JUNE 2011

Executive Office of the President

President’s Council of Advisors 

on Science and Technology

REPORT TO THE PRESIDENT ON

ENSUR ING A MER ICA N 

LEA DERSHIP IN A DVA NCED 

MANUFACTURING

JUNE 2011

REPORT TO THE PRESIDENT ON

ENSUR ING A MER ICA N 

LEA DERSHIP IN A DVA NCED 

MANUFACTURING

Executive Office of the President

President’s Council of Advisors 

on Science and Technology
About the President’s Council of 

Advisors on Science and Technology

The President’s Council of Advisors on Science and Technology (PCAST) is an advisory group of the 

nation’s leading scientists and engineers, appointed by the President to augment the science and technology advice available to him from inside the White House and from cabinet departments and other 

Federal agencies. PCAST is consulted about and often makes policy recommendations concerning the 

full range of issues where understandings from the domains of science, technology, and innovation 

may bear on the policy choices before the President. PCAST is administered by the White House Office 

of Science and Technology Policy (OSTP). 

For more information about PCAST, see www.whitehouse.gov/ostp/pcast.
Co-Chairs

John P. Holdren

Assistant to the President for

Science and Technology

Director, Office of Science and 

Technology Policy

Eric Lander

President

Broad Institute of Harvard and MIT

The President’s Council of Advisors 

on Science and Technology

Vice-Chairs

William Press

Raymer Professor in Computer Science and 

Integrative Biology

University of Texas at Austin

Maxine Savitz

Vice President

National Academy of Engineering

Members

Rosina Bierbaum

Dean, School of Natural Resources and 

Environment

University of Michigan

Christine Cassel

President and CEO

American Board of Internal Medicine

Christopher Chyba

Professor, Astrophysical Sciences and 

International Affairs

Director, Program on Science and 

Global Security

Princeton University

S. James Gates, Jr.

John S. Toll Professor of Physics

Director, Center for String and 

Particle Theory

University of Maryland, College Park

Shirley Ann Jackson

President

Rensselaer Polytechnic Institute

Richard C. Levin

President

Yale University

Chad Mirkin

Rathmann Professor, Chemistry,

Materials Science and Engineering,

Chemical and Biological Engineering

and Medicine

Director, International Institute 

for Nanotechnology

Northwestern University
Mario Molina

Professor, Chemistry and Biochemistry

University of California, San Diego

Professor, Center for Atmospheric Sciences

Scripps Institution of Oceanography

Director, Mario Molina Center for Energy

and Environment, Mexico City

Ernest J. Moniz

Cecil and Ida Green Professor of Physics

and Engineering Systems

Director, MIT’s Energy Initiative

Massachusetts Institute of Technology

Craig Mundie

Chief Research and Strategy Officer

Microsoft Corporation

Ed Penhoet

Director, Alta Partners

Professor Emeritus of Biochemistry

and Public Health

University of California, Berkeley

Barbara Schaal

Mary-Dell Chilton Distinguished Professor of 

Biology, Washington University, St. Louis

Vice President, National Academy of Sciences

Eric Schmidt

Executive Chairman

Google, Inc.

Daniel Schrag

Sturgis Hooper Professor of Geology

Professor, Environmental Science and 

Engineering

Director, Harvard University Center

for the Environment

Harvard University

David E. Shaw

Chief Scientist, D.E. Shaw Research

Senior Research Fellow, Center for 

Computational Biology and Bioinformatics

Columbia University

Ahmed Zewail

Linus Pauling Professor of Chemistry 

and Physics

Director, Physical Biology Center

California Institute of Technology

Staff

Deborah D. Stine

Executive Director

Sridhar Kota

Assistant Director, Advanced Manufacturing 

and American Society of Mechanical Engineers 

Fellow, OSTP

Arun Seraphin

Assistant Director, Defense Programs, OSTP

T.J. Augustine

Student Volunteer, OSTP

Writer

Bina Venkataraman

Senior Science Policy Adviser

Broad Institute of MIT & Harvard
EXECUTIVE OFFICE OF THE PRESIDENT

PRESIDENT’S COUNCIL OF ADVISORS ON SCIENCE AND TECHNOLOGY

WASHINGTON, D.C. 20502

President Barack Obama

The White House 

Washington, D.C. 20502 

Dear Mr. President, 

It is our pleasure to present to you this report, Ensuring American Leadership in Advanced Manufacturing, 

prepared for you by the President’s Council of Advisors on Science and Technology (PCAST) and the 

President’s Innovation and Technology Advisory Committee (PITAC). This report provides a strategy and 

specific recommendations for revitalizing the Nation’s leadership in advanced manufacturing.

In preparing this report and its recommendations, PCAST/PITAC held a workshop with leading manufacturing executives and innovation experts. We also consulted experts from your Administration, industry 

groups, and academia during the course of our study.

Although the U.S. has been the leading producer of manufactured goods for more than 100 years, 

manufacturing has for decades been declining as a share of GDP and employment. Over the past 

decade, it has become clear that this decline is not limited to low-technology products, but extends to 

advanced technologies invented in the U.S., and is not solely due to low-wage competition. Moreover, 

it is increasingly apparent that technology innovation is closely tied to manufacturing knowledge. We 

cannot remain the world’s engine of innovation without manufacturing activity.

We do not believe that the solution is industrial policy, in which government invests in particular 

companies or sectors. However, we strongly believe that the Nation requires a coherent innovation 

policy to ensure U.S. leadership support new technologies and approaches, and provide the basis for 

high-quality jobs for Americans in the manufacturing sector. 

To ensure that the U.S. attracts manufacturing activity and remains a leader in knowledge production, 

we recommend the following two strategies: (1) Create a fertile environment for innovation so that the 

United States provides the overall best environment for business. We believe this can be accomplished 

through tax and business policy, robust support for basic research, and training and education of a 

high-skilled workforce; and (2) Invest to overcome market failures, to ensure that new technologies 

and design methodologies are developed here, and that technology-based enterprises have the infrastructure to flourish here. 

We recommend this be accomplished by launching an Advanced Manufacturing Initiative. This initiative 

would support innovation in advanced manufacturing through applied research programs for promising new technologies, public-private partnerships around broadly-applicable and precompetitive 

technologies, the creation and dissemination of design methodologies for manufacturing, and shared 

technology infrastructure to support advances in existing manufacturing industries.
Our report and its recommendations serve the aims outlined in your Strategy for American Innovation, 

and build upon the initiatives in your 2012 budget proposal. It is an honor to provide our perspective 

on an issue of such vital importance to the U.S. economy and national security. 

John P. Holdren

PCAST Co-Chair 

Eric Lander

PCAST Co-Chair

Shirley Ann Jackson

PITAC Co-Chair 

Eric Schmidt

PITAC Co-Chair 
★ i ★

The President’s Council of Advisors 

on Science and Technology

Executive Summary

Ensuring American Leadership in Advanced Manufacturing

The United States has long thrived as a result of its ability to manufacture goods and sell them to global 

markets. Manufacturing activity has supported our economic growth, leading the Nation’s exports and 

employing millions of Americans. The manufacturing sector has also driven knowledge production and 

innovation in the United States, by supporting two-thirds of private sector research and development 

and by employing scientists, engineers, and technicians to invent new products and introduce innovations in existing industries.

The Nation’s historic leadership in manufacturing, however, is at risk. Manufacturing as a share of national 

income has declined, as has manufacturing employment, and our leadership in producing and exporting 

manufactured goods is in question. The loss of U.S. leadership in manufacturing, moreover, is not limited 

to low-wage jobs in low-tech industries, nor is it limited to our status relative to low-wage nations. The 

United States is lagging behind in innovation in its manufacturing sector relative to high-wage nations 

such as Germany and Japan, and has relinquished leadership in high-tech industries that employ highlyskilled workers. Our trade balance in advanced technology manufactured products—long a relative 

strength of the United States—shifted from surplus to deficit starting in 2001,1 and a trade deficit of $17 

billion in 2003 further widened to $81 billion by 2010.2 In addition, the United States has been steadily 

losing the research and development activity linked to manufacturing—and associated high-skilled 

jobs—to other nations, as well as our ability to compete in the manufacturing of products that were 

invented and innovated here—from laptop computers to flat panel displays and lithium ion batteries.

As U.S. manufacturing leadership is waning, other nations are investing heavily in growing and revitalizing their manufacturing sectors and are crafting policies to attract and retain production facilities and 

multinational companies within their borders. Such policies include partnerships, physical structures 

such as science parks or technology clusters, tax and regulatory incentives, and concentrated investment 

in commercialization of promising technologies. Some of these policies amount to industrial policy—

making clear bets on specific firms and industries—but others support pre-competitive activities that 

would be regarded as within the scope of appropriate government action in the U.S. 

1. The balance of trade for “advanced technology products” has widened since 2002, even with a 25% decline 

in the dollar relative to an index of major foreign currencies. See Gregory Tassey, “Rationales and Mechanisms for 

Revitalizing U.S. Manufacturing R&D Strategies,” Journal of Technology Transfer 35 (2010): 283-333. 

2. Census Bureau, Foreign Trade Statistics. http://www.census.gov/foreign-trade/Press-Release/ft900_index.html. 

Data cited by Tassey, G in “Rationale and Mechanisms for Revitalizing U.S. Manufacturing R&D Strategies”, December 

2009, Figure 1. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.170.3189&rep=rep1&type=pdf
ensuring amer ican leadersh ip in advanced manufacturing

★ ii ★

Implications of Declining U.S. Manufacturing Leadership

The future ability of the United States to innovate and invent new products and industries, provide high 

quality jobs to its citizens, and ensure national security depends upon how well we support innovation 

and the development and use of advanced technologies for our manufacturing sector.

While the United States may not be able to compete in the long run to make goods for which low-wage 

unskilled labor is the key input, this need not be true for sophisticated manufacturing linked to products 

and processes derived from scientific discovery and technological innovation. There are three compelling 

reasons why we should strive to revitalize our leadership in manufacturing: 

1. Manufacturing, based on new technologies including high-precision tools and advanced 

materials, provides the opportunity for high-quality, good-paying jobs for American workers; 

2. A strong manufacturing sector that adapts to and develops new technologies is vital to ensure 

ongoing U.S. leadership in innovation, because of the synergies created by locating production 

processes and design processes near to each other; and

3. Domestic manufacturing capabilities using advanced technologies and techniques are vital to 

national security.

PCAST focuses in this report on advanced manufacturing, a family of activities that (a) depend on the 

use and coordination of information, automation, computation, software, sensing, and networking, 

and/or (b) make use of cutting edge materials and emerging capabilities enabled by the physical and 

biological sciences, for example nanotechnology, chemistry, and biology. This involves both new ways 

to manufacture existing products, and especially the manufacture of new products emerging from 

new advanced technologies. We believe that advanced manufacturing provides the path forward to 

revitalizing U.S. leadership in manufacturing, and will best support economic productivity and ongoing 

knowledge production and innovation in the Nation.

The Need for an Innovation Policy

While the United States should avoid industrial policy—making bets on particular companies and 

industries—we should be unabashed in pursuing an innovation policy. Specifically, the Nation requires 

a strategy for supporting innovation in advanced manufacturing. The objectives of an innovation policy 

should be to ensure (i) that the U.S. provides the best overall environment in which to do business, (ii) 

that powerful new technologies are developed here and (iii) that technology-based enterprises have 

the infrastructure required to flourish here. 

A U.S. innovation policy should include creating a business and tax environment that attracts and retains 

firms that invest in knowledge production and manufacture innovative products here. This can be done 

via the use of tailored incentives and through improved education and training of our workforce to 

use and develop advanced technologies. A U.S. innovation policy should also involve building on our 

Nation’s tradition of making strategic co-investments in precompetitive technologies that face market 

failure but that are critical to innovation in manufacturing. These investments should include support 

for new technologies that would form the basis of new industries, as well as shared infrastructure facilities that could be accessed by small and medium-sized firms for widespread benefit across industries.
Execu ti ve Summary

★ iii ★

SUMMARY OF KEY CONCLUSIONS

•	 The United States is losing leadership in manufacturing—not just in low-tech industries and 

products and not just due to low-wages abroad. We are losing ground in the production of 

high-tech products, including those resulting from U.S. innovation and inventions, and in 

manufacturing-associated research and development (R&D).

•	 As U.S. leadership in manufacturing declines, other nations are investing heavily in advancing their manufacturing leadership, innovation systems, and R&D.

•	 Advanced manufacturing has the potential to create and retain high-quality jobs in the 

United States. 

•	 The Nation’s long-term ability to innovate and compete in the global economy greatly 

benefits from co-location of manufacturing and manufacturing-related R&D activities in the 

United States. The loss of these activities will undermine our capacity to invent, innovate, 

and compete in global markets.

•	 A strong advanced manufacturing sector is essential to national security.

•	 The United States lags behind competitor nations in providing the business environment 

and skilled workforce needed for advanced manufacturing.

•	 Federal investments in new technologies, shared infrastructure, and design tools have been 

crucial to the birth and growth of major new industries.

