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Remarks at the Aspen Institute

Wednesday, May 16, 2012

Deputy Commerce Secretary Rebecca Blank
Remarks at the Aspen Institute

Good morning, and thank you. I’d like to recognize everyone who put this conference together: The Aspen Institute, The German Embassy, The Representatives of German Industry and Trade, and The German Center for Research and Innovation.

What a great collaboration.And what a wonderful opportunity for leaders from both of our countries to exchange views on policies to promote innovation, growth, and job creation.

President Obama has referred to Germany as “one of our closest allies and an indispensable partner.” We share common values in how we approach many issues from global security, to humanitarian outreach, and–as we shall see–to how we grow our economies.

This morning, I’ll start by showing just a few slides that provide a snapshot of where our economies currently stand in comparison to each other. Then, I will discuss some of the policies that the Obama administration is pursuing in order to build ongoing strength in the manufacturing sector, an area which has been at the leading edge of the economic recovery in both Germany and the U.S.

The two countries look quite similar in terms of overall economic growth patterns.  As we all know, GDP in both countries dropped sharply during the recession, although the decline in the U.S. was not quite as steep. In the U.S., GDP declined 5.1 percent from late 2007 to 2009. In Germany, real GDP dropped 6.8 percent from early 2008 to early 2009. Since then, U.S. GDP growth has averaged 2.4 percent. Germany has experienced about 2.8 percent growth, with slower near-term growth. The IMF forecasts continued GDP growth in both countries, particularly for the U.S., although Germany’s growth forecast is affected by the unsettled financial issues in the EU zone.

In contrast, labor markets in Germany and the U.S. have behaved quite differently over the past five years. Unemployment in the U.S. was lower throughout the 1990s and early 2000s, but the unemployment rate rose steeply over the recession, from less than 5 percent in 2007 to 9.9 percent in 2009 before falling back down to its current to 8.2 percent. In Germany, the harmonized unemployment rate rose only slightly from 7.2 percent in the second half of 2008 to 7.9 percent in 2009 before dropping to 5.6 percent.

Today, Germany’s employment stands at an all-time high while U.S. employment remains below its previous peak. Many observers have credited the strong employment in Germany to their labor market policies over the recession, where Germany subsidized firms to retain workers; many firms reduced hours but did not reduce employment.  

The global recession affected both countries similarly with regard to exports–falling roughly the same amount in terms of real exports. But since 2009, both countries’ exports have shown strong growth–with the U.S. at 8.7 percent and Germany at 10.4 percent. Both countries are now exporting more than before the recession. Export growth has led the recovery in both economies.

Germany and U.S. export growth has been stronger than in any other industrialized country except Japan, 11.4 percent. Other countries have seen export growth, but not as much as the U.S. and Germany. Examples: France, 6.8 percent; Canada, 6.5 percent; and the UK, 5.7 percent.

I should note that export growth means something slightly different in these two countries. Exports represented over half of Germany’s GDP in 2011, but only about 14 percent of the U.S. GDP.  The countries look quite comparable, however, if you compare German exports outside the EU (19.8 percent in 2010) with U.S. exports. This export growth is being supported by strong manufacturing sectors in both countries. In the US, over 60 percent of exports are manufactured goods.

So, while both countries have shown similar overall growth rates, there are real differences. The U.S. is necessarily much more focused on job growth, while Germany is struggling with the financial problems besetting the European Union. Both countries, however, have clearly been economic leaders, with a stronger recovery and higher economic growth than other OECD countries. Maintaining this growth is vital not just to each of our nations and their workers, but also to the larger world economy.  

One point of strong agreement between these two countries is the importance of the manufacturing sector in their recent economic growth. Manufacturing has driven over one-third (37 percent)* of U.S. GDP growth since 2009 and, as noted above, is central to the export strength of both countries. So let me spend the remainder of my time talking about how the Obama administration is thinking about the role of manufacturing and the appropriate government policies to strengthen that sector.

We have added nearly a half million manufacturing jobs over the past two years in the US–the strongest growth in this sector since the 1990s. And these are good jobs.  

The Commerce Department just released a report showing that U.S. manufacturing jobs provide wages and benefits that are 17 percent higher than in non-manufacturing jobs.We all know that the private sector has to be smart and innovative for U.S. manufacturing to do well. But the government can help create an environment in which American manufacturers can compete and grow. As an economist, I like to refer to the public goods that the government provides, and which the private sector does not provide well for itself. Let me describe a few areas where government support for public goods is particularly important for a strong manufacturing sector.

Innovation: First, it’s clear that manufacturing is an engine of innovation. The manufacturing sector already employs the majority of America’s scientists and engineers. Manufacturing is responsible for 70 percent of our private sector R&D and 90 percent of our patents. Up to three-quarters of U.S. growth after World War II has been linked to technological innovation.

There is growing understanding that an inextricable link exists between America’s ability to make things. . . and America’s ability to innovate and compete. Basic research is one public good that governments help support. Every industrialized country in the world provides major public support for R&D, helping universities and labs create the basic ideas that will drive applied research forward.

For example, Germany has a strong network of universities of applied science, technical universities, and the Fraunhofer Research Institutes. However, the U.S. government’s direct support for R&D has dropped from more than 70 percent in 1980 to 57 percent by 2008. The Obama administration wants to reverse that trend. Specifically, the president has set of goal of doubling the budgets for programs that support basic research, including our labs in Commerce at the National Institute of Standards and Technology (NIST).

