Lean Transformation Saves Aluminum Trailer Company

October 17th, 2016

On the second day of the Lean Accounting Summit, August 26th, The ATC story was the Keynote, presented by Steve Brenneman, President, and Duane Yoder, Production Manager.

Their story was so impressive that it justified being told in an article instead of a brief summary in my previous article about the summit. Steve titled his presentation, “It’s a lean life!” His definition of lean is “using the scientific method to continuously improve the business and other related parts of the entire value stream. Also, it is a complete change of the way that we work as human beings. We go from individual heroes to strong teams.”

From the ATC website, I learned that ATC is a privately held company with eleven owners, 9 of whom “are involved in and manage every aspect of the company…Each owner contributes to the company in almost every phase of the business by doubling their duties as both Owner and CEO, CFO, Production Manager, Engineering Manager, Sales/Marketing Director.” The company was founded in 1999 and is located in Nappanee, IN, within Elkhart County, which is touted to be the Trailer Capital of the U. S. for RVs and Cargo Trailers.

Their website states, “ATC is one of the only manufacturers who can build all models and custom trailers in, both, steel and aluminum…This can range from a barebones 5’ x 8’ trailer up to a mobile command center fully fit up with dual slide outs, custom finishes and 60 KW power generation. ATC produces a wide array of trailers to meet every customer request.”

ATC is very vertically integrated in their manufacturing processes, as the website states, “Our system of material handling and placement on the production floor ensures that your workers’ time is spent building your trailer and not searching for material, tools and fixing errors. By fabricating and building components on site, we eliminate the overhead costs that come from outsourcing. Every hour spent and piece of material used is transparent and reflected in the pricing you are quoted.”

This is where ATC is now, but they have come a long way since the economic crash in the fall of 2008 that led to a near collapse of the trailer and RV industry in 2009. ATC owned a window manufacturing company, Nappanee Window, that provided windows for their trailers, as well as trailers and RVs made by other companies.

Because of the steep industry downturn, Steve said, “We had to shut down Nappenee Window in 2009 and sell off the assets. We had also built ATC up from scratch in 1999 to $26 million business in 2006. From 2007 to 2009 sales dropped 60%, and we were in survival mode.”

This dire situation led to a serious examination of where they were headed. Steve said, “We had only dabbled with lean previously. After reading Lean Thinking, we saw all of our mistakes at Nappenee Window and saw many of the same issues at ATC, but now we saw them through lean eyes.”

Steve said, “We had relied heavily on tribal knowledge, and as a result our average vendor was paid 25 days late. We had negative equity, and we only did five raw material inventory turns/year. We started practicing lean and changed to building a standard line of trailers.

Duane took over as presenter and explained that they separated into three lines based on work content and complexity of the trailers:

  • Line 1 (Raven)
  • Line 2 (Midline)
  • Line 3 (Custom/Large).

Duane said, “We set up three Value Stream teams, composed of trailer design, Inside Sales, Value Stream Leader, and the Value Stream team members. We created a lean office for each value stream. Steve and I became a leader for two of the value streams. We now have five value streams and are trying to change the mindset of everyone.” Then, he shared the following slide showing their Value Stream reorganization:

atc-value-stream-chart

 

 

When Steve took over again as presenter, he said, “We were profitable the first year after starting to practice lean. Our sales went from $10 million in 2009 to $42 million in 2015, and our net income has grown dramatically as well. Our inventory turns tripled from 2010 to 2014. Our long term debt has dropped by over 50%.”

Steve said, “After seven years of hard work, we have:

  1. Improved flow – went to one building from two
  2. Cleaned up the mess
  3. Did 5S for maintenance department
  4. Established a supermarket/material supply system
  5. Use a Materials/Kanban to all lines
  6. Changed to Value Stream Management since 2012

We are working with Joe Murli (CEO of The Murli Group). We follow Joe’s definition of a Lean Management System – “everybody, everywhere, every day comes together in small teams and reflects on how we did yesterday, where the waste was, and how we can do better today.”

In the Murli Group’s Lean Management system, True North is the unifying, overarching purpose for the entire organization and keeps the individuals and organization all pulling in the same direction. True North equals:

  • Zero Defects
  • 15% Productivity Improvement year over year
  • 100% value-added activity
  • 100% on time delivery
  • Respect for People

“We use visual controls on the shop floor. Standard work was the most difficult to do. We developed a Leader Standard Work Bus schedule.

From January 2015 to February 2016, we reduced labor time from 181 min down to 84 minutes for our simplest trailer (Line 1). On our Open Utility line, we reduced labor minutes from 360 min. in January 2015 to 248 minutes by mid April 2016. We use “kitting” and improved cell arrangement to eliminate as much walking as possible.

With regard to talent development, we are training leaders to lead in a new way. We do daily reflection team leader meetings at end of day. There are five tier 2 meetings per day, two tier 3 meetings per day, and one tier 4 meeting per day.

The change took nine months ? three months longer than we had planned. It took four years to gradually switch over to Lean accounting. It is simple and just makes sense to lean organizations. Now we get P & L weekly.”

In an interview after the summit, I asked Steve a few clarifying questions:

In answer to why they chose to transform their company into a Lean company instead of using some more traditional turn-around methods, he said, “Lean just seemed like a better way to think about operational excellence. It was more of a method rather than just trying harder or doing what everyone else was already doing. It felt right for some reason.”

When asked what was their biggest stumbling block in their Lean transformation, he said, “We tried to do too much too fast before allowing people to start to understand these new concepts with us. We tried to just be the experts and do the thinking for everyone.”

In answer to my inquiry about how becoming a Lean company changed the culture of the company, he replied, “Lean has really helped us to have a unified concept that everyone could get behind. It provided a common framework that we could point out to people as to where we were headed and why.”

Finally, I asked what have been the biggest benefits of becoming a Lean company, and he replied, “We get to involve everyone in the process of making things better. Then, we all get to share in the proceeds. I like that a lot. It seems to fit within my view of how the world should work.”

Hearing stories like this is one of the reasons I enjoy attending and presenting at the Lean Accounting Summit put on by Lean Frontiers. It is another example of how transforming into a Lean Company can make the difference between success and failure as a company. Have you made this transformation? If not, start learning and practicing now!

How the Trade Secrets Act will Benefit Manufacturers

October 11th, 2016

Many times, Congress passes important bills that are go unreported by the mainstream media. Such was the case with the Defend Trade Secrets Act of 2016 (DTSA – S. 1890), passed by the Senate and House of Representatives with near unanimous support in April and signed by President Obama on May 11, 2016. This beneficial bill was authored by U.S. Senators Chris Coons (D-DE) and Orrin Hatch (R-UT) and cosponsored by nearly two-thirds of the Senate.

The bill was supported by a broad industry coalition that included manufacturers and organizations, such as the Alliance of Automobile Manufacturers, the Association of Global Automakers, Inc., Biotechnology Industry Organization, The Boeing Company, Caterpillar Inc., Corning Incorporated, Eli Lilly and Company, General Electric, Honda, IBM, Intel, The Intellectual Property Owners Association  Johnson & Johnson, Medtronic, National Alliance for Jobs and Innovation , National Association of Manufacturers, The Procter & Gamble Company, Siemens Corporation, Software & Information Industry Association (SIIA), U.S. Chamber of Commerce, and United Technologies Corporation (click here for full list). This industry coalition sent a letter dated December 2, 2015 to Senators Hatch, Coons and Flake, saying in part:

“Trade secrets are an essential form of intellectual property. Trade secrets include information as broad-ranging as manufacturing processes, product development, industrial techniques, formulas, and customer lists. The protection of this form of intellectual property is critical to driving the innovation and creativity at the heart of the American economy. Companies in America, however, are increasingly the targets of sophisticated efforts to steal proprietary information, harming our global competitiveness.

Existing state trade secret laws are inadequate to address the interstate and international nature of trade secret theft today. Federal law protects trade secrets through the Economic Espionage Act of 1996 (“EEA”), which provides criminal sanctions for trade secret misappropriation. While the EEA is a critical tool for law enforcement to protect the clear theft of our intellectual property, U.S. trade secret owners also need access to a federal civil remedy and the full spectrum of legal options available to owners of other forms of intellectual property, such as patents, trademarks, and copyrights.

The Defend Trade Secrets Act will create a federal remedy that will provide a consistent, harmonized legal framework and help avoid the commercial injury and loss of employment that can occur when trade secrets are stolen. We are proud to support it.”

The intent of the DTSA is:

“IN GENERAL.—Section 1836 of title 18, United States Code, is amended by striking subsection (b) and inserting the following:

‘‘(b) PRIVATE CIVIL ACTIONS.—

‘‘(1) IN GENERAL.—An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

‘‘(c) JURISDICTION.—The district courts of the United States shall have original jurisdiction of civil actions brought under this section.

However, the DTSA does not preempt state law. Therefore, the owner of a trade secret could potentially file a federal claim and a state law claim at the same time.

In a May 11, 2016 guest post on www.manufacturinglawblog.com by Ian Clarke-Fisher of Labor & Employment and Jim Nault of Robinson + Cole’s Intellectual Property Litigation Practice Team, they wrote, “…the DTSA provides the following important provisions, among others:

Federal Civil Action:  The DTSA creates a federal civil cause of action, giving original jurisdiction to United States District Courts. This will allow companies to decide whether to bring claims in federal or state courts, and may have the net effect of moving most trade secret litigation to federal courts…Importantly, similar to federal employment laws, the DTSA does not supersede state trade secret laws.”

“Seizure of Property:  The DTSA includes a provision that permits the Court to issue an order, upon ex parte application in ‘extraordinary circumstances,’ seizing property to protect against to improper dissemination of trade secrets…the DTSA permits such an order only if the moving party has not publicized the requested seizure…”.

“Damages and Attorney’s Fees:  In addition to the seizure of property and injunctive relief, the DTSA permits for the recovery of damages for actual losses and unjust enrichment, and allows for exemplary (double) damages trade secrets that are ‘willfully or maliciously misappropriated’… The DTSA also provides for the recovery of reasonable attorney’s fees in limited instances…”

In a blog article prior to the bill’s passage (April 8, 2016), Nuala Droney and James Nault, members of Robinson + Cole’s Intellectual Property Litigation Practice Team commented: “The law provides for the award of damages for trade secret theft as well as injunctive relief. It even includes a provision allowing a court to grant ex parte expedited relief to trade secret owners under extraordinary circumstances to preserve evidence or prevent dissemination of the trade secret…”

They explained that “Trade secrets are a form of intellectual property that are of increasing importance to many manufacturers for a variety of reasons. A trade secret can be any information that is (i) valuable to a company, (ii) not generally known, and (iii) not readily ascertainable through lawful means, as long as the trade secret holder has taken reasonable precautions to protect it. A classic example of a trade secret is the formula for Coca-Cola. A more recent example is DuPont’s innovative Kevlar product, which was the subject of a large scale trade secret theft in 2006. Trade secret theft is a huge problem; a recent Pricewaterhouse-Coopers study showed that trade secret theft costs American businesses $480 billion a year.”

