Deputay Assistant Secretary for Manufacturing
Peter M. Perez
Innovation Speech to
Accelerate Michigan Innovation Competition
Thursday, November 17, 2011
As prepared for delivery
Thank you for that kind introduction and also thank you to Accelerate Michigan for inviting me.
As a resident and businessman from Grand Rapids who now is currently working in Washington, I am excited to be with you tonight as you honor finalists and winners of what has become the world’s largest business competition, designed to highlight Michigan as a vibrant state welcoming innovation and facilitating business opportunity.
I am especially pleased to be back in Michigan, as you are honoring my friend, Mike Jandernoa with the Spirit of Michigan Award. I could spend my entire time speaking about Mike—his many accomplishments and his important leadership in this great state—but I will leave that to Michael Finney. Let me just say, Mike, that I am honored to be here tonight to salute you.
BAD NEWS BECOMES GOOD NEWS
I recently read in an article authored by Rebecca Taylor in Digital Manufacturing that in 1791, our first Secretary of the Treasury, Alexander Hamilton rejected the common notion that America could prosper with an agricultural base.
- He argued that this new Republic should concentrate on developing industry. His goal was to instill in people a new spirit of industriousness, energy and innovation.
- Secretary Hamilton submitted his report to Congress on December 5, 1791, but because of political opposition, Congress failed to act on it. Does this sound familiar?
Yes—we have a crisis, and it is intensifying.
- The national mood is one of despair, lack of confidence and a feeling that America is falling behind. We see a breakdown of government as exemplified by an uncompromising Congress.
- But perhaps it takes times like these to re-focus our nation and galvanize Americans into action. Witness World War II and Sputnik—events that reorganized our national priorities and resulted in a sense of common purpose…and innovation.
- Today there is a big increase in the awareness and understanding of the importance of innovation and the role of manufacturing and the need to revitalize it, but not yet a consensus on what we should do about it.
THE OODA LOOP
In Thomas Friedman and Michael Mandelbaum’s latest book, they argue that as a country, we have stopped asking ourselves “what exactly do we need to do to thrive in this world?” We are slow to react, and are falling behind our foreign competitors. We have stopped addressing some of our biggest problems, like employment, education and finance, and our political system seems to be caught in a stranglehold.
Friedman explained a process—the OODA loop—which describes how nimble people, organizations, and countries can quickly react and be successful.
OODA stands for “observe, orient, decide, and act”, and Friedman asks of us to think of it in fighter pilot terms—the pilot who can recognize his situation, position himself correctly, decide what to do and then act upon it, will win the dogfight every time.
I think we could easily agree with Friedman that in our current times, our country hasn’t done a very good job in any of these categories, but especially orienting and deciding. We debate and discuss ad nauseum, but it is often difficult to actually DO something.
As innovators, though, I believe that you are doing exactly what is necessary to lead our country back to greatness.
- It is innovators, manufacturers, and financiers like yourselves who are actively implementing the OODA loop, and are destined for success.
- You have identified what new products are needed, orienting yourselves to the demands of the market through new ideas and products and gaining the needed financial support.
- And you have positioned yourself perfectly to make decisions that will improve not just your bottom line, but also the economic environment in Michigan and around the country.
- For this, I applaud your efforts and want to let you know what the Obama Administration is doing to help you.
THE ROLE OF THE ADMINISTRATION
When President Barack Obama crafted an innovation agenda headlined by the phrase “winning the future,” it is no surprise that you---innovators---were best positioned to benefit.
- And despite the headwinds of deficits and mid-term changes in Congress, the Obama administration is collaborating with the private sector in an unprecedented way to promote American innovation, ignite entrepreneurship and spur small business development to put people back to work.
And we are seeing results.
- Private sector payrolls increased 80,000 in October.
- We have added private sector jobs for 20 straight months—a total of nearly 2.7 million jobs over the period.
While this is good news, everyone understands it is not fast enough for the millions of American struggling to find a job and make ends meet. This is why it is even more important than ever for the federal government to work with industry on innovation and job creation.
The Obama Administration is moving forward on a number of initiatives to continue to foster increased amounts of innovation, such as the:
- Advanced Manufacturing Partnership—Co-chaired by Dow Chemical Chairman and CEO Liveris and MIT President Susan Hockfield.
- American Jobs Act – Moody’s Mark Zandi estimates that the plan would add 2 percentage points to GDP growth and add 1.9 million jobs, cutting the unemployment rate by a percentage point.
- Business USA—One of the White House’s initiatives is BusinessUSA, a one-stop, central online platform where businesses of all sizes that want to begin or increase exporting can access information about available federal programs without having to waste time navigating the federal bureaucracy.
- Patent Reform—Six weeks ago, President Obama signed the America Invents Act (AIA), which represents the most significant reform to U.S. patent law in 60 years. The America Invents Act will help small businesses, like many of yours, to more readily secure patent protection, as well as creating favorable legal provisions and implementing a “First to File” process.
- National Advisory Council on Innovation and Entrepreneurship (NACIE) – Co chaired by Mary Sue Coleman, the President of the University of Michigan, who is with us tonight and Steve Case, Chairman and CEO of Revolution, advises the Commerce Department and Administration on key innovation and entrepreneurship issues and promotes public policies that enhance U.S. competitiveness.
