[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

ASSEMBLING THE FACTS:
EXAMINING THE PROPOSED
NATIONAL NETWORK FOR
MANUFACTURING INNOVATION

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

THURSDAY, MAY 31, 2012

__________

Serial No. 112-86

__________

Printed for the use of the Committee on Science, Space, and Technology

Available via the World Wide Web: http://science.house.gov

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COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

HON. RALPH M. HALL, Texas, Chair
F. JAMES SENSENBRENNER, JR., EDDIE BERNICE JOHNSON, Texas
Wisconsin JERRY F. COSTELLO, Illinois
LAMAR S. SMITH, Texas LYNN C. WOOLSEY, California
DANA ROHRABACHER, California ZOE LOFGREN, California
ROSCOE G. BARTLETT, Maryland BRAD MILLER, North Carolina
FRANK D. LUCAS, Oklahoma DANIEL LIPINSKI, Illinois
JUDY BIGGERT, Illinois DONNA F. EDWARDS, Maryland
W. TODD AKIN, Missouri BEN R. LUJAN, New Mexico
RANDY NEUGEBAUER, Texas PAUL D. TONKO, New York
MICHAEL T. McCAUL, Texas JERRY McNERNEY, California
PAUL C. BROUN, Georgia TERRI A. SEWELL, Alabama
SANDY ADAMS, Florida FREDERICA S. WILSON, Florida
BENJAMIN QUAYLE, Arizona HANSEN CLARKE, Michigan
CHARLES J. ``CHUCK'' FLEISCHMANN, SUZANNE BONAMICI, Oregon
Tennessee VACANCY
E. SCOTT RIGELL, Virginia VACANCY
STEVEN M. PALAZZO, Mississippi VACANCY
MO BROOKS, Alabama
ANDY HARRIS, Maryland
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY
------

Subcommittee on Technology and Innovation

HON. BENJAMIN QUAYLE, Arizona, Chair
LAMAR S. SMITH, Texas DONNA F. EDWARDS, Maryland
JUDY BIGGERT, Illinois FREDERICA S. WILSON, Florida
RANDY NEUGEBAUER, Texas DANIEL LIPINSKI, Illinois
MICHAEL T. McCAUL, Texas BEN R. LUJAN, New Mexico
CHARLES J. ``CHUCK'' FLEISCHMANN, SUZANNE BONAMICI, Oregon
Tennessee VACANCY
E. SCOTT RIGELL, Virginia
RANDY HULTGREN, Illinois EDDIE BERNICE JOHNSON, Texas
CHIP CRAVAACK, Minnesota
RALPH M. HALL, Texas

C O N T E N T S

Hearing Date

Page
Witness List..................................................... 2

Hearing Charter.................................................. 3

Opening Statements

Statement by Representative Benjamin Quayle, Chairman,
Subcommittee on Technology and Innovation, Committee on
Science, Space, and Technology, U.S. House of Representatives.. 8
Written Statement............................................ 9

Statement by Representative Donna F Edwards, Ranking Minority
Member, Subcommittee on Technology and Innovation, Committee on
Science, Space, and Technology, U.S. House of Representatives.. 9
Written Statement............................................ 11

Witnesses:

Dr. Patrick Gallagher, Under Secretary of Commerce for Standards
and Technology and Director, National Institute of Standards
and Technology
Oral Statement............................................... 12
Written Statement............................................ 15

Discussion 23

Appendix 1: Answers to Post-Hearing Questions

Dr. Patrick Gallagher, Under Secretary of Commerce for Standards
and Technology and Director, National Institute of Standards
and Technology................................................. 39

Appendix 2: Additional Material for the Record

Materials Submitted by Subcommittee Ranking Member Donna F.
Edwards........................................................ 44

Article Submitted by Subcommittee Chairman Benjamin Quayle....... 72

ASSEMBLING THE FACTS:
EXAMINING THE PROPOSED
NATIONAL NETWORK FOR
MANUFACTURING INNOVATION

----------

THURSDAY, MAY 31, 2012

House of Representatives,
Subcommittee on Technology and Innovation,
Committee on Science, Space, and Technology,
Washington, DC.

The Subcommittee met, pursuant to call, at 10:03 a.m., in
Room 2318 of the Rayburn House Office Building, Hon. Benjamin
Quayle [Chairman of the Subcommittee] presiding.

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Chairman Quayle. The Subcommittee on Technology and
Innovation will come to order.
Good morning. Welcome to today's hearing entitled
``Assembling the Facts: Examining the Proposed National Network
for Manufacturing Innovation.''
In front of you are packets containing the written
testimony, biographies and Truth in Testimony disclosures for
today's witness. I will now recognize myself for five minutes
for an opening statement.
U.S. manufacturing's global market share has held steady at
around 20 percent for nearly the last 30 years and still
represents the largest manufacturing sector in the world. In my
home State of Arizona, manufacturing contributes approximately
$20 billion to our economy. Almost 60 percent of all U.S.
exports are in manufactured goods. Though there are some areas
in decline, contrary to popular belief, the manufacturing
sector is far from vanishing. Technology has the potential to
continue dramatically changing the sector. Both the skills
needed by workers, and the number of workers necessary could
look very different from the assembly lines of the past.
Innovative processes such as additive manufacturing, which
enable low-volume, adaptable production, are transforming the
future of manufacturing.
We don't make it easy for manufacturers in the United
States. While all of our major global competitors have been
lowering their corporate tax rates, ours has been essentially
unchanged for the past 20 years, and is now the highest in the
industrialized world. Rising costs in health care,
environmental compliance, and litigation all discourage
manufacturing from thriving domestically. According to the
Manufacturing Institute, ``U.S. industry is faced with the
highest pollution abatement costs compared to its major trading
partners, even higher than the so-called green economies of
Western Europe.''
In the first three years of the Obama Administration, the
Federal Government has imposed 106 new regulations with annual
costs of more than $46 billion. When we are discussing
manufacturing and innovation, the conversation is really about
the conditions that create a better business environment. Yet
rather than focusing on these issues, the Administration has
again chosen to create a new $1 billion dollar program, the
details of which have yet to be provided to Congress.
Today we will examine the proposed National Network for
Manufacturing Innovation. The proposed network would create up
to 15 centers around the country focused on different areas of
advanced manufacturing. During the current fiscal year, the
Administration has also moved forward with a pilot institute,
supported by up to $45 million in fiscal year 2012 funds from
multiple agencies, including three within this Committee's
jurisdiction: NIST, NSF, and the Department of Energy.
I firmly believe that manufacturing is important to our
economy and innovation, but I am troubled by the continued
reliance on politically driven research and development. I
think that the best thing we can do to help domestic
manufacturers is to trust our markets and reduce the costs of
doing business in the United States. I look forward to hearing
more about the proposed NNMI, and I hope that today's
conversation helps to provide more detail for Members of this
Subcommittee as to why the Administration believes this
initiative is necessary.
We thank Under Secretary Gallagher for being here today and
we look forward to your testimony.
[The prepared statement of Mr. Quayle follows:]

