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[Senate Hearing 111-745]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 111-745

 
             THE OBAMA ADMINISTRATION MANUFACTURING AGENDA

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                            ECONOMIC POLICY

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                                   ON

       EXAMINING THE OBAMA ADMINISTRATION'S MANUFACTURING AGENDA

                               __________

                             AUGUST 5, 2010

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs

      Available at: http: //www.access.gpo.gov /congress /senate/
                            senate05sh.html

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman

TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 KAY BAILEY HUTCHISON, Texas
MARK R. WARNER, Virginia             JUDD GREGG, New Hampshire
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado

                    Edward Silverman, Staff Director

              William D. Duhnke, Republican Staff Director

                       Dawn Ratliff, Chief Clerk

                     William Fields, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                 ______

                    Subcommittee on Economic Policy

                     SHERROD BROWN, Ohio, Chairman

         JIM DeMINT, South Carolina, Ranking Republican Member

JON TESTER, Montana
JEFF MERKLEY, Oregon
CHRISTOPHER J. DODD, Connecticut

                      Chris Slevin, Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                        THURSDAY, AUGUST 5, 2010

                                                                   Page

Opening statement of Chairman Brown..............................     1

Opening statements, comments, or prepared statements of:
    Senator Warner...............................................     2

                               WITNESSES

William A. Strauss, Senior Economist and Economic Advisor, 
  Federal Reserve Bank of Chicago................................     3
    Prepared statement...........................................    22
    Responses to written questions of:
        Chairman Brown...........................................    34
Nicole Y. Lamb-Hale, Assistant Secretary for Manufacturing and 
  Services, Department of Commerce...............................    11
    Prepared statement...........................................    25
    Responses to written questions of:
        Chairman Brown...........................................    36
Roger D. Kilmer, Director, Hollings Manufacturing Extension 
  Partnership, National Institute of Standards and Technology, 
  Department of Commerce.........................................    13
    Prepared statement...........................................    28

                                 (iii)

             THE OBAMA ADMINISTRATION MANUFACTURING AGENDA

                              ----------                              

                        THURSDAY, AUGUST 5, 2010

                                       U.S. Senate,
                           Subcommittee on Economic Policy,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 10:31 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Sherrod Brown (Chairman of the 
Subcommittee) presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. This hearing of the Economic Policy 
Subcommittee will come to order. Thanks to both panels. I will 
introduce the first panel in a moment, and the second panel--
there is a vote called at 11:30, so we unfortunately have an 
hour instead of an hour and a half, but the questions will be 
focused in, I think, useful answers.
    In America, we have always been good at making things. 
American companies and workers laid down railways and highways, 
built aircraft and semi-computers, manufactured medical 
equipment and appliances. In turn, workers have been rewarded 
with a pathway to the middle class, good wages to provide a 
home, and economic opportunity for our children. Our Nation's 
spirit of innovation helps send humans to space and develop the 
technology needed to defend our Nation and cement our status as 
an economic superpower. But we are at risk of this slipping 
away unless we develop a more coherent national manufacturing 
strategy.
    In fact, it has been a long time since we even asked 
ourselves in this country if we needed a manufacturing 
strategy. Absent such a strategy, our economy has tilted away 
from manufacturing with disastrous results for the Nation's 
middle class. Since 1987, manufacturing's share of GDP has 
declined more than 30 percent. Put another way, 30 years ago, 
U.S. manufacturing made up about 25 percent of our GDP; 
financial services made up about 11 percent of our GDP 30 years 
ago. Today those numbers have almost flipped. We see where that 
got us in terms of the financial crisis. We see where we are 
now in terms of lost manufacturing jobs and what that has meant 
to our cities, to our rural areas, to the prosperity of this 
country.
    We know this matters for several reasons. Jobs in 
manufacturing pay more on average than service jobs and have 
strong multiplier effects, according three to four jobs in 
other sectors of our economy.
    Second, manufacturing has in our history led the economy 
out of recession because it tends to respond quickly to 
changing economic conditions while creating tangible wealth.
    Since the beginning of the Bush recession, we have seen 
profits in large financial institutions and other service firms 
increase dramatically. At the same time, our Nation's 
unemployment rate is still hovering, as we know too painfully, 
at 9.5 percent. Unlike wealth created by the click of a mouse, 
wealth created by expanded production requires an expanded 
workforce.
    This Subcommittee has conducted about 10 hearings on the 
challenges and opportunities facing American manufacturers in 
the 21st century. There are short-term challenges, such as the 
dire need for auto suppliers to get access to credit and the 
competitive disadvantage from unfairly subsidized imports. And 
there are long-term challenges, such as how we maintain the 
capacity to supply our military forces and how we achieve 
energy independence.
    This morning we will hear from two of the Administration's 
point people on developing and implementing a manufacturing 
agenda. One lesson this Subcommittee has learned is that there 
is no clear path to manufacturing success; rather, we have 
heard in this room over the past year, and as I have heard in 
factories and plants and businesses across Ohio, we need a 
strategy that combines a predictable climate for investments 
and innovation with sector-based workforce training. We need a 
strategy that ensures strong supply chains and opens new 
markets. Domestic manufacturers need our Government to enforce 
trade rules that, when breached, undermine the ability of our 
Nation's manufacturers to compete domestically and abroad, and 
our national manufacturing strategy must leverage our 
investments in energy and our defense industrial base.
    Our Government has taken steps to coordinate agencies 
through the Assistant Secretary of Commerce for Manufacturing 
and Services, whom we will hear from this morning. President 
Obama has also named a Senior Consular for Manufacturing, Ron 
Bloom, following his work at the restructuring--the successful 
restructuring, I would emphasize--of the auto industry. Today 
we will hear how the Administration is helping to rebuild 
manufacturing as a way to rebuild our economy.
    For Ohio and our Nation, manufacturing matters. We know 
that. On behalf of auto workers and machine shop owners and 
clean energy entrepreneurs in the manufacturing cities and 
towns in my States and the Commonwealth of Virginia and all 
over this country, I am hopeful we have an Administration that 
also believes it matters. Thank you.
    We will hear from Senator Warner. Welcome.

              STATEMENT OF SENATOR MARK R. WARNER

    Senator Warner. Thank you, Mr. Chairman. I know we have got 
votes coming, so I will let us get to the witnesses. But I just 
want to publicly say, you know, what a leader you have been in 
this sector and in this space and a tireless advocate for 
making sure that we have a manufacturing sector in America. 
Nobody is better about that than Sherrod Brown. As he recently 
pointed out, he showed me data just recently showing that the 
traditional canard--and you may have already mentioned this--
that somehow the reason we cannot compete on a manufacturing 
basis is because our wages are way too high is not based in 
fact since we are 16th in the world in terms of manufacturing-
related wages. And I look very forward to hearing the witnesses 
and the testimony.
    Thank you for your leadership.
    Chairman Brown. Thank you, Senator Warner. Thank you for 
your leadership on all kinds of economic issues.
    I want to introduce William Strauss, who will sit alone on 
our first panel, senior economist and advisor at the Federal 
Reserve in Chicago. Mr. Strauss joined the Federal Reserve Bank 
of Chicago in 1982. His chief responsibilities include 
analyzing the current performance of both the Midwest economy 
and the manufacturing sector for use in monetary policy. He 
produces the monthly Chicago Fed Midwestern Manufacturing 
Index, organizes the bank's annual Economic Outlook Symposium 
and annual Auto Outlook Symposium, conducts several economic 
workshops and industrial roundtables throughout the year. He 
has taught as an adjunct faculty member at both Loyola in 
Chicago and Webster in Chicago. He currently teaches at the 
University of Chicago, the Graham School of General Studies and 
at DePaul, the Kellstadt Graduate School of Business. He earned 
his B.A. in economics and geography from SUNY in Buffalo and an 
M.A. in economics from Northwestern in Chicago.
    Mr. Strauss, welcome, and we look forward to your 
testimony.

STATEMENT OF WILLIAM A. STRAUSS, SENIOR ECONOMIST AND ECONOMIC 
                ADVISOR, FEDERAL RESERVE BANK OF
                            CHICAGO