Dennis Crouch, Law Professor at the University of Missouri School of Law and Co-director of the Center for Intellectual Property and Entrepreneurship, provides this commentary on his blog:

The Defend Trade Secrets Act (DTSA) includes a new provision added to the Economic Espionage Act (EEA) that, depending upon how it is interpreted, may govern how district courts handle trade secret information in all cases. The new section will be codified as 18 U.S.C. 1835(b) and reads:

(b) Rights Of Trade Secret Owners—The court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. . . .

Courts already liberally allow parties to file documents under seal – so that doesn’t provide the entire impact of the provision. Rather, the provision’s importance is that it extends beyond briefs being filed by parties and instead reaches disclosures at trial and court opinions. Thus, the statute presumably prevents a court from disclosing a trade-secret in its opinion without first providing the trade-secret owner with the opportunity to brief the issue of disclosure. In addition, it provides non-parties with a right to request (under seal) non-disclosure of their trade secret rights.”

However, the website of the Essex Richards law firm of Charlotte, NC has a warning that “businesses should know that the DTSA contains certain requirements that affect their employment and similar agreements with provisions protecting against disclosure or misappropriation of the company’s trade secrets or confidential information.” Here are a few provisions of the DTSA that they highlight as important for employers to understand:

  • “The DTSA provides immunity from trade secret misappropriation claims to whistleblowers who disclose their employer’s trade secrets or confidential information to government officials for the purpose of reporting or investigating a violation of the law.
  • The DTSA requires all employers to notify employees of the DTSA’s whistleblower protection provisions in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. Otherwise, an employer will be deprived of exemplary damages and attorney’s fees under the DTSA. This notice requirement is satisfied if the agreement cross references a separate written policy that addresses reporting suspected violations of the law. Importantly, the DTSA broadly defines “employee” to include any individual “performing work as a contractor or consultant for an employer.” Therefore, independent contractors and consultants, in addition to “W-2 employees,” are covered under this definition. The notice requirement applies to agreements that are entered into or modified after May 11, 2016.
  • The DTSA provides a variety of remedies. If the court finds liability, it may: (1) issue an injunction so long as the order does not prevent an individual from entering an employment relationship and does not conflict with applicable state law prohibiting restraints on lawful employment; (2) order that a party take certain affirmative action to protect the trade secret; (3) award actual damages and damages for unjust enrichment; (4) condition future use of the trade secret on payment of a reasonable royalty, and (5) in a case of willful misappropriation, award exemplary damages not more than twice the original damages amount.  In addition, if the court determines that a party willfully and maliciously misappropriated a trade secret, or if it finds that a misappropriation claim or a motion to terminate an injunction has been brought in bad faith, it may award reasonable attorney’s fees to the prevailing party.
  • In the event a defending party is damaged due to a wrongful seizure, it may sue for and recover “relief as may be appropriate,” such as damages for lost profits, damages for loss of goodwill, reasonable attorney’s fees and punitive damages if the seizure was sought in bad faith.”

As a director on the board of the San Diego Inventors Forum, I am particularly interested in the fact that the DTSA is the first federal legislation that allows private citizens, without first having to obtain patent, trademark, or copyright registration, to sue in federal court to protect their trade secrets. This will be a great help for inventors and existing businesses that do not have “patentable” Intellectual Property and have to rely on trade secrets to protect their “secret” formulas or processes to produce their products.

Innovative Products Win Best Invention at San Diego Inventors Forum Contest

September 7th, 2016

Ten companies competed for the best consumer product of the year at the 9th annual invention contest of the San Diego Inventors Forum on August 11, 2016 held at Coleman University. The San Diego Inventors Forum (SDIF) meets every 2nd Thursday in Del Mar (just north of San Diego) and has been the nursery for hundreds of ideas of local San Diego inventors for over 10 years.

The San Diego Inventors Forum is a non-profit organization that provides a year-long education program at monthly meetings where keynote speakers cover the full spectrum of what inventors need to know to go from capturing a design concept to how to get their product to the market. I have been involved with SDIF for seven years, first as a member of the steering committee and mentor to inventors, and now as a director on the board after SDIF incorporated in 2014.

Our meetings cover topics such as harnessing creativity, patents, trademarks & copyrights, licensing, video and internet marketing for inventors, finding funding/investors, and planning and giving presentations. I give one of the presentations each year on “Manufacturing 101 – how to select the right processes and sources for your products.” All of our meeting presentations have been videotaped for the past three years and can be viewed on YouTube and are linked at the SDIF website:  www.sdinventors.org

The meetings also provide unique opportunities for inventors to connect with people and services they may need to develop the knowledge, skills, and confidence needed to bring their product to market and profitability.

At the end of each year, SDIF hosts a competition where ten inventors have the opportunity to present their product to an audience of 75 – 100 people. The number of votes by members of the audience determines which inventors receive the top prizes ? 1st prize is $1000, second is $500, and third wins $250.

President Adrian Pelkus said, “This was one of the most competitive contests we have ever had. Each of the products was so innovative, unique, and useful that it was tough to choose the best consumer product. There was only a five vote spread between the first place winner and the third place winner.”

The winner was Greg Wawrzyniak for his PaintWell Caddy. The two models attach easily to any kind of a belt and hold the brush and roller in place with embedded magnets when not being used. The small size holds a small roller and paintbrush for painting trim and the larger size holds a large roller and brush for painting walls. For further information, contact Greg at  enovex@gmail.com.

Second place went to Dean McBain for his Alive Iris Biometric security system solution that comprises a dual parallel authentication ID system that analyzes an individual’s iris independently. The system identifies the individual as well as verifying the “alive” status simultaneously. For further information, go to www.trueidsecurity.com.

Third place winner was Dan Garcia and Kirsten Hanson Garcia for their Sipsee – the only universal, sanitary, reusable, portable bottle plug. The Sipsee enables you to immediately be able to identify your bottle among a myriad of identical bottles at home, parties, sporting events, picnics, campsites, and other places. The plug has a cover that can be attached to a lanyard or key chain for handy use. For further information, contact Daniel.L.Garcia2014@gmail.com or go to their website www.mysipsee.com.

Other contestants were:

Marvin Rosenthal for his Enforcer dog leash ?  a innovative leash with three ergonomically designed handles to allow owners/handlers to choose how much control they have over their dog, especially designed for military or law enforcement applications. For further information, contact lawdog_leashco@yeahoo.com.

Van Dexter Duez for his Pieceptions – an easy to use baking device that allow you to create two pies in one for flavorful combinations, as pumpkin and pecan, cherry and chocolate silk, and spinach and Lorraine quiche. For further information, contact pieceptions@gmail.com.

Robson Spiane for his Pro RiseTM seat assist product that allows seniors, wounded veterans, and post-surgical individuals to rise from their seats independently without motors, pistons, or hydraulics.  It allows an individual to use their upper body to assist their legs in rising up or descending into a seated position. It is portable and can be secured too many types of seating. For further information, go to www.tryprorise.com.

Josh Rifkin for his Bit Viper ? a right angle hand tool that holds two interchangeable bits in one small easy to use tool. For further information, contact joshrifkin@gmail.com.

Mr. Tam Phuong Tran for his patented, new age eating utensil that makes grabbing and picking up food easier than traditional chopsticks. For further information, contact tamptran@yahoo.com

Alex Robertson for his Lumasoothe Low Level Light Therapy (LLLT) device to provide an advanced, cost-effective, non-surgical home treatment  for pets that are suffering from various conditions, including arthritis, back pain, wounds, hair loss, skin discolorations, and more. For further information, contact Luma-Tech, LLC at www.LumaSoothe.com.

The San Diego Inventors Forum is one of 45 different accelerator or incubator programs in San Diego County, and San Diego is a hotbed of innovation. One of the more well-known accelerator programs is the CONNECT Springboard program that helps to create and scale great innovation companies through access to the resources that entrepreneurs and growing companies need most – People, Capital, & Technology. I joined the team of Connect mentors last year and had the pleasure of mentoring a company that came in second in the San Diego Inventors Forum invention contest last August – Bixpy for their lightweight water jet system that adds propulsion to water sports and can be used by kayakers, standup paddle boarders, divers and other water-sports enthusiasts. Houman Nikmanesh, founder and president of Bixpy, just graduated from the CONNECT Springboard program in July. SDIF has often been a “feeder” organization for entrepreneurs who want to found a company rather than license their technology.

The San Diego region has long been a hot bed of innovation. In fact, a report released in April by “the U.S. Patent and Trademark Office shows that the San Diego region comes in ninth for the number of technology patents granted with over 34,000 patents, among other metropolitan areas from 2000-2013.

The amount of technological intellectual property granted in the region has more than doubled in the last decade, with 4,805 patents awarded in San Diego County in 2013, up from 1,724 patents in 2000. The region had a total of 34,605 patents from 2000-2013.”

However, according to an article in the L. A. Times on July 13, 2013, “the Organization for Economic Cooperation and Development, which ranks cities around the world by calculating ‘patent density,’ or the number of patents produced per a certain level of residents” ranked San Diego as the second most innovative city in the world. The OECD ranked Eindhoven, a city in the Netherlands, as the most innovative city in the world that year.

“Eindhoven, for example, churned out 22.6 patents for every 10,000 residents, dramatically outpacing the 9 patents per 10,000 residents produced by San Diego. The top 10 list includes four American cities and 6 European ones. San Francisco follows San Diego at No. 3, while Boston clocks in at the seventh spot and Minneapolis at No. 9.”

The San Diego Inventors Forum is a member organization of United Inventors Association of America (UIAA), and our SDIF president, Adrian Pelkus, is on the board of directors. Mr. Pelkus also participated with other members of www.usinventor.org in testifying before a Congressional committee in Washington, D. C. in opposition to legislation that would have destroyed the patent system as we know it (H.R.9, The Innovation Act and S.1137, The Patent Act).

We welcome all inventors in southern California to attend our meetings, which are held at the conference facilities of AMN Healthcare in the Carmel Valley area of San Diego the second Thursday of every month at 6:30 PM. The availability of Kickstarter and other crowdfunding mechanisms is providing the opportunity for inventors to get their products into the marketplace faster than ever. It has been exciting to see the successful launching of new products of so many of our San Diego Inventors Forum members in the past two years.

 

August 31st, 2016

In February 2015, the Brookings Institute released the report, “America’s Advanced Industries:  What they are, where they are, and why they matter.” The authors of the report identified 50 industries that constitute the advanced industries sector, of which 35 are related to manufacturing, 12 to services, and three to energy. The report states, “As of 2013, the nation’s 50 advanced industries…employed 12.3 million U.S. workers. That amounts to about 9 percent of total U.S. employment. And yet, even with this modest employment base, U.S. advanced industries produce $2.7 trillion in value added annually—17 percent of all U.S. gross domestic product (GDP).”

Another benefit of these advanced industries is: “In 2013, the average advanced industries worker earned $90,000 in total compensation, nearly twice as much as the average worker outside of the sector. Over time, absolute earnings in advanced industries grew by 63 percent from 1975 to 2013, after adjusting for inflation.”

Number two of the report’s recommendations for our nation’s private and public sector was:  “Recharge the skills pipeline.” While everyone agrees that filling the pipeline at an early age is essential to increasing the numbers, achieving this goal has been frustrating.