Prepared Statement of Subcommittee Chairman Benjamin Quayle

Good morning. I would like to welcome everyone to today's hearing.
U.S. manufacturing's global market share has held steady at around
20 percent for nearly the last 30 years and still represents the
largest manufacturing sector in the world. In my home state of Arizona,
manufacturing contributes approximately $20 billion to our economy.
Almost 60 percent of all U.S. exports are in manufactured goods. Though
there are some areas in decline, contrary to popular belief, the
manufacturing sector is far from vanishing. Technology has the
potential to continue dramatically changing the sector--both the skills
needed by workers and the number of workers necessary could look very
different from the assembly lines of manufacturing's past. Innovative
processes such as additive manufacturing, which enables low-volume,
adaptable production, is transforming the future of manufacturing.
We don't make it easy for manufacturers in the United States. While
all of our major global competitors have been lowering their corporate
tax rates, ours has been essentially unchanged for the past 20 years.
Rising costs in health care, environmental compliance and torts all
discourage manufacturing from thriving domestically. According to the
Manufacturing Institute, ``U.S. industry is faced with the highest
pollution abatement costs compared to its major trading partners--even
higher than the so-called `green economies' of Western Europe.'' In the
first three years of the Obama Administration, the Federal Government
has imposed 106 new major regulations with annual costs of more than
$46 billion. When we are discussing manufacturing and innovation, the
conversation is really about the conditions that create a better
business environment. Yet, rather than focusing on these issues, the
Administration has again chosen to create a new, $1 billion dollar
program, the details of which have yet to be provided to Congress.
Today we will examine the proposed National Network for
Manufacturing Innovation. This initiative would create up to 15 centers
around the country focused on different areas of advanced
manufacturing. During the current fiscal year, the Administration has
also moved forward with a pilot institute, supported by up to $45
million in fiscal year 2012 funds from multiple agencies, including
three within this Committee's jurisdiction: NIST, NSF, and the
Department of Energy.
I firmly believe that manufacturing is important to our economy and
innovation, but I am troubled by the continued reliance on politically
driven research and development. I think that the best thing we can do
to help domestic manufacturers is to trust our markets and reduce the
burdens and costs of doing business in the U.S. I look forward to
hearing more about the proposed NNMI, and I hope that today's
conversation helps to provide more detail for Members of this
Subcommittee as to why the Administration believes this initiative is
necessary.
We thank Under Secretary Gallagher for being here today and we look
forward to your testimony.

Chairman Quayle. I want to now recognize the Ranking
Member, Ms. Edwards, for her opening statement.
Ms. Edwards. Thank you, Mr. Chairman, and thank you so much
for holding today's hearing to examine the proposed National
Network for Manufacturing Innovation. I would like to thank Dr.
Gallagher--it is good to see you again--for being here this
morning and for your leadership both at NIST and as part of the
Administration's current efforts to revitalize American
manufacturing.
Although we have heard time and time again in this
Committee about the crucial link between economic growth and a
vibrant U.S. manufacturing sector, I think it bears repeating.
American manufacturing employs more than 11 million Americans
in high-paying jobs. As recently as 2010, manufacturing
contributed $1.7 trillion to the Nation's economy and accounted
for 60 percent of all U.S. exports. Manufacturers account for
nearly two-thirds of U.S. investment in research and
development. And for every manufacturing job we create, we add
five additional jobs along the supply chain. And for every
dollar in manufacturing value added, we create $1.40 in new
value in other sectors.
Advanced manufacturing is also expected to create even more
jobs. In fact, a study by the Milken Institute has shown that
every job created in electronic computer manufacturing
generated an additional 15 jobs. And, finally, innovation in
U.S. manufacturing enables our companies to develop new
technologies and new products and helps keep the United States
competitive. Simply put, ``Made in America'' equals American
jobs and a strong economy.
Unfortunately, this Committee has also heard that the
United States' competitive edge in manufacturing has slipped.
According to the Council on Competitiveness, the United States
ranks fourth in global manufacturing competitiveness and is
expected to fall to fifth place in five years. Countries such
as Korea, Japan and Germany have a larger share of the advanced
manufacturing sector than the United States. If we do nothing
and settle for the status quo, our position will almost
certainly decline further and our economy will continue to
struggle.
Thankfully, the Administration has renewed its commitment
to American manufacturing and is focused on ensuring that the
United States is the global leader in advanced manufacturing.
The truth is that the perception of manufacturing as low-
skilled, assembly-line work is outdated and no longer applies.
The future of manufacturing is in fact advanced manufacturing,
a high-tech endeavor that uses sensors, robotics, and cutting-
edge modeling and simulation. Biomanufacturing and
nanomanufacturing processes are, and will be, conducted by
high-skilled and highly trained technicians in lab-like
environments.
If we want to create high-paying jobs and help this country
keep its competitive edge, then we need to move forward with
policies and programs that will expand and support the
development of advanced manufacturing. One such proposal, the
National Network for Manufacturing Innovation, or NNMI--we are
all going to get confused about that--is the topic of today's
hearing.
The purpose of the proposed NNMI program is to establish up
to 15 public-private manufacturing institutes across the
country. These institutes will serve as centers of
manufacturing excellence that will accelerate innovation in
manufacturing and help transition cutting-edge manufacturing
technologies from the lab to the marketplace.
As I understand it, the NNMI is modeled after the
successful Fraunhofer Institutes in Germany, and Germany has
been able to withstand the global financial crisis in large
part due to its focus on innovative technologies as a key
driver to economic growth. The Fraunhofer Institutes are widely
considered to be a central and key component of the country's
effective high-tech strategy.
Based on Germany's success, a number of organizations,
including the Council on Competitiveness, the Manufacturing
Institute at the National Association of Manufacturers, the
President's Council of Advisors on Science and Technology, and
the Information Technology and Innovation Foundation, have all
called for the establishment of a similar network of public-
private manufacturing centers in the United States to
accelerate the development and deployment of advanced
manufacturing technologies.
I believe the concept has significant merit, and I am
excited by the Administration's proposal. I am eager to learn
more today about how NIST and the Administration plan to
execute this initiative, and I am specifically interested in
learning how the proposed additive manufacturing pilot
institute will be structured and how it will be coordinated
with the broader network to ensure that lessons learned will be
applied. I am also looking forward to learning more about how
the interagency partners are working together to make this
network a reality.
Certainly, the challenges facing U.S. manufacturers are
urgent. The truth is that we simply can't afford to wait. If we
are committed to a vibrant manufacturing sector and to
improving our competitive position in advanced manufacturing,
it is precisely the time for bold ideas and devoted leadership.
I look forward to working with Dr. Gallagher, the Chairman, and
my colleagues on implementing this initiative and ensuring that
it is effective and successful.
Thanks, again, Mr. Chairman, for calling this important
oversight hearing, and I yield the balance of my time.
[The prepared statement of Ms. Edwards follows:]

