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67–529 2011

S. HRG. 112–109 

MANUFACTURING IN THE USA: WHY WE NEED 

A NATIONAL MANUFACTURING STRATEGY 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JUNE 22, 2011 

Printed for the use of the Joint Economic Committee 

( 

(II) 

JOINT ECONOMIC COMMITTEE 

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] 

SENATE 

ROBERT P. CASEY, JR., Pennsylvania, 

Chairman 

JEFF BINGAMAN, New Mexico 

AMY KLOBUCHAR, Minnesota 

JIM WEBB, Virginia 

MARK R. WARNER, Virginia 

BERNARD SANDERS, Vermont 

JIM DEMINT, South Carolina 

DANIEL COATS, Indiana 

MIKE LEE, Utah 

PAT TOOMEY, Pennsylvania 

HOUSE OF REPRESENTATIVES 

KEVIN BRADY, Texas, Vice Chairman 

MICHAEL C. BURGESS, M.D., Texas 

JOHN CAMPBELL, California 

SEAN P. DUFFY, Wisconsin 

JUSTIN AMASH, Michigan 

MICK MULVANEY, South Carolina 

MAURICE D. HINCHEY, New York 

CAROLYN B. MALONEY, New York 

LORETTA SANCHEZ, California 

ELIJAH E. CUMMINGS, Maryland 

WILLIAM E. HANSEN, Executive Director 

ROBERT P. O’QUINN, Republican Staff Director 

(III) 

C O N T E N T S 

OPENING STATEMENT OF MEMBERS

Hon. Robert P. Casey, Jr., Chairman, a U.S. Senator from Pennsylvania ......... 1 

Hon. Kevin Brady, Vice Chairman, a U.S. Representative from Texas .............. 8 

WITNESSES

Panel I 

Hon. Debbie Stabenow, a U.S. Senator from Michigan ........................................ 2 

Hon. Charles F. Bass, a U.S. Representative from New Hampshire .................. 4 

Panel II 

Dr. Mark Zandi, Chief Economist, Moody’s Analytics, Philadelphia, PA ........... 11 

Mr. Alex Brill, Research Fellow, American Enterprise Institute for Public 

Policy Research, Washington, DC ....................................................................... 13 

Mr. Jay Timmons, President and Chief Executive Officer, National Association of Manufacturers, Washington, DC ............................................................ 15 

Mr. Scott Paul, Executive Director, Alliance for American Manufacturing, 

Washington, DC ................................................................................................... 17 

SUBMISSIONS FOR THE RECORD

Prepared statement of Representative Kevin Brady ............................................ 38 

Prepared statement of Senator Debbie Stabenow ................................................. 40 

Prepared statement of Representative Charles F. Bass ....................................... 41 

Prepared statement of Dr. Mark Zandi ................................................................. 43 

Prepared statement of Mr. Alex Brill .................................................................... 56 

Prepared statement of Mr. Jay Timmons .............................................................. 62 

Prepared statement of Mr. Scott Paul ................................................................... 76 

EPI Briefing Paper article titled ‘‘The Benefits of Revaluation’’ .................. 86 

Prepared statement of Representative Daniel Lipinski ....................................... 99 

(1) 

MANUFACTURING IN THE USA: WHY WE NEED 

A NATIONAL MANUFACTURING STRATEGY 

WEDNESDAY, JUNE 22, 2011 

CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, Washington, DC. 

The committee met, persuant to call, at 10:16 a.m. in Room 216 

of the Hart Senate Office Building, the Honorable Robert P. Casey, 

Jr., Chairman, presiding. 

Senators present: Casey, Klobuchar, and Lee. 

Representatives present: Brady, Duffy, and Mulvaney. 

Staff present: Gail Cohen, Will Hansen, Colleen Healy, Jesse 

Hervitz, Christina Forsberg, Jane McCullough, and Robert 

O’Quinn. 

OPENING STATEMENT OF HON. ROBERT P. CASEY, JR., 

CHAIRMAN, A U.S. SENATOR FROM PENNSYLVANIA 

Chairman Casey. The Committee will come to order. 

This morning we are going to go in an order which we normally 

do not. We will have statements after our first two witnesses. We 

are really honored today to have Senator Stabenow and Congressman Bass. We will start with Senator Stabenow, and I will do an 

introduction of both of our first witnesses. 

Senator Stabenow is the Chair of the Senate Agriculture and Nutrition and Forestry Committee. She is also a member of the Senate Energy Committee, the Finance Committee, and the Budget 

Committee. She serves as the Co-Chair of the Bipartisan Senate 

Manufacturing Caucus, and was appointed to the President’s Export Council by both President Bush and President Obama. She 

has sponsored many initiatives to revitalize our manufacturing sector, including the Retooling Loan Program for Advanced Manufacturers that is bringing jobs back to the United States. Also I want 

to make sure that I mention she represents the State of Michigan, 

and I know she is very proud of that. And I know as a new Senator, she was here a number of years ahead of me, she was a mentor to new Senators and continues to serve in that capacity. 

Senator, we are grateful you are here with us this morning. 

I would also like to welcome Representative Charles Bass from 

New Hampshire’s Second Congressional District. Representative 

Bass has promoted clean alternative energy, and serves on the 

House Energy and Commerce Committee. Prior to being elected to 

Congress in 2010, Representative Bass served on the Board of 

Managers at New England Wood Pellet in Jaffrey, one of the leading producers of clean-burning wood pellets. 

2 

Representative Bass previously held the same seat in Congress 

from 1995 until 2007. 

So we will start with Senator Stabenow. We are grateful that the 

Senator and the Congressman are with us today. 

STATEMENT OF HON. DEBBIE STABENOW, A U.S. SENATOR 

FROM MICHIGAN 

Senator Stabenow. Well thank you so much, Chairman Casey, 

and Vice Chairman Brady. It is really wonderful to be here with 

you. And I want to thank you for recognizing the importance of 

manufacturing in this country, and having this hearing. 

I think this is a very, very important hearing and I very much 

appreciate our friendship and working relationship, and how you 

fight for Pennsylvania; but I very much appreciate, as Chair and 

Vice Chair, that you are both focused on manufacturing in this 

country. So thank you. 

We of course understand in Michigan. This is a critical issue for 

us, as it is for your state. In order to have a middle class in this 

country, I firmly believe that we need to make things and grow 

things. And if we make things here and we grow things here, the 

jobs are here. That is pretty fundamental philosophy that I operate 

under, and I think is one that makes sense for us. 

We are very proud in Michigan in the last century to be the 

heart of American manufacturing, and are rightfully proud of our 

role in creating the middle class of this country. But for too long, 

we have seen a situation where our companies are actually competing against countries. That is really what is happening. 

It first started with Japan and their huge investments in advanced battery manufacturing, that then allowed their automobile 

companies to be able to move more quickly in terms of hybrids and 

electric vehicles, because they were funding that and investing in 

that—their government was doing that. But we are now seeing 

China, and we all know there are a thousand different challenges 

around China and India have a manufacturing strategy. Germany, 

a very different economy, has a manufacturing strategy. They are 

aiming to compete with us because they want what we have had: 

a robust middle class and a strong economy for the majority of 

their citizens. 

In the years between 1979 and 2009, the United States unfortunately lost more than 8 million manufacturing jobs. And Michigan 

alone has lost more than 300,000 manufacturing jobs just in the 

last 10 years. 

During that time, countries like China have been investing heavily in emerging technologies, and frankly if they don’t create it, 

they’ll just steal it from us. They don’t seem to understand patent 

law, and we have a number of different challenges with China. 

But they have certainly been focusing on renewable energy. And 

we all have been watching that happen. In the next two years 

alone, China will invest almost $15 billion in advanced battery 

technology to compete with us. 

Japan paid, as I said, for almost all of the initial research for 

Toyota to create the batteries for their vehicles. And last year, 

China again invested over $20 billion in their solar industries—in 

their solar industry. Unfortunately, part of China’s manufacturing 

3 

strategy, as I indicated, is stealing intellectual property and putting up barriers to American manufacturers, which is a part of 

what we need to address in terms of fair trade, the ability to have 

doors open, and to be able to have the rules apply on both sides 

of the door. So breaking down international trade barriers is very 

important for us. 

We need to hold China accountable and devote additional resources to trade enforcement, and there are a number of bills that 

Senator Graham and I have introduced, and others have joined us, 

to be able to address that. 

But we also have to make strategic investments in clean energy 

technologies. President Obama has challenged us to put 1 million 

electric cars on the road by 2015. We all realize that by investing 

in electric vehicle innovation we can create jobs in America, and 

frankly get us off of foreign oil and address a number of other 

issues, including national security. 

So I would urge that we look at what we have done in the last 

two years; we invested $2 billion in the Recovery Act in advanced 

battery innovation and manufacturing. That unleashed tens of billions of dollars in private investment. 

While other countries around the world are investing much, 

much more, we found that public/private partnerships create new 

jobs and new industries. In fact, by 2015 we will have gone from 

2 percent of the world’s advanced battery manufacturing to the capacity to produce 40 percent of the world’s batteries because of the 

public investment unleased to work with the private sector. 

Since January 2010, we’ve created nearly a quarter of a million 

manufacturing jobs. And that is the first increase in a decade. 

Why? Because we’ve begun to do a few things. And I see, as my 

time is coming to a close, I will just briefly say that we have done 

a number of things focusing on clean energy, both advanced clean 

energy loans that we have done in order to make sure capital is 

available—you mentioned the retooling loans, Mr. Chairman, that 

we did in the Energy Bill in 2007 that has actually allowed a number of companies to expand. I will mention one great company in 

Michigan, Ford Motor Company, that retooled a large truck plant 

to bring back the small vehicles, the Ford Focus Electric and other 

Ford Focus options. They are bringing jobs back from Mexico related to that production because we partnered with them to retool 

plants. 

So whether it is battery innovation, retooling plants, the advanced manufacturing tax credit which we dubbed as 48(c), we are 

in a situation now where we are beginning to see some changes because we are investing. 

The only manufacturing tax credit we have on the books right 

now is the 30 percent credit for clean energy manufacturing for 

equipment and buildings that we passed two years ago called 48(c). 

And I would strongly conclude by saying we should strongly invest 

in those things that have begun to work. The Advanced Manufacturing Tax Credit now has enabled companies in 43 states to be 

able to open and expand in new kinds of technologies. 

And let me just say one final thing. That is, while China has 5- 

or 10-year plans, our policies are too unpredictable. We do things 

4 

a year at a time, if we are lucky. Other countries are looking at 

5 years, 10 years, or longer. 

For our private sector to have the confidence to invest—and 

these are major investments—to create jobs, we need longer-term 

policies. Innovation, fair trade, longer-term policies, and I truly, 

truly believe that if we make the right investments, partnering together in a global economy where every single company is competing against countries right now, we will reinvigorate and create 

an advanced manufacturing economy that is critical for us as we 

move forward and have a strong middle class in this country. 

Thank you very much. 

[The prepared statement of Senator Debbie Stabenow appears in 

the Submissions for the Record on page 38.] 

Chairman Casey. Senator Stabenow, thank you very much. I 

should have mentioned at the beginning of your testimony that 

your statement, your full statement, will be made part of the 

record. And that obviously would apply to the Congressman, as 

well. Congressman Bass. 

STATEMENT OF HON. CHARLES F. BASS, A U.S. 

REPRESENTATIVE FROM NEW HAMPSHIRE 

Representative Bass. Thank you very much, Mr. Chairman, 

and I would like to have my statement made a part of the record. 

I appreciate the opportunity to testify before the Committee today. 

My home State of New Hampshire I believe is an excellent example of a state with a diverse economy and a diverse manufacturing 

sector. We have low unemployment, less than 5 percent, 4.7 percent the last statistics. We have a highly educated, highly skilled 

work force, and a lower tax rate than 49 other states in America. 

We have small government, and we have an economy I think 

that benefits from those factors. I hope that my perspective, both 

as a manufacturer and as a Representative of the State of New 

Hampshire, will be useful in this discussion. 

We have large employers. BAE Systems, employing more than 

5,000 people in the defense industry. In fact, 11 percent of the total 

output of our economy is directly associated with manufacturing. 

But it has not always been that way or, put it this way, the output 

has not been the same. 

My ancestors settled in the State of New Hampshire in the mid1700s. They were farmers, and they grew flax. And it was a miserable existence. Their children built the Phoenix Mill in Peterborough, New Hampshire, which was a manufacturer of—it was a 

textile manufacturer. They took the sheep, and so forth, and started making clothing. 

Throughout the next 200 years, the economy evolved in the State 

as a manufacturing economy in textiles, in shoes. In the 1950s, 

New Hampshire was one of the leading defense contractors in the 

country. In the early to late 1990s, New Hampshire was number 

two in the Nation for high-tech employees. And now where are we 

today? 

Well, as Senator Stabenow so articulately discussed, we are hoping to be able to lead the way in the development of technologies 

in the area of alternative energy. And it is one of my passions in 

my, shall we say my new life here in the U.S. Congress. 

5 

All in all, we survived because we have an environment where 

we create the ability for manufacturers to thrive in an environment 

that supports entrepreneurship. It believes that capitalism is not 

a dirty word. Where the need for a safe workplace, for good environmental controls, for good access to products—and make sure 

they are what they are supposed to be—where that is balanced 

with the need not to tie down our business community to the extent that they are spending unnecessary sums of money in labor 

trying to meet regulations that are not necessarily in the best interests of anybody. 