    Mr. Strauss. Thank you, Mr. Chairman.
    Chairman Brown and Members of the Economic Policy 
Subcommittee, I am pleased to share with you some perspectives 
on long-term trends in manufacturing and some observations 
about how the recent recession and recovery are affecting 
manufacturing.
    In understanding the performance of the manufacturing 
sector, one major issue is the extent to which we should be 
focusing on the number of people employed in the sector or its 
overall production and output. Interestingly, over the long 
term, each leads to the opposite conclusion about the strength 
of manufacturing in the United States. Let us start off with 
employment.
    Manufacturing employment as a share of total employment in 
the United States has been declining over the past 60 years, 
moving down from 31 percent in 1950 to 9 percent in 2009. 
However, observations on the amount of real goods production 
are far different. Manufacturing output in 2007 amounted to a 
level of over 600 percent higher than that in 1950. That 
translates into an average growth of 3.4 percent per year.
    So how was manufacturing able to produce such an output 
surge over the past 60 years even with declining employment? 
The answer is: Productivity. With the application of new 
process technologies, better management, and new product 
innovations, productivity growth in the manufacturing sector 
averaged 2.9 percent over the past 60 years.
    Between 1950 and 2007, productivity growth and 
technological advancement allowed manufacturing output growth 
to exceed the growth of the overall economy. Yet though it 
seems to be a contradiction at the same time, the manufacturing 
sector's share of GDP has been declining.
    This seeming paradox can be easily explained. The greater 
efficiency of the manufacturing sector has afforded either a 
slower increase or an outright decline in the prices of goods 
that they manufacture. And while declining prices have led to a 
greater unit demand for manufactured products, increased demand 
has not fully compensated for the lower prices.
    So, too, the output growth in overall manufacturing has not 
translated into an increase in every manufacturing sector. One 
of the great strengths of the U.S. economy is its ability to 
reinvent itself over time, creating new business lines while 
casting others aside.
    Over the past 20 years, manufacturing output has risen on 
average by 2.2 percent per year, yet individual performances 
ranged widely, for example, from 15-percent growth in the 
computer and electronic components manufacturing per year to a 
minus 7-percent per year for apparel.
    Nor has manufacturing immunized itself from the business 
cycle. The recent recession impacted the economy quite harshly. 
Manufacturing output, which peaked in December of 2007, fell 
17.5 percent, bottoming in June of last year. With this severe 
loss of output, manufacturing jobs declined by 16 percent 
during 2008 and 2009. And over 2.1 million manufacturing 
workers lost their jobs on net, representing 26 percent of all 
job losses.
    While the overall economy's recovery has been moderate 
since last year, manufacturing has experienced a robust 
recovery. Over the past year, manufacturing output has 
increased nearly 9 percent and has recovered 42 percent of the 
loss experienced during the recession. Interestingly, the two 
industries that have experienced the largest increases over the 
past year were the same industries that were the hardest hit: 
motor vehicles and parts, and primary metals. In fact, this 
year, the manufacturing sector has actually been adding jobs 
each and every month, for a total of 136,000 jobs, representing 
nearly one out of every four private sector jobs created this 
year.
    The manufacturing sector remains a vibrant, innovative 
industry in the U.S. Output has been rising at a solid pace 
over time, and most of this growth, in particular over the past 
30 years, has been achieved by improving productivity. This 
increase in productivity has been a double-edged sword. On the 
one side, the increasing productivity has fostered a globally 
competitive sector. On the other side, being more productive 
often means that a producer can increase output without the 
need to add labor.
    These movements in output, productivity, and labor have not 
been confined to the past few years but have been taking place 
for decades. If these manufacturing sector trends continue, we 
can look forward to a sector that will continue to produce an 
ever-increasing amount of output, while contributing to a 
stronger U.S. economy.
    Chairman Brown. Thanks. I apologize. I was just asking him 
a question briefly. Thank you, Mr. Strauss, for your testimony. 
And welcome, Senator Merkley.
    I am concerned--I appreciate your testimony, and I 
appreciate your public service in Chicago. I am concerned that 
in your testimony there was--understanding the role of 
productivity, we have the most productive workforce in the 
world. We know that. But we also look, as Senator Warner said, 
at a country like Germany which pays much higher wages, has 
significantly higher unionization rates than we do, they export 
in value in dollar terms, in deutsche mark terms, more goods 
than we do, a country four times the size in population, more 
or less. And I know that we are very productive. I know German 
workers are very productive.
    Just to kind of transition, just 2 weeks ago Chairman 
Bernanke sat in the seat that you are sitting in, and I asked 
him if China's exchange rate policy is a subsidy. I think most 
of us believe on this Committee--and I will not speak for 
others, but most of us believe that there is a currency issue. 
How would you answer that question? Is China's currency 
undervalued? And how much is it undervalued, if it is? And then 
proceed on that, and I will follow up.
    Mr. Strauss. So with regard to some of these currency 
issues, certainly, you know, I have read and I have heard 
different testimony as well as different studies that have 
suggested that China's currency is undervalued. That would 
imply that there was a subsidy taking place.
    I would also highlight, though, that if, in fact, it was a 
revaluation of that, it is not necessarily clear, Senator, that 
that would necessarily bring jobs back, you know, in a large 
amount. Businesses are looking for the least-cost way of doing 
their business, and quite often a lot of the goods that we are 
talking about are relatively low-value-added. In part, that is 
why it was moved to China, was to try to take advantage of 
their relatively lower-skilled, lower-paid wages that take 
place there, and that there would be alternative sources for 
that that could very well tend to be outside of the United 
States.
    Chairman Brown. Does it concern you that as we have lost--
as we have seen the hollowing out of--you are in the Midwest, 
in Chicago. I know my State is not your jurisdiction, most of 
my State, but I know that you know what has happened in medium-
sized towns and fairly big cities and small towns with the 
hollowing out of manufacturing.
    Does it concern you that the business model that we as a 
manufacturing Nation have pursued in the last 20 years, I 
believe is unprecedented in history, that our business model 
for many of America's corporations are to lobby the Congress 
for a certain kind of trade law and tax law, then move 
production to another country, and then sell those products 
back into the United States, into the mother country if you 
will? I do not know that that has ever happened in history. 
That is not the whole story. The whole story is--part is 
productivity. But does that concern you as a business model, 
that we have decided by the way we write tax law and trade law, 
the way we deal with currency, the way we deal with everything 
from the International Trade Commission to the Department of 
Commerce, that that has become the operating business plan for 
much of America's large corporations?
    Mr. Strauss. Well, Mr. Chairman, I certainly can appreciate 
and understand the concerns about communities, when they see a 
factory that gets closed and how that could impact that 
community quite severely. You know, those kind of decisions 
are, of course, best left to Congress with regard to these 
issues surrounding subsidies for taxation and so forth.
    I can just share that, you know, historically over time 
manufacturing as a whole has risen quite significantly because 
of how efficient we are. And I would just exercise caution with 
regard to moving forward with any kind of policy that would 
cause our manufacturing firms to become less efficient, less 
productive, which has allowed it to grow over this period.
    Chairman Brown. So you think our trade policy and our tax 
policy has served American efficiency and productivity about as 
well as we can? You think that our trade policy and tax policy 
contributes significantly to our rising productivity?
    Mr. Strauss. That is a question that I am not prepared to 
answer at this point, Senator.
    Chairman Brown. OK. Senator Merkley. Senator Warner.
    Senator Warner. Thank you, Mr. Chairman.
    I agree with Senator Brown on--we may have different views 
on how we go at trade, but I share his concerned about currency 
manipulation by China, and I think it is an issue that we do--
it is our responsibility to take on.
    I guess where I would like to focus my line of questioning 
is on small- to mid-sized businesses, manufacturing businesses 
I think that have been particularly hard hit. Mr. Strauss, I 
would like you to address three issues.
    One, recently I got added to an America COMPETES 
legislation that would allow small- and medium-sized businesses 
to kind of access high-performance computing, which, again, 
helps them--larger companies have already used these tools to 
improve productivity. I would like comments on that.
    I would like comments as well, one of the things that we 
talked about is you talked about low value. We have lost a lot 
of apparel-related jobs in my State. I do not think they are 
coming back. But I am particularly interested in, you know, 
high-value-added manufacturing where we need higher-skilled 
labor. And one of the concerns that I have, as a former 
Governor, one of the things that made me crazy was the lack of 
coordination on Federal job training programs. I think we have 
34 separate programs and a series of different agencies within 
different secretariats at the Federal level and would love any 
kind of comment you might have on consolidation of workforce 
training. Particularly as we add toward higher-value training 
apprenticeship programs, I would argue that one of the reasons 
why Germany, Switzerland, and others do better than we do on 
value-added manufacturing is they put a lot more in their 
training initiatives.
    Then, finally, you know, while you may not want to ask a 
question--answer a question about trade policy, I do think we 
have not served our small- and medium-sized manufacturing 
companies well on making them familiar with how they can do a 
better job of exporting. You know, for so long America's market 
was so large that you did not need to look abroad. I would be 
curious whether you have any thoughts on that.
    So high-value computing in terms of aiding small- and 
medium-sized manufacturing, workforce training broadly writ, 
and then what we could do from a policy perspective to actually 
add the ability for small- and medium-sized manufacturing 
entities to export.
    Mr. Strauss. Thank you for the opportunity of addressing 
those concerns, Senator Warner. I share every one of them and 
understand the issues there.
    So with regard to the high performance that has come about, 
we had the opportunity in Chicago of having the largest trade 
show in the country and the second largest in the world take 
place every 2 years, the International Manufacturing Technology 
Show, and this is the year that it will be coming to Chicago in 
September. And it is just an absolute marvel to go and tour 
that show and to see how over time the type of manufacturing 
has changed.
    In particular, the ramp-up that we have seen in 
productivity over the past 30 years coincides with the 
introduction of this computer numerical control, the CNC 
manufacturing, to manufacturers that began in earnest in the 
late 1970s. And over time, companies have still kind of been 
trying to figure out the ways of continuing to become more and 
more efficient.
    This machinery, for one example, we had a conference in 
Chicago about 5 years ago where we invited companies from all 
around the region to talk about how productivity is going, and 
certainly one of the questions I often ask when I do tours is 
can we stream even more productivity out of this.
    The story revolves around a woman that was running a 
machine shop. The machine had gotten so efficient that she 
brought in a second machine and asked one of her workers to 
start running that machine at the same time as his primary 
machine. And he objected at first, suggesting that, you know, 
``I have got my machine. That is my responsibility.'' And she 
used the analogy of, ``When you load up the dishwasher at home 
and you close it up and start to run, do you sit there and 
watch it run for the next half-hour or do you go and do other 
things?''
    It was just this fact that technology has moved to the 
place where we continue to be able to bring more and more 
efficiency to our processes.
    With regard to the education side, I wholly agree with 
you--and I think it is more than just in manufacturing; it is 
across our country--that education needs to be a primary focus 
for our workforce. Certainly in manufacturing I hear from 
contacts that they find it a challenge to find qualified 
workers who have the skills to operate in a computerized 
sector. So whatever we can do with regard to job force 
training, with regard to apprenticeship programs, those are 
certainly key.
    And with regard to the exports, I agree with you as well 
that for many years we were able to proceed with living off of 
how good we were doing within our own economy, and that allowed 
especially smaller companies to be quite successful without 
thinking internationally. But at an ever-increasing rate we see 
more and more small firms, and helped out through some of these 
Gold Key programs, export to countries, and I try to keep tabs 
on that as well.
    Chairman Brown. Thank you, Senator Warner. I think your 
point about small manufacturers is so important. I have watched 
particularly machine shops, tool and die, small machine shops, 
small specialty shops supply companies that, you know, are 50, 
100, typically nonunion, occasionally union employers, 50, 100 
employees that they are in the auto supply chain or some other 
supply component manufacturer. The large company will move to 
Mexico or move to China. They do not have the wherewithal to 
export typically, and they have lost their biggest customer. 
The Manufacturing Extension Partnership program helps. So do 
the Export Assistance Centers. But clearly they are not enough.
    Senator Warner. Mr. Chairman, I would just add that, you 
know, they really--that might be a subject of a future hearing, 
because I really think that sector--we may not be able to solve 
every challenge, but there could be targeted assistance to that 
group.
    Chairman Brown. I agree. Senator Merkley.
    Senator Merkley. Thank you for your testimony. You have 
framed it in the context of your expertise in the Midwest. I 
come from the Northwest. Oregon is one of 17 States where 
manufacturing makes up more than 10 percent of employment. It 
is a source of good-paying, stable jobs except when those jobs 
go to Mexico or Asia, as they routinely have following the 
challenge in the rest of the Nation.
    But as you think about the challenges and dynamics in the 
Midwest and then recognize that other regions have some 
different factors at work, what do you see? If you are looking 
at the Northwest, what makes the Northwest manufacturing 
economy different than the area that you spend most of your 
time on in terms of the Midwest? And are there insights we can 
draw about some of the challenges around the rest of the 
country?
    Mr. Strauss. Well, certainly, when I think of the 
Northwest, you know, I think a very big part of that is the 
aviation industry, and that has been one of our great 
opportunities for exports as it has tended to dominate, 
especially recently, in terms of our exports, the rest of the 
world.
    The point about some of these trends that we see in terms 
of employment, you know, these are issues--the productivity 
that we have been experiencing in the United States is not 
solely a U.S. phenomenon. We are seeing productivity growth 
happening all around the world and similar trends with regard 
to the loss of employment.
    In fact, in a study that was put out by the Bureau of Labor 
Statistics 5 years ago--it is hard to get data from China, but 
there was a study that was put out 5 years ago by BLS which 
looked at manufacturing trends between 1995 and 2002, and their 
estimates are that China went from having 98 million workers in 
manufacturing in 1995 down to 83 million in 2002. So, in 
essence, China lost the same number of jobs in manufacturing 
that we have in manufacturing, and we can add to that list 
Brazil, Russia, and so forth.
    These productivity trends are happening all around the 
world on the employment share.
    Senator Merkley. Well, thank you. I am not sure that got 
really to the heart of the distinctions in the regions, but one 
thing I think that is in common across the country is that you 
have a workforce that is less prepared in areas such as 
welding, machine operation, and so forth. Just about everybody 
I knew took metal shop and wood shop in either middle school or 
high school. And added to that was the fact that we grew up 
building things in garages. And neither of those is true now. 
The classes in school are gone, and the kids are on the 
computers rather than utilizing tools.
    At times that is used as an explanation of why firms are 
choosing to go abroad, just not enough folks trained in the 
crafts, if you will, or interested in the crafts.
    Do you see that as a real factor? And if so, what do you 
suggest we do on that?
    Mr. Strauss. Well, in your example with regard to welders, 
when industry was doing--the machinery industry was doing quite 
well several years ago, as commodity prices began to move up 
quite sharply, we were hearing about a dearth of available 
workers who really had the skills for welding, and things have 
softened up. Clearly, while things have improved, we are still 
quite weak. But, nonetheless, these kinds of skilled type of 
jobs, there tend to be shortages. And what we can do is to, you 
know, foster greater amounts of skills training, you know, 
again, through some of these technical schools, apprenticeship 
programs, and just, you know, allow firms themselves to train 
their workforce.
    Senator Merkley. Well, I will conclude with one last 
question, and that is, up through about the mid-1970s, as 
productivity increased, the wages of working Americans 
increased. And at about that time, those two curves started 
dramatically diverging. And you would think with this increase 
in productivity that you are talking about we would have a 
proportional increase in wages. But as you look at the 
divergence in those two curves, the upward path on productivity 
and the flat line on compensation to working families, any 
insights on that?
    Mr. Strauss. Well, I share your concern with regard to the 
real increases in wages that have been taking place. Again, to 
get back to the education side, clearly we have seen over time 
that there are rewards to greater amounts of education. Again, 
when you look at the differentials between obtaining a college 
degree, an associate degree, or even technical training, there 
are definitely rewards. So education is a big key to continued 
advancement. Again, I would encourage those type of things.
    The only other thing I would just highlight is that one of 
the benefits of this surge of productivity has been the ability 
of the goods that most Americans need to purchase to have been 
showing--or getting relatively slower rates of increase or, in 
fact, outright declines. As an example, the auto industry, you 
know, for the past 10 years, prices of those vehicles have 
actually fallen by roughly 0.4 percent each and every year for 
the past 10 years, making those products more affordable to the 
average American.
    Senator Warner. Mr. Chairman, could I just ask one----
    Chairman Brown. Senator Warner.
    Senator Warner. Could you repeat again, Mr. Strauss, what 
you said about the workforce size in China actually declining 
as well within the manufacturing sector?
    Mr. Strauss. Yes, there was a report that was put out by 
the Bureau of Labor Statistics back in 2005 that employment in 
China peaked at 98 million in----
    Senator Warner. In manufacturing.
    Mr. Strauss. In manufacturing, in 1995. Keep in mind the 
size of our entire workforce is 140-some-odd million. So this 
is 98 in manufacturing, and by 2002 it had fallen down to 83 
million. In fact, it fell even further to 80 million in 2000 
because of the Asian crisis, but then it bounced back up to 83 
million.
    But, nonetheless, we are seeing these downward trends 
around the world.
    Chairman Brown. Thank you, Senator Warner, and I 
appreciated your comment about the cost of automobiles has 
dropped 0.4 percent a year for X number of years. I would add 
that is not the whole--that is good, but that is not the whole 
story when you look at what has happened with wages in this 
country over this 10 years. I think it is important to keep 
that in context.
    But, Mr. Strauss, thank you for joining us and thank you 
for your service.
    Mr. Strauss. It has been my pleasure.
    Chairman Brown. We appreciate it very much.
    I will call forward Ms. Nicole Lamb-Hale and Mr. Roger 
Kilmer, if they would come forward. I also want to, while we 
are switching there, just recognize that in the audience is Pat 
Mulloy, who is a member of the China Economic and Security 
Commission and his being such an advocate for American 
manufacturing. Pat, thanks for sitting in on this as an 
official and listening to this testimony. This is very helpful 
testimony from Mr. Strauss and the two panelists now.
    Nicole Lamb-Hale was nominated by President Obama and 
unanimously confirmed by the Senate to serve as the Assistant 
Secretary of Commerce for Manufacturing and Services. She helps 
to strengthen in this role the competitive position of U.S. 
industries in domestic and foreign markets by coordinating 
Commerce Department strategies and policies with U.S. 
industries in mind. Manufacturing and Services, her portfolio, 
which is within the International Trade Administration of the 
Commerce Department, convenes experts inside and outside the 
Government to arrive at solutions on issues faced by U.S. 
industry. Prior to joining the Obama administration, Ms. Lamb-
Hale was a managing partner of the Detroit law firm of Foley & 
Lardner, where she specialized in business restructuring in the 
manufacturing sector.
    Roger Kilmer has been with the Manufacturing Extension 
Partnership since 1993 and with NIST since 1974. Previously he 
was the MEP deputy director serving as the chief operating of 
course, and chief financial officer. He received the Department 
of Commerce Silver Medal Award for Leadership as the NIST-MEP 
liaison to the Interagency Technology Reinvestment Project 
Initiative and the Bronze Medal for Superior Leadership at 
NIST's Unmanned Ground Vehicle Robotics Program. The MEP is a 
$300 million public-private partnership program leveraging 
Federal support by teaming with industry as well as State and 
local organizations and has played a very important role--I 
know in my State, I assume also in Oregon and Virginia--with 
small companies especially. With nearly 300 manufacturing 
extension offices in all 50 States and Puerto Rico, the MEP 
provides companies with services and access to resources that 
enhance growth and increase productivity.
    So thank you both for joining us. Ms. Lamb-Hale, if you 
would begin.

          STATEMENT OF NICOLE Y. LAMB-HALE, ASSISTANT
    SECRETARY FOR MANUFACTURING AND SERVICES, DEPARTMENT OF 
                            COMMERCE

