Former White House Chief of Staff John Podesta moderates as Microsoft Chairman Bill Gates and US Energy Secretary Steven Chu deliver remarks on the state of energy, February 28, 2012 during the US Energy Department’s Advanced Research Projects Agency-Energy (ARPA-E) Energy Innovation Summit at the Gaylord National Hotel & Convention Center in National Harbor, Maryland, near Washington, DC.

We can dream it – so why can’t we make it?

That was a central question debated at the Energy Innovation Summit in Washington, DC at the end of February, with leaders from business and academia warning the US is failing to retain the manufacturing jobs produced by technology innovation pioneered here.

To change that, the US needs to become “fierce” in competing, said Susan Hockfield, President of the Massachusetts Institute of Technology (MIT), and she found ample backing from executives of global businesses who say the US lacks leadership to attack the problem.

Like Secretary of Energy Steven Chu, they told the summit, sponsored by the Department of Energy’s Advanced Research Projects Agency-Energy, that the best innovations are still coming from the US. But companies often don’t locate resulting manufacturing in this country, and the reasons go way beyond cost.

Too Much Competition?

Bruce Sohn of MEGE Associates, formerly with Intel, said individual US states compete to get businesses to locate, but “they still can’t match other countries … even European countries.”

There is no single office that speaks for all the federal, state and other layers of government involved. “Nobody is able to say, ‘We need this company in the US,’ and make it happen,” Sohn said, and other nations are offering deals that “CEOs can’t ignore.”

Matthew Ganz of Boeing agreed. “Even England,” he said, targets industries for certain locations, and officials “at the most senior levels of government” work with businesses to craft a deal.
The US “is competing with countries,” stressed Christine Furstoss of GE’s Global Research Center.

Ursula Burns, CEO of Xerox, said when government and businesses do collaborate in the US, they tend to be working on yesterday’s problems. “The cycles are too slow” for the competitive global market, she said.

Former President Bill Clinton said the US corporate tax structure must be adjusted to regain competitiveness. The current tax rate of 35% was “in the middle” of industrial countries when he approved it in 1993, Clinton said, but those countries have since lowered rates, leaving the US with the highest rate. “That clearly should change,” he said.

Appeal Factor Remains

Two factors attracting manufacturing are US intellectual property rights law and the efficiencies of co-locating engineering and design.

Atul Kapadia, CEO of start-up Envia, said retaining control of the company’s proprietary battery technology motivated keeping part of its manufacturing in the US. But because of costs, the non-proprietary part is done in China.

Read more about Envia’s new technology on Breaking Energy here.

Ganz said Boeing also tries to retain “critical” proprietary technologies in the US while globally sourcing other work.

Furstoss said GE has recently moved some jobs back to the US, in part so manufacturing can be co-located with the design engineers. Having designers on the production floor will let them see problems and opportunities so they can re-engineer processes and products.

Ganz said most designing today is done on supercomputers, but there’s still no substitute for having engineers see their designs in operation.

But Hockfield voiced the worry that if the US doesn’t compete better, instead of companies moving manufacturing back to the US, they’ll off-shore their engineering.

Advantages No More?

With the aggressive growth of high-quality research centers in places like Shanghai, Bangalore and Rio de Janiero, she said, there is “real concern” the US may lose the research and development advantage it still enjoys.

Kapadia said the US should do what other nations have: establish centers designed to draw specific industries, with regulation tailored to that purpose.

Burns said businesses need sustainable, long-term policies, and Hockfield said today’s gridlocked partisan politics is frustrating to business leaders. “Who says what’s good for the nation?” she asked.

Burns urged tighter collaboration between government and businesses, saying, “We have to make it reasonable to make it here.”

This is the first story in a two-part series on the outcomes of the government’s innovation summit. Return to Breaking Energy for part two: Skilled labor shortage drives jobs abroad.

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