Prepared Statement of Subcommittee Ranking Member Donna F. Edwards

Thank you, Mr. Chairman, for holding today's hearing to examine the
proposed National Network for Manufacturing Innovation. I'd like to
thank Dr. Gallagher for being here this morning and for his leadership
both at NIST and as part of the Administration's current efforts to
revitalize American manufacturing.
Although we've heard time and time again in the Committee about the
crucial link between economic growth and a vibrant U.S. manufacturing
sector, I think it bears repeating. American manufacturing employs more
that 11 million Americans in high-paying jobs; in 2010, manufacturing
contributed $1.7 trillion to the Nation's economy and accounted for 60
percent of all U.S. exports; manufacturers account for nearly two-
thirds of U.S. investment in research and development. For every
manufacturing job we create, we add five additional jobs along the
supply chain. And for every dollar in manufacturing value added, we
create $1.40 in new value in other sectors. Advanced manufacturing is
expected to create even more jobs. In fact, a study by the Milken
Institute has shown that every job created in electronic computer
manufacturing generated an additional 15 jobs. And finally, innovation
in U.S. manufacturing enables our companies to develop new technologies
and new products and helps keep the U.S. competitive.
Simply put, ``Made in America'' equals American jobs and a strong
economy.
Unfortunately, this Committee has also heard that the United
States' competitive edge in manufacturing has slipped. According to the
Council on Competitiveness, the United States ranks fourth in globabl
manufacturing competitiveness and is expected to fall to fifth place in
five years.
Countries such as Korea, Japan, and Germany have a larger share of
the advanced manufacturing sector than the U.S. If we do nothing and
settle for the status quo, our position will almost certainly decline
further and our economy will continue to struggle.
Thankfully, the Administration has renewed its commitment to
American manufacturing and is focused on ensuring that the U.S. is the
global leader in advanced manufacturing. The truth is that the
perception of manufacturing as low-skilled, assembly line work is
outdated and no longer applies. The future of manufacturing is advanced
manufacturing, a high-tech endeavor that uses sensors, robotics, and
cutting-edge modeling and simulation. Biomanufacturing and
nanomanufacturing processes are, and will be, conducted by high-skilled
and highly trained technicians in lab-like environments.
If we want to create high-paying jobs and help this country keep
its competitive edge, then we need to move forward with policies and
programs that will expand and support the development of advanced
manufacturing. One such proposal, the National Network for
Manufacturing Innovation (or NNMI), is the topic of today's hearing.
The purpose of the proposed NNMI program is to establish up to 15
public-private manufacturing institutes across the country. These
institutes will serve as centers of manufacturing excellence that will
accelerate innovation in manufacturing and help transition cutting-edge
manufacturing technologies from the lab to the marketplace.
As I understand it, the NNMI is modeled after the successful
Fraunhofer Institutes in Germany. Germany has been able to withstand
the global financial crisis in large part due to its focus on
innovative technologies as a key driver to economic growth. The
Fraunhofer Institutes are widely considered to be a central and key
component of the country's effective high-tech strategy.
Based on Germany's success, a number of organizations--including
the Council on Competitiveness, the Manufacturing Institute at the
National Association of Manufacturers, the President's Council of
Advisors on Science and Technology, and Information Technology and
Innovation Foundation--have called for the establishment of a similar
network of public-private manufacturing centers in the United States to
accelerate the development and deployment of advanced manufacturing
technologies.
I believe that NNMI concept has significant merit and am excited by
the Administration's proposal. I am eager to learn more today about how
NIST and the Administration plan to execute this initiative.
I am specifically interested in learning how the proposed additive
manufacturing pilot institute will be structured and how it will be
coordinated with the broader Network to ensure that ``lessons learned''
will be applied. I am also looking forward to learning more about how
the interagency partners are working together to make this Network a
reality.
Certainly, the challenges facing U.S. manufacturers are urgent. The
truth is that we simply can't afford to wait. If we are committed to a
vibrant manufacturing sector and to improving our competitive position
in advanced manufacturing, it is precisely the time for bold ideas and
devoted leadership. I look forward to working with Dr. Gallagher, the
Chairman, and my colleagues on implementing this initiative and
ensuring that it is effective and successful.
Thank you again, Mr. Chairman, for calling this important oversight
hearing. I yield back the balance of my time.

Chairman Quayle. Thank you, Ms. Edwards.
If there are Members who wish to submit additional opening
statements, your statements will be added to the record at this
point.
At this time I would like to introduce our witness. Dr.
Patrick Gallagher is the Under Secretary of Commerce for
Standards and Technology and the Director at the National
Institute of Standards and Technology. Thanks for being here
this morning. As our witness should know, spoken testimony is
limited to five minutes. After presenting your spoken
testimony, Members of the Committee will have five minutes each
to ask questions.
I now recognize our witness, Dr. Patrick Gallagher, for
five minutes.

STATEMENT OF DR. PATRICK GALLAGHER,

UNDER SECRETARY OF COMMERCE FOR

STANDARDS AND TECHNOLOGY AND DIRECTOR,

NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY

Dr. Gallagher. Thank you very much, Chairman Quayle and
Ranking Member Edwards and Members of the Committee. It is a
privilege for me to be here and have the opportunity to talk
about the Administration's proposed National Network for
Manufacturing Innovation. I appreciate this opportunity to
update you because there has been a lot of progress on
implementing the President and Secretary's vision to ensure
U.S. basic and applied research and development is optimally
leveraged to benefit U.S. industry. Manufacturing matters, Mr.
Chairman. As the President has said, an economy built to last
demands that we keep doing everything we can to keep
strengthening American manufacturing.
``A manufacturing strategy for the 21st century should
focus on making the industry sector globally competitive.''
That is a quote from the American Enterprise Institute, and we
agree. A robust manufacturing sector is in everyone's interest
and of importance in everyone's district. The Administration
and NIST are critical partners in this effort and have been
hard at work on this issue.
The stage was set last summer in a report on advanced
manufacturing by the President's Council of Advisors on Science
and Technology, PCAST, and it reminded us why manufacturing
remains essential. Manufacturing that is based on new
technologies can provide high-quality, good-paying jobs for
American workers. It is critical to our balance of trade. It
represents 60 percent of U.S. exports and it drives
technological innovation, accounting for some 70 percent of
private sector research and development activity in the
economy. The report also made it clear that the government
should play an important role through the development of an
innovation policy as opposed to an industrial policy, and the
difference is crucial.
Given the breadth of manufacturing, the report looked at a
broad range of approaches to help sustain and grow the sector.
In addition to research and development, the report looked at
areas such as taxes, trade, workforce, regulations, small
business and education policies and how they either can help or
hinder the health of the manufacturing sector.
Another consequence of a focus on manufacturing is the
importance of an effective interface between the public and
private sectors, and because of this, when the PCAST report was
released in June of last year, the President also announced the
formation of the Advanced Manufacturing Partnership, whose
purpose is to bring together industry, universities and the
Federal Government to work together to invest in the emerging
technologies that will create high-quality manufacturing jobs
and enhance our global competitiveness. To complement the
public-private partnership, the Administration also
strengthened the interagency coordination on advanced
manufacturing, and in that context, NIST was asked to play a
key role.
In February, the National Science and Technology Council
had an interagency working group on advanced manufacturing and
it issued a report that said that the acceleration of
innovation for advanced manufacturing requires bridging a
number of gaps in the present U.S. innovation system,
particularly the gap between research and development
activities and the deployment of technological innovations in
the domestic production of goods, and other organizations
ranging from the Information Technology Innovation Foundation
to major U.S. companies such as Dow and GE have each expressed
their support of an approach to address these gaps in a
strategic and targeted way.
The NNMI is the Administration's approach to meeting the
challenges of addressing these gaps. The President's proposed
network would create up to 15 Institutes for Manufacturing
Innovation, or IMIs, around the country, and these IMIs would
bring together industry, universities, community colleges,
federal agencies, regional and state organizations all working
together to accelerate innovation by investing in industrially
relevant manufacturing technologies with broad applications.
The President also announced that the Administration will
take immediate steps to launch a pilot demonstrating an
Institute for Manufacturing Innovation but based on existing
programs within the Department of Defense and potentially also
including the Energy and Commerce Departments, NASA and the
National Science Foundation. These are two distinct efforts but
have an important relationship between them, and I would like
to briefly expand on this.
The NNMI program has not yet begun. It will require
legislation enacted to fund and carry out this program, and
currently the Administration is working under requirements and
principles of that legislation to support Congressional efforts
on a potential bill. I am looking forward to working with this
Committee on that effort.
The principles outline the basic features of the NNMI
program that would be established under competitive grants
through the program, and we are working on developing these
principles with extensive input from our agency partners and
from the private sector through a series of regional meetings
and through a request for public information and, importantly,
through the pilot.
The pilot program that the President announced is a way for
us to demonstrate the concept of multiple agencies, industrial,
and academic consortia jointly executing a single program. That
is the essence of these institutes. And it is really a
demonstration effort based entirely on existing programs within
the participating agencies. There is much we will learn through
the process of standing up an institute with our federal
partners and enable us to use those lessons to benefit the
eventual design of the NNMI. It is an area that cuts across
different agency missions, and each agency brings their own
expertise. NIST has been asked to play a critical role in both
its interagency capacity and because of its mission.
Mr. Chairman, I want to thank you for the opportunity to
testify today and I am looking forward to our discussion.
[The prepared statement of Mr. Gallagher follows:]