    Ms. Lamb-Hale. Thank you, Senator Brown. Chairman Brown and 
Members of the Subcommittee, thank you for this opportunity to 
testify before you today on the President's Manufacturing 
Agenda and what we at the Department of Commerce are doing to 
promote U.S. manufacturing. The Department of Commerce is 
committed to promoting this important sector. We do this every 
day by working to create the right business environment to help 
manufacturers sustain and grow their companies and create jobs.
    As you know, in December 2009, the Obama administration 
released a manufacturing strategy entitled, ``A Framework For 
Revitalizing American Manufacturing.'' The Department of 
Commerce addresses several of the framework's components, 
including helping communities and workers transition to a 
better future. We are working with other agencies, such as the 
Departments of Transportation and Treasury, as well as the 
Small Business Administration, to address others.
    As Assistant Secretary of Commerce for Manufacturing and 
Services, also known as MAS, I believe that it is critical to 
ensure that our manufacturing sector is strong. MAS actively 
works to ensure that our manufacturing sector is competitive 
globally. Our programs and partnerships to promote U.S. 
manufacturing are strategically developed to support the needs 
of the U.S. manufacturing sector and the President's 
Manufacturing Agenda.
    MAS industry analysts and economists have extensive 
knowledge about manufacturing. Based on their economic, 
statistical, and policy analyses, we provide decision makers 
objective data and information to develop and implement 
policies and initiatives to support U.S. manufacturing 
competitiveness.
    MAS follows a three-pronged approach, which I call ``the 
three Cs,'' to convene, to collaborate, and to connect. We 
convene experts both inside and outside of the Federal 
Government to work toward solutions to the problems faced by 
U.S. industry. MAS collaborates with agencies around the 
Federal Government to implement solutions that will sustain and 
increase the global competitiveness of U.S. industry. And MAS 
works to connect industry with Federal Government resources 
that can help U.S. companies compete abroad.
    I would like to share with you a few examples of the three 
Cs at work. MAS convenes the Manufacturing Council, created to 
advise the Secretary of Commerce on manufacturing issues and to 
ensure regular communication between the Federal Government and 
the manufacturing sector. Commerce Secretary Gary Locke will 
announce the newly appointed members of the current 
Manufacturing Council this afternoon at two o'clock in the 
Senate Visitors Center. The Council will immediately begin to 
look at the critical issues affecting manufacturing, such as 
finance and energy.
    MAS collaborates with other agencies to help deliver MAS 
programs. For example, MAS developed the Department's 
Sustainable Manufacturing Initiative. We work with industry and 
other Federal agencies to showcase sustainable manufacturing 
practices that help companies reduce operating costs to be more 
effective.
    In September, we will launch a new initiative, Manufacture 
America, which will help to connect manufacturers to resources 
to help them rethink, retool, and rebuild their operations. The 
initiative is designed to enable them to explore new products, 
markets, processes, and sources of finance. We expect that this 
initiative will help to sustain and create jobs, and we will be 
particularly focused on the needs of small- and medium-sized 
manufacturers.
    The Administration's framework recognizes that exporting 
goods is a key component for revitalizing U.S. manufacturing. 
In this year's State of the Union Address, President Obama 
announced the National Export Initiative, or the NEI, and set 
the ambitious goals of doubling U.S. exports in 5 years to 
support several million jobs. MAS and other bureaus are 
developing initiatives and improving the implementation of 
existing programs to support the NEI goals. We are also 
strengthening interagency coordination on NEI efforts by 
working with other agencies across the Trade Promotion 
Coordinating Committee.
    Both emerging markets and our key traditional trading 
partners offer export opportunities for U.S. manufactured 
goods. Manufacturing export leaders are likely to be found in 
high-growth sectors, such as medical devices, aerospace, clean 
energy and energy efficiency, technology industries, and 
infrastructure. MAS is currently developing sector-specific 
global strategies to guide policies to enhance U.S. 
manufacturing exports. We have taken on or are planning a 
variety of actions to expand exports to emerging and 
traditional markets.
    For example, Secretary Locke led a Clean Energy Mission to 
China in May that resulted in immediate sales by mission 
participants valued at over $20 million. The mission came at a 
critical time when the Chinese leadership expressed a clear 
commitment to adopt clean energy technologies and U.S. 
companies are developing and commercializing these 
technologies.
    The Department and ITA are prioritizing existing programs 
that offer the highest return on investment. One such program 
is the Market Development Cooperator Program. For every Federal 
dollar awarded through that program, we estimate that $131 in 
exports is generated.
    MAS is also working to address the manufacturers' critical 
financing needs. For many of the companies that will 
participate in Manufacture America, financing is a significant 
challenge. We are working with the Treasury Department and 
local banking groups to help small- and medium-sized 
manufacturers better understand the resources available to 
them, including access to capital.
    President Obama has proposed legislation that includes a 
$30 billion Small Business Lending Fund and a State Small 
Business Credit Initiative. These are two parts of a small 
business job package that the President hopes to sign into law.
    I have mentioned just some of the strategic initiatives 
that we are employing to support President Obama's 
Manufacturing Initiative and his agenda. We at the Department 
of Commerce continue to work to ensure that the business 
environments, both domestic and international, are fair to U.S. 
manufacturers, their workers, and their communities.
    Again, thank you for the opportunity to testify on the 
activities of the Department of Commerce in manufacturing and 
services as we undertake to enhance the competitiveness of U.S. 
manufacturing.
    Chairman Brown. Thank you, Ms. Lamb-Hale.
    Mr. Kilmer, welcome.

STATEMENT OF ROGER D. KILMER, DIRECTOR, HOLLINGS MANUFACTURING 
  EXTENSION PARTNERSHIP, NATIONAL INSTITUTE OF STANDARDS AND 
               TECHNOLOGY, DEPARTMENT OF COMMERCE

    Mr. Kilmer. Chairman Brown, Members of the Committee, thank 
you for this opportunity to appear before you today to discuss 
the efforts of the Hollings Manufacturing Extension 
Partnership, known as MEP, and how it supports American 
manufacturers. Today, I would like to highlight a few of the 
services that MEP offers to assist small- and medium-sized 
manufacturers with growth strategies and the access to capital 
to support that growth.
    But first, I would like to give you a brief overview of the 
program. With a nationwide network of over 400 locations around 
the country, MEP helps manufacturers strategically implement 
business growth opportunities to improve their competitive 
position in the market. In fiscal year 2009, MEP served nearly 
33,000 manufacturing clients, resulting in more than $3.6 
billion in new sales, $1.1 billion in cost savings, and the 
creation or retention of nearly 52,000 jobs.
    Through MEP's Next Generation Strategy, we are working with 
manufacturers to harness technology and innovation, the results 
of new business opportunities. MEP facilitates the adoption of 
technological innovations, especially clean technologies and 
processes that improve the manufacturer's competitive position. 
We all know improving manufacturing processes, developing new 
products, or accessing new markets requires capital. For most 
smaller manufacturers, identifying and securing capital is 
often a complex and frustrating process. With capital becoming 
significantly scarcer in today's financial climate, that 
process will become more difficult for even historically 
successful companies.
    This case is highlighted in a recent report by the MEP 
Advisory Board, which found that many small manufacturers, even 
those with orders that are relatively healthy, have been unable 
to finance growth or execute business and product 
diversification plans in this current environment.
    Accordingly, MEP is tackling the access to capital issue 
from a number of angles. Today, I would like to give you an 
overview of MEP's ongoing work in these areas.
    MEP is working through its network of partnerships with 
other Federal, State, and local organizations to more 
effectively access the myriad of programs that can provide 
capital to finance smaller manufacturers growth. As an example, 
at the Federal level, MEP uses its participation in the 
Interagency Network of Enterprise Assistance Providers as a 
mechanism to learn about programs that can provide financing to 
manufacturers. We use this information as input to a quick 
reference guide to growth financing that we developed as a tool 
for Center staff to assist manufacturers in accessing Federal 
programs to provide loans and financial assistance.
    MEP is also sharing information on private sources of 
capital and finance. For example, MEP is reaching out to the 
equipment leasing community to provide manufacturers with 
information on leasing strategies as possible options for 
equipment acquisition. MEP has also engaged the Independent 
Community Bankers of America, which represents nearly 5,000 
community banks throughout the U.S. Through these engagements, 
MEP looks to enhance the financial institutions' understanding 
of how the MEP system can serve as a technical resource on 
manufacturing issues, thereby supporting manufacturers as a 
good investment by these institutions.
    Another example where financing is a factor is when MEP 
helps companies develop export opportunities. In collaboration 
with ITA's U.S. Export Assistance Centers, MEP has developed 
the ExporTech program to assist companies with developing an 
international growth plan. The ExporTech program connects the 
company with organizations and resources, including financial 
resources, such as Eximbank, that can help them move quickly 
beyond planning to actual export sales.
    Another expanding area that requires access to financial 
resources involves improving the energy efficiency of 
manufacturing operations. As a result of the emphasis placed on 
reducing energy consumption, MEP is delivering services and 
technologies that help its clients make equipment and process 
changes to become more energy efficient.
    We are piloting a new collaborative effort called E3, which 
stands for ``Economy, Energy, and the Environment.'' It is a 
model that combines the resources of five Federal agencies, 
local government, and utilities to enhance sustainability and 
competitiveness in local and regional economies.
    Another program is the Green Supplier Network, or GSN, 
which is a collaboration between MEP, EPA, and other State and 
local resources focused on the dual challenge of reducing the 
environmental impact while simultaneously increasing the 
companies' efficiency, productivity, and profitability.
    As I have mentioned throughout my testimony, raising 
capital is one of the most basic of business functions, but for 
many smaller manufacturers, it is often difficult. To help 
bridge this gap, MEP continues to look at ways to improve 
manufacturers' access to financing options. Smaller 
manufacturers positioned to move to the next level of growth, 
whether it is through the development of new products, markets, 
or sales, need to have clear strategies for securing the 
necessary capital resources to achieve that growth.
    With our partnerships and a toolbox of services, MEP is 
uniquely positioned to provide smaller manufacturers with a 
better understanding of the range of financial options and 
resources that match their exact needs. The continued 
incorporation of this type of service will give U.S. 
manufacturers the information they need to successfully 
implement their business growth strategies, resulting in new 
sales, expanded markets, technology adoption, and 
sustainability.
    Again, thank you for the opportunity to testify today and I 
will be glad to answer any questions.
    Chairman Brown. Thank you, Mr. Kilmer.
    I will start with you, Mr. Kilmer. I understand MEP has a 
partnership with the Energy Department to help determine 
domestic capacity for energy programs funded by ARA, and all of 
us were concerned about the--probably the most salient of those 
was the Texas wind turbine farm and not having developed enough 
supply chain. So I understand the way it works is when DOE 
receives a Buy America waiver request, it forwards on to you 
that information and then you advertise for the product 
specification through your network. And I understand there is 
an incentive, a bit of an incentive for you to find those 
suppliers. How is that working? How are you doing on that?
    Mr. Kilmer. It is actually working very well. We are pretty 
much, if you will, on the front end of that process, but we 
have already had quite a bit of success in terms of being able 
to find local suppliers. I think one of the advantages that we 
have is with a national network, we can broadcast this to 
anywhere in the country to be able to find those domestic 
sources for the components that they are looking for.
    Chairman Brown. Do you see the potential, if you are doing 
that with DOE, is there a potential for, for instance, DOT? I 
was speaking with the Secretary on the way to Columbus 1 day 
about high-speed rail, and pretty much the only countries that 
have a very well developed high-speed rail manufacturing system 
or manufacturing capacity are France, Germany, China, and 
Japan. That is not to say we don't build a lot of the 
components. I know in Dayton, for instance, there is a 
locomotive company that builds interesting components for rail. 
Could we apply what you are doing to DOT and even to DOD?
    Mr. Kilmer. Yes, absolutely. And in fact----
    Chairman Brown. Do you need legislative authority to do 
that?
    Mr. Kilmer. No, we do not. Actually, an example, and I will 
give it in kind of the wind energy one, we have had examples in 
States where a potential manufacturer would like to move 
operations to the U.S., but one of their concerns obviously is 
the access to the suppliers. And so what we are able to do is 
actually to work with them and with the States that are 
involved to identify and locate those suppliers that can 
actually help support that manufacturing operation, which can--
--
    Chairman Brown. This is a company that assembles the 
final----
    Mr. Kilmer. The wind turbines, and so, like you said, there 
are companies--many of our small manufacturers make all of the 
same components that they have been providing to perhaps the 
automotive industry that are similar to what would be needed 
in----
    Chairman Brown. Do you need an official request from DOT to 
begin that process, the way you worked it with DOE?
    Mr. Kilmer. We have actually started some conversations 
with DOT, but again, it is very preliminary at this point. Any 
help would be useful, but I think, quite honestly, they 
understand the need and we are something that can help them.
    Chairman Brown. And I think they understand that if we are 
going to--there is talk of over the next 20 years building some 
25,000 rail cars and low thousands, I don't know if it is 1,000 
or 2,000 locomotives, for high-speed and less than high-speed 
rail and streetcars and we don't have the capacity to do that 
while other countries have both the engineering sophistication 
and experience and capacity. But there is no reason we can't be 
doing more of, obviously, the supply chain here. Thank you for 
that and we will follow up on that.
    Ms. Lamb-Hale, partly coming out of Senator Warner's first 
comments about wages and manufacturing in some number of 
European countries contrasted with ours, I want to talk a 
little bit about Germany and get your thought on making a 
comparison and sort of where we go. German exports came to $1.1 
trillion in 2009, roughly $125 billion more than our exports, 
than we exported. Their unemployment has dropped from 9.1 
percent to 7.6 percent. Their yearly trade balance went from a 
deficit 12 years ago of $6 billion to--a trade deficit of $6 
billion to a surplus of $267 million in a decade. Our trade 
deficit that same year, in 2008, was $569 billion and something 
close to $600 million, $700 million a day from China 
bilaterally alone. And Germany's annual growth rate per capita 
exceeded ours.
    What do we learn from that? What is missing? What are they 
doing we are not doing in manufacturing, and how do you figure 
out a strategy that, as you put together manufacturing policy 
for President Obama and for all of us, what do we learn from 
them?
    Ms. Lamb-Hale. Well, I think that we learn about the 
importance of exporting. I think as has been--the comments that 
have been made today have suggested, and I think it is true 
that often, because of the position, the strong position that 
the United States has traditionally had with respect to our 
internal markets, we haven't focused on exporting as much, and 
that is why the President announced the National Export 
Initiative with the goal of doubling exports in 5 years to 
support, we believe, two million new jobs.
    I think we need to look for new markets. I think that 
Germany has been particularly successful in exporting and I 
think we need to focus on that. And we are working very hard to 
make sure that small- and medium-sized businesses understand 
the tools that are available to help them to do that.
    One of the things that we are really excited about is in 
terms of the launch of Manufacture America is that it is going 
to really take to the communities themselves, particularly 
communities who have been hardest hit by manufacturing job 
losses, the resources that are available that many don't know 
about, and that is not their fault. That is our fault.
    So the Manufacture America initiative will include exposing 
small- and medium-sized businesses to exporting tools that are 
available through the USIACs and other agencies. It will talk 
about best practices, like sustainable manufacturing practices. 
It will highlight success stories of small- and medium-sized 
businesses who have successfully retooled to new markets or to 
new products. I think that it is really important for us to 
ensure that the information and the resources that are 
available, both through the Federal Government and State and 
local governments are known to small- and medium-sized 
businesses, and exporting is key to that.
    Chairman Brown. Good. Thank you. I appreciate your emphasis 
on small companies exporting, as Senator Warner talked about, 
because that sort of seems to me the biggest hole in this 
picture.
    The other hole in this picture is, and I will not ask you 
to answer this, but when we have appealed to the Administration 
on some currency issues on individual industries, China, for 
instance, has pretty much just from scratch started up a whole 
paper industry, coated paper industry. While China may have 
invented paper some centuries ago, they really didn't have much 
of a coated paper industry. Ohio does. New York does. I think 
Virginia does. I assume maybe Oregon certainly has a paper 
industry, I don't know if they have a coated paper industry. 
But China imports all of its wood pulp from Brazil, brings it 
to China, processes it, and sends it to us, and clearly it is 
gaming the system.
    We need--again, I am not asking you, this is not in your 
jurisdiction--but it is very important the Administration move 
on investigating currency practices on those kinds of issues, 
because these companies will simply go out of business if this 
continues when they were always very competitive before that. 
And if they are out of business, they are not part of the 
President's export program, obviously.
    Senator Warner.
    Senator Warner. Thank you, Mr. Chairman.
    I want to come back to that comment in a moment, but I want 
to just reiterate a point that I think both Ms. Lamb-Hale and 
Mr. Kilmer made, and that is the real dire problem we have got 
in terms of getting the manufacturing business access to 
capital, I think we are at a crisis mode right now. Large 
capital companies are sitting with the healthiest balance 
sheets they have had in years right now and the supply chain, I 
know that the Chairman has talked about in Ohio, but those 
small- to mid-sized companies in the supply chain are dying on 
the vine right now, and not because the large companies or the 
manufacturers know they are going to come back and make orders 
at some point, but their supply chain, if they can't get their 
credit lines renewed during this period, those companies are--
the traditional small businesses that get washed out in a 
recession had been washed out.
    Now we are cutting into companies who have many, many long 
years of history. Ultimately, if they get washed out, our 
economy will revitalize them, but the ability to get a true 
robust recovery will be undermined by their failure to have 
access to capital.
    And I wish my colleagues from the other side of the aisle 
were here. This small business initiative, which has the 
lending pool, which has the targeted small business State 
initiatives that have a proven track record, the SBA programs, 
the tax breaks for small businesses, all geared at access to 
credit for small businesses, particularly manufacturing 
businesses. If we can't accomplish that, this place is pretty 
darn broken.
    I know both my colleagues have been big supporters of that. 
I really wish we would do it. I hope if we are not able to 
get--we have that continued intransigence, that you will 
continue to look at other initiatives, because waiting another, 
at least in my State and I know probably in Oregon and Ohio, as 
well, another year-plus of delay, even if you have got a 
healthy, a relatively healthy cash-flow, you are not even going 
to be able to expand. You may have to shut down.
    I also, and I know I am giving more of a speech and a 
testimony here, I want to ask Ms. Lamb-Hale, following up again 
on the aspect of what you were talking about in terms of--the 
Chairman was talking about in terms of ability to try to get 
assemblage of an area like, for example, high-speed rail, one 
of the things, my former job as Governor was economic 
development recruitment and Virginia did a pretty good job when 
we were competing against even my colleagues in Oregon or Ohio. 
But when we came against South Korea or when we came against 
China, we came against Brazil, where their Federal Government 
was able to intervene in terms of the economic development 
sweetener package, in terms of site locations, we fell down.
    Ms. Lamb-Hale, we have talked to Secretary Locke at some 
point about this. We have got legislation called the America 
Recruits Act that would layer on up to $10,000 additional per 
job that would go on top of an already existing State and local 
economic development effort to try to bring jobs back into this 
country. These would be foreign-based jobs coming back in, or 
jobs that might locate otherwise abroad targeted directly at IT 
and at manufacturing. And many of our rural communities now 
have become much more price competitive than they were, say, a 
decade or two ago in manufacturing, and I would just echo what 
the Chairman has said.
    If we are going to make the kind of investments we are 
going to make in high-speed rail, which I hope we will, we sure 
as heck would love to be able to have some of that 
manufacturing done here in this country, and that site 
location, that initial site location of where that assemblage 
would be made, to be able to be competitive, no matter what 
kind of tax breaks Ohio offers or Virginia offers or Oregon 
offers, without that initial kind of extra incentive on the 
front end--and this would be only available for jobs coming 
into the country, so it wouldn't supplement the battles between 
Ohio and Virginia or versus Oregon, it would be those jobs that 
are otherwise going to go to India or going to go to China or 
going to go to South Korea, bringing them back.
    I would again ask you to go back, and Secretary Locke has 
been initially supportive, but we would love to see more 
support on that type of an issue from the Commerce Department, 
from the Administration.
    Ms. Lamb-Hale. Oh yes, definitely. And I just wanted to 
mention that one of the things that we are doing is we are 
really increasing our interagency cooperation, and particularly 
to the point you raised on access to capital, with the Treasury 
Department.
    In response to a request of our former Manufacturing 
Council--the new one will be announced this afternoon--but as 
part of the recommendation of our prior Manufacturing Council, 
we have included as an ex officio member the Treasury 
Department, and we will have active participation of that 
Department to try to address access to capital issues. So I 
think that that is very important. That is something that was 
really a request directly from our Manufacturing Council and 
that is something that we are doing to really try to see what 
the Administration can do to make sure that those issues are 
addressed.
    Senator Warner. I would also just--I applaud that, and I 
know the vote has started and I am going to have to head off, 
but I would also urge you, again, let us look at what we can do 
in terms of creative incentives onsite location.
    Ms. Lamb-Hale. Yes.
    Senator Warner. You know, it is no longer Ohio versus 
Virginia.
    Ms. Lamb-Hale. It is true.
    Senator Warner. It is America versus the rest of the world, 
and we have got to have the same kind of tool box that other 
countries offer. Thank you.
    Chairman Brown. Thank you, Senator Warner.
    Senator Merkley.
    Senator Merkley. Thank you very much, Mr. Chair, and thank 
you all for the testimony.
    One of the things that we keep confronting are nontariff 
barriers to American manufactured products. We had last year 
the ``Cash for Clunkers'' program to encourage and help sustain 
the production and sale of cars here. A story was circulating 
around Capitol Hill that whereas we did not require the cars 
that were being subsidized to be built in America because of 
international treaty obligations, that China had turned around 
and done something very similar but had restricted it to cars 
made in China.
    I am not sure if that story was exactly correct or not, but 
it is an example of the type of stories we hear often of 
barriers to American products abroad. How much truth is there 
to nontariff barriers and why is it we seem to have such a hard 
time playing hardball to get a fair, level playing field for 
American products?
    Ms. Lamb-Hale. Is that question addressed to me, Senator?
    Senator Merkley. To either or both of you.
    Ms. Lamb-Hale. OK. First, I would like to say that the 
Obama administration is committed to enforcing our trade laws 
and we are working very hard to do so. I think that, certainly, 
we believe that American products are very competitive and can 
beat other products from other countries if they are given a 
fair chance, and we work very hard through our Import 
Administration and in cooperation with USTR to enforce our 
trade laws to ensure the level playing field that you describe.
    Senator Merkley. So do you think we are there, or are 
there, in fact, significant challenges? I must say, often, the 
reaction among some is a hesitancy to hold other nations 
accountable for their nontariff barriers for fear of triggering 
a trade war on the short-term problems that that might create. 
But how do you go about holding countries accountable that are 
creating barriers to favor their own companies to the 
disadvantage of the United States?
    Ms. Lamb-Hale. I think that you maintain vigilance in 
pursuing the enforcement of trade laws, and that is what the 
Obama administration has committed to do. We continue to do it. 
I mean, much of what we do is the subject of pending cases that 
we can't speak to specifically, but certainly vigilance is what 
is important and we are committed, because we understand what 
that does to--you know, the lack of that will do to our 
manufacturing base in this country, and we are committed to 
making sure that it is strong and that American products can 
compete on a level playing field.
    Senator Merkley. Is there anything you would like to add, 
Mr. Kilmer?
    Mr. Kilmer. Not really. That would not be the area that I 
would be that familiar with.
    Senator Merkley. All right. Andy Grove wrote a recent 
article about the loss of manufacturing in the United States, 
and one thing that he observed is that while there are firms 
such as Intel that have established sizable manufacturing 
operations, and we are fortunate to have a couple of those in 
Oregon, that there are a lot of firms, younger firms that are 
designing products but immediately, as soon as the designs are 
done, set up production facilities offshore, and that that 
compromises the ability to scale up here in the United States 
and create significant, substantial manufacturing jobs here.
    Is this an issue that we are focused on, and how does it 
affect both the production of manufacturing jobs and how does 
it affect our national security and how do we change that 
dynamic?
    Mr. Kilmer. I would agree that there needs to be a strong 
connection between the basic research, the design and 
development aspects of it and the actual production. I do know 
that that certainly is a challenge. I think the things that we 
are starting to see is when you look at the total manufacturing 
enterprise, not just the labor costs, that you are seeing a 
tendency to reevaluate that and to bring some of that effort 
back to the U.S. to tie the actual manufacturing process more 
closely to the customer base that it is serving.
    There is a ways to go on that, but I do see a change in 
thinking where it really is critical to look at the entire 
enterprise from beginning to end and all of the components of 
cost, not just the labor element, but certainly the logistics, 
et cetera, that go along with that.
    Ms. Lamb-Hale. And, Senator, I would just like to add 
that--and this is partly in response to Senator Warner's 
comments about making sure that America is competitive for site 
selection and such--the Secretary is working very hard on an 
initiative that we hope to stand up very shortly that will help 
in that regard, because we do know that our States are 
competing with countries. So we have to make sure that, where 
appropriate and not choosing winners and losers among the 
States, that the Federal Government weighs in so that our 
siting manufacturing in the United States is more competitive.
    So we look forward to working with you on that, because I 
think that is critical to what Mr. Grove spoke about, as well, 
is just making sure that the whole package is competitive so 
that companies can locate here and that we can create the jobs 
that we need to do to sustain our growth in the 21st century.
    Senator Merkley. Thank you.
    Chairman Brown. Thank you, Senator Brown.
    We have been called to a vote, so I thank you both very 
much for being here. Ms. Lamb-Hale, I appreciate your comments 
about enforcing trade law. Your administration has gone further 
than the administrations of either party, of your predecessors 
in either party, both on manufacturing policy and enforcement 
of trade law. But, frankly, the jury is still out on how 
aggressive this Administration is enforcing trade law. Being 
better than previous administrations is a very low bar on 
enforcement. We need to see a more aggressive posture from your 
Department, not your specific portfolio but your Department and 
the Treasury Department and USTR, so we will talk more about 
that later.
    I know my colleagues may have other questions they can 
submit for the record. The record will remain open for 7 days 
for Mr. Strauss or either of you on this panel to submit any 
other information.
    Mr. Strauss, we appreciate your staying and listening to 
other panelists. I appreciate all of your being here.
    The Subcommittee will adjourn.
    [Whereupon, at 11:35 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]

