as you know, 
are much more complex and that is reflected in the trade 
negotiation process and the complexity of the trade agreements 
themselves.
    To paraphrase the President's remarks about Saddam just 
pulling up his weapons and dropping them in the parking lot, if 
we were just implementing completely free trade, we would not 
need 1,000-page trade agreements; would we? And we perhaps 
would not need a large enforcement office, although keep in 
mind we do not have a large enforcement office?
    The challenge of enforcement of trade agreements is 
something that successive administrations have not been able to 
get their arms around.
    What I have here--and I will not read to you, but I think 
is worth looking at--is a series of questions raised by the 
Science Committee, because they are concerned about the long-
term impact of their technology policy.
    I do not mean to be too outrageous, but I was thinking 
about the sniper events, the sadness that struck this community 
a year ago. I work on technology policy, but if you do not have 
an effective trade policy it is a little bit like saying that 
someone is shooting the children in your backyard and you go in 
and you tell your wife we have to have more children.
    Actually, your job as the head of a household is to protect 
your family and the job we have as a nation is to protect firms 
and provide them with a competitive environment, but one where 
they are also protected against predatory practices.
    One of the other key points that I would like to make here 
is that we tend to assume as a nation that we know what the 
rest of the world should do. We believe in a rules based 
liberal trading order and that has been very effective for us, 
but conditions are changing and our ability to maintain a 
liberal trading regime requires us to be able to maintain the 
economic leadership that we have had.
    Some of the policies, whether it is currency manipulation 
or desire to get rid of our anti-dumping legislation or 
discriminatory practices with investment, you can count the 
ways, all make it harder for us to compete.
    Mr. Chairman, my son is a pretty good soccer player. His 
team won the state championship. And one of the things that he 
taught me--I used to complain about the refs not being fair. He 
said, you know Dad, the refs are never fair. The objective is 
to win.
    Now China has understood that concept, and we are still in 
the back complaining about the refs. I think we need to start 
off with the idea that there is not some absolutist right or 
wrong in trade. The question is just how do we win for American 
citizens in the world economy?
    Chairman Manzullo. Any members want to comment? Anyone else 
want to comment on that?
    Mr. Coffey. I think that what Dr. Wessner says is 
absolutely right on target. We are in a situation where I 
believe most entrepreneurs are in fact interested or have been 
interested in free trade for a long time, but now they are 
starting to see economic effects that they do not understand 
and that the U.S. government cannot explain to them.
    And they have always looked at the U.S. government as a 
partner in their business, because after all it takes as much 
money out of the business as the owner ever does in taxes of 
various kinds. What their frustration is, is they do not see 
the U.S. government standing in their partnership role of 
protecting their market or trying to make sure that their 
markets are fair.
    That is really the core of the problem. I do not think we 
are here talking about protectionism. I think we are here 
talking about a market that is out of balance, that we do not 
understand why we are having the micro economic effect we are 
having.
    We understand some of the macroeconomic effect, but when 
you come down to the small and medium sized manufacturer, there 
is virtually no data to tell you exactly what is going on and 
how these free trade agreements have in fact impacted the micro 
economy while you can still have a macro economy that looks 
like it is growing and doing just fine.
    I think that is really the dilemma that we have to address 
to the administration is: Why don't we have the data? Why don't 
we understand these impacts and why are we rushing head-long 
into new free trade agreements when we don't even understand 
the impact of the ones we have already passed and implemented?
    Chairman Manzullo. We had the assistant of USTR, one of the 
assistants in our office and asked her if she had any data on 
the extent of foreign countries' purchase of U.S. procurement 
and vice versa. She said that data does not exist.
    I said, then why is it that in the new free trade 
agreements you continue to open up our procurement to foreign 
countries? She said, well the major corporations say this is 
good and I said, I can understand that and that may be the 
case, but with no data how do you forge ahead? Where do you 
open up our procurement the way it is?
    Mr. Coffey. We cannot even get the government to promise to 
enforce to buy American provisions that exist.
    Chairman Manzullo. Tell me about it. Right. That goes on 
constantly. Mark?
    Mr. Green. Thank you, Mr. Chairman. Something that you have 
in the materials that you have distributed I think is very 
important and I think we assume too often that lawmakers here 
in Washington understand it and that is your references to 
talking about the value of manufacturing.
    We have all seen the recent economic data that indicates 
that we are perhaps on the front edge of a recovery. It is 
anemic and it is uneven, but I think we are beginning to see a 
recovery.
    But I don't think we can get our arms around these 
challenges, if we simply look at number of jobs and 
unemployment statistics and not go deeper and look at the kinds 
of jobs that are being lost and the kinds of jobs that are 
being created.
    I do think we need to make sure that we understand the 
value of manufacturing. I think the public gets it. I think the 
public instinctively knows that when you lose manufacturing 
capacity you have lost something beyond simply losing numbers 
of jobs. It is deeper than that. It goes to the character of 
our economy. It also I believe has national security 
implications.
    I think we need to keep coming back to that issue of why 
manufacturing is our focus and why it is so important that it 
is not simply raw numbers of jobs. It is instead the character 
of jobs and getting our economic self-sufficiency and what 
manufacturing jobs mean in terms of spinoffs.
    In my home state of Wisconsin, Mr. Chairman like your state 
and your area in Illinois, we have lost a lot of manufacturing 
jobs and it is not simply the job loss. It is the manufacturing 
capacity and the damage to communities. All across my state we 
have small communities that have grown up around basically one 
or two manufacturers. They are the dominant part of the 
community. They are the character of that community and when 
that company leaves the community it isn't just the tragedy of 
losing numbers of jobs. It is the change in the character of 
that community. It is far deeper than that.
    I do think we need to keep coming back to this issue of why 
it is that we care about manufacturing. Mr. Chairman, you and I 
were in a session not so very long ago where Mr. Greenspan 
spoke and was talking about jobs and I notice you are nodding 
your head. As I recall, your dander was up on that day.
    Chairman Manzullo. That happens once in awhile.
    Mr. Green. And the reason I recall that is because the 
reference that the Chairman made, Chairman Greenspan, to how we 
should evaluate trade agreements and economic policy and 
paraphrasing him, anything that creates value to the economy we 
should support.
    It wasn't his opinion necessarily, but he was saying that 
there is a good debate going on right now as to whether or not 
we should be looking at manufacturing especially and that maybe 
we should just be looking at whether or not something adds jobs 
or not. Both you and I disagreed with the Chairman quite 
strongly.
    I do think we need to keep coming back to that and talking 
about why manufacturing should be a national priority, because 
although the public gets it, I am not always sure that a lot of 
folks out here get it. I think in their policies, our policies 
we are oftentimes shortsighted. We do not get to that 
distinction.
    Chairman Manzullo. I had asked Mr. Greenspan the question 
as to whether or not he agreed with the NAM statement that if 
we continued to lose 50 to 60,000 manufacturing jobs each 
month, this will affect our critical mass and the United States 
will have to get used to a lower standard of living. Mrs. Kelly 
was chairing that remarkable banking committee.
    He said, well what we lose in manufacturing jobs we create 
in a high value white collar jobs and I said, well we are 
losing those jobs rapidly also. He says, well this continues, 
it may be a problem. I think he threw in the word systemic in 
there.
    That is a good segueway. Frank, go ahead. I wanted to ask 
Jim a question, but let me raise that up and then you can make 
the comment.
    Your boss, Andy Grove, made the most astounding statement 
about three weeks ago, when he said that Congress has to adopt 
a policy, a national policy and he was vague on that, because 
he is not quite sure what the policy should be or who should 
establish it, but he is very much concerned that with our 
tremendous loss of high-value, white-collar, technical jobs 
going overseas that the United States is going to be in deep, 
deep trouble and we are trying to get him to come and testify.
    He is the first CEO that has come out and then he talked 
about the tough decision that he has to make as to his 
fiduciary obligation to increase the value of shares and he 
weighs that against laying off the human beings in America that 
have made the company great. You could just see the agony in 
his words.
    I just commend him so much and Intel is in the same boat on 
that. Did you want to comment on that and then we can go to 
Frank? You do not have to, but I just wanted to commend your 
boss for making that statement.
    Mr. Jarrett. Yes. Andy's point was to try and really awaken 
people to the fact that if we look at the software industry, 
you can see the beginning of trends of market segment share 
loss, just like we saw them in the 1980s in the semiconductor 
industry and earlier in other industries.
    His view is, there is still time to arrest this process, 
just as we were able to arrest it in the semiconductor industry 
and his real focus is to urge the government to recognize that 
the world has changed in a very substantial way.
    If you go back to the early 1980s, for example, China, 
India, Russia, they were not players in high technology. They 
were inward looking countries at that point. Today, those three 
countries, two and a half billion people all together, are very 
eager, committed players in high technology.
    So the world has become a much more competitive place now 
than it was 20 years ago for high technology and our point is 
that in addition to looking at kind of a number of policies of 
the government, we also need to be looking at what is the 
government doing fundamentally to urge and increase the 
competitiveness of American businesses, large and small?
    Our position is to really take a look at things that can be 
done, like looking at our tax laws, looking at R&D tax credits. 
They are really helping to stimulate and incentivize 
corporations to invest in research and development so that 
those new products that are going to come out of that pipeline 
and create the new jobs are really being urged.
    Looking at tax laws, looking at the government's financing 
of research and development in basic research and development. 
There has been a very nice tandem that has always existed in 
the United States where the government shoulders most of the 
burden for funding basic research at the universities, at the 
national labs, at the research institutes in America and the 
American corporations shoulder most of the burden for applied 
research and development.
    In recent years, that has not been growing as rapidly as it 
should, the basic research funding particularly in the physical 
sciences that are really behind the advances that have taken 
place in things like physics and chemistry and other areas.
    Looking at those kinds of things and then also looking at 
something very, very fundamental, looking at the quality of our 
K through 12 education system, which particularly in the math 
and science area, you know our students just are not keeping 
up. They are not competing and people like Intel we need those 
people for the 21st century jobs to be very competent in math 
and science.
    Those are not short-term things. They are long-term, 
systemic kinds of actions that need to be taken, but we think 
it is important and we think it is something that the 
government can do that will make a difference.
    Chairman Manzullo. Let us go to Frank. I am sorry. Mrs. 