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Chairman Quayle. Thank you very much, Dr. Gallagher.
I want to remind Members that Committee rules limit
questioning to five minutes. The Chair will at this point open
the round of questions and I recognize myself for five minutes.
Dr. Gallagher, I agree with you in terms of the importance
of manufacturing to our economy, to our exports, to providing
good, high-paying jobs here in the United States, but one of my
concerns is, with the focus, especially on a policy basis,
addressed specifically to the manufacturing sector, why
shouldn't we just be focusing on broader applications, broader
policy decisions that affect all businesses? I don't think I am
alone in this. I think Christina Romer in a recent article
stated that, you know, not seeing any specific market failures
within the manufacturing sector, we should be focusing on
policy decisions that affect all businesses so they can be
successful and they can grow and they can expand.
What do you see that is different that is a special need
for the manufacturing sector, especially seeing that we haven't
lost out and we have been holding steady in manufacturing since
1980?
Dr. Gallagher. So that is a great question, and it is
actually central to almost every policy discussion we end up
having about manufacturing. In fact, recently Gene Sperling,
the President's lead economic advisor within the White House,
had a speech about this, talking about the role of government
in manufacturing-related activities, and actually made the
observation, this is a place where otherwise like-minded
economists can even disagree, and I think it comes from--it
stems from a natural discomfort in talking about any one sector
in the economy and the issue of broad-based policy.
But the PCAST report actually laid out a compelling reason
why we need to actually take a look at manufacturing, even if
we don't have manufacturing-specific policy solutions. And I
agree with you, a big part of this is laying out the general
conditions for business of which manufacturing is part of and
making sure that in that context we have a business climate,
whether that is through taxes, trade, regulations and so forth,
is as supportive as possible because these businesses are
competing in very robust globally competitive markets, and that
is clearly part of the Administration's policy focus as well
and it was outlined in the NSTC report.
The interesting thing about manufacturing, though, is it
plays a couple of unique roles as a sector. Some of them have
been longstanding policy areas. One is how it supports our
national defense capabilities and the need for domestic
manufacturing capacities in fact entwine with our ability to
secure and protect our country. Additionally, the manufacturing
sector is rather unique in how it interfaces with our Nation's
capacity to innovate. Most of the R&D investments and
performance in this country are not done by the Federal
Government, they are done by the private sector. And 70 percent
of that private sector activity is in manufacturing-based
activities, so it plays a disproportionate role. And in fact,
that is one of the reasons these public-private partnership
issues are automatically brought up in manufacturing, because
on one end, as a country, we support through public investments
basic research, even applied research. In some areas where
there is an overriding mission need, like in defense or energy
and others, we go farther. But there has to be an effective
transition of this know-how to the private sector if it is
going to reap the full economic benefit to the country.
Chairman Quayle. You bring up some interesting points. In
looking at what the Administration did, they devoted a
significant amount of resources to manufacturing activities at
many different federal agencies. For example, just this week,
the Administration announced that the Advanced Manufacturing
Jobs and Innovation Accelerator Challenge, which is a multi-
agency, $26 million effort to assist the development and
implementation of regionally driven economic development
strategies that support advanced manufacturing in cluster
developing. So I am trying to figure out what I am missing
here, because this sounds really similar to NN--it is
difficult, Ms. Edwards--NNMI. So what am I missing? How is this
different? Are we having--putting just more redundancy, more
overlapping programs that are trying to actually have the same
goals and accomplish the same goals?
Dr. Gallagher. Only to the extent that there are a number
of programs that touch on manufacturing but the programs
themselves are quite different. So the interesting thing about
manufacturing from a federal policy perspective is that it is a
big enough and diverse enough set of activities that it touches
federal programs in a number of ways. It will touch workforce,
it touches training and education, it touches innovation, it
touches economic development, small business support. One of
the focus points has been, how do you bring disparate different
federal efforts into alignment so that you can have greater
synergy, and that was certainly the focus of the announcement
this week, to look at a regional manufacturing strategy,
another theme that came up as we talked to industries across
the country. That is the point of integration. That is where
everything comes together. That is where a company and its
supply chains and the educational infrastructure and the small
business support, the banking industry, the VC funding,
everything needs to be in place to have this whole-greater-
than-the-sum-of-the-parts effect.
And so the announcement in that context was, how do you
bring different programs into alignment so you have that larger
effect. The NNMI is basically, very simply, about creating
shared R&D infrastructure. It is a place where different
companies can work together alongside national lab and
university researchers to effectively bridge this gap between
one part of the research community that is largely operating on
public funding and one set of institutes and a set of
organizations that are all private sector funded that are
working in different businesses, so that is basically what the
NNMI is. It is shared R&D infrastructure.
Chairman Quayle. Okay. Thank you very much.
I now recognize Ms. Edwards for five minutes.
Ms. Edwards. Thank you very much, Mr. Chairman, and I would
note that I guess Dr. Gallagher has been saying NNMI for a long
time because you seem--it seems to roll off your tongue.
Before I begin my questions, Mr. Chairman, I would like to
ask unanimous consent to include a few items in today's hearing
record. The first is a statement from the Council on
Competitiveness outlining some of its recommendations for
revitalizing manufacturing in the United States and expressing
support for the National Network for Manufacturing Innovation
Proposal.
The second: as you may be aware, late last year the
Manufacturing Institute, that is the educational and services
arm of the National Association of Manufacturers, and EWI
jointly developed a proposal to establish a network of advanced
manufacturing application centers across the country, similar
actually to what is being proposed in NNMI, and I would like to
submit the PowerPoint presentation that was delivered by EWI
and the Manufacturing Institute just this past December that
clearly articulates the need for these centers and outlines a
critical role for the Federal Government in providing support
for the network. In fact, in the submission, the manufacturing
application centers point specifically to capital equipment and
core capabilities funded by the Federal Government, essentially
recommending 20 percent of that kind of funding balanced by
competitively bid programs, and I would like to note that
yesterday, EWI's CEO specifically encouraged its member
companies to get behind the Obama Administration's NNMI
proposal.
And the third item I would like to introduce for the record
is a press release from the Information Technology and
Innovation Foundation applauding the NNMI, and in the press
release, the foundation's president, Rob Atkinson, claims that
the NNMI is ``one of the most important steps this or any
Administration has taken in recent years to revitalize American
manufacturing.''
Mr. Chairman, I would like to add those to the record.
Chairman Quayle. Without objection.
[The information may be found in Appendix 2.]
Ms. Edwards. Thank you.
And then to Dr. Gallagher, in your testimony, as we have
heard time and time again, manufacturing is closely tied to
competitive and innovative capacity of our Nation. Undoubtedly,
manufacturing creates well-paying jobs and is key to our
economic growth. What is less clear is what gap or need NIST is
trying to fill through the establishment of the National
Network for Manufacturing Innovation, and so I wonder if you
could describe the need that the network will attempt to
address.
Dr. Gallagher. Thank you very much. So the gap in the R&D
cycle that is being looked at is basically between an area
where we are quite comfortable with public investment, largely
at universities or national labs, where we are looking at basic
or early applied research very clearly pre-competitive and it
is performed and funded in very different ways than another
sector, which is very late-stage technological development
performed by individual companies through their own funds. What
we are concerned about is that there is both almost no programs
in the middle bridging those two, and the degree of segregation