                PREPARED STATEMENT OF WILLIAM A. STRAUSS

 Senior Economist and Economic Advisor, Federal Reserve Bank of Chicago
                             August 5, 2010

    Chairman Brown and Members of the Economic Policy Subcommittee, I 
am pleased to share with you some perspectives on long-term trends in 
manufacturing and some observations about how the recent recession and 
recovery are affecting manufacturing. My name is William Strauss, and I 
am a Senior Economist and Economic Advisor for the Federal Reserve Bank 
of Chicago. The Chicago Federal Reserve District comprises parts of the 
States of Indiana, Illinois, Michigan, and Wisconsin, as well as all of 
Iowa. The Midwest economy was built upon the superior distribution 
channels that allowed manufacturing to become a vital part of the 
region. While the Midwest has been diversifying its economy over time, 
manufacturing remains one of the key industries that distinguishes our 
region from other regions of the country. My specialty is tracking the 
performance of the Midwest Economy, and in particular, the 
manufacturing sector. This information is shared within the Federal 
Reserve and helps provide an assessment on how the economy of this 
important region is performing. It also adds to the mosaic of 
information that policymakers need in order to craft the most 
appropriate monetary policy for the country.
    I use a variety of tools to assist me in providing this insight 
into the performance of the manufacturing sector. I analyze the 
multitude of data, both Government and private sector statistics that 
we as economists are fortunate to have available to us. In addition, I 
organize a series of industrial and manufacturing roundtables, held 
throughout the year, that brings together representatives from 
manufacturers and other key firms to discuss how conditions within 
their industry have changed over the recent period; to provide their 
outlook for their business; and to share any concerns that they might 
have about issues affecting their business.
    In the early part of the past decade, there was great concern that 
we were losing our manufacturing base, and I proceeded to look at 
longer-term trends as a way of gauging whether the losses in 
manufacturing were cyclical or structural. My conclusion at that time 
was that it was far more likely to be a cyclical rather than a 
structural issue facing the sector. While manufacturing output fell by 
6.4 percent between September 2000 and November 2001, by May 2005 
manufacturing output was at an all-time high, and by December 2007 
manufacturing output in the United States was 11.4 percent higher than 
its previous peak.
Is U.S. Manufacturing Disappearing?
    When discussing the health of the manufacturing sector one major 
issue is whether we should be taking into account the number of people 
employed in the sector or looking at the amount of output created in 
manufacturing. Interestingly, each leads to the opposite conclusion 
about the strength of manufacturing in the United States. Let us start 
off with employment.
    Manufacturing employment as a share of total employment in the 
United States has been declining over the past 60 years. In 1950, 
nearly 31 percent of nonfarm workers were employed in manufacturing: 
this share has been declining at an average rate of 2 percent per year, 
falling to 28.4 percent in 1960, 25.1 percent in 1970, 20.7 percent in 
1980, 16.2 percent in 1990, 13.1 percent in 2000, and 9.1 percent in 
2009. Even with this downward trend in manufacturing's share of jobs, 
employment in manufacturing has on average been fairly stable over the 
past 60 years, averaging -0.1 percent per year. In contrast, the 
increase in nonfarm employment averaged 1.9 percent per year, and this 
led to the reduction in manufacturing's share of jobs. However, there 
is a break that occurs during this period. Between 1950 and 1979, 
manufacturing employment increased on average by 1.4 percent per year 
(over the same time period nonfarm employment was rising on average by 
2.4 percent per year), and between 1980 and 2009, manufacturing 
employment declined on average by 1.6 percent per year (over the same 
time nonfarm employment growth slowed, rising on average by 1.3 percent 
per year). In 2006, we had about as many workers in manufacturing as we 
had in 1950, just over 14 million workers. So looking at manufacturing 
employment leads one to believe that the sector is in decline or at 
best stagnant.
    However, you get a very different conclusion if you focus on the 
amount of goods being produced by the manufacturing sector. While 
employment has changed very little over the past 60 years, output in 
manufacturing has increased at an annual rate of 3.4 percent. 
Manufacturing output in 2007 (the recent peak in manufacturing output) 
was over 600 percent higher than in 1950.
Productivity Is the Key
    So how was manufacturing able to see output surge over the past 60 
years with little change in its employment? The answer can be found by 
looking at productivity. The increase in both the number of machines 
and the quality of the machines over time has allowed manufacturing 
sector output to rise. Productivity growth in the manufacturing sector 
has averaged 2.9 percent over the past 60 years. This means that 
because of improving efficiency in the manufacturing sector, output can 
rise each and every year by around 2.9 percent without the need to add 
any workers. What took 1,000 workers to produce in 1950 was able to be 
produced by 184 workers in 2009. Between 1950 and 1979, productivity 
growth in the manufacturing sector was matched by the productivity 
growth of the nonfarm economy--both averaged a rate of 2.5 percent each 
year. However, with the adaptation of CNC (Computer Numerical Control) 
manufacturing during late 1970s, productivity growth in the 
manufacturing sector increased. Productivity growth in the 
manufacturing sector increased to average 3.3 percent per year between 
1980 and 2009 while productivity growth in the nonfarm economy declined 
to average 2 percent per year over the same time period. Manufacturing 
output between 1950 and 1979 increased on average by 4.2 percent per 
year, and then between 1980 and 2009 manufacturing production growth 
slowed, averaging 2.2 percent per year. (Similarly, real gross domestic 
product (GDP) growth in the United States slowed down: Real GDP growth 
between 1950 and 1979 was 3.8 percent per year, and then between 1980 
and 2009 real GDP growth slowed averaging 2.8 percent per year.) So 
over the past 30 years relatively slower manufacturing output growth 
and faster productivity growth led to a declining manufacturing labor 
force.
    Between 1950 and 1979, productivity growth rates in both durable 
manufacturing and nondurable manufacturing were nearly identical, 
averaging 2.6 percent and 2.7 percent per year, respectively. However, 
between 1980 and 2009, productivity growth for durable manufacturing 
surged, to average 3.9 percent per year, and productivity growth for 
nondurable manufacturing declined, to average 2.4 percent per year. 
Durable goods manufacturing makes greater use of machinery, and it was 
clearly aided by the advancements in the capabilities of machines over 
this period.
Efficiency Leads to Lower Prices
    Another interesting observation about manufacturing's long-term 
position in the U.S. economy is that, as stated previously, between 
1950 and 2007 (prior to the severe recession) manufacturing output was 
just over 600 percent higher, while over the same period, growth in 
real GDP of the U.S. was a smaller 560 percent. Yet, the manufacturing 
share of GDP declined over this period. In 1950, the manufacturing 
share of the U.S. economy was 27 percent, and by 2007 it had fallen to 
12.1 percent. How did a sector that experienced growth at a faster pace 
than the overall economy become a smaller part of the overall economy? 
The answer again is productivity growth. The greater efficiency of the 
manufacturing sector afforded either a slower increase or an outright 
decline in the prices of this sector's goods. As one example, inflation 
(as measured by the Consumer Price Index) averaged 3.7 percent between 
1980 and 2009, while at the same time the prices for new vehicles 
averaged 1.7 percent. So while the number of manufactured goods had 
been rising over time, their relative value compared with what other 
sectors had produced or provided did not keep pace. This allowed 
manufactured goods to be less costly to consumers and led to the 
manufacturing sector's declining share of GDP.
The Rising Tide of Output Does Not Lift All Boats Equally
    The rise in overall manufacturing has not translated into an 
increase in every manufacturing sector. One of the great strengths of 
the U.S. economy is its ability to ``re-invent'' itself over time. 
Industries that are experiencing rising demand are able to gain access 
to capital and labor, while those industries that are struggling are 
forced to either become more competitive or risk going out of business. 
This is the model of our economy that has allowed to U.S. to become the 
largest economy in the world.
    Over the past 20 years, manufacturing output has risen on average 
by 2.2 percent per year, yet manufacturing's performance ranged from 
15.0 percent growth per year for computer and electronic components 
manufacturing to -7.0 percent per year for apparel. The durable goods 
manufacturing sector output increased on average by 3.5 percent per 
year, while the nondurable goods manufacturing sector's increase was at 
a more tepid 0.4 percent per year.
    The more intensive use of capital by the durable goods 
manufacturing sector has afforded its businesses the greater use of CNC 
manufacturing technology. Over the past 20 years, productivity in the 
manufacturing sector increased by 96 percent, yet durable goods 
manufacturing productivity rose by 123 percent compared with 64 percent 
for nondurable goods manufacturing productivity.
Analyzing the Current Manufacturing Downturn and Recovery
    The recent recession had a very negative impact on the economy. 
Real GDP fell 4.1 percent between the second quarter 2008 and the 
second quarter of 2009--the largest drop in output since the 1930s. 
Employment declined by 6.1 percent during 2008 and 2009, representing 
nearly 8.4 million workers. Manufacturing output, which peaked in 
December 2007, fell 17.5 percent, bottoming in June 2009. With this 
severe loss of output, manufacturing jobs declined by 16 percent during 
2008 and 2009. Over 2.1 million manufacturing workers lost their jobs, 
representing 26 percent of all job losses.
    A greater loss in manufacturing during a recession is not unusual. 
Outsized reductions in manufacturing output and jobs are typically 
observed. For example, during the two previous post-World War II deep 
recessions, during the mid-1970s and early 1980s, real GDP declined 3.2 
percent and 2.6 percent, respectively. During these two severe 
recessions, manufacturing output fell 15.7 percent and 11.6 percent, 
respectively. Even when the economic downturn is not too sharp for the 
overall economy, manufacturing tends to take a bigger hit. For example, 
during the recession of the early 1990s and 2001, real GDP declined by 
a fairly moderate 1.4 percent and 0.3 percent, yet manufacturing output 
fell by a more significant 3.8 percent and 6.4 percent, respectively.
    Economic output began to expand in the third quarter of 2009, and 
over the past year output has risen 3.2 percent. However, a large part 
of the gain has been due to the inventory cycle. The change in 
inventories has contributed 60 percent of the growth over the past 
year. The increase in real final sales (real GDP less the change in 
inventories) was a more reduced 1.2 percent over the past year. In 
contrast, manufacturing has experienced an extremely robust recovery, 
rising by 8.9 percent, and it has recovered 42.3 percent of the loss 
experienced during the recession. In fact, this year the manufacturing 
sector has added jobs each and every month, for a total of 136,000 
jobs, representing nearly 1 out of every 4 (23 percent) private sector 
jobs created this year.
Industry Cycles
    The 17.5 percent reduction experienced by the manufacturing sector 
was not equally shared among its subsectors. While all manufacturing 
industries experienced a decline, some were harder hit than others. The 
two industries most adversely affected during the recent recession were 
motor vehicles and parts and primary metals, whose output fell nearly 
49 percent and 44 percent, respectively. Similarly, the 8.9 percent 
increase in manufacturing over the past year has not been equally 
distributed. For example, the two industries that have experienced the 
largest increases over the past year were the same industries that had 
been the hardest hit, motor vehicles and parts and primary metals, with 
gains of over 52 percent and 46 percent, respectively. These two 
industries are quite important to the Chicago Fed District. Our 
District produces around 30 percent of all the vehicles and over 30 
percent of all the steel in the country. This has allowed the Chicago 
Fed Midwest Manufacturing Index to increase over the past year at a 
faster rate than the overall economy. While manufacturing output was 
8.9 percent higher over the past year, manufacturing output in the 
Chicago District was 13.2 percent higher.
The U.S. Appears To Be Positioned To Continue Experiencing Strong 
        Productivity Gains
    Since much of the gains in U.S. manufacturing have been due to 
strong productivity, a natural question to raise is whether these gains 
will continue into the future. Often we think that advancement in 
technology will lead to such productivity gains. Spending by the U.S. 
on research and development can be used as a proxy for the effort being 
devoted to new technology. On this front, the U.S. appears to be in 
relatively good shape as we continue to invest heavily in research and 
development. As a percent of our GDP, research and development has 
averaged 2.5 percent between 1953 and 2008. Between 1999 and 2008 it 
has averaged 2.7 percent, with 2008 at 2.8 percent.
    The private sector has played an ever-increasing role in research 
and development spending. Fifty years ago the majority of research and 
development was being undertaken by the Government. However, more 
recently, the private sector has taken over as the major spender for 
research and development. The privately funded share of research and 
development averaged 36 percent during the 1960s; 47 percent in the 
1970s; 54 percent in the 1980s; 66 percent in the 1990s; and 72 percent 
between 2000 and 2008.
    Every 2 years, Chicago hosts one of the premier manufacturing shows 
in the world, the International Manufacturing Technology Show (IMTS). 
It is breathtaking to see the cutting-edge technologies that are 
available to manufacturers. I typically ask exhibitors of more standard 
manufacturing equipment to explain to me the differences between the 
new equipment compared with what was displayed 2 years earlier. The 
response is almost universal: The new pieces of equipment are more 
accurate, faster, more versatile, and less expensive than their 
predecessors.
    I often have the opportunity to tour manufacturing production 
facilities, and I am impressed by the continuous improvements in 
technology that companies employ. I always ask these producers the 
following question: Can they envision being able to be even more 
productive? Nearly all of the manufactures without hesitation tell me 
they absolutely can become even more efficient, and many then launch 
into a description of their near-term plans that will make them even 
more productive.
Back to the Future
    The transition that the manufacturing sector has been undertaking 
over the past 60 years is not the first time the U.S. has experienced 
an outsized increase in productivity driving output higher and 
employment lower. Something very similar has been taking place in the 
American agricultural industry over the past century.
    In 1870, just over half of employment was dedicated to agriculture. 
Farm output today is higher than ever before (take, for instance, 2009 
gross value added: farm business was over 400 percent higher than in 
1950), yet we are able to produce all this output with only 1.6 percent 
