Don't let us sacrifice our future: with other nations at our heels threatening to surpass us as manufacturing leaders, we must take efforts to step-up research and development, lest we fall behind.

[Editor's Note: We usually limit The Last Word to a single page, but due to the importance of this topic, we have allowed an expansion in this case.]

An Iowa manufacturer of scrap-processing and solid-waste equipment shrinks its machine size to tap the European market for smaller equipment. A New England lobster trap maker reinvents his technology and applies it to agricultural fencing, aquaculture, and prison enclosures, opening up a range of new business opportunities. An Ohio company that makes sanitary valves redevelops its product to market it to the biotech industry. And, in Minnesota, the last U.S. manufacturer of suspension assemblies for disk drives more than doubles its research and development budget to eight percent of sales to make sure that its products are world-class now and in the future.

All of these companies have one thing in common: the relentless pursuit of continuous improvement which marks American manufacturing. Once called Yankee Ingenuity, it is the driving force behind innovative products, and improved processes.

Innovation has boosted U.S. manufacturing output to the highest level in history and made manufacturing the eighth-largest economy in the world, were it separate from the overall U.S. economy.

Yet, in today's global marketplace, other nations are emulating U.S. success with their own innovations. They are training their young people to be tomorrow's scientists and engineers. As a result, economic growth is burgeoning in many overseas markets. Will we be able to maintain our lead as the competitive pressures rise?

There's good reason for concern. A never-ending passion for innovation bestows many economic benefits on our overall economy. Perhaps foremost, it lets us be a global economic and military leader as it propels economic growth and provides unique defense capabilities.

U.S. consumers and businesses reap the advantages of new technology, providing our industry with a competitive advantage over firms elsewhere. These technological investments, in both products and processes, lead to productivity leaps that make our products better and less expensive than those produced by foreign competitors. A strong and consistent pattern of innovation also leads to financial rewards throughout the supply chain, from investors and managers to engineers and plant floor employees.

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The Warning Signs are Clear

There are three warning signs facing us. First is spending on research and development--R & D--of six fast-growing economies: China, Ireland, Israel, Singapore, South Korea, and Taiwan. They are on track to exceed U.S. spending in a few years.

As a share of total world R & D, we are still the leading R & D investor, followed by Japan and other developed countries, who belong to the Organization for Economic Cooperation and Development--OECD. Within the U.S., manufacturing is the horse that pulls the wagon, accounting for 70 percent of all business spending on R & D.

However, emerging manufacturing centers in China, South Korea, and Taiwan are closing the R & D spending gap. Collectively, their total R & D investments have risen by nearly 180 percent since 1995, while our R & D funding has increased by 38 percent. China has tripled R & D funding during the past decade. It now ranks second in the world behind us, and its R & D spending continues to accelerate.

The R & D tax credit is part of our arsenal. More than 75 percent of it is used for salaries of employees who conduct R & D in our country. Yet, Congress has let it lapse 13 times since 1981. A year ago, we ranked 15 among 20 OECD countries offering such incentives. With its expiration, the U.S. ranks last. This is not a good track record of support for one of the nation's most important economic underpinnings.

What We're Not Teaching our Kids is Hurting Us

A second warning sign is flashing in our education system. We have a formidable challenge on our hands in training the next generations of scientists, engineers, and technical workers. It's today's young people who will use the R & D tools to make tomorrow's products and processes. They are our innovators-in-training. But, only about a third of the students in fourth and eighth grades test as proficient in math, and only one-fifth of those eighth-graders can perform basic mathematical computations.

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U.S. students' capabilities in science and mathematics don't improve as they make their way through high school. By their senior year, studies show that 12th graders performed below the international average for 21 countries on a test of general knowledge in math and science. American culture discourages young people from excelling in math and science where their peers in other developed countries consistently do better.

The interest and capability of math and science teachers is sometimes a factor as well. Too many observers have pointed out that teaching math is a default curriculum for teachers who would rather be teaching humanities like English or history. While, on average, more than 70 percent of math teachers internationally have a strong math background, less than half of U.S. teachers have comparable grounding.

Logically, stemming from this relatively poor performance in high school, too few native U.S. students choose to pursue science and engineering futures. Only 11 percent of all U.S. bachelor's degrees are in natural sciences or engineering, compared to a world average of 23 percent. More than half of all the engineering students who graduate each year are foreign-born.

While this has produced a steady pipeline of highly-qualified engineers, many of them are seeing better career possibilities back home and are not remaining in the U.S. Others want to stay, but our immigration policy limits the number of visas for "highly-qualified workers." When they can't get a green card, they have to leave and apply their talents outside of our borders.

Public Funding Problems

A third warning sign is the distribution of federal spending on the physical sciences, which have their biggest payback in the form of manufacturing innovations. Publicly-funded research supported the development of semiconductors, the Internet, global positioning technology, biotechnology, nanotechnology, as well as other innovations. But, the ratio of our gross domestic product to federal spending on physical sciences has steadily fallen since the 1970s, and is now half of what it was 40 years ago. Much of this erosion occurred in the 1990s and it's time to stop it and reverse it.

What Can We Do?

We can do a lot to shore up America's innovation economy. The checklist for enhancing it includes

* Strengthen the R & D tax credit and make it permanent. Every year or so, congress toys with this important tax incentive for innovation, passing short extensions. Most recently, the credit expired at the end of 2007, resulting in a $9 billion tax hike on innovation for the 11,000 companies that use it. It should be strengthened and made permanent.

* Increase federal spending on long-term basic research by 10 percent a year for the next seven years, with a special focus on the physical sciences, engineering, and mathematics. By 2015, double the number of bachelor's degrees awarded to U.S. students in science, math, and engineering, and increase the number of those students who become K-12 science and math teachers.

* Reform immigration policies to enable the education and employment of individuals from around the world.

There has been strong bipartisan support for this agenda and recent legislation has helped move it in the right direction. But, for a country that spends more on tort litigation than on R & D, these critical steps should be urgent business.

Bill Canis manages The Manufacturing Institute's research and innovation program and directs efforts to educate policymakers, the public, and the media about manufacturing's important contributions to the U.S. economy. The institute's mission is to strengthen the manufacturing economy by increasing the knowledge of manufacturing, and by creating and implementing human capital strategies.

What do you think?

Let us know by e-mail from our website at www.ModernApplicationsNews.com or e-mail the editor at [e-mail].

Bill Canis

Vice President, The Manufacturing Institute, The National Association of Manufacturers

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