How to Rejuvenate American Manufacturing

The Obama Administration has created a National Network of Manufacturing Innovation (NNMI) to help rejuvenate American manufacturing by advancing diffuse novel manufacturing technologies.

In a recent article titled “Making America an Industrial Powerhouse Again” published in Working Knowledge from the Harvard Business School, Professor Gary Pisano gives his thoughts on how this initiative should be undertaken.

Historically, federal dollars flowed through various agencies to invest in basic and applied research resulted in enormous economic pay-offs in industries such as semiconductors, computer hardware and software, aerospace, telecommunications industries, the internet, advanced computer graphics and biomedical innovations.

There is no reason why the same logic should not apply to manufacturing in areas like biotechnology, nanotechnology, advanced materials, computer science, optics, and various engineering disciplines.

History provides some guidelines for making sure the NNMI lives up to its potential: 

• Government-funded research is most productive when it lays broad foundations rather than targets specific technologies for use in particular industries, and not specific companies - the failed attempt to subsidize "green energy" companies like Solyndra is an example of what not to do. Placing commercial bets requires a depth of understanding of markets and customers that only the private sector possesses, not the Federal Government.

•  Keep a balance between exploratory research and commercial need and resist the temptation to develop technologies that the private sector has no interest in.

•  Don't focus on regional economic interests, but engage academic and industrial partners from around the country.

•  Do focus on leveraging talent: Better machines, better software, or even better intellectual property are all highly mobile factors in today’s world. Talent, on the other hand, is much less mobile. And the only way to get that talent is for companies-both domestic and foreign-to do their R&D here. If the NNMI can build a first-rate talent pool of scientists, engineers, and workers with deep expertise in manufacturing disciplines, it will go a long way toward making the United States an industrial powerhouse again.

Click here to see the full article.

OSHA Inspections: Protecting Employees or Killing Jobs?

OSHA, the federal agency responsible for enforcing workplace safety, has been a center of controversy for many years. The old joke is that OSHA is not a small town in Wisconsin. 

Some new research by Harvard Business School Associate Professor Michael W. Toffel and his colleague David I. Levine suggest that OSHA may in fact have a positive influence on business. They analyzed data from California OSHA after Cal-OSHA decided to conduct randomized inspections of workplaces in addition to normal investigations of accidents and complaints.  Toffel and Levine found some interesting findings. They include:
•    Companies subject to random OSHA inspections showed a 9.4 percent decrease in injury rates compared with firms that were not inspected.
•    There was no evidence of any cost increase to inspected companies for complying with regulations. Rather, the decrease in injuries led to a 26 percent reduction in costs from medical expenses and lost wages along with a commensurate lowering of workman’s comp insurance premiums.
•     The findings strongly indicate that OSHA regulations can actually save businesses money.

I would tend to agree.  A safe workplace is good for business.  The human side is less accidents.  The financial side is less lost time and lower workman's comp premiums.  However, government tactics of fear and intimidation were never something I favored during my career as a business operator.

The authors observed that until now, there has been little solid evidence to support arguments for or against OSHA.  The effectiveness of government regulation on business in general has become a political football this election year. Advocates hold that regulations are necessary to protect public health and safety, while critics see them as arbitrary and costly to business.  The authors chose to take a closer look at the Occupational Safety and Health Administration because they had data from California OSHA that had not been available until now.

OSHA typically inspects those companies most likely to have problems, often following accidents and complaints, thus creating statistics from companies that are worse than average.

At the same time, when problems are resolved, there's no way of telling whether the inspections themselves helped fix them because a company with a bad safety experience in one year usually improves the following year even without an inspection.

Then California OSHA decided to conduct randomized inspections of workplaces, and Toffel and Levine realized they had the perfect real world experiment to settle the debate over workplace inspections.

Their most surprising finding is that inspections worked. Compared with firms that did not get a random inspection, the companies subject to random inspection showed a 9.4 percent decrease in injury rates. Just as important are the findings about the costs to companies of complying with regulations. The researchers found no evidence (within the margin of error) of any additional cost to businesses that had been inspected. In fact, quite the contrary: the decrease in injuries led to a 26 percent reduction in costs from medical expenses and lost wages. And those costs were felt immediately by the reduction of the firm's workman's comp insurance premiums.

In other words, according to Toffel and Levine, those who charge that OSHA regulations cost business money have it completely wrong. In fact, the regulations save money. The magnitude of the results surprised even Toffel and Levine, who expected perhaps a small savings if any. But the strength of the findings, they say, should persuade even skeptical critics.

The authors note, as they should, that a single study cannot settle the debate over all government regulation, or even the debate over OSHA. This study is limited to one regulatory agency in one state; other states and other agencies could show different results. One thing the research does show, though, is the value of randomized inspections as a way to help gauge regulations' effectiveness.