•	 Individual companies cannot justify the investment required to fully develop many important new technologies or to create the full infrastructure to support advanced manufacturing. Private investment must be complemented by public investment. Key opportunities to 

overcome market failures include investing in the advancement of new technologies with 

transformative potential, supporting shared infrastructure, and accelerating the manufacturing process through targeted support for new methods and approaches.

Strategy & Recommendations to Ensure U.S. Leadership in Advanced 

Manufacturing 

An overarching strategy to revitalize U.S leadership in advanced manufacturing should involve the 

following two components:

1. Invest to overcome market failures, to ensure new technologies are developed here and 

technology-based enterprises have the infrastructure to flourish here. Specifically, the Federal 

Government should do this by:

− Supporting applied research programs in new technologies with the potential for transforming impact

− Co-investing in public-private partnerships (PPPs) to facilitate development of broadlyapplicable technologies with transformative potential

− Supporting the creation and dissemination of powerful design methodologies that dramatically expand the ability of entrepreneurs to design products and processes, and
ensuring amer ican leadersh ip in advanced manufacturing

★ iv ★

− Investing in shared technology infrastructure that would help U.S. companies improve their 

manufacturing.

When co-investing to overcome market failures for key technologies, the following criteria should be applied:

− The technology area has a high potential payoff in employment and output.

− There is a prospect of sustainable competitive advantage for the U.S., including through 

first-mover advantage.

− Identifiable market failures impede adequate private investment.

− PPPs include industrial partners are willing to co-invest with the government. 

− PPPs include some industrial partners with sufficient size to invest at scale in the fruits of 

the pre-commercial research, as well small and start-up enterprises.

− Investments will help anchor subsequent manufacturing in the United States—for example, 

through shared labs, pilot plants, technology infrastructure and creation of clusters.

− Shared infrastructure will help existing firms and industries compete globally by increasing 

the quality and performance of their products

2. Create a fertile environment for innovation here, by:

− Encouraging firms to locate R&D and manufacturing activities in the U.S. through tax and 

business policies

− Supporting a robust basic research enterprise 

− Ensuring a supply of skilled workers, through policies that cultivate and attract high-skilled talent

The key recommendation in this report is that the Federal Government launch an Advanced 

Manufacturing Initiative (AMI). We recommend that AMI be a concerted, whole-of-government 

effort, spearheaded by the Department of Commerce, Department of Defense, and Department 

of Energy and coordinated by the Executive Office of the President (EOP), either through the Office 

of Science and Technology Policy, National Economic Council, or the office of the Assistant to the 

President for Manufacturing Policy. The Secretaries of Commerce, Defense, and Energy should 

assign lead responsibility to an appropriate agency or agencies within the Department—such 

as National Institute of Standards and Technology (NIST) at Commerce, DARPA at Defense, and 

ARPA-E or EERE at Energy. It is crucial that this whole-of-government effort be complemented by 

parallel initiatives in the industry and academia. AMI should develop mechanisms to involve these 

sectors and to draw on their expertise in identifying technological opportunities. An external 

advisory board that has access to advanced manufacturing expertise should help guide this work.

The coordinating body of AMI should prepare a biennial report to the President on the most important 

needs for Federal investments to propel advanced manufacturing in the U.S., including (i) Coordinated 

Federal support to academia and industry for applied research on new technologies and design 

methodologies, (ii) Public-private partnerships to advance such technologies through pre-competitive 

consortia that tackle major-cross-cutting challenges, (iii) Development and dissemination of design 

methodologies that dramatically decrease the time and lower the barrier for entrepreneurs to make 
Execu ti ve Summary

★ v ★

products, (iv) Shared facilities and infrastructure to help small and medium-sized firms improve their 

products to compete globally. The report should also identify the most pressing technological challenges 

that merit focused attention for these activities.

AMI should also report on the availability of financing for pilot plants and early-stage activities within 

these technology areas, and should include an analysis of comparable financing opportunities in other 

countries and options for providing revenue-neutral financing.

Funds to implement the programs recommended by AMI should be appropriated to the Departments 

of Commerce, Defense, and Energy to support the most promising opportunities. The funding level 

should initially be $500 million per year to be allocated across the three agencies as appropriate, rising 

to $1 billion over four years. Some of these funds may be drawn from existing programs as appropriate.

Below we summarize all of our specific recommendations. Further details can be found in the report.

SUMMARY OF RECOMMENDATIONS

RECOMMENDATION 1: LAUNCH THE ADVANCED MANUFACTURING INITIATIVE 

The Federal Government should launch an Advanced Manufacturing Initiative for America’s 

Future (AMI). AMI should be a concerted, whole-of-government effort, spearheaded by the 

Department of Commerce, Department of Defense, and Department of Energy and coordinated by the Executive Office of the President (EOP).

The coordinating body of AMI should prepare a biennial report to the President on the most 

important needs for Federal investments, including:

•	 Coordinated Federal support to academia and industry for applied research on new technologies and design methodologies

•	 Public-private partnerships (PPPs) to advance such technologies through pre-competitive 

consortia that tackle major-cross-cutting challenges

•	 Development and dissemination of design methodologies that dramatically decrease the 

time and lower the barrier for entrepreneurs to make products

•	 Shared facilities and infrastructure to help small and medium-sized firms improve their 

products to compete globally.

The report should also identify the most pressing technological challenges that merit focused 

attention for these activities.

AMI should also report on the availability of financing for pilot plants and early-stage activities 

within these technology areas.

It is crucial that this whole-of-government effort be complemented by parallel initiatives in the 

industry and academia. AMI should develop mechanisms to involve these sectors and to draw 

on their expertise in identifying technological opportunities. An external advisory board that 

has access to advanced manufacturing expertise should help guide this work.
ensuring amer ican leadersh ip in advanced manufacturing

★ vi ★

SUMMARY OF RECOMMENDATIONS (CONTINUED)

Funds to implement the programs recommended by AMI should be appropriated to the 

Departments of Commerce, Defense, and Energy to support the most promising opportunities, at the level of $500 million rising to $1 billion over four years. Some of these funds may be 

drawn from existing programs as appropriate. 

AMI should work closely with industry and academia in identifying opportunities through an 

appropriate advisory board. 

RECOMMENDATION 2: IMPROVE TAX POLICY 

The Federal Government should:

•	 Reform corporate income taxes, to bring the marginal tax rate in line with other OECD countries, as advocated by President Obama in his 2011 State of the Union address

•	 Extend the R&D tax credit permanently and increase the rate to 17%, as advocated in the 

Presidents’ Strategy for American Innovation and FY2012 budget request. 

RECOMMENDATION 3: SUPPORT RESEARCH, EDUCATION, AND WORKFORCE TRAINING:

To ensure the health of the research enterprise that underpins innovation and national, and 

to ensure that the Nation has the highly skilled workforce needed to attract and maintain 

advanced manufacturing in the United States, the Federal Government should: 

•	 Fulfill the President’s plan to double the research budgets of three key science agencies 

over the next ten years: the National Science Foundation, the Department of Energy’s Office 

of Science, and the National Institutes of Standards and Technology. Ensure appropriate 

research budget levels for other research agencies. 

•	 Help fulfill the President’s goal that public and private investment R&D reach 3% of GDP. 

•	 Strengthen science, technology, engineering and mathematics (STEM) education.

•	 Expand the number of high-skilled foreign workers that may be employed by U.S. 

companies. 
The President’s Council of Advisors 

on Science and Technology

Ensuring American Leadership in 

Advanced Manufacturing

Executive Report

★ ix ★

Table of Contents

I. Current State of U.S. Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . 1

II. Implications of Declining U.S. Leadership in Manufacturing . . . . . . . . . . . . . . 9

Advanced Manufacturing Can Provide High-Quality Jobs . . . . . . . . . . . . . . . .9

III. Innovation Policy: Appropriate Roles for the Federal Government . . . . . . . . . . . 15

Creating a Fertile Environment for Innovation . . . . . . . . . . . . . . . . . . . 15

Overcoming Market Failures: Role of U.S. Investment . . . . . . . . . . . . . . . . 16

Opportunities: Advancing New Technologies . . . . . . . . . . . . . . . . . . . 18

Opportunities: Supporting Shared Infrastructure . . . . . . . . . . . . . . . . . . 20

Opportunities: Rethinking the Manufacturing Process . . . . . . . . . . . . . . . . 20

IV. Recommendations: Toward a Renaissance in Advanced Manufacturing . . . . . . . . .23

Overcoming Market Failures: Advanced Manufacturing Initiative for America’s Future 24

Creating a Fertile Environment: Tax Policy, Research Enterprise and Skilled Workers 29

Appendix A: Advanced Manufacturing Provisions in America Competes Act . . . . . . . . 33

Appendix B: President Obama’s Strategy for American Innovation and the

FY 2012 Budget Request: Implications for Advanced Manufacturing . . . . . . . . . . . 35

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

★ 1 ★

I. Current State of U.S. Manufacturing

The United States has long thrived because of its ability to make things and sell them in global markets. 

Our Nation’s leadership in manufacturing has provided a foundation for economic growth, and has 

employed a large, though diminishing, portion of the work force. The United States was3 the world’s 

leading producer of manufactured goods from 1895 through 2009; some experts estimate that China 

surpassed the United States as the leading manufacturing country last year. The manufacturing sector 

continues to be a mainstay of our economic productivity, generating nearly $1.6 trillion in GDP in 2009 

(11.2% of total U.S. GDP).4 U.S. manufacturing firms lead the Nation in exports: The $1.1 trillion of manufactured goods shipped abroad constituted 86% of all U.S. goods exported in 2010.5 The manufacturing 

sector employed 11.5 million workers in 2010, or 9% of total employment,6 and supported additional 

non-manufacturing jobs up and down the supply chain as well as in financial services. 7

Manufacturing has also served as an engine for innovation and knowledge production. Historically, the 

manufacturing sector has been tightly linked with the nation’s R&D activities. Manufacturing firms perform almost two-thirds of all private-sector R&D.8 Manufacturing companies located in the United States 

that performed or funded R&D domestically or overseas employed an estimated 16.3 million workers in 

2008, and 1.1 million of these were R&D workers (engineers, scientists, technicians and support staff).9

Manufacturing is also important in the support of our national and homeland security. The 2010 

Quadrennial Defense Review highlighted this, stating “In the mid to long term, it is imperative that we 

have a robust industrial base with sufficient manufacturing capability and capacity to preserve our 

technological edge and provide for the reset and recapitalization of our force.” 10 

Despite this historic strength, the U.S. manufacturing sector faces enormous challenges, and American leadership and competitiveness in manufacturing is at risk. As a fraction of U.S. GDP, manufacturing declined 

from 27% in 1957 to about 11% by 2009.11 Manufacturing employment declined from 17.6 million jobs 

in 1998 to just 11.6 million jobs at the end of 2010.12 For decades, we have seen the movement offshore 

3. World Industry Service, IHS Global Insight, Inc. Updated: February 17, 2011. This is an estimate of 2010 

manufacturing totals that may or may not be confirmed later this year.

4. Bureau of Economic Analysis, GDP-by-Industry-Accounts, Survey of Current Business 2006-2009, January 2011. 

Available at: http://www.bea.gov/scb/pdf/2011/01January/0111_indy_accts_tables.pdf.

5. International Trade Administration, TradeStats Express, National Trade Data at http://tse.export.gov/TSE/.

6. Bureau of Labor Statistics, Establishment Data, Historical Employment Data, Table B-1. Employees on nonfarm 

payrolls by major industry sector, 1961 to date: ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt

7. Joel Popkin and Kathryn Kobe, “Manufacturing Resurgence: A Must for U.S. Prosperity,” Washington, DC: National 

Association of Manufacturers and the NAM Council of Manufacturing Associations, January 2010.