Kelly.
    Ms. Kelly. I simply wanted to ask a question of all of you 
and perhaps you have already discussed this before I came in. 
Absent changes in the tax laws, which are more difficult to do, 
it seems to me that having studied this problem for a number of 
years here in this Committee, there might be a possibility that 
we can attack this through training and educating procurement 
officers.
    I do not know how much of that is done by the government. 
Maybe you can tell me, but the other thing is by constructing 
the bid situation so that we are looking at best practices and 
so forth when you submit your bids, because these things are 
let out by bid, perhaps we can give a leg up to U.S. 
manufacturers in that way.
    I would be interested in your opinion about that. Anyone 
can answer. Jim, since you were talking, do you want to start?
    Mr. Jarrett. I really cannot there, because that is an 
aspect of the business that we are not really involved in very 
much. We are in a largely commercial sector where it is not a 
bidding process.
    Chairman Manzullo. Congressman----.
    Mr. Jarrett. I will leave it to others.
    Chairman Manzullo. Frank?
    Mr. Vargo. I would like to respond to that and then be able 
to make a few more general comments also. I agree with you 
fully and we have started discussing that within the NAM, 
because the NAM represents 10,000 small companies, as well as 
4,000 large ones and increasingly with the pressure that our 
smaller companies are under just to stay in business, to be 
able to extend the loan for another six months and hold on to 
the customers, they do not have the time to look at how can 
they improve their businesses.
    With the incredibly efficient distribution structure we 
have in the United States, it becomes increasingly necessary 
for small companies to know how to deal with big buyers and 
they do not.
    We actually have been thinking along the same lines that 
you are in looking at what can we do to build in best practices 
and maybe bring some of the large buyers and smaller 
manufacturers together, because a lot of this does come down to 
marketing and know how. So we do agree with that.
    Could I make just a more general comment?
    Chairman Manzullo. Sure.
    Mr. Vargo. Responding to what Congressman Green had raised 
about manufacturing, because a lot of people look at 
manufacturing and say, look, it is 13, 14 percent of the 
American work force. You know who cares? It is a very small 
factor.
    But manufacturing really undergirds the entire American 
economy. It is where the innovation comes from. Frequently 
people say, well, manufacturing is going to go the way of 
agriculture, where three percent of the work force can feed the 
United States and half of the rest of the world. But why can 
agriculture do that? It is because of the genius of innovation 
that came out of John Deere and CNH and many other companies in 
developing the equipment that makes agriculture productive, the 
fertilizers, the seeds, et cetera and so it is with the rest of 
the economy.
    If we do not have a vibrant, growing manufacturing sector, 
we just are not going to have growth in the economy at all.
    Also, people overlook the fact that manufacturing is 
basically how we pay our way in the world. When I ask many 
Congressional representatives to estimate what percent of our 
exports are agricultural goods? Most commonly I get an estimate 
30 percent, 50 percent. It is not. It is eight percent. 
America's farmers export about 50 billion a year and America's 
manufacturers export almost that must every month.
    Now America's farmers have real, real trade barriers as do 
our manufacturers overseas and we need to open up markets for 
them, but my point here is that manufacturing accounts for two-
thirds of all of our experts of goods and services and nothing 
can make up for that. We have to have a very healthy, vibrant 
manufacturing sector.
    Ms. Kelly. Let us go on around the table. Dr. Wessner, did 
I pronounce that right?
    Mr. Wessner. Wessner.
    Ms. Kelly. Wessner. Dr. Wessner, if you could make it 
brief, because we have a certain limited period of time and you 
did speak. I will go on to the next two hands I saw, but please 
go ahead.
    Mr. Wessner. Thank you. I appreciate the opportunity and 
forgive my enthusiasm.
    Ms. Kelly. We are glad to have it, sir.
    Mr. Wessner. I would just like to make two quick points. In 
1996, we wrote the saying that the $36 billion deficit with 
China was likely to rise. We had a very difficult time in the 
academies with it when we described the different objectives in 
the trading system.
    In 2003, no one wants to talk about the $103 billion 
deficit with China, and neither do the reviewers want to talk 
about it, but we are now talking about how we retain the 
semiconductor industry. So I am particularly pleased that you 
have invited a representative of Intel, because from the 
perspective of basic research from the efficiency of our other 
sectors, from banking to trucking, if we lose our edge in 
semiconductor technologies and applications, we have lost a big 
part of what makes the U.S. economy work.
    I would simply hope that at some point we can talk about 
some very specific things. May I say, with the greatest 
respect, some of what is wrong comes from this building and I 
think it is important that we not just complain about the trade 
practices of our friends in east Asia, but that we talk about 
how we can make things better for companies like Intel and IBM. 
They are integral to the nation's economic fabric. They support 
an amazing array of both service companies and suppliers and 
share R&D consortium.
    In basic research in the 1960s, the Congress in its wisdom 
provided 2 percent of the GDP in R&D. Now, the Congress in its 
wisdom provides 0.8 percent. We have had flat federal R&D and 
rising private sector R&D, yet we have dropped dramatically in 
the very sectors of physics and chemistry and mechanical 
engineering that support the gains that have characterized the 
economy since the mid-1990s.
    I want to be clear. We are not doing special pleading for 
the semiconductor industry. We are doing special pleading for 
the American economy, and we really think that there are a 
series of very concrete things, such as partnerships and 
targeted R&D tax credits--and I take your point about taxation. 
There are a number of things that can be done which would help 
large and small companies alike.
    Ms. Kelly. Dr. Wessner, I am glad you brought that up. For 
the last nine years, I have represented the home base of IBM. 
At one point in the early 1990s, IBM furloughed out 14,700 
jobs. On top of that, General Motors closed its plant in my 
district and furloughed out 7,000 more.
    I know what you are talking about and I know that there are 
ways that we in this building need to react to enhance the R&D 
that is coming. If we do not, it is my personal opinion that 
the U.S. economy will not have anything further to drive it 
into a better and better position worldwide.
    You could not be talking to somebody here in this seat 
anyway that would agree with you more.
    Mr. Wessner. Delighted to hear that, ma'am.
    Ms. Kelly. I would like to go now, I saw the hand of Mr. 
Howell.
    Mr. Howell. Back in the 1970s, as you know, there was a 
competition emerging between the states for manufacturing 
industries. We saw the Sunbelt emerge and industrial 
development authorities in places like Arizona and New Mexico 
making pitches to companies based in New Jersey and the 
Northeast to move out there. And they used a variety of 
incentives to do that, infrastructural support and tax 
abatements and so on.
    That competition is now global and it is being waged at the 
international level between countries and we are seeing the 
same kinds of incentives, plus more powerful policy tools being 
used by other governments. Things that were not available to 
U.S. states in the 1970s.
    For example, Arizona could not offer a protected market to 
a company that invested there. You would have no competition 
from outside Arizona in Arizona because of a tariff or 
something and yet we do see that vis-a-vis China, where the 
Chinese have got a preferential value added tax for the 
semiconductor producers that are based there and it is causing 
a huge wave of investment in China that might not otherwise be 
occurring.
    The states could not offer exemption from federal income 
tax. If you settle your factory in Arizona, you are not going 
to pay any tax. Taiwan and China are able to offer essentially 
that incentive to firms that locate there.
    Arizona could not offer individual exemptions from income 
tax. If you are working in a desirable industry like software 
design, they could not promise you would not pay any federal 
taxes or state taxes, but those kinds of things are available 
in China and Taiwan.
    Those kinds of incentives, as much as the pure economics, 
are what is driving this offshore movement of manufacturing 
investment in jobs. There is not really a coherent U.S. 
response to that yet. There is obviously a lot of concern, but 
we need more of a concerted answer as a country to that 
challenge that we have got so far.
    Ms. Kelly. Thank you very much. Mr. Gaskin, I saw your hand 
and I then will go to you, Mr. Freedenberg.
    Mr. Gaskin. Thank you. Many people have arrived since we 
went through introductions, so let me just say again that we 
represent the metalforming industry in the U.S., mostly small, 
middle market companies.
    There are four levels at least, there are probably lots 
more, but engaged in this. You have the SMM's, those companies 
that we represent and Matt does and some other. We are really 
the heartbeat of America. They have created the jobs in the 
last ten years and they are in trouble.
    We have multinationals. We have consumers that love low 
prices, but we really have a need in the public for jobs and 
that is what I think we have to respond to.
    This last two years, almost a third of my member companies 
have lost money. These are privately held firms, tens of 
thousands of them across the country and they will not be here 
in three years or in two and a half years, if something does 
not happen.
    There are short-term things and longer terms things. Steel 
tariffs, which we happen to have been engaged in, in the last 
few years, have had a dramatic impact on jobs, shipping them 
offshore, accelerating decisions to produce things in other 
countries. You cannot document that, but you know it is 
happening.
    Sixty-eight percent of our member companies last January 
reported that they had lost jobs to foreign countries. That is 
an acceleration over the year before and the year before that.
    I think we do need to be looking at fixes that are short-
term. Some things like getting rid of tariffs, but otherwise 
really attacking cost issues, the legal environment, the 
product liability environment, the regulatory environment. Some 
real quick, concrete action to lower the cost of doing 
business.
    Health care, I do not know how to solve it, but what we 
know is that every year more and more of our small middle 
market companies have to give up covering their employees, 
because they cannot afford it and stay in business. It is a 
miserable situation. That just is not right.
    So there are some very concrete cost things and then the 
incentives and some people have mentioned already R&D. You know 
that is important to small companies, but it is really 
important to big companies, because they are our customers. If 
they do not have new products for us to make parts for and 
components for in this country, we are out of business. R&D is 
really important to them as well and then currency issues and 
level playing fields.
    Ms. Kelly. Mr. Gaskin, I just want to ask you, you 
mentioned just briefly currency issues. Do you want to 
elucidate that a bit?
    Mr. Gaskin. Frank Vargo is the expert in the room perhaps 
on it, but there are a few things that we can do. Eliminating 
tariffs are one of them, but keeping the pressure on the 
Chinese and others to correct the currency imbalance is 
another. We do not control that in any sense of the world, but 
we can keep pressure on.