To review the complete article, which was written by Michael Blanding and appeared in the May 21, 2012 issue of Working Knowledge, click here.

Views on the Debt Crisis

The United States Debt Crisis continues to receive much attention in the press and on both cable and conventional news stations as well it should. In my opinion, we cannot truly escape from what is now commonly called the "Great Recession" until a real solution to the debt crisis is found. Yet Washington politics has made reaching a solution all the more difficult. Creating private sector jobs, real long term jobs, is the way out. Jobs are created as a natural part of wealth creation. That's how the US became the wealthiest country in the world. But job creation has become easier said than done.

When Standard & Poor's Rating Services lowered its long-term sovereign credit rating on the United States from AAA to AA+ it became a shot heard 'round the world. Stock markets plummeted, consumers' confidence and pocketbooks took another beating, and the blame game engulfed politicians and S&P itself. In a recent article in Working Knowledge from the Harvard Business School, four HBS faculty members give their views on the Debt Crisis.

First, in the view of Bo Becker, Assistant Professor of Business Administration, "the real story is about how unsustainable the massive US government deficits are, and how difficult they will be to close." S & P simply acted as a messenger. "Anger with S&P... is much like anger directed toward a referee who has made a difficult call—frustration with the result expressed as criticism of the messenger. "

"So rather than focus on whether S&P called the downgrade a little too soon, let's focus more on figuring out how to get the US fiscal house in order. "

Robert Kaplan, Professor of Management Practice agrees. "This downgrade was probably bound to happen." The question still remains "how can we deleverage our government and still foster growth in the economy?"

"For starters, I believe that the federal government must focus on entitlement reform, new revenues, and some new spending intended to foster growth. This new spending may involve continuation of the payroll tax holiday as well as improvements in this country's infrastructure. "

"This is an historic leadership moment. Can our leaders work together, face reality, engage in real debate and help solve our nation's problems?"

Bill Sahlman, Professor of Business Administration, continues. "I haven't felt so frustrated since Richard Nixon left office in the throes of the Watergate scandal in 1974. Our so-called political leaders have just completed a grand game of chicken, and the United States is the loser."

"One side argues that we can't raise revenues, while the other asserts we can't cut entitlements. Both sides are wrong. Entitlement costs, especially health care, will eat us alive. Without real reform of affordable health delivery, not just reform of access to health insurance, the US economy is doomed."

"On the revenue side, we will need to increase taxes, broaden the tax base, and reform the tax code or we are also doomed...You don't need a crystal ball to see that we have an unsustainable business model and no political process for change."

"What we need is simple—growth. Where does growth come from? The answer is equally simple. Business, especially new business, creates jobs and prosperity."

"Private action can overcome partisan haggling and incompetence. America is a great country, because it has citizens who constantly search for new ways to improve the world. We have willing investors. We view crises as opportunities. We, the non-politicians, need to accept responsibility for fixing the country and get on with it."

Matt Weinzierl, Assistant Professor of Business Administration, takes a different view.

"The fiscal stress on the United States is not imminent. Borrowing costs for the government are at historic lows. Bond markets, which...are S&P's customers, appear to have ignored the agency's opinion entirely."

"The US economy is not in a position to absorb fiscal austerity. The consequences of a second downturn could prove disastrous... Whether a new fiscal stimulus is merited or even possible is up for debate, but a fiscal retrenchment in the near term is likely to make things worse."

"The threat is real, the costs will be large, and we must act...What we must do is well understood: Reform entitlements and the tax code to spend less, raise more, or both. Fixing the long-term fiscal problem will require political courage. S&P may have meant their downgrade as an attempt to awaken that political will, but by issuing it during the heated debates over the debt ceiling and short-term policy, S&P risks prompting fiscal austerity over the wrong time horizon."

Click here for the full article.

We as business leaders can fix our Country's problem by growing our companies, creating wealth, which naturally results in creating jobs and increasing tax revenues. We need government to create a friendly tax and regulatory environment, then get out of the way and let us go to work. In today's political environment, this too may be easier said than done.

Sustainable Recovery?

The Institute for Trend Research, headed by Brian and Alan Beaulieu and Jeff Dietrich, has long been recognized by TEC as an accurate source of economic forecasts.

Recent poor economic news has once again fueled speculation that we may be headed for a "double dip" recession. Alan Beaulieu disagrees. In an article published in the August 2010 issue of Automation World, Alan states that the U.S. and global recovery is sustainable.

He says a sustainable recovery "... has been our outlook and that remains our outlook going forward, despite the increasing clamor of the double-dip alarmists. Yes, there are real dangers out there that threaten our well being, but we have taken them into consideration when putting together our forecast."

