Obama has argued that America’s strength in manufacturing comes from its skilled labor force and capacity for research and innovation. The president’s budget calls for $8 billion for better job-training programs at community colleges and $140.8 billion for science and engineering research, including $2.2 billion for advanced manufacturing. He has called for a special corporate tax rate for manufacturers: only 25 percent.
The administration has also made the argument, gaining traction among some economists, that a strong manufacturing sector has spillover effects into other sectors. A strong industrial base, they contend, helps to strengthen the economy as a whole.
“We believe manufacturing punches above its weight economically,” White House National Economic Council Director Gene Sperling told reporters on Monday. Manufacturing generates 70 percent of all private-sector research and development, 90 percent of patents, and 60 percent of exports, Sperling said. Beyond the 11 million people it employs directly, he said, innovation fueled by manufacturing creates jobs in services and research sectors.
Innovation in manufacturing occurs across the board, from small businesses to huge corporations, experts say. But elite scientists and engineers and high- and mid-technology industries power most of the spillover effects.
Companies that produce semiconductors, computers, electronics, pharmaceuticals, and chemicals invest the most in research and receive the most patents, reports the National Science Foundation. And for all industries, companies that spend more than $50 million per year on research and development reported the highest incidence of both product and process innovation between 2006 and 2008, according to the NSF.
New industries, high-tech industries, and highly educated employees — not the traditional manufacturing base — are responsible many of the economic benefits the Obama administration keeps talking about.
Some of the administration’s tax proposals tap more directly into the impulse to protect products "made in America." Yet those proposals, with their direct populist appeal, make little sense in a globalized marketplace, experts and economists say.
The key proposals being pushed by Obama include preventing American companies from deducting their moving expenses when they shift their plants overseas, giving them a tax break for coming home, and creating a minimum tax on multinational companies.
These measures make less sense than simply lowering the overall corporate tax rate to make America an attractive place for any company, regardless of origin, to set up shop, according to Stephen Ezell, a senior analyst at the Information Technology and Innovation Foundation. Ezell added that it’s also important to preserve incentives for investing in research and capital equipment.
The push to speak out in support of manufacturing likely came from both the president’s political and economic staff, said Jared Bernstein, a former member of Obama’s economic team now at the Center on Budget and Policy Priorities.
But the administration’s focus on job training and advanced manufacturing, which respond to the 21st century needs of the sector, reveal that supporting domestic manufacturing means supporting an increasingly high-tech, higher-skilled sector. The president’s proposals reflect an industry that is demanding more from its workers, and drawing innovation and productivity gains from its technical expertise. It reflects an industry that is becoming more and more elite.