8. Ibid.

9. Francisco Moris and Nirmala Kannankurry, “New Employment Statistics from the 2008 Business R&D and 

Innovation Survey,” InfoBrief, Washington, DC: National Science Foundation, July 2010. (Includes U.S. and abroad 

employment)

10. Department of Defense, Quadrennial Defense Review Report, February 2010, p. 103.

11. Bureau of Economic Analysis, GDP-by-Industry-Accounts, Survey of Current Business 2006-2009, 

January 2011. Available at: http://www.bea.gov/scb/pdf/2011/01January/0111_indy_accts_tables.pdf and 

http://www.bea.gov/industry/gpotables/gpo_action.cfm

12. Bureau of Labor Statistics, Current Employment Statistics (National), 2010 

ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt, Table B-1. Employees on nonfarm payrolls by major industry sector, 1961 

to date: ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt
ensuring amer ican leadersh ip in advanced manufacturing

★ 2 ★

of production facilities, a trend that began with furniture, clothing, and textiles, and has expanded to 

many other commodities.13 A parallel trend is that average weekly wages in the United States have 

more or less remained unchanged since 1980, signaling that standards of living have not risen for most 

Americans over the past 30 years.14

The loss of U.S. manufacturing leadership and jobs is not solely an issue of lower relative labor costs 

abroad. Strong evidence that labor costs are not the key factor is that the United States is lagging 

behind in driving innovation in manufacturing not just relative to low-wage nations, but also relative 

to nations such as Germany and Japan. Both countries make high-quality goods that command premiums in the marketplace. In 2003, Germany surpassed the United States in total export value, with 

key exports in machinery, vehicles, chemicals, and metals and manufactures. (Although in 2009, China 

surpassed Germany to become the world’s leading exporter, Germany still leads the United States.)15

Moreover, the skills and talents of workers—rather than the cost of labor—appears to matter most to 

companies deciding where to locate their manufacturing operations: The 2010 Global Manufacturing 

Competitiveness Index, a study based on the input of 400 CEOs and senior manufacturing executives 

worldwide, showed access to talented workers was the major driver of a country’s competitiveness in 

attracting manufacturing, above the cost of labor and materials. The report also predicted the U.S. would 

slip in this competitiveness ranking by 2015.16 This is despite the fact that BLS data showed in 2007 that 

U.S. compensation for manufacturing workers was lower than the average for Europe and the rate for 

16 other countries.17

The loss of U.S. manufacturing jobs is not just limited to commodities, or “low-tech” products. The trend 

of production migrating abroad has expanded to high-tech manufacturing: The Nation’s share of the 

global market of exports from high-technology industries declined from around 20% in the late 1990s 

to about 11% in 2008.18 The trade balance in advanced technology manufactured products—long a 

relative strength of the United States—shifted from surplus to deficit starting in 2001, 19 and a trade 

deficit of $17 billion in 2003 further widened to $81 billion by 2010.20 [See Figures 1 & 2.] At the same 

13. Ron Hira, “The Globalization of Research, Development and Innovation,” in Manufacturing A Better Future for 

America, Ed. Richard McCormack, The Alliance of American Manufacturing, 2009.

14. (In real, inflation-adjusted dollars.) Pisano, Gary P., and Willy C. Shih. “Restoring American Competitiveness.” 

Harvard Business Review 87, nos. 7-8 (July - August 2009).

15. Organisation for Economic Co-operation and Development, Main Economic Indicators, International Trade: 

Exports in goods (value), online at: http://stats.oecd.org/Index.aspx?DataSetCode=MEI_TRD (last accessed Feb 22, 2011). 

OECD : http://www.oecd-ilibrary.org/finance-and-investment/data/oecd-statistics-on-measuring-globalisation_globaldata-en;jsessionid=tpfpgfmyopzx.delta . Export commodities are from the CIA World Fact Book: They provide a listing 

of the highest-valued exported products, online at. https://www.cia.gov/library/publications/the-world-factbook/

fields/2049.html?countryName=Germany&countryCode=gm®ionCode=eu&#gm

16. Deloitte and U.S. Council on Competitiveness - 2010 Global Manufacturing Competitiveness Index, June 2010. 

Accessible on the web here: www.deloitte.com/globalcompetitiveness The report projects that the U.S. will slip from 4th 

to 5th place in its ranking for manufacturing competitiveness.

17. Bureau of Labor Statistics, “Production Workers: Hourly compensation costs in U.S. dollars 

in manufacturing, 34 countries or areas and selected economic groups, 1973–2007,” March 2009. 

(ftp://ftp.bls.gov/pub/special.requests/ForeignLabor/ichccpwsuppt02.txt.

18. National Science Board’s Science and Engineering Indicators 2010. Appendix Table 6-19, 

http://www.nsf.gov/statistics/seind10/append/c6/at06-19.pdf, last accessed 2/22/2011

19. The balance of trade for “advanced technology products” has widened since 2002, even with a 25% decline 

in the dollar relative to an index of major foreign currencies. See Gregory Tassey, “Rationales and Mechanisms for 

Revitalizing U.S. Manufacturing R&D Strategies,” Journal of Technology Transfer 35 (2010): 283-333. 

20. Census Bureau, Foreign Trade Statistics. http://www.census.gov/foreign-trade/Press-Release/ft900_index.html. 
I. Current State of U.S. Manufacturing

★ 3 ★

time, China’s global trade position in high-technology products moved to surplus starting in 2001, and 

increased from less than $13 billion in 2003 to almost $130 billion in 2008—led by trade in information 

and communications goods.21 We have not simply lost low-value jobs, such as assembly, in the high-tech 

sector, but sophisticated engineering and advanced manufacturing activities. In addition, we are losing the higher value jobs in software and services. The outsourcing of software development to Indian 

companies illustrates this progression. At first, companies outsourced basic code-writing projects to 

Indian firms with lower costs. Now, Indian companies and workers are writing sophisticated firmware, 

having developed software engineering capabilities.22

21. National Science Board. Science and Engineering Indicators 2010 Washington, DC: National Science Foundation. 

http://www.nsf.gov/statistics/seind10/c6/c6h.htm

22. Pisano, Gary P., and Willy C. Shih. “Restoring American Competitiveness.” Harvard Business Review 87, nos. 7-8 

(July - August 2009). 

Source: National Science Board. 2010. Science and Engineering Indicators 2010. 

Arlington, VA: National Science Foundation (NSB 10-01), Figure O-34
ensuring amer ican leadersh ip in advanced manufacturing

★ 4 ★

We are also losing leadership in manufacturing industries based on inventions and knowledge that 

originated in the United States. Foreign firms now manufacture many products invented here. For 

example, the United States no longer has the knowledge, skilled people, and supplier infrastructure 

required to produce light-emitting diodes for energy-efficient illumination, components for consumer 

electronic products like the Kindle e-reader, or advanced displays for TVs, computers, and handheld 

devices such as mobile phones.23 (See Box 1.) With respect to batteries, the United States had also lost 

its lead in manufacturing. (The recent Recovery Act provided $2.4 billion for advanced battery and electric drive component manufacturing, demonstrations, and infrastructure development, which should 

allow advanced batteries and components for plug-in and hybrid vehicles to be manufactured in the 

U.S. rather than be imported). Companies in Asia now design nearly every U.S. brand of cell phone and 

laptop computer, except for Apple.24 This transfer of knowledge and manufacturing capacity may have 

national security implications as well, increasing the risk of counterfeit or malicious components in critical 

security systems. New U.S. companies continue to emerge in new technology sectors, but many keep 

costs down, access emerging markets and high-skilled workers, and satisfy their investors by locating 

their facilities abroad, usually in Asia—instead of creating jobs at home. 25

23. Pisano and Shih, op. cit., p. 3

24. Ibid.

25. Note the details of “Why Amazon’s Kindle 2 can’t be made in the U.S.” in Pisano and Shih, op. cit., p. 3

Source: Census Bureau, Foreign Trade Statistics, FT900: U.S. International 

Trade in Goods and Services, Exhibit 1s: Exports, Imports, and Balance 

of Goods by Selected NAICS-based Product Good (Manufacturing, total) 

and Exhibit 16a (Exhibit 15a for 2009 and earlier): Exports, Imports and 

Balance of Advanced Technology Products
I. Current State of U.S. Manufacturing

★ 5 ★

The Nation’s loss of manufacturing leadership is not limited to factory jobs; there are also concerns that 

we are losing leadership in R&D employment and investment related to manufacturing. R&D activity 

linked to manufacturing is moving offshore to access emerging global markets, and to respond to global 

competition for talent and the growing supply of scientists and engineers abroad. This is occurring 

as other countries are increasing their R&D intensities. Over the past several years, spending by U.S. 

firms on R&D outside the United States has grown at three times the rate of their domestic spending.27

In the most recent employment statistics from the National Science Foundation’s Division of Science 

Resources Statistics, three industries—all of them in the manufacturing sector—reported U.S. domestic 

R&D employment as a percentage of worldwide R&D employment as below 70%: communications 

equipment, semiconductor and other electronic components, and motor vehicles, trailers, and parts. 

In the last of these industries, domestic R&D employment was only 55% of the global total in 2008. At 

the same time, many of the nation’s approximately 280,000 small and mid-size firms do not have the 

option to offshore R&D, and struggle to compete with foreign firms.

Put together, these trends makes it increasingly possible to imagine that the United States might be 

shut out from competing altogether in certain industries as knowledge and inventions are increasingly 

produced abroad in addition to the products that result from them. 

27. National Science Foundation’s Science and Engineering Indicators 2006 and 2008 and Research & Development 

in Industry 2007. Between 1999 and 2007, foreign R&D funded by U.S. manufacturing firms grew 191% and their funded 

R&D performed domestically grew 67%, Tassey, op. cit., p. i.

BOX 1: LOST TECHNOLOGIES

Research and innovation are essential, but alone they do not ensure a successful manufacturing sector. This 

is a sample26 of technologies and products with both commercial and defense applications invented in the 

United States and now produced primarily abroad:

•	 Laptop computers

•	 Solar cells

•	 Semiconductor memory devices

•	 Semiconductor production equipment such as steppers

•	 Flat panel displays

•	 Robotics

•	 Interactive electronic games

•	 Lithium-ion batteries 

26. List from Tassey, op. cit., p. i
ensuring amer ican leadersh ip in advanced manufacturing

★ 6 ★

CONCLUSION

The United States is losing leadership in manufacturing—not just in low-tech industries and

products and not just due to low-wages abroad. We are losing ground in the production of 

high-tech products, including those resulting from U.S. innovation and inventions, and in 

manufacturing-associated R&D.

Yet even as U.S. manufacturing leadership is waning, other nations are investing heavily in growing and 

revitalizing their manufacturing sectors and are crafting policies to attract and retain production facilities 

and multinational companies within their borders. Such policies include partnerships, physical structures 

such as science parks or technology clusters, tax and regulatory incentives, and concentrated investment 

in commercialization of promising technologies. Some of these policies amount to industrial policy—

making clear bets on specific firms and industries, but others support pre-competitive activities that 

would be regarded as within the scope of appropriate government intervention in the U.S. 

The following examples illustrate the international context:

• In terms of R&D investment as a fraction of GDP, the U.S. now ties for 7th in the world behind 

countries that include Korea, Japan, Switzerland, and Israel. Although the U.S. still accounts for 

30% of global R&D, its share is shrinking. 

• Unlike the United States, many advanced countries have national agencies that specifically 

promote technological innovation in their domestic industries, including Denmark, Finland, 

France, Iceland, Ireland, Japan, the Netherlands, New Zealand, Norway, South Korea, Spain, 

Sweden, Switzerland, and the United Kingdom. (All these nations also have agencies similar to 

the National Science Foundation in the U.S. that fund basic research at universities and national 

laboratories.) The budgets of these national innovation agencies vary widely, but Finland’s 

Tekes invests 560 million USD annually and Japan’s New Energy and Industrial Technology 

Development Organization spends 2 billion USD. 28

• Other nations are providing far more widespread and ready access to low-cost capital to innovative startup companies, through development banks that finance emerging manufacturing 

technologies in the clean energy sector and beyond. The China Development Bank, for example, 

agreed to lend 35.4 billion USD to Chinese wind and solar companies in 2010, compared to the 

United States’ provision of $4 billion in grants and $16 billion in loan guarantees.29 (The Bank 

reaped higher profits than Morgan Stanley that year.) China’s government bank investment was 

matched by 54.4 billion USD in state and private investment. 

28. Information Technology and Innovation Foundation. The Good, the Bad, and the Ugly of Innovation Policy: A 

Policymaker’s Guide to Crafting Effective Innovation Policy. October 2010.

29. Even with private investment, China led the United States. See www.bloomberg.com/news/2011-04-03/chinaburies-obama-sputnik-aim-for-clean-power-as-kissinger-advises-bank.html
I. Current State of U.S. Manufacturing

★ 7 ★

• Even as China becomes increasingly competitive in making products and using technologies 

invented in the U.S., it is also producing 300,000 invention patents and about an equal number of 

“utility-model patents” annually30 and aims to reach two million in total patent counts by 2015.31

• The Industrial Technology Research Institute, Taiwan’s major R&D agency, supports 7 research 

labs and 6 research centers in the country. Through ITRI, the government covers about a fourth 

of the cost of private sector research in new technology areas. Unlike any U.S. agency, ITRI has 

the sole mission of developing technology for commercialization purposes. In 2004, it had a 

budget of $579 million, had spun off more than 100 companies, and had sent 17,000 of its former 

employees (trained in science and technology) into the Taiwanese workforce.32

• Via the Fraunhofer Institutes, Germany’s federal and state governments are co-investing with 

industry in applied manufacturing research. These include private-public partnerships in 

advanced materials, factory operation and automation, manufacturing and engineering automation, and machine tools and forming technology. The Fraunhofer Production group, which 

supports adaptive, digital, and high-performance production, has an operational budget of

$195 million USD per year.33

• Despite the success of U.S. efforts in nanotechnology, which has wide potential for strengthening manufacturing industries, our share of worldwide R&D activity in nanotechnology is 

declining. 34

• The Information Technology and Innovation Foundation ranked the U.S. economy last among 

40 economies in terms of trends toward improvement in innovative capacity, using a range of 

criteria including the change over the past decade in corporate R&D, IT investments, foreign 

direct investment, business climate, and corporate taxes. 35

CONCLUSION

As U.S. leadership in manufacturing declines, other nations are investing heavily in advancing 

their manufacturing leadership, innovation systems, and R&D.

30. “Utility-model patents” typically cover items like engineering features in a product and are less ambitious than 

“invention patents.” In the American system, there are no utility patents.