    The resolution that is going through the floor today is a 
good reminder to everybody that we need to take action and keep 
the pressure on. I credit those in the administration and in 
Congress who have given the Chinese officials some gas in the 
last few months about currency manipulation, because it needs 
to be said. It needs to be done. We need to keep pressure on.
    Ms. Kelly. Thank you. Dr. Freedenberg?
    Mr. Freedenberg. Let me comment on the currency issue first 
and then go to another. My emphasis would be on the need for 
speed in that area.
    The Chinese are going to want to buy time, because our 
argument is irrefutable and so they are going to play for time. 
John Minor Kane said in the long run we will all be dead and 
that is what is going to happen to a lot of American industry 
if we let them play for time, because they would like to have 
the adjustment after they get their financial house in order.
    That certainly would not be in the next few years. We 
really do need to keep the pressure up. The President has made 
it an issue. The Secretary of the Treasury has now made it an 
issue. But I think the fact that Congress is pressing the 
administration is very, very important because otherwise we are 
going to see the same deleterious effects that have had such a 
really bad affect on the American industry.
    It also parenthetically keeps other Asian countries from 
adjusting, at least that is their justification. They say they 
cannot afford to as long as the Chinese do not adjust. They do 
not want to lose competitiveness to them. So that is why it is 
very important for us to keep this drive up right now.
    Secondly, it was pointed out by my colleague from Intel, 
there has been less R&D money and that is something that we 
felt as well in the machine tool industry. We have recently 
begun a new smart machine initiative and we have put some of 
our own money in as seed money, but what Congress has done 
lately and it is just the reality of a tight budget, they have 
cut the funds, I would say with OMB's advice, for programs such 
as MEP and advanced technology program, which then hurts us in 
terms of developing the kind of labor saving machinery and 
efficient machinery that will keep jobs in the United States.
    It sounds funny to say labor saving will keep jobs, but if 
you do not have the factory open, you are not going to have any 
jobs. We are not going to compete with cheap labor. We are 
going to have to compete with what America has always competed 
with, which is great technology.
    In the area of basic manufacturing, we are not putting the 
money in that we need to, to stay on top; whereas the Europeans 
are, the Japanese are and other competitors are, but we are not 
and the result shows up in a few years. It is an inevitable 
result. I would just like to put my word in for that.
    Ms. Kelly. Thank you. Yes, Ms. Darien.
    Ms. Darien. I am here on behalf of the National Association 
for the Self-Employed and amongst this well respected group I 
will not pretend to be an expert on manufacturing, but what I 
am aware of and what our members are definitely aware of is 
that the effect of the crumbling manufacturing sector has 
occurred to micro businesses and these are businesses that are 
suppliers, retailers. These are the plumbers. These are people 
who have all been affected by the depleting manufacturing base. 
They are losing jobs.
    They are losing clients and in my research, I really had 
not found any sort of surveys or studies that really quantified 
this effect. You know how the manufacturing base and how it is 
depleting, how that is affecting on a larger scale small 
business, micro businesses, independent contractors that they 
contract out to and that is really a large concern for our 
association. I am sure that that is a pretty significant 
number, if we could find out what that actually would be.
    A couple of things pointed out by our members are obviously 
costs. The current cost to run their business is just 
astounding and the biggest cost is health care. I do not think 
you can effectively assist manufacturers if you do not take 
care of the health care crisis that is going on right now.
    I think that a big focus on trying to assist this sector of 
the economy is to deal with the current health care climate. 
Thank you.
    Ms. Kelly. Thank you very much. Where are we now? Who wants 
to speak?
    Mr. Carr. I am struggling with what is left to say. The 
program I work with, Manufacturing Extension Partnership, deals 
a lot with the very small firms that are represented here, a 
lot of whom are self-employed and 75 percent of which are part 
of some sort of supply chain.
    There is a quote from Alexander Hamilton we sort of keep up 
on our wall and it says, ``Not only the wealth, but the 
independence and security of a country appear to be materially 
connected with the prosperity of its manufacturers''.
    This idea that you can call out one of the three primary 
sources of wealth creation in the country and still live with 
anything close to our current standard of living is somewhat 
ridiculous.
    More than anything, we are heavily involved on a day-to-day 
basis trying to help these small- and medium-sized 
manufacturers, which have the health care costs and face 
environmental challenges, remain competitive primarily through 
use of technology and technology adoption.
    It is possible. We are dealing with a lot of companies now 
that are adopting new technologies, that are thinking more 
strategically, who are embedding, if you will, more innovation 
into their manufacturing processes and as a result of that, are 
surviving, but we are just a tiny piece of this very big 
problem. We serve roughly 21,000 small manufacturers a year. 
There are 350,000 small manufacturers.
    Our focus is on the health and the welfare of that 
manufacturer, not only just as a stand alone company, but also 
as a sort of integrated system of supply. A comment that was 
made earlier I believe by Mr. Howell is this idea that we are a 
smoke stack chasing the world at this point. What the states 
did with each other is now being played out on a global scale.
    So the idea of having an infrastructure, which is one that 
provides the best environment, if you will, conducive to doing 
business in the 21st century is where we place a lot of our 
focus. The tools, the technologies, the systems, and the 
processes necessary to at least get our firms as competitive or 
as high performing as possible is really the role that we are 
involved in.
    I am happy to report that there are firms that are 
surviving and are growing and are identifying niches, but I 
think the level of resources that we represent to this overall 
problem is just scratching the surface, if you will.
    Chairman Manzullo. We have not heard from Janet or Molly.
    Ms. Brogan. I was actually just going to raise my hand. 
Best for last, right? I would like to echo a couple of comments 
by Mr. Gaskin and Ms. Darien.
    First of all, I think we need to take a look at this and 
this is coming from the woman who is representing the National 
Small Business Association. I think we need to look at this 
also a small business issue.
    The cost of doing business is skyrocketing. The cost of 
health care is skyrocketing beyond that. I think there are a 
lot of small solutions that we can implement. Small piecemeal 
things we can do, but it may not get to the root of the issue.
    Ms. Kelly, you mentioned procurement and training with 
procurement options and while I think that is a fantastic idea, 
I can tell you that small business procurement is difficult. 
Some agencies are actually exempted from FAR. I mean when we 
are dealing with those kind of exemptions and these kind of 
loopholes and things like that, it is a deeper issue than just 
training and talking to procurement officers. While I do think 
that will help, I think we need to go that next step.
    In addition to my gloom and doom that we need to do this, 
that and the other thing, I wanted to let you know some results 
that we got from a survey we just did of our membership.
    More than 90 percent of the small manufacturers that we 
surveyed said that they expect their work force to grow or 
either maintain its current status. I think that is a small 
glimmer of hope. I think that is a good thing.
    I also wanted to let you know that in addition to those 
good facts, two percent said that they have moved some portion 
of their operations overseas this year. Seven percent said they 
are considering it for next year. That is not a good statistic.
    That is something that should be an alert to us that we 
need to continue these discussions, these roundtables with 
experts in the field of manufacturing, experts in the field of 
small business, experts such as yourself who have been here and 
heard these arguments and been through these conversations.
    I just encourage us to take an entrepreneurial look at it 
and look at it also as a small business issue, because I think 
that will help us come to a larger, bigger solution versus 
piecemeal things here and there that may help this sector or 
that sector.
    Chairman Manzullo. Janet.
    Ms. Kopenhaver. Okay. I have actually been holding off 
because I did not have a quote. Everybody was quoting and the 
only quote I could think of was, if you like sausage and 
respect the law, then don't watch either being made. That just 
came into my head.
    I do appreciate the opportunity to be here. I think this is 
a great forum. As you said, there is not much else to add. The 
American Wire Producers Association members are having big 
problems with health care. Most of our companies are small 
businesses who are just getting killed by the increasing costs.
    The currency issue is another important issue for us that 
we are working on. I did bring with me in response to actually 
a request from the Chairman, who I guess you were conference 
called in to a meeting one of my members had with Mrs. 
Napolitano, you had asked for some information on nails. This 
is just one sector----.
    Chairman Manzullo. Foreign nails.
    Ms. Kopenhaver. Foreign nails. Right.
    Chairman Manzullo. Okay. All right.
    Ms. Kopenhaver. It is just one product that our members 
make, but it does give a little tiny snapshot and if you 
multiply that times however many thousandfold of small 
businesses being hit by these problems in the U.S. it tells a 
big story.
    Basically overall imports of these products have grown. 
From 2001 to 2002, the imports grew by 25 percent and by a 
further ten percent in the first half of 2002 to 2003. Imports 
from China, since 2001 have increased by 119 percent. They are 
killing our nail producers.
    Over eight companies in the last couple of years have just 
shut down. Our largest nail producer has really decreased 
dramatically the amount of nails that they are producing. 
Overall the industry has, in the last couple of years and this 
is not a large figure, but they have laid off more than 1,000 
people and it is more than half of the companies that were in 
the U.S. that were manufacturing nails are no longer in 
business. Again, it is just one snippet. one tiny sector, but 
it tells a big story I think of just nationwide.
    Again, thank you for inviting us.
    Chairman Manzullo. Let me ask any members what are you 
hearing from your constituents? John?
    Mr. Peterson. John Peterson, Pennsylvania. I represent a 
large rural district in northern Pennsylvania, 16 counties. In 
the last two years, the year 2001 and 2002, my actual count is 
17,376 manufacturing jobs gone. That is more than a thousand a 
county. These are small rural counties.
    That pace has continued in 2003. I lost one company and 
that was over 1,000 itself and I lose one almost every week it 
seems like. If we have a good week, we did not have a company 
downsize or close.
    I guess I want to ask a couple of questions. A number of 
you have mentioned, I am very focused on China myself, because 
I do not think it is fair competition. They are not sleeping in 
Mexico. They have a game plan. They are working it. They are 
doing it very well and you have to give them credit. They are 
smart businesspeople. We have not had a low labor market that 
anywhere near could compete with them. This is a giant.
    An issue that many of you have brought up that we are doing 
nothing about in Congress is the cost of health care. Would you 
consider maybe that the largest down pressure at the moment, 
especially for the smaller ones?
    My friends that run larger companies self insure, have some 
ability to control their costs and get an affordable price. If 
you are a smaller business, you are an entrepreneur, I was a 
supermarket operator for 26 years, so you have no ability to 
control your health care costs.