I ran for Congress in 1994 because—or the tipping point was in 

my company. I went to the Xerox machine one day—this was in 

1994—and there was this enormous placard over the machine that 

the Xerox maintenance guy had put up there, and it explained 

chapter, after chapter, after chapter about how I needed to do this 

or that in order to copy paper because the toner that was in there 

might harm me forever. And I had been using this machine for 10 

years. I felt fine. 

And I could not believe—I asked the Xerox guy, and he said: Oh, 

we have to put that up there now. It’s part of the rules, and you 

have to read it, and we are going to have to tell you about it. 

I said, something is wrong here. Something is wrong. And we 

owned a manufacturing facility that was in full compliance with 

OSHA, then MOSHA appeared. Now it’s in a state that starts with 

‘‘M.’’ MOSHA’s regulations were different from OSHA’s regulations. 

So we didn’t know which set of regulations in our factory we were 

supposed to follow. Because if we followed MOSHA, we might be 

in noncompliance with OSHA, and vice versa. 

It was very perplexing. This is not good for manufacturing in 

America. Now I am as much in favor as anybody of a safe workplace, but we have to apply a level of cost/benefit to all the interrelationship between government and manufacturers. 

Like many of us here, I watch occasionally shows on TV. There’s 

one I recall called ‘‘How It’s Made.’’ And if you can get by the obnoxious music, it is really quite extraordinary, the level of sophistication that we have in manufacturing, and every one of those little shows is about American manufacturing and how diverse we 

can be. 

If we can keep our tax rates competitive globally, if we can balance regulations so that the consumers and public and working 

Americans are safe, yet we can compete with other manufacturers 

around the world, we will stay ahead of China. We are well educated. We are like 10 to 1 more productive on a per-capita basis 

than Chinese workers. But we need to have a good, competitive 

workplace. We need to be able to trade, and we need to be able to 

continue to have a well-educated workforce. We do not need the 

government to tell us how to succeed in manufacturing. I have 

done it, and I did it without any help from the U.S. Government. 

Thank you very much. 

[The prepared statement of Representative Charles F. Bass appears in the Submissions for the Record on page 39.] 

Chairman Casey. Congressman, thank you very much. 

As is often the case when Members of the House and the Senate 

testify, we usually do not have a lot of questions because I know 

6 

you are busy, unless Congressman Brady, our Vice Chair, has 

questions? I just wanted to thank you for your testimony. If we 

have any—and I will speak for myself—I will submit them. But I 

know you might have places you need to get to. 

Vice Chairman Brady. 

Vice Chairman Brady. No, I agree with you. I just want to 

thank you for holding this hearing, and to thank you for this testimony. It is real-life testimony, and we need to hear it as we look 

at how do we revive this economy and how do we keep a very 

strong, important part of our sector, manufacturing, moving forward. 

So I want to thank Senator Stabenow and Congressman Bass for 

being here today and leading off this hearing. 

Representative Bass. Thank you. 

Senator Stabenow. Thank you very much. 

Chairman Casey. Thank you, both. 

As we are moving to our second panel, I will begin my opening 

statement so we can keep things moving in the right direction. 

First of all I want to thank everyone for being here to discuss 

a critically important issue—manufacturing in the United States of 

America. The subtitle for our hearing is: Why we need a national 

manufacturing strategy. 

I am pleased to hold this hearing today, along with Vice Chairman Brady, to discuss the critical role that manufacturing plays in 

the United States economy and the actions Congress can take to 

strengthen and revitalize the manufacturing sector. 

For decades, manufacturing has been a pathway to the middle 

class for millions and millions of American families. We made 

world class products over many years, whether it was steel, cars, 

clothes, or furniture. And the people who made these products were 

paid good wages with solid benefits at the same time. 

But in the past three decades, more and more of these jobs have 

moved overseas to developing countries with abundant supplies of 

cheap labor. The unfortunate reality is that our trade policies have 

failed to protect our workers from unfair trade practices such as 

currency manipulation, loose enforcement of intellectual property 

rights, and lax environmental protection in other countries. 

When we lose these jobs overseas, of course, we lose jobs which 

we need. We also jeopardize U.S. leadership in research and development, as well as innovation which created the opportunities in 

the first place. 

The numbers tell a worrisome story. Manufacturing employment 

peaked in the United States in 1979 at 19.6 million workers. Today 

we are down to 11.7 million people employed in manufacturing. 

Again, that is 19.6 to 11.7—a decline of 40 percent just in those 

few short years. 

The last 10 years have been extremely tough for U.S. manufacturing overall. From January of 2001 until May of 2011 the United 

States lost 5.4 million manufacturing jobs—just in those 10 years— 

including 285,000 in my home State of Pennsylvania. 

Most of these losses occurred between February 2001 and February 2009 when 4.6 million U.S. manufacturing jobs disappeared 

in just that 8-year period. 

7 

In the past year-and-a-half, manufacturing as a sector has 

gained strength. That is a little bit of good news. It has also regained some of the jobs lost during the previous decade. Since the 

end of 2009, manufacturing has added 250,000 jobs approximately—important progress to be sure, but we need to do a lot 

more in the months and years ahead. 

This hearing is about how we build on the recent progress and 

lay the groundwork for future growth in manufacturing. It is clear 

that we need to take actions that have both an immediate and a 

long-term benefit just over the horizon. The starting point should 

be a national manufacturing strategy, not just a set of policies here 

and there, but a real strategy. 

While other countries, including Germany, India, China, and 

Japan, have marshalled their resources and laid out a strategy, the 

United States has stood silent. The U.S. needs to develop a comprehensive national manufacturing strategy built from the input of 

small and large businesses, labor, and other key stakeholders in 

this strategy. 

It must be updated regularly, and it must ensure that we are responding to new challenges and seizing new opportunities. This 

will allow us to effectively coordinate our resources and maximize 

our effort. 

But there are other steps we can take. As we have discussed at 

our Joint Economic Committee hearing on the Life Sciences Industry, we should make permanent the research and development tax 

credit to give companies the certainty that they need to make longterm R&D investments here in the U.S. 

And it is time to crack down on China’s currency manipulation 

and other unfair trade practices so that American companies and 

workers have a fair shot. The under-valuation of the yuan provides 

a significant subsidy, as much as 40 percent, to China’s exports. 

It is as if in a 100-yard dash you give your opponent, or your 

competitor, a 40-yard headstart. It would not be fair in that instance, and we should not let the Chinese get away with a 40 percent headstart in currency. 

Currency manipulation is costing our workers jobs, and it needs 

to be stopped. We need to stop talking about it and do something 

about it. We must extend trade adjustment assistance to help 

workers who have lost their jobs based upon unfair foreign competition, and we need to find new strategies to increase employment. 

In Pennsylvania alone, almost 24,000 people receive the help the 

TAA provides. TAA strengthens the safety-net protections for our 

workers, and it needs to be extended before we consider any trade 

agreements with South Korea, Colombia, and Panama. Earlier this 

week I introduced legislation to extend Trade Adjustment Assistance for five years, and we need it. 

Finally, we must continue to invest in science, technology, engineering, and math—the STEM disciplines, each of which are very 

important to our education system, so that our young people are 

prepared for the high-skilled and high-paying jobs of the future. 

These are a few of the concrete steps we can and should take. 

Even with all the losses, manufacturing is still the heart and soul 

of our economy. Even though our manufacturing employment has 

8 

declined significantly since the 1970s, the U.S. remains the world’s 

manufacturing leader, producing one-fifth of manufactured products worldwide. 

As a Nation we have not done enough to support and protect our 

excellent manufacturing companies and workers. It is time for that 

to change, and changing means charting a new manufacturing 

strategy which will strengthen our economy and help create new 

jobs and new opportunities. 

I believe that hearings like todays can build a bipartisan consensus; we saw that today on our first panel consisting of a Democratic Senator and a Republican House Member. We can build that 

consensus on the core elements of a comprehensive strategy to support manufacturing and strengthen our middle class. 

Today’s hearing is the first in a series of hearings that the Joint 

Economic Committee will hold to determine the best strategies for 

revitalizing manufacturing and rebuilding that base. 

We are fortunate today to have with us a distinguished panel of 

experts who bring with them a deep knowledge of manufacturing 

and a valuable perspective on the steps we can take to re-energize 

this vibrant sector of the American economy. 

So we look forward to our panel’s testimony today. We are grateful for their testimony. I will be introducing our panel members in 

a moment, but I wanted to hear, as well, from our Vice Chairman, 

Chairman Brady. We are grateful for the hearing he chaired yesterday on the House side, and we are especially grateful that he 

made the journey over to this side of the Capitol today, and we are 

grateful for his opening statement. 

OPENING STATEMENT OF HON. KEVIN BRADY, VICE 

CHAIRMAN, A U.S. REPRESENTATIVE FROM TEXAS 

Vice Chairman Brady. My pleasure. Thank you, Chairman, 

again, for calling a hearing on this important topic. I appreciate 

this distinguished panel being here, as well. 

The U.S. manufacturing sector has changed dramatically over 

the last several decades. Manufacturing productivity in America 

has soared. What took 1,000 workers to produce in 1950 now takes 

only 184. 

Today U.S. manufacturers produce two-thirds of what our country consumes, down from 80 percent three decades ago. Many consumer goods, as we know, that were manufactured here are now 

imported. In the 1960s, U.S. manufacturers made 98 percent of 

America’s shoes, but today it is the opposite: 90 percent of those 

shoes are brought in. 

During the same time, entirely new manufacturing industries 

have arisen in America—such as in computer chips. Today, chemical products, food, computers, and electronics, fabricated metal 

products, and machinery are the top five manufactured products in 

America. 

While technology and productivity has shrunk the American 

manufacturing workforce over the past 40 years, manufacturing remains an important part of our economy. U.S. manufacturers 

produce about 12.5 percent of our gross domestic product and employ about 9 percent of our workers. That translates into 12 million 

9 

manufacturing jobs and nearly 7 million related jobs, many of them 

in small businesses. 

By transitioning to higher-value products, America leads the 

world in manufacturing output and is the world’s largest manufacturing economy, producing 21 percent of global manufactured products. China is second at 15 percent, and Japan is third at 12. However, China is quickly becoming a contender for the top spot. 

Manufactured goods account for more than half of what America 

sells to other countries. We rank third in the world as a manufacturing exporter, following the European Union and China. 

Today, as America’s economic recovery struggles, regional indicators suggest that manufacturing growth has recently stalled in 

many parts of our country. 

In light of these dramatic changes, the issue at this hearing is 

whether Congress should adopt an industrial policy for manufacturing under the modest fabric of a national manufacturing strategy. It is a timely question. 

My concern is that, while often well intentioned, an industrial 

policy can morph into a form of central planning which requires the 

replacement of the invisible hand of the free market with the visible hand of the government. Driven by understandable but too 

often misguided political considerations and buttressed with incomplete data and outdated perceptions, it can result in the undesirable: rent seeking, corporate cronyism, and economic stagnation. 

In countries around the world, industrial policy has repeatedly 

failed. Instead of fostering new products and technologies, old firms 

in declining industries inevitably capture industry policy to protect 

themselves at the expense of the consumer and ultimately economic growth. 

As President Reagan once observed of government’s view of business: If it moves, tax it. If it keeps moving, regulate it. If it stops 

moving, subsidize it. 

President Carter’s Chairman of the Council of Economic Advisers, Charles Schultz, observed, quote: 

‘‘One does not have to be a cynic to forecast that the surest way 

to multiply unwarranted subsidies and protectionist measures is to 

legitimize their existence under the rubric of industrial policy. The 

likely outcome of an industrial policy that encompassed some elements of both ‘protecting the losers’ and ‘picking the winners’ is 

that the losers would back the subsidies for the winners in return 

for the latter’s support on issues of protectionism.’’ End quote. 

As we listen to testimony today from our distinguished lawmakers, economists, and business leaders, my thought is that instead of a Washington-centric industrial manufacturing policy, 

Congress should instead adopt pro-growth economic policies that 

raise the competitiveness and opportunity for all economic boats in 

our country. 

One, to ensure businesses do not bear higher tax costs, Congress 

should adopt a comprehensive plan to reduce federal spending relative to the size of our economy, reform our entitlement programs 

to make them sustainably solvent, and gradually bring the federal 

budget back into balance. 

Two, to increase competitiveness around the globe, Congress 

should reform our corporate tax system. The United States has the 

10 

second-highest corporate income tax rate in the world. Congress 

should reduce the after-tax cost of new investment by expensing 

most equipment and shortening the depreciation schedules for 

buildings. Congress should move to a territorial tax system. Until 

then, Congress should act now to allow U.S. corporations to repatriate stranded American profits to invest in new jobs, research, investment, and financial stability here at home. 

Three, to find new customers for American manufacturers, farmers and service companies, Congress should immediately approve 

the three outstanding free trade agreements with Colombia, Panama, and South Korea and seek more opportunities to open growing markets to American workers. 

And fourth, to reduce unit costs and keep American companies 

located in America, Congress should repeal laws that drive up 

costs—such as the new national health care law and unnecessary 

federal regulations. To help erase the estimated 18 percent cost disadvantage for U.S. manufacturers compared to their global competitors, Congress should act now to modernize our patent system 

and to reform our tort system to reduce those excessive costs in 

frivolous lawsuits. 

I believe adopting these economic policy changes would benefit 

U.S. manufacturers, their customers, their suppliers, and their 

workers far more than any national manufacturing strategy. 

A final point: Lawmakers and policymakers need much better information on trade flows, on product networks, and global supply 

chains that better reflect the manufacturing marketplace of today. 