31. From the “National Patent Development Strategy (2011-2020)” published 

in November 2009 by the State Intellectual Property Office of China, accessed at 

http://graphics8.nytimes.com/packages/pdf/business/SIPONatPatentDevStrategy.pdf, and cited by Steve Lohr, “When 

innovation too, is made in China”, New York Times, January 1, 2011

32. National Research Council. Innovation Policies for the 21st Century: Report of a Symposium. 2007.

33. Fraunhofer Institute for Manufacturing Technology and Advanced Materials IFAM, Annual Report 2009/2010.

http://www.ifam.fraunhofer.de/jahresberichte/jb09/jb2009_en.pdf

34. President’s Council of Advisors on Science and Technology. Report to the President and 

Congress on the Third Assessment of the National Nanotechnology Initiative, March 2010. Available at: 

http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-nano-report.pdf

35. See: archive.itif.org/index.php?id=226

★ 9 ★

II. Implications of Declining 

U.S. Leadership in Manufacturing

A longstanding debate among economists and policymakers in the United States has centered on 

whether it matters that we are losing manufacturing industries and jobs. The relative size of the manufacturing sector has decreased substantially in every advanced economy. Some experts observe that it 

has been the natural course of economic development, as incomes rise and productivity increases, for 

jobs to migrate from agriculture to manufacturing and from manufacturing to services. In the future, 

it may be inevitable that the United States will not be able to compete with low-wage nations to make 

goods for which unskilled labor is the key input. This need not be true for sophisticated manufacturing 

linked to products and processes derived from scientific discovery and technological innovation. There 

are three compelling reasons why we should strive to revitalize our leadership in manufacturing: 

1. Manufacturing, based on new technologies including high-precision tools and advanced 

materials, provides the opportunity for high-quality, good-paying jobs for American workers; 

2. A strong manufacturing sector that adapts to and develops new technologies is vital to ensure 

ongoing U.S. leadership in innovation, because of the synergies created by locating production 

processes and design processes near to each other; and

3. Domestic manufacturing capabilities using advanced technologies and techniques are vital to 

national security.

In this report, we focus in particular on advanced manufacturing, which we believe offers the path 

forward for revitalizing manufacturing in the United States. The term refers to a family of activities that 

(a) depend on the use and coordination of information, automation, computation, software, sensing, 

and networking, and/or (b) make use of cutting edge materials and emerging capabilities enabled by 

the physical and biological sciences, for example nanotechnology, chemistry, and biology. This involves 

both new ways to manufacture existing products, and especially the manufacture of new products 

emerging from new advanced technologies.

Advanced Manufacturing Can Provide High-Quality Jobs

Manufacturing already provides good jobs to many American workers, and it has the potential to provide 

better jobs. Total hourly compensation in the manufacturing sector averages about 22% higher than 

average compensation in service industries.36 The “President’s Framework for Revitalizing American 

Manufacturing” notes, however, that wage premiums in manufacturing have been declining for workers 

with less formal education. Nevertheless, high-technology workers on average earn 50 to 100% more 

than the average of workers in all other fields.37 By fostering a more robust high-tech manufacturing 

36. From President’s Framework for Revitalizing American Manufacturing: 40% is due to wages/salaries, 20% due to 

heath benefits.

37. Hecker, Daniel. “High Technology Employment: A NAICS-based Update,” Monthly Labor Review (July 2005): 5772. And“High-Technology Employment: A Broader View,” Monthly Labor Review (June 1999).
ensuring amer ican leadersh ip in advanced manufacturing

★ 10 ★

sector and better training our workers, the United States can capture the high-value added jobs involved 

in the manufacturing of products using advanced technologies and processes. 

Companies that are embracing advanced manufacturing techniques and tools, as well as those producing products based on emerging technology, are demonstrating this potential. They are proving that 

U.S. companies can compete when their products are high-quality, specialized, responsive to customers’ 

needs, and made by workers whose productivity is enhanced through technology and training. Examples 

include AK Steel, which has flourished in the Rust Belt despite the economic downturn by employing 

more than 1,300 people to make customized electrical steel for domestic and export markets,38 and 

General Electric, which is creating 4,000 manufacturing jobs domestically to make products including 

energy-efficient washers and dryers, environmental coatings, fluorescent light bulbs, sodium batteries, 

and jet engines.39 G.E. is relying on high-tech machinery, skilled workers, and composite materials to 

create value-added parts for fuel-efficient jet engines in the United States. It is also taking advantage of 

state and local tax credits, and automation, to make energy-efficient washers and dryers in Kentucky. 

Smaller companies, including Farouk Systems, Inc., a $1 billion hand-held appliance maker, and Emerson, 

an electrical equipment maker based in St. Louis, have also shifted some production from Asia to the 

United States to improve quality control and to better access their customers, relying on automation and 

reduced delivery distance to improve their cost competitiveness.40 These companies currently represent 

exceptions to the broader trend of off-shoring of manufacturing.

Further examples suggest that an advanced manufacturing sector can provide a significant number 

of good jobs. A recent study showed that in New England, there is unrealized potential in advanced 

manufacturing (defined in the study as the capability to use advanced technologies as the basis of 

new manufacturing or to improve processes, including precision machining, complex electronics 

assembly, tooling, prototyping, and engineering-manufacturing collaboration). The report estimated 

that between 7,500 and 8,500 jobs with the average salary of $80,000 could be created each year in the 

advanced manufacturing sector in New England if several barriers could be overcome.41 The barriers 

include a need for better tax incentives; collaborations across industries, firms, and with government; 

and better trained workers. Even in Michigan, where overall manufacturing employment has plummeted 

by more than a third since 2001, the advanced manufacturing sector appears promising. A study of 

employment in Michigan estimated that 65% (381,000) of the state’s manufacturing jobs in 2007 were 

in the advanced manufacturing sector.42,43 In 2009, this percent increased to 72% even as the number 

38. Stokes, Bruce. “Act II for American Manufacturing?” National Journal (December 2010). http://nationaljournal.

com/njonline/no_20100508_1960.php/american-manufacturing-s-new-future-is-emerging-but-it-may-need-help20101209?page=1

39. Lohr, Steve. “G.E. Goes With What It Knows: Making Stutt.” New York Times, p. BU1 (December 5, 2010).

http://www.nytimes.com/2010/12/05/business/05ge.html?src=busln

40. Aeppel, Timothy. “Coming Home: Appliance Maker Drops China to Produce in Texas.” The Wall Street Journal, p. B1 

(August 24, 2009). http://online.wsj.com/article_email/SB125107636394652753-lMyQjAxMTIwNTIxNjAyNzY2Wj.html

41. New England Council and Deloitte Consulting LLP. Re-examining advanced manufacturing in a networked world: 

Prospects for a Resurgence in New England. Dec 2009

42. Anderson Economic Group, LLC. The University Research Corridor’s Support for Advanced Manufacturing in 

Michigan. July 2010. Accessible at: urcmich.org/news/100721manufacturing.html

43. The study, however, used a somewhat circular definition of “advanced manufacturing” (i.e., sectors with 

relatively high-paying jobs, involving the making of high-technology products or developing of processes for future 

manufacturing, and having productivity growth rates significantly above the U.S. average).
II. Implications of Declining U.S. Leadersh ip in Manufactu ri n g 

★ 11 ★

of manufacturing jobs fell in the state; the state lost advanced manufacturing jobs at a lower rate than 

it lost manufacturing jobs overall.44

CONCLUSION

Advanced manufacturing has the potential to create and retain high-quality jobs in the 

United States. 

Advanced manufacturing in the U.S. will strengthen innovation in the U.S.

Aside from providing jobs, a strong manufacturing sector is essential if the United States is to remain 

the world’s leader in knowledge production and innovation. Given that manufacturing companies are 

responsible for about 70% of industrial R&D in the United States, and employ 63% of domestic scientists 

and engineers,45 the increasing movement of manufacturing abroad has a direct effect on the innovative 

capacity of the nation. 

Furthermore, when manufacturing migrates offshore so do the knowledge and capabilities that help 

spur innovative new technologies and allow a country to compete in new industries. Technology and 

innovation often follow production as it shifts abroad; other countries then gain the knowledge to 

capture and integrate more of the value in the global supply chain by learning to design products, and 

then use that knowledge, coupled with R&D, to leapfrog to next generation technologies. When this 

happens, companies abroad can take advantage of the synergies between design and production to 

capture market share for new, emerging technologies related to the production of earlier generation 

technologies. This is the reason, for example, according to Gary Pisano of the Harvard Business School, 

why the United States lags behind other nations in advanced battery technology for fuel-efficient 

vehicles. The consumer electronics industry, which shifted to Asia decades ago, demanded and generated the innovations that made batteries lighter and more efficient, and in doing so allowed the nations 

with that industry to foster manufacturing capabilities for lightweight and rechargeable batteries, 

including lithium ion batteries. Companies based in countries with those capabilities were better positioned to take advantage of the new market in batteries for electric and hybrid vehicles. Similarly, the 

capabilities in silicon-processing and thin-film coating that countries such as China, Japan, Korea, and 

Taiwan developed when semiconductor foundries and flat-panel display manufacturing moved to those 

countries have helped them to establish leadership in solar panel innovation and manufacturing. The 

U.S. is not a major player in solar panel technology, in part because of our lack of domestic infrastructure 

for thin-film and electronics manufacturing. 46

Proximity is important in fostering innovation. When different aspects of manufacturing—from R&D to 

production to customer delivery—are located in the same region, they breed efficiencies in knowledge 

transfer that allow new technologies to develop and businesses to innovate. Historically, the co-location 

of manufacturing and product design has been vital. Close, rapid feedback between design and pro44. U.S. Census Bureau, Local Employment Dynamics. LEHD State of Michigan County Reports.

http://lehd.did.census.gov/cgi-bin/qwitop_naicformbrowse?xstate=mi&xstyle=lehd&xntag=3133&bktag=&xdbase=county

45. Bureau of Economic Analysis, NSF and Wolfe 2009 , as cited by Tassey.

46. Pisano, Gary P., and Willy C. Shih. “Restoring American Competitiveness.” Harvard Business Review 87, nos. 7-8 

(July - August 2009). 
ensuring amer ican leadersh ip in advanced manufacturing

★ 12 ★

duction47 allows ideas and prototypes to be quickly tested and scaled up, and allows production needs 

and processes to inform design. Innovation is also aided by interaction between engineers and people 

working in fabrication. This is because much of the knowledge underlying emerging technologies is tacit, 

scholars point out, requiring person-to-person contact for efficient information transfer.48 In modern 

science-based industries in particular, which are multidisciplinary, innovation requires a range of skilled 

people from different backgrounds who can communicate effectively. Despite the cross-border, real-time 

exchanges that information technology has enabled, proximity still encourages people to exchange 

the knowledge most critical to innovation. For example, engineers in Silicon Valley are more likely to 

exchange more ideas with other engineers in their region than with engineers on the East Coast.49

Harvard professors Gary Pisano and Willy Shih summed up50 the connection between a nation’s loss of 

manufacturing and its loss of innovative capabilities:

In reality, there are relatively few high-tech industries where the manufacturing process is not a 

factor in developing new—especially radically new—products. That’s because in most of these 

industries product and process innovation are intertwined. So the decline of manufacturing 

in a region sets off a chain reaction. Once manufacturing is outsourced, process-engineering 

expertise can’t be maintained, since it depends on daily interactions with manufacturing. 

Without process-engineering capabilities, companies find it increasingly difficult to conduct 

advanced research on next-generation process technologies. Without the ability to develop 

such new processes, they find they can no longer develop new products. In the long term, then, 

an economy that lacks an infrastructure for advanced process engineering and manufacturing 

will lose its ability to innovate.

Our nation’s ability to the produce the next generation of inventions and innovations will be greatly 

enhanced if companies continue to make products here, and to perform R&D here. 

CONCLUSION

The Nation’s long-term ability to innovate and compete in the global economy greatly benefits 

from co-location of manufacturing and manufacturing-related R&D activities in the United 

States. The loss of these activities will undermine our capacity to invent, innovate, and compete 

in global markets. 

47. Ralph Gomory, “ The Innovation Delusion,” The Huffington Post, March 01, 2010

48. Tassey, op. cit., p. i

49. Fleming, Lee, and K. Frenken. “The Evolution of Inventor Networks in the Silicon Valley and Boston Regions.” 

Advances in Complex Systems 10, no. 1 (March 2007).

50. Pisano, Gary P., and Willy C. Shih. “Restoring American Competitiveness.” Harvard Business Review 87, nos. 7-8 

(July - August 2009).
II. Implications of Declining U.S. Leadersh ip in Manufactu ri n g 

★ 13 ★

Advanced Manufacturing is a Critical National Security Capability

While the national security of the United States benefits from access to many products that are manufactured abroad, ranging from raw materials to technologically advanced components, the irreversible 

trend toward globalization of supply chains brings with it risks that must be countered by preparedness 

and appropriate hedging actions. In this regard, a vital advanced manufacturing sector is critical for 

national defense and homeland security.