"However, it is expected that the rate of recovery in the United States will be milder than most of us would like and milder than we had anticipated 15 months ago."

While the news is not great, there does seem to be a light at the end of this long tunnel we are now in.

Click here for the complete article.

Federal Stimulus - Harvard Study Yields Surprising Result

Recent research at Harvard Business School began with the premise that as a state's congressional delegation grew in stature and power through a Chairmanship in Washington, D.C., local businesses would benefit from the increased federal spending sure to come their way.

It turned out quite the opposite. Researchers found that companies experienced lower sales and retrenched by cutting payroll, R&D, and other expenses. Indeed, in the years that followed a congressman's ascendancy to the chairmanship of a powerful committee, the average firm in his state cut back capital expenditures by roughly 15 percent, according to their working paper.

Over a 40-year period, the study looked at increases in local earmarks and other federal spending that flowed to states after the senator or representative rose to the chairmanship of a powerful congressional committee. These earmarks had a negative correlation to private sector growth in the state.

Conclusion: "Our findings suggest that they (the Federal Government) should revisit their belief that federal spending can stimulate private economic development. "

For more details click here.

Sam Keller
TEC 62

CO2 Controls are coming one way or another

Regardless of whether you are in the camp that that believes that climate change is a result of human produced Carbon Dioxide or you have noted that data has been corrupted by some "scientists" here and in the UK to try to "prove" their position, the U.S. Government is moving forward.

On May 13, the EPA issued its final rule regulating Greenhouse Gases -initially limiting its reach to the largest stationary sources. Under the newly issued rule, the nation’s largest GHG emitters, such as power plants, refineries and cement production facilities, will be regulated, while smaller commercial facilities, farms and restaurants will not require Clean Air Act permits to address their GHG emissions (at least for now). For more information, click here for an article on the subject from Michael, Best and Friedrich.

Almost simultaneously, Senators John Kerry (D-Mass.) and Joe Lieberman (I-Conn.) formally introduced a new climate change bill, known as the American Power Act. The draft was originally scheduled to be introduced in April 2010; however, the rollout of the bill encountered setbacks after Senator Lindsey Graham (R-S.C.) walked away from the negotiation table just before the bill was set to be finalized. According to Sens. Kerry and Lieberman, the legislation is intended to reduce carbon emissions by 17 percent by 2020, and 80 percent by 2050. For more information, click here for another article from Michael, Best and Friedrich.

So whether through regulation or law, we are headed for some form of cap and trade with accompanying higher electric bills regardless of whether there is good science behind it.

More of the New Health Care Laws

On March 30, President Obama signed the Health Care and Education Reconciliation Act, the companion law to the Patient Protection and Affordable Care Act of 2010. The new Act reflects the House and Senate's changes to the original bill.

Because of the size and complexity of these new laws, I thought it would be helpful to highlight some of the key provisions that may affect your business or impact your personal tax situation. I found an excellent summary written by Schenck's Tax Team.

Click here to learn about:

CHANGES IN EMPLOYER PROVIDED HEALTH CARE PLANS

INCREASED MEDICARE TAXES

INCREASED INFORMATION REPORTING BY BUSINESSES

Federal Hiring Incentives Act

On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment Act of 2010 (HIRE) into law. If you hire someone who has been unemployed for 60 days or more, you do not have to pay the employees payroll tax (6.2 percent) from the date of hire for the balance of 2010. In addition, you can get a $1,000 tax credit for qualified employees you hire this year and remain employed at least 52 weeks.

Let's say you hire an unemployed person on April 1, you pay them a salary of $40,000 and they work for you at least one year. The new law will save you $1,860 on payroll tax plus allow a $1,000 income tax credit. It seems very unlikely that this would be enough incentive to hire that new employee unless you were going to make the hire anyway. A nice gift, but not much incentive.

For more information, click here to view a Special Special Report from the law firm Whyte Hirschboeck Dudek on this legislation.

Health Care Legislation

On March 21, 2010 the U.S. House of Representatives passed major health care reform legislation which is likely to affect every citizen and every employer in the country. The “Patient Protection and Affordable Care Act” (H.R. 3590) or (“PPACA”) is the same bill passed by the U.S. Senate on December 24, 2009. President Obama has already signed the bill into law and it now imposes significant changes to the entire health care industry.

Two of our largest Wisconsin based law firms, Michael Best and Friedrich and Whyte Hirschboeck Dudek are offering summaries of this important legislation to help us understand it. Click here to view the Michael Best and Friedrich summary and here to view a table from them listing the main features of the bill.

Whyte Hirschboeck Dudek is offering a free Webinar on April 20, 2010 titled "Health Care Reform: A Preliminary View of What It Means To Employers." Here's the link to register.