between those two groups of participants has in fact grown
wider. It has grown wider by shifts in funding both on the
federal side in terms of the balance between applied and basic
R&D, and it has also become a larger gap in terms of the nature
of what private industry funds. And so the answer appears to be
creating a vehicle where companies can leverage each other, in
other words, create--pool the risk and address--because we want
to move the private sector into the earlier stage research to
begin to perform that, and we also want to put it in a place
where the folks doing the early-stage research have access. So
you are creating a mixing zone.
So it is really trying to address this very important gap
between two different communities, and that is one of the
reasons I believe that we are hearing such broad support from
across industry, from across academia, and from across all
these associations that this type of entity is really quite
important.
Ms. Edwards. Thank you, Dr. Gallagher, and I wonder if you
could share with us (because I think a lot of us have questions
about this, given that NIST has historically focused mostly on
intramural research): in addition to the funding level that is
proposed for the program, it really dwarves NIST's entire
current annual budget. Can you explain why NIST is the best
equipped to oversee the implementation of the network?
Dr. Gallagher. So it is a great question. You know, since
prior to the late 1980s NIST research funding was all
intramural. You are correct. And the addition of intermural
programs largely came in the late 1980s. So NIST does have some
experience running these programs. One thing to emphasize,
though, is that the NNMI is envisioned as a multi-agency
effort. This is really not about giving NIST a unique program.
This is designed to support, because manufacturing supports a
wide variety of agencies. This ability to act in concert to
bring a spectrum of efforts and looking at manufacturing from
the Defense Department, from the Energy Department, from NASA,
from National Science Foundation and NIST is critically
important.
That being said, from a clear accountability perspective,
it was viewed as, while we will build in strong interagency
vehicles to make this work as a multi-agency effort, somebody
has to basically be on the hot seat for making sure this is
done right; and in particular, since the idea is to have a
network, something that links these different entities together
so that again there is a whole greater than the sum of the
parts, an ability to disseminate best practice. NIST has
tremendous experience in networking manufacturing-related
activities together. That is really what MEP is, and we have
had experience at running these types of programs, and I think
the consensus from the interagency community was that it really
made the most sense for NIST because of its broad mission to
support the competitiveness of U.S. manufacturing was the
natural sort of home, but this really is done through a multi-
agency effort.
Ms. Edwards. Thank you.
My time is expired. Thank you, Mr. Chairman.
Chairman Quayle. Thank you, Ms. Edwards.
I now recognize the gentleman from Texas, Mr. Smith, for
five minutes.
Mr. Smith. Thank you, Mr. Chairman.
Dr. Gallagher, first of all, let me thank you for the good
work you have been doing, particularly in regard to scientific
research and developing standards. I think NIST has done an
outstanding job in those areas, and you get the credit.
However, in regard to NNMI, I wish the Administration were
more interested in creating jobs the old-fashioned way, which
is to say, either lowering taxes or keep taxes low. That
encourages businesses to invest and produce and create jobs
that way, and also in reducing the burden of regulations on
small business, or any business as far as that goes. As you
know, this Administration has broken all kind of records with
its proposed regulations, I think over 200 in 2011 alone, each
of which would cost businesses over $100 million, and here we
have President Obama twice publicly, I think first in his State
of the Union address and the second during an address to a
joint session of Congress, talking about the need to reduce the
burden of these stifling regulations on businesses. We have
heard the words and yet his actions contradict those words. And
so like I said, I wish this Administration were more committed
to creating jobs by reducing regulations and keeping taxes low.
I hope this NNMI initiative is not just another example
of--or a smaller version, for instance, of the stimulus plan,
$800 billion there, which we saw did not work, did not keep
unemployment below eight percent, and in fact, even the
President admitted there were very few shovel-ready jobs
created and very few jobs created as a result.
In this case, you have come out with a one-time-only one-
year mandatory spending of $1 billion. I don't know why we
expect this to be any better or to perform any better than
other stimulus bills that the Administration has advanced that
have not particularly worked. And I think this follows up on a
question you were asked earlier. Why is it that we haven't seen
any specific legislation, legislative language in regard to the
NNMI program? And when are we going to see that language?
Dr. Gallagher. Thank you very much. So let me focus on the
why is this one time and what is the path forward.
Mr. Smith. Well, actually if you will answer that last
question first, and then you can go back to that. But why
haven't we seen language and when are we going to see language
specifically proposed by the Administration?
Dr. Gallagher. Very good. So the Administration did not
intend to send over a ready-to-enact piece of legislation. The
reason being for that is we believe that the best vehicle to do
this would be to come up with a legislative proposal that can
have broad bipartisan support.
Mr. Smith. Okay. Who is going to write that, or who are the
people working on that?
Dr. Gallagher. Well, I think we are hoping that that effort
would be led from the Hill and that we would work with any
interested committees that would be willing to do that
including----
Mr. Smith. Has the Administration approached any
Congressional leaders yet, and if so, who have they approached?
Dr. Gallagher. The approach--the Administrative strategy
has been led by the White House, and I am sure they have had
discussion with manufacturing caucus-related groups. I don't
have a list of who they have specifically talked to at this
point. From my perspective, we have been talking with everyone
who has expressed an interest and has wanted to talk about the
proposals. And the NIST focus has been to try to outline those
parts of the program that would be required to be defined in
legislation that would make these institutions function
effectively. The issues of how to identify the costs, the
outlays and the offsets is not something within NIST we have
been specifically focused on.
Mr. Smith. Okay. Not specifically focused on worries me a
little bit. When you had the Administration propose a new
program and you can't say who they talked to in Congress and
you can't say specifically where the money is going to come
from, that begins to look more and more like a political
election-year-eve initiative that is not really serious or is
not conceived to be a piece of legislation that will actually
pass. Do you understand why we might think that when you can't
say who you have approached and you can't give us any
specifics?
Dr. Gallagher. I can see why, but I have to say, it is my
failure to communicate effectively, not a signal of the
Administration's intent and priority to this program. I think
our goal would be to find a vehicle, a piece of legislation
with as broad as support as possible. I don't think this is
being done for any political----
Mr. Smith. I am sure the Congressional leaders would
welcome that approach when and if it occurs, and can you tell
us again where that likely source of the $1 billion might be
since it is going to be redirected from other programs? What
other specific programs will be cut?
Dr. Gallagher. So my understanding is that the
Administration's 2013 budget has identified a number of
potential offsets.
Mr. Smith. You mentioned that a while ago, but you can't
tell us specifically where those offsets are?
Dr. Gallagher. No. I think there were several hundred
million dollars worth of offsets that were identified, was my
understanding, and I at this point could not do that, but I
would be happy to follow up with you.
Mr. Smith. Okay. I hope you will follow up where the
specific offsets might occur, what language--surely the
Administration's legislative shop has some specific ideas, but
until they come up with the specifics, I think I am slightly
skeptical about how serious the Administration is.
Thank you, Dr. Gallagher.
Dr. Gallagher. Thank you.
Chairman Quayle. Thank you, Mr. Smith.
At this point, I would actually like to ask unanimous
consent to put into the record the recent article in USA Today
by Dan Ikenson regarding various policies to help the
manufacturing sector and the broad business sector. Without
objection, it will be included as part of the record.
[The information may be found in Appendix 2.]
Chairman Quayle. I now would like to go to--recognize Ms.
Bonamici from Oregon for five minutes.
Ms. Bonamici. Thank you, Mr. Chair.
Dr. Gallagher, thank you so much for being here today to
talk about the importance of manufacturing and the critical
role that we can play at the federal level to support
innovation in manufacturing. I know last week was Small