A number of organizations have been working to fill the skills pipeline by developing the next generation of manufacturing workers. For many years, the SME Education Foundation has been committed to advancing the manufacturing industry and stimulating the interest of youth in STEM education and manufacturing careers. “The Foundation invests in students through a broad array of scholarship programs and makes a direct impact on manufacturing education through their Partnership Response in Manufacturing Education (PRIME®) program. PRIME provides high school students with opportunities to pursue rewarding careers as engineers and technologists; this includes vocations involving mechatronics, welding, CNC programming, robotics, and much more.”

The National Association of Manufacturers (NAM) “Dream It. Do ItTM” program has helped to expose our youth to the modern manufacturing environment and change the image of manufacturing to one that is “cool” and full of exciting career opportunities.

These newer programs build on the work of the non-profit organization, Project Lead The Way®, which has been working since 1997 to promote STEM curriculum for middle and high school students during the school year, along with their Gateway Academy, which is a one- or two-week day camp for 6th – 8th graders that includes team-building exercises, individual and team projects, and utilizes the latest technology to solve problems.

However, none of the above programs are geared specifically to girls, and it is an even bigger challenge to attract girls and young women to technical careers. Studies have shown that when role models and mentors are provided to girls, they are more likely to follow a similar career path.

Two years ago, I wrote an article about the PLAYBOOK for Teens, created by Cari Lyn Vinci and Carleen MacKay, which is available in print and digital format at Amazon. In the PLAYBOOK, girls can meet fascinating women in STE@M (the “@” stands for “art”) and follow the “plays” of successful young women to help them create their own “Dream Career.” At the end of each story, the PLAYBOOK role models share heart-felt advice for girls to apply to their career path. Then, questions are asked of the reader to help them take the first step to writing their own PLAYBOOK. The PLAYBOOK is dedicated to the smart, talented teenage girls who will become the future business owners and leaders in STE@M industries. The PLAYBOOK can be used as a tool for organization and corporate partners to solve their future talent pool problems.

I recently reconnected with Ms. Vinci and interviewed her about why she created the PLAYBOOK for Teens and what has happened since 2014.

Why did you create the PLAYBOOK?

“When I was a teenager, I never dreamed that I would do some of the work I have done and that I would be able to be successful in several different careers. A common thread in my previous careers was that I spent more than 20 years hiring and writing training programs to help employees reach their goals. My previous business was helping adults figure out their next career, and if they wanted to be a business owner, helping them buy a franchise. This led me to wanting to help students understand that what they study in school and the education they get after high school will shape their choices as adults…in careers and lifestyle. Before I sold my last business, I realized that I wanted to focus on this goal next and collaborated with Carleen McKay to write the PLAYBOOK for Teens. We have packages available to help corporations recruit talent and market their brand. After I sold my business in 2015, I began working full time to achieve my goal.

What did you hope to accomplish?

“I wanted to help connect the dots for kids, so they could make the right choices on what to study to prepare for a career that matched their interests and talents and would provide them the opportunity to live the lifestyle they wanted to live.”

What was your original plan for the PLAYBOOK?

“I wanted to inspire and highlight that there are many paths to success and that going to college for the traditional four years is not the only choice. I wanted to show students that people who look like them are happy and successful in careers and doing wonderful things to make the world a better place.”

Why STE@M instead of STEM?

Ms. Vinci said, “The “@” in STE@M represents the addition of art to the other disciplines, as studies show art training is relevant in STEM subjects.” She emailed me a link to her YouTube video, in which she said that “art and making things are closely related.” She added, “One of my ancestors was Leonardo DaVinci, and he was an artist, sculptor, scientist, and inventor, who used technology, engineering, and mathematics.”

Why did you focus on girls?

“We did extensive research before developing the STE@M™ Mentoring Program. Our discussions with middle school girls revealed there are several roadblocks that start to show up in Middle School. Students told us:

  • STEM careers are only for boys
  • STEM subjects are too hard. My teacher says I only need “fill in the blank class” to graduate.
  • There are no girls in the science club
  • I don’t want to be viewed as the “smart one”
  • My friends aren’t interested in STEM
  • My parents don’t talk to me about or can’t afford an education for me beyond high school

Our PLAYBOOK for Teens…STE@M Mentoring Program helps girls catapult those roadblocks by discussing the elephant in the room and helping girls see the truth and the possibilities. The 8th grade girls tell us these conversations are more open and beneficial in a “girls only” environment.

By seeing the necessary building blocks and seeing women who look like them that are happy and successful in STE@M careers, students understand what is possible for them. And, most important, students form a “techie tribe” of support to keep them motivated going forward.

When the program is delivered in 8th grade, students have the opportunity to take appropriate courses in high school based on their “PLAYBOOK for Success” which includes their education goals after high school of community college, a four-year college, military or other education option.

The mentoring program is a way to set the stories in motion by bringing more young women into the lucrative STEM arena. Teens explore STE@M careers, gain insights from the role model stories, journal and research educational options.”

How has your plan evolved in the past two years?

We launched the PLAYBOOK at the Sacramento State and the AT&T non-profit group, Women of AT&T, Expanding Your Horizons event in Sacramento in October 2014 with books for 400 girls. One of the role models in the PLAYBOOK was the Keynote Speaker. Then, I participated on panels for WITI and the Global Women’s Entrepreneur Conference and gave presentations at the AeroSpace Museum for students and JSPAC for California educators. We had a team at the first ever Start Up Weekend for Women in Sacramento. I completed the Entrepreneur Showcase Accelerator program and graduated by pitching to a room full of investors, (think Shark Tank with nice people). The PLAYBOOK for Teens was written up in Huffington Post and featured on News 10.

In February 2015, we got an order for 100 books from the Livermore Expanding Your Horizons event and an order for 200 books from Diablo College. The organizers bought PLAYBOOKs for the parents and I did a presentation for the parents to be able to help their daughters’ research STEM careers using the PLAYBOOK.

When groups of students experience the PLAYBOOK together (with a mentor, teacher or parent), there is energy, commitment and excitement. We now have PLAYBOOK guides for 1-12 Mastermind sessions. The Train the Trainer curriculum is eight sessions, and we have a modified version for parents. Teen Mastermind Members share ideas, research and build confidence as they make decisions and take action towards their goals. Teens discover important success skills for life and career through the Mastermind—while they build a “professional network” of other students who have an interest in STE@M.

We developed an APP to compliment the PLAYBOOK for The Women of AT & T. We have packages available to help corporations recruit talent and market their brand.” Starting with The Women of AT&T at their “Expanding Your Horizon” event and the American Association of University Women’s (AAUW) “Tech Trek” event, educators and non-profits have asked to use the PLAYBOOK in a group environment. Educators wanted to use the information in the classroom, so I wrote the PLAYBOOK for Teens — STE@M™ Mentoring Program.

The Yolo County office of Education hosted the first PLAYBOOK Pilot that started in December 2015 and ran through March 2016 at Lee Middle School in Woodland. After a presentation about the pilot, teachers were asked to recommend 15 girls who have an interest in STE@M and who they thought would benefit from participating in the pilot. We received 54 recommendations within 24 hours, the teachers and counselors and counselors narrowed the number down to 14 participants.

I was very honored to receive the 2016 Yolo County School Board Association’s Yolo County Excellence in Education Award on May 2nd for the PLAYBOOK for Teens STE@M™ Mentoring Program, Our program encourages girls to explore the possibilities of a career in science, technology, engineering and math.”

What is your current goal for the PLAYBOOK?

“”We are working with the Community College Chancellors office and County Offices of Education to conduct “Train the Trainer” programs for teachers/counselors/parents so that educators can bring the  PLAYBOOK for Teens — STE@M™ Mentoring Program to Middle School students throughout California. Our next steps include writing a PLAYBOOK for boys and girls and collaborating with other education content providers to extend the program into High School. The Director of Careers at the County Office of Education in Yolo County would like the PLAYBOOK Program in all 11 middle schools.”

I think the comments that Michael Gangitano, counselor and career exploration teacher at Lee Middle School in Woodland, gave at the awards ceremony provides the best opinion of the importance of this program. After he received an award for bringing the innovative program to his campus, he said, “Having worked with middle and high school students for the past 35 years, I am constantly on the lookout for instructional tools that help young people see and plan for their future. PLAYBOOK for Teens is one of those resources that only comes around once in a great while that proves to be a rare gem.

The STE@M™ Mentoring Program arrives in an era when women are increasingly prominent in medicine, law, and business, but still lag behind men in STEM career choices. The program aims to disrupt that trend by providing a mentoring program in schools, in after school programs, at youth groups or at home.”

I was pleased to hear from Ms. Vinci that a modified version of the program is now available by webinar for parents and youth leaders and that invitations are being sent out this week to the Greater Sacramento Area Middle School educators and counselors to attend a Professional Development Training on the PLAYBOOK for Teens — STE@M™ Mentoring Program to be held August 10 or September 2, 2016. She said that Middle School educators and counselors are eligible for a complimentary registration and $250 stipend to attend.

In conclusion, I can’t do better than echo the final comments of Mr. Gangitano, “…let’s touch the lives of middle- and high-school aged girls by providing an inspirational life plan that knows no boundaries. Your students, daughters, their friends and our future deserve no less.”

How the Trade Secrets Act will Benefit Manufacturers

August 16th, 2016

Many times, Congress passes important bills that are go unreported by the mainstream media. Such was the case with the Defend Trade Secrets Act of 2016 (DTSA – S. 1890), passed by the Senate and House of Representatives with near unanimous support in April and signed by President Obama on May 11, 2016. This beneficial bill was authored by U.S. Senators Chris Coons (D-DE) and Orrin Hatch (R-UT) and cosponsored by nearly two-thirds of the Senate.

The bill was supported by a broad industry coalition that included manufacturers and organizations, such as the Alliance of Automobile Manufacturers, the Association of Global Automakers, Inc., Biotechnology Industry Organization, The Boeing Company, Caterpillar Inc., Corning Incorporated, Eli Lilly and Company, General Electric, Honda, IBM, Intel, The Intellectual Property Owners Association  Johnson & Johnson, Medtronic, National Alliance for Jobs and Innovation , National Association of Manufacturers, The Procter & Gamble Company, Siemens Corporation, Software & Information Industry Association (SIIA), U.S. Chamber of Commerce, and United Technologies Corporation (click here for full list). This industry coalition sent a letter dated December 2, 2015 to Senators Hatch, Coons and Flake, saying in part:

“Trade secrets are an essential form of intellectual property. Trade secrets include information as broad-ranging as manufacturing processes, product development, industrial techniques, formulas, and customer lists. The protection of this form of intellectual property is critical to driving the innovation and creativity at the heart of the American economy. Companies in America, however, are increasingly the targets of sophisticated efforts to steal proprietary information, harming our global competitiveness.

Existing state trade secret laws are inadequate to address the interstate and international nature of trade secret theft today. Federal law protects trade secrets through the Economic Espionage Act of 1996 (“EEA”), which provides criminal sanctions for trade secret misappropriation. While the EEA is a critical tool for law enforcement to protect the clear theft of our intellectual property, U.S. trade secret owners also need access to a federal civil remedy and the full spectrum of legal options available to owners of other forms of intellectual property, such as patents, trademarks, and copyrights.

