Can the Future Be Built in America?

BusinessWeek (9/10, Engardio) – The manufacturing exodus from the U.S. is accelerating, but smarter tax policies, low-cost loans, and industrial zones may help keep factories at home…Much of the blame lies with U.S. government policy. Nations in Asia and Europe aggressively court strategic high-tech industries with generous tax breaks, cash grants, cheap credit, low-cost utilities, and speedy regulatory approval. Governments prize such plants because they serve as broad economic catalysts. Besides skilled jobs, they spur parts suppliers, construction work, services, and the creation of big engineering forces that are the pillars of new industries and companies.

By comparison, the U.S. has been indifferent to manufacturing. Even when tax breaks are factored in, American corporate taxes are among the highest in the industrialized world, according to a World Bank study…Now many executives are calling for the kind of comprehensive game plans for nurturing industries found in Europe and Asia. Some 60% of North American manufacturing execs surveyed by Deloitte Research and the Manufacturing Institute said they believe U.S. competitiveness will decline further by 2012, and 77% said the U.S. needs a strategic approach to developing a manufacturing base.

What can Washington do to boost manufacturing competitiveness? It could bridge the disconnect between R&D and commercialization, as it has done in biotech. If the U.S. believes flexible displays, fuel cells, or solid-state lighting warrant billions in R&D, it should follow through with enough aid for product development and manufacturing.

To critics of government intervention, such measures smack of picking winners, but it's not as if that's something new to Washington. Agriculture and oil drilling remain heavily subsidized. The federal government was crucial to launching the aerospace, telecom, and Internet industries. Now it owns General Motors. "We do have an industrial policy," says Craig A. Giffi, vice-chairman of Deloitte Consulting. "What we don't have is a coherent industrial policy. We don't know what industries we want and where we are going."

Thinking like a developing nation may be a comedown for the world's greatest economic superpower. But that is the level to which America's manufacturing might has eroded. Unless it changes course, the U.S. not only won't be able to recapture industries it has lost—it may not be able to launch the new industries it invents.