For example, traditional trade statistics fail to account for the 

trade-in-value added among two or more countries. Our Bureau of 

Labor Statistics can track a job gained or lost in a local pub but 

cannot identify a job gained or lost from trade. We are using eighttrack stereo statistics in an iPod world that do not reflect the activity or changes occurring in this fast-growing global marketplace. 

Accurate, timely and real-world data is a bipartisan goal I am convinced we can all work together toward. 

I look forward to hearing today’s witnesses, and again I thank 

Chairman Casey for holding this important series of hearings. 

[The prepared statement of Vice Chairman Kevin Brady appears 

in the Submissions for the Record on page 41.] 

Chairman Casey. Vice Chairman Brady, thank you very much. 

Unless there are other statements from our Members, we can move 

to our witnesses. I will introduce each of the witnesses and then 

we will go one by one. 

Let me start on the audience’s right and our left on the panel 

here with Dr. Mark Zandi. Dr. Zandi is the Chief Economist of 

Moody’s Analytics where he directs the company’s research and 

consulting services to businesses, governments, and other institutions. Dr. Zandi’s research includes macroeconomics, financial, and 

regional economics. In addition, he conducts regular briefings on 

the economy and isfrequently quoted in national and global news 

outlets. Dr. Zandi received his Ph.D. at the University of Pennsylvania. I’ll stop and pause there for a moment. 

[Laughter.] 

11 

We are proud of that. And he received his Bachelor’s Degree from 

Wharton School at the University of Pennsylvania, as well, and we 

are grateful you are here, Doctor. Thank you very much. 

Mr. Alex Brill is currently a Research Fellow at the American 

Enterprise Institute where he studies the impact of tax policy in 

the U.S. economy. He was formerly the senior adviser and chief 

economist to the House Ways and Means Committee. And he also 

served on the staff of the President’s Council of Economic Advisers, 

in Congress, and at the CEA. Mr. Brill worked on a variety of economic and legislative policy issues, including international tax policy and U.S. trade policy. Mr. Brill graduated from Tufts University with a B.A. in Economics, and received his Masters in Mathematical Finance from Boston University. We are grateful you are 

here, and thank you for that, as well. My wife is a Massachusetts 

native, so I’m glad I mentioned both institutions. 

Mr. Jay Timmons is the President and CEO of the National Association of Manufacturers, or so-called NAM, the largest manufacturing trade association in the United States, representing small 

and large manufacturers in every industrial sector. He became the 

National Association of Manufacturers President in January 2011. 

Mr. Timmons is a leading advocate for nearly 12 million Americans 

employed directly in manufacturing, educating the public, and policymakers on issues that affect this critical sector of the U.S. economy. He previously served as Chief of Staff to a Congressman, a 

Governor, and to Senator George Allen of Virginia from 1991 to 

2002. Mr. Timmons graduated from the Ohio State University. 

Welcome, Mr. Timmons. 

And finally, Scott Paul. Scott N. Paul is the founder and Executive Director of the Alliance for American Manufacturing, which 

was launched in April of 2007. AAM is a nonpartisan, nonprofit 

partnership established by some of America’s leading manufacturers and the United Steelworkers to explore common solutions to 

challenging public policy topics such as job creation, infrastructure 

investment, international trade, and global competitiveness. Mr. 

Paul served as a staff member to the late Representative Jim Jontz 

from the State of Indiana and former Representative Peter Barca 

from the State of Wisconsin, and as the Chief Foreign Policy and 

Trade Adviser to then-House Democratic Whip David E. Bonior 

from the State of Michigan. Mr. Paul earned a B.A. in Foreign 

Service and International Politics from Penn State University—I 

mention that, as well; as well as an M.A. from Georgetown University’s School of Foreign Service. Mr. Paul, we’re grateful you are 

here. 

So we will start with Dr. Zandi and then we will just go left to 

right. 

STATEMENT OF DR. MARK ZANDI, CHIEF ECONOMIST, 

MOODY’S ANALYTICS, PHILADELPHIA, PA 

Dr. Zandi. Thank you, Senator Casey, and Congressman Brady, 

and the rest of the Committee for the opportunity to be here today. 

I am an employee of the Moody’s organization, but these are my 

views that I am expressing today. Just so you know that I am not 

just an egghead, I did start my own company and grew it into a 

pretty good sized small business, and sold it to the Moody’s organiVerDate Nov 24 2008 11:11 Sep 28, 2011 Jkt 067592 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\DOCS\67529.TXT SHAUN PsN: DPROCT
12 

zation about five years ago. So I have also been a business person 

as well. 

Let me make two broad points in my remarks. First, manufacturing plays a vital role in our economy, in the business cycle and 

in the economy more broadly. And that is clearly evident in the 

current economic recovery. Manufacturing has been key to the 

growth that we have experienced over the past two years. The economic recovery is now two years old. 

In fact, just to give you a few statistics, in terms of output, GDP, 

manufacturing has accounted for over half the growth in GDP over 

the past two years. In terms of wages and salaries, it is about onefifth of the growth. And in terms of jobs, one-tenth—although many 

of the temporary help jobs that have been created in the recovery 

are also very, they are on the factory floor. So I think the contribution is even greater than that. 

One other interesting point: Manufacturing’s contribution to this 

recovery, at least so far, has been greater than in any other economic recovery since World War II. So this is very important to our 

current economic prospects in terms of job creation and the growth 

in output. 

Manufacturing’s role in the economy also is key for a number of 

other reasons. It is very important to middle income America. 

There are no better jobs for middle class Americans than manufacturing. Just to give you a few more statistics, the average wage and 

salary per employee across the economy is just under $50,000 a 

year. That is the average across all industries and occupations. 

The average in manufacturing is over $58,000 a year. Just for 

context, the highest-paying industry is in mining at $90,000 a year. 

The lowest paying is in the leisure and hospitality industry of just 

over $20,000 a year. So manufacturing jobs are very, very important to supporting middle-income households. We need these jobs 

to help support the middle class. 

It is also important to recognize manufacturing’s role in many 

small communities across the country in more rural areas, what I 

would call ‘‘quasi-urban areas,’’ particularly from Pennsylvania, 

your home State, Senator, all the way across the country: Ohio, Indiana, Illinois, Iowa, Wisconsin. And then from Michigan in the 

north all the way down to Alabama and Georgia. That region is 

very dependent, and these are economies that are small. They are 

not very diverse. There is not a lot going on. These folks that lose 

jobs in these communities are stuck, in a sense, and many are 

under water on their homes. It is very difficult for them to move. 

And I think it is very important to these communities, this part of 

the country, to revive and support manufacturing because this is 

key to their economic wellbeing. 

I should say, going back to the recovery, growth in these economies has been quite strong—and this is where a lot of the economic 

growth has been over the past two years. 

Finally, one other point about the role of manufacturing. It is 

vital to innovation and productivity growth. This is the fountain of 

our growth in our living standards. Manufacturing productivity 

growth has been about 3 percent per annum over the past decade, 

compared to about 2 percent in the rest of the economy. More imVerDate Nov 24 2008 11:11 Sep 28, 2011 Jkt 067592 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 C:\DOCS\67529.TXT SHAUN PsN: DPROCT
13 

portantly than that, a lot of what is produced in manufacturing 

goes to supporting productivity growth in the rest of the economy. 

So, for example, my business is economic consulting. I build a lot 

of models, and I rely on very sophisticated telecommunications 

equipment and other kinds of computer technology, data processing, and I could not do it unless I had a very productive manufacturing base. 

So point number one is that manufacturing is very important. 

Point number two—and I am not going to go into any detail; I 

am sure we will in the Q&A—but there are in my view a number 

of things that policymakers can do to help support manufacturing 

in terms of opening up global trade. You mentioned the Chinese 

currency. I think that is absolutely vital to address. Nothing is 

more important from a macro economic perspective for manufacturing than to get these currencies better aligned. They are not 

aligned, and that is a significant competitive disadvantage for all 

manufacturers—and increasingly other businesses as well. 

Also, policies to lower the cost of doing business. Cost of labor, 

cost of capital—going back to corporate tax reform; cost of transportation and distribution. This goes to our infrastructure, which is 

sorely lacking. And finally the cost of energy. Manufacturers are 

very energy-intensive industries and we need to focus on trying to 

provide lower-cost energy sources—for example, using the natural 

gas resources that are clearly evident in many parts of the country 

and is quite cheap and can fuel our manufacturing firms long into 

the future. 

So I would be very happy to discuss a range of policy options 

with regard to all of those things, but I think you have a very important role in supporting the manufacturing base, and that is vital 

to our long-term economic future. 

Thank you. 

[The prepared statement of Dr. Mark Zandi appears in the Submissions for the Record on page 43.] 

Chairman Casey. Doctor, thank you very much. I should have 

mentioned, your full testimony will be part of the record, and that 

is the case of all of our witnesses. You were very close to the fiveminute mark, and that is good. 

Mr. Brill. 

STATEMENT OF MR. ALEX BRILL, RESEARCH FELLOW, AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH, WASHINGTON, DC 

Mr. Brill. Thank you very much, Chairman Casey, Vice Chairman Brady, other Members of the Committee: 

Thank you for the opportunity to appear this morning to discuss 

the manufacturing sector and my perspectives on sound fiscal policies to promote fundamental long-run economic growth. 

I would like to stress two points in my remarks this morning. 

First, while manufacturing employment is and has been in decline, productivity growth in the sector is robust. 

Second, policymakers should seek to establish broad economic 

policies that permit the U.S. economy to evolve as market forces 

dictate, and not pursue narrow industry-specific economic policies. 

14 

Manufacturing, a wide-ranging set of industries, including automotive parts, semi-conductors, and food production, has long been 

a significant driver of economic growth in the United States and 

abroad. Total manufacturing output declined during the recession 

and has yet to fully recover. But true to its reputation for driving 

economic growth, manufacturing labor productivity increased 4.1 

percent over the last four quarters. 

Manufacturing employment, as others have noted, was hit particularly hard by the recent recession. Nearly 2 million jobs were 

lost in the 18 months ending December 2009, but manufacturing 

employment has been declining in the U.S. since its peak in 1979, 

even in nonrecessionary periods. 

In light of this, we should not expect a sizeable increase in employment in this sector, even as the economy recovers more fully 

and output increases. The explanation is productivity growth. 

While the ability to produce more output with less labor input can 

reduce employment in manufacturing, such productivity growth is 

the means by which our standard of living increases. 

In short, the manufacturing sector today is evolving similarly to 

the agriculture sector a century before. The downward trend in 

manufacturing employment prompts some to conclude that the government should give special assistance to this sector. This approach 

in my opinion is ill advised. Policies aimed at steering research toward one sector can harm other sectors as resources are 

misallocated from one activity to another. 

The significance and importance of manufacturing in the United 

States economy is undeniable, but it is critical to recognize that 

manufacturing is but one sector of a large and robust U.S. economy. 

The role of policymakers should be to establish broad, effective, 

and stable policies that permit the U.S. economy to grow as market 

forces dictate. Given that objective, policymakers should not seek 

to develop targeted subsidies or narrowly tailored economic policies 

for a single sector. 

Instead, long-run economic growth should be pursued by improving the U.S. business environment as a whole. Pursuing such structural reforms will benefit the manufacturing sector directly by improving our competitiveness and reducing costs and impediments, 

and indirectly by encouraging growth across the entire economy 

and thereby increasing demand. 

It is important to recognize the myriad distortionary non-neutral 

policies that already exist. One clear indication that the Federal 

Government has taken a special interest in the manufacturing sector is the creation of the Commerce Department’s manufacturing 

initiative and the establishment of www.manufacturing.gov, a 

website address name which I consider to be an oxymoron in a 

free-market economy. But policies that favor manufacturing over 

other industries go beyond dedicated website and agency initiatives. One such policy is a specific tax preference. Section 199 of 

the Internal Revenue Code allows for producers of manufactured 

goods to claim a deduction approximately equal to 3 percentage 

points reduction in the income tax rate on such income. 

One way to reduce the distortion described above and mitigate 

other important harmful distortions of the corporate income tax 

15 

system would be to significantly reduce the U.S. corporate tax rate. 

Replacing Section 199 with a simple and significant reduction in 

the corporate rate, perhaps to 25 percent, would both level the 

playing field between manufactured and nonmanufactured production, and improve the general competitiveness of all U.S. corporations. 

Corporate tax reform is not the only necessary change, just one 

critical step that would go a long way toward achieving a more 

neutral fiscal policy which would be to the long-term benefit of the 

manufacturing sector and the economy at large. 

I believe that we cannot subsidize our way to prosperity; rather, 

we need sound business policy that facilitates a level playing field 

for all industries and promotes general economic growth. 

[The prepared statement of Mr. Alex Brill appears in the Submissions for the Record on page 56.] 

Chairman Casey. Thank you, Mr. Brill. 

Mr. Timmons. 

STATEMENT OF MR. JAY TIMMONS, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON, DC 

Mr. Timmons. Well thank you very much, Chairman Casey and 

Vice Chairman Brady, as well as Members of the Committee: 

I really appreciate having the chance to speak to you today about 

manufacturing in the United States because I truly believe in the 

power of manufacturing, not just for families but for our country 

as well. 

Back in the 1930s, my grandfather left the farm and he stood in 

line for six months at a local manufacturer waiting for a job at that 

facility because he knew then what so many manufacturing employees know today: that a manufacturing job paves the way to the 

middle class. And it did so for my family at that time. 

Today I am President of the National Association of Manufacturers and, Mr. Chairman, as you mentioned, we are the largest manufacturing trade association in the country. We represent about 

12,000 members of all sizes, and we are the voice of 12 million 

Americans who work in manufacturing. 