of our employment dedicated to farming.
Conclusion
    The manufacturing sector remains a vibrant and innovative industry 
in the U.S. Manufacturing output has been rising at a solid pace over 
time, although it has been more affected by business cycle downturns 
than the overall economy. Most of this growth, especially over the past 
30 years, has been achieved by improving productivity. This increase in 
productivity has been a double-edged sword. On the one side, increasing 
productivity has fostered a globally competitive sector with the 
ability to produce an ever-increasing amount of goods with relatively 
lower price increases relative to the overall economy. On the other 
side, being more productive means that a producer can increase output 
without the need to add labor. If productivity is quite strong, the 
employer can actually achieve production goals using fewer workers.
    The movements in output, productivity, and labor have not been 
occurring just over the past few years but have been taking place for 
decades. If the manufacturing sector follows the example offered by the 
agricultural sector, we can look forward to an industry that will 
continue to produce an ever-increasing amount of output, contributing 
to a stronger U.S. economy, with manufacturing employment representing 
a smaller share of the overall U.S. labor market.
                                 ______
                                 
               PREPARED STATEMENT OF NICOLE Y. LAMB-HALE
   Assistant Secretary for Manufacturing and Services, Department of 
                                Commerce
                             August 5, 2010

    Chairman Brown, Ranking Member DeMint, and Members of the 
Subcommittee, thank you for this opportunity to testify before you 
today on the President's Manufacturing Agenda and what we at the 
Department of Commerce are doing to promote U.S. manufacturing. The 
Department of Commerce is committed to promoting this important sector. 
We do this every day by working to create the right business 
environment to help manufacturers sustain and grow their companies and 
create jobs.
    In December 2009, the Obama administration released a manufacturing 
strategy entitled A Framework for Revitalizing American Manufacturing. 
The framework, based on input from all Federal departments and agencies 
whose work impacts U.S. manufacturers, focuses on effectively targeting 
cost drivers that affect manufacturing in the United States. Department 
of Commerce programs directly address three of the seven framework 
components: investing in the creation of new technologies and business 
practices; helping communities and workers transition to a better 
future; and ensuring market access and a level playing field. In 
addition, the Department is working with other agencies, such as the 
Department of Transportation, the Treasury Department, and the Small 
Business Administration to address other Framework elements.
    As the Framework recognizes, exporting goods is a key component for 
revitalizing U.S. manufacturing. In this year's State of the Union 
address, President Obama announced the National Export Initiative (NEI) 
and set the ambitious goal of doubling U.S. exports in 5 years, 
supporting several million jobs. Secretary of Commerce Gary Locke is 
part of the President's Export Promotion Cabinet that is working hard 
to reach these goals. The Department and the International Trade 
Administration (ITA), of which my unit is a part, are strategically 
developing initiatives and improving the implementation of existing 
programs to support the National Export Initiative goals. We are also 
strengthening interagency coordination by working with other agencies 
through the Trade Promotion Coordinating Committee (TPCC).
    As Assistant Secretary of Commerce for Manufacturing and Services, 
MAS, I believe that it is critical to ensure that our manufacturing 
capacity in the United States is strong. Manufacturing is a vital part 
of the U.S. economy. Preliminary figures show that the sector supported 
11.67 million jobs as of June 2010. \1\ It accounted for about 8.9 
percent of total nonfarm employment in the United States. Manufacturing 
industries are also responsible for a significant share of U.S. 
economic production, generating almost $1.64 trillion in GDP in 2008.
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     \1\ Revised figures will be available on August 6, 2010.
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    MAS plays an active role in helping to ensure that strong 
manufacturing capacity. Our initiatives and programs to promote U.S. 
manufacturing, and the ways we work with other Federal and State 
Government agencies and the private sector, are strategically developed 
to support the needs of the U.S. manufacturing sector, the President's 
manufacturing agenda, and the National Export Initiative.
    Manufacturing and Services is dedicated to strengthening the global 
competitiveness of U.S. industry, expanding its market access, and 
increasing exports. MAS helps shape U.S. trade policy, participates in 
trade negotiations, organizes trade capacity building programs, and 
evaluates the impact of domestic and international economic and 
regulatory policies on U.S. manufacturers and service industries. MAS 
is also developing sector-specific global strategies to guide policies 
to enhance U.S. manufacturing exports.
    MAS also works with other U.S. Government agencies in developing a 
public policy environment that advances U.S. competitiveness at home 
and abroad.
    Within MAS, we have a Manufacturing group and a Services group, 
each comprised of teams of industry analysts with extensive expertise 
in their sectors. Our third group, Industry Analysis, performs economic 
and statistical analysis to support U.S. industry competitiveness and 
evaluates industry recommendations for trade negotiations.
    MAS develops and implement programs and provide decision makers 
input necessary to promulgate and implement policies that support U.S. 
competitiveness, which, in turn, helps industry create jobs. As part of 
the International Trade Administration, we also understand trade and 
how the domestic and global markets interact and impact U.S. 
competitiveness.
    Under my leadership, MAS follows a three-prong approach, which I've 
called ``The 3 Cs'': to convene, to collaborate, and to connect. We 
convene experts both inside and outside of the Federal Government to 
work toward solutions to the problems faced by U.S. industry. MAS also 
collaborates with our sister bureaus in the Department of Commerce, 
with agencies across the Federal Government, and with State and local 
governments to develop solutions that will sustain and increase the 
global competitiveness of U.S. industry. For example, MAS developed the 
Department's Sustainable Manufacturing Initiative (SMI) and works with 
industry, other Federal agencies, and State and local governments to 
showcase sustainable manufacturing practices that can help companies 
reduce operating costs and damage to the environment.
    MAS also works to connect industry through our new Manufacture 
America Initiative. Consistent with Secretary Locke's CommerceConnect 
initiative, Manufacture America will focus specifically on linking 
manufacturers to the resources and tools available in the Federal 
Government and elsewhere to help companies rethink, retool, and rebuild 
to support jobs in the 21st century economy.
    MAS administers the Department's Manufacturing Council, the 
advisory committee to the Secretary of Commerce, created to ensure 
regular communication between the Federal Government and the 
manufacturing sector. The Council also fosters collaboration across all 
U.S. manufacturing sectors to promote new ideas for continuously 
improving manufacturing competitiveness.
    When we renewed the Manufacturing Council's charter this past 
spring, we increased private sector membership from 15 to 25 members to 
broaden the spectrum of views heard. We also followed the advice of the 
previous Council and added the Secretaries of Labor, Energy, and 
Treasury as ex-officio (nonvoting) members to better address the cross-
cutting issues this Council will be addressing, such as access to 
credit, workforce development, and energy independence.
    Today, Secretary Locke will announce the newly appointed members of 
the current Manufacturing Council. The new Council is a diverse mix of 
people from across the country representing different industries within 
the manufacturing sector. The Council members also reflect a balance 
between small- and medium-sized enterprises (SMEs) and larger 
companies. We expect that the Council will get right to work advising 
the Secretary on critical issues affecting manufacturing 
competitiveness.
    MAS also oversees key Department of Commerce initiatives to address 
manufacturers' needs, including the Sustainable Manufacturing and 
Energy Efficiency Initiatives. The Sustainable Manufacturing Initiative 
identifies U.S. industry's most pressing sustainable manufacturing 
challenges and coordinates public and private sector efforts to address 
these challenges. Through the Energy Efficiency Initiative, MAS 
promotes the use and commercial deployment of energy efficient 
technologies and helps manufacturers learn about the resources 
available from State and Federal Governments to promote efficiency.
    Other DOC bureaus, including the National Institute of Standards 
and Technology (NIST), the U.S. Patent and Trade Office (PTO), Economic 
Development Administration (EDA), and Minority Business Development 
Agency (MBDA), also have programs in place to address manufacturers' 
needs. We work closely with our sister bureaus, including the 
Manufacturing Extension Partnership (MEP) at NIST, in delivering our 
programs. These Departmental programs support businesses and 
entrepreneurs throughout the manufacturing life cycle, from innovation 
to commercialization to competitiveness. Census, in the Economics and 
Statistics Administration (ESA), contributes data for understanding 
markets. CommerceConnect and EDA help small- and medium-sized 
manufacturers access Commerce programs designed to help them. 
Manufacturing.gov, maintained by MEP and MAS, has an online 
clearinghouse of information and resource tools dedicated to helping 
U.S. manufacturers improve or maintain competitiveness.
    With respect to the National Export Initiative, MAS is active in 
helping the Secretary and Under Secretary for International Trade, 
Francisco Sanchez, implement the Initiative.
    Emerging markets--such as China, South Africa, India, Brazil, and 
Indonesia--offer key opportunities. Manufacturing export leaders are 
likely to be found in high growth sectors such as medical devices, 
aerospace, clean energy and energy efficiency, technology industries 
and infrastructure, among others.
    Secretary Locke led a clean energy mission to China in May of this 
year, based in part on the recommendations of industry experts, country 
specialists, commercial officers, and others in Commerce. Our various 
Commerce offices worked together to organize the mission that 
registered immediate sales by mission participants valued at over $20 
million. Additionally, the 24 U.S. companies participating on the 
mission met with potential business partners in Hong Kong, Shanghai, 
and Beijing as well as with officials at every level of the Chinese 
government. The mission came at a critical time--when the Chinese 
leadership expressed a clear commitment to adopt clean energy 
technologies and when U.S. companies are developing and commercializing 
technologies related to clean energy, energy efficiency, and electric 
energy storage, transmission, and distribution.
    This is just one example of how the Department, ITA, and MAS are 
already working to meet the ambitious goals of the NEI. During the 
first 12 months, we have taken or plan to take a variety of actions. 
Secretary Locke has personally spoken with top exporters to discuss 
strategies to help them expand their exports. Such strategies include 
leveraging Commerce programs to help increase exports; USG advocacy in 
support of bids for foreign procurement contracts; the reduction or 
elimination of market barriers; or more aggressive promotion of U.S. 
goods and services through collaborative efforts with the Office of the 
U.S. Trade Representative and other agencies.
    MAS is using its analytical capabilities to identify sectors and 
markets where American exporters have a competitive edge. We are 
conducting outreach to U.S. businesses to educate them about export 
opportunities. The Department and ITA are prioritizing existing 
programs that seem most effective. One such program is the Market 
Development Cooperator Program (MDCP), administered by MAS. An MDCP 
award establishes a partnership between ITA and nonprofit industry 
groups, such as trade associations and chambers of commerce, to 
encourage projects that enhance the global competitiveness of U.S. 
manufacturing and service industries.
    Also critical to NEI efforts are CommerceConnect, International 
Buyer Programs at trade shows, an increased number of executive-level 
trade missions, strengthening our strategic partnerships to identify 
single market exporters and encourage them to expand into additional 
markets, and increasing the number of foreign buyers attending trade 
shows in the United States.
    But in order to export more, we need to manufacture more products 
here at home. In September, I will launch Manufacture America, which I 
mentioned earlier. Manufacture America is an initiative to connect 
manufacturers in States that have been hardest hit with manufacturing 
job losses to resources to help them rethink, retool and rebuild their 
operations through exploring new products, markets, processes and 
sources of finance. We are collaborating in this effort with our sister 
bureaus in the Department of Commerce as well as with other Federal, 
State, and local agencies to develop solutions that will sustain and 
increase the global competitiveness of U.S. manufacturers.
    During 2009, the Manufacturing Council raised the problem that many 
small- and medium-sized companies were having in accessing credit--even 
those companies that were financially sound. President Obama has 
proposed legislation that includes a $30 billion small business lending 
fund and a State small business credit initiative. These two items are 
part of a small business jobs package the President hopes to sign into 
law. Let me reiterate the message I hear every day from small- and 
medium-sized manufacturers: Access to capital is one of the primary 
concerns for U.S. small- and medium-sized manufacturers today!
    For many companies that will participate in the Manufacture America 
Initiative, financing is a significant challenge. Through that 
Initiative, we will work with the Treasury Department and local banking 
groups to help small- and medium-sized manufacturers better understand 
the resources available to them, including access to capital.
    MAS has also developed tools to help companies better understand 
their financing options for participating in international trade. The 
``Trade Finance Guide: A Quick Reference for U.S. Exporters'' helps 
U.S. companies, especially small- and medium-sized enterprises, learn 
the basics of trade finance so that they can turn their export 
opportunities into actual sales and achieve the ultimate goal of being 
paid--on time--for those sales. Concise, two-page chapters offer the 
basics of numerous financing techniques, from open accounts, to 
forfaiting, to Government assisted foreign-buyer financing.
    These are just some of the most strategic programs that the 
Commerce Department is employing to support President Obama's 
manufacturing agenda. While manufacturers themselves are best 
positioned to sustain and expand their companies and sectors, they 
cannot do it in a vacuum. We at the Department of Commerce work to 
ensure that the business environments--both domestic and 
international--are fair to U.S. manufacturers, their workers, and their 
communities.
    Again, thank you for this opportunity to testify on the effort of 
Department of Commerce and Manufacturing and Services to enhance the 
competitiveness of U.S. manufacturing.
                                 ______
                                 
