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Remarks at the Massachusetts Institute of Technology, Cambridge, Massachusetts

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AS PREPARED FOR DELIVERY
Friday, September 20, 2013
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Acting Deputy Secretary of Commerce Patrick Gallagher
Remarks at the Massachusetts Institute of Technology, Cambridge, Massachusetts

Thank you, President Reif and Andrew Liveris. It’s great to be here.

Congratulations to MIT and its Production in the Innovation Economy team. I read the report. It’s a major contribution to our understanding of American manufacturing, innovation, and competitiveness. 

Secretary Pritzker asked that I send her regards. She’s at the U.S.-Mexico High Level Economic Dialogue in Mexico City with Vice President Biden. Among other things, they’re discussing how we can work together to strengthen advanced manufacturing in both countries.

What I liked most about the report is that it provided me with a great construct for thinking about what the federal government and the Administration are doing.

It talks about this issue in the context of a 21st-century, global economy. It talks about the importance of innovation and staying on the cutting edge. And it talks about how communities and regions are where the action is. I’d like to step through each of those areas.

First, let’s talk about the big picture. The Administration got a crash course in understanding manufacturing’s role in U.S. global competitiveness on Day 1. Two major American companies were headed for failure – GM and Chrysler. Some might think that Ford would see this as a chance to gain market share. But Ford CEO Alan Mulally himself didn’t think so. He said that without federal help, GM and Chrysler’s failure could have taken down the supply base, the entire industry, and perhaps even turned the recession into a depression.

As we all know, President Obama took the steps to ensure that didn’t happen. Today, the auto and auto parts industry has added more than 190,000 jobs since the industry’s June 2009 low. Also, auto production growth has played a central role in strengthening the supply chain – especially fabricated metals, primary metals, and machinery.

Ever since then, the President has rolled out policies that continue to support production and innovation here at home. He made exports a top priority – and we’ve had all-time record years under the National Export Initiative. Manufactured goods account for the majority of our exports.

He called for renewing and making permanent the R&D tax credit, and he called to reform the corporate tax code to bring down the rate for manufacturers to 25 percent, to make us more competitive and attractive. He called for a national inbound investment program – SelectUSA – to maximize the trends we’re seeing with lower energy costs and high productivity. And I should note the first ever investment summit will be next month in DC.

Overall, supporting a vibrant manufacturing sector has been a key plank of the Administration’s economic agenda. And for good reason.

Already, it’s clear that our manufacturing sector punches above its weight. Manufacturing represents just 12 percent of our GDP, but it accounts for two-thirds of R&D spending and the majority of exports. Also, as the Commerce Department recently announced, manufacturing jobs remain crucial to our consumer-driven economy – with wages of new hires 38 percent higher than in other industries.

In addition, we are learning more about the spillover effect that manufacturers bring to a location. For example, one recent study showed that when a new large manufacturing plant opens in a community, the productivity of surrounding firms jumps by 12 percent.

And there is a growing body of literature that shows the value of keeping production and design together. PIE’s own preview report said it this way: “learning takes place as engineers and technicians on the factory floor come back with their problems to the design engineers and struggle with them to find better resolutions.” That’s how Bell Labs innovated in the 20th century. That’s why Boeing found success when it moved engineers to the factory floor. And that’s why many people say Intel gained its 4-5 year technology lead.

Given all of these ways in which domestic manufacturing creates positive ripples throughout our economy, it’s clear why the federal government has a heightened interest in supporting this sector. And, in fact, that’s why the Administration’s interest has extended into the area of innovation.

From 2011 to 2012, the Advanced Manufacturing Partnership – led by Andrew and then-President Hockfield – brought together top manufacturing CEOs and university presidents. They knew that our nation must make strategic public investments in cutting-edge manufacturing in order to help us emerge stronger from the recession.

They held four meetings around the country and jumpstarted a national conversation on this topic – particularly with their report on Capturing Domestic Competitive Advantage. They also began to advise the newly-created White House Office of Manufacturing Policy – co-chaired by NEC Director Gene Sperling and, now, Secretary Pritzker.

One of their recommendations, particularly relevant to today’s discussion, is the National Network for Manufacturing Innovation – the NNMI. If you’ve ever been to the College of Nanoscale Engineering and SEMATECH in Albany, New York, you understand the value of an approach like NNMI. There, the semiconductor industry is flourishing because traditional rivals are working side-by-side to make breakthroughs that have transformed their entire industry.

The fact is, alone, a business might not have the resources or expertise to explore a new technology. But by linking that firm with another business and perhaps a university, they can engage in what we call “pre-competitive collaboration,” as they do in Albany. This shared investment and shared risk allows them to take risks and fail, but then get back up and try again. 