    Over half of America is served by one insurer for health 
care and there is nothing. Nobody is even discussing it. You 
know and I know that a monopoly never gives us a good price and 
when you allow monopolies to exist in over half of America as 
one insurer and they are not green and they invented the system 
we have, God bless them, they really were the ones, but where 
they control the marketplace, our businesses are not going to 
be competitive.
    Now you add to that exploding energy costs and if you use 
natural gas to heat, melt, cook, bend or if you use it like the 
petrochemicals and fertilizers and polymers as an ingredient 
and also as fuel, you will not compete today with Europe having 
natural gas at half our price.
    One of our chemical companies recently moved 2,000 jobs to 
Germany. Germany. That is not a cheap place to do business. But 
natural gas costs half as much there.
    If we do not get a handle on energy costs, health care 
costs, China may not be the biggest problem when you come right 
down to it. They are a huge problem.
    Another thing that is really undervalued in Washington, 
some states value it and those who value it are doing much 
better, is technology education. You listen to the Department 
of Education, I sit on HHS. They talk about academics, 
academics, academics and they are important.
    If you are not using the latest technology, if you do not 
have high field technical workers today you cannot compete with 
cheap labor. That is the only way we can compete with cheap 
labor is use the best technology.
    The federal government has not invested hardly anything in 
technical education, in my view. Have not valued it. Now some 
states are doing it very well and they are adding Congressmen 
where states like mine is losing Congressmen every ten years. 
You see that through redistribution.
    In my view, it is a much bigger picture than just foreign 
imports, whether it is tort reforms or whatever. We have a lot 
of issues that we need to allow our companies to be competitive 
with costs.
    Chairman Manzullo. Chris Chocola.
    Mr. Chocola. Thank you, Mr. Chairman. I am Chris Chocola 
from Indiana. Indiana is a state that is very heavily reliant 
on manufacturing. My district in particular is north central 
Indiana. We have lost several manufacturing jobs.
    In fact, I am a freshman member of Congress. I have not 
even been here a year yet and I came directly from a lifetime 
in manufacturing. I spent my whole life in manufacturing and 
ran for Congress in large part because I thought we needed more 
people with that perspective here.
    The disappointing thing since I have been elected though is 
I think we have all stated the case very well. I think there is 
no question that we have lost manufacturing jobs in America. 
There is no question a lot of them are moving overseas.
    We can keep talking about that all day long. The question 
is: What do we do about it? I may have been a member of some of 
your organizations. Certainly you all have members of your 
organizations in my district and I hear from them daily. I 
visit them on a regular basis.
    I hear the problem stated all the time very clearly, but I 
do not hear what the solution is. I think it is so important 
that stop complaining and start focusing on what do we do.
    In Congress we have done some things. Certainly association 
health care plans to talk about health care costs, not the end 
all but it is a step in the right direction.
    Some tort reform that we have not been able to get through 
in the Senate. Again, there are a thousand pieces of this 
puzzle and there has been progress on some of them, but I would 
consider it a small victory if I walk into one of your members' 
organizations and they say, we have complained enough, but 
these are the things we ought to do.
    That you are educating them and we are educating them on 
what the solutions are, rather than just the problem. So as a 
former businessperson, if you complain much and do not do much, 
you go out of business quickly.
    All I hear a lot of times is the low hourly cost in foreign 
countries. That is certainly an issue, but we are not going to 
compete with that. In our business we had 1,300 employees.
    We never would have moved our business because of low 
hourly wages. It was a very small part of our total cost of 
doing business, but the 134 lawsuits in Barber County, Alabama 
was a real problem. The $100,000 that IDEM wanted us to put 
into a paint booth the size of that picture basically that we 
did not paint more than once a month in.
    The fact that we had the highest catches on corporate 
profits in the industrialized world essentially. Those are 
problems that we all need to work together on and we need to 
get your members focused on and we need to be able to talk 
about it when we go visit their businesses, rather than just 
stating the problem over and over again.
    I think certainly everybody here is on the same page. I 
hope that we can have a much more substantive discussion on 
what the solutions are in the future rather than just stating 
the problem.
    Chairman Manzullo. Mrs. Kelly and then Mr. Ryan.
    Ms. Kelly. I just want to pick up on what Mr. Chocola has 
just said and go back to you, Mr. Vargo, because you said that 
the NAM has ideas about what we can do here that would provide 
some solutions.
    It is absolutely essential that we work with you and with 
every person here and every association. We need the tools from 
you so we can fight the battles here that give you the tools to 
do the work that you need to do here in the United States and 
keep those jobs.
    I am sure that the Chairman would agree with me that if you 
have ideas and you are willing to come in and speak with us 
about them, we have very open doors and open ears. Please do 
that.
    Mr. Vargo. Thank you. We do and we will. Of all the 
problems we face, by far the most serious is the rising cost 
pressures and the inability of manufacturers to raise prices. 
Let me just illustrate. Since 1994, U.S. manufactured prices on 
average are six percent lower today than they were then, but 
the prices and the costs and the rest of the economy are up 
about 18 percent. We have had to absorb all that and the way a 
lot of companies have absorbed is just by going out of business 
or looking at going offshore.
    What raises these? Health care. Absolutely number one and 
unfortunately I do not have the solutions on me, but we have to 
find them.
    Energy costs. This is a relatively new item, but it is 
going to drive a lot of our chemical and plastic and other 
companies out of this country, because energy is cheaper, as 
you note in Germany and other places.
    Cost of litigation. These ludicrous asbestos suits. Come on 
now. How long has Congress been going around this. We have got 
to do something about that. We have got to get the cost of 
litigation down.
    We have to do something about the fact that it takes longer 
to get a patent now than it did five years ago. We have got to 
do something about the fact that we are graduating fewer 
engineers today than we did five years ago and ten years ago 
and about half of our graduates students in engineering schools 
are foreign students who are going to take their educations and 
use them to develop technology and other questions. I don't 
have a complete agenda with me.
    Chairman Manzullo. We have a seven-point handout.
    Mr. Vargo. We want to move on then.
    Chairman Manzullo. Congressman Ryan.
    Mr. Ryan. Thank you. Chairman Manzullo, thank you for 
putting this together for us. Part of it is finding solutions 
to what the problems are.
    I was home this past weekend and Chairman Manzullo and I 
have a tradition that we go home for the weekend and we come 
back and we exchange war stories as to how many jobs we have 
lost and where they went and what industry they were in.
    I missed the beginning and when I went home this weekend, I 
had manufacturers tell me that the banks are not even loaning 
them money anymore and in some instances pulling money out 
already.
    When I came in you were talking a lot about R&D and I heard 
health care. None of these are issues that transcend any 
particular industry.
    I do not want to start a discussion about two of the major 
issues that we have in Congress today, the war and the tax 
cuts. I do not want to open up that can of worms, but I would 
like to do is just whoever would like to comment on this.
    The money that we have spent on tax cuts, say for instance 
over the last couple of years, would it benefit your industry 
more if we took that money and put it somehow into the health 
care for you or put that money into research and development? 
Just say the same money, whatever dollar-for-dollar and there 
are all kinds of numbers floating around. I do not even know 
what the exact one is.
    Would that benefit you more if you had that much money that 
we spent on the tax cuts? Would you rather have seen that in 
research and development money or prescription drug coverage 
that would alleviate a lot of the health care problems.
    Chairman Manzullo. That is a loaded question. Does anybody 
want to handle it? But it is a good question.
    Mr. Ryan. If not, say it. We are here to find out what the 
answers are.
    Mr. Coffey. I think when you look at any business, you have 
to look at five factors in the business. You have to look at 
the market. You have to look at the technology. You have to 
look at the organization. You have to look at the human 
resources and you have to make sure that in any solution, any 
approach you take that you address the drivers of a business so 
you do not get down to a situation that says, well if we spent 
the money this way versus that way, would it be better for you, 
because the business needs you to look at what they are trying 
to do in a balanced way.
    If you spend it on straightening out the market, which we 
have talked about the instability in the market and we have 
several recommendations for how to solve that problem or at 
least address that problem, then you go to technology.
    There are plenty of people here who would say we need more 
R&D investment. All right. Then you go to human resources and 
there are plenty of us in this room and outside this room who 
would tell you nothing innovative occurs in a society unless 
human beings are highly trained and highly skilled at the 
working level.
    If you are not going to do that, which the federal 
government has not been doing, then we are not going to make it 
in terms of innovation.
    In any competitive situation, like we face right now, the 
future of the industry in the United States depends upon 
innovation. We have to come out with new things that are not 
now out there.
    What we have is a super efficient global economy for the 
copying of everything that is out there. What we need is the 
innovation. What we need is the investment in people to create 
that innovation and in fundamental basic R&D as you have heard 
here before today, to make sure that we are out there exploring 
those perimeters.
    Chairman Manzullo. I want to go to Congressman Ballance. My 
nephew was an engineer. Good kid. Lost his job at EDS in 
Milwaukee. It was a massive layoff and they shipped those jobs 
over to India and other countries. It just amazes me how we can 
talk about more education, more R&D, more people being 
involved, not enough people involved in engineering schools.
    Where are those jobs going to be? Do you know the number of 
unemployed engineers in this country? I could name my nephew 
for one. Who is going to take care of these kids that are 
unemployed now? We are talking about more education. The kid 
went to Milwaukee School of Engineering. He is a tremendous 
engineer.
    You know what he did? He got laid off from EDS and he said, 
you know life is short and he is remodeling homes now, because 
he can make a turnaround on it. He can be his own entrepreneur 
on it. He went for months without being employed.
    Mr. Ballance and then we can go over to whoever raised 
their hand. I thought I would throw that in, Frank.
    Mr. Ballance. Mr. Chairman, thank you so much for this 
roundtable. I came to listen and I have enjoyed the comments 
that I have heard. I do have to go to a rural meeting and I 
wanted to comment before I left.
    I represent a rural area of eastern North Carolina, 
northeastern that is heavily dependent on textiles and now many 
of those towns and all of those jobs are gone.
    I have always believed that one of the key roles that the 
government should play in this national government inclusive is 
creating a framework where businesses can foster and prosper. I 
am not sure that we are doing all that we can do or should do, 
because if you are in business, you are looking at the bottom 
line. You are not out there just to try and help people. You 
are out to make money. If you help people in the same process, 
then that is good.