                 PREPARED STATEMENT OF ROGER D. KILMER
   Director, Hollings Manufacturing Extension Partnership, National 
     Institute of Standards and Technology, Department of Commerce
                             August 5, 2010

    Chairman Brown, Ranking Member DeMint, and Members of the 
Subcommittee, thank you for the opportunity to appear before you today 
to discuss the efforts of the National Institute of Standards and 
Technology (NIST) Hollings Manufacturing Extension Partnership (MEP) to 
support manufacturers based in the United States (U.S.). Today I would 
like to highlight a few of the services that MEP offers to assist 
manufacturers with growth strategies and access to capital to support 
that growth. But first, I would like to give a brief overview of the 
program.
MEP Support of U.S. Manufacturers
    Since 1989, the MEP program has been working to improve the 
competitiveness of U.S. manufacturers. With a nationwide network of 
centers in nearly 400 locations, MEP serves as trusted advisors to our 
small- and medium-sized manufacturing clients, helping them to 
strategically implement business growth opportunities and to improve 
their competitive position in the market. We have helped clients obtain 
significant and measurable economic impacts. In FY2009, MEP served 
nearly 33,000 manufacturing clients and recent results from a client 
survey indicate that MEP services resulted in more than $3.6 billion in 
new sales, $1.1 billion in cost savings and the creation or retention 
of more than 52,000 jobs. \1\
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     \1\ The Manufacturing Extension Partnership: Partnering for 
Manufacturing Innovation and Growth--2009.
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    Today with manufacturing industry markets both contracting in some 
sectors and expanding in others and business success factors changing, 
manufacturers must establish competitive niches to capture new business 
opportunities and MEP is focused on addressing these new challenges and 
opportunities facing U.S. manufacturers. Through our next generation 
strategy, we are working with manufacturers to harness technology and 
innovation that results in new business opportunities. We have outlined 
a framework of five critical areas--supplier development, technology 
acceleration, sustainability, workforce and continuous improvement--in 
which MEP is working not only to help manufacturers' problem-solve to 
survive, but also to grow by developing new sales, new markets and new 
products.
    To support this program, the President's FY2011 request for MEP 
builds upon the foundation that the America COMPETES Act (P.L. 110-69) 
established, and puts the program on a path grow to $180 million by 
FY2015. The proposed budget of $129.7 million represents an increase of 
$5 million over FY2010 enacted levels to support the Obama 
administration's policy initiatives for reinventing domestic 
manufacturing. MEP will assist in creating jobs and responding to 
future challenges and opportunities in the manufacturing sector. 
Through the locally based Centers, MEP supports the adoption of 
technological innovations that spur economic growth and foster 
development of new products, expanded markets, and process 
improvements. MEP also facilitates the adoption of technological 
innovations by smaller U.S. manufacturers, especially clean 
technologies and processes that improve manufacturers' competitive 
position.
    MEP is building upon efforts to implement and provide a number of 
new Growth Services to U.S. manufacturers in order to promote 
innovation and competitive practices, including:

    the acceleration of technology adoption and the development 
        of new products and processes;

    green and sustainable manufacturing practices and products;

    market diversification to support development of new 
        markets and supply chain opportunities; and

    an enabled manufacturing workforce that spans all levels of 
        the organization.
Addressing Challenges Manufacturers Face in Accessing Capital
    As we all know, improving manufacturing processes, developing new 
products, or accessing new markets often requires capital. For most 
small- and medium-sized manufacturers, identifying and securing capital 
for sales and growth is often a complex and frustrating process. With 
capital becoming significantly scarcer in today's financial climate, 
that process has become more difficult for even historically successful 
companies. The scarcity of available capital and credit has particular 
impact on the manufacturing sector which is capital intensive and often 
requires the financing of inventories and receivables over longer 
periods of time.
    This case is highlighted in the February 2010 report by the 
Manufacturing Extension Partnership Advisory Board (Advisory Board), 
the program's Federal Advisory Committee, which noted that with the 
contraction, restructuring, and impaired capital of the financial 
sector of the economy, there is currently a distinct gap in access to 
capital for most small manufacturers. The Advisory Board found that 
many small manufacturers, even those with orders that are relatively 
healthy, have been unable to finance growth or execute business and 
product diversification plans in the current environment due to factors 
that include: prevailing underwriting practices, devalued assets, and a 
risk aversion associated with transforming from legacy products and 
practices to investing in new products. \2\
---------------------------------------------------------------------------
     \2\ ``Innovation and Product Development in the 21st Century'', 
Gary Yakimov and Lindsey Woolsey with Contributions from MEP Staff, 
Hollings Manufacturing Extension Partnership Advisory Board February 
2010.
---------------------------------------------------------------------------
    In his remarks during the Federal Reserve forum, ``Addressing the 
Needs of Small Business'' on July 12, 2010, Chairman Bernanke noted 
that businesses in Michigan have cited the interconnectedness of the 
auto supply chain and the crucial role of stable financing for small 
businesses ranging from parts suppliers to independent automobile 
dealers as a major factor in the recovery of the auto industry as a 
whole. \3\
---------------------------------------------------------------------------
     \3\ ``Restoring the Flow of Credit to Small Businesses'', Remarks 
by Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve 
System, at the Federal Reserve Meeting Series: ``Addressing the 
Financing Needs of Small Businesses'' Washington, DC, July 12, 2010.
---------------------------------------------------------------------------
    With regard to small companies and product diversification, the 
Advisory Board in its report noted the major challenge of offsetting 
the lenders perspective of perceived financial deficiencies of 
borrowers brought about by asset devaluation and what banks see as 
transitional risk to cash flows as companies diversify.
    The Advisory Board also observed that access to capital can be 
significantly improved through targeted initiatives that mitigate risk 
taking or loan losses by lenders, or by loan enhancement programs which 
directly reduce specific risks on a loan by loan basis. The Advisory 
Board has concluded that the solutions likely lie in the public and 
private sector working together in a creative and collaborative effort. 
\4\
---------------------------------------------------------------------------
     \4\ ``Innovation and Product Development in the 21st Century'', 
Gary Yakimov and Lindsey Woolsey with Contributions from MEP Staff, 
Hollings Manufacturing Extension Partnership Advisory Board February 
2010.
---------------------------------------------------------------------------
    Accordingly, MEP has been looking at what actions we can take to 
respond to these circumstances and I will discuss a few of those 
options below. MEP recognizes that each company must determine its own 
funding and finance strategy--one that matches the exact needs of the 
business at its particular stage of growth with the most appropriate 
financial strategy and sources of capital. In that sense, we see that 
many business growth decisions are also investment decisions for our 
manufacturers. To support our manufacturers in that decision process, 
MEP has been educating and facilitating partnerships, to provide 
companies with information on financial resources and strategies.
MEP Assistance to Manufacturers via Financial Services
    MEP is tackling this issue from a number of angles. We are 
providing information to companies on Federal and State Government 
resources, private sources of capital and finance, and strategies for 
use of financial services for smaller manufacturers. Today I would like 
to give an overview of MEP's ongoing work in this area.
Federal and State Government Sources of Funding
    We are working to improve the ability of the MEP system to more 
effectively access the myriad of Government programs that can provide 
capital to finance smaller manufacturers' growth.
    A 2007 study by RSM McGladrey indicated that Federal and State 
Government programs remain an underutilized source for company 
financing. Many smaller companies still often overlook some of the best 
financing options available, especially in the Federal tax areas. \5\
---------------------------------------------------------------------------
     \5\ Forging New Partnerships: How To Thrive in Today's Global 
Value Chain, The Manufacturing Institute, the National Association of 
Manufacturers and RSM McGladrey, Inc., 2007, p. 49.
---------------------------------------------------------------------------
    MEP is working to capture and disseminate knowledge of Federal and 
State programs that provide loans, grants, and tax incentives to 
smaller manufacturers through revolving loan funds, guaranteed loans, 
energy grants, or tax credits. We are promoting, throughout the MEP 
system and partner agencies, a systematic and integrated sharing of 
knowledge of these programs so that the information can be better 
utilized by the smaller manufacturers to make sound financial 
decisions. MEP uses its participation in the Interagency Network of 
Enterprise Assistance Providers, an innovative network that includes 
representatives from Federal financial assistance programs such as the 
Export Import Bank and the Small Business Administration, to facilitate 
the exchange and deployment of knowledge of Federal programs that 
provide loans and financial assistance to manufacturers. MEP has also 
established a partnership with The Council of Community and Economic 
Research (C2ER), a national organization representing economic 
development research professionals at chambers of commerce, State 
agencies and economic development organizations, to provide MEP centers 
and client companies with access to the C2ER database on about 1700 
State incentive and financial assistance programs available to U.S. 
manufacturers.
    MEP has developed a Quick Reference Guide to Growth Financing--to 
disseminate information on State and Federal Sources of funding. The 
reference guide was developed to assist MEP centers, field staff, 
interested partners and manufacturers to better understand some of the 
general financing options, programs, and techniques available to small- 
and medium-sized enterprises (SMEs) in pursuing growth-oriented 
strategies.
Private Sources of Capital and Finance
    MEP is also capturing and disseminating information on private 
sources of capital and finance. There are a number of private sources 
available to smaller manufacturers, and we are working to increase 
these opportunities for client companies. For example, MEP is reaching 
out to the equipment leasing community to provide manufacturers with 
information on leasing strategies as possible financing options for 
equipment acquisition. MEP has also engaged the Independent Community 
Bankers of America (ICBA), which represents nearly 5,000 community 
banks throughout the U.S., to explore ways to harness the expertise of 
the financial community to enhance manufacturers' understanding of what 
makes a manufacturer ``lendable.'' The intent is to build the knowledge 
of what lenders or investors are looking for from manufacturers so we 
can help our companies' access capital to grow and expand. Through 
these engagements, MEP looks to enhance the financial institutions' 
understanding of how the MEP system can serve as a technical resource 
on manufacturing issues--thereby supporting manufacturers as a good 
investment by these institutions.
Greater Knowledge and Use of Financial Strategies
    MEP is working to educate smaller manufacturers on internal 
financial practices and strategies that can leverage company capacity 
and enhance chances for accessing outside capital. MEP Centers have 
been providing information to clients on how to utilize better cash 
management practices, tax incentives (such as the R&D tax credit) and 
supplier management strategies to leverage internal capacity to fund 
growth. We have been working with technical advisors and private 
lenders to understand how a company's values, cash management 
practices, and customer management philosophies impact ``lendability'' 
and ``investment attractiveness.''
    It is important to note that MEP works in tandem with the Small 
Business Administration (SBA) on financial services to facilitate the 
delivery of SBA loans and guarantees to MEP client companies. MEP does 
this by educating its client companies and the manufacturing community 
on what SBA products are available and helps them be better prepared to 
gain access to the SBA loans and guarantees.
MEP--Helping Companies Export
    MEP works with companies to enhance their strategies; helping them 
identify opportunities for business growth and it is tied to financial 
services by developing financial approaches necessary to implement 
these strategies. One of our newer service offerings is focused on 
providing smaller manufacturers with the tools and knowledge they need 
to move into global markets.
    In today's economy, more companies are considering expansion into 
international markets. In fact, exporting is rapidly becoming the 
fastest growing segment of the market. In collaboration with 
International Trade Administration's U.S. Export Assistance Centers, 
MEP has developed the ExporTech program to assist companies with 
developing an international growth plan. The ExporTech program provides 
experts who review and comment on the company's export plans, and 
connects the company with organizations and resources, including 
financial resources, that can move them quickly beyond planning to 
actual export sales.
    ExporTech is customized to the specific learning needs of the 
participants; each workshop is limited to six to eight companies to 
provide sufficient time and attention to each company's specific 
requirements. The companies meet for three one-day sessions over a 3-
month period, and, between sessions, participants work on developing 
their export plans.
    The program's small workshop size and customized format focuses on 
merging strategy with results. Throughout the program, local experts 
knowledgeable in all aspects of exporting are brought in to provide 
information and guidance and enable companies to accelerate their 
growth plan and speed to market. The program's customized agenda and 
small group discussion format ensure that companies walk away with 
information and guidance that specifically applies to their business. 
In the final work session, a panel of experienced international 
businesspeople reviews and provides feedback on each participating 
company's export growth plan.
    To date MEP has completed sessions in the following 18 States: 
Arizona, Colorado, Idaho, Louisiana, Maryland, Minnesota, Missouri, 
Nevada, New Hampshire New Jersey, New York, North Carolina, North 
Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, and 
Washington. MEP is continuing to provide this service for smaller 
manufacturers across the country. A few examples of the results of the 
work MEP has done with clients under ExporTech are:

