According to Nobel Prize winner, Robert Solow, technological innovation makes up at least 80 percent of a nation’s economic growth and increase in living standards.[i] So why is it, during these trying times, that manufacturing, one of the key forces behind innovation, is suffering at the hands of outdated public policy while other nations forge ahead? The United States is responsible for every major advance in science and engineering since World War II, whether in semiconductors, aerospace, computing, telecommunications, and the Internet.[ii] These feats were made possible by public policy that fostered an ecosystem where inventiveness flourished.
Take for instance the government funded research that led to the creation of the Internet, or an immigration policy that allowed us to bring the best and brightest to our shores to work for American companies. Our manufacturing base was a point of pride and gave rise to a thriving middle class. But somewhere along the line, the trajectory of American progress plateaued, and our rank as a global leader is at risk unless Washington adopts public policies that are pro-growth and pro-innovation.
For the first time in three years, U.S. manufacturing contracted, but advanced manufacturing of products like semiconductors on American soil has been declining for years. I find this trend troubling, because if the United States isn’t making high tech products and reaping the benefits of innovation (job creation, intellectual property, capital formation, national security, etc.), another nation is.
Change, particularly in the way of corporate tax reform, will re-strengthen American advanced manufacturing and reinvigorate the innovative spirit that defines the United States.
The semiconductor industry provides a great case study for understanding the important role of advanced manufacturing. Semiconductors are embedded in the fabric of our everyday lives. They’re in our television sets, computers, printers, cellphones, and countless other devices. The U.S. once made up 100 percent of global chip production capacity, but that number is steadily declining as production moves overseas. In 2009, the percentage of global semiconductor production capacity in the United States was 14 percent, down from 25 percent in 2005 and 17 percent in 2007.
Intel is in the process of building a $5 billion chip factory in the Arizona desert, called Fab 42, but according to a recent Reuter’s article, “Many technology executives worry that Intel's new factory is less a sign of things to come than the last gasp of an advanced manufacturing sector that could readily go the way of its lower-tech predecessors -- to Asia.”