I think it is safe to say that we are all frustrated with the pace 

of the economic recovery. In fact, a recent Washington Post poll 

found that a majority of Americans actually think the recovery has 

yet to begin. 

Manufacturing can lead the recovery in the months ahead. Since 

the end of 2009, as some have already mentioned, manufacturers 

have created about a quarter of a million new jobs. That is about 

14 percent of employment growth. But that number really pales in 

comparison to the 2.2 million jobs in manufacturing that were lost 

during the recession. 

But the slightly brighter picture simply cannot be taken for 

granted. After months of consistent job gains, manufacturers actually lost 5,000 jobs in May. So clearly we have a lot of work to do. 

As this Committee considers ways to improve the business climate in the country, I ask that each of you focus on a very basic 

and fundamental question: Will this policy—whatever policy you 

16 

are deliberating—help our country create jobs and compete successfully in the international marketplace? 

Today it is 18 percent more expensive to manufacture a product 

in the United States than it is in other industrial economies. Other 

countries are racing ahead and adopting pro-growth policies and 

leaving the United States behind. 

For instance, the corporate tax rate. The United States is moving 

in the wrong direction. As other countries have reduced their rates, 

the United States is standing still. We currently have the secondhighest corporate tax rate in the world, behind Japan, which recently delayed its rate cut that would have pushed the United 

States into the number one position. 

Another concern is our regulatory burden. Onerous regulations 

stifle jobs and economic growth. They are a trillion-dollar-plus 

weight on job creators. 

Then there is trade. The Colombia, Panama, and Korea Free 

Trade Agreements have languished for four years. The Wall Street 

Journal recently reported that Colombia is looking to increase 

trade ties with China, noting that the agreement with the U.S. is, 

quote, ‘‘the deal we want more than any other,’’ the Colombia trade 

minister said ‘‘we can no longer sit’’ with its arms crossed waiting 

for the United States to act. 

This trade agreement will enhance manufacturers’ already significant market in Colombia. Manufacturers simply are waiting for 

action, and we cannot allow these barriers to growth and jobs to 

continue to stand. 

There are 120 other Free Trade Agreements being negotiated 

around the world, but the U.S. is only party to one of those. We 

are ceding our market share to our competitors. 

There are so many other policies that are causing us to stand 

still, but there are also policies that are actually turning the clock 

back. Permitting is time consuming and discourages additional investment. Excessive new regulations continue to mount. 

For example, the Environmental Protection Agency’s proposed 

ozone standards. Once these rules are on the books, communities 

across the Nation would suddenly be in violation of the Clean Air 

Act. Many manufacturers would have to put their plans to expand 

or modernize on hold. 

According to a study by the Manufacturing Alliance, these new 

rules could cost as many as 7.3 million jobs by 2020 and add up 

to $1.1 trillion in regulatory costs annually between 2020 and 2030. 

Our competitors are not trying to hamstring their economies and 

job creators this way. They are actually looking for ways to take 

our mantle of economic leadership away from us, and we ought not 

to be unintentionally helping them do so. 

Mr. Chairman, I can’t recall that I’ve ever met an American who 

complains that our country manufactures too much. Support for 

manufacturing transcends ideology and party lines as we see here 

today, but we have got to take that broad support and turn it into 

action. 

Whatever policies Congress and the Administration ultimately 

decide to adopt, they should be designed with the specific purpose 

of making the United States the best place in the world to innovate, to manufacture, and to do business. 

17 

I have outlined a number of specific policy proposals in my written testimony that I invite you all to review. American manufacturers are unmatched in their ingenuity, innovation, and resourcefulness. Manufacturing is poised for a renaissance that can lead to a 

robust economic recovery, and our government simply must enable 

that to happen. 

Thank you so much. 

[The prepared statement of Mr. Jay Timmons appears in the 

Submissions for the Record on page 62.] 

Chairman Casey. Thank you, Mr. Timmons. 

Mr. Paul. 

STATEMENT OF MR. SCOTT PAUL, EXECUTIVE DIRECTOR, ALLIANCE FOR AMERICAN MANUFACTURING, WASHINGTON, 

DC 

Mr. Paul. Thank you, Chairman Casey, Vice Chairman Brady, 

and Members of the Committee: 

I want to thank you for inviting me to testify today on behalf of 

the Alliance for American Manufacturing, and I first ask permission to include supplementary materials into the record. 

Chairman Casey. They will be included. 

Mr. Paul. Thank you. AAM is a partnership formed by some of 

America’s leading manufacturers and our largest industrial union, 

the United Steelworkers, with one goal: strengthening American 

manufacturing, and therefore our Nation’s economic and national 

security. 

In an increasingly intense partisan climate, we believe that our 

labor-management approach can help identify appropriate avenues 

for cooperation. I will say that the idea of a manufacturing strategy 

is hardly a radical concept, and a robust strategy has been at the 

core of American economic policy for all but a few brief periods of 

our history. 

Today’s dearth of public policy to boost manufacturing is the exception, not the rule, dating all the way back to our Founding Fathers. Indeed, Alexander Hamilton constructed America’s first industrial policy in 1791. I encourage you to read it. A policy that 

continued until the end of World War II. Globalization and economic approaches favoring imports and domestic consumption over 

exports and production have helped to steadily erode manufacturing as a percentage of our GDP, private sector employment, and 

other key measures. 

The idea of a manufacturing strategy is also not a partisan one. 

President Reagan, spurred on by a Democratic Congress, adopted 

a flurry of measures to counter a grossly imbalanced trade relationship with Europe and Japan in the 1980s. The Plaza Accords, 

which raised the value of currencies in Japan and Europe relative 

to the dollar in a managed way, had a positive effect in lowering 

our current account balance over time. 

Key government investments under the Reagan Administration 

in the semiconductor industry and other technologies spurred their 

development in commercialization. President Reagan signed into 

law enhanced Buy America requirements for certain infrastructure 

projects to boost domestic employment. 

18 

More recently, President Obama and Congress worked together 

to provide loans and breathing space for our domestic auto industry, which they needed to rebuild and thrive. The effort wasn’t perfect, but it was a necessary step to stabilize one of the support 

structures for domestic manufacturing. 

As important as that step was, it was an emergency room strategy and not a long-term effort to grow manufacturing jobs capacity 

and output. The case for a permanent manufacturing strategy 

could not be stronger when one considers that no matter how innovative or competitive individual manufacturers may be, there are 

some problems that simply cannot be solved on their own—as recently articulated by Jared Bernstein at the Center on Budget and 

Policy Priorities. For instance, research and development can be 

very expensive and hard to capture profits, for instance, in advanced batteries. 

No single firm could possibly coordinate national projects like the 

smartgrid or the Internet. Firms often need assistance in applying 

academic innovations to the production process. Manufacturers 

often face barriers to accessing credit for entry, expansion, and innovation. And manufacturers need assistance in exporting as well 

as pushback against unfair trade practices. 

We need a robust manufacturing strategy because the fate of the 

industrial sector of our economy is too important to be left to a gaggle of competing and ultimately unsatisfying theories of why it has 

been declining. 

The decline of manufacturing is not inevitable, desirable, nor can 

it be explained solely through theories of churning capitalism, advances in productivity and technology, high regulatory tax and 

compensation costs, or inefficiency. 

For instance, let’s look at Germany. Germany’s global shares of 

manufacturing output and exports have held steady over the past 

decade, while America’s have declined and China’s have risen 

sharply. Yet Germany is not a low-cost country in which to manufacture. Average manufacturing wages in Germany are $48 an 

hour; in the United States they are $32. Germany has an integrated strategy for boosting manufacturing focusing on skills, technology investment, demand side incentives, labor/business/government collaboration, and aggressive trade policies which allow it to 

successfully compete. 

Germany is a world leader in advanced manufacturing in solar 

production because it wants to be, and all stakeholders work together to make it successful. How does Germany have a balanced 

trade relationship with China when the U.S. runs monthly trade 

deficits more than $20 billion? Because it matters in Germany 

more than it does here. 

What does America need to create more manufacturing jobs? I 

will summarize these recommendations which are included in my 

written testimony. 

First, we have to deal with Chinese currency manipulation. Dealing with this manipulation would have a far more reaching impact 

than passing any individual free trade agreement. The benefits to 

GDP, to employment, and to deficit reductions would be extraordinary. 

19 

Second, we need to counter China’s other cheating on indigenous 

innovation, its web of industrial subsidies, and state-owned enterprises, its rare-earth minerals export restrictions, and its rampant 

intellectual property theft. 

The simple truth is, when we act, when we stand up and enforce 

our trade laws, we do get results. And it is helping companies all 

across our Nation, including those in Pennsylvania and in Texas. 

Second, we should retool the Obama Administration’s export initiative to focus on a zero trade deficit, rather than merely increasing our imports. We should also make positive tax changes. Senator 

Stabenow outlined some of these, as well as a number of members 

from the dias here, including accelerated depreciation. But what we 

do not want to do is offset a corporate tax rate reduction with reductions in deductions for manufacturing. 

Ernst & Young estimates that such an approach could sock man- ufacturers with a $48 billion bill and be a windfall for Wall Street. 

Fifth, while we should eliminate unnecessary and duplicative 

regulations, winning a race to the bottom is something that the 

United States does not want to engage in. 

Sixth, we need to invest in infrastructure and establish a national infrastructure bank. 

And finally, we need a skills and training infrastructure that is 

far more advanced than it is today. We are simply falling far behind. 

We look forward to working with the Committee as manufacturing strategy hits the agenda in the Congress. Thank you very 

much. 

[The prepared statement of Mr. Scott Paul appears in the Submissions for the Record on page 76.] 

[The EPI Briefing Paper article titled ‘‘The Benefits of Revaluation’’ appears in the Submissions for the Record on page 86.] 

Chairman Casey. Thank you, Mr. Paul. Everyone was close to 

their time, and you were actually under time. That is pretty impressive. We are grateful for that. 

I will start the questions, and then Vice Chairman Brady will go. 

By way of order of appearance, I will get that list so that Members 

of the Committee know when their turn will come up. 

Mr. Paul, if you don’t mind, if you will take your breath for two 

seconds, I wanted to start with you. I was glad you walked through 

those recommendations because I think today we get a sense from 

everyone who has spoken from a microphone that we have all diagnosed the problem, and that there is certainly more analysis and 

more diagnosis we could do. But I think it is time for all of us to 

move to the list of ways to improve this picture on manufacturing. 

One of the—and I am glad you went through some of your recommendations, and I will ask our other witnesses, as well, but one 

of the points you made, and you were able to make part of it, but 

I was noting in your testimony, when you start on page 6 with the 

recommendations, the first one you make is, and I am quoting: 

‘‘First, pass legislation to allow American workers and firms to 

seek relief from the effects of currency manipulation by China and 

other countries using our existing trade laws.’’ Unquote. 

Later in that paragraph you say that America would see a significant boost in GDP, up to 1.9 percent, 2.25 million more jobs, 

20 

and $71 billion annually in deficit reduction. And I would ask: By 

doing what? 

Mr. Paul. Sorry, let me turn on the microphone here. 

A number of economists, and Dr. Zandi identified Paul Krugman, 

but it actually extends—in fact, Alan Greenspan mentioned this 

last week—that China’s currency manipulation is one of the most 

harmful policies out there, preventing not only manufacturing 

growth in other industrialized and industrializing countries, it not 

only affects the United States, it affects countries like Brazil as 

well, but it is a—it contributes to global imbalances and hot money 

flows. 

And it becomes a vicious cycle that is hard to get out of. I will 

say that a year ago China announced that they would revalue the 

yuan, and they did take it off of peg, and it has appreciated, although arguably not nearly enough, and it still remains, as you indicated, grossly undervalued, somewhere between 30 and 40 percent. 

We have tools within our trade laws that we can deploy, that we 

have deployed on subsidies, that we have deployed against dumping, that with a couple of tweaks we can also apply to currency manipulation. And it could certainly produce results, but it would at 

least give our industries, our workers, a tool in the trade laws that 

they do not have currently to deal with this unfair currency manipulation from China. 

I mean, a desirable approach—and I will be candid about this— 

would be for the Administration to negotiate with China in a manner similar to the ‘‘Plaza Accords.’’ I have not seen that willingness, 

and so I think we need to see Congress step up to the plate. 

There is bipartisan legislation, I would add. It passed the House 

of Representatives overwhelmingly last year. There were not many 

bills that got overwhelming Democratic support and attracted 99 

Republicans, and I think that is something the Congress should do 

immediately. 

Chairman Casey. I am glad you focused on that. I think it is 

critically important. The important point here is I think sometimes 

when people here, folks like us in Washington talking about China 

currency, I guess it can sound like a, oh, I don’t know, a Congressional complaint, a pointing a finger at a country, but the reality 

is just as you and so many others have stated. 

This is—if it is not the key thing we have got to do, it is in the 

top two or three. And the evidence is irrefutable. And as you noted, 

there is bipartisan support. But one of the most important things 

you said was, as much as I and many others are working on new 

legislation, we can do a lot right now. The Treasury Department 

can do more. 

The Commerce Department can do more. This Administration 

can do a lot more to aggressively enforce existing law. 

And again let me say it for the record, in your testimony, you 

were referring to the Economic Policy Institute, correct? 

Mr. Paul. [Nods affirmatively.] 

Chairman Casey. If China appreciated their currency at a market-based level over the next two years, America would see a GDP 

increase of 1.9 percent, 2.25 million jobs, and a $71 billion deficit 

reduction impact annually. 