The Defend Trade Secrets Act will create a federal remedy that will provide a consistent, harmonized legal framework and help avoid the commercial injury and loss of employment that can occur when trade secrets are stolen. We are proud to support it.”

The intent of the DTSA is:

“IN GENERAL.—Section 1836 of title 18, United States Code, is amended by striking subsection (b) and inserting the following:

‘‘(b) PRIVATE CIVIL ACTIONS.—

‘‘(1) IN GENERAL.—An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

‘‘(c) JURISDICTION.—The district courts of the United States shall have original jurisdiction of civil actions brought under this section.

However, the DTSA does not preempt state law. Therefore, the owner of a trade secret could potentially file a federal claim and a state law claim at the same time.

In a May 11, 2016 guest post on www.manufacturinglawblog.com by Ian Clarke-Fisher of Labor & Employment and Jim Nault of Robinson + Cole’s Intellectual Property Litigation Practice Team, they wrote, “…the DTSA provides the following important provisions, among others:

Federal Civil Action:  The DTSA creates a federal civil cause of action, giving original jurisdiction to United States District Courts. This will allow companies to decide whether to bring claims in federal or state courts, and may have the net effect of moving most trade secret litigation to federal courts…Importantly, similar to federal employment laws, the DTSA does not supersede state trade secret laws.”

“Seizure of Property:  The DTSA includes a provision that permits the Court to issue an order, upon ex parte application in ‘extraordinary circumstances,’ seizing property to protect against to improper dissemination of trade secrets…the DTSA permits such an order only if the moving party has not publicized the requested seizure…”.

“Damages and Attorney’s Fees:  In addition to the seizure of property and injunctive relief, the DTSA permits for the recovery of damages for actual losses and unjust enrichment, and allows for exemplary (double) damages trade secrets that are ‘willfully or maliciously misappropriated’… The DTSA also provides for the recovery of reasonable attorney’s fees in limited instances…”

In a blog article prior to the bill’s passage (April 8, 2016), Nuala Droney and James Nault, members of Robinson + Cole’s Intellectual Property Litigation Practice Team commented: “The law provides for the award of damages for trade secret theft as well as injunctive relief. It even includes a provision allowing a court to grant ex parte expedited relief to trade secret owners under extraordinary circumstances to preserve evidence or prevent dissemination of the trade secret…”

They explained that “Trade secrets are a form of intellectual property that are of increasing importance to many manufacturers for a variety of reasons. A trade secret can be any information that is (i) valuable to a company, (ii) not generally known, and (iii) not readily ascertainable through lawful means, as long as the trade secret holder has taken reasonable precautions to protect it. A classic example of a trade secret is the formula for Coca-Cola. A more recent example is DuPont’s innovative Kevlar product, which was the subject of a large scale trade secret theft in 2006. Trade secret theft is a huge problem; a recent Pricewaterhouse-Coopers study showed that trade secret theft costs American businesses $480 billion a year.”

Dennis Crouch, Law Professor at the University of Missouri School of Law and Co-director of the Center for Intellectual Property and Entrepreneurship, provides this commentary on his blog:

The Defend Trade Secrets Act (DTSA) includes a new provision added to the Economic Espionage Act (EEA) that, depending upon how it is interpreted, may govern how district courts handle trade secret information in all cases. The new section will be codified as 18 U.S.C. 1835(b) and reads:

(b) Rights Of Trade Secret Owners—The court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. . . .

Courts already liberally allow parties to file documents under seal – so that doesn’t provide the entire impact of the provision. Rather, the provision’s importance is that it extends beyond briefs being filed by parties and instead reaches disclosures at trial and court opinions. Thus, the statute presumably prevents a court from disclosing a trade-secret in its opinion without first providing the trade-secret owner with the opportunity to brief the issue of disclosure. In addition, it provides non-parties with a right to request (under seal) non-disclosure of their trade secret rights.”

However, the website of the Essex Richards law firm of Charlotte, NC has a warning that “businesses should know that the DTSA contains certain requirements that affect their employment and similar agreements with provisions protecting against disclosure or misappropriation of the company’s trade secrets or confidential information.” Here are a few provisions of the DTSA that they highlight as important for employers to understand:

  • “The DTSA provides immunity from trade secret misappropriation claims to whistleblowers who disclose their employer’s trade secrets or confidential information to government officials for the purpose of reporting or investigating a violation of the law.
  • The DTSA requires all employers to notify employees of the DTSA’s whistleblower protection provisions in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. Otherwise, an employer will be deprived of exemplary damages and attorney’s fees under the DTSA. This notice requirement is satisfied if the agreement cross references a separate written policy that addresses reporting suspected violations of the law. Importantly, the DTSA broadly defines “employee” to include any individual “performing work as a contractor or consultant for an employer.” Therefore, independent contractors and consultants, in addition to “W-2 employees,” are covered under this definition. The notice requirement applies to agreements that are entered into or modified after May 11, 2016.
  • The DTSA provides a variety of remedies. If the court finds liability, it may: (1) issue an injunction so long as the order does not prevent an individual from entering an employment relationship and does not conflict with applicable state law prohibiting restraints on lawful employment; (2) order that a party take certain affirmative action to protect the trade secret; (3) award actual damages and damages for unjust enrichment; (4) condition future use of the trade secret on payment of a reasonable royalty, and (5) in a case of willful misappropriation, award exemplary damages not more than twice the original damages amount.  In addition, if the court determines that a party willfully and maliciously misappropriated a trade secret, or if it finds that a misappropriation claim or a motion to terminate an injunction has been brought in bad faith, it may award reasonable attorney’s fees to the prevailing party.
  • In the event a defending party is damaged due to a wrongful seizure, it may sue for and recover “relief as may be appropriate,” such as damages for lost profits, damages for loss of goodwill, reasonable attorney’s fees and punitive damages if the seizure was sought in bad faith.”

As a director on the board of the San Diego Inventors Forum, I am particularly interested in the fact that the DTSA is the first federal legislation that allows private citizens, without first having to obtain patent, trademark, or copyright registration, to sue in federal court to protect their trade secrets. This will be a great help for inventors and existing businesses that do not have “patentable” Intellectual Property and have to rely on trade secrets to protect their “secret” formulas or processes to produce their products.

Will the TPP Stop Japan’s Currency Manipulation?

August 16th, 2016

The answer is a resounding “no.” The Trans-Pacific Partnership Agreement will not stop Japan’s currency manipulation or that of any other partner country because TPP has no provisions regarding currency manipulation misalignment in its text. The problem of currency manipulation is similar to the U. S. budget deficit that keeps being kicked down the road by one Congress after another.

In this case, it is negotiators of the U. S. Trade Representative’s office who have ignored the explicit instructions of Congress with regard to handling the problem of currency manipulation in one trade agreement after another. Despite explicit Congressional instruction in the Trade Promotion Authority Act of 2015, there is no currency provision within the TPP itself.

What is currency manipulation? According to Wikipedia, currency manipulation is “a monetary policy operation. It occurs when a government or central bank buys or sells foreign currency in exchange for their own domestic currency, generally with the intention of influencing the exchange rate.” Simply put, currency manipulation is the devaluation of a country’s own currency to make their exports cheaper and imports more expensive. In practice, foreign governments buy U. S. dollars to reduce the value of their currency to make their goods cheaper than U. S. goods.

Why is it a problem? According to Michael Stumo, CEO of the Coalition for a Prosperous America, “Foreign currency manipulation is trade cheating because it is both an illegal tariff and a subsidy. The U. S. economy cannot produce jobs and wealth without addressing this problem.” Former Secretary of the Treasury, Paul Volcker, explained, ‘In five minutes, exchange rates can wipe out what it took trade negotiators ten years to accomplish.”

The Peterson Institute Policy Brief of December 2012, “Currency Manipulation in the US Economy and the Global Economic Order” states, “More than 20 countries have increased their aggregate foreign exchange reserves and other official foreign assets by an annual average of nearly $1 trillion in recent years. This buildup of official assets—mainly through intervention in the foreign exchange markets—keeps the currencies of the interveners substantially undervalued, thus boosting their international competitiveness and trade surpluses. The corresponding trade deficits are spread around the world, but the largest share of the loss centers on the United States, whose trade deficit has increased by $200 billion to $500 billion per year as a result. The United States has lost 1 million to 5 million jobs due to this foreign currency manipulation.”

Why hasn’t currency manipulation been addressed in past agreements? A recent white paper issued by the Coalition for a Prosperous America explains:

“Since December 1945, currency manipulation has been prohibited under the rules of the International Monetary Fund. Article 4, Section 1 (iii) of the IMF Articles obliges members to: “avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members….” This obligation is designed in part to serve one of the fundamental objectives set forth In IMF Article 1:  the expansion and balanced growth of international trade.

The framers of the post-World War II international system understood that imbalanced trade was mercantilism and sought a monetary system that would avoid one-sided trade results…One country, the United States, has run trade deficits for more than 40 years and has amassed more than $17 trillion in foreign debt. By no stretch of the imagination can this be the sort of ‘balanced growth of international trade” that the IMF rules are supposed to foster.’ ”

Thus, the IMF has had the authority to enforce Article 4 obligations for over 70 years, but in practice, it has only held regular forums “to persuade key members to adjust their policies…The use of mere moral persuasion has failed to produce meaningful results, rendering the IMF increasingly irrelevant. Earlier this year the Congress directed U.S. negotiators to seek to put teeth into the IMF obligations. ”

Instead, as reported by the Coalition for a Prosperous America, “the Treasury negotiated a ‘Joint Declaration of Macroeconomic Policy Authorities’ that largely restates existing obligations, fails to include any additional enforcement tools, and merely adds yet another consultation process. The Joint Declaration:

  • “Entails a ‘confirmation’ that each TPP country is “bound” under IMF rules to “avoid  manipulating exchange rates or the international monetary system in order to prevent effective Balance of payments Adjustment  or to gain an unfair competitive advantage.
  • Specifies that each macroeconomic authority is to ‘take policy actions to foster an exchange rate system that reflects underlying economic fundamentals and avoid persistent exchange rate misalignments. Each Authority will refrain from competitive devaluation and will not target its country’s exchange rate for competitive purposes.
  • Requires regular reporting on foreign exchange intervention and reserve holdings.
  • Establishes regular consultations among the macroeconomic authorities. This will be in addition to the periodic meetings of IMF officials, APEC, the G-7, the G-20 and bilateral consultations.”

Therefore, nothing has changed in 70 years ago. If they haven’t complied in the past, how could they be expected to comply with their IMF obligations in the future? Is another forum going to be of any value?

In the case of Japan, its government has strategically reduced the yen’s value to give its companies a massive global price advantage. Since Shinzo Abe became Japan’s prime minister in December 2012, the Japanese currency has fallen by 55%, and he has been a full participant in IMF meetings. Three years ago, one U.S. dollar bought 76 yen. Today, one U.S. dollar buys 105 yen, down from a high of 120 yen at the end of 2015.

This manipulation subsidizes Japan’s car companies who can now undercut U.S. competitors and make a bigger profit without innovation or quality improvements. The Japanese government’s currency manipulation gives Japanese automakers as much as $7,000 more profit per car.