A useful perspective on the issue is given in a 2006 National Research Council study51commissioned by 

the Defense Intelligence Agency. That study noted that most scenarios for future conflict involve military 

action using forces available at the time of the decision to go to war, providing little opportunity for 

a foreign source to deny necessary material and thereby significantly impact operations, on a tactical 

timescale. However, on a strategic timescale, the situation is quite different:

“If the United States were to become strategically dependent on a foreign industrial base for 

items that are critical or for which the regeneration of a U.S. industrial base would take a long 

time, the risk would be unacceptable.... [This] possibility should be taken into account when 

determining what the U.S. industrial base needs to be for defense purposes.”

The 2006 committee cites information technology, nanotechnology, and biotechnology as areas worthy 

of continued vigilance against the possibility of strategic denial.

The capabilities for advanced manufacturing, as described in the present report, are precisely the types of 

technologies that, if ever lost by the U.S., would take an unacceptably long time to regenerate—if they could 

be regenerated at all. Thus does advanced manufacturing rise to the level of a critical defense capability.

Furthermore, even in cases that the supply chain risk of foreign suppliers of specific material can be 

managed (for example, by maintaining multiple suppliers in geopolitically diverse countries), it may be 

impossible for us to assess risk accurately without the hands-on understanding that can be provided by 

domestic suppliers of (at least closely related) products. When manufacturing is outsourced, it diminishes 

not just the capability of producing high-tech goods, but also drains the nation’s source of knowledge 

and talent that would be needed for the reconstitution of domestic capacity, or for a surge capability 

in time of strategic need.52

Because advanced manufacturing will often involve innovative new ideas generated by smaller companies, its advance brings the possibility of broadening the Department of Defense contractor base, 

yielding more competition and better acquisition outcomes. According to the Department of Defense, 

past manufacturing programs have been shown to reduce acquisition costs. For example, in a report to 

Congress, DOD states that implementations of technologies and processes developed by roughly $700 

million in manufacturing R&D investment through the Manufacturing Technology Program (ManTech) is 

projected to result in over $6 billion in acquisition cost avoidance.53 In 2006, the Defense Science Board 

51. Committee on Critical Technology Accessibility, Critical Technology Accessibility, National Research Council (2006).

52. Recent events in which China has restricted the supply of rare earth metals illustrate this point, especially 

if China’s goal is to move higher up the manufacturing chain so as to preferentially export advanced manufactured 

materials (e.g., magnets) made from these rare earth metals. Since such magnets are widely used in U.S. defense 

systems, strategic denial might become a real possibility, against which the U.S. needs to hedge

53. Department of Defense, Report to Congress on Implementation of DoD ManTech Projects Receiving FY03 - 05 Funds, 

December 2008.
noted that “the need for a cohesive manufacturing research and development investment program is 

fundamental to rapid acceleration of near term technology capabilities to support warfighting operations and to long-term support for transition of revolutionary technologies.” 54

CONCLUSION

A strong advanced manufacturing sector is essential to national security. 

54. Science Board Task Force on The Manufacturing Technology Program: A Key to Affordably Equipping the Future 

Force, p. 1, February 2006.
★ 15 ★

III. Innovation Policy: Appropriate 

Roles for the Federal Government

Many other nations are advancing their manufacturing enterprises through policies that include 

industrial policy—that is, direct investment in or subsidies to specific firms. We do not believe that the 

Federal Government should play the role of a venture capitalist, making large bets on particular firms 

and industries. Rather, the best industries, firms, and products should thrive based on their ability to 

compete in the marketplace. 55

While the United States should avoid industrial policy, the Nation must have a robust innovation 

policy—an approach not of selective cultivation of industries or firms, but of creating the conditions 

that support innovation in advanced manufacturing.

The objectives of an innovation policy should be to ensure (i) that the U.S. provides the best overall 

environment in which to do business, (ii) that powerful new technologies are developed here and (iii) 

that technology-based enterprises have the infrastructure required to flourish here. 

Creating a Fertile Environment for Innovation 

In the face of abundant global opportunities for the location of both manufacturing and R&D operations, 

firms seek access to highly trained workers, predictable and favorable regulatory and tax environments, 

and resources that contribute to innovation. 

As other nations invest heavily in attracting manufacturing firms, educating their workforce, strengthening their industries, and promoting innovation, some are providing better conditions—more favorable 

tax and regulatory environments and better access to talent—to encourage firms to produce goods as 

well as locate their R&D activities within their borders. 

• Many nations offer more attractive tax rates. U.S. average combined marginal corporate income 

tax rates (Federal, state and local) are 39.21%, higher than in any other OECD nation except Japan 

at 39.54%. Combined taxes in Germany are 30%, France 34%, Canada 29.5%, and the United 

Kingdom 28%; smaller countries are much lower (e.g., Chile at 17%, Ireland at 12.5%) and the 

OECD mean is about 30%.56 The repatriation of cash generated outside the United States is 

also subject to domestic taxation to the extent that domestic tax rates exceed foreign tax rates. 

Business leaders argue that this dissuades companies from putting profits to work at home.57

55. It should be noted however, that the U.S. government does provide financing support (through loans and loan 

guarantees, etc.) for international projects for export-oriented U.S. firms through the Export-Import (Ex-Im) Bank and the 

Overseas Private Investment Corporation (OPIC).

56. OECD Tax Database, http://www.oecd.org:80/ctp/taxdatabase

57. PCAST notes that corporate tax structures differ across nations, with the result that the actual 

marginal tax rate for some corporations may differ significantly from the rate in the tax codes; this complicates 

international comparisons. (See: Kocieniewski, David. “U.S. Business has High Tax Rates but Pays Less,” May 2, 2011. 

http://www.nytimes.com/2011/05/03/business/economy/03rates.html). We also note that it is important to consider the 

relative merits of lowering marginal tax rates versus providing investment-specific incentives.
ensuring amer ican leadersh ip in advanced manufacturing

★ 16 ★

• Many nations offer a variety of tax abatements and related inducements to attract manufacturing firms and their R&D operations. The effective R&D tax credit of the United States is now 

ranked 17th among industrialized nations by the OECD, whereas in 1992 it was ranked first. The 

R&D tax credit58 has been temporary since its introduction in 1981, requiring periodic renewal 

by Congress. This creates uncertainty for businesses, which depend on predictable conditions 

for long-range planning. President Obama has proposed expanding, simplifying, and making 

permanent the R&D tax credit in his budget proposal and strategy. This should be implemented 

as an important first step.

• Worryingly, some nations may offer a more highly-skilled workforce for manufacturing. Access 

to high-skilled workers, the talent driving innovation, was the single most critical factor determining a country’s manufacturing competitiveness, according to a recent report59 based on 

the responses of 400 CEOs and senior manufacturing executives from around the world. The 

report predicted that the United States was likely to decline in manufacturing competitiveness 

in the next 5 years due to the challenges of accessing such talent. Business leaders at PCAST’s 

workshop reported that US companies are increasingly going abroad because countries such as 

India, South Korea and China provide the high-skilled workers that they need to advance their 

R&D enterprise, and to run the advanced manufacturing facilities that produce high-quality, 

customized products. Business leaders in the United States frequently expressed the view that 

the nation has a shortage of workers with the skills and knowledge of science, technology, 

engineering and mathematics (STEM) needed for advanced manufacturing. Business leaders 

also are concerned that stringent quotas on skilled workers from abroad under the H1-B visa 

program severely constrain their access to foreign talent.

CONCLUSION

The United States lags behind competitor nations in providing the business environment and 

skilled workforce needed for advanced manufacturing. 

Overcoming Market Failures: Role of U.S. Investment

A major justification for government investments in science and technology is to overcome market 

failures. Market failures occur when private investors invest less in technology than the socially optimal 

level, because they cannot reap the full benefits of their investment. 

New technologies frequently face market failures. The benefits of early R&D cannot be fully captured by 

the firm making the investment; instead, many firms or industries benefit from knowledge spillovers. 

Ironically, the new technologies that have high potential for growth and job creation and that are 

broadly applicable across several industries, also are technologies where individual private firms often 

under-invest most (relative to the social optimum) because the benefits of those investments do not 

58. The “R&D tax credit” is used in this report to refer to the U.S. Research and Experimentation Tax Credit.

59. Deloitte and U.S. Council on Competitiveness - 2010 Global Manufacturing Competitiveness Index, June 2010. 

Accessible on the web here: www.deloitte.com/globalcompetitiveness
III. Innovation Policy: Appropr iate Ro les for the Federal Government

★ 17 ★

sufficiently accrue to them in particular, but are shared widely across many firms and industries. For this 

reason, public investment has been critical in the early stages of R&D.

Historically, Federal technology investment—supporting basic research, funding proof of concept and 

promoting early commercialization through procurement—has been crucial to the creation of many 

technologies that have created new industries in the United States. Such investments, commonly supported by the Department of Defense, Department of Energy, National Institutes of Health, NASA, and 

National Science Foundation, have helped spawn entire industries, hundreds of U.S. companies and 

millions of high-quality jobs for Americans for decades. 

The Internet, for example, was the result of long-term funding from DARPA, and later by NSF. This research 

was focused not only on basic science, but also on development and demonstrations of technologies 

such as packet switching, communications protocols, and networking infrastructure. These investments 

were in areas where the return on invested capital would have been difficult for any single company to 

capture, and the investments required a long time horizon not easily envisioned by industry leaders. 

Significant Federal funding—in some cases paired with industry funding—was also critical for the 

development of the transistor by Bell Labs in the 1950s, the growth of the semiconductor industry and 

the birth of Silicon Valley, and to the development of GPS. The Federal government funded in part the 

major corporate laboratories that laid the foundations for U.S. economic leadership and innovation 

in the 20th century, including Xerox PARC, RCA David Sarnoff Research Center, and AT&T Bell Labs.60

According to one study, most of the top annual innovations in the U.S. over the past two decades were 

supported by a combination of government and industry funding.61

The Federal government has also used public-private partnerships as a vehicle to advance key technologies. The SEMATECH consortium of the late 1980s and early 1990s, for example, was a partnership 

between DARPA and 14 U.S.-based semiconductor manufacturers, in response to the fact that Japan 

had captured a large portion of the integrated circuit memory chip market, and was poised to capture 

the majority of that market. This was viewed as a risk to national competitiveness and national security. 

SEMATECH, which matched $500 million in Federal government spending with equivalent industry 

spending over 5 years, advanced precompetitive research on the technology needed for next-generation 

chips. It also funded a test integration facility for tool and equipment suppliers in the semiconductor 

industry, allowing for prototyping of innovations in chip technology through direct contact between 

suppliers and the major companies in the consortium.

More recently, the Federal government and industry partners have launched a pilot public-private 

partnership to advance research on the practical, next-generation computing devices that can 

replace the conventional semiconductor chip by 2020. The partnership was launched by NIST and the 

Nanoelectronics Research Initiative (part of the Semiconductor Research Corporation). To date, the 

partnership has received only modest Federal funding, of about $2.7 million per year, which has leveraged about $20 million in co-investment from the states and industry partners to establish regional 

research centers. A group of 35 universities in 20 states is contributing to the initiative. With more 

60. Tassey, op. cit., p. i.

61. Block, Fred and Keller, Matthew. “Where do Innovations Come From? Transformations in the U.S. National 

Innovation System, 1970-2006” Information Technology and Innovation Foundation Report. July 2008. As recognized by 

R&D Magazine.
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significant Federal investment and industry co-investment, this initiative could help advance the critical 

precompetitive research needed to lead in the future of computing devices.

Finally, we note another option that government can use to make cost-neutral investments that increase 

access to low-cost capital for innovative technology enterprises that serve national priorities and address 

societal challenges. Over the long run, private capital markets are efficient at identifying the best technologies; but there can be significant time-lags with early-stage technologies. The experience of some 

national development banks suggests that co-financing can encourage the transition of promising 

technologies from the stage of invention to pilot plants for production, while yielding returns for the 

government. This approach is being increasingly used by other nations.

CONCLUSION

Federal investments in new technologies have been crucial to the birth and growth of major 

new industries. 

The next sections discuss three ways in which Federal Government might help overcome market failures 

that constrain U.S. leadership in manufacturing and the growth of the advanced manufacturing 

sector. 

Opportunities: Advancing New Technologies

A first way in which the Federal Government can help overcome market failures is to provide support 

to advance specific early-stage technologies that have transformative potential, but for which rational 

private actors will under-invest because they cannot capture the full return on their investment, owing 

to spillover effects that would accrue to many industries and firms. 

It is important to distinguish support for specific technology areas versus support for specific technology 

companies. We do not propose that the Federal Government should play the role of venture capitalist. 

However, there are appropriate steps that the Government can take to advance key areas, including 

supporting applied research in promising technologies and precompetitive public-private partnerships and consortia. Such steps are economically justifiable when clear market failures limit progress 

in technologies with the potential for transformative impact on jobs and output, and sustainable 

competitive advantage for the U.S.. They are particularly appropriate when the technologies address 

societal challenges and technical and scientific problems of national importance. We elaborate on these 

approaches in Chapter 4.
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PCAST has not sought to define the specific technology areas that should be supported in this manner; 

this is better done through a process that we describe below. For the purposes of illustration, we briefly 

describe four examples of promising technologies that face potential market failure such as described 

above.