21 

Let’s say they are wrong by a little bit. If we got a fraction of 

that from one policy, it would still be dramatically significant. So 

we will get to more questions about this and other recommendations from our other three witnesses, but I wanted to make that 

point. 

I am out of time on this round, but I will turn to our Vice Chairman Brady. 

Mr. Paul. Thank you, Mr. Chairman. 

Vice Chairman Brady. Thank you, Mr. Chairman. I do think, 

if America’s manufacturing policy is going to be to blame China for 

our manufacturing challenges, we will be sorely mistaken. 

It is one in a plethora of challenges facing American manufacturing, many of them home-grown, unfortunately. And I think that 

is what this hearing has already revealed. You know, I appreciate 

Germany’s leadership. Your mention of Germany’s leadership during the global financial crisis, it was a leader in the G–20 to encourage countries to wind down their fiscal stimulus and to begin 

to get their financial house in order. 

Unfortunately, America was the outlier in that discussion. I wish 

we had listened more closely to them. I am not a fan of the Stimulus. Here we have spent eight hundred and some billion dollars. 

We actually have 1.5 million fewer workers today than when all 

that Stimulus began. 

Our factory orders are down. Consumer confidence has receded 

to its point six months ago. Manufacturing is struggling in four of 

our key Reserve Board regions. Unemployment was projected, if we 

spent all that money, to be 6.5 percent this quarter. Unemployment, long-term unemployment is at near record highs. 

The Stimulus missed, in my view, by a mile. And now we have 

13.5 million people still without jobs. So I disagree with the assessment that the Stimulus has succeeded. 

So my question I guess, to begin with Mr. Timmons, listening to 

your manufacturing members, are your members clamoring for another jobs bill out of Washington? Or are they anxious for Washington to get out of the way of this recovery, to reduce the costs 

and regulations and barriers that would allow them to make the 

private business investment that allows jobs to be created? What 

is their view? 

Mr. Timmons. Well I think if you enact legislation that reduces 

costs and barriers, in effect that is a jobs bill. As I mentioned in 

my testimony, it is 18 percent more expensive to manufacture in 

this country than it is in other industrialized nations. And that is 

when you take out the cost of labor. I think that is a very important distinction. 

That 18 percent includes several factors, but the majority of that 

cost is related to our tax burden, our energy costs, our regulatory 

burden, and our tort burden. 

We have the capacity here in this country to reduce many of 

those costs and barriers on our own. You mentioned that we cannot 

simply blame other countries—let’s say China—but the policies in 

those countries do make a difference. And some of the points that 

were made here about China’s inability to protect intellectual property, or the production of counterfeit goods, and certainly currency 

manipulation are large factors. 

22 

Those are things, though, that are obviously more difficult for us 

to deal with. The things that we have asked Congress to really 

focus on are those other areas that I just mentioned: taxes, energy 

cost, regulation in particular, as well as acting on the three pending trade agreements, and enabling the President to negotiate 

other trade agreements around the world so that we are not ceding 

market share to other countries. 

Vice Chairman Brady. This Congress is looking at a policy— 

you mentioned trade. As you know, it is not enough to simply buy 

American anymore, we have to sell American all throughout the 

world. 

Mr. Timmons. Exactly. 

Vice Chairman Brady. We find the world tilted against us. 

Trade agreements take one-way trade into the United States and 

create a two-way trade, and create jobs as a result. 

Mr. Brill, how important is it to America’s manufacturing that 

we aggressively open new markets, pass trade agreements to level 

that playing field, and seek more opportunities especially in the 

Asia Pacific, the growing Asia Pacific region so our manufacturers 

can compete and win in those areas? 

Mr. Brill. Vice Chairman Brady, it is critical that we have a 

trade policy, one that not only relates to our manufacturing sector 

but to all our sectors that engage in global trade, one that is reducing barriers and opening markets. 

As others have noted, and as you noted yourself, the pending 

agreements before Congress are long overdue. The policy seems to 

be a wait-and-hold policy, unfortunately. By delaying the implementation of the pending agreements, we are disadvantaging our 

ability to advance our exports. 

However, more concerning is, as Mr. Timmons noted, the lack of 

TPA, lack of the ability to create new agreements going forward. 

Eventually I hope we will get the agreements that are pending, but 

I am concerned by the fact that we do not have the tools to further 

open new markets. 

Vice Chairman Brady. Right. Thank you, Mr. Chairman. 

Chairman Casey. Congressman Duffy. 

Representative Duffy. Thank you, Mr. Chairman. 

Thank you, panel, for coming in today. This phrase of uncertainty may be overused over the last year, but it is a term that I 

continue to hear as I am in my District talking to our manufacturers. And when I ask them to explain what do they mean when they 

talk about uncertainty—because a lot of them are saying they are 

making more money, they are more productive, but they are not rehiring. And I think we are seeing that across the country. 

And oftentimes they will, in different terms, talk about the debt. 

And I will say, well what does that mean to you? Well they are concerned then about inflation. They are concerned about interest 

rates going up in the long term. They are concerned about tax increases that have been discussed here in Washington. We do not 

have a long-term tax policy. We seem to be going year by year. 

And in my area—I am in the northwest quarter of Wisconsin— 

there is a lot of concern about what is happening with the EPA. 

We have a large forest products industry in my District, and all 

23 

those things are coming together and creating uncertainty. They 

are not taking the risks they normally may take. 

Are you all seeing that in your studies, or your conversations, 

that the uncertainty not necessarily from the business side of 

things but actually from the government side of things is affecting 

our willingness of our manufacturers to expand and grow? 

I will throw it out to the panel as a whole for anyone who wants 

to take a stab. 

Mr. Zandi. 

Dr. Zandi. Yes. I think there is something to that argument, 

yes. I think that American businesses in aggregate are in very good 

financial shape. You know, we had to make a distinction between 

the very large companies and smaller companies that are not doing 

quite as well. 

But in their totality, they are very profitable. Their profit margins are very wide. They did an admirable job getting their cost 

structures down during the recession. It is really no longer in my 

mind a question of can businesses hire more. It is really a question 

of willingness. And that goes to confidence. 

There are, I am sure, a melange of things that weigh on confidence. Part of it is we went through the Great Recession. You do 

not forget that quickly if you are a business person. And I do think 

policy uncertainty has played a role. 

Some of the policies come to fruition—health care reform—and I 

am not speaking to the merits of any of the policy itself—but just 

the fact that we have gone through these very significant debates 

and discussions. Health care reform, financial regulatory reform. 

We did not nail down the Tax Code until the very end of last year. 

We debated things, Congress debated things that did not come to 

fruition but made business people nervous: cap and trade, immigration policy, card check. 

I do think that the policy uncertainty is fading. There has not 

been a major legislative initiative in the last six months. But I do 

think the one thing that—and I speak to a lot of business people 

in my work in lots of different industries all across the country— 

the one thing that makes them very nervous at this point is they 

cannot construct a narrative in their mind as to how Congress and 

the Administration are going to come to terms on first the debt 

ceiling, and then ultimately on our fiscal situation. 

And unless they can figure that out, they are not going to fire 

people, but they are going to be very slow to hire people. Because 

as you point out, that means potentially higher interest rates; it 

means potentially higher taxes. It could mean massive changes in 

government programs. And those things make people very nervous, 

and that needs to be nailed down. 

Representative Duffy. And to piggyback on that point, I think 

what we are seeing is more of our manufacturers asking their current employees to work overtime, or they are asking for temporary 

workers, instead of engaging in some long-term hiring, even though 

the work may be there. And they are talking about these same 

issues that I brought up, but also what you referenced as the 

health care bill as well. 

What is it going to cost in health care to hire a new employee? 

I mean, just specifically are you guys aware of the EPA’s Boiler 

24 

MACT proposed regulation? In paper manufacturing we use industrial boilers. And at a time when we are under immense competition from China, which I think is unfair competition, we are struggling to stay alive in central and northern Wisconsin with our 

paper manufacturers, and it is a huge part of our economy. 

And these proposed regulations, which are going to increase 

American standards which are already far above Chinese standards, in the end are going to drive American jobs overseas. And I 

think if we look at our environment, we are all drinking the same 

water and breathing the same air. And to send our jobs and our 

manufacturing to China where they have far less standards than 

we do just does not make sense. 

And again, I think the policies are coming from Washington that 

are making it more difficult for our manufacturers to compete on 

the global stage. 

And obviously you guys are aware of the Boiler MACT proposal. 

Mr. Timmons. Boiler MACT could severely harm the paper industry. It is good that there is a bit of a delay there, but there are 

several other regulations that are coming down the pike. I have already mentioned the ozone regulations. There’s potential regulation 

of carbon dioxide from the EPA. The recent decision by the NLRB 

to cite Boeing and try to tell them where they can locate a production line, all of these things factor into a business’s decision on 

where they are going to do business. You know, are they going to 

do business in the United States, or are they going to emigrate? Or 

are they going to evaporate? 

And I do not think anybody in government wants to see businesses evaporate or emigrate. So our job really needs to be to provide certainty and stability, deal with the Tax Code, including provisions that expire at the end of the year and deal with the regulatory over-reach that we have seen from so many agencies in order 

to make the business climate more stable for American business. 

Representative Duffy. And I would agree with that. And, Mr. 

Chairman, I would yield back the remainder of my time. 

Chairman Casey. Thanks so much. 

Congressman Mulvaney. 

Representative Mulvaney. Thank you, Mr. Chairman. 

Gentlemen, I will begin by saying that as we talk about manufacturing policy, I am one of the ones who would tend to focus on leveling the playing field as opposed to having the government get involved in specific programs. 

We heard some testimony from Senator Stabenow before, and I 

think one of you gentlemen mentioned the Japanese policies on advanced batteries. I think for every success story that a government 

can point to like that, there are more and more failures. 

I remember when I was a kid I think the Japanese government 

was involved in the beta research for Betamax, and then more recently I think they were heavily invested in plasma TVs versus 

LEDs, or something like that. So I think every time there is one 

of those success stories, there are a lot more failures. The government simply does not have the information or the proper motivation available to it to make decisions about where investments are 

properly made. 

25 

So I am one of those landscape, level the playing field type of 

guys. So I want to talk about that for a few minutes and see if 

there are a couple of things that we can agree on as a panel. 

One of the things that seemed to be consistent across all of your 

testimonies was the importance of any government policy to allow 

business to be more efficient, to lower its labor and capital costs, 

to lower its transportation costs, in order to encourage it to grow. 

Dr. Zandi, you mentioned specifically something that I am familiar with, having been in the housing industry, about people being 

stuck in a particular location. And I think the free flow of labor 

and capital is one of the things that any government policy should 

rightly encourage. 

Is there anybody, by the way, who disagrees with that? 

[No response.] 

Representative Mulvaney. Good. Like I said, I am new here 

so I am still trying to figure out a way to find things that we can 

agree on. As we sit here and say—there are folks here that Democrats have invited, folks the Republicans have invited, there are 

folks here who consider themselves to be Independent—as we sit 

here and say that the free movement and labor and capital should 

be the goal of all government policies on this, is there anybody here 

who wants to defend what the NLRB is doing to Boeing? And I will 

put that to anybody. 

[No response.] 

Representative Mulvaney. I will take your silence as support 

for the fact that it is absolutely wrong; that what is happening here 

is the government is telling this business where it can do business. 

And I just wonder if anybody thinks—I want suggestions on how 

to fix this, gentlemen. 

As we sit here today and talk about a manufacturing policy, 

what can we do in order to encourage the free flow of labor and 

capital? And if getting rid of the NLRB is an answer, let me know 

about it. But I would throw it open to the panel as to what you 

think we can do in order to accomplish exactly what you gentlemen 

have suggested. 

Mr. Paul. Mr. Mulvaney, if I—— 

Representative Mulvaney. Mr. Paul, and then Dr. Zandi. 

Mr. Paul [continuing]. Sure. I want to turn your question on its 

head a little bit. One of the peculiar aspects of our economic strategy in the United States is that we have a lot of interstate competition for jobs. 

And I am not saying that is unique in the world, but we engage 

in this race through incentives, either positive or by reducing regulations between states. Ultimately, we have to compete with Mexico, China, and other countries that will be able to have lower labor 

costs, and lower regulatory burdens. 

To think we lack that other countries do, and they do it successfully, is not an economic development strategy. And it does not 

mean the government is telling you where you can put your factory. It does not mean that at all. But it does mean some sort of 

a national strategy is needed with the knowledge that we are competing against other countries. 

There is a bill that Senator Warner and Congressman Wolf, a bipartisan team, introduced that said if you want to reshore work to 

26 

the United States, the Federal Government will match that in a 

way to provide an incentive. That is what other countries do. 

We are pretty unique in the fact that we do not have an economic development strategy like that. 

Dr. Zandi. I think the way you articulated it was exactly right 

with regard to the free flow of capital and labor, and I think that 

would define a national manufacturing strategy, policies that can 

help facilitate this free flow of capital and labor. 

Let me just focus on labor for a second and give you a couple of 

ideas that might help with respect to that. 

First is reform in the Unemployment Insurance system. I think 

manufacturers have very high Unemployment Insurance costs particularly in the current context because many states obviously have 

had to take on loans from the Federal Government to pay for their 

UI, and this bill is coming due, and that bill is going to be paid 

by businesses, particularly manufacturers. The cost to them is 

going to be quite significant. So you could provide some relief to 

help in that regard in the near term. 