    A fourth-generation family owned company in Bronx, NY, has 
        been in business since 1902. A provider and assembler of 
        hollowware for the hotel and banquet industry, this company 
        credits ExporTech with revitalizing the company's international 
        efforts. They more than doubled their international sales by 
        exploring new opportunities to utilize their existing 
        infrastructure and sales force in new ways.

    A manufacturer of fabricated and machined equipment, 
        products, and tools in the energy industry looked to expand 
        their customer base internationally. The company enrolled 
        ExporTech to help develop and guide their exporting program. 
        With the logistical knowledge and information of the world 
        market provided by ExporTech the companies exports went from 8 
        percent to over 50 percent of their total revenue.

    A Certified Small Disadvantaged Business in the defense 
        industry was looking to expand its 100 percent domestic 
        customer base and develop new markets internationally. 
        ExporTech helped provide the resources needed to initiate the 
        move into the international market and most importantly helped 
        to accelerate the process of obtaining an export license. The 
        company grew from no exports to over $250,000 in export sales 
        in 1 year though the support and knowledge of the ExporTech 
        program which helped them find international opportunities
Increasing Competitiveness via Energy Efficiency
    As an emphasis is placed on renewable energy in our economy, MEP is 
delivering technologies and processes that help its clients become more 
competitive and energy efficient. MEP is finding for its clients that 
`Green' has proven to be complementary to traditional ``Lean'' 
concepts--already delivered by our Centers--and provides important 
production cost savings. The benefits of Lean manufacturing include 
reduced cycle time, reduced inventory, reduced work-in-process costs, 
increased capacity, improved lead time, increased productivity, 
improved quality, and increased profits.
    Uniting Lean with Green process concepts opens up additional 
opportunities to help improve the balance sheet. Companies that embrace 
Lean and Green production processes are seeking to reduce their 
environmental impact while simultaneously increasing their efficiency, 
productivity, and profitability. Typically this is being done through 
reduction of total energy use--waste sent to landfills, greenhouse gas 
emissions, and water consumption, among other negative environmental 
impacts. This approach aligns with Lean concepts to reduce work-in-
process costs, increase productivity and quality, and increase profits.
    While some manufacturers remain skeptical of the words 
``sustainability'' and ``green,'' there is a clear indication that 
efforts to become more energy efficient and better environmental 
stewards have reached a tipping point amongst manufacturers.
    While many manufacturers understand what needs to be done, many do 
not and require assistance in the identification and navigation of the 
path forward. \6\
---------------------------------------------------------------------------
     \6\ ``Innovation and Product Development in the 21st Century'', 
Gary Yakimov and Lindsey Woolsey with Contributions from MEP Staff, 
Hollings Manufacturing Extension Partnership Advisory Board February 
2010.
---------------------------------------------------------------------------
E3 (Economy, Energy, and the Environment)
    Oftentimes, introducing ``Green Lean'' production processes is not 
done alone but in partnership with local, State, and Federal Government 
resources, and utilities. E3 is a model that combines the resources of 
five Federal agencies, working with local government and utilities, to 
enhance sustainability and competitiveness in local and regional 
economies and to spur job growth and innovation. Federal and local 
resources are being combined to conduct in-depth front-end assessments 
and gap analyses of company manufacturing processes, the results of 
which are used to develop comprehensive improvement plans on behalf of 
and in collaboration with the participating communities. The Federal 
agencies involved in this effort are:

    MEP (NIST)

    Pollution Prevention Program (Environmental Protection 
        Agency)

    Industrial Technologies Program (Department of Energy)

    Employment and Training Administration (Department of 
        Labor)

    Small Business Development Centers (Small Business 
        Administration)

    These agencies work with local partners, utilities, and 
manufacturers to sustain the manufacturing infrastructure of a region, 
make manufacturing plants more energy efficient and cost effective, 
reduce the environmental impact of participants, and improve the 
economy by creating and retaining jobs.
Green Suppliers Network (GSN)
    Most manufacturers agree that greening the supply chain is the next 
evolution in achieving improved energy efficiency. From materials to 
components to design, finished product, and end use, many original 
equipment manufacturers (OEMs) are requesting that their suppliers 
adhere to standards of environmental quality and processes. These 
developments have seen the supply chain adapt from one of compliance to 
environmental mandates by OEMs to one of using Green Lean to create 
value or lower costs. Suppliers once viewed environmental quality as 
something thrust upon them, but are beginning to understand that by 
becoming Lean and Green they are more economically competitive and thus 
more likely to survive in a competitive supply chain where all 
suppliers are now adhering to environmental quality control. In the new 
value chain model of Green, socially responsible suppliers will be the 
most successful. A significant challenge over the next several years 
will be helping more and more companies make the transition to Green 
Lean and fostering growth within the growing green economy.
    GSN is an innovative collaboration between the Environmental 
Protection Agency, MEP, State and local government, and industry that 
focuses on the dual challenge of reducing the negative environmental 
impact of small- and mid-sized manufacturing suppliers while 
simultaneously increasing those companies' efficiency, productivity, 
and profitability. GSN reviewers employ ``Lean and Clean'' 
technologies, which concentrate on the root causes of waste of one 
process line in a facility and provide a framework for achieving 
specific, measurable, environmental business objectives. Among other 
things companies learn to establish systems to use energy more 
efficiently and improve the use and selection of more environmentally 
friendly raw materials.
Conclusion
    As I have mentioned throughout my testimony, raising capital is one 
of the most basic of business activities, but for many smaller 
manufacturers it is often a complex and frustrating process. To help 
bridge this gap, MEP continues to look at ways to improve 
manufacturer's access to financing options.
    Smaller manufacturers positioned to move to the next level of 
growth--whether it is through the development of new products, markets, 
or sales--need to have clear strategies for securing the necessary 
capital resources to achieve growth. Many smaller manufacturers do not 
discover until the implementation phase of their growth plan that they 
may be unable to proceed without additional capital. With our toolbox 
of services, MEP is uniquely positioned to provide smaller 
manufacturers with a better understanding of the range of financial 
options and resources that match their exact needs. The continued 
incorporation of this type of service in the MEP toolkit and the 
overall MEP Next Generation Strategy will give U.S. manufacturers the 
information they need to successfully implement their business growth 
strategies, resulting in new sales, expanded markets, technology 
adoption and sustainability.
    Thank you for the opportunity to testify today on how the MEP 
program assists America's smaller manufacturers to increase their 
competitiveness. I am happy to answer any questions the Committee may 
have.
        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                    FROM WILLIAM A. STRAUSS

Q.1. You claim that increasing productivity can account for 
manufacturing output to rise. On one level it makes sense that 
what took 1,000 workers to build in 1950 can be built by less 
than 200 workers today--however, this doesn't account for the 
over 40,000 American plants that have shut down since 1999, 
according to the Alliance for American Manufacturing. These are 
not jobs making buggy whips either. These are increasingly 
high-tech jobs. Where did those jobs go? How can this be 
explained only by productivity growth? Don't we have to 
consider that some of the lost jobs are due to competition from 
manufactured imports and off-shoring?

A.1. There are many factors that have been impacting 
manufacturing over the past 60 years. These include improving 
productivity, market segment shifts, competition from imports, 
offshoring, and outsourcing functions to domestic firms. Over 
time, such factors have led to a very dynamic sector--one that 
illustrates economist Joseph Schumpeter's ``creative 
destruction'' principle.
    Manufacturing is a profitable business. Profits of U.S. 
manufacturers tend to outperform profits in the overall 
economy. Economies all around the world are evolving and 
creating an increasingly larger manufacturing base. Over time, 
this has added increasing foreign competition for the U.S. One 
solution to this challenge is to allow our manufacturers to be 
as globally competitive as we can. At the same time, the U.S. 
should be vigilant that the World Trade Organization rules are 
being adhered to by our trading partners.
    While increased foreign competition has probably slowed 
production growth, it has benefited consumers of manufactured 
products, offering greater choice and more competitive pricing. 
In addition, the greater competition from overseas has fostered 
an environment in U.S. manufacturing that pushes producers to 
be globally competitive. This increased efficiency of domestic 
producers offers them an increased likelihood for their future 
success.
    Finally, employment losses in the manufacturing sector are 
not unique to the United States. Economies all around the world 
are experiencing similar trends: Strong productivity growth in 
the manufacturing sector is leading to a declining share of 
overall employment for this sector. A report by the U.S. Bureau 
of Labor Statistics (Monthly Labor Review, July 2005) 
highlights that manufacturing employment in China fell from 98 
million workers in 1995 to 83 million workers in 2002--a 15 
percent drop in 7 years.

Q.2. The growth rate of real value added in manufacturing from 
1997-2007 (decade before the Great Recession) was 3.0 percent--
about the same for all private industry. But if we net out 
computers and related electronic equipment (NAICS 334) which 
accounts for just 9 percent of manufacturing employment, growth 
was less than 1 percent over the period (0.9 percent). In 
addition, although the computer sector was the big driver of 
growth in manufacturing, it was rapidly losing market share to 
foreign producers. How could the manufacturing sector be 
growing so fast yet losing market share and shedding employment 
(almost 30 percent over the decade)?

A.2. Computers have been playing an ever-increasing role in 
consumer products and business machines. It is hard to imagine 
doing something that does not involve utilizing a high-tech 
piece of equipment.
    The computer and electronic products sector has exhibited 
long-run trends that are similar to those of total 
manufacturing. These trends include large output gains, 
declining levels of employment, and rising productivity. For 
example, between 1997 and 2007, output in the computer and 
electronic products industry rose by an exceptionally strong 
15.4 percent per year--an increase of 317 percent over the past 
10 years. At the same time, employment in this sector fell 2.4 
percent per year--a 22 percent reduction over the past 10 
years. Productivity in this sector has also been quite strong, 
rising by 11.7 percent per year over the same 10-year span.
    Strong productivity growth has allowed the computer and 
electronic sector's employment to decline, even in the face of 
rising output. An industry can experience strong output growth 
with declining market share if the total market demand is 
rising even faster than domestic production. When this occurs, 
both domestic production and imports can increase.

Q.3. Some economists, including Susan Houseman of the Upjohn 
Institute, note that because price declines associated with 
shifts in sourcing are not picked up in Government price 
indexes, offshoring results in an overstatement of output and 
productivity growth. What is your assessment? Is the growth 
rate of manufacturing real value added overstated and if so, by 
about how much?

A.3. Summary: Joint research between Susan Houseman and Federal 
Reserve Board economists Christopher Kurz, Paul Lengermann, and 
Benjamin Mandel, examined the implications of offshoring by 
U.S. manufacturers for official measures of productivity and 
value added. \1\ They concluded that the price declines 
associated with shifts in sourcing have not been captured in 
the input price indexes published by the Bureau of Economic 
Analysis (BEA) and, as result, that the real growth of imported 
intermediate inputs has been understated. If input growth has 
been understated, it follows that the growth in multifactor 
productivity and real value-added have been overstated. 
Specifically, the authors find that from 1997 to 2007, the 
published average annual growth rate of multifactor 
productivity growth in manufacturing, at 1.3 percent, may have 
been overstated by 0.1 to 0.2 percentage point; similarly, the 
average annual increase in real value added, at 3 percent, may 
have been overstated by 0.2 to 0.5 percentage point.
---------------------------------------------------------------------------
     \1\ Houseman, Susan, Christopher Kurz, Paul Lengermann, and 
Benjamin Mandel, ``Offshoring Bias in U.S. Manufacturing: Implications 
for Productivity and Value Added'', Federal Reserve Board, 
International Finance Discussion Paper (forthcoming, 2010).
---------------------------------------------------------------------------
    Detail: Price declines associated with the shift to low-
cost foreign suppliers generally are not captured in the BEA's 
intermediate input price index, which is itself an amalgam of 
two Bureau of Labor Statistics (BLS) price indexes, the 
Producer Price Index and Import Price Index. This measurement 
issue is analogous to the widely discussed problem of outlet 
substitution bias in the Consumer Price Index (CPI). Just as 
the CPI fails to fully capture lower prices for consumers due 
to the entry and expansion of big-box retailers like Wal-Mart, 
import price indexes and the intermediate input price indexes 
based on them do not capture the price drops associated with a 
shift to new low-cost suppliers in China and other developing 
countries.
    The bias to the input price index is proportional to the 
growth in input share captured by the low-cost foreign supplier 
and the percentage discount offered by that supplier. Although 
the actual input price changes from offshoring are not 
systematically observed, evidence from import price microdata 
from the BLS, industry case studies, and the business press 
indicate that there are sizable discounts from offshoring to 
low-wage countries.
    Provided this evidence is representative of the actual 
discounts manufacturers realized from offshoring, the authors 
conclude that the growth in the real value of intermediate 
inputs used by U.S. manufacturers has been significantly 
understated. This understatement implies that between 1997 and 
2007 average annual multifactor productivity growth in 
manufacturing may have been overstated by 0.1 to 0.2 percentage 
points and real value-added growth may have been overstated by 
0.2 to 0.5 percentage points. Furthermore, although offshoring 
bias represents a relatively small share of real value-added 
growth in the computer industry, the authors find it may have 
accounted for one-fifth to one-half of the growth in real value 
added in the rest of manufacturing.
                                ------                                

        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                    FROM NICOLE Y. LAMB-HALE

Q.1. MAS was established in 2004 as part of the Bush 
Administration's manufacturing initiative. In December 2009, 
the Obama administration released its manufacturing framework. 
What role did MAS play in the current Administration's 
manufacturing agenda? How has the transition to a new 
Administration and the release of its new framework affected, 
if at all, the mission and function of MAS?