• Nano-scale Carbon Materials: Materials such as graphene, buckeyballs, and carbon nanotubes that have nano-scale crystalline structures could serve markets for data storage, energy, 

optoelectronics, avionics, defense and packaging. Potential products include highly attuned 

chemical and biological sensors, fuel cells, touch screens, lightweight body armor, and airframes. 

Their properties could also allow the materials to replace silicon for next-generation integrated 

circuits, and to be applied to uses not yet conceivable. Because these materials could serve a 

diverse range of industries including energy, information storage, automotive, aerospace and 

microelectronics, it is hard for individual firms—or even individual industries—to reap the 

benefits of high-risk investments to realize the full potential of the technologies.

• Next-generation optoelectronics: Technology that integrates electronics and photonics 

to convert light into electrons, and vice versa, currently enables many products and services 

in telecommunications, entertainment, e-commerce and medicine. The next generation62

of the technology requires development and production of vastly more integrated, higherperformance, and lower cost devices and systems, which could also allow for the emergence 

of new microelectronics, order-of-magnitude improvements in data transfer rates within and 

between computers without increased cost, biosensors for home healthcare and personalized 

medicine, imaging and night-vision systems, and faster and more capable information synthesis 

and processing systems. The critical innovation needed in this field is the ability to integrate 

leading-edge photonic functionality into the same chips as transistor-based electronics. This 

will leverage the existing infrastructure for electronic silicon chip fabrication to rapidly advance 

the manufacturing base for new photonic systems. The benefits of developing this technology 

are spread across a wide range of industry sectors and products. Individual firms cannot justify 

the level of investment needed to fully develop the technology. 

• Flexible electronics: The technology that allows electronic circuits to be printed on thin, flexible 

substrates that can be shaped without damage has the potential to improve a range of existing 

products including displays and photovoltaic panels and to form the basis of new products, 

such as bandages that sense the presence of infection and alert medical staff, foldable solar 

panels for earth and space applications, clothing that monitors and displays physiological signs, 

phased-array antennae for distributed mobile communications networks, and ultra-efficient 

lighting. The research and development needed to advance this technology is costly and 

complex, requiring facilities for prototyping and pilot-scale manufacture. Yet the benefits are 

broadly applicable across industries and cannot be fully captured. 

62. The current state of the technology consists of silicon photonics that integrate photonic and electronic 

circuits, monolithically integrated into single substrates with bonded lasers fabricated from indium phosphide. The next 

generation of this technology will require substantial investment in developing processes that are 1) compatible with 

existing CMOS fabrication facilities, 2) stable and repeatable, and 3) accessible to the wider community and 4) offer bestin-class performance for both photonic and electronic devices. 
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• Nanotechnology Enabled Medical Diagnostic Devices and Therapeutics: Advances in 

nanomedicine have the potential to revolutionize the pharmaceutical industry, by dramatically 

improving prevention, diagnosis and treatment. Recent advances in nanotechnology have led 

to ultrasensitive assays for identifying and treating diseases at earlier stages than conventional 

diagnostic tools, new ways of delivering powerful therapeutics to the point of disease within the 

body without unintended side effects, and the development of entire new classes of pharmaceuticals based upon nanostructures for broad classes of disease such as cardiovascular disease 

and cancer. The ability to design products and manufacture using this technology requires new 

tools and procedures, scale-up plants, and a work force with a new set of skills. The technology 

has the potential to create new US-based industries, lower the cost of health-care, and positively 

impact human life. But, individual medical firms cannot rationally justify the optimal level of 

investment based on the return that they can achieve.

Opportunities: Supporting Shared Infrastructure

A second way that the Federal Government can promote advanced manufacturing in the U.S. is to 

improve access to infrastructure, especially for small and medium sized firms.

There are many tools and technologies that can improve the ability of existing firms to prototype rapidly 

and virtually, produce small batches, customize products to individual consumers and clients, reduce 

inventories, and expand the range of products that they can manufacture. Many firms, however, cannot 

gain access to such technologies. The minimum investments required are too large to be cost-effective 

for an individual firm, and there is often no effective way to buy shared services. 

For example, powerful computational tools and resources for modeling and simulation could allow 

many U.S. manufacturing firms to improve their processes, design, and fabrication. They would benefit 

from readily accessible shared infrastructure, providing both equipment and expertise. Infrastructure 

currently provided at Federal laboratories, for example, for the fabrication of micro-electromechanical 

systems, has allowed for new products to be developed by U.S. companies. Similarly, measurement tools 

for nanomaterials would be enabling for many firms.

Opportunities: Rethinking the Manufacturing Process

A third way that the Federal Government can promote advanced manufacturing in the U.S. is by supporting broad efforts to dramatically rethink the manufacturing process. 

We believe that emerging technologies—if accelerated, integrated, and synthesized—have the potential 

to change how we manufacture things ranging from vehicles to personal effects, from tools to proteins. 

Harnessed and driven appropriately, they have the potential to create a new manufacturing base that 

can move quickly, cost-effectively and seamlessly from bits to atoms and from parts to systems. The 

resulting manufacturing tools and resources may enable: 

• development cycles at reduced risk, time and cost; 

• adaptive design and development for diverse market segments; and

• orders of magnitude expansion of number and diversity in product designers.
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Past efforts to accelerate product development cycles and reduce costs of transition to large scale 

manufacturing have often focused on rapid prototyping tools and techniques. While there have been 

important developments in these areas, rapid prototyping has not solved the fundamental challenges of 

manufacturing. Rather than making prototyping techniques faster, more functional, and closer to mass 

production, it may make more sense to work backward from manufacturing—by developing the tools 

and techniques that would enable large scale manufacturing equipment and materials to efficiently 

produce low volume lots—down to units of one. This would enable production of prototypes in exactly 

the same facility that will produce units in high volume. Prototyping new products in exactly the same 

high-volume manufacturing facility using the same materials and processes that will be used in the 

final product could revolutionize production speed and efficiency in the transitions between stages. It 

could eliminate the time, cost, and risk that arises from transitions between stages that include prototyping, early production runs, limited, and large-scale manufacturing. These transitions currently require 

extensive rework, and are the source of production delays, surprises, and cost overruns. 

The power of this approach has been demonstrated historically in the semiconductor and information 

technology industries. In semiconductors, the work of Mead and Conway in the late ‘70s fundamentally 

transformed the design of very large-scale integrated (VLSI) systems. They developed an ‘abstract’ set 

of design rules that made it possible to decouple the design of systems from the specific fabrication 

technology used to produce them. As a result, design and simulation tools with higher level of abstractions became possible. These abstractions and tools involved a trade-off that required some loss of 

optimal performance in individual components. But, they allowed much greater ease and accuracy 

of the overall system design. These advantages led to system-level innovations that increased system 

performance, reduced time and cost of system design, and increased reliability and predictability of 

system performance. The tools and techniques led to a greater diversity and number—from hundreds 

to hundreds of thousands—of VLSI designers. These designers in turn contributed to a proliferation 

of new semiconductor products, dozens of multi-billion dollar companies and an entire new industry 

sector—fabless semiconductor companies.

Similar to the semiconductor sector, information technology moved from machine-level, assembly 

language programming in the 1960s to high-level languages that decoupled the programming from 

the specific microprocessor or machine that was being programmed. High-level languages involved a 

deliberate tradeoff of some loss of performance for ease of programming and portability of programs. As 

in semiconductors, the move to higher-level languages, higher levels of abstraction, also led to a greater 

diversity and number of programmers, which in turn led to an explosion of new programs, applications 

and the information technology industry. 

Manufacturing sectors such as electromechanical systems and pharmaceuticals may involve greater 

levels of complexity and technical challenge than semiconductors or programming alone. Similar 

approaches, however, hold promise to bring comparable growth, jobs, and entrepreneurial innovation 

to key industries and U.S. manufacturing excellence. We see three areas for attention.

The first area is in design tools that dramatically improve the existing systems engineering, integration, 

and testing process for complex electromechanical, cyber-physical systems that represent the bulk of 

manufactured products today— from toasters to automobiles. These tools could aim to develop general 
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methods for cyber-physical products far more complex and heterogeneous than those to which such 

methods are applied today. These capabilities would further enable designers to use common methods 

throughout the design process to optimize system performance, and to verify designs in silico. This could 

dramatically reduce the need for expensive build, test and design cycles.

The second area would develop manufacturing facilities similar to today’s semiconductor foundries. 

The input would be verified system designs, specified and developed with the design tools above. The 

systems would be capable of rapid reconfiguration to accommodate a wide range of design variation. 

Such foundries would compress substantially the time required to go from design to product. This 

could advance manufacturing toward flexible, programmable, and potentially distributed production 

capabilities able to accommodate a diverse range of systems and system variants, rather than requiring 

separate facilities for single products. 

The third area would support generating open-source collaboration environments for the creation 

of large, complex, cyber-physical systems by numerous affiliated or unaffiliated designers—with the 

goal of democratizing the design innovation process by engaging a vastly larger pool of talent than 

current industry models. The development of complex software systems, for example, has benefitted 

significantly from the ability to leverage crowd-sourced innovation in the form of open source code 

development.

CONCLUSION

Individual companies cannot justify the investment required to fully develop many important 

new technologies or to create the full infrastructure to support advanced manufacturing. 

Private investment must be complemented by public investment. Key opportunities to overcome market failures include investing in the advancement of new technologies with transformative potential, supporting shared infrastructure, and accelerating the manufacturing 

process through targeted support for new methods and approaches. 
★ 23 ★

IV. Recommendations: Toward a 

Renaissance in Advanced Manufacturing

In a spirit consistent with America’s past successes, we recommend the following strategy for promoting 

advanced manufacturing in the United States.

PRINCIPLES FOR PROMOTING ADVANCED MANUFACTURING IN THE UNITED STATES

(1) Invest to overcome market failures, to ensure new technologies are developed here and 

technology-based enterprises have the infrastructure to flourish here.

•	 Support applied research programs in most promising new technologies

•	 Co-invest in public-private partnerships to facilitate development of broadly-applicable 

technologies with transformative potential 

•	 Develop and disseminate design methodologies that dramatically decrease the time and 

lower the barrier for entrepreneurs to make products

•	 Invest in shared technology infrastructure that would help U.S. companies improve their 

manufacturing

(2) Create a fertile environment for innovation here.

•	 Encourage firms to locate R&D and manufacturing activities in the U.S. through tax and business policies

•	 Support a robust basic research enterprise 

•	 Ensure a supply of skilled workers through policies that cultivate and attract high-skilled talent

The recent passage of the America COMPETES Reauthorization Act of 2010 establishes a valuable 

framework for activities to support advanced manufacturing (see Appendix 1). The Act authorizes the 

Federal government to work with industry and national laboratories to identify regulatory and tax barriers to advanced manufacturing, identify challenges appropriately tackled by PPPs, and encourage the 

formation of PPPs. It authorizes an interagency committee under the NSTC to plan and coordinate federal 

activities on advanced manufacturing. It also directs NIST to study the barriers to small and medium 

sized firms’ use of modeling and simulation tools and techniques, and requires the Department of 

Commerce to recommend actions to overcome any barriers that are identified. We urge funding be 

appropriated for these activities.

The President’s FY2012 budget request and President’s Strategy for American Innovation lay out specific 

actions to catalyze advanced manufacturing initiatives (see Appendix 2) that include modifications to 

the R&D tax credit, modest R&D funding for advanced manufacturing at various agencies, foundational 

support for public-private partnership programs at NIST, and investments in STEM education. We also 

urge appropriate funding for these activities.
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Our goal here is to build upon this foundational work, including by identifying specific actions and the 

funding required. 

Overcoming Market Failures: Advanced Manufacturing Initiative for 

America’s Future

There are systematic market failures that (i) block or slow the development of important new technologies and methodologies and (ii) limit access by firms to technology infrastructure. The Federal 

Government has historically made visionary investments that have facilitated the birth of new technology-based industries and strengthened the development of existing industries. These investments have 

paid enormous financial and social returns to the Nation. It is essential that we renew this wise policy. 

PCAST believes there are a number of Federal investments that could have large returns in propelling 

advanced manufacturing. These include co-investing in the advancement of new technologies that 

face market failure, support of shared infrastructure, and rethinking the manufacturing process through 

targeted support for new methods and approaches. Currently, key technological investments in this vein 

are being made by the Defense Advanced Research Projects Agency (DARPA), the National Institute of 

Standards and Technology (NIST) and the Department of Energy. 

Rather than specifying precise areas for investment, however, PCAST favors the creation of a disciplined 

and transparent process to evaluate technology opportunities, define problems or cross-cutting challenges, and make investments. Investments should be made based on the merits of proposals from 

industry and academia, evaluated by the criteria discussed below.63

Toward this end, we recommend the creation of an Advanced Manufacturing Initiative for America’s 

Future (AMI). AMI should be a concerted, whole-of-government effort, spearheaded by the Department 

of Commerce, Department of Defense, and Department of Energy and coordinated by the Executive 

Office of the President (EOP), either through the Office of Science and Technology Policy, National 

Economic Council, or the office of the Assistant to the President for Manufacturing Policy. It is crucial that 

this whole-of-government effort be complemented by parallel initiatives in the industry and academia. 