    But Mr. Chairman, I think that we have to have an 
environment, tax wise and otherwise to make these jobs 
attractive to businesspeople to keep these jobs in America and 
apparently that is not happening right now, because all of the 
jobs are leaving.
    Chairman Manzullo. Congresswoman Millender-McDonald.
    Ms. Millender-McDonald. Thank you, Mr. Chairman and I thank 
you all for being here. I represent Los Angeles' south bay part 
of southern California. Senior member on transportation so we 
have the ports of Los Angeles and Long Beach. Also I represent 
from Watts to Virginia Country Club. You are talking about a 
dichotomy of trying to balance the whole notion of the needs 
and services of my constituents.
    When the gentleman talked about innovation, you are 
absolutely right that there must be innovations. There must be 
investment in people, but we must all come to the table with 
solutions for that, because we have children and grandchildren 
who are already in college, who are contemplating coming out 
finding a good American job. It is incumbent upon us to make 
sure that those jobs are here.
    When the Chinese businessmen were here a couple of weeks 
ago and I asked them about the currency manipulation that they 
are doing, they said do not blame us. Blame yourselves. Perhaps 
they are correct. We must blame ourselves.
    We must look at the solutions for health care cost. It is 
absolutely skyrocketing, but it is incumbent upon us and you to 
help our future generations for finding the type of nexus that 
will give them the jobs that they want.
    I have a granddaughter who is nine years old who has just 
run for vice-president of student council. My God I says she is 
already going into politics. But what she said is that, 
Grandma, why is it that every time I look at a label it says 
made in China? I says, you have been here before. My goodness 
with that type of mind. She is extremely bright. She is 
concerned already at nine years old as to why the labels were 
saying made in China.
    I think we must find the innovation. When we have the HB1 
bills that are coming out of this Congress, where we are 
bringing people over from India and all to do the jobs that his 
nephew could have done as an engineer, it is high time 
businesspeople that we work together. Business is our business 
and business is your business, but business should be all of 
our business in trying to find solutions.
    We do not have those answers today, but we must have other 
open discussions like this talking about the recent tax policy 
and why that has failed to encourage manufacturing sector jobs. 
That is something that you guys need to tell us. What has 
happened? Why has that not created the jobs that we thought 
would be contingent upon this tax policy?
    What can we do? We are all groping in the dark for answers, 
when the answers must be among all of us? So when the gentleman 
says innovation and investment in people and the five factors 
are that of marketing, technology, organization and human 
resources, you are absolutely right. But the question is: How 
do we get there?
    Chairman Manzullo. Mr. Schrock.
    Mr. Schrock. He had a question. He had a comment.
    Chairman Manzullo. Let me----.
    Mr. Schrock. Okay. Thank you, Mr. Chairman. I am sorry I am 
late, because I love discussions like this, but I was meeting 
with some Defense people, which kind of ties into the question 
I want to ask Mike Wellham, as it involves the joint strike 
part of the F-22, the F-18, the M-1 A-1 and all that sort of 
neat equipment that we need in the military.
    I understand that your company is one of the major 
producers of titanium, supplier of titanium in the U.S. for 
defense and aerospace companies and U.S. statutes that were 
created right here on the Hill require that all titanium 
products delivered to Department of Defense must be smelted 
domestically to protect production capabilities, such as yours, 
but it also came to my attention that your facility now is in 
Ohio, not far from where I was born and raised oddly enough.
    It is currently experiencing a work stoppage due to a 
contract dispute with your union employees and I think you had 
the same thing three or four or five years ago. What is your 
plan to fulfill the needs of the major aerospace and defense 
suppliers, since they are limited in sources of titanium for 
production and you are likely the sole source supplier in many 
cases? It is a catch 22 I am sure.
    Mr. Wellham. It is a catch 22 and it is a double-edged 
sword, because on one hand we have our customer base, including 
the federal government coming to us on a regular basis and 
asking us to lower costs, on the other hand we have a union 
environment in which our costs are not in line with our global 
competition.
    We are looking at those costs trying to determine how it is 
we can drive costs out of our business to make us more 
competitive with our global competition and to make up for some 
of the trade issues that we are dealing with.
    But how to serve the customers, particularly in this time 
when there is a labor stoppage, fortunately or unfortunately, 
which way you want to look at it, the demand in the titanium 
industry as a whole currently is half today what it was five 
years ago.
    There is an overabundance of capacity in domestic as well 
as foreign titanium currently and quite frankly, we expect our 
labor dispute to be settled in a reasonable time frame, but we 
also expect that we can support our existing customer base with 
the non represented employees that are currently in place at 
our mill.
    Mr. Schrock. It is a problem, because when you had Defense 
platforms and ships and fighters and such that need that stuff 
it could certainly impact the way we react around the world, if 
just one little product like that is held hostage and that is a 
problem. Believe me, I want things to stay on shore too. I am 
tired of everything going offshore.
    You heard a few folks say here, somehow we have to balance 
that and try to help solve some of those problems so we do not 
have it, because you could be held hostage by your workers and 
that could be a very bad thing.
    Chairman Manzullo. Congressman Shuster.
    Mr. Shuster. Thank you, Mr. Chairman.
    Chairman Manzullo. Do you want to pull the mike closer?
    Mr. Shuster. Thank you very much. I apologize for coming in 
late and having heard all the discussion and some of the 
questions I may pose you might have talked about already, but I 
certainly would like to hear your answers.
    I hail from rural Pennsylvania. I do not know if Mr. 
Peterson has spoken yet, but our districts border each other 
and we are losing our manufacturing base in rural Pennsylvania, 
the rural America.
    I do not believe that we are ever going to be able to 
compete with their low labor costs or their low cost to produce 
a plant or the land costs, but there are things we can do here 
in government, tax policy, getting that burden off your back. 
The regulatory environment that you have to live under, change 
that, make sure you are able to operate out there without the 
government tripping you up at every turn.
    Of course trade. Making it a level playing field out there. 
We have to make sure that we are pounding away at these 
countries that are putting up barriers for us to get in there 
to trade. The Chinese with their manipulation of their 
currency. Those are the kinds of things that I would like to 
hear your ideas on what we can do here in Congress to make your 
job easier.
    Like I said in the beginning, I do not think we are going 
to find an American worker that works for 50 cents an hour, but 
still when you look at some of the studies on productivity, the 
American worker is still the most productive worker in the 
world.
    I heard somebody today talking about manufacturing a car in 
America, the quality is high, it is relatively inexpensive, the 
Japanese now are sending Hondas that are produced in Ohio back 
to Japan. We can succeed.
    Mr. Ballance. That is okay. That is good.
    Mr. Shuster. That is good. That is a case where we can do 
that with our work force, our highly skilled work force. I 
would like to hear your ideas on those other tax policy, 
regulatory policy and trade, where those stumbling blocks are. 
Thank you, Chairman.
    Chairman Manzullo. Jim?
    Mr. Jarrett. In the area of regulatory policy, one thing we 
have not touched on so far, the United States has always, 
particularly in high technology, it has always been this great 
breeding ground for start-up companies.
    One of the aspects of those start-up companies is that they 
cannot afford to pay high salaries to their people. So one of 
the things that they do to attract people to go to these very 
risky ventures is that they give them a piece of the action. 
They give them stock options so that they can be owners of that 
company.
    This has proved to be a very successful method for 
attracting and keeping people to small companies and to large 
companies. In the case of Intel, we give stock options to all 
80,000 employees.
    Right now we have got the Financial Accounting Standards 
Board in a great rush to require the expensing of those stock 
options and all the surveys indicate that companies, if this 
happens, companies are going to be giving out fewer stock 
options.
    At the same time, if you go across the Pacific to China, 
take a look at their tenth five-year plan, go to the IT section 
there, they specifically encourage the use of stock options as 
a way to attract skilled people both in the country and to 
return to the country from other countries.
    So this is happening and we are seeing it in China. We are 
seeing start-up companies over there using stock options and so 
we have this very curious thing where a capitalist country is 
moving toward not using stock options while a communist country 
is moving toward using stock options. It is a very curious sort 
of thing.
    There is a bill in Congress right now, sponsored by 
Representatives Dreier and Eshoo and it would slow down this 
express that FASB is running and say, take a few years, let us 
see what happens as a result of Sarbanes-Oxley, which we just 
passed last year.
    Let us assess what is going on there. Let us look at more 
disclosure of information on stock options for companies and 
make sure that investors know everything that they need to know 
about stock options and let us take three years of a holiday 
here before we implement something that could have some very 
fundamental impacts on American innovation. It kind of falls 
under the category of do no harm. What we think is important is 
just let us pause for a minute before we rush into----.
    Mr. Shuster. If the Chairman will allow me.
    Chairman Manzullo. Sure, go ahead.
    Mr. Shuster. That is a typical knee-jerk reaction down here 
in Washington. We find some people abusing the system and all 
of a sudden we want to stop everything and I think you are 
absolutely right. It is an irony what you said a communist 
country is moving towards capitalism and we are moving away 
from it, it seems.
    Chairman Manzullo. Kristie?
    Ms. Darien. I just want to make two comments. First to 
respond to the Congressman's question, at least on behalf of 
our members. We have 250,000 member businesses which represent 
about 600,000 owners and employees. We would give back all the 
money to get health care costs lowered.
    For our members, any money they might have gotten from the 
tax cuts would have just went to cover costs of their health 
care that is rising 15 percent a year.
    We have had members that have three to four increases a 
year and the reason why we say that, it is not just about 
health. It is not just about keeping your workers and yourself 
healthy to run your business. It is about attracting employees. 
How can they attract employees when they cannot offer a health 
care plan?
    You know those educated workers are just going to go to 
some larger company that is going to offer them pension, health 
care and so for us health care is much more important than any 
sort of money they had received from a tax package.
    In terms of manufacturing, another concern is what is SBA 
doing? From our perspective, Small Business Administration 
should be in the foreground where something gets done, 
decisions are made, research is done on this issue.
    Manufacturing is one of the biggest faces of our economy 
and it is a really large part of small business history and yet 
I feel like the SBA has not really taken a big role in trying 
to come up with solutions or research on this issue. I would 
challenge that the SBA get involved, not just in research and 
coming up with potential solutions, but especially also access 
to capital.