Business Week, and I spent the district work period touring
small businesses across northwest Oregon, and the topic of
manufacturing and innovation naturally came up often, as it is
directly related to small business job growth and job creation
in my district. I was in Astoria, Oregon. I had a great
discussion with a small business that was recently able to
start canning their own product, allowing them to sell their
product throughout the Northwest. I am proud to share this
example with my colleagues here today. There are a number of
efforts and opportunities in place that seek to leverage
federal resources through partnerships with State and private
sector stakeholders to boost manufacturing.
Dr. Gallagher, can you share with us how the proposed
National Network for Manufacturing Innovation as part of the
comprehensive manufacturing innovation strategy will help small
businesses like the one in my district continue to grow?
Dr. Gallagher. I am delighted to, and I appreciate your
comments and observations about the MEP program in Oregon. That
is great to hear.
So there are a couple of overlaps between interactions the
existing MEP program and the NNMI. The NNMI, as I said, is
really about creating shared research capacity. One of the
interesting developments is that we tend to think of industrial
R&D as largely based out of big companies. That is not true
anymore. The small and midsized manufacturers have become
centerpieces of innovation and manufacturing technology,
process, new materials, and that is particularly true in
emerging technology areas. So one of the things that we
envision is that the NNMIs, the Institutes created under this
program would be specifically designed to foster and
incorporate small business participation, small manufacturing
participation, and one of the ways that they can provide that
outreach is by creating partnerships with the local MEP
programs, which are already networks to tens of thousands of
local manufacturers from across the country. So you have an
existing network that is working with existing small businesses
and supporting their competitiveness including looking at, you
know, diversification, introduction of new technologies
supporting trade, and we are talking about a network of
research capacity which brings together companies and academia
to work on enabling technology. These two networks, of course,
can feed off each other, and that is probably the biggest
synergy between these two programs.
In fact, the concept of a network to disseminate not only
best practice between the institutes, but to have sort of
shared metrics so that as these institutes evolve, you know,
they grow and they develop in a way that is most supportive of
their goals, something we learn from MEP.
Ms. Bonamici. Thank you very much. And also we know that in
order to maintain a strong manufacturing base in this country,
we need to develop advanced manufacturing technologies,
processes and materials--but we also need to develop a highly
skilled workforce that is capable of filling the high-
technology and manufacturing jobs of the future. Can you
explain how workforce development will be incorporated into the
National Network for Manufacturing Innovation Programs?
Dr. Gallagher. Yes, I can. So I think the interaction with
workforce, which, as you point out, is one of the key things
that comes up when we talk to every manufacturing entity,
really has sort of two aspects to it. As a shared R&D
infrastructure, you know, and manufacturing employs some 70
percent of the private sector researchers, engineers and
scientists in the United States, there is a direct tie with
that type of workforce development. This is a venue for
bringing in top research talent working on industrially
identified and relevant programs and it creates clear pathways
to that workforce need.
But the other interaction is a more indirect one, that
these institutes are expected to be magnets for co-location for
synergies between the manufacturer activity itself and the R&D
activities including technical scale-up. So, you know, we
envision, you know, technical and vocational training programs
including community colleges, that there will be opportunities,
the knowledge creation that is happening to these institutes to
support broader workforce training programs in these regions
that would be around these institutes.
Ms. Bonamici. Thank you very much.
I yield back.
Chairman Quayle. Thank you, Ms. Bonamici.
The Chair now recognizes the gentleman from Illinois, Mr.
Hultgren, for fve minutes.
Mr. Hultgren. Thank you, Mr. Chairman. Thank you, Dr.
Gallagher.
I am confused about the purpose of the institutes. The
Administration Website states that they may conduct basic and
applied research, but other documentation suggests that the
institutes will focus on applied research in order to scale up
new technologies in the United States. This definitely would
squarely place such work outside the basic research domain.
Which is it?
Dr. Gallagher. Both. So the intent is to have--the
institute program is designed to stand up and form these
institutes where you can have mixed--you can bridge this gap
between basic and applied and between much more developmental
activities. So the institutes themselves need to support a
broad range of research activities. I think one of the key
questions you are raising is, where is the federal funding
going? The federal funding for those research activities would
be done on a project-by-project basis. So it would certainly be
appropriate for some project being done maybe at the institute
to be supported by federal funding if it was in basic--in
appropriate basic or applied window, but if it is really out in
an area that is getting closer to technology development for a
particular company, we do not envision that to be something
that would be publicly funded. In fact, one of the major
objectives of these institutes is that they create a venue, a
vehicle that is attractive for increasing investment in R&D by
companies.
Mr. Hultgren. Would there be a check on that? Because I
really do think at a time like this, when resources are so
tight, I am a strong proponent of supporting basic scientific
research, but it is really that application where the private
sector has shown an ability and a willingness to do it. How are
we going to make sure that we are not spending federal dollars
in an area that we shouldn't be?
Dr. Gallagher. So there are two tensions here. The way I
think this will play out in practice is through the actual
cooperative agreements that cover project-specific activities,
and that is how we will ensure that, you know, federal funding
doesn't go for something that is inappropriate. There is going
to be a mixture of activities in these institutes, and that
can't be a recipe for inappropriately mixing funding against
what it was purposed for.
That being said, you know, you are raising this important
issue, which is in tight times, we focus to mission unique, and
the government provides basic research, and that is part of
what has been driving this strong segregation of participation.
So we are fighting--you are exactly right. You don't want
inappropriate funding, but you also still need to create a
vehicle where that proximity and that technical interaction can
continue to occur, and that is kind of the key question.
Mr. Hultgren. I do wonder, and I can go on to the next
point, you know, would we really need such direct support for
manufacturing applied research and development? Would it even
be necessary, you know, if government intervention was directed
instead at reducing general taxes, regulatory burdens that
really are hindering American companies? I wonder if there is
another way at getting this accomplished rather than some of
the direct support?
Dr. Gallagher. So I am going to--you know, my take on that
would be, there are two issues here. One is, I would agree with
you entirely that for manufacturing to be competitive, we have
to do all these things. It is not enough to simply have access
to good ideas and technology if you can't compete and sell it
in a global market. No question. The institutes are a piece of
a larger puzzle and the piece that they are after is making
sure that the transfer of knowledge is as efficient as possible
between the investments we do make as a country in basic and
applied research and what we hope to be a commercial use in
manufacturing.
That gap is real, and I think even doing things like
lowering R&D--increasing the R&D tax credit and things of that
type, while it supports efforts by individual companies to
enhance and grow their research investments, the missing issue
is how to get them to work in longer intermediate-range
research where individual companies have been reluctant to make
those longer-term commitments, and we believe that by working
together in these type of shared research institutes and this
type of shared research infrastructure that you facilitate that
because they leverage each other's investment, and that is
really the idea both behind consortia and behind the call for
this type of infrastructure.
Mr. Hultgren. My time is running low, but if I can try and
get one more very specific funding question. Information on the
fiscal year 2012 funding for the pilot institute has been
unclear as to the total amount of funding available and which
agencies are supporting the pilot financially. In some cases,
at least $45 million has been posted while another up to $45
million. I wonder if you could please clarify briefly the
amount that has already or will be spent from fiscal year 2012