A.1. The Obama administration's ``A Framework for Revitalizing 
American Manufacturing'' (Framework) established a clear 
outline for revitalizing and enhancing the competitiveness of 
U.S. manufacturing. Manufacturing and Services (MAS) 
participated in the interagency discussions that resulted in 
the Framework. MAS is actively engaged in Department of 
Commerce programs that directly address two of the seven 
Framework components: helping communities and workers 
transition to a better future and ensuring market access and a 
level playing field. MAS is also working with the Department of 
Transportation and other agencies to address additional 
Framework components.
    To address the challenges U.S. manufacturers face as a 
result of the economic downturn and changes in the global 
business environment, we have given considerable thought to how 
to help U.S. manufacturing revitalize itself. We have redoubled 
our efforts to meet with industry to hear about its concerns 
and suggested solutions through our 20-plus private sector 
advisory committees, to connect industry representatives with 
Federal and State programs that will help them meet their 
needs, and to develop partnerships and resources--collaborating 
both with public and private sectors--that are accessible and 
results-oriented, especially for SMEs.
    For example, through our new initiative--Manufacture 
America: Rethink, Retool, and Rebuild to Support Jobs--we are 
developing road shows and follow-up activities that will 
provide information to manufacturers, especially small- and 
medium-sized manufacturers, on access to capital and the 
benefits and methods of exporting. To meet the goals of the 
President's National Export Initiative (NEI) and help U.S. 
companies find new demand, we, as part of the International 
Trade Administration (ITA), are helping manufacturers export to 
new foreign markets which offer an expanded demand for their 
products.

Q.2. The stated mission of MAS is to enhance the global 
competitiveness of U.S. industry, expanding its market access, 
and increasing its exports. What activities does MAS conduct to 
achieve this mission? To what extent has MAS met its own 
performance goals for this effort?

A.2. MAS fulfills its mission and goals by combining its 
analytical capabilities, in-depth industry knowledge, and 
interaction with industry to provide assessments, 
recommendations, and programs that improve U.S. business 
competitiveness and export performance. Specifically, MAS 
provides critical trade-related economic and policy analysis 
and information, ensures appropriate industry input into trade 
and domestic policy discussions, advocates for U.S. industry on 
standards issues, identifies and addresses industry-specific 
trade barriers, and reaches out to industry to explain the 
benefits of and opportunities for exporting to enhance U.S. 
competitiveness.
    MAS meets its performance goals in several ways. We develop 
industry-specific recommendations for trade policies to 
eliminate trade barriers and open markets, based on advice from 
our private sector advisory committees and our industry and 
trade expertise. We work with other units in ITA to monitor the 
implementation of trade agreements and explain to industry the 
opportunities to export, including trade finance options. For 
example, we have organized several roundtables with industry to 
explain trade finance options and availability.
    We develop initiatives that help industries increase 
exports, such as the Sustainable Manufacturing Initiative 
(SMI), the Market Development Cooperator Program (MDCP), and 
the Civil Nuclear Public-Private Partnership. Through the SMI, 
companies learn about sustainable manufacturing practices that 
can lower operating costs, making their products more 
competitive in other markets. The MDCP provides financial and 
technical assistance to nonprofit industry groups to support 
projects that enhance the global competitiveness of U.S. 
companies, especially small- and medium-sized enterprises. Our 
Civil Nuclear partnership supports U.S. industry's involvement 
in the global expansion of nuclear energy, while partnering 
closely with other countries to shape their civil nuclear 
programs in ways most conducive to nonproliferation.
    We also work with other agencies to ensure that, for 
regulations that affect export-dependent sectors, relevant 
agencies consider all viable alternatives so that regulatory 
goals are achieved without unnecessarily harming U.S. 
competitiveness globally.

Q.3. How does MAS identify the needs of manufacturers? Does it 
target specific sectors? To what degree does MAS seek to 
identify broad policy factors such as access to credit that may 
be of concern to manufacturers? How do you plan to involve 
Congress in this discussion?

A.3. MAS manages over 20 private sector advisory committees 
that provide information and recommendations on a wide variety 
of topics that impact manufacturers. For example, the 
Manufacturing Council advises the Secretary of Commerce on 
Government policies and programs that impact U.S. 
manufacturing, including access to capital, energy policy, and 
regulatory and tax reform. In 2009, the Council recommended to 
Secretary of Commerce Gary Locke that the Administration take 
steps to ensure that domestic manufacturers have access to 
credit that had been restricted as a result of the economic 
downturn. This recommendation was a top priority of the Council 
because access to capital is necessary for manufacturers to 
finance day-to-day operations and expand domestic operations. 
As a result, MAS elevated the issue of access to capital in the 
policy debate and Congress is currently considering the Small 
Business Jobs Bill Package that includes a provision to provide 
$30 billion in capital for small- and medium-sized firms. The 
Council has also noted that the uncertainty over making the R&D 
tax credit permanent has contributed to the slowness in 
creating manufacturing jobs. We are pleased to be able to 
discuss with the Council that President Obama supports making 
the R&D tax credit permanent.
    In addition, the 16 Industry Trade Advisory Committees 
(ITACs) provide advice to the Secretary of Commerce and the 
United States Trade Representative on U.S. trade policy and 
negotiations. Thirteen of the ITAC committees focus on specific 
industry sectors in order to provide expert advice on those 
sectors and how they are or would be affected by specific 
negotiating positions and implementation policies. Three 
committees focus on issues that cut across all industries: 
intellectual property rights, customs, and standards.
    The President's Export Council (PEC) advises the President 
on broad policy issues that hinder or help U.S. companies to 
export. Five Senators and five members of the House of 
Representatives serve as members of the PEC, along with 
representatives from the private sector and Executive Branch 
Departments and agencies.
    In addition to the Congressional representation on the PEC, 
I have personally met with representatives from the Senate and 
House Manufacturing Caucuses. I plan to continue this proactive 
dialogue with members to keep them up-to-date on what we are 
hearing from manufacturers.
    In addition to our work with the advisory committees, MAS 
industry analysts maintain in-depth knowledge through 
discussions with industries and research about the challenges 
and trends that industries face. Based on that expertise, MAS 
helps industries become more competitive. For example, our 
industry specialists and economists analyzed the provisions of 
the Manufacturing Enhancement Act of 2010 prior to its 
enactment. This analysis provided policy guidance to the 
Administration and Congress on those provisions that reduce or 
eliminate duties on imports used by U.S. manufacturers without 
harming domestic producers. Reduction or elimination of import 
duties on manufacturing components helps reduce operating costs 
and makes U.S. companies more competitive globally.
    Our domestic regulatory analysis program analyzes proposed 
regulations that affect export-dependent sectors to ensure that 
all viable alternatives are considered so that regulatory goals 
are achieved without unnecessarily affecting U.S. 
competitiveness globally. For example, we are reaching out to 
industry and working with other agencies to ensure the proposed 
rule on industrial boilers (``National Emission Standards for 
Hazardous Air Pollutants for Major Sources: Industrial, 
Commercial & Institutional Boilers and Process Heaters'') meets 
human health and safety concerns without putting an undue 
competitiveness burden on export dependent industries, such as 
the U.S. forest and paper industries.

Q.4. Innovation has historically been a cornerstone of U.S. 
economic competitiveness. Commerce's Manufacturing in America 
report, issued several years ago, highlighted the vital role 
support for research and innovation plays in creating a strong 
manufacturing sector. These themes have continued to be 
stressed in recent discussions of a framework for promoting 
U.S. manufacturing. To what degree has MAS focused on 
understanding where our Federal Government could play a more 
effective role in assisting innovative firms in expanding 
market opportunities to meet the demands of U.S. consumers and 
to export? What opportunities do you see for the U.S. Congress 
to work with agencies in increasing that effectiveness?

A.4. Under the National Export Initiative (NEI), I have co-led, 
with Assistant Secretary of Energy for Policy and International 
Affairs David Sandalow, an interagency effort in the Trade 
Promotion Coordinating Committee (TPCC) to identify actions by 
departments and agencies that will help increase U.S. exports 
in the innovative and emerging sectors of renewable energy and 
energy efficiency. We expect our strategy to be announced this 
fall, and agencies to begin work immediately thereafter.
    MAS is also planning to increase funding for awards under 
the Market Development Cooperator Program (MDCP). These awards 
provide matching funds and technical assistance to 
organizations to help develop new markets. The program has 
proven to be an effective tool to help small- and medium-sized 
companies develop markets for their cutting edge products.
    MAS has helped lead the development of a number of studies, 
drawing on experiences of OECD member countries, that look at 
the conditions necessary for an innovative economy. These 
studies examine policies and best practices in the areas of 
access to capital, regulations, standards, and Government 
procurement that Federal or local governments can adopt to help 
firms innovate.
    MAS worked with other agencies to develop the President's 
new National Space Policy designed to energize competitive 
domestic industries, develop innovative technologies, and 
foster new industries. This Policy will keep U.S. business at 
the cutting edge and competitive in the global market.
    MAS recognized an opportunity for Federal agencies to 
better communicate to U.S. industries the broad range of 
Federal programs that further sustainable manufacturing. MAS 
worked with several Departments and agencies to develop the 
Sustainable Business Clearinghouse (www.manufacture.gov/
sustainability). This interactive Web site gives companies 
access to information on Federal programs that companies can 
use to develop innovative products and services that further 
sustainable manufacturing.
    Through its Sustainable Manufacturing in America Regional 
Tours (SMART), MAS spotlight innovative products and processes 
that U.S. companies have adopted to manufacture in a 
sustainable fashion. We work with other agencies and local 
governments to organize these tours, and Congressional members 
have helped in organizing and attending several such tours.
    In addition to participation in our SMART project, we 
welcome Congress's continual interest in and work to improve 
the domestic and global business environment for all U.S. 
manufacturing companies. Often time, when MAS officials are 
doing an event across the United States, we invite members of 
Congress to participate. We would encourage greater 
participation at these events as they give members an 
opportunity to hear directly from industry constituents on 
specific topics and also to learn more about the programs and 
services that MAS has to offer.

Q.5. According to the United Nations, the recent financial 
crisis severely affected manufacturing production of major 
industrialized countries in 2009, but generated comparatively 
milder impact for developing countries such as China and India. 
How do you assess the impact of the recent financial crisis on 
U.S. Manufacturing? To what degree can you identify actions 
Congress can take to improve the performance and trends in the 
U.S. manufacturing sector?

A.5. The recent financial crisis has had a number of 
deleterious effects on U.S. manufacturing. First, it reduced 
lines of credits that are used to pay for intermediate inputs 
in advance of sales. As a consequence, production had to be 
pulled back. Second, it reduced lines of credit to U.S. 
manufacturing's customers, so that demand for U.S. manufactured 
products was significantly cut. Both of these factors tended to 
reduce profitability during the worst of the crisis. Third, 
worsening profitability and tighter credit also impaired U.S. 
manufacturers' ability to invest. China and India may have 
avoided much of the financial stress in the global economy 
because their economies are less reliant on international 
capital markets. Although their economies did not slip into 
recession, they did grow more slowly than the trends suggested.
    We welcome Congress's continued interest in and your 
efforts to enhance the global competitiveness of U.S. 
manufacturers, such as support for the Small Business Jobs Bill 
Package that would improve access to capital for small- and 
medium-sized businesses. Specifically, in the trade arena, 
Congress should continue to engage the Administration and 
stakeholders to address outstanding concerns regarding pending 
trade agreements with Panama, Colombia, and South Korea.

Q.6. Through the Recovery Act, Congress and the Administration 
have invested billions into renewable energy production, mass 
transit and high-speed rail, and medical IT among other 
initiatives important to Americans. How do we ensure that we do 
not depend on other countries for the manufacturing of these 
kinds of goods and services? How do we help develop domestic 
capacity for wind and other renewable energy manufacturing?

A.6. Clear policies and initiatives are critical for 
stimulating domestic development of these sectors. Above all, 
comprehensive energy reform is needed to build the clean energy 
economy by setting a price on carbon that will jumpstart 
private sector investments and innovation in clean energy.
    In addition, stimulating development of these products in 
the U.S. can be furthered through reducing the barriers and 
impediments to these products and services in other markets. 
For example, international harmonization of standards and 
improving the regulatory environment in markets that are 
difficult to penetrate can improve the ability of U.S. 
companies to sell abroad and ultimately help U.S. sectors grow.
    As demand grows, U.S. manufacturers will need to be 
prepared to compete. MAS's Manufacture America Initiative is 
designed to help companies find ways to retool their 
manufacturing processes to make new products in high demand and 
to rethink which markets they can supply, including export 
markets. Our Manufacture America road show that we are planning 
for Pittsburgh, PA, in late September will focus on 
opportunities in the energy sector.
    MAS leads ITA's Civil Nuclear Trade Initiative. Through 
this Initiative, we are strongly supporting U.S. industry's 
involvement in the global expansion of nuclear energy, while 
partnering closely with other countries to shape their civil 
nuclear programs in ways most conducive to nonproliferation. 
For example, we are preparing a guide for U.S. civil nuclear 
companies on how to export their products. We also are working 
to resolve problems the industry faces globally as well as 
promoting and advocating for U.S. exports through trade and 
policy missions and consultations with other governments.

Q.7. What can we do to recapture or create jobs lost to 
imports? Recent figures show American consumers are still 
spending, but how do we help U.S. manufacturers more 
competitive vis-a-vis imports?

A.7. Successful firms are our engines of employment growth. Our 
analysis shows that successful firms share a number of 
characteristics, such as exporting, investing larger shares of 
their revenue, and engaging in more research and development 
than less successful companies.
    In working to meet the goals of President Obama's National 
Export Initiative (NEI), the Department of Commerce is 
encouraging companies to increase the number of markets to 
which they export. We, in MAS, are providing information to 
help companies become more competitive globally. Our 
Manufacture America Initiative, will help companies learn about 
ways to rethink, retool, rebuild their operations to be more 
competitive against imports and to be competitive globally. 
Through our Sustainable Manufacturing Initiative, firms learn 
best practices for becoming more energy efficient and for 
reducing waste, thereby lowering operating costs and enhancing 
their competitiveness against imports. Ensuring that U.S. 
companies find and use Federal programs designed to improve 
their competitiveness or increase their opportunities to export 
is critical.
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