    Unfortunately, SBA loans really do not help the 
manufacturing sector. They are hard enough to get as is for a 
small business owner, but the current limits just will not help 
a manufacturer whose one piece of equipment is $250,000. We 
really need to look into ways that we can help manufacturers 
through an SBA program.
    Chairman Manzullo. Kristie, let me answer that. We have 
been in the process of drafting the reauthorization bill and it 
is called The Small Business Reauthorization and Manufacturing 
Revitalization Act. It is a mouthful, but we increased the 504 
loan limit from two to four million, because of the tremendous 
amount of capital that is necessary.
    The shrinkage of capital and the complexity of analyzing 
the manufacturing company could lead to the following 
conclusion: Ingersoll in Rockford, Illinois, one of the giant 
leaders in cutting tools, machine tools, production line 
systems, split into three parts.
    The first part that spun out was the production line 
system. Think of engine blocks being on a conveyor belt with 
different machining applications. No one wanted to buy it. Phil 
James who used to be with the company retired. He went to ten 
banks and joint venture companies and if you look at the lack 
of information on manufacturing, you know some guys don't know 
the difference between a Bridgeport and Bridgestone tires and 
they don't know the human capital and ideas and the value of a 
patent and they don't have the ability to research the market 
and see if you can make some money.
    Do you know who bought Ingersoll? A wholly-owned Chinese or 
state-owned Chinese company, Dalian, came in, bought that 
Rockford, Illinois company; saved hundreds of jobs at the 
company itself, plus hundreds, if not thousands, from the subs 
and the subs' subs.
    Now, what does that indicate to me? It indicates the fact 
that very few people in this country understand the nature of 
manufacturing. There are only about 45 or 50 Congressional 
districts out of 435 that have a substantial manufacturing 
base.
    My Dad was a master machinist and chef and carpenter in the 
restaurant there. All these things that his generation got 
involved in.
    But today there has been a big problem. Washington does not 
understand manufacturing. It has absolutely no clue. The Bureau 
of Labor Statistics, we contacted them. How many tool and dye 
jobs do you have in Rockford, Illinois? The tool and dye center 
of the world. 570. That was their number. They were off by 
probably ten or 15 times. No clue.
    Roger Ferguson testified before our Small Business 
Committee, the deputy at the Fed, marvelous man and I said, Dr. 
Ferguson, I think I gave him almost the quote from Mann, even 
though it was not out at that time, about the decline in 
manufacturing. He said it is only, at that time, 16 percent of 
the GDP. It is less now.
    I said, Dr. Ferguson, I said have you ever had your hands 
bathed with the sweet smell of machine oil? I want to tell you, 
that is like gold dust if you are involved in manufacturing, 
because that machine oil, that smell of that, that means things 
are being manufactured.
    He said, no. He said, but if you invite me, I will come to 
your district and he did about six weeks later. He came out 
there. We took him to a tool and dye shop, a mold shop, boring 
facility, machine facility and he sat down and as a result of 
that and the man that he brought up in Chicago said he knew 
what a Bridgeport was. He had a background in manufacturing, 
but he added to the advisory panel of the Fed in order to make 
up the periodic beige book, one of the young men in our area 
who is involved in manufacturing.
    We asked the Fed some time ago to take into consideration 
under economic indicators the, Paul what is it, the machine 
tool index? Matt, can you help me on it? Paul, why don't you 
take the mike?
    Mr. Freedenberg. Quarterly report on machine tools.
    Chairman Manzullo. Right. The quarterly report. Paul, why 
don't you explain what that indicator means and then go into 
your own comment?
    Mr. Freedenberg. Well, it is----.
    Chairman Manzullo. Could you pull the mike closer?
    Mr. Freedenberg. It is a leading indicator of 
manufacturing, because obviously if you are going to be going 
into more production, you are going to be buying machine tools. 
It is the first indication of increased production in a company 
and that is what I was really going to talk about, which is we 
are talking about how do you get competitive?
    We had a study a couple of years ago that showed that our 
entire manufacturing economy has been, our sector has been 
increasing in productivity, much higher than the rest of the 
economy, six, eight percent in the last few years. But, if you 
look at any particular machine tool that comes out, you can 
increase your productivity by 100 percent, 200 percent, because 
the same operator might be able to operate two or three 
machines.
    If you are talking about competing against low cost labor, 
the only way you can do it is with technology and with staying 
ahead of the game that way.
    Now, obviously there has been such a downturn in 
manufacturing. You were talking about Ingersoll; Ingersoll sold 
after bankruptcy for $15.7 million. You have got one of the 
real gems of American manufacturing.
    Chairman Manzullo. They got the campus and all the patents 
and all the machinery.
    Mr. Freedenberg. It is incredible and it shows you how bad 
off our manufacturing sector is when the market value that is 
at that low of an amount and as it turned out, the Italians 
really got a great bargain out of it and they are going to be 
in the center now of not only our domestic aerospace, but with 
Ingersoll's capability defense aerospace as well with their 
fiber placement and their stealth, et cetera. Stealth 
production.
    The fact that the marketplace values it so low tells you 
what direction manufacturing is going right now. The only way 
around it and I really bristle at the Chinese remarks we should 
look to ourselves. How do we look to ourselves and they get a 
40 percent advantage in price? That is not ourselves. That is 
them. It is not a----.
    Chairman Manzullo. But it is also us. We cater to----.
    Mr. Freedenberg. Well because--it is us because we did not 
negotiate a very good deal and we have not pressed our own 
rights either within the WTO or press the IMF--in which we are 
the largest voting member--to enforce the rules. Clearly these 
are violations of international agreements.
    That is our fault, but it is our fault for being sort of 
Mr. Nice Guy and saying, well we will get around to that in a 
little while.
    The point is, you can also do a lot by investing in 
manufacturing, investing in innovation. The capability is 
there. Industry can become quite competitive worldwide. It is 
already the most productive. It has the capability to become 
even more productive, retain those jobs and go head-to-head 
with the Chinese even, because labor is not the major cost. It 
is just one of a number of costs.
    I think Frank's number is 11 percent the total cost of the 
goods. Just having low labor costs does not mean you are going 
to win the competition.
    In fact, when I traveled to China a year ago, the Chinese 
were looking for productive American machine tools, because 
they wanted to be competitive in the future. They knew that 
they were not just going to be able to rely on pure labor and 
they certainly were not going to produce good quality products 
if they simply were relying on labor and old fashioned 
machinery. There is a lot that we can do to stay competitive.
    Chairman Manzullo. Bill?
    Mr. Gaskin. Three quick comments regarding the cost 
advantage. Plant and Moran, a consulting firm in the Midwest 
that works a lot with middle market manufacturing companies, 
metal stamping and plastic injection molding, calculated that 
for metal stamping the Chinese cost advantage is 27 percent and 
that is labor and material cost and things like that.
    If you are dealing with the kind of disparity we are with 
currency, 40 percent, even if you got 20 of that corrected, we 
would be within seven percent. We can be seven percent 
competitive. We can beat them if we get that kind of change in 
the currency. That is just an anecdotal comment.
    Second, on the Congressman's question about the tax 
incentives that have been provided, you know on the business 
side the accelerated depreciation and the expensing that has 
been in the tax bill this year is very positive. Our industry, 
as I mentioned earlier, has lousy profitability. A third of the 
companies lost money. 1.8 percent average profit in the 
industry, before tax.
    It is tough to look at tax incentives right now, just 
because you are losing money. They do not help you much. On the 
other hand, there is a company in Michigan that is doing okay. 
They are about a $50 million company. They are buying a $6 
million stamping line from a U.S. producer.
    Based on that tax credit and the expensing and a brownfield 
credit that is available to them, between the two they have a 
new customer where they have about 20 percent of the capacity 
of that stamping line filled with a new customer.
    Now in the normal environment, they would not buy a $6 
million piece of machinery for 20 percent of the time, but 
because of the tax advantages, they figure they are cash 
positive for two years. They are still making money and so he 
has two years to fill the rest of that machine. He is buying $6 
million worth of capital equipment in a tough time. So it works 
and our machine tool industry needs that support.
    To answer the other question from Congressman Shuster about 
specific things, I do not want to pander to the Chairman, but 
the seven points that you have in your slides, the seven points 
for what manufacturing needs, it is an excellent starting 
point.
    I would put number five, kill the steel tariffs to top, 
because that could happen tomorrow, not by this body, but by 
somebody up the street.
    Chairman Manzullo. Mr. Ryan might have a different----.
    Mr. Gaskin. I understand that, but for manufacturers it 
would send a clear signal.
    Chairman Manzullo. At least resolve the issue of the steel 
tariff then everybody could agree on that.
    Mr. Gaskin. Right. But the other items that you have on 
your list are excellent. It is the reducing health care. It is 
the seven things. They are really positive steps that Congress 
could take. I think they are----.
    Chairman Manzullo. Constituent Brad Comb that bought the 
first high speed hard milling machine that is made by a 
Japanese firm. It is not made in America, 20,000 rpms.
    Five months earlier, 13,000 rpms was the state-of-the-art. 
He has both machines. He has orders that are coming out the 
ears.
    Tom, I want to ask you to take a couple of minutes. You 
appeared before our Committee and had some of the most 
innovative tax thoughts on what American industries could do. 
Do you remember when you appeared before us?
    Mr. Howell. I do, Mr. Chairman.
    Chairman Manzullo. They were a very, very unusual approach. 
Could you take a few minutes and share those with us?
    Mr. Howell. Yes.
    Chairman Manzullo. Could you pull the mike forward, sir?
    Mr. Howell. Yes. They were actually not so much my thought. 
We just released today the study for the semiconductor industry 
association, which looks at the industrial policies in China 
and also in Taiwan that have been feeding this movement of 
investment to those areas.
    One of the factors that we point out is some of the tax 
policies. One of the benefits that the Taiwanese brought in 
first and has now been copied by the Chinese as of about two 
years ago is the tax holiday, where essentially an enterprise 
that builds a fab, the wafer fab in an industrial zone that 
they designate as a high tech zone does not pay any taxes for 
five years and they do not begin running that holiday until the 
enterprise earns its first profit.