AMI should develop mechanisms to involve these sectors and to draw on their expertise in identifying 

technological opportunities. An external advisory board that has access to advanced manufacturing 

expertise should help guide this work.

AMI should focus on two components: identifying opportunities and investing in opportunities. The 

first component requires no new appropriations and should be launched immediately. The second 

component could require new appropriations or reprioritization of existing funds.

Identifying Opportunities. The Coordinator of AMI should deliver a biennial report to the President 

identifying and analyzing the most promising technology areas related to advanced manufacturing 

where Federal investment is needed and justified. The types of investments to be considered should 

include: 

63. We note that PCAST has not sought to evaluate how the overall funding portfolio might be rebalanced. 

Instead, we have identified gaps and needs that are not being met currently.
IV. Recommen dations: Toward a Renaissance in Advanced Manufacturing

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• Coordinated Federal support to academia and industry for applied research on new technologies and design methodologies with transforming potential, 

• Public-private partnerships to advance such technologies through pre-competitive consortia 

that tackle major-cross-cutting challenges,64

• Development and dissemination of design methodologies that dramatically decrease the time 

and lower the barrier for entrepreneurs to make products,

• Shared facilities and technology infrastructure to help small and medium-sized firms improve 

their products to compete globally. 

The report should also identify specific challenge areas for the Nation that merit focused attention. 

(Possible examples of challenge areas might include: highly flexible manufacturing for biopharmaceutical production; improving photovoltaic systems to become the cheapest source of power within the 

decade; or design, simulation, and production of electromechanical systems with the complexity of 

automobiles or infantry fighting vehicles.)

In addition, the report should study the availability of financing for these areas of technology, including 

comparison of access to low-cost financing in other nations and evaluation of options for providing 

revenue-neutral development investment opportunities. In addition, consideration should be given to 

addressing the challenges that surround manufacturing readiness and the scale-up of manufacturing 

processes.

Investing in Opportunities. We recommend that funding be appropriated to the Department of 

Commerce, the Department of Defense, and the Department of Energy (DOE) to allow NIST, DARPA 

and DOE to fund the most promising opportunities that will respond to cross-cutting challenges and 

problems defined by AMI, through programs at each agency.

At NIST, the AmTech program provides a model for how this can work by providing a vehicle for publicprivate partnerships, with mechanisms for cost-sharing by industry and states. Currently, AmTech is only 

a pilot program with a proposed budget of about $12 million. Germany’s Fraunhofer Program offers a 

potential model for shared infrastructure facilities and resources.

We believe that the Federal investment level should initially be $500 million per year, to be allocated 

across the three agencies, rising to $1 billion over four years. Some of these funds may be drawn from 

existing programs as appropriate.

We note that the recent reauthorization of the America COMPETES Act provides for public-private 

partnerships in key advanced manufacturing technologies to be formed and funded by the Federal 

Government, but that the implementation of PPPs depends upon funds being allocated for this purpose. 

(We note that the Presidents FY2012 budget request proposes funds for this purpose). 

The Federal investment should leverage substantial investment by industry—especially in the case of 

PPPs, where industry might perhaps cover half the cost. Such cost-sharing is an important indicator of 

industrial commitment and will help ensure that these investments pay off in terms of economic growth.

64. These might include specific technology areas such as the examples in Box 2, or the development of new 

production and measurement equipment.
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We recognize that budgetary constraints will make new investments difficult in the coming years. 

However, we believe that the proposed program has the potential to pay large economic returns to the 

Nation relative to the funding required.

Criteria. Investments should be made where there is a compelling case. In the case of support for 

applied research in specific technologies or in new design and manufacturing methodologies, these 

areas should be justified by the potential for transformative impact. 

In the case of public co-investment in PPPs, AMI should solicit specific proposals from consortia of private 

and public organizations. (Where necessary and appropriate, it should offer modest-sized planning 

grants to support the preparation of such proposals; we believe planning grants can be funded from 

existing funds.) Opportunities should be selected based on the merits of the proposals, and based on 

the below criteria:

• The technology area has a high potential payoff in employment and output.

• There is a prospect of sustainable competitive advantage for the U.S., including through firstmover advantage.

• Identifiable market failures impede adequate private investment.

• PPPs include industrial partners willing to co-invest with the government. 

• PPPs include some industrial partners with sufficient size to invest at scale in the fruits of the 

pre-commercial research, as well small and start-up enterprises.

• Investments will help anchor subsequent manufacturing in the United States—for example, 

through shared labs, pilot plants, technology infrastructure and creation of clusters.

• Shared infrastructure will help existing firms and industries compete globally by increasing the 

quality and performance of their products

AMI should also establish metrics for determining effectiveness of these investments made by agencyspecific programs, a function that could be coordinated through the NSTC subcommittee on advanced 

manufacturing.
IV. Recommen dations: Toward a Renaissance in Advanced Manufacturing

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RECOMMENDATION 1: LAUNCH ADVANCED MANUFACTURING INITIATIVE 

The Federal Government should launch an Advanced Manufacturing Initiative for America’s 

Future (AMI). AMI should be a concerted, whole-of-government effort, spearheaded by the 

Department of Commerce, Department of Defense, and Department of Energy and coordinated 

by the Executive Office of the President (EOP), either through the Office of Science and Technology 

Policy, National Economic Council, or the office of the Assistant to the President for Manufacturing 

Policy. The Secretaries of Commerce, Defense, and Energy should assign lead responsibility to an 

appropriate agency or agencies within the Department—such as National Institute of Standards 

and Technology (NIST) at Commerce, DARPA at Defense, and ARPA-E or EERE at Energy. It is crucial 

that this whole-of-government effort be complemented by parallel initiatives in the industry and 

academia. AMI should develop mechanisms to involve these sectors and to draw on their expertise 

in identifying technological opportunities. An external advisory board that has access to advanced 

manufacturing expertise should help guide this work.

The coordinating body of AMI should prepare a biennial report to the President on the most 

important needs for Federal investments to propel advanced manufacturing in the U.S., including (i) Coordinated Federal support to academia and industry for applied research on new technologies and design methodologies, (ii) Public-private partnerships (PPPs) to advance such 

technologies through pre-competitive consortia that tackle major-cross-cutting challenges, 

(iii) Development and dissemination of design methodologies that dramatically decrease the 

time and lower the barrier for entrepreneurs to make products, (iv) Shared facilities and infrastructure to help small and medium-sized firms improve their products to compete globally. 

The report should also identify the most pressing technological challenges that merit focused 

attention for these activities.

AMI should also report on the availability of financing for pilot plants and early-stage activities 

within these technology areas, and should include an analysis of comparable financing opportunities in other countries and options for providing revenue-neutral financing.

Funds to implement the programs recommended by AMI should be appropriated to the 

Departments of Commerce, Defense, and Energy to support the most promising opportunities. 

The funding level should be initially be $500 million per year to be allocated across the three 

agencies as appropriate, rising to $1 billion over four years. Some of these funds may be drawn 

from existing programs as appropriate.

Because advanced manufacturing has unique national security implications, and because DARPA has, 

within the DoD, a unique ability to connect to small, entrepreneurial companies, DARPA has a vital role 

in Recommendation 1’s proposed initiative. More broadly within DoD, initiatives in manufacturing going 

beyond Recommendation 1 may be an important part of acquisition reform and the improvement of 

supply chain management. Such initiatives can help transition and mature early stage DoD research 

investments into technologies ready for scale up and deployment into national security systems in a 

more cost effective and timely fashion than available at present. AMI should engage experts from 

industry and academia in identifying technological opportunities, and work with an external advisory 

board that has access to advanced manufacturing expertise.

In implementing AMI, the Federal Government should also consider incentives and policy tools that will 

anchor advanced manufacturing activities to the United States.
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BOX 2: EXAMPLES OF IMPORTANT TECHNOLOGY AREAS FOR ADVANCED 

MANUFACTURING 

The following technologies represent potential areas that would align with the criteria PCAST has outlined 

for public-private investment to support advances in manufacturing:

Advanced robotics. Next-generation robots could be mobile and autonomous in their environment, with 

the ability to interact with their environment and achieve outcomes without programming of all procedures. They also have the potential to be safely operable around humans or in dangerous environments. 

Intelligent automation could build robots’ capabilities to increase autonomy and flexibility to enable 

manufacturers to respond to needs and desires of customers very efficiently. Major advances could provide 

broad-based innovation benefiting multiple industries, such as that provided by computer-aided design 

and computer-aided manufacturing, total quality management, and just-in-time manufacturing. The 

private sector currently under-invests in robotics technology as the full benefits are dispersed across many 

firms and industries. Public-private investments to advance robotics technology could help US manufacturers compete by allowing quick, nimble improvements in product quality, productivity, time to market, 

and cost.

Nanoelectronics. Semiconductors have been one of the key enabling technologies of the information 

technology revolution. The technology has driven ongoing improvements in price and performance of 

computers, phones and other communications equipment. Experts believe that today’s microprocessor technology (the silicon CMOS field effect transistor) will reach its limits in terms of performance 

around 2020. The most promising candidates for the next “logic device” are being identified collaboratively by experts in industry, academia, and government, through joint research initiative known as the 

Nanoelectronic Research Initiative (NRI). New research on fabrication techniques, materials, heat flow and 

power dissipation are necessary to achieve the next generation of technologies that will support a broad 

range of industries and applications. The benefits of investing substantially in such research are widespread 

but difficult for individual industries and firms to capture alone. Federal co-investment is important to 

ensuring the U.S. industries leads the next microprocessor technology, as it led the last. 

Materials by Design. Materials that endure in extreme temperatures, lightweight composites and new 

electronic and functional materials have in the past enabled advances in transportation, electronics, and 

aerospace and have given U.S. companies a competitive edge. A new generation of materials is needed for 

a broad range of applications including energy storage, flexible electronics, and stronger, more versatile 

defense products. But new materials often take 10-15 years from the initial research stage to be integrated 

into applications, and there is a trend toward increasing speed of product design. U.S. companies require 

tools for rapid discovery, development, and use of advanced materials. Investments need to be made in 

developing broadly available tools. These include modeling and software tools, databases of design material properties, and tools for testing materials more rapidly.

Biomanufacturing. Researchers are developing new tools that could allow us to readily engineer biological systems, with widespread applications for energy, medicine, and electronics. Further development of 

these tools could dramatically reduce the time and cost of realizing biotechnology applications such as 

biosynthesis of pharmaceuticals, efficient conversion of sunlight and carbon dioxide into fuel, and assembly of inorganic materials into electronic devices or batteries. The development of enabling science and 

technologies is an important potential area for Federal co-investment.
IV. Recommen dations: Toward a Renaissance in Advanced Manufacturing

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Creating a Fertile Environment: Tax Policy, Research Enterprise and Skilled 

Workers

In addition to this strategic initiative to promote advanced manufacturing, the Nation must cultivate 

the conditions to attract and retain advanced manufacturing activities in the United States. This involves 

several facets of innovation policy:

Corporate tax policy. The Federal Government has an essential role in shaping the environment in 

which U.S. manufacturers compete, through its tax policies. We urge the Federal Government adopt 

two policies outlined in the President’s plan, which are widely supported by the scientific and business 

communities. 

RECOMMENDATION 2: IMPROVE TAX POLICY

The Federal Government should:

•	 Reform corporate income taxes, to bring the marginal tax rate in line with other OECD 

countries, as advocated by President Obama in his 2011 State of the Union address. This will 

create stronger incentives to locate manufacturing plants in the U.S. and help eliminate the 

disincentive to repatriate profits, and instead, draw companies to use them to employ U.S. 

workers.

•	 Extend the R&D tax credit permanently and increase the rate to 17%, as advocated in the 

Presidents’ Strategy for American Innovation and FY2012 budget request. Knowing that the 

credit will persist will encourage firms to lengthen their time horizon for R&D investments. 

The rules governing the tax credit should also be examined to make clear that R&D on manufacturing processes qualifies for the credit.

Robust research enterprise. Basic and applied research is the critical foundation for innovation. As 

stated in the first Gathering Storm report from the U.S. National Academy of Sciences, “A balanced 

research portfolio in all fields of science and engineering research is critical to U.S. prosperity.”65 President 

Obama has recognized this need for a strong research base to support advanced manufacturing in the 

administration’s framework to revitalize manufacturing.

The Federal Government has traditionally supported both basic and applied scientific and engineering 

research, including much of the research performed by universities. Yet, the Federal Government’s funding of R&D as a fraction of GDP has declined by 60% over the past 40 years.66 Corporate R&D spending 

has risen rapidly, but it is directed largely toward development. The Federal Government largely retains 

responsibility for the funding of basic research, performed largely at the Nation’s research universities 

and institutes. 

65. National Academy of Sciences, National Academy of Engineering, Institute of Medicine, Rising Above the Gathering 

Storm: Energizing and Employing America for a Brighter Economic Future. Washington, DC: National Academies Press. 2005.