Toyota, the world’s largest carmaker, does not want the party to end. An article by David Fickling of Bloomberg on May 12, 2016, stated,  “Foreign-exchange effects will pull about 935 billion yen from Toyota’s operating income in the coming 12 months, assuming that the yen will strengthen to 105 to the greenback, relative to about 109 at present. ”

In my recent article on the U.S. International Trade Commission (USITC) report, “Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors,” I quoted the following:  “U. S. passenger vehicle imports would increase by $4.3 billion above the baseline upon full implementation of the agreement (table 4.15). Imports from Japan would increase by $1.6 billion, and imports from NAFTA partners would increase by $1.8 billion, making up the majority of the increase.”

No wonder that the American Automotive Policy Council, Inc. (AAPC) issued the following press release on May 26, 2016 regarding the USITC report, which states in part, ” We hope that Congress will carefully review this report, specifically how the ITC has measured the impact of the proposed Trans-Pacific Partnership on the U.S. auto industry and American manufacturing. American automakers remain concerned about possible currency manipulation by TPP trade partners, including Japan. AAPC, as well as economists from across the ideological spectrum, agree that the U.S. government should include enforceable rules prohibiting currency manipulation in its trade agreements to produce a positive economic impact on American manufacturing.”

Do you think that the Obama’s administration claim of “strict monitoring” of foreign currency manipulation will be enough? In May 2016, Japan’s finance minister, Taro Aso, said he will act to prevent the currency markets from working, telling Japan’s parliament he was “prepared to undertake intervention” in the foreign exchange market if the yen strengthens. So, a U.S. “move to put Japan on a monitoring list ‘won’t constrain’ Tokyo from intervening to manipulate the value of their yen.”

According to Michael Stumo, “There is ample precedent for taking strong action to correct currency misalignment in conjunction with past major trade agreements. The Tokyo Round and the Uruguay Round were each preceded by a realignment of currencies to reduce imbalances in the world economy. If the Joint Declaration indeed would make any difference in the real world of trade, one might expect it to come into effect immediately. Instead… Joint Declaration will take effect if and when the TPP enters into force.”

The bottom line is that economic and trade negotiators together have failed to produce even a modest step forward toward an effective, enforceable currency provision. As currently written, neither the Joint Declaration nor the TPP will stop currency manipulation by Japan or any other country. The only effective alternative would seem to be enactment of the Currency Reform for Fair Trade Act (H.R. 820) or its equivalent, the Trade Facilitation and Trade Enforcement Act of 2015 (H.R.644). Either would mandate the use of WTO-consistent remedies to offset injurious currency manipulation. This modest first step toward confronting mercantilist currency policies is long overdue.

 

 

Why Should the U. S. Have a Specific Productivity Policy?

July 27th, 2016

This question is answered by  Robert D. Atkinson, President of the Information Technology & Innovation Foundation (ITIF) in Part II of the  report, “Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies.” He states, “Rather than think of an economy as a large market with self-interested actors transacting on the basis of price and seeking to maximize productivity, it is more accurate to conceive of an economy as a large, integrated enterprise that requires coordination of activities that individual enterprises will not effectively undertake on their own.”

 

His opinion is contradictory to that of most Anglo-Saxon nation economists, whose policies are based on two major competing doctrines vying for influence: “neoclassical and neo-Keynesian economics, neither of which supports a national productivity policy.” In a nutshell, he states, “the neoclassical economic doctrine is focused on limiting government’s role in the economy, even as neo-Keynesians see the government’s main role as managing the business cycle and supporting a fairer distribution of income.” His definitions were so simple that even non-economists like me could understand them:

Neoclassical ? focuses on the “managing scarce resources in such a way that maximizes the net benefit from their use, and that produces the quantity and mix of goods and services most beneficial to society.”

Neo-Keynesian ? is “grounded in the core belief that demand for goods and services from business investment, government spending, and consumer spending drives growth.”

Atkinson particularly criticizes neoclassical economists because they “do not study how societies create new forms of production, products, and business models to expand productivity; rather, they study markets to see how commodities are exchanged.”

He criticizes neo-Keynesian economic policy prescriptions because they “revolve around increasing government spending to keep the economy at full employment and ensuring economic fairness and redistribution, because…their goal is not productivity growth, it is full employment.”

Atkinson states. “Thus, the first step for any policymaker seeking to maximize the economy’s productivity is to reject the conventional neoclassical and neo-Keynesian economic advice and embrace an alternative economic doctrine grounded in an understanding of the economy as an integrated, complex enterprise.”

He adds, “This approach is grounded in understanding that productivity is less about markets and more about organizations and systems, in particular about how technology is developed and deployed to drive productivity.”

Atkinson concludes, “Few conventional economists bother to “look inside the black box” of actual organizations or industries and crossindustry systems. Yet it is there that the keys to raising productivity and the keys to the right productivity policy will be found.” He comments that “conventional economics is of little help in understanding the sources of productivity growth, much less in providing useful or actionable advice on productivity policy.”

The rest of Part II discusses how “public goods, externalities and other enterprise failures, and system interdependencies for development and adoption of productivity-enhancing tools all mean that markets alone will not maximize productivity.”

Public goods are “a good or service provided without profit to all members of a society—to increase their productivity.” Some examples are transportation infrastructure such as roads, highways, bridges, airports, seaports or the education infrastructure for K–12 and higher education. Atkinson comments,”… though public goods are necessary, they are not sufficient.”

Atkinson comments that rather than maximizing productivity companies “can maximize profits from increasing revenues or reducing costs. Many companies focus less on boosting productivity and more on increasing revenues, either by getting more customers or increasing revenue per customer by selling products or services with higher margins.”

What he does not cover is that the best way for companies to boost productivity is to transform themselves into lean companies through the adoption and implementation of lean principles, tools, and strategies.

In addition, “some industries do not have strong incentives for driving productivity because “productivity increases hurt its implementers…In such industries, workers ‘control the means of Production’ and therefore productivity is a direct threat to their jobs.”

I found his brief discussion on the effect of system interdependencies on productivity interesting in how he shows that there is a relationship between product innovation and “interdependencies that are only observable and actionable at the industry or economy level.” For example, “when Apple developed the iPod, it needed customers with broadband Internet access and it needed music to be available for purchase online. Without either, the iPod would have gone the way of the Newton (an earlier, failed Apple attempt at creating a PDA).”

Market failure can stem “from markets tending to be poor at coordinating action when multiple parties need to act together synergistically and simultaneously. These chicken-or egg challenges must be overcome for productivity-enhancing innovation to occur in many technology platforms…Unless government plays a facilitating role, relying on markets alone can mean significantly delayed implementation.”

Atkinson identifies another challenge:  “Many technology solutions require mutual adoption and coordination for them to be effectively deployed… For example, when automobiles were first developed few paved roads had been built. Only after a certain number of autos were sold was demand strong enough that the government needed to build roads. But initially cars could be driven on dirt roads that horses used, so adoption could grow gradually in the absence of government construction

In Part III, Atkins lays out a comprehensive and actionable agenda for spurring productivity growth, which can be used as a guide to tailor national productivity policy policies. This agenda includes policy recommendations…and the ways in which governments need to organize themselves to advance effective productivity policies.”

He states, “The conventional theory holds that the only thing government can do is to remove barriers and fix policy failures so that firms reacting to price signals can do whatever they may choose to drive productivity. This overly passive framework ignores the complexity and enterprise-like nature of economies, which actually require more strategic productivity policies.” He recommends that an “effective productivity policy needs to go beyond the standard limits to embrace four other key components:”

  1. Incentives, including tax policies, to encourage organizations to adopt more and newer “tools” to drive productivity…In particular, governments should use the tax code to provide incentives for acquisition of new capital equipment
  2. .Policies to spur the advance and take-up of systemic, platform technologies that accelerate productivity across industries. Many of the information technologies central to driving future productivity have chicken-or-egg network effects which mean that adoption will lag unless governments adopt smart, technology-specific policies.
  3. A research and development strategy focused on spurring the development of productivity-enabling technologies, such as robotics…Governments need to focus a much larger share of their R&D budgets on advancing technologies that will reduce the need for labor.
  4. Sectoral productivity policies that reflect the unique differences between industries. In terms of productivity and productivity policy, industries differ in significant ways…Any effective national productivity policy will need to be grounded in analysis-based, sector-based productivity strategies.

Within these four policy components, Atkinson makes some recommendations that are more controversial, such as:

Roll back policies favoring small business – “special benefits to small business and discriminatory policies that place tax and regulatory burdens only on large businesses. He recommends, “To boost productivity, governments should embrace firm-size agnosticism in all policies.” (pages 70-73)

Replace the term informal with the accurate term the illegal economy – “individuals are breaking the law by not registering their businesses and paying taxes. Informality is a drag on productivity growth, not a progressive force.” (pages 73-74)

Set a reasonable set minimum wage indexed to inflation – this helps make it more economical for organizations to substitute capital for labor” and “in some sectors may expedite the adoption of automated equipment and new technology to increase labor productivity.” (page 81)

Atkinson warns, “Countries that protect entrenched, incumbent, or politically favored industries from market-based competition only damage their own country’s productivity and economic growth potential… This limits the ability of firms at the productivity frontier to take market share away from firms with lower productivity.”

Atkinson acknowledges that “The challenge is that few governments have designed their scientific research programs explicitly around advancing technologies to drive productivity. Instead, they follow the advice of neoclassical economists that governments should not pick particular technology areas and should focus on curiosity-directed basic science… if economies are to maximize productivity growth, they need to craft technology research agendas specifically around productivity.”

In fact, Atkinson recommends that “Governments need to focus on identifying and funding many more research and engineering projects that are specifically targeted to developing Technology that can replace human labor.”

He explains, “Productivity policy cannot be fully effective unless it is grounded in a sophisticated understanding that industries differ significantly with regard to their productivity dynamics… Three key factors differentiate industries when it comes to considering productivity policy.” They are

  • Scale ? Industries differ in terms of average firm size.
  • Competition ? Industries differ in the extent to which they face competition.
  • Incentives ? The third factor is intensity of incentives for an industry to increase productivity.

This is why Atkinson recommends that “An effective national productivity policy needs to be based on an analysis of individual industries and when appropriate, broader production systems.”

In his conclusion, Atkinson recommends, “The single most important step governments can take to boost productivity is to make higher productivity the principal goal of economic policy, more important than managing the business cycle, defending liberty, or promoting equality.”

He adds, “National governments should also identify or establish one agency or laboratory whose main mission is to support development and adoption of productivity technology as well as of platform and sectoral productivity strategies. In the United States, this might be the National Institute of Standards and Technology.”

Finally, Atkinson states: “Productivity is the key to improving living standards—so policymakers should ignore conventional economists who say there is little government can do about it and instead make it the principal goal of economic policy.”

Even if you do not agree with all of his premises, recommendations, and conclusions, this is an important report that should be widely read and debated for some time to come.

 

 

This question is answered by  Robert D. Atkinson, President of the Information Technology & Innovation Foundation (ITIF) in Part II of the  report, “Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies.” He states, “Rather than think of an economy as a large market with self-interested actors transacting on the basis of price and seeking to maximize productivity, it is more accurate to conceive of an economy as a large, integrated enterprise that requires coordination of activities that individual enterprises will not effectively undertake on their own.”

