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 June 2009 

Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret)Manufacturing Matters to the Nation’s Economy and Security

June 2009 

by Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret) 

Manufacturing has enormous impact across all aspects of the U.S. economy and national security. Manufacturing represents almost 14 percent of the U.S. gross domestic product.

U.S. manufacturing output, at $1.6 trillion, produces more goods than any other country. Each dollar spent on manufacturing generates $1.37 in economic benefits. This ratio is higher than any other industrial sector. The jobs are higher paying and they represent entry into the middle class for many Americans. Manufacturing actually creates tangible wealth. 

A detailed discussion of the nation’s manufacturing challenges — and their implications for national security — can be found in an NDIA white paper entitled,  Maintaining a Viable Defense Industrial Base

NDIA leaders recently appeared before the Senate banking subcommittee on economic policy, which is part of the Senate Committee on Banking, Housing and Urban Affairs. The subject was the importance of manufacturing to the health of the U.S. economy and security of the nation.

The panel members wanted straight answers to the following questions: Why should Congress care about this issue? How much do manufacturers rely on credit? How are supply chains intertwined and what happens as demand falls? What strategic and security considerations regarding manufacturing should Congress be aware of? What policies should Congress consider in supporting U.S. manufacturing?

The credit issue is particularly vexing in these tough economic times. Manufacturers, especially small ones, rely on credit for working capital. They use this to buy supplies and meet payroll in advance of payment by their customers — a lag time of up to 120 days. A lawyer representing many small manufacturers in Chicago says, “Many of my clients are contemplating filing or are in Chapter 11, not because their business volume has fallen below previously levels, but rather because they can no longer get credit to borrow for their long established working capital needs.”

Manufacturing is most productive when all resources are fully utilized. As demand falls and capacity is idled, manufacturers depend upon diversity of clients and supply chains to survive. Serving more than one market sector can help survive the downturns. Supply chains intertwined among various sectors promotes more viable and robust manufacturing enterprises.

The nation’s economic health, competitiveness, and the strength of its military rely heavily on innovation and leading edge technology. This requires a globally competitive manufacturing industrial base characterized by leadership in advanced manufacturing and technology integration. The United States needs to be the global leader in advanced manufacturing technology development and deployment. The defense sector, which years ago was a technology leader, is now in many instances a follower and depends heavily on commercial products for its advanced components and systems.

The message to the subcommittee was that Congress and the White House need to be more directly engaged in the manufacturing sector, both commercial and defense. Agriculture represents 3 percent of GDP, but rates an entire Department of Agriculture. Manufacturing, which accounts for almost 14 percent of GDP, is represented by a deputy assistant secretary within the International Trade Administration in the Department of Commerce. Manufacturing ought to rate at least an assistant secretary.

Also, the Defense Production Act needs to be reauthorized with emphasis on interagency collaboration, resumption of loan guarantees, and increased funding to $500 million per year.  The Defense Department’s Manufacturing Technology (ManTech) program, which focuses on the need for affordable, low-risk development and production of weapon systems, should be funded at 1 percent of the department’s research and development budget, as was recommended by the Defense Science Board. This would increase funding to $790 million per year. Greater emphasis on advanced manufacturing unrelated to programs should be emphasized as in the Defense Department’s manufacturing technology strategic plan.

Other recommendations included the need to evaluate the “manufacturing readiness” of military programs before they complete their development phase (milestone B). More training is needed for the government workforce. Congress also should pass important legislation such as S. 661, “Restoring America’s Manufacturing Leadership Through Energy Efficiency Act.” It would also help companies to encourage the practice of making progress payments throughout the execution of a contract down through all the subcontractors in the supply chain.

Finally, the Senate needs to reactivate and reenergize its manufacturing caucus. In this regard, it’s worth pointing out the effectiveness of the Congressional Depot Caucus that deals with defense depot policy. A similar body applied to manufacturing would be immensely beneficial.

We live in a world that has become more global and much more competitive. The practices that made the nation number one in manufacturing innovation and output will not guarantee success in the future. Active executive and congressional leadership is needed to preserve, enhance and advance U.S. global competitiveness and leadership in this most vital of economic sectors.

Please e-mail your comments to lfarrell@ndia.org.

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