    So a start-up for example, because it is not profitable 
right away, so the clock does not begin running until your 
first profitable year.
    They also have got tax depreciation rules that enable them 
to defer the first year of profitability so the net effect is a 
holiday that may run ten years. It is essentially tax free 
production for ten years. That is one incentive.
    Now the other is, Jim mentioned the stock options and it is 
true that they are encouraging the use of stock options in both 
countries, but the way they are taxed is interesting. In Taiwan 
the stock options are given as compensation, in stock given as 
compensation to employees at semiconductor plants and they are 
taxed at the par value of the share. So that could be a dollar 
or one yuan, one dollar and the market value may be $150.
    That individual only pays income tax on the face value of 
the shares. When they convert and sell the stock, they do not 
pay any taxes on the capital gain, because there is no capital 
gains tax in Taiwan.
    Now in China, it is working the same way, although their 
tax system is a lot more primitive than that of Taiwan. 
Essentially you get the stock options and sell them. Exercise 
them and sell them and you don't pay tax.
    What that means is you can, as a young engineer, get rich 
very quickly working for one of these companies, particularly 
one where the stock is hot, like TSMC or now SMIC in Shanghai.
    There is nothing like that in our system to compete with 
that and the result is that the foundries that are being built 
over there, their competitors say they can get the best people. 
They are drawing the best people and they are not just drawing 
Chinese or Taiwanese. They are drawing people from Europe and 
the United States and Korea and all over the place, because 
that is where you can go to make a lot of money in a hurry, 
which is what motivates a lot of people.
    Chairman Manzullo. Chuck?
    Mr. Wessner. Mr. Chairman, I appreciate the opportunity to 
speak with you again. I would like to commend you for bringing 
this group together, because I think you have clarified some 
things that had not been clarified, and Congressman Shuster and 
Congressman Schrock have raised some very valuable points.
    The first thing I think you clarified here is that the 
problem that we are talking about is a loss of jobs in high-
tech sectors. We have to ask, ``Where is that coming from?'' It 
is not coming from fair competition on a level playing field 
and it is not labor costs. I think that is an important finding 
of this.
    It is coming from the impact, as Tom Howell just described, 
for foreign industrial policies. So the question is: Do we want 
to whine or do we want to find something constructive that we 
can do? And you have identified three areas.
    Some of them are framework conditions. Some of them are 
technology policy and R&D policies and some are trade policies.
    I will be very brief, despite that structure. The first--
and I mentioned, in your absence, I thought that some of the 
problems we are facing come from here.
    Chairman Manzullo. I went down to the Floor to speak on the 
bill that Phil English and I introduced on the Chinese RMB 
being undervalued, but I did not have a chance. I came right 
back.
    Mr. Wessner. I am glad you did, because if you look on the 
trade front, the point that Paul Freedenberg raised, which is 
exceedingly important, is that speed is necessary. You know, I 
used that analogy about the sniper. We do not go into 
reproduction, that is the creation of new firms, when we are 
having them taken down by other countries' industrial policies.
    There has to be immediate action on the part of the USDR. 
You cannot do enough to press them. It only takes a year or two 
to make very significant shifts in the future of the U.S. 
economy. We can document that, but we would very much like to 
leave that with you.
    George Scalise, not a man known for his hyperbole, who is 
the President of the Semiconductor Industry Association, has 
warned that we are facing an unparalleled situation of people 
like Gordon Moore, who is a founder of Intel, has suggested 
that the business model that Intel was built on can be changed 
by the collective impact of these policies.
    In the 1980s, this Congress in its wisdom took a 
combination of policies in technology policy funding SEMATECH, 
and an innovative trade agreement that did not restrict access 
to our borders, but stopped dumping from other countries.
    They set up the semiconductor research corporation. They 
have done a series of things. We have some of those things at 
work right now. We mentioned energy policy. We are all 
interested in homeland security and we are focused on 
manufacturing.
    You have a program that works on that, that the National 
Academy of Sciences evaluated and found to be highly effective. 
It is called the Advanced Technology Program, where 63 percent 
of its grants go to small companies.
    We are trying to help corporations. If someone wants to 
accuse us of being in favor of corporate welfare, in favor of 
welfare for American corporations, where do I sign up?
    You talked about the problems in education, Congresswoman 
McDonald. If you will look, there is a chart here I would like 
to show you. It will not be long.
    This shows our engineering degrees. We graduated 55,000 
undergraduate degrees last year. The Chinese put out 220,000. 
We may be twice as smart as some foreigners, but I am not sure 
we are four times smarter.
    I really think that we need to look at how we can get more 
women into engineering. They are winnowed out. I am not 
suggesting an entitlement. What I am suggesting are positive 
grants, awards for women to participate in engineering. 
Scholarships. There are ways to address that.
    Chairman Manzullo. Why are they winnowed out?
    Mr. Wessner. They take a boot camp approach. The idea is to 
get as many out as possible. And we can document this. You can 
talk to the Office of Science and Technology Policy. There have 
been a number of academy reports. I am not, sir, particularly 
PC in my views. I mean I am really not.
    Mr. Schrock. Good. You ought to run for office here.
    Mr. Wessner. Women are good in math and details, that is 
why we do not want you to be engineers, right?
    Ms. Millender-McDonald. Right.
    Mr. Wessner. I mean that just does not float. There is a 
systemic problem here that needs to be addressed and when you 
identify that and what I am talking about is not allocating. I 
am talking about incentives to encourage women to participate 
more, but that is not the only thought.
    So you have ATP. You have your excellent SBIR program. That 
should be reinforced. The reason I could not speak to you--and 
I was honored to be invited to speak to your Committee at the 
last meeting--was because the Bundestag asked me to come talk 
to them in Germany about the ATP program and the SBIR program.
    They think these programs represent best practice in the 
world and they wanted to know how to emulate it. They asked me, 
mystified, why the budget proposals were zero for that program.
    Chairman Manzullo. Charles, could I throw something out to 
you?
    Mr. Wessner. Sure.
    Chairman Manzullo. We had a hearing, a very remarkable 
hearing last week and it was on outsourcing. One of the 
witnesses was Natasha Humphries, a young African-American lady 
and she worked for Palm, P-A-L-M, Palm Corporation, who refused 
to comment on what happened to her.
    She was forced to train her own replacement in India. The 
company never squared with her, and 12 highly trained people--I 
think most of them were women--got the axe from Palm. And, 
ironically, one of the women was born in India, moved to the 
United States and got fired when she was seven months pregnant. 
You were there.
    It was riveting. There it is. She is highly trained. She is 
competent. She is articulate. She got canned with 12 of her 
friends, only one has gotten their job back.
    Then I saw in the paper where somebody wanted to increase 
the number of H-1B visas. I am putting out a dear colleague and 
saying, first you take care of Natasha, then you take care of 
the other 11 people that were fired and let me give you some 
lists of people, including my nephew, that have been canned in 
this country--I am serious--before we let other people in here 
to take the jobs of these Americans that were born and raised 
in this country.
    I mean this is the American dream. She was the sweetest 
lady, kind, pleasant, intelligent, the type of person you would 
want to have in your corporate structure. Jim, write her name 
down. It is Natasha Humphries. And you look at her and say, I 
cannot believe she is unemployed.
    Mr. Wessner. Congressman, that is the point. You want Jim 
to be able to write her name down and you want Intel to be here 
to hire them.
    Chairman Manzullo. I was teasing Jim.
    Mr. Wessner. The way that you do that, I am here to give 
you the best advice possible and what you want to do on the one 
hand create new firms, which will hire. There is this 
inevitable term and the individual stories are always 
troublesome, but what you want is an environment where she can 
be promptly rehired by an American firm or for that matter by a 
German firm working here or an Italian firm.
    Chairman Manzullo. She got canned, because they could do 
the same thing cheaper in India. If there is a shortage for 
people like her, why can't she get a job?
    Mr. Wessner. My suggestion would be that she can get a job, 
but I am trying to take one step back from the individual 
tragedies and ask: What do the high tech firms themselves tell 
you they need? There are on the H-1B visas occasional shortages 
of highly qualified people.
    I am in effect the son of an H-1B visa person. He was 
German. He came in the 1860s to get out of Germany and he got a 
wonderful job that provided him with a blue uniform and all he 
had to do was go south.
    Chairman Manzullo. Somebody came in the 1860s? How old are 
you?
    Mr. Wessner. Indirectly, sir. But my point is that they 
have all come through, haven't they?
    Mr. Schrock. He looks well for his age, doesn't he?
    Chairman Manzullo. He really does.
    Mr. Wessner. Sometimes when you talk about these issues, 
you feel that you have done it for several generations.
    Chairman Manzullo. Congresswoman Majette? You were at that 
hearing, weren't you?
    Ms. Majette. Yes, I was and her story was very compelling. 
I agree with the Chairman that we need to create the kind of 
environment so that we do not have that kind of casualty, but I 
also agree with you, Doctor, that what we need to do is to 
focus on education and make sure that in this country we are 
preparing to have young people in the pipeline, making sure 
that we are providing on the front end the kind of education 
that they will need in order to fill all of the colleges and 
universities and come out with the engineering degrees and 
those other things that will be able to help create the kind of 
innovation that we need.
    My son is a senior in high school and he wants to be an 
engineer and last weekend we were working on his applications 
for various schools. But we as a country do not focus on what 
we need to focus on. We are not putting the resources where 
they need to be.
    At the very beginning of the education process, creating 
the kind of opportunities early on, exposing our young people, 
children to the opportunities that they would have in terms of 
research and development and different career paths and women 
and minorities being able to have those opportunities to grow 
this economy and to be placed in those positions, whether it is 
here in this country or overseas, but particularly in this 
country because companies are going to vote with their feet.
    They are going to look for locating in areas where there is 
a well trained, well educated, multilingual work force and if 
they do not find it in Georgia, where I live and in other 
states, then they are going to look elsewhere and find those 
individuals to be able to do the work that they need for them 
to do.
    So I am certainly for square in favor of putting the 
resources, the human resources, making that kind of investment 
on the front end, with full funding for Head Start, with full 
funding for Leave No Child Behind, with doing the kinds of 
creative things and figuring out what are the needs in 
particular communities? How are we going to make sure that we 
are providing that basis, that educational foundation upon 
which everything else that we seek to do as a community and as 
a nation must be founded.