 

His opinion is contradictory to that of most Anglo-Saxon nation economists, whose policies are based on two major competing doctrines vying for influence: “neoclassical and neo-Keynesian economics, neither of which supports a national productivity policy.” In a nutshell, he states, “the neoclassical economic doctrine is focused on limiting government’s role in the economy, even as neo-Keynesians see the government’s main role as managing the business cycle and supporting a fairer distribution of income.” His definitions were so simple that even non-economists like me could understand them:

 

Neoclassical ? focuses on the “managing scarce resources in such a way that maximizes the net benefit from their use, and that produces the quantity and mix of goods and services most beneficial to society.”

 

Neo-Keynesian ? is “grounded in the core belief that demand for goods and services from business investment, government spending, and consumer spending drives growth.”

 

Atkinson particularly criticizes neoclassical economists because they “do not study how societies create new forms of production, products, and business models to expand productivity; rather, they study markets to see how commodities are exchanged.”

 

He criticizes neo-Keynesian economic policy prescriptions because they “revolve around increasing government spending to keep the economy at full employment and ensuring economic fairness and redistribution, because…their goal is not productivity growth, it is full employment.”

 

Atkinson states. “Thus, the first step for any policymaker seeking to maximize the economy’s productivity is to reject the conventional neoclassical and neo-Keynesian economic advice and embrace an alternative economic doctrine grounded in an understanding of the economy as an integrated, complex enterprise.”

 

He adds, “This approach is grounded in understanding that productivity is less about markets and more about organizations and systems, in particular about how technology is developed and deployed to drive productivity.”

 

Atkinson concludes, “Few conventional economists bother to “look inside the black box” of actual organizations or industries and crossindustry systems. Yet it is there that the keys to raising productivity and the keys to the right productivity policy will be found.” He comments that “conventional economics is of little help in understanding the sources of productivity growth, much less in providing useful or actionable advice on productivity policy.”

 

The rest of Part II discusses how “public goods, externalities and other enterprise failures, and system interdependencies for development and adoption of productivity-enhancing tools all mean that markets alone will not maximize productivity.”

 

Public goods are “a good or service provided without profit to all members of a society—to increase their productivity.” Some examples are transportation infrastructure such as roads, highways, bridges, airports, seaports or the education infrastructure for K–12 and higher education. Atkinson comments,”… though public goods are necessary, they are not sufficient.”

 

Atkinson comments that rather than maximizing productivity companies “can maximize profits from increasing revenues or reducing costs. Many companies focus less on boosting productivity and more on increasing revenues, either by getting more customers or increasing revenue per customer by selling products or services with higher margins.”

 

What he does not cover is that the best way for companies to boost productivity is to transform themselves into lean companies through the adoption and implementation of lean principles, tools, and strategies.

 

In addition, “some industries do not have strong incentives for driving productivity because “productivity increases hurt its implementers…In such industries, workers ‘control the means of

Production’ and therefore productivity is a direct threat to their jobs.”

 

I found his brief discussion on the effect of system interdependencies on productivity interesting in how he shows that there is a relationship between product innovation and “interdependencies that are only observable and actionable at the industry or economy level.” For example, “when Apple developed the iPod, it needed customers with broadband Internet access and it needed music to be available for purchase online. Without either, the iPod would have gone the way of the Newton (an earlier, failed Apple attempt at creating a PDA).”

 

Market failure can stem “from markets tending to be poor at coordinating action when multiple parties need to act together synergistically and simultaneously. These chicken-or egg challenges must be overcome for productivity-enhancing innovation to occur in many technology platforms…Unless government plays a facilitating role, relying on markets alone can mean significantly delayed implementation.”

 

Atkinson identifies another challenge:  “Many technology solutions require mutual adoption and coordination for them to be effectively deployed… For example, when automobiles were first developed few paved roads had been built. Only after a certain number of autos were sold was demand strong enough that the government needed to build roads. But initially cars could be driven on dirt roads that horses used, so adoption could grow gradually in the absence of government construction

 

In Part III, Atkins lays out a comprehensive and actionable agenda for spurring productivity growth, which can be used as a guide to tailor national productivity policy policies. This agenda includes policy recommendations…and the ways in which governments need to organize themselves to advance effective productivity policies.”

 

He states, “The conventional theory holds that the only thing government can do is to remove barriers and fix policy failures so that firms reacting to price signals can do whatever they may choose to drive productivity. This overly passive framework ignores the complexity and enterprise-like nature of economies, which actually require more strategic productivity policies.” He recommends that an “effective productivity policy needs to go beyond the standard limits to embrace four other key components:”

 

  1. Incentives, including tax policies, to encourage organizations to adopt more and newer “tools” to drive productivity…In particular, governments should use the tax code to provide incentives for acquisition of new capital equipment.

 

  1. Policies to spur the advance and take-up of systemic, platform technologies that accelerate productivity across industries. Many of the information technologies central to driving future productivity have chicken-or-egg network effects which mean that adoption will lag unless governments adopt smart, technology-specific policies.

 

  1. A research and development strategy focused on spurring the development of productivity-enabling technologies, such as robotics…Governments need to focus a much larger share of their R&D budgets on advancing technologies that will reduce the need for labor.

 

  1. Sectoral productivity policies that reflect the unique differences between industries. In terms of productivity and productivity policy, industries differ in significant ways…Any effective national productivity policy will need to be grounded in analysis-based, sector-based productivity strategies.

 

Within these four policy components, Atkinson makes some recommendations that are more controversial, such as:

 

Roll back policies favoring small business – “special benefits to small business and discriminatory policies that place tax and regulatory burdens only on large businesses. He recommends, “To boost productivity, governments should embrace firm-size agnosticism in all policies.” (pages 70-73)

 

Replace the term informal with the accurate term the illegal economy – “individuals are breaking the law by not registering their businesses and paying taxes. Informality is a drag on productivity growth, not a progressive force.” (pages 73-74)

 

Set a reasonable set minimum wage indexed to inflation – this helps make it more economical for organizations to substitute capital for labor” and “in some sectors may expedite the adoption of automated equipment and new technology to increase labor productivity.” (page 81)

 

Atkinson warns, “Countries that protect entrenched, incumbent, or politically favored industries from market-based competition only damage their own country’s productivity and economic growth potential… This limits the ability of firms at the productivity frontier to take market share away from firms with lower productivity.”

 

Atkinson acknowledges that “The challenge is that few governments have designed their scientific research programs explicitly around advancing technologies to drive productivity. Instead, they follow the advice of neoclassical economists that governments should not pick particular technology

areas and should focus on curiosity-directed basic science… if economies are to maximize productivity growth, they need to craft technology research agendas specifically around productivity.”

 

In fact, Atkinson recommends that “Governments need to focus on identifying and funding many more research and engineering projects that are specifically targeted to developing Technology that can replace human labor.”

 

He explains, “Productivity policy cannot be fully effective unless it is grounded in a sophisticated understanding that industries differ significantly with regard to their productivity dynamics… Three key factors differentiate industries when it comes to considering productivity policy.” They are

 

  • Scale ? Industries differ in terms of average firm size.
  • Competition ? Industries differ in the extent to which they face competition.
  • Incentives ? The third factor is intensity of incentives for an industry to increase productivity.

 

This is why Atkinson recommends that “An effective national productivity policy needs to be based on an analysis of individual industries and when appropriate, broader production systems.”

 

In his conclusion, Atkinson recommends, “The single most important step governments can take to boost productivity is to make higher productivity the principal goal of economic policy, more important than managing the business cycle, defending liberty, or promoting equality.”

 

He adds, “National governments should also identify or establish one agency or laboratory whose main mission is to support development and adoption of productivity technology as well as of platform and sectoral productivity strategies. In the United States, this might be the National Institute of Standards and Technology.”

 

Finally, Atkinson states: “Productivity is the key to improving living standards—so policymakers should ignore conventional economists who say there is little government can do about it and instead make it the principal goal of economic policy.”

 

Even if you do not agree with all of his premises, recommendations, and conclusions, this is an important report that should be widely read and debated for some time to come.

 

 

USITC Report Reveals TPP Will Shrink U. S. Manufacturing

June 1st, 2016

On May 18, 2016, the U.S. International Trade Commission (USITC) released their report, “Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors,” relative to the Agreement that President Obama signed in February with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

The USITC analysis concedes that the TPP will cause manufacturing to shrink in terms of employment, output and share of the US economy. Our manufacturing trade deficit will become worse.

Reaction to the USITC report has been mixed at best. “The U.S. Chamber Executive Vice President and Head of International Affairs Myron Brilliant welcomed the release of the U.S. International Trade Commission (ITC) report on the likely impact of the Trans-Pacific Partnership (TPP) on the U.S. economy with the following statement:

“While we have yet to fully digest the ITC’s assessment, the report at first glance provides substantive support for the Chamber’s view that the TPP is in our national economic interest. By eliminating thousands of tariffs and other barriers to the export of U.S.-made goods and services, the TPP will create new opportunities for American workers, farmers, ranchers, innovators, and companies.”

On the other side of the spectrum, AFL-CIO President Richard Trumka issued a statement, which in part said, “This ITC report is so damaging that any reasonable observer would have to wonder why the administration or Congress would spend even one more day trying to turn this disastrous proposal into a reality. Even though it’s based on unrealistic assumptions, the report could not even produce a positive result for U.S. manufacturing and U.S. workers. One of many shockers is just how meager the purported benefits of the TPP are. A mere .15% of GDP growth over 15 years is laughably small…”

The Politico Morning Trade blog of Friday, May 20, 2016 included this rebuttal:” FROMAN FIRES BACK: U.S. Trade Representative Michael Froman continued his effort to capitalize on the ITC report. Speaking to business owners by telephone Thursday, the top U.S. trade official pointed out that the independent commission “conservatively” estimated the TPP would boost both U.S. exports and national income by $57 billion by 2032 – gains that would continue annually.

“This was really the president’s direction, to make sure we’re doing trade right,” Froman said. “And that meant making sure the trade agreement worked for American workers, and we think we’ve achieved that in this agreement…Froman said the study focused heavily on tariffs and didn’t project the economic benefits of other major parts of the agreement, including rules on state-owned enterprises, labor and the environment.”

Coalition for a Prosperous America CEO Michael Stumo participated on a “listen only” basis during the business group conference call on May 20, 2016. Afterward, he commented on his blog, “Despite the fact that the report nullified Froman’s entire economic case for the TPP, you would never know it from his talk. Froman created a parallel universe which was enabled by the Business Forward group sponsoring the call.”

Let us consider some of the highlights discussed in the 792-page report. The Executive Summary that the USITC “used a dynamic computable general equilibrium model to determine the impact of TPP relative to a baseline projection that does not include TPP….The model estimated that TPP would have positive effects, albeit small as a percentage of the overall size of the U.S. economy” by year 15 [2032].” The main findings were:

  • S. annual real income would be $57.3 billion (0.23 percent) higher than the baseline projections (which statistically means zero growth).
  • Real GDP would be $42.7 billion (0.15 percent) higher (again, statistically zero).
  • Employment would be 0.07 percent higher (128,000 full-time equivalents).
  • S. exports and U.S. imports would be $27.2 billion (1.0 percent) and $48.9 billion (1.1 percent) higher, respectively, relative to baseline projections.
  • S. exports to new FTA partners would grow by $34.6 billion (18.7 percent).
  • S. imports from those countries would grow by $23.4 billion (10.4 percent).
  • Output in manufacturing, natural resources, and energy would be $10.8 billion (0.1 percent) lower with the TPP than without the agreement.