The NNMI is based on this approach. We can foster the growth of regional hubs that are globally-competitive by bringing together businesses, universities, nonprofits, local governments, and entrepreneurs. New discoveries will begin to flow from these institutes into the market, and people from around the world will look to our manufacturing hubs for the next big breakthrough.

This leads to even more business investment as well as more entrepreneurial activity in those regions – a virtuous cycle. This is a smart approach with a solid business model which includes co-investment from all players involved and a path toward self-sustainment.

Last year, we worked with the Defense Department to launch the first pilot of the NNMI in Youngstown in the area of additive manufacturing – 3D printing. This week, the Commerce Department provided $5 million more for related efforts in this area. We plan to launch three more pilots this year, and we must do even more. The President at first called for 15 of these institutes, but recently upped the ante to 45 over the next decade. Last month, a bipartisan group in the House and Senate introduced legislation to support the NNMI. I believe the idea is gaining momentum. I encourage you to make your voices heard on this issue.

Beyond NNMI, how else is the federal government supporting innovation?

Of course, all of us who are scientists by training understand the importance of sustained R&D investments at places like the National Institutes for Standards and Technology – where I serve as Director. The market simply doesn’t provide some of the foundational investments in basic research and science that we need to ensure innovation and long-term economic growth. 

And, just as importantly, places like NIST regularly open our doors to working side-by-side with industry to make these breakthroughs in many fields. The President’s current budget request for NIST is $928 million. These investments are critical for ensuring healthy ecosystems across a number of existing industries, and for fostering the growth of new ones.

And I’ll just give one additional example in regards to innovation. The Commerce Department is heavily engaged in helping small and medium sized manufacturers by co-funding partnerships in every state. 

We want to build on that by establishing Manufacturing Technology Acceleration Centers. These M-TACs will help those smaller manufacturers incorporate advanced technologies into their processes and their products. We want them to be able to bring more added value to their supply chains – allowing them to compete more effectively. The President wants $25 million to support this program, but we’re already moving forward to award two pilots after we receive applications, which are actually due on Monday. I’m sure some folks are going to have a fun weekend with those applications.

Finally, the PIE report and the Administration are also aligned in understanding the importance of community and regionally-based approaches. Most notably, we’re taking a fresh, collaborative approach to local economic development policy by launching the Investing in Manufacturing Communities Partnership – the IMCP.

As you all know, the U.S. is becoming more attractive to global investors due to our low-cost energy, rising labor-cost advantages, high worker productivity, and more. We need to take advantage of this moment.

Perhaps a big manufacturer left town 10 years ago and local assets and resources have atrophied. Instead of simply “smokestack chasing,” the community needs to take full stock of the assets in its industrial ecosystem. The local leaders need to answer tough questions about the health of their own region’s resources.

Are our workforce and training institutions aligned with the needs of industry? Is industry capable of creating middle-class jobs? How are our research institutions interacting with the private sector? How strong and integrated are our supplier networks? What’s the status of our transportation and energy infrastructure? We’ll do our part in the federal government to incentivize this kind of activity.

Over the past year, we’ve been meeting with a coalition of 10 departments and agencies. We are planning to synchronize our support for communities that apply for funding through the IMCP. In fact, we plan to announce our first round of planning grants as we approach National Manufacturing Day on October 4th.

We want to provide fast-tracked support and recognition to communities that have thought carefully about what kind of manufacturer or supply chain they could feasibly attract. And, in the future, we hope to make key transformative investments in those communities. If there’s a noticeable gap in the local ecosystem, perhaps we can fill it – priming the community for that next big business investment with a business park or an infrastructure upgrade. The goal is help a community achieve sustainable growth – and make it “sticky,” if you will, for manufacturing investments, innovation, and middle-class jobs.

I’ll just close by saying that our overall efforts are more collaborative than ever before. 

To create the best policies and programs, we’re relying more than ever on academic experts from places like MIT, top CEOs from industry, and groups that bring them together – like the Advanced Manufacturing Partnership, which I mentioned earlier.

I’m pleased to say that we will soon be rolling out AMP “2.0,” with a very active and engaged Steering Committee. They’re looking to provide more frequent action items and recommendations for both the public and private sectors. My hope is that they are engaged on a number of areas – ranging from solving specific manufacturing technology challenges to helping us focus on a skills agenda that meets the immediate needs of manufacturers through industry-driven training programs.

So my commitment to you is this: We will continue to listen to all of you to help craft the right federal policies and programs. There has never been such a concerted focus on manufacturing as there is now.

With our economy starting to regain traction – and with the high level of engagement we see today from folks like you – we have an unprecedented opportunity to ensure that American manufacturing stays strong for decades to come.

I want to thank you all for sharing that vision, and I look forward to our discussion.