And then I would also make some broader changes to the UI system. One reason why the German economy that has come up in 

this context a couple of times has done so well is because they have 

a work-share program in UI so manufacturers do not have to lay 

off workers. They can distribute the pain among older workers by 

cutting back hours, and so they do not lose very skilled workers 

and laborers in a recession. They can hold on to them. And that 

is very important for manufacturers because these are very skilled 

employment. 

Also, we should reform our UI system to allow unemployed workers to get those benefits for their own retraining. So there are programs that we have been testing, that Congress has been testing 

in this regard. So the UI program is a really good place to look in 

terms of trying to help manufacturers. 

Second, immigration policy. I think the hidden gem in our economy is our university system. It is going to take 100 years for any 

country on the planet to replicate what we have done in our university systems. That is our significant comparative advantage. 

I think if any foreign student comes to our country, gets a degree 

from the University of Pennsylvania, Ohio State, or the University 

of Wisconsin, they should get a visa to stay. They’ve earned it. 

These are the best and the brightest in the world, and they are 

going to be the fountain of the future business formation and job 

creation in manufacturing. 

And third, just thinking a little outside the box for you again 

with regard to labor costs, there is this really interesting movement 

that I have observed among manufacturers and universities. The 

manufacturers are saying, look, I’ve got a big skill mismatch problem here, particularly because my workforce is old, it is aging, it 

is going to retire, and the young folks that are coming up, they are 

just not interested in learning these skills. 

So these companies are going to universities and saying, hey, I 

will give you money. You take that money. You go hire faculty. You 

build a lab. You build an office building. And just let me have an 

input into your curriculum process. And, you know, this solves a 

lot of problems. 

27 

I think policymakers can really help facilitate this. And there are 

different ways of doing it, but one way is provide matching grants 

to universities that participate in this kind of process. And I think 

that would be very helpful in addressing this jobs skill mismatch. 

That is going to take a little bit of work to iron out all the details 

on sort of a lot of issues with respect to, you know, universities are 

very sensitive about ceding any kind of academic freedom, and I’m 

there. I understand that. But I think this would be a good way to 

solve a lot of problems. 

Representative Mulvaney. Thank you, gentlemen. Good ideas. 

Thank you, Mr. Chairman. 

Chairman Casey. Thanks very much. Dr. Zandi, and our whole 

panel, I know we are running low on time, but I wanted to ask you 

again about parts of your testimony and the dos and don’ts. I will 

be affirmative and focus on the dos. But I need to correct one thing 

for the record. When you mentioned great universities, and I am 

glad you said Penn when you mentioned Ohio State, which is a 

great university, I wanted to make sure that Penn State gets in 

there too. 

Dr. Zandi. Well I thought that would be piling on, if I, you 

know—— 

[Laughter.] 

Vice Chairman Brady. Did you leave Texas A&M out by accident? 

Dr. Zandi. Absolutely. 

[Laughter.] 

Vice Chairman Brady. Thank you. 

Chairman Casey. But thank you for the reference to Ohio 

State. Appreciate it. That won’t come out of the Vice Chairman’s 

time. He has got plenty of time. 

But, Dr. Zandi, can you go through some of the dos in what we 

should do in your testimony? I know you referred to one or two, but 

maybe just by way of a quick list and then maybe I can open it 

up to the others, as well. 

Dr. Zandi. Sure. I focused on labor in my previous remarks, but 

I think we can also do things to help facilitate the flow of capital, 

lower the cost of capital with respect to lowering the cost of transportation and distribution which is so very important to manufacturing. And also energy, as I mentioned. 

In terms of the cost of capital, I would focus on two things—and 

then I will stop because I do not want to take too much time—but 

I do think corporate tax reform is vital. And I think it needs to be 

considered in a comprehensive way, that I think our goal should be 

to flatten the tax base—you know, try to scale back as many deductions, or eliminate any deductions and credits in the Code that we 

can so that we can bring down the marginal rates, and we can 

lower the marginal and the effective corporate tax rate for American businesses. 

I know there is a lot of debate, and you can hear it here, about 

how high are corporate taxes. It is almost irrelevant to me. It is 

a plus if we can lower them, and that is what we should work to 

do, and I think we can do that by addressing the Swiss cheese in 

our Tax Code. 

28 

The other thing I would do is, now going to small manufacturers, 

and one of the beauties of manufacturing for our broader economy 

is it is not only big companies. You know, people don’t realize this: 

there are a lot of small manufacturers tucked away that are very 

productive. They have got a market niche. They are very competitive. They are sitting in Lancaster County, or around Pittsburgh, 

or in Ohio, and Wisconsin. You know, all those forest product companies, they are not big. These are small to midsized companies. 

I think—and there has been a lot of discussion about how these 

companies cannot get a loan, debt capital, going to the bank and 

getting a loan, and I think that has been an issue. I am less concerned about that now. I think it is starting to improve itself. But 

the one thing that really worries me in this regard is there is a 

lack of equity capital—that this is where the dearth is. 

We do not have investors taking an equity stake in these companies. And there’s a lot of reasons for that, but I think there is a 

role perhaps for government to play here not directly making equity investments—I would not advocate that—but actually helping 

finance indirectly through different means to provide equity capital 

to—and don’t pick winners. Don’t try to pick winners and losers, 

but let the professionals do it; let the marketplace do it; but help 

facilitate that process. 

So those are two things I think we need to focus on in terms of 

the cost of capital, and I will stop right there. 

Chairman Casey. Anyone else? I’ve got a little more than a 

minute. 

Mr. Brill. Sure. Thank you. I would just make a couple of quick 

points. Obviously in my opening remarks I talked about the importance of corporate tax reform and bringing down rates. 

I would like to endorse Dr. Zandi’s comments about the values 

and opportunities from UI reform. That is an opportunity I think 

where we can really improve our labor markets in manufacturing 

and elsewhere. 

With regard to your comments earlier, Congressman Mulvaney, 

about capital, I think that was an excellent point. I think we need 

to pursue strategies to facilitate the mobility of capital. And that 

would include inbound investment, encouraging—reducing—lowering barriers to encourage foreigners to invest here in the United 

States, ‘‘in-sourcing’’ as it is commonly referred to. 

But we also have to recognize that there are benefits for U.S. 

firms to be investing abroad, as well. There are a number of concerns that I share with regard to China and some of their activities, but we should also recognize that China is a large customer 

for U.S. manufacturing, and we will all be better off if we are facilitating both inbound investment and permitting U.S. manufacturers 

and others to appropriately invest globally. 

Mr. Timmons. Mr. Chairman, I would like to—— 

Chairman Casey. Mr. Paul, you are down to 22 seconds. 

Mr. Timmons [continuing]. I would like to respond to your question, but I also want to point out skills curriculum at universities 

that was mentioned by Dr. Zandi. We are really pleased that the 

President endorsed the skills’ certification system that NAM set up. 

It is a national skills’ certification system, and it involves community colleges. And I think it is very important that we do not overVerDate Nov 24 2008 11:11 Sep 28, 2011 Jkt 067592 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 C:\DOCS\67529.TXT SHAUN PsN: DPROCT
29 

look the importance of community colleges that can help us with 

addressing our skilled workforce issues. 

Comprehensive tax reform clearly, corporate tax rate reduction, 

is at the top of our list. Also, an energy policy that enables us to 

utilize our domestic resources. That is going to require some active 

engagement by Congress and the Administration. 

And then I would suggest that Members of Congress ask really 

hard and pointed questions, as well as provide the proper oversight 

to the regulating agencies. One very quick example. 

OSHA recently withdrew a proposed regulation to require manufacturing facilities to purchase hundreds of millions of dollars 

worth of noise abatement equipment to accomplish the same goals 

that are achieved through those little five-cent foam pieces of ear 

protection equipment. 

It did not make any sense. They did eventually withdraw it, but 

the real question is who had the time to come up with this in the 

first place. We need some very, very careful and strong oversight 

by Congress on what the regulatory agencies are doing right now. 

Chairman Casey. Congressman—I want to have Congressman 

Mulvaney jump ahead. Mr. Paul, we will try to give you some extra 

time. 

Representative Mulvaney. Thank you, Mr. Chairman. I have 

got one last question, gentlemen. I appreciate, again, you sticking 

around. I have heard, again, across the entire panel today a consistent message about corporate tax reform. 

Dr. Zandi, I think you used the word ‘‘comprehensive.’’ You also 

mentioned the role of smaller-sized manufacturers. 

Mr. Timmons, I put this to you. How critical is it when we sit 

and talk about corporate tax reform here that it goes just beyond 

the C corporation level and moves down to the S corporation level? 

Mr. Timmons. Well thank you for asking that question, because 

it is critical. Seventy-two percent of manufacturers file as S corporations or other pass-through entities. So when there is discussion to raise individual rates at the end of 2012, that will have a 

huge and direct and negative impact on manufacturers. 

The corporate tax rate is clearly a competitive disadvantage for 

us right now, but raising individual rates would be a severe competitive disadvantage for us as well. 

Representative Mulvaney. Dr. Zandi, do you have the same 

position? 

Dr. Zandi. Yes, in the sense that I also think we need to have 

comprehensive reform of the personal income tax code as well. And 

all of these issues need to be considered in a broader context. 

Representative Mulvaney. And the reason I asked the question is that it seems up here that we have two debates. We have 

a debate about corporate tax reform, and then we have a separate 

debate about individual tax reform. And the message that I am trying to get out, and I am hoping you gentlemen agree with, is that 

there is an area in between. And it is with the S corporations, that 

really it is a corporation in terms of what it does, but it gets taxed 

as an individual. 

So what I am hoping that we can do here, Mr. Chairman, is have 

an understanding that corporate tax reform includes small businesses and S corporations. 

30 

Dr. Zandi. Yes. And I think it is important. The way I kind of 

think about it, cutting across businesses and individuals, is looking 

at the tax expenditures in the tax code, the credits, and deductions 

in the code that make it very complex, reduces its efficacy, and just 

creates bad incentives. And the strategy should be to scale back or 

eliminate, as best we can, so that we can raise more revenue but 

also lower marginal rates. And then we accomplish everything that 

we need to. 

Mr. Brill. Congressman, I would just add that the notion of a 

corporate tax where a small large corporation and a large small 

corporation face completely different tax systems is completely illogical. The high tax rate for many individuals who are business 

owners is a distortion. It is a distortion that is taxing and both discouraging the supply of labor as well as the supply of capital. 

I would also note, however, that addressing these issues separately, while not ideal, does not disadvantage our smaller businesses. The customers of our small businesses are often large businesses. And so while we should work to both reduce the individual 

marginal rates to help S corps, partnerships, and sole proprietors, 

we should—the advantages of a corporate tax reform are good unto 

themselves. 

Mr. Paul. Mr. Mulvaney, I don’t want to be the skunk at the 

garden party here, but I have a slightly different perspective. 

Representative Mulvaney. Sure. That’s what we’re looking for. 

Mr. Paul. I do think that we need to look at the effective corporate tax rates among manufacturers. They vary widely. They 

vary from about zero percent to somewhere in the mid-20s, to in 

some cases a little higher. I don’t think I am burdened by economics training in saying that I do believe that targeted tax assistance 

can be effective. 

For instance, in industries that we are attempting to incubate, 

you often need public incentives to have those industries thrive. 

The Clean Energy Manufacturing Tax Credit, which Senator Stabenow mentioned, had a great deal of uptake and really helped to establish battery facilities, wind turbines, solar panels. I think that 

we should encourage other energy development, too, including nuclear. 

But the point is that, for the sake of an elegant economic tax system, we would make a lot of sacrifices. I do think it makes sense 

to target tax relief for manufacturers that are actually making 

things in the United States instead of overall income. 

And the last thing that I would add, very briefly, is I think it 

misses the larger debate, which is, virtually every other country we 

are competing against has a value-added tax system that has rebates for its exporters. 

The United States, almost exclusively among industrialized countries, does not have a system like that, and I am not saying that 

we need to adopt a system precisely like that, but it does put our 

exporters at somewhat of a competitive disadvantage. 

Representative Mulvaney. Mr. Paul, that brings us back full 

circle to where I started, though, which is that every time you sit 

and you give the example of a successful government policy on encouraging a particular industry, there are four or five that have 

failed miserably, and my fear is that we sit here and we are actuVerDate Nov 24 2008 11:11 Sep 28, 2011 Jkt 067592 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 C:\DOCS\67529.TXT SHAUN PsN: DPROCT
31 

ally practicing what you’ve preached. We are giving tremendous incentives to various green energy segments, and my fear is that we 

are siphoning capital and simply siphoning creativity away from 

what actually might be working. 

We are sitting here today, for example, encouraging wind. My 

concern is that, by doing so, we are drawing resources away from 

something that might be more productive than wind energy. So 

again, that is part of the overall debate. 

But I think to your first point regarding the effective tax rate, 

I think that is exactly what Dr. Zandi was getting at, which is that 

because of all the loopholes, because of all the incentives, because 

of all the subsidies in the Tax Code itself, you end up with small 

companies paying a much higher rate than large companies, and 

you end up with some industries paying much higher rates than 

other industries. 

And I think what Dr. Zandi and folks like myself have been encouraging is a system that simply does away with that so the effective rate is actually the actual rate at the same time. 

Dr. Zandi. Can I just make one quick point? 

Representative Mulvaney. At the Chairman’s discretion, because I am out of time. So, sorry. 

Chairman Casey. Can we make that in—because we want to 

keep moving. 

Dr. Zandi. That’s fine. 

Chairman Casey. Congressman, thank you very much. 

Dr. Zandi. I can speak three days or three minutes. 

