Ideas for how the government can work with industry to revive U.S. manufacturing

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An elite task force has finished its look into the competitiveness of American manufacturing. Its findings start with the U.S. workforce, and it also has recommendations for the federal government. Federal Drive with Tom Temin got highlights from the director of the Ronald Reagan Presidential Foundation and Institute, Roger Zakheim.

Interview transcript:

Tom Temin: Mr. Zackheim, Good to have you on.

Roger Zackheim: Thanks for having me on.

Tom Temin: Tell us the genesis of this committee. It wasn’t congressionally appointed, but it had members of Congress on it. How did it come to be?

Roger Zackheim: Well, the Reagan Institute, promoting Ronald Reagan’s legacy, focuses on peace through strength. We have a center with that name. And it looks at areas that are critical for advancing U.S. strength. And we think through U.S. strength, we have U.S. prosperity. And as you know, with the focus on the defense industrial base, and what the United States needs to do and the great power competition with China. Increasingly, the focus has become on our manufacturing capability, and whether or not domestically, and with allies and partners across the world, we have the manufacturing base necessary to advance U.S. primacy into the next century.

Tom Temin: And just give us a sense of the makeup. It was a pretty big committee — you had members of Congress, you also had a few, to use a cliche, titans of industry on there also.

Roger Zackheim: Well, we always like to mix it up in these task forces — people from the public sector, private sector, elected officials, experts. Here we were quite fortunate to have the former CEO and chairman of Lockheed Martin, Marilyn Hewson, and the current CEO of Bridgewater Associates, the largest hedge fund in the country, David McCormick, who also previously served as an undersecretary for Treasury and International Affairs. So they lead up the effort. And you’re right, we had two Republicans and two Democrats and house representatives on the task force, as well as a number of leaders from the defense industrial base: Representative Bob Simmons, former staff director from the House Armed Services Committee, now with Boeing, as well as Dan Bryant, Senior Vice President from Walmart. So really trying to get a nice array of people with different perspectives and experiences relevant to thinking about how do we advance U.S. competitive some interaction.

Tom Temin: And you mentioned the chairman of a hedge fund, because a hedge fund can be a source of investment in manufacturing. On the other hand, manufacturing requires some heavy investment in capital to be able to be efficient and so forth. Hedge funds tend to look at how can we cut costs. But to boost competitiveness in manufacturing, we have to do some heavy investment in real hard cash in hard equipment. So what does the task force say about the need for capital to be able to get to more competitiveness in manufacturing?

Roger Zackheim: Glad you pointed to that. It’s a key area. We need capital and intensive capital, particularly in high-end manufacturing, like semiconductors, which I know you focused on. And the private sector alone may not drive the capital to those areas we need from manufacturing, particularly manufacturing in the United States. So someone with David McCormick’s background understands capital investment flows was critical here and in trying to figure out what policy recommendation, what balance between public-private partnership, might realize increased capital flow. The key finding, though, was the market alone will not yield the result that we need for our national security or national defense. And therefore, we have to come up with new public-private instruments and investment tools, so industry and manufacturing can realize the capital it needs to compete globally. And as you know Tom, China, but not just China — other countries around the world, friends and allies as well — give huge subsidies to their manufacturing sectors so they can compete. So it’s not exactly a level playing field around the world. I’m not looking for industrial policy, certainly the Reagan Institute is not driving industrial policy where the government gives the entire answer to this problem. But it needs to be something along the lines of public-private partnership and reducing barriers. There you have a very kind of conservative way of talking to allow for capital flows to come in, and for investors to get return on investment.

Tom Temin: Traditionally, in U.S. history, it was only during wartime that that kind of government push to industry was needed because of the demand of a war time. But if you look at the semiconductor industry, it was invented here — the transistor was invented here, the IC, and at one time Silicon Valley was actually all about silicon. Now it’s all about software. So what changed? We lost the semiconductor industry, now we’re clamoring to get it back. And now we have, you know, Samsung is about to invest in Texas and so forth. What’s changed, such that the United States needs the government now to help with this capital formation for an industry like chips?