funds on the pilot and which agency funds are being used.
Dr. Gallagher. So the quickest way for me to give you the
full breakdown will be to share a table with you afterwards,
which I am happy to do.
Mr. Hultgren. Thank you.
Dr. Gallagher. But it is up to 45. The amount that is part
of the joint call, which is part of a joint solicitation that
is being carried out by the Defense Department, NSF, NASA and
DOE is 30, and then what we have identified is once the
institute is established, it would be a likely candidate for
additional funds on a competitive basis, and that is where the
``up to'' comes from, but I think the table will answer your
question most succinctly.
Mr. Hultgren. Okay. Good. Thanks, Dr. Gallagher.
Thank you, Mr. Chairman. I yield back.
Chairman Quayle. Thank you, Mr. Hultgren.
The Chair now recognizes the gentleman from Illinois, Mr.
Lipinski, for five minutes.
Mr. Lipinski. Thank you, Mr. Chairman.
I want to thank Dr. Gallagher for your work and for your
testimony. I certainly think the NNMI is a very good and
important concept, and I think you have been doing a good job
of explaining why that is. I think one of the things that we
really have to look at is: we invest a tremendous amount in
research. The Federal Government invests a lot in research. And
right now, one of the biggest barriers to advanced
manufacturing commercialization is that the development of new
technologies are sometimes too risky or too long-term for
industry to develop on its own, and that is what it sounds like
to me what you are aiming at doing here.
I have pushed the Federal Government to develop a national
manufacturing strategy. We are actually having a hearing in
Energy and Commerce tomorrow on a bill I have to implement a
national manufacturing strategy. I have also championed
programs like one that just began at the NSF called the
Innovation Corps, which helps to teach researchers how to
commercialize research that they have had funded already by the
Federal Government.
So I think the NNMI certainly can help, but obviously we
need to work through these things. I am looking forward to
working with you to figure out how exactly we are going to
implement the NNMI. It is my understanding from your written
testimony that this model has been successfully deployed on
other countries. You have looked at that. I know the Fraunhofer
Institute in Germany is one example. I know a lot of their
funding, much of their funding comes from doing contract
research. This is not something that you had mentioned, or at
least I hadn't noted it. Do you anticipate that that will be
part of this initiative?
Dr. Gallagher. I think the answer is yes. You know, the
development of a stable business model for these institutes is
going to be something that will need to be played out in the
solicitation review and award process for this program. We
envision this as a one-time investment with the government
playing this convening and coordination role and allowing some
time for the private sector entities that are going to work
together in these institutes to develop the vehicles for a
sustainable business model. The way it has played out in many
countries is a combination between support to the institute,
what I would call base funding to keep the institute's overall
functions working, and the research activities that are covered
on a project-by-project basis. You can call that contract or
grant or cooperative agreement, but there would be, you know,
specific funding. And I think that is probably going to be the
case here just because of the diversity of types of research
that are going to be done there and addressing the need to make
sure that federal funding is used for the purposes of federal
funding, and private-sector funding that is brought in is for
used for the companies that want to use it for.
So I think you are right. This is a shared infrastructure
and there will have to be some base funding of some type,
probably through some collective action on the part of the key
participants. Whether it is consortia-type program, I don't
know. We envision no long-term role for the Federal Government
supporting that, and then a collection of project-specific or
contract-type work that would cover the different types of
research efforts underneath the institute. That seems like a
realistic assumption to make on how a possible business model
would go. This is, by the way, the subject of questions under
the request for information that is ongoing now.
Mr. Lipinski. Well, obviously, there are a lot of things
that we have to work on. I want to take the last minute to ask
one other question.
What can be done as we develop this initiative to ensure
that we are not just helping the Chinese to build better iPads?
How do we--what steps can we take to make sure that products
that are developed from work at the NNMI are commercialized
here in America?
Dr. Gallagher. So one part of my answer would be, we should
build these institutes because to not do it is actually
enabling foreign competition to reap the very open and diverse
output that we have from our basic and applied research simply
because we are not taking steps to nurture that next stage,
which is the translation of that know-how and knowledge into
the commercial sector. So I would argue right now, we actually
do disadvantage ourselves by basically doing one part of it,
publishing it wide open and then stopping and not providing
vehicles for the efficient translation into companies.
Mr. Lipinski. I agree with that, but the iPad was really
developed here but now it is all being manufactured overseas.
Dr. Gallagher. And so this points to the synergy that
happens between the actual manufacturing activity and the
innovation. The reason these are physical institutes for
research and development around manufacturing is to support and
drive this collocation synergy. We would want to see
manufacturing and their suppliers and this ecosystem being
built around these activities. That is the best thing we can do
to ensure that the know-how that we generate in this country is
translated into the actual maximum economic benefit by
producing, selling and making these commercial products. A good
example of that is what is happening in Albany, New York, in
the nanotechnology arena where this shared research capacity
looking at this emerging area of nanomanufacturing is driving
very strong attraction by other companies to want to be located
near that to reap the benefits of both the knowledge that is
being created and the talented researchers in that area, and so
I think we are doing a lot in that case. That region is doing a
lot to capture as much as possible that knowledge and ensure
that we benefit from it.
Mr. Lipinski. Thank you. I yield back.
Chairman Quayle. Thank you, Mr. Lipinski.
The Chair now recognizes the gentleman from Minnesota, Mr.
Cravaack, for five minutes.
Mr. Cravaack. Thank you, Mr. Chair. I appreciate being
recognized, but since I just came in from another committee
meeting, I would like to yield my time to Mr. Palazzo.
Mr. Palazzo. Well, thank you, Mr. Chairman. Thank you, Mr.
Cravaack, for doing so.
Dr. Gallagher, thank you for being here today. As I see it,
you are coming in, or the Administration is requesting $1
billion, and I have tried to review everything, and what I keep
coming back to is, I would much rather spend $1 billion on
roads and bridges or possibly even $1 billion into the NASA
Heavy Lift program.
But with all that being said, I would like to say a
couple--provide a statement for you, and I think it will be
pretty clear. You may have heard some of these questions
earlier. But Thomas D. Hopkins, a researcher for the Small
Business Administration, said in his report, a Survey of
Regulatory Burdens, ``Compliance with regulation imposes
burdens on businesses for which they receive no explicit
benefits or compensation.'' The National Association of
Manufacturers asserts that their industry is at a significant
competitive disadvantage in the global marketplace as a result
of the corporate tax rate in America, which is the highest
among developed nations. Also, a recent Small Business
Administration study showed that U.S. manufacturers bear $162
billion annual burden to comply with federal regulations. These
are dollars manufacturers are not spending on capital
investment or hiring new workers. So you are asking for a one-
time investment of $1 billion, but as a former small business
owner and a CPA, I would be trying to remove these hurdles to
job creation and American competitiveness before I invested $1
billion.
And so with that, in the face of the uncertain future of
taxation and the regulatory environment on manufacturers in
America, what is the NNMI going to do to reduce these burdens
on U.S. manufacturers?
Dr. Gallagher. So I would agree with you that in
manufacturing, we have what I call a chain of performance
problem, that all of these things have to work in concert, and
I am actually in agreement with you that we have to look at the
business condition that these companies are operating in
including the tax rate. We agree. We have to lower the
corporate tax rate for these businesses. We want to provide
incentives for them to do research and development. We have to
address trade promotion, make sure the barriers are down so
they can sell into global markets. We have to make sure they
have access.
So one of the challenges we will face in working together
on manufacturing is that it always brings up a very broad
spectrum of issues and they really have to work in concert. The