- National Institute for Standards and Technologies (NIST) —In his Plan for Science and Innovation, President Obama said, “We know what it takes to compete for the jobs and industries of our time. We need to out-innovate, out-educate, and out-build the rest of the world.” In the Department of Commerce, and arguably the federal government, NIST is the “Innovation Agency”, with programs spanning every stage of the innovation ecosystem.
- The Office of Innovation and Entrepreneurship in the Economic Development Administration of the U.S. Department of Commerce spearheads departmental efforts to promote innovation-based, high-growth entrepreneurship in pursuit of job creation and economic growth.
- Small Business Innovation Research Program—Yet another example of the Administration’s work is the Small Business Innovation Research Program (SBIR), run by the Small Business Administration. This is an exciting program established to encourage domestic small businesses to engage in Federal Research and Development in technologies that have the potential for commercialization. It’s a perfect program for innovators like yourselves!
NATIONAL EXPORT INITIATIVE
Helping American businesses grow and create jobs are top priorities of the Obama Administration and that’s where the International Trade Administration plays a strong role.
- In the past, as a nation, exports were not so important because our domestic-based growth was so robust. It is now clear, however, that in contrast to the past half century, future growth in the global economy will be driving more by the rest of the world than by the U.S. economy.
- Roughly 95 percent of the world’s consumers now live outside the United States, many in regions with growing middle classes and increasing purchasing power.
- While the United States is the world’s largest manufacturer, the fact is we have lacked an export orientation. Exports as a percentage of GDP were only 11% in 2009. Contrast that with China where exports were 25% of GDP; Canada where exports were 27% of GDP; and Germany where exports were a whopping 41% of GDP.
- Sadly, only one percent of our small and medium sized businesses are currently exporting, the 1% representing 288,000 companies and more than half of those businesses are exporting to only one market, typically Mexico or Canada.
- Great opportunities are emerging in the vast global market. So a 100 percent focus on North America is no longer viable. The International Monetary Fund forecasts that 87% of the world’s economic growth over the next 5 years will take place outside of the United States. As a new global middle class in China, India, Brazil and other countries seek to improve their standard of living, American-made goods will be in high-demand. As we reset the American economy, we must also reset the way we think about exporting
- Early last year President Obama presented his National Export Initiative (NEI).The goal is to double U.S. exports in 5 years, which will, in turn, create or support millions of jobs here at home. This represents the very FIRST time the United States has had a Presidential-led, government-wide export promotion strategy.
- Echoing what Dow Chemical Chairman Liveris said (“where manufacturing goes, so goes innovation”), at the heart of the National Export Initiative is the basic premise that domestic production is critical: we need to make it HERE in order to export it from HERE. If we move our manufacturing overseas, the innovation will also move there, and that would cause further harm to our economy over the long term.
If we are to double exports in the next 5 years, we must increase exports by 14.8% per year. How did we do in our first NEI year—2010 and how are we doing so far in 2011?
In 2010, Exports:
Grew nearly 17 percent, to $1.8 trillion dollars.
Reaching the second-highest annual total on record; and representing 12.5% of our GDP
Contributing nearly half of the 2.9 percentage point growth in real GDP
So far in the first 9 months of 2011, exports have increased 16% over the same period in 2010, so we are on pace so far this year. Furthermore, the Small Business Administration and the Export Import Bank have significantly expanded financing to small and medium sized companies.
So exports were a critical economic growth factor last year, and so far this year----and exports will continue to be our biggest opportunity for growth in the future.
FREE TRADE AGREEMENTS
- As a footnote, the history book confirms that the 17 free trade agreements we have with other nations generate a positive manufactured goods trade surplus for the U.S. -- $72 billion in the last three years, these are job creating exports, like construction equipment, chemicals, industrial machinery and consumer goods. So far this year through July, the manufactured goods surplus with FTA partners is remaining even stronger, at $25 billion compared to $23 billion for this same period last year. So, Free Trade Agreements clearly benefit manufacturers. The Administration is pleased that Congress has recently passed the Korea, Columbia and Panama free trade agreements, which will undoubtedly generate more positive numbers for American manufacturers.
- There are other notable examples of the Administration proactive approaches. Take the extension of the Research & Development tax credit—something, I believe, should be made permanent. Also, take the expensing benefit, which allows companies to write off 100 percent of their machinery and equipment purchases. This 100% deduction is a very important incentive that will hopefully allow many companies to expand capacity and add jobs! While a 100% expensing of capital equipment may not be possible forever, a revision to current depreciation schedules certainly is in order in the future.
In conclusion, the United States is the world’s largest manufacturing economy (2009 data), employing over 12,000,000 people (August 2011 data) who are the most productive workers in the world in jobs with pay well above the national average.
That said, our unemployment rate is still above 9% with millions still out of work. We understand that government alone isn’t going to solve this problem. 2 out of 3 jobs are created by small and medium size companies. This Administration can help lay the ground work, but it is the INNOVATORS like you, in this room, whose ideas and innovations will help pull us out of this great recession. And I know you will be successful at this because…you are American innovators, American manufacturers and American businesspeople—the best in the world.
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