Roger Zackheim: And I want to emphasize not government alone, but the government need to be focused on it. There’s legislation pending before the U.S. Congress — The Chips Act — so bipartisan support. There’s recognition that we need to do something as a country to maintain our edge with semiconductors. To your question, the United States is leading in semiconductor design, but the messy, difficult, capital intensive, perhaps low yield in terms of investment work happens outside the United States in places like Taiwan, in places like Korea, as you mentioned, and of course, China. The reality is, as manufacturing goes overseas, it creates vulnerabilities for us, the United States. You don’t have to look beyond the pandemic, where we saw what happens when a supply chain that’s reliant. I mean, we’re seeing it right now. But it was captured during the beginning of the COVID virus, when we rely on overseas supply chain, and that gets holed up in the United States, and our people here suffer. They can’t get the goods they need. You see with your phones, you see that with cars today. Ultimately, we could see it with the weapon systems and other types of capabilities that we need for our military. But more broadly, we need to recognize that having this distance between the r&d and the know how and the manufacturing is not good for us in terms of security, and it actually is not good for our economy, either.

Tom Temin: We’re speaking with Roger Zackheim. He’s director of the Ronald Reagan Presidential Foundation and Institute. I guess people that think semiconductor manufacturing is dirty never saw a steel mill. But besides that, the task force also looked at the workforce. And the need to develop, again, semiconductors to continue with that example is a highly skilled manufacturing job and people that do that are not just, you know, pounding molten metal with hammers. So what does the task force say about the workforce in the United States? And that’s something repeated administrations have stressed.

Roger Zackheim: Ultimately, you can bring in the capital required to create 21st century high-end manufacturing. But if we don’t have the people who could do it, it’s not going to mean much or anything at all. And the idea that somehow if you build it, people will come is not accurate. We need to go ahead and have the training, have credential workers for high demand trades, repurposing educational grants, like Pell Grants, which say we focused on a recommendation for high school graduates or earning potential skills. These are some of the things that we need so the U.S. can commit to fund 500,000 new graduates to take on not just the high end manufacturing that we’ve discussed, but also some of the basic manufacturing, high-paying, actually, jobs that we need for our defense industrial base as well. So there’s a huge demand on workforce so we can sustain the global leadership that we need. And there’s also a need for immigration policy, as well, to get there. From a national security standpoint, the Reagan Institute led a task force in the past, which talked about national security visa, to get certain skilled workers. That’s come up again in this work as well, and it tends to get bipartisan support too.

Tom Temin: Alright, and I want to move on to one other issue that came to light during the recent pandemic, and that is the Defense Production Act. You’re calling for modernization of that as well. What’s the prescription here?

Roger Zackheim: Well, you’re right. The Defense Production Act was critical during COVID, from PPE and masks, generators. We needed all of that, and we couldn’t get it without the government using this tool, really, from the 20th century — you know, Korean War and developed since — that in our view isn’t scaled up for the 21st century. It’s done well, but it could do more. And from the perspective of our task force, our co chairs David McCormick and Marilyn Hewson, members of Congress really agree with this as well, that we need to get these manufacturing facilities working in a timeframe that matters, not decades out but years out. We need targeted visa approvals for STEM talent, the financing we discussed about, having it targeted going into projects, fast tracking federal permits, and even workforce training. These are all the pieces that we think a Defense Production Act should be able to advance. Currently, the types of things I’ve just discussed, are beyond the purview — outside the purview — of the Defense Production Act. We think it’s such an effective tool and a proven tool as recently as the past couple of years that that should be expanded to get at a lot of the issues we’re discussing here.

Tom Temin: And you get any sense that there’s bipartisan support for that idea?

Roger Zackheim: Well, certainly our pass work is reflective of that bipartisanship. We have Congressman McCaul from Texas, Congressman Gallagher from Wisconsin, both Republicans, and we have Congresswoman Houlahan as well so far, from Pennsylvania. We have members who are supportive of this. I think at the end of the day, this is a bipartisan issue. This is about American strength, investing in America and recognizing we’re not doing this crony capitalism to advance one particular narrow interest. This is a national interest that complements both economic prosperity, economic strength and our national defense.

Tom Temin: Roger Zackheim is director of the Ronald Reagan Presidential Foundation and Institute. Thanks so much for joining me,

Roger Zackheim: Tom, thanks for having me here.

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