Chairman Casey. Senator Stabenow—or Senator Klobuchar. 

We had Senator Stabenow here earlier and—— 

Senator Klobuchar. I would just end there, if you’re trying to 

explain. 

[Laughter.] 

You know, you’re two women Senators, is that—— 

Chairman Casey. I have a long introduction of Senator Klobuchar which I will give another day. 

[Laughter.] 

Senator Klobuchar [continuing]. In any case—— 

Chairman Casey. You get an extra minute now. 

Senator Klobuchar [continuing]. It is good to be here with you, 

Senator Sherrod Brown—no. 

[Laughter.] 

All right. I wanted to thank all of the witnesses. I am sorry, we 

had a hearing in Judiciary on intellectual property, which is also 

a piece of this, making sure that we are protecting all of the things 

that we make. But I truly believe the way that we are going to get 

out of this downturn is by making stuff again, by exporting to the 

world, by thinking again. 

And so all of the focus of this hearing I think is a very good one. 

It is certainly the way that my State of Minnesota has been able 

to—while we are not where we want to be, we are now at 6.6 percent unemployment, significantly below the national average. 

A lot of that has to do with manufacturing. I suddenly realized 

this year I could visit some of our factories on the weekends because they were going through the weekends. A lot of it has to do 

with exports. We have a huge history with Cargill, and 3M, and 

32 

Medtronic, and other companies with export markets that has really expanded down into some of our small- and medium-sized businesses, because they think this is the way to go. 

And it is just the ag community, as well, which is now doing 

quite well exporting all over the world from pork to sugar beets to, 

yes, turkey. We are number one for turkey. 

So I wanted to focus here on the work in manufacturing. We ex- ported $17.2 billion in goods last year, an increase of 17.3 percent 

over 2009; and a sector recently reported 12-month job gains of 

7,800, outpacing the Nation. 

So I think I will start with you, Mr. Timmons. I know it is not 

that rosy all over the place. I am well aware of it. But one of the 

things I have noticed, I was down at AgCo in Southern Minnesota, 

in Jackson, employing nearly 1,000 people now, because there’s a 

lot of work in that area going on. They can’t find a welder in southern Minnesota right now. And I spend a lot of time at our technical 

schools: a 96 percent placement rate out of Alexandria Tech. This 

is no longer your grandpa’s tech schools. They are not just fixing 

cars. They are actually learning how to run computer systems that 

run the assembly lines at Boise Cascade and other places. 

And I would like to see a greater emphasis—Scott Brown and I 

have a bill called Innovate America—a greater emphasis on these 

two-year degrees and how our businesses and manufacturing can 

work with these two-year community and technical colleges to figure out what their needs are, literally within a year, and get kids 

into those programs, as well as workers who have lost jobs. 

Could you comment on the need for workers trained in where 

there is actually the openings? 

Mr. Timmons. That is music to my ears, Senator. And if I could 

just divert for just a second, Mr. Chairman, you did ask earlier 

what can be done to help manufacturing. And one of those things 

is to ensure that all elected officials spend time in a manufacturing 

facility and see real people in the real world doing real things. 

I bring this up because Senator Klobuchar is a perfect example 

of that. She has visited many of our member manufacturing facilities in Minnesota, and they have a very personal and good relationship with her. So thank you, Senator, for your commitment to manufacturers. 

I would say that you are exactly right on. One of the things I 

hear about from my members around the country, besides the big 

three that I mentioned already—taxes, energy policy, and regulatory burden—is the lack of a skilled workforce. 

There are jobs that are available, and there are companies that 

are not able to fill those jobs. I mentioned earlier, and I think it 

bears repeating, we have a partnership with the Administration. 

The President endorsed the National Association of Manufacturers’ 

skills certification program, which is a national set of standards to 

help potential manufacturer workers ensure that they have the 

skills necessary for the jobs of the future and the jobs that are 

available today. 

So I look forward to reading a summary of your legislation, but 

the issue is right on. And we are working on that from the NAM 

perspective and a good public-private partnership with the government I think is very helpful in this regard. 

33 

Senator Klobuchar. Well thank you. And another piece of this, 

obviously, that you focused on is exports of manufactured goods. I 

have some strong views on that, as well. I’ve headed up the Export 

Subcommittee of Commerce, but that having our embassies around 

the world make this their major focus is helping when companies 

are trying to get either private contracts or government contracts 

in other countries. But also not closing the door on the small- and 

medium-sized especially manufacturing firms that need help from 

the foreign commercial service. 

Senator LeMieux and I got tacked on the Small Business bill last 

time some help in that regard because it is worth its weight in 

gold. Could you just comment on small- and medium-sized businesses and their need to be part of this growing export market? 

Mr. Timmons. Small and medium enterprises are a very fastgrowing part of the export platform in this country. And in fact at 

the NAM we have a loaned executive, if you will, from the Department of Commerce whose sole function is to help reduce barriers 

for export opportunities around the world for small and medium 

enterprises. So I agree with you that that is an important part of 

the puzzle, as well. 

Senator Klobuchar. And Dr. Zandi, I appreciate you being 

here, as well. And I know that you see the export market as key. 

And just one piece of this is, as we look at that export market, one 

of the things that becomes clear to me—and Mr. Timmons mentioned this—is we are competing in these markets against companies in other countries that sometimes are newer competitors. They 

have new rules. They have been able to start fresh. 

And I am becoming increasingly concerned with some of our 

rules and regulations. I just look at medical devices where a lot of 

the investment is going to Europe now because China is requiring 

country-of-origin labeling. No one would have even guessed this 

two decades ago. 

So because the European system will say it goes faster, a third 

of that venture capital money has been going to Europe. Or tourism, because it takes so long to get the visas to come to America 

versus Great Britain; we have lost 16 percent of the international 

tourism market since 9/11, not necessarily just because we put the 

security rules in place but because we haven’t adjusted in terms of 

how we handle those applications. 

So I just wondered if you could comment about the economics of 

changing some of these rules and regulations because we no longer 

compete in a vacuum. 

Dr. Zandi. Yes, you make an excellent point. I think it is clear 

that going forward the key source of economic growth will be exports; that for the past quarter century we have relied on U.S. consumers to purchase the things that we produce that drove our 

growth in the global economy, frankly. And that is one of the inflection points, as a result of what we’ve been through, that going forward we cannot count on that. We have to look to selling what we 

produce to the rest of the world. 

And we sell manufactured goods to the rest of the world now, 

and those manufacturing companies that survived what we went 

through I think have to be very competitive. They have to have a 

34 

good cost structure, and have a good market niche. So I think we 

are well poised. 

But one thing that clearly would help in their effort to sell to the 

rest of the world is to be cognizant of these regulatory costs and 

constraints. And when we think about regulation, there are good 

reasons for regulation, but we need to think about them through 

the prism of what they actually mean with respect to export 

growth. Because, again, at the end of the day that is our key source 

of growth long run. 

Senator Klobuchar. Very good. Thank you very much. I appreciate it. 

Chairman Casey. I want to make sure Senator Klobuchar had 

some extra time after I referred to her as Senator Stabenow. 

Senator Klobuchar. I would let it go because no one really noticed it out there. 

[Laughter.] 

Chairman Casey. We could add more time. This panel is willing 

to be here all day. 

[Laughter.] 

I know we have to wrap up. I wanted to pose one more question, 

and then give each of you a chance, if you wanted, to add something, but it tells you how closely folks up here listen. 

Our staff came up with a great question: Based upon part of your 

testimony, Mr. Zandi, and Mr. Brill part of your testimony, this 

question is about the impact during this period of recovery that 

manufacturing jobs have had, that manufacturing as a sector has 

contributed mightily to the recovery—I guess about half of the 

growth—but in terms of the job gains, it is about one-tenth? Is that 

what you said, Dr. Zandi? 

Dr. Zandi. That’s correct, right. One-tenth. If you include the 

temp jobs, many of which are in manufacturing, it is at most onefifth. 

Chairman Casey. So juxtaposing that, or putting that along 

with this point that Mr. Brill made about productivity, there would 

be pretty substantial productivity gains. The question I have is, 

how much—when you consider the productivity gains with manufacturing contributing one-tenth of the job gains—what has happened with regard to wages? 

It seems that, even though we have had a pretty substantial uptick in productivity, I wonder how much workers have benefitted 

from that? What can you tell us, if anything, about the wage 

growth in that, say in the 2009 to 2011 time period? 

Mr. Brill. Senator, I can’t speak to that specific set of years. 

What I can tell you, however, is there is some research in this area, 

including some work by staff at the Bureau of Labor Statistics. The 

productivity growth in the manufacturing sector has outpaced the 

wage growth in that sector. 

That is true. And is, fairly, legitimately something that policymakers may be concerned with. It is unclear what the explanation 

for that trend would be. Congress is certainly familiar and comfortable with the fact that productivity growth and wage growth 

don’t necessarily move hand in hand, certainly not over the short 

run. However, over the long run there should be a strong correlation between the two. 

35 

And over a number of years we have seen a lag in wage growth. 

I would also note, however, that some of that may be attributable 

to some labor policy burdens and rising compensation costs, rising 

health care costs. And so we have observed, for example, a decline 

in the share of wages as a share of total compensation across our 

entire economy. Workers are being paid more and more in nondollars. They are being paid in fringe benefits. And that could be a 

contributing factor, particularly in manufacturing. 

Dr. Zandi. I looked at the data in preparation, and average 

hourly earnings in manufacturing have gone nowhere since the recovery began. There are other measures of wages, but that is the 

most timely consistent measure that we have. 

So they have been flat. Now that, combined with the increase in 

output, means profits are up. So if you look at profits at manufacturers, they have returned to prerecession levels. So most of the 

benefit of this improvement in manufacturing has come in the form 

of jobs, some jobs. It has also come in the form of more hours, 

right, for those people who are working. But most of the benefit— 

at least so far—has accrued to businesses. 

Now let me say one other thing. That is not atypical in a recovery. That is how it works, generally. You know, a recession hits, 

businesses panic, they cut costs, they cut labor, they try to get 

their margins up. They get a little bit of sales growth, and it goes 

right to the bottom line. And then historically, with that better 

profits and better stock prices, that gets businesses to go out and 

expand and hire. They take a risk. 

And that is where we are right now. And it is not happening. 

And that is the problem we have. That is why this recovery is not 

engaging. It is not only manufacturing; it is across the economy. So 

this is the crux of the matter. 

Why is it that businesses are not acting on their better profitability? Now my sense is that they are going to have to, because 

you cannot continue to grow earnings, profits, and maintain your 

stock price by cutting costs. That is done. They have done it. So 

now they need revenue growth. They need to look for opportunities. 

So hopefully we will see it. We just need, I think, a little bit of 

luck and some really good policymaking to make sure that we nail 

down this uncertainty, particularly with regard to the deficit, and 

the debt, and the debt limit. And I think it will come together for 

us in terms of jobs. 

Chairman Casey. Yes, we hear a lot about that uncertainty 

across the board. I know we are ready to wrap up, unless Senator 

Klobuchar has any more questions? 

Senator Klobuchar. No. 

Chairman Casey. Okay. And if our panel has anything you 

want to say before we wrap up? We are pretty close on time. Anyone, before we—and of course the record will be open not only for 

individual members to submit questions for you to answer for the 

record, but of course if you want to submit additional material. 

Mr. Paul. 

Mr. Paul. Mr. Chairman, just very briefly. Thank you for having 

this hearing. It is very important. One word about productivity and 

wages. This has been a long-term trend dating back to the early 

1980s, and it has been unique in the post-World War II period. 

36 

One possible explanation that needs I think further discussion is 

the productivity measure itself, and the degree to which intermediate inputs, especially those that are imports, are seeping into 

the productivity data. It may be skewing it slightly, and some 

economists at Upjohn Institute as well as Michael Mandel, who 

used to be the chief economist at Business Week, have identified 

that. I think that is worth exploring much more greatly. 

But I do think that one thing that the recession revealed is that 

there were some structural impediments to growing manufacturing 

in this country even after the acute nature of the decline in demand. The skills’ infrastructure which Mr. Timmons identified is 

something that is critical. Rebuilding our logistical infrastructure 

in this country to move goods is also very important—access to 

credit. 

But I think those were the strong foundations for a manufacturing strategy. 

Thank you. 

Chairman Casey. That is a good note to end on. We do need 

a strategy. We do not have one, and one hearing does not a strategy make, but I think we have had a lot of good ideas here. 

And I think it is worth repeating, as I said at the outset, that 

this will be one of several hearings we will have in the Joint Economic Committee to best determine those strategies to revitalize 

manufacturing and to rebuild this base of our economy. 

I do want to thank both panels who are with us today, and especially those who traveled a great distance to be here. And as I said, 

the record will be open for five business days for any Member to 

submit a statement or additional questions, and that would apply 

to the witnesses, as well. 

So unless there is anything else to come before us, we are adjourned. 

[Whereupon, at 12:08 p.m., Wednesday, June 22, 2011, the hearing was adjourned.] 

(37) 

SUBMISSIONS FOR THE RECORD 

38 

PREPARED STATEMENT OF SENATOR DEBBIE STABENOW

Chairman Casey and Vice Chairman Brady, thank you for the invitation to testify 

at today’s hearing on ‘‘Why We Need a National Manufacturing Strategy.’’ This is 

a critical issue for my home state of Michigan and for our country’s economic future. 

In order to have a strong middle class in America, we must continue to make and 

grow things in this country. 

Michigan led the way in the last century as the heart of American manufacturing, 

and we are rightfully proud that we helped create the middle class in this country. 