NNMI is really about one type of barrier that they face and the
barrier is access to the ideas and the talent that are the new
products that they are going to make, and we have seen this. It
is quite compelling that the manufacturing sector's
competitiveness is tied to being at the cutting edge of these
emerging technology areas, and if there are barriers there and
our companies are at a disadvantage in harnessing the know-how
that is being created by our scientists, by our engineers, by
innovators and entrepreneurs, then that is a different type of
barrier. It may play out on a different time scale than
immediate barriers like, you know, certain types of tax issues
or regulation, but it is a barrier nonetheless.
And that is going to be a challenge, and I think that is
why we want to work with you across a portfolio of programs,
but this NNMI won't solve all of these different issues and it
is not intended to. It is designed to address this one barrier
that we are concerned about, which is this growing valley of
death, if you will, between basic public sector-funded research
and the private sector development.
Mr. Palazzo. So basically you agreed with me, being
overtaxed and overregulated, and again, it just comes back. If
I had, you know, a billion dollars and I was going to invest in
a company and they had internal control problems, fiscal
problems, I would want them to clean those problems up before I
took that kind of an American investment, which is not my money
to give, it is the America taxpayers', it is the people who get
up every day, go to work to put food on their table, to provide
the best education for their children and provide a home, safe
transportation, and I would expect if they were in here, they
would be demanding some governmental reforms, you know, like a
lower corporate tax rate. Removing these obstacles to job
creation and possibly addressing just the frivolous litigation
in our society that three of the greatest things, many of them
generated from former Congresses that are basically providing
that wet blanket in our economy because I do believe that
manufacturers free, if we just unshackle them, they would be
able to go out and compete globally and they will fill any need
that we need them to fill. So thank you for your time.
Mr. Chairman, thank you. I yield back.
Mr. Cravaack. Reclaiming my time, and I will yield back to
the Chair.
Chairman Quayle. Mr. Cravaack, do you have any questions?
Are you ready?
Mr. Cravaack. If there are no more questions and my time
allows, I will be glad to.
Chairman Quayle. Mr. Palazzo, I recognize you for five
minutes. Do you want to yield to Mr. Cravaack?
Mr. Palazzo. Thank you, Mr. Chairman. I have to leave, so I
would love to yield my five minutes to Mr. Cravaack.
Mr. Cravaack. I just love parliamentary procedures.
Thank you, Dr. Gallagher, for being here today, and thank
you for addressing so many very important issues. We are a
manufacturing giant. We just have to unleash the
entrepreneurial spirit in this great country and has always
been in this country, and Mr. Palazzo hit it right on the head
in regards to--there are two things when I talk to
manufacturers. There are two things they talk about: taxation
and regulation. Those are the two main components that they
talk about.
So with that said, you know, I want to invest in making
sure that we have a return on this investment. I understand you
are getting a billion dollars, but I want to make sure at the
end of the five years, we have a result of that investment. So
can you tell me how you are planning to move this forward after
five years so we don't see you again in five years asking for
another billion dollars?
Dr. Gallagher. Yes. I think the way we would like to do
this is make the development of a sustainable business model
for these institutes. This is really about the private sector
being able to work together to cover this gap.
Mr. Cravaack. When you--sorry. When you say a sustainable
business model, and you have said that a couple of times, how
can you produce a sustainable business model without--with
innovation, of course, making more efficient, better
productivity, understand that, but until we get to the true
root cause of why companies go overseas, which is taxation and
regulation, is that going to be part of your paradigm?
Dr. Gallagher. Well, look, as I said, we agree that the
taxation and regulation is part of creating a competitive
business environment. There is no disagreement there. But the
reasons companies go overseas, and there have been a number of
recent surveys that have looked at this, are actually broader
than just the taxation and regulation or labor cost issues.
Those are clearly drivers, but one of them is that they are
following capacity. In other words, if you look at what is
happening in R&D investment by companies overseas, it is
growing much faster overseas than it is growing in this country
and it is growing specifically in those areas where the
manufacturing sector is growing, so it is Asia, the Asia Eight
or the Asia Ten or where all the R&D growth is occurring. So
what is happening in Asia is, they are actually using the
synergy between manufacturing and research to build their
research capacity. They are working it the other way. They
first come in with, you know, the advantage of relatively cheap
labor and they build their way and move up the value chain and
so they are building research capacity, and then what happens
is, you get the synergy effect where it is easier for a company
or they make a decision just because we have hollowed out a
capacity in the United States that for those reasons access to
talent, access to--that they move there, and that is really
what these are about addressing because we don't want to lose
that capacity to translate the knowledge that we are creating
into U.S.-based companies and let them profit from that. And
what will happen of course is, you are right, and from a
business perspective, you are looking at short-term cost and
those conditions matter. I don't disagree with you. But there
is also strong evidence that you can make a decision that makes
sense on the short term where you decide to offshore something
because it is cheaper to make that product, and what we find
now is that you have actually lost the capacity to generate the
next generation of product. And that is a long-term tradeoff
that we are trying to address here.
Mr. Cravaack. Thank you. We have talked a little bit about
the public-private partnerships and the co-investment from
participating entities. Is it expected there is going to be
funding of an in-kind match? Is there a minimum investment? Who
is going to invest? How much are they going to invest as part
of this partnership?
Dr. Gallagher. So our goal in doing these is to maximize
the private sector investment in the institutes, and that would
be both in evaluative criteria in evaluating these proposals.
It is even true in the pilot that there has been stated an
expectation, they would like to see at least 50 percent match
in terms of the participants. And in addition, we want to see
that match change over time. In other words, we would like the
Federal Government to not have a mortgage, a long-term role in
supporting these. We are trying to support the creation of
these institutes where you can have shared activity among
companies and then be able to get out, and that has happened
before. The semiconductor industry and the auto industry where
the government played a very important convening role to set
these up has been able to back out over time and those
companies and sectors continue to enjoy very strong
interactions across companies and have very strong applied
research activities, so that is the goal here.
Mr. Cravaack. If the Chairman would indulge me a little
bit, do we have--these private-sector entities, have they been
identified and have they had a commitment?
Dr. Gallagher. For the pilot?
Mr. Cravaack. For the pilot.
Dr. Gallagher. So the pilot right now is basically
undergoing a call. There was an industry day or proposer's day
that was hosted by the Defense Department a couple weeks ago. I
understand there were at least 20 potential groups that were
looking at forming these, and that is under a very abbreviated
call. I think it was only 30 or 40 days or something of that
type. So the interest appears to be exceedingly high. That
would be my early read.
Mr. Cravaack. Thank you, Dr. Gallagher. I appreciate your
time, and I will yield back.
Chairman Quayle. Thank you very much, Mr. Cravaack.
I thank Dr. Gallagher for his valuable testimony today and
the Members for their questions. The Members of the
Subcommittee might have additional questions for the witness,
and we will ask you to respond to those in writing. The record
will remain open for two weeks for additional comments and
statements from Members. The witness is excused.
Thank you all for coming. This hearing is now adjourned.
[Whereupon, at 11:06 a.m., the Subcommittee was adjourned.]

Answers to Post-Hearing Questions

Responses from Dr. Patrick Gallagher were not submitted.

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Appendix 2

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Additional Material for the Record

Materials Submitted by Subcommittee Ranking Member Donna F. Edwards,
House Committee on Science, Space and Technology

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Materials Submitted by Subcommittee Chairman Benjamin Quayle, House
Committee on Science, Space and Technology

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