Do you notice that the first four projections are less than 1 percent? Our economy has been limping along at only 1.5 percent growth in GDP, which is considered terrible. Yet, the TPP is only estimated to increase GDP by 0.15 percent in 15 years, or 0.01 percent each year. How could anyone be excited about this level of growth? For the first time, the USITC projected a worsening trade deficit with the world, which nullifies any meager net export benefit with new TPP countries. Page 21 admits that the overall U. S. trade deficit will worsen by $21.7B.

The Coalition for a Prosperous America released a flyer, “USITC Report: No Economic Upside to Trans-Pacific Partnership – Manufacturing Decline and Worsened Trade Performance” that states, “TPP Will Only Create 128,000 Jobs in 15 Years. That’s less than the 160,000 jobs created in April 2016…The US International Trade Commission projects increased national income less than one quarter of one percent [0.23%] – well within the margin of error and a statically meaningless growth over 15 years.”

The flyer points out that “the report is still too optimistic because it makes these false assumptions:

  • TPP countries will not manipulate currency
  • Job losers will immediately gain new jobs with no transition costs
  • TPP countries will stop all mercantilistic state-capitalism strategies”

Returning to the rosy projections, the USITC report states, “Among broad sectors of the U.S. economy, agriculture and food would see the greatest percentage gain relative to the baseline projections: Output would be $10.0 billion, or 0.5 percent, higher by year 15.” That is about equal to just one-year’s worth of sorghum production!

The Executive Summary states that the services sector represents the largest share of the U.S. economy, and it would expand the most:

  • “U.S. imports of services would be 1.2 percent higher
  • S. exports of services would be 0.6 percent higher
  • Services sector would have a gain of $42.3 billion (0.1 percent) in output
  • Employment would be 0.1 percent higher.”

If the service sector is supposed to expand the most and it is only 0.1 percent, why does page 34 state that the Services trade balance will worsen by $2.2B? This doesn’t sound good to me, especially when all of the projected benefits of past agreements were proved to be way too optimistic.

Chapter 4 discusses the impact on Manufactured Goods and Natural Resource and Energy Products. The Introduction states, “The TPP Agreement is likely to have a limited impact on U.S. production and trade of manufactured goods and natural resource and energy (MNRE) products. The U.S. manufacturing sector is already more liberalized than other sectors, such as agriculture and services, and duties are generally low.” This means that because duties are already low, the TPP will be less beneficial to the manufacturing sector.

Even with the “most optimistic possible” scenario for its projections, you noticed above that “Output in manufacturing, natural resources, and energy would be $10.8 billion (0.1 percent) lower with the TPP than without the agreement.”

This means that U.S. manufacturing will decline, and the manufacturing trade deficit will worsen by $24B (pages 30-31). Manufacturing employment will decrease by 0.2% (0.2% is 240,000 workers based on 12M mfg employment in 2013). Obviously, the 128,000 jobs the TPP is supposed to create in 15 years will not be the higher paying manufacturing jobs.

Chapter 4 also “examines in more depth five sectors for which there will be significant U.S. trade liberalization with the full implementation of TPP: (1) passenger vehicles; (2) textiles and apparel; (3) footwear; (4) chemicals; and (5) titanium metal.”

Passenger Vehicles: Buried in 40 pages of discussion, the report states that “Overall U.S. passenger vehicle exports would increase by more than 2 percent ($2.9 billion), and parts exports would increase by 1.5 percent ($2.1 billion) by year 30, relative to the baseline estimate.” However, ” (page 232)

“U. S. passenger vehicle imports would increase by $4.3 billion above the baseline upon full implementation of the agreement (table 4.15). Imports from Japan would increase by $1.6 billion, and imports from NAFTA partners would increase by $1.8 billion, making up the majority of the increase. Parts imports would increase by $4.5 billion, with imports from NAFTA partners increasing by $5.5 billion.” (page 249)

Textiles: “TPP would result in a 1.4 percent ($1.9 billion) increase in U.S. imports of apparel over the 2032 baseline (i.e., expected level of imports in 2032 without TPP), and a 0.3 percent ($10 million) increase in U.S. exports.” (page 254)

Footwear: “…U.S. imports from all TPP countries would rise by $1.6 billion (23.4 percent). Most of this increase would be accounted for by imports of footwear from Vietnam, the second-largest supplier overall and the biggest TPP supplier of footwear to the U.S. market.” (pages 272-273)

Chemicals: “…U.S. exports of chemical products, including pharmaceuticals, would be $1.9 billion (0.7 percent) higher than 2032 baseline estimates and U.S. imports would be $5.3 billion (1.3 percent) higher than the baseline, due in part to tariff reductions.” (page 284)

Titanium: The most significant detrimental effect of the TPP would be on the Titanium industry. The report states, ” U.S. titanium metal641 imports from TPP members, according to Commission estimates, would likely increase by $202.1 million (109.7 percent) as compared to the 2032 baseline. U.S. output would decrease by $202.4 million (1.2 percent) and employment would similarly decline by 1.3 percent, as compared to the 2032 baseline. Japan is the principal source of U.S. titanium imports,642 despite a 15 percent U.S. import duty on both unwrought titanium (i.e., titanium sponge, ingot, billet, and powders) and wrought titanium (e.g., bars, sheets, and tubes) (box 4.12), and would benefit the most from the removal of duties. U.S. exports of titanium would be slightly lower—other TPP members already apply low or zero duties on imports of these products.” (pages 292-293)

Since all other above industry sectors would be adversely affected by the TPP), it strengthens my opposition to it being approved by Congress. If you work in the manufacturing industry, I strongly recommend that you contact your Congressional Representative and urge them to oppose approval of the TPP. We don’t need a further decline of U. S. manufacturing and more loss of manufacturing jobs!

Reshoring has Become an Economic Development Strategy

May 24th, 2016

As a result of my writing and speaking about returning manufacturing to America through reshoring, I recently received information from the International Economic Development Council (IEDC) inviting me to educate my audience on the findings of their research and the tools and resources available when manufacturers are considering reshoring.

The IEDC is a non-profit membership organization serving economic developers with more than 4,700 members. Their mission as economic developers is to “promote economic well-being and quality of life for their communities, by creating, retaining and expanding jobs that facilitate growth, enhance wealth and provide a stable tax base.”

Last year, the IEDC received a grant from the U.S. Economic Development Administration to “examine current reshoring practices and create materials to spread awareness of reshoring trends, tools and resources that are available to ease the process.” For the past 16 months, IEDC has conducted research on why companies are choosing to reshore and what resources are available to assist American companies that are considering reshoring. In the past year, IEDC has provided educational training sessions with reshoring experts, such as Harry Moser of the Reshoring Initiative, for economic developers.

IDEC also created the Reshoring American Jobs webpage, a project funded by the U.S. Economic Development Administration (EDA). “It is the go-to place to learn about and find resources to support activities encouraging reshoring in communities. Economic developers will find the latest news, case studies, and in-depth research on reshoring activity to help them stay in-the-know on reshoring trends information.” The micro site is divided into three sections:

Understanding Reshoring” discusses the critical role reshoring plays in strengthening the economy, identifies challenges to reshoring, and highlights lessons learned from communities that have worked with reshored companies.”

  • Defining the Reshoring Discussion” White Paper
  • National Assessment of Reshoring Activities
  • Webinars: Defining the Reshoring Discussion, Reshoring Tools….They’re Out There
  • Tools for Reshoring “provides resources and best practices in reshoring American jobs to aid economic developers in assisting reshoring companies.”
  • Reshoring in the Media “tracks the latest discussions on trends covered by popular and trade media. The content will help demystify the reshoring movement and serves as a practical reference for economic development professionals.”

In March 2016, IEDC published a 30-page white paper on “Defining the Reshoring Discussion,” in which the introduction and historical perspective states, “…as foreign countries strengthened their manufacturing competitiveness over the years, American manufacturers struggled to maintain their cost and productivity advantages on a global scale. Some American manufacturers adjusted to foreign competition by shifting their focus to complex, high-value products and industries—and increasing manufacturing investment, output, and employment. Others either closed U.S.-based factories or sought cost savings by offshoring some, or all, of their operations to less expensive foreign locations. Shortly after China joined the World Trade Organization at the end of 2001, a large exodus of U.S. manufacturers occurred.”

Now, however, supply chain dynamics have changed, and the report states, “…the cost savings that American firms had enjoyed began to erode around the year 2010. Changing macro-economic factors, such as labor and transportation cost increases, absorbed much of the savings from which manufacturers had previously benefited. Also, after experiencing offshoring firsthand, many companies found that hidden costs often outweighed the cost benefits of manufacturing overseas. Some of these hidden costs that were not always considered include factors such as increased costs of monitoring and quality control, uncertain protection of intellectual property, and lengthy supply chains.”

While the white paper presents a broad overview of the discussion of reshoring, some common themes emerged from their review of resources:

  • “The decision to reshore is often described as a response by business to both macroeconomic and internal business-related factors.
  • The term reshoring is used to describe a range of activities that occur in numerous industries, not just manufacturing.
  • A company’s decision to reshore can be encouraged through the creation of favorable business conditions, a skilled workforce, and incentives that encourage innovative manufacturing practices.
  • Reshored jobs will likely be different from the jobs that existed before offshoring gained momentum or jobs that currently exist offshore.”

The reason economic development agencies have become interested in reshoring is that “The impacts of reshoring extend beyond individual companies and provide benefits for entire regions as the effects multiply through local economies.”

From an economic development viewpoint, “it is important to understand that reshoring is fundamentally a location decision. In this sense, a company’s decision to stay in the U.S. or relocate will be based on its total operation costs in a given location.”

The white paper highlights some of the findings of the data from 25 national economies research studied by the Boston Consulting Group (BCG) from 2004 to 2014. The BCG study

found that the following factors significantly impact manufacturing location decisions:

  • Increased wages – “China’s wages rose 15 to 20 percent per year at the average Chinese factory”
  • Fluctuating currency value – “when compared against the U.S. dollar, the Chinese yuan increased in value by 35 percent
  • “Labor productivity, which is measured as the gains in output per manufacturing Worker”
  • “Reduction of energy costs from 2004 to 2014, especially in energy-dependent industries such as iron and steel and chemicals industries”

Naturally, the white paper mentions the work of Harry Moser, founder of the Reshoring Initiative, in developing the Total Cost of Ownership Estimator™ in an effort “to help decision-makers estimate total costs of outsourced parts or products by aggregating, then quantifying all cost and risk factors into a single cost.”

The paper then discusses the different definitions of reshoring from a popular understanding to a more academic definition. The most common definition is “the return of Manufacturing to the U.S.” From an economic development perspective, the following definition may be more appropriate: “a manufacturing location decision that is a change in policy from a previous decision to locate manufacturing offshore from the firm’s home location.” (Ken Cottrill in his article titled “Reshoring: New Day, False Dawn, or Something Else.”) Cottrill divides reshoring into four categories:

In-house reshoring refers to the relocation of manufacturing activities, which were being performed in facilities owned abroad, back to facilities in the U.S.”