But for too long, we’ve seen a situation where our companies are competing 

against other countries. Competitors as diverse as Japan, China, India, and Germany all have manufacturing strategies. 

Because we have lost our focus, between 1979 and 2009, the U.S. lost more than 

8 million manufacturing jobs. Michigan alone lost more than 300,000 manufacturing 

jobs between 2000 and 2010. 

During this time, countries like China have been investing heavily in emerging 

technologies, including renewable energy. In the next two years alone, China will 

invest almost $15 billion in advanced batteries. 

Japan paid for almost all of the initial research for Toyota to create batteries for 

its vehicles. And last year, China invested over $20 billion in its solar industry. 

Unfortunately, part of China’s manufacturing strategy is stealing our intellectual 

property and breaking international trade rules. 

We need to hold China accountable and devote additional resources to trade enforcement—which is why I have legislation that would create a Chief Trade Enforcement Officer. 

We also must make strategic investments in clean energy technologies. President 

Obama has challenged us to put one million electric cars on the road by 2015. He 

realizes that, by investing in electric vehicle innovation, we can create jobs in America. 

We know that by supporting American innovation and manufacturing, we can 

bring jobs back—we know it, because it’s working. 

In 2009, we put $2 billion toward advanced batteries. Before we made this investment, the United States made only 2 percent of the world’s advanced batteries. By 

2015, we will have the capacity to produce 40 percent of those batteries. 

Since January 2010, the U.S. has created nearly a quarter million manufacturing 

jobs—the first increase in over a decade. 

These policies were a good start, but they are not enough. We need to invest more 

and be smarter about how we do it. For example, in the last decade, our production 

tax credit for wind turbines expired three times. Each time, there was a sharp drop 

in installations of wind power projects. 

While China has five- and ten-year plans, our policies are unpredictable. Congress 

needs to give our manufacturers greater certainty on whether the incentives we 

promise will actually be there. 

Innovation has always been the reason America has the strongest economy in the 

world. To compete in the 21st Century, we need a strong, vibrant economy that 

makes advanced manufacturing a priority. 

America needs to lead in all aspects of advanced manufacturing—from automobiles and wind turbines to computer chips and nanotechnology. 

Opponents of having a manufacturing strategy will say that manufacturing’s time 

has passed and should be done in developing countries. I disagree. Our workers and 

businesses are the most productive in the world and can compete, and win, against 

anyone. 

With the right investments, we can create jobs today that will last for years to 

come. 

We’re in a race for the future, and I want America to win that race. We must 

have a strong manufacturing strategy to get there. 

Thank you. 

39 

PREPARED STATEMENT OF REPRESENTATIVE CHARLES F. BASS

Good morning. Thank you for the opportunity to testify before the Committee 

today. New Hampshire is an excellent example of a state with a diverse economy 

and manufacturing sector. We have low unemployment, a high-skilled workforce, 

and a lower tax rate than most states that contributes to the success of our state’s 

economy. I hope that this New Hampshire perspective, as well as my prior experience in the business world, in which I helped to expand several small businesses 

in New Hampshire including a company that manufactures architectural products, 

will be useful. 

In New Hampshire, manufacturing makes an important contribution to our state’s 

economy. Whether it is BAE Systems manufacturing advanced products that protect 

our troops, GT Solar manufacturing photovoltaic systems, Smiths Medical manufacturing medical devices for the hospital, emergency, home and specialist environments, Hitchiner manufacturing complete-to-print, high-volume, complex thin-wall 

investment castings, or Timken manufacturing anti-friction bearings, these activities are critical to our state’s economy and employment. 

New Hampshire manufacturers account for over 11 percent of the total output of 

the state and employ 10.5 percent of the workforce, approximately 31,200 jobs. Furthermore, manufacturing compensation is 67 percent higher than the average annual compensation of other nonfarm jobs in the state. In 2009, total output for manufacturing was $6.6 billion, with the computer and electronic sector leading with 

$1.9 billion. 

As in New Hampshire, U.S. manufacturing still remains a success story today. 

While we need to continue to ensure its global competitiveness, it is not in need of 

micromanagement from government. We have the most productive manufacturing 

labor force in the world. Even though manufacturing as a percent of gross domestic 

product has been steadily falling and payroll employment as a share of total U.S. 

employment has been declining over the past 60 years, labor productivity has grown 

to historic highs. 

By comparison to other countries, such as China, our closest contender, the productivity of Chinese manufacturing workers is only 12 percent of its American counterpart—meaning that 11 to 12 million U.S. manufacturing workers produce nearly 

the same amount of product as 100 million Chinese workers, according to the Manufacturers Alliance. 

While there has been much legitimate concern about the outsourcing of jobs, the 

counterbalance of in-sourcing enables foreign direct investments to create wealth, 

employment and exports for the United States. In fact, according to the National 

Association of Manufacturers, one in 12 U.S. manufacturing jobs is currently employed by a foreign-owned business and, according to the office of the United States 

Trade Representative, nearly one-quarter (23.3 percent) of all manufacturing workers in New Hampshire depend on exports for their jobs. 

The manufacturing changes we have witnessed over the past several decades have 

resulted not from an unfair playing field with our trading partners, but from the 

massive transformation resulting from innovation and technological advancement. 

This trend in the United States is parallel to the changes we’ve seen in the global 

manufacturing industry as well when measured as a percent of global gross domestic product. 

The United States is manufacturing more sophisticated goods with hundreds of 

parts that come from dozens of countries throughout the world. Manufacturing more 

technologically advanced and innovative goods requires more highly skilled labor, 

and, according to the Heritage Foundation, there has been a 44 percent increase in 

the number of workers employed in the U.S. manufacturing sector with an advanced 

degree. 

However, I’m deeply concerned about the current regulatory burden on U.S. businesses, and, considering that manufacturing comprises 57 percent of total U.S. exports, this puts us at a serious disadvantage to competition abroad. According to the 

National Association of Manufacturers, costs resulting from high corporate taxes, increasing health care and pension costs, federal regulations, and tort litigation have 

resulted in overall cost increases for U.S. manufacturers of nearly 18 percent over 

major trading partners. 

On the other side of the equation, regulatory costs that taxpayers pay are increasing too. According to a study out of the Washington University’s Weidenbaum Center, the federal regulatory budget is expected to grow 4.3 percent this year and 3 

percent next year. 

As our economy continues to recover from this recession, we must give businesses, 

including manufacturing, a chance to grow and create jobs without burdensome interference from the federal government. Our guiding principle should be a governVerDate Nov 24 2008 11:11 Sep 28, 2011 Jkt 067592 PO 00000 Frm 00043 Fmt 6601 Sfmt 6621 C:\DOCS\67529.TXT SHAUN PsN: DPROCT
40 

ment that spends less on the pathway to sound economic policy, not just for one 

sector, but for the economy as a whole. 

As of 2010, manufacturing contributed to 95 percent of New Hampshire’s exports, 

and from 2003–2010, manufactured goods exports increased 135 percent, which was 

above the national average of a 70 percent increase. Small businesses, the economic 

engine of our state, comprise 88 percent of New Hampshire’s exporters as of 2009, 

and account for 42 percent of total state exports. 

The majority of people in New Hampshire and across the nation are employed by 

small businesses, but the excessive government regulations and fees on small businesses discourage expansion and job growth. A study from the Committee on Oversight and Government Reform found that small manufacturers bear a massive regulatory burden of $26,316 per employee, more than double the burden on large manufacturers. 

Yet this is only a fraction of the cost that all small businesses in the private sector pay when it comes to regulatory burden. When considering small businesses at 

large, the total cost hits $1.75 trillion, according to the Small Business Administration’s most recent estimate, 36 percent more than what large businesses pay. That 

exceeds the gross domestic product of Canada, is three times New Hampshire’s 

gross state product, and rivals California’s gross state product, the largest state 

economy in the United States. 

What is good for the manufacturing industry is good for all businesses in the U.S.. 

Our trading partners are not gaining ground on U.S. manufacturing because our 

manufacturing sector is declining; they are gaining ground because our current economic policies are failing U.S. manufacturers and businesses in the U.S. 

We cannot use targeted and excessive regulations and policies that actively engage in picking winners and losers in the economy in order to compete globally. If 

we wish to continue to attract and retain innovative and successful companies, we 

need to reform many of the federal policies that are hampering U.S. companies. 

Thank you and I look forward to your questions. 

41 

PREPARED STATEMENT OF VICE CHAIRMAN KEVIN BRADY

I thank Chairman Casey for calling a hearing on this important topic. 

The U.S. manufacturing sector has changed dramatically over the last several 

decades. Manufacturing productivity in America has soared. What took 1,000 workers to produce in 1950 now takes only 184. 

U.S. manufacturers produce 65 percent of what our country consumes, down from 

80 percent three decades ago. 

Many consumer goods that were manufactured here are now imported. In the 

1960s, U.S. manufacturers made 98 percent of America’s shoes, but today 90 percent 

of shoes are imported. During the same time, entirely new manufacturing industries 

have arisen in America—such as in computer chips. Chemical products, food, computers & electronics, fabricated metal products, and machinery are the top five manufactured products in America today. 

While technology and productivity have shrunk the American manufacturing 

workforce over the past 40 years, manufacturing remains an important part of our 

economy. U.S. manufacturers produce about 12.5 percent of our gross domestic product and employ about 9 percent of our workers—that translates into 12 million manufacturing jobs and nearly seven million related jobs, many of them in small businesses. By transitioning to higher-value products, America leads the world in manufacturing output and is the world’s largest manufacturing economy, producing 21 percent of global manufactured products. China is second at 15 percent and Japan 

third at 12 percent. However, China is quickly becoming a contender for the top 

spot. 

Manufactured goods account for more than half (57 percent) of what America exports to other countries. We rank third in the world as a manufacturing exporter, 

following the European Union and China. 

Today, as America’s economic recovery struggles, regional indicators suggest that 

manufacturing growth has recently stalled in many parts of the country. 

In light of these dramatic changes, the issue at this hearing is whether Congress 

should adopt an industrial policy for manufacturing under the modest fabric of a 

national manufacturing strategy. It’s a timely question. 

My concern is that, while often well intended, an industrial policy can morph into 

the form of central planning which requires the replacement of the invisible hand 

of the free market with the visible hand of the government. Driven by understandable but misguided political considerations and buttressed with incomplete data and 

outdated perceptions, it can result in the undesirable: rent seeking, corporate cronyism, and economic stagnation. 

In countries around the world, industrial policy has repeatedly failed. Instead of 

fostering new products and technologies, old firms in declining industries inevitably 

capture industry policy to protect themselves at the expense of the consumer and 

ultimately economic growth. 

As President Reagan once observed of government’s view of business: If it moves, 

tax it. If it keeps moving, regulate it. If it stops moving, subsidize it. 

President Carter’s Chairman of the Council of Economic Advisers Charles 

Schultze observed: 

One does not have to be a cynic to forecast that the surest way to multiply 

unwarranted subsidies and protectionist measures is to legitimize their existence under the rubric of industrial policy. The likely outcome of an industrial policy that encompassed some elements of both ‘‘protecting the losers’’ 

and ‘‘picking the winners’’ is that the losers would back the subsidies for the 

winners in return for the latter’s support on issues of trade protection. 

As we listen to testimony today from distinguished lawmakers, economists, and 

business leaders, my thought is that, instead of a Washington-centric industrial 

manufacturing policy, Congress should instead adopt progrowth economic policies 

that raise the competitiveness and opportunity for all economic boats in our country: 

1) To ensure businesses do not bear higher tax costs, Congress should adopt 

a comprehensive plan to reduce federal spending relative to the size of our 

economy, reform our entitlement programs to make them sustainably solvent, and gradually bring the federal budget back into balance. 

2) To increase competitiveness around the globe, Congress should reform 

our corporate tax system. The United States has the second highest corporate income tax rate in the world. Congress should reduce the after-tax 

cost of new investment by expensing most equipment and shortening the 

depreciation schedules for buildings. Congress should move to a territorial 

tax system. Until then, Congress should act now to allow U.S. corporations 

42 

to repatriate stranded American profits to invest in new jobs, research, investment, and financial stability here at home. 

3) To find new customers for American manufacturers, farmers, and service 

companies, Congress should immediately approve the three outstanding 

free trade agreements with Colombia, Panama, and South Korea and seek 

more opportunities to open growing markets to American workers. 

4) To reduce unit costs and keep American companies located in America, 

Congress should repeal laws that drive up costs—such as the new national 

health care law and unnecessary federal regulations. To help erase the estimated 18 percent disadvantage in costs for U.S. manufacturers compared 

to their global competitors, Congress should act now to modernize our patent system and reform our tort system to reduce the excessive costs of frivolous lawsuits. 

I believe adopting these economic policy changes would benefit U.S. manufacturers, their customers, their suppliers, and their workers far more than any national 

manufacturing strategy. 

A final point. Lawmakers and policymakers need better information on trade 

flows, production networks, and global supply chains that better reflect the manufacturing marketplace of today. For example, traditional trade statistics fail to account for the trade-in-value added among two or more countries. Our Bureau of 

Labor Statistics can track a job gained or lost in a local pub but can’t identify a 

job gained or lost from trade. We are using eight-track stereo statistics in an IPOD 

world that do not reflect the activity or changes occurring in this fast-growing global 

marketplace. Accurate, timely, and real world data is a bipartisan goal we can all 

work together toward. 

I look forward to hearing today’s witnesses, and again thank Chairman Casey for 

holding this important hearing. 

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