I should note that, in 2005, a NIST researcher (Jan Hall) and a researcher at Ludwig-Maximilian University of Munich (Theodor Hansch) shared the Nobel Prize in Physics. And, on a larger scale, the U.S. and Germany have a long history of working together on measurements and standards. We need more of these sort of cross-national collaborative efforts to help feed innovation.

The president’s 2013 budget increases NIST’s budget, particularly including funds for R&D that supports advanced manufacturing–the sector of manufacturing that utilizes the latest technology in productions and product development. This will assist our scientists and engineers who work in cutting-edge fields like flexible electronics, robotics and bio-manufacturing.

Past U.S. support for basic research has helped change our world. Technologies as diverse as flat-panel displays to semiconductors to GPS systems to wireless ultrasound for rural healthcare were deeply reliant, at an early stage, on research funded by wisely-spent tax dollars. We need to make sure that this support continues, funding research into areas that will improve the daily lives of our children and grandchildren.
Exports: Increased U.S. exports have been central to our economic growth over the past two years, and we want to continue that trend. In 2009, President Obama set a goal of a doubling of U.S. exports in five years, by 2014. We’re well on our way to meeting this goal. Last year, we had a record $2.1 trillion in U.S. exports. As noted earlier, more than 60 percent of that was manufactured goods.

The U.S. supports exports by providing the information and connections that countries need. The Foreign Commercial Service, part of the Department of Commerce, works out of embassies around the world to link businesses with overseas markets. This is another public good…it’s hard for individual companies to build the in-country expertise that our FCS and embassy personnel already have.

We are also building exports with our new free trade agreements with Korea, and–just yesterday–Colombia. And, of course, we hope to build even stronger ties with our fifth-largest trading partner, Germany. Two-way trade of goods with Germany totaled nearly $150 billion in 2011, 13 percent higher than in 2010. This is good, but there is still room for progress. We want to work to foster a more balanced trading relationship with Germany–where our trade gap jumped significantly last year from $34B to $50B–and, in fact, with all of our global trading partners.

So the Commerce Department and our International Trade Administration will continue to play a lead role in helping our exporters through trade missions, advocacy, and more. Importantly, we will target key markets–and sectors within those markets–that show particular promise. Our Secretary just did this with a trade mission to India, bringing U.S. companies that support infrastructure growth. India intends to spend $1 trillion over the next five years to meet the needs of its fast-growing cities and we would like to help them do that. For countries like ours to succeed in the 21st century, we must continue to empower our manufacturers to start, sustain, or increase exports.

Education: Of course, a globally competitive economy requires a globally competitive workforce–and workforce training is another focus area for today’s discussions. Education is a classic public good; in the U.S. federalist system, there is a role for local, state and Federal government to support education. We need strong and effective public education for the next generation of workers who will take American and German innovations and put them to work in the global economy.

Education in science, technology, engineering and math–STEM fields–is particularly important. STEM workers are central to advanced manufacturing firms, and it is STEM-related research that will drive innovation in the years ahead. In fact, STEM jobs have grown three times faster than other jobs, indicating the need for more workers with these skills.

The president has proposed an $8 billion Community College to Career Fund, which aims to strengthen the pipeline of workers into good jobs, including those in manufacturing. About one-third of STEM jobs are available to workers who do not have college degrees, but who have post-high school training and certification. Here in the U.S. about 13 percent of our college graduates finish school with a STEM degrees. That number is too low. In many of our competitor nations, including Germany, closer to 25 percent of their college graduates complete STEM degrees.

So we have some work to do here at home. That’s why the president’s 2013 budget invests $3 billion across the federal government in programs that promote STEM education, a 3 percent increase. In particular, we need to focus on creating more paths for women and minorities to get STEM degrees. And I also believe we need to “staple” green cards to the STEM degrees of foreign students who come to the U.S., get a world-class education, and receive job offers which will help our companies drive innovation.

In summary, there are many opportunities for the U.S. and Germany to continue to lead the world in manufacturing–and many other areas–in the 21st century. Together, we should continue to examine all of the tools at our disposal as we work to strengthen economic recovery for both countries. I’ve mentioned support for basic R&D, export support and workforce development. There are many other policy areas we could talk about as well that are important to manufacturing, such as patent policies that provide intellectual property protection, policies that encourage foreign direct investment into our nations, public efforts to modernize infrastructure or reforms of the corporate income tax. These are all areas where we can learn from each other about the best and smartest policies to foster growth.

At the Department of Commerce, we are directly engaged in dialogue between our two nations. For example, we recently re-launched the U.S.-German Informal Commercial Exchange, where I met with my counterpart State Secretary for Economics Jochen Homan. These talks had not been held in six years, and we are already exploring ways to collaborate on promoting open trade policies and on harmonizing scientific research and industrial standards and regulations.

I should note that Secretary Bryson will be in Dusseldorf and Berlin next week to meet with government and business leaders. They will discuss new ways to build on our strong commercial and economic relationship. Truly, the bonds between the U.S. and Germany will and must continue to grow in the days, months and years ahead. I look forward to working more with all of you to strengthen these bonds.

If we are successful, our businesses and our workers will continue to drive prosperity and to create better lives for people in both countries, and, in fact, for people around the world.

*Note: The U.S. Treasury Department updated this figure to 26% on May 17, 2012.