    Ms. Millender-McDonald. I would like to also echo what my 
colleague has said and to really commend you, Doctor, for your 
sensitivity.
    As the outgoing Democratic chair of the Women's Caucus of 
the House and as former Director of Gender Equity, I have tried 
to push women, because your work force over the next couple of 
decades will be the majority women.
    It is so important that you do that, but there is a culture 
that has to be changed. People tend to not think women can and 
so they are the last hired and the first fired.
    I think that culture has to come with also the education of 
women, because after all, if you are going to have a work force 
that mirrors that of women, you have got to put them in 
educational programs that will position them for those jobs 
that will be critical to us as we begin to pull our jobs back 
from China and Taiwan and other places into the United States.
    So I will say to you I really applaud you for your 
sensitivity and also what Paul has said too, because I am 
looking for Molly Brogan. Is she here? Yes, Molly. Because I 
had a Congressional hearing with my Chairman of the 
Subcommittee in trying to look at small businesses get some 
type of assistance for exporting their businesses overseas.
    I mean it seems like that is the going thing and so if that 
is indeed the problem or the concern, then we need to have 
small businesses getting into the pipeline of exporting their 
businesses overseas. I am interested in knowing what are we 
doing for that as well.
    Chairman Manzullo. Let me go to Mr. Schrock and then Matt 
and then Frank.
    Mr. Schrock. Yes, let me just make a couple comments. I 
love the comment that Ms. Millender-McDonald said. You know my 
wife, who does not get involved in politics and says very 
little, says to me, when you want to find the best man for the 
job, send a woman. So do I. You know I think some of these 
situations that we are talking about and of course it is easy 
for me to say, I have only been here three years, were treated 
right here. Right in these three buildings. The three buildings 
on the other side of the Capitol and voted on the Capitol.
    We have created this mess we are in right now and it is 
incumbent upon us to try to undue some of that. But boy once 
things get into law, it is murder to try to untangle that stuff 
and every time I question some of these things, people say to 
me, well they are trade laws that we created. Why in God's name 
did we create them in the first place? And if we created them, 
can't we undo them? Why can't we do that?
    There is just talk and talk and talk and nothing more than 
that. An Act of Congress. I know we say that, but it never gets 
done and if we don't, these people are going to die on the vine 
out there.
    Chairman Manzullo. Okay. Matt and then Frank.
    Mr. Coffey. Okay. I want to follow up on the human resource 
question. I hope that in your thinking about human resources 
and education and training that you do not stop at somebody 
getting an academic degree.
    The fact is that the future of manufacturing in the United 
States depends upon lifelong learning by everyone who works in 
the company and if you are not considering doing something for 
the incumbent work force, you are in fact placing the 
businesses at a disadvantage.
    Ms. Millender-McDonald. Here, here.
    Chairman Manzullo. Frank and then Bill.
    Mr. Vargo. Mr. Chairman, let me just bring in an element of 
good news here, because we have been talking about all the 
problems and there are a lot of problems.
    Several things have been done right. One of them was the 
administration a little over a year ago saying, you know, our 
currency should be set. The value should be set by the 
marketplace, because everybody knew it was overvalued.
    What that did was to send a very strong signal to the 
financial traders in New York and in other financial centers 
that the Treasury was not going to intervene to prevent the 
dollar from going back to where it ought to and it has started 
to move down.
    February 2002, Mr. Chairman, the dollar had gone up 30 
percent from where it had started in 1997. That is like putting 
a 30 percent tax on our exports and a 30 percent subsidy on our 
imports.
    With the currencies that are free to float today, we are 
only up four percent over where we started and so we are 
basically back and that is going to pick up 100, $150 billion 
in trade for us, just what has happened so far.
    Certainly the Asian countries, Chinese currency and others, 
they are being prevented from moving and that is why we have 
been putting a focus there, but we are going to see, certainly 
by early next year, the result of what has already happened 
with the European and Canadian and other currencies.
    Chairman Manzullo. Bill?
    Mr. Gaskin. My comment really was related to the interest 
in training and developing skills and supports what Matt said. 
His organization and mine and many others in the room have 
developed skill standards and curriculum and training systems 
for technical workers, high skilled craftsmen over the last 
five, ten years, responding to the demand in the 1990s when it 
was hard to hire a tool and dye maker. It was hard to find 
people. Now we are in a different situation. There is a 
surplus.
    You know, we are the result. Our current generation is 
coming out of schools and in their 20s and probably 30s, have 
been brainwashed into thinking that manufacturing is dirty, 
dark, dangerous and dead-end.
    Chairman Manzullo. And oily.
    Mr. Gaskin. Yes, it is not where you want to be. 
Semiconductors excepted, they know those are clean rooms 
because they see them on TV.
    But if it is manufacturing the way a lot of people think 
about it, it is dirty, dark, dangerous and dead-end. You do not 
want your kid going there.
    So what have our guidance counselors done for the last 20 
years? You know it is college and out. It is not getting people 
into the trades and to skills. I am not suggesting we can go 
backwards into the traditional apprenticeship programs, but we 
need to have a reversal of the brainwashing and we need some 
money probably.
    Probably some billions to create a new vision for 
manufacturing in this country. A PR program, as it were, to 
help people realize that there are good jobs, good careers, 
life long learning careers. You may start out in a 
manufacturing position. You may become an engineer, if there is 
any of that left in this country. You may become the owner some 
day. It is that career path that people are looking for at any 
age.
    I just offer another possible solution. How about some 
Congressional money for retraining us as a society? I think 
that we need to do that.
    Chairman Manzullo. Then that adds to the debt and that 
makes it worse. Currently the only money that we have has been 
displaced as a result of NAFTA or something like that.
    Mr. Gaskin. We need to create a new vision I think, because 
we have been brainwashed to think that manufacturing is not 
good in this country.
    Chairman Manzullo. When I was in Milan last week, a 
constituent was there, Bernie Bowersock. Runs a place called 
North American Tool, 89 employees, and he had a very expensive 
corner booth in Milan. That is his name, Bowersock.
    Mr. Schrock. Love his name.
    Chairman Manzullo. Some people would say that Schrock is a 
funny name.
    Mr. Schrock. I deserve that.
    Chairman Manzullo. Yes. But I said, how are you doing it? A 
couple of things. He sells taps all over the world and he said, 
I can give 24-hour service worldwide. I have the fastest 
service of anybody in the world. He has 89 employees.
    The second thing was absolutely stunning. He said, Don, by 
the way you know the conventional tap is being replaced by a 
new milling product. I said, what are you talking about? He 
said, well the conventional tap, a tap is used to put threads 
into a block of steel so you can screw something into it and a 
tap itself looks like a long screw.
    So you put it on a spindle, which is like a chuck on a 
drill and then you go very slowly down into the metal and then 
you bring it back up again and you form the thread.
    He said, now let me show you the new process for this. Who 
would ever think that a tap would be replaced? He said, the tap 
you make the hole is just a little smaller than what the tap 
will be itself.
    He said, in the milling process, you make the whole a 
little bit bigger than your mill. It is a short stubby thing. 
It gets put on a spindle. It goes [makes noise]. I looked at 
that and he said, now what I am doing is I am looking at the 
day when these taps will be replaced by this new type of a mill 
bit. I mean some extraordinary science is going on there.
    He was looking around the corner, looking to see where he 
is going to take his manufacturing firm, refusing to give up in 
the light of the stiff competition that is coming in.
    Let me share one other thing. This is some really good 
news. We had a hearing several months ago, on June 4, with 
several people from the Department of State, FBI and Homeland 
Security and BOINS, for the reason that it is very difficult to 
bring in people from two or three countries, to look at 
machinery even though it is not subject to a validated export 
license, four head machines for example and our government 
considers everybody from India and everybody from China to be a 
terrorist.
    These people want to come here and buy our stuff. I mean 
they want to come in here because they are really excited in 
buying the things that we are making. We decided at that time 
to meet periodically and Matt Szymanski, who is the Chief of 
Staff of our Small Business Committee, has been working with 
them on a periodic basis.
    We are at the point now where man I do not know all these 
eight points that you are giving me here, but this one right 
here? We cannot explain it. Then I cannot read it.
    I am not going to read all of it, but the bottom line is 
that we are seeing some extraordinary, not extraordinary, we 
are seeing a lot of cooperation amongst some extraordinary 
people that are involved in our government that really 
understand that issue.
    I mean we want to sell stuff, but we cannot bring over the 
people that want to buy it. But as a result of that hearing, I 
think we are pretty close to, I do not want to call it a 
business class visa where you have a multiple entry that would 
last a year or so, but this is one of the things that we can 
do. We can move very, very quickly on it.
    We are out of time.
    Ms. Millender-McDonald. Mr. Chairman, may I just say one 
thing?
    Chairman Manzullo. Yes, of course.
    Ms. Millender-McDonald. In a meeting that I had today 
looking at possible increased funding for our transportation 
infrastructure that is sorely needed for all of you who are 
business people, it was said to me that the Ports of Los 
Angeles and Long Beach get so many cargo containers coming in, 
my God it is going to quadruple over the next ten to 15 years, 
but we have no cargo going out.
    Chairman Manzullo. That bothers me.
    Ms. Millender-McDonald. And that is the telling thing. 
Those containers are not being filled here to go back, but we 
are getting them by the loads coming in from China and other 
places.
    I think with that we need to look at some innovative things 
that we can do to help you to help us, because we are looking 
at things outside of the box on funding for transportation that 
we know we have got to do in order to make the infrastructure 
work best for you as you transport your business across this 
country.
    Thank you so much for this meeting.
    Chairman Manzullo. Thank you very much. I want to thank 
each of you for participating. It is great to have these ideas 
that we get all over the place. It gets everybody thinking of 
is there one thing that we can do easily to help the 
manufacturing sector going on? That I consider to be a 
breakthrough in getting the visas and that is across the board. 
Bipartisan, regardless of even your position and trade. Thank 
you all for coming. I appreciate you taking this time and our 
roundtable is adjourned.
    [Whereupon, at 4:05 p.m., the Committee meeting was 
adjourned.]
      
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