Relocating in-house manufacturing activities, which were being performed in facilities abroad, back to U.S.-based suppliers, is labeled “reshoring for outsourcing.”

Outsourced reshoring describes the process of relocating manufacturing activities from offshore suppliers back to U.S.-based suppliers.

Reshoring for Insourcing is “when a company relocates manufacturing activities being outsourced to offshore suppliers back to its U.S.-based facilities, it is considered reshoring for insourcing.”

The authors comment that reshoring applies to industries other than manufacturing, such as the information technology (IT) sector, stating that ”challenges such as time zone differences, identity theft, privacy concerns, and issues with utility infrastructure abroad led more companies to return their IT operations to the U.S.”

The white paper contains several pages describing what is currently being done to encourage reshoring by government programs such as the Make It in America Challenge and National Network for Manufacturing Innovation (NNMI), which are too lengthy to discuss in this short article. However, I do want to describe the following tools that can be useful to economic development professionals as well as companies in the reshoring process:

Assess Costs Everywhere (ACE) Tool: This U.S. Department of Commerce tool was developed within the Economics and Statistics Administration, in partnership with the NIST-MEP, and with support from various agencies within the U.S. Department of Commerce, the United States Patent and Trademark Office, and SelectUSA. “The tool provides a framework for manufacturers to assess total costs by identifying and discussing 10 cost and risk factors. These include: labor wage fluctuations; travel and oversight; shipping time; product quality; inputs such as energy costs; intellectual property protection; regulatory compliance; political and security risks; and trade financing costs.” ACE also provides case studies and links to public and private resources.

National Excess Manufacturing Capacity Catalog (NEXCAP): This resource was developed by the University of Michigan and “provides a catalog of vacant manufacturing facilities as well as critical data on skilled workforce supply, community assets, and other information pertinent to location decisionmaking.” It was funded by the Economic Development Administration.

U.S. Cluster Mapping Project: This is another project funded by the EDA and led by Harvard Business School’s Institute for Strategy and Competitiveness by “conducting research and publishing data records on industry clusters and regional business environments in the United States…[allows] users to share and discuss best practices in economic development, policy and innovation.”

The paper discusses the importance of “industrial commons,” a term coined by Harvard Business School’s Gary P. Pisano and Willy C. Shih in 2009,which refers” to a foundation of knowledge and capabilities that is shared within an industry sector in a particular geographic area. This includes technical, design, and operational capabilities as well as “R&D know-how, advanced process development and engineering skills, and manufacturing competencies related to a specific technology.”

Next, it discusses the impact of innovation and one point particularly worth noting is: “Manufacturing outputs have more than doubled since 1972, in constant dollars, even with a 33 percent reduction in employment…Improved output and efficiency is largely attributed to technological advancements that increase productivity and decrease labor-intensive activities. As gaps between wages in developed and developing economies continue to shrink, U.S. manufacturers will need to focus on innovation, using technology to improve productivity and reserving labor for value-added activities.”

In the section considering the need for more workforce development and what could be done in the future to encourage reshoring, “Mark Muro, Senior Fellow and Director of the Metropolitan Policy Program at the Brookings Institution, argues that offering incentives focused solely on manufacturing reshoring is not enough… the focus should be on building the vibrancy of the critical advanced manufacturing industry sector. Muro argues that the U.S. must strengthen the depth of the nation’s regional advanced industry ecosystems…he calls for governments, companies, and individuals to work collectively to rebuild the nation’s local skills pools, industrial innovation capacity, and supply chains.”

While no in-depth studies have been conducted on the potential effect of reshoring on creating jobs, the paper provides the following chart showing estimates under various scenarios (recreated):

Scenario Description Source Jobs Reshored Cumulative Total Jobs
Using TCI analysis Reshoring Initiative 500,000 1,000,000
If Chinese Wage Trends continue at 18%/year Boston Consulting Group 1,000,000 2,000,000
Adoption of better U. S. training, increased process improvements & competitive tax rates Federal Government’s Advanced Manufacturing Partnership 2,000,000 4,000,000
End of foreign currency manipulation Almost all manufacturing groups 3,000,000 6,000,000
Cumulative Total jobs is based on a two support jobs created for every manufacturing job reshored

The paper states, “The brightest reshoring prospects involve those that can profit from the current manufacturing environment. This would include manufacturers that depend on natural gas, require minimal labor, and need flexibility in production to meet changing customer needs.”

The authors’ conclusion in the paper echoes a conclusion in the second edition my book published in 2012:   They conclude that “there are opportunities for various levels of government, the private sector, and partnerships between the two to create an environment to support the manufacturers who can reshore.” Let’s not waste another four years coming to the same conclusion.

 

Is Bi-partisan Tax Reform Possible?

April 27th, 2016

Tis the season of talk about tax reform. Every presidential election cycle, the candidates all propose some kind of tax reform. However, once the new president is elected, Congress does not do anything because tax reform becomes the “third rail” to special interests who lobby for or against reforms that would affect them. The last comprehensive tax reform that Congress passed was the Tax Reform Act of 1986, more than a generation ago. Thus, we must pose the question: Is it possible for Congress to pass bi-partisan tax reform.

First, let’s separate fact from the rhetoric:

Rhetoric: Corporations play games to keep from paying their fair share of taxes.

Fact: Out of the 34 countries in the Organization for Economic Co-operation and Development (OECD), a group that includes most advanced, industrialized nations, America ranks first with a 39.1 percent corporate tax rate, compared to an OECD average of 24.1 percent. However, the effective rate for 2014 was 27.9 percent, which was second highest behind New Zealand among OECD countries and 15th-highest among the 189 countries measured. Effective tax rate takes into consideration the tax deductions allowed corporations to reduce the pool of taxable profits.

Some corporations aren’t paying their fair share of taxes because multinational corporations that have subsidiaries or divisions in other countries use legal accounting strategies to transfer profits to lower corporate tax rate countries or set up shell corporations in tax haven countries. This means that American corporations whose only facility is in the U. S. bear the brunt of our high taxes, making it more difficult for them to compete in the global marketplace.

One of the strategies used is what is called “Corporate inversion” by Investopedia, which refers to re-incorporating a company overseas in order to reduce the tax burden on income earned abroad. Corporate inversion as a strategy is used by companies that receive a significant portion of their income from foreign sources, since that income is taxed both abroad and in the country of incorporation. Companies undertaking this strategy are likely to select a country that has lower tax rates and less stringent corporate governance requirements.
How can we get these multinational corporations to pay their fair share of taxes in the United States?

Well, we can follow the example of states that have passed bi-partisan tax reform to address the problem of getting corporations to pay a fair share of taxes in their state. The solution was “apportionment” of corporate income taxes that is a share of taxes to be paid by a corporation to a state based on a particular formula. According to a Policy Brief by the Institute on Taxation and Economic Policy, all but the five states that don’t have a corporate income tax (Nevada, South Dakota, Texas, Washington, and Wyoming) have adopted some type of formula for state apportionment of corporate taxes.

  • “First, if a corporation does not conduct at least a minimal amount of business in a particular state, that state is not allowed to tax the corporation at all. Corporations that have sufficient contact in a state to be taxable are said to have “nexus” with that state.
  • Second, each state where a corporation has nexus must devise rules for dividing the corporation’s profits into an in-state portion and an out-of-state portion — a process known as “apportionment.” The state can then only tax the in-state portion.”

About half the states with a corporate income tax adopted the model legislation worked out in the 1950s, called the Uniform Division of Income for Tax Purposes Act (UDITPA). UDITPA recommends the following three factors to determine the share of a corporation’s profits that can be taxed by a state:

  • “The percentage of a corporation’s nationwide property that is located in a state.
  • The percentage of a corporation’s nationwide sales made to residents of a state.
  • The percentage of a corporation’s nationwide payroll paid to residents of a state.”

Only two states use the percentage of property tax since local government jurisdictions already impose a property tax, and state governments don’t want to encourage corporations to relocate to other states by doubling up on property tax. Only eight states still use the unmodified formula, and many have moved to just sales. Most of the rest of the states have increased the weight on sales, and 18 states “double weight” the sales tax percentage.

One of our members of the Coalition for a Prosperous America, Bill Parks, is a passionate advocate of corporate tax reform at the federal level based on the Sales Factor Apportionment Framework. Mr. Parks is a retired finance professor and founder of NRS Inc., an Idaho-based paddle sports accessory maker. He asserts that “Tax reform proposals won’t fix our broken corporate system… [because] they fail to fix the unfairness of domestic companies paying more tax than multinational enterprises in identical circumstances.”

He explains that multinational enterprises (MNEs) can use cost accounting practices to transfer costs and profits within the company to achieve different goals. “Currently MNEs manipulate loopholes in our tax system to avoid paying U. S. taxes… MNEs can legitimately choose a cost that reduces or increases the profits of its subsidiaries in different countries. Because the United States is a relatively high-tax country, MNEs will choose the costs that minimize profits in the United States and maximize them in what are usually lower-tax countries.”

The way his plan would work is that the amount of corporate taxes that a multinational company would pay “would be determined solely on the percent of that company’s world-wide sales made to U. S. customers. Foreign MNEs would also be taxed the same way on their U. S. income leveling the playing field between domestic firms and foreign and domestic MNEs.”

For example, if a MNE’s share of worldwide sales in the United States is 40%, then the company would pay taxes on 40% of its sales. Mr. Parks states that the advantages of his plan are:

  • “Inversions [and transfer pricing] for tax purposes become pointless because the company would pay the same tax no matter what its base.
  • It would encourage exports because all exports are fully excluded from corporate income tax.
  • It simplifies the calculation for federal, state, and local taxes because the profit to be taxed by the U. S. is determined by a simple formula.
  • Reduces or eliminates the tax incentives to locate jobs, factories, and corporate headquarters offshore, boosting employment and U. S. tax revenue.
  • Ends the disguised income taxes which are actually royalty payments.
  • Allow Congress to raise revenue without raising rates because it stops U. S. and foreign multinationals from being able to place their profits offshore to avoid U. S. taxes.”

A couple of additional benefits listed at www.salesfactor.org are:

  • “Removing the incentives for multinational corporations to leave their profits in off-shore tax havens.
  • Maintaining Congress’ ability to lower rates and/or increase revenue.”

Bill concludes that “Sales Factor Apportionment is simpler and more effective than our current system which attempts ? and often fails ? to tax the worldwide business activities or U. S. corporations. Because it is based on sales, not payroll or assets, it is a difficult system to game. Companies can easily move certain business operations and assets out of the U. S., but few, if any, would be willing to give up sales to the world’s largest market.”

Mr. Parks was part of my team visiting the offices of Congressional Representatives in Washington, D. C. the week of April 11th, and several Representatives appeared quite interested in the Sales Factor Apportionment tax proposal he described. Mr. Parks is the author of a much more in-depth article in the April 4, 2016 issue of Tax Notes (available only by subscription), and I am happy that he gave me permission to write about this topic for my audience. For further information, you may email him at Bill@nrs.com. You can also read the results of several studies on SFA at www.salesfactor.org.