66. Federal R&D was equivalent to 1.92% of GDP in 1964, and 0.76% of GDP in 2004.

http://www.nsf.gov/statistics/nsf10314/pdf/tab13.pdf.
ensuring amer ican leadersh ip in advanced manufacturing

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Supply of skilled workers. In the long term, the strength of our innovation system depends on the 

skill of our workforce. Manufacturers increasingly need employees who bring substantial technological 

abilities. As the original Gathering Storm report stated, “The competitiveness of U.S. knowledge industries 

will be purchased largely in the K-12 classroom.” 

Importantly, we need a workforce that includes not only scientists and engineers with advanced degrees, 

but also factory-floor engineers able to oversee and improve complex manufacturing processes and 

workers able to use sophisticated tools and machinery in factories. Manufacturing firms frequently 

cite the inability to find an adequate supply of factory engineers and workers as a barrier to locating 

manufacturing in the U.S. 

Numerous studies have described the challenges in K-12 science, technology, engineering, and mathematics (STEM) education in the U.S., which include a shortage of highly qualified and effective teachers, 

the lack of dynamic, adaptive instructional materials, low achievement on international standardized 

tests and national assessments, and low student interest in STEM-related careers.67 PCAST has explored 

this topic and delivered to the President a recent report on K-12 STEM education.68 In this report, PCAST 

recommends specific actions to improve the effectiveness of Federal investments in K-12 education. In 

2011, PCAST plans to deliver a follow-up report on undergraduate STEM education. 

In addition, the United States must continue to draw the best talent from abroad. In the near term, steps 

must be taken to expand the number of available H1-B visas for those with advanced education in science and engineering. Due to the stringent constraints on visas, tens of thousands of highly qualified 

graduates of U.S. colleges and universities return to their home countries each year. U.S. companies 

have tremendous need for such workers. Moreover, foreign-born scientists and technologists greatly 

contribute to the U.S. economy by starting enterprise here. Roughly one-third of start-up firms in Silicon 

Valley are started by foreigners.

67. For example, in the Programme for International Student Assessment (PISA), which measures students’ ability 

to apply what they have learned in science and technology and has been designed to assess the kinds of skills needed 

in today’s workplace, U.S. 15-year-olds scored below most other nations tested in 2006. The U.S. standing dropped from 

2000 to 2006 in both mathematics and science. Also, the World Economic Forum ranks the United States 48th in quality 

of mathematics and science education.55 World Economic Forum, The Global Competitiveness Report 2009-2010, 

Available at: http://www.weforum.org/pdf/GCR09/Report/Countries/United%20States.pdf.

68. President’s Council of Advisers on Science and Technology. Prepare and Inspire: 

K-12 Education in Science, Technology, Engineering and Mathematics for America’s Future.

http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-stemed-report.pdf
IV. Recommen dations: Toward a Renaissance in Advanced Manufacturing

★ 31 ★

RECOMMENDATION 3: SUPPORT RESEARCH, EDUCATION, & TRAINING

To ensure the health of the research enterprise that underpins innovation and national security and to ensure that that the Nation has the highly skilled workforce needed to attract and 

maintain advanced manufacturing in the U.S, the Federal Government should: 

•	 Fulfill the President’s plan to double the research budgets of three key science agencies 

over the next ten years: the National Science Foundation, the Department of Energy’s Office 

of Science, and the National Institutes of Standards and Technology.69 Ensure that other 

research agencies have appropriate research budget levels. 

•	 Use Federal policy and leadership to fulfill the President’s goal that public and private investment R&D reach 3% of GDP. 

•	 Strengthen science, technology, engineering and mathematics (STEM) education, as 

described in the recommendations in PCAST’s recent report.

•	 Expand the number of high-skilled foreign workers that may be employed by U.S. companies. This can be done by such policies as allowing foreign students that receive a graduate 

degree in STEM from a U.S. university to receive a green card, allowing each employmentbased visa to automatically cover a worker and his or her spouse and children70, and increasing the number of H1B visas.

69. www.whitehouse.gov/innovation/strategy

70. Currently, more than half of the 140,000 employment-based visas are used to admit spouse and children.

★ 33 ★

Appendix A: Advanced Manufacturing 

Provisions in America Competes Act

The America COMPETES Act, passed by Congress in December 2010 and signed into law by President 

Obama in January 2011, contains provisions that support advanced manufacturing.

• It authorizes increased funding for basic research funding through the National Science 

Foundation (NSF), the Department of Energy’s Office of Science, and the National Institute for 

Standards and Technology (NIST) in the Department of Commerce (DOC). 

• It authorizes policies supporting science, technology, engineering and mathematics (STEM) 

education, as well as policies to strengthen the nation’s innovation and competitiveness. 

• It directs the Department of Commerce to analyze: the innovation capacity and economic 

competitiveness of the United States; the performance of the U.S. relative to other nations; the 

business, tax, and regulatory climate for innovation; trade and export policies; workforce issues; 

the effectiveness of Federal, state and regional policies; and barriers to U.S. competitiveness in 

emerging technology areas. In consultation with an Innovation Advisory Board of industry and 

other experts, the Department will develop a 10-year innovation and competitiveness strategy 

for the United States to address the issues in the study.

• It directs the creation of an interagency committee on technology under the National Science 

and Technology Council (NSTC) with responsibility to plan and coordinate Federal programs and 

activities on advanced manufacturing, including R&D programs of federal agencies, translation 

and commercialization of federally-funded technology into manufacturing, and the formation 

of private-public partnerships. It requires that the committee set and make strategic plans to 

achieve short and long-term objectives for R&D, worker training, and assistance to small and 

medium-sized manufacturers. 

• It directs the Manufacturing Extension Partnership, a program of NIST, to improve training at 

community colleges of workers to serve the needs of small and medium-sized manufacturing businesses, and to evaluate the barriers faced by small-sized manufacturers and assist in 

responding to these challenges via the regional manufacturing extension centers. The MEP 

would also be expanded to support construction and green energy industries.

• It establishes a dedicated program in NSF to fund fundamental research at higher-education 

institutions that will lead to “transformative advances” in manufacturing technologies, processes, 

and enterprises. Proposed research areas include: nanomanufacturing; machines and equipment for manufacturing and construction including robotics and automation; manufacturing 

enterprise systems; advanced sensing and control techniques; materials processing; and 

information technology for manufacturing including modeling and simulation capabilities. 

• It directs NSF to support higher education institutions for STEM internship programs for undergraduate students to work in industry. The NSF would also fund programs to strengthen and 
ensuring amer ican leadersh ip in advanced manufacturing

★ 34 ★

expand technical and scientific education and training in advanced manufacturing, including 

through NSF’s Advanced Technological Education program.

• It directs DOC to create a program of Federal loan guarantees for small and medium—sized 

manufacturers pursuing the use or production of innovative technologies for manufacturing. 

• It directs DOC to study barriers to use of high-end computing simulation and modeling by smalland medium-sized U.S. manufacturers, including access to facilities and resources, availability 

of software and technologies, and access to expertise, and tools to manage costs. The study 

would yield recommendations for responding to these challenges to increase use of high-end 

computing modeling and simulation. In addition, Federal agencies could carry out demonstration and pilot programs as part of the study.
★ 35 ★

Appendix B: President Obama’s Strategy

for American Innovation and the

FY 2012 Budget Request: Implications 

for Advanced Manufacturing 

The President’s Strategy for American Innovation, updated in early 2011, and the President’s 2012 

budget propose several initiatives and programs to support advanced manufacturing. These programs 

provide a strong foundation for a broader strategy on Advanced Manufacturing, as described in our 

recommendations. The provisions include the following:

• Increased R&D budget for advanced manufacturing technologies: Funding for the NSF, NIST, DOE 

and DARPA intended to support innovation to reinvigorate existing manufacturing industries and 

support the development of new industries. Specifically, the President proposes that:

− NSF increase by $87 million its basic and applied research funding for promising areas of 

advanced manufacturing technologies, including materials design, nano-manufacturing, 

next-generation robotics, and cyber-physical systems such as smart buildings. 

− DARPA invest $1 billion in advanced manufacturing over the five years to transform and 

dramatically decrease the time of design and production for manufacturing defense systems, vehicles, and other products. 

− NIST laboratories be allocated $760 million to support development of measurements 

and technological advances in areas including nano-manufacturing, network security, and 

bio-manufacturing, with increases of $120 million directly for advanced manufacturing.

− DOE be allocated $500 million to support energy-related advanced manufacturing technologies, such as flexible electronics and ultra-light, ultra durable automotive materials.

• Creation of a public-private partnership program to support platform technologies that will 

support innovation in manufacturing. The budget calls for $12 million in 2012 to fund these 

partnerships via the Advanced Manufacturing Technology Consortia (AMTech) program, and for 

$75 million to be dedicated to PPPs via the Technology Innovation Program (TIP), in particular 

for technologies that could improve manufacturing processes. 

• Incentives for clean energy manufacturing innovation and investment, including the expansion 

of the Clean Energy Manufacturing Tax Credit from $2.3 billion to $5 billion, with the goal of 

incentivizing $11.7 billion in private sector investment in clean energy manufacturing projects, 

firms, and jobs. The current tax credit program has been oversubscribed, and has had proven 

successful in leveraging private sector investment and creating jobs.

• Investments to support infrastructure for innovation in manufacturing, including establishing 

a new $3 billion Wireless Innovation Fund to support applied research and development of 
ensuring amer ican leadersh ip in advanced manufacturing

★ 36 ★

new communications technologies. The President has also proposed the creation of a National 

Infrastructure Bank to support high priority projects, sustained investments in high-speed rail, 

and air traffic control.

• Strengthening of the R&D tax credit. The President has proposed raising the credit from 14% to 

17%, simplifying it for use by a broader swath of businesses, and making the credit permanent.

• Investments in improving STEM Education, including the preparation of 100,000 new STEM 

teachers over the next decade with strong content knowledge and teaching skills and the 

creation of ARPA-ED, a mission driven agency for education technology to improve learning 

and aid teaching.
★ 37 ★

Alan Anderson

Writer

Daniel Armbrust 

President and CEO

SEMATECH

Robert Atkinson

President

Information Technology and Innovation 

Foundation

Norman Augustine

Retired CEO

Lockheed Martin

Asha Balakrishnan

IDA Science and Technology Policy Institute

Ron Bloom

Assistant to the President for

Manufacturing Policy

Executive Office of the President

Bruce Brown

Chief Technology Officer

Proctor & Gamble

Sujeet Chand

Senior Vice President and Chief

Technology Officer

Rockwell Automation

Jim Davis

Associate Vice Chancellor - IT & CIO

Professor Chemical Engineering, 

UCLA

Willie A. Deese

Executive Vice President and President

Merck Manufacturing Division

Jonathan S. Dordick

Professor and Director

Center for Biotechnology &

Interdisciplinary Studies

Rensselaer Polytechnic Institute

Stephen P.A. Fodor

Founder and Executive Chairman

Affymetrix

Erica R.H. Fuchs

Assistant Professor, Department of

Engineering and Public Policy

Carnegie Mellon University

Ken Gabriel

Deputy Director

Defense Advanced Research Program (DARPA)

Patrick Gallagher

Director

National Institute of Standards and Technology

Ralph E. Gomory

Research Professor

Leonard N. Stern School of Business

New York University

Matt Ganz

Vice President and General Manger

Boeing Research and Technology

Chuck Grindstaff

CTO and Executive Vice President, Products 

Siemens Product Lifecycle Management 

Software, Inc.

Acknowledgments

PCAST wishes to express gratitude to the following individuals who contributed in various ways to the 

preparation of this report as well as the over 100 individuals who sent in comments received via the 

OpenPCAST website:
ensuring amer ican leadersh ip in advanced manufacturing

★ 38 ★

Krisztina “Z” Holly

Vice Provost for Innovation

Executive Director

USC Stevens Institute for Innovation

University of Southern California

Tom Kalil

Deputy Director for Policy

Office of Science and Technology Policy

John E. Kelly III

Senior Vice President and Director of Research

IBM

Bhavya Lal

Senior Research Staff

IDA Science and Technology Policy Institute

Joel McComb

COO

Synthetic Genomics

Lewis Manring

VP of Technology, Performance Coatings

Dupont

Michael J. Natan

CEO

Oxonica Materials Inc

Kelly M. Ogilvie

President and CEO

Blue Marble Energy 

Mark Pinto

CTO and Executive Vice President of Energy

and Environmental Solutions and Display

Applied Materials

Dan Reed

Corporate Vice President,

Extreme Computing Program

Microsoft

Leon Sandler

Executive Director, Deshpande Center

for Technological Innovation

MIT

Anna Schorr

Environmental Engineer

Nucor Corporation

Stephanie Shipp

Senior Research Staff

Science and Technology Policy Institute

David Stafford

Chief Operating Officer

Michelin Americas Research Company

Marc G. Stanley

Special Advisor to the Director

National Institute of Standards and Technology

Gregory C. Tassey

Senior Economist

National Institute of Standards and Technology

Richard Van Atta

Senior Research Staff

IDA Science and Technology Policy Institute

Gregg A. Zank

CTO and Senior Vice President

Executive Director of Science and Technology

Dow Corning Corporation