Policies and initiatives to promote U.S. manufacturing would be well advised to take a value chain perspective of this economic sector. Currently, our economic statistics do not include pre-production services to manufacturing such as research and development or design or post-production services such as repair and maintenance or sales. Yet, manufacturing firms invest heavily in these services because they are crucial to the success of their business. 

In a new paper, Kate Whitefoot and Walter Valdivia offer a fresh insight into the sector’s labor composition and trends by examining employment in manufacturing from a value chain perspective. While the manufacturing sector shed millions of jobs in the 2002-2010 period—a period that included the Great Recession—employment in upstream services expanded 26 percent for market analysis, 13 percent for research and development, and 23 percent for design and technical services. Average wages for these services increased over 10 percent in that period. Going forward, this pattern is likely to be repeated. Technical occupations, particularly in upstream segments are expected to have the largest increases in employment and wages.

In light of the findings, the authors offer the following recommendations: 

• Federal manufacturing policy: Expand PCAST’s Advanced Manufacturing Partnership recommendations—specifically, for developing a national system of certifications for production skills and establishing a national apprenticeship program for skilled trades in manufacturing—to include jobs outside the factory such as those in research and development, design and technical services, and market analysis.
• Higher education: Institutions of higher education should consider some adjustment to their curriculum with a long view of the coming changes to high-skill occupations, particularly with respect to problem identification and the management of uncertainty in highly automated work environments. In addition, universities and colleges should disseminate information among prospect and current students about occupations where the largest gains of employment and higher wage premiums are expected. 
• Improve national statistics: Supplement the North American Industry Classification System (NAICS) with data that permits tracking the entire value chain, including the development of a demand-based classification system. This initiative could benefit from adding survey questions to replicate the data collection of countries with a Value Added Tax—without introducing the tax, that is—allowing in this manner a more accurate estimation of the value added by each participant in a production network.

Whitefoot and Valdivia stress that any collective efforts aimed at invigorating manufacturing must seize the opportunities throughout the entire value chain including upstream and downstream services to production.

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• Download the paper

Event Information

A conversation with Senator John McCain

On May 19, the Center for 21st Century Security and Intelligence at Brookings (21CSI) hosted Senator John McCain (R-Ariz.) to address major reforms to the organization of the Department of Defense, the defense acquisition system, and the military health system included in the National Defense Authorization Act for Fiscal Year 2017, which is planned for consideration by the Senate as soon as next week.

Given his role as chairman of the Senate Armed Services Committee, McCain also addressed ongoing budget challenges for the Department of Defense and the military and his views on what needs to be done. Michael O’Hanlon, senior fellow and co-director of 21CSI, moderated the discussion.

Join the conversation on Twitter using #FY17NDAA

Video

• Introduction by Martin Indyk, and remarks by Sen. John McCain
• Discussion between Sen. John McCain and Michael O'Hanlon

Audio

• New demands on the military and the 2017 National Defense Authorization Act

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20160519_mccain_defense_transcript

The terrible attack in Nice on July 14—Bastille Day—saddened us all. For a country that has done so much historically to promote democracy and human rights at home and abroad, France is paying a terrible and unfair price, even more than most countries. My colleagues Will McCants and Chris Meserole have carefully documented the toll that France, and certain other Francophone countries like Belgium, have suffered in recent years from global terrorism. It is heart wrenching.

From what we know so far, the attack was carried out by a deeply distraught, potentially deranged, and in any case extremely brutal local man from Nice of Tunisian descent and French nationality. Marital problems, the recent loss of his job, and a general sense of personal unhappiness seem to have contributed to the state of mind that led him to commit this heinous atrocity. Perhaps we will soon learn that ISIS, directly or indirectly, inspired the attack in one way or another as well. My colleague Dan Byman has already tapped into his deep expertise about terrorism to remind us that ISIS had in fact encouraged ramming attacks with vehicles before, even if the actual manifestation of such tactics in this case was mostly new. 

This attack will again raise the question: Why France? On this point, I do have a somewhat different take than some of my colleagues. The argument that France has partly brought these tragedies upon itself—perhaps because of its policies of secularism and in particular its limitations on when and where women can wear the veil in France—strikes me as unpersuasive. Its logical policy implications are also potentially disturbing, because if interpreted wrongly, it could lead to a debate on whether France should modify such policies so as to make itself less vulnerable to terrorism. That outcome, even if unintended, could dance very close to the line of encouraging appeasement of heinous acts of violence with policy changes that run counter to much of what French culture and society would otherwise favor. So I feel the need to push back.

Here are some of the arguments, as I see them, against blaming French culture or policy for this recent string of horrible attacks including the Charlie Hebdo massacre, the November 2015 mass shootings in Paris, and the Nice tragedy (as well as recent attacks in Belgium):

• Starting with the simplest point, we still do not know much about the perpetrator of the Nice killings. From what we do surmise so far, personal problems appear to be largely at the root of the violence—different from, but not entirely unlike, the case with the Orlando shooter, Omar Mateen.
• We need to be careful about drawing implications from a small number of major attacks. Since 2000, there have also been major attacks in the Western world by extremist jihadis or takfiris in New York, Washington, Spain, London, San Bernardino, Orlando, and Russia. None of these are Francophone. Even Belgium is itself a mixed country, linguistically and culturally.
• Partly for reasons of geography, as well as history, France does face a larger problem than some other European countries of individuals leaving its country to go to Syria or Iraq to fight for ISIS, and then returning. But it is hardly unique in the scale of this problem.
• Continental Europe has a specific additional problem that is not as widely shared in the United Kingdom or the United States: Its criminal networks largely overlap with its extremist and/or terrorist networks. This point may be irrelevant to the Nice attack, but more widely, extremists in France or Belgium can make use of illicit channels for moving people, money, and weapons that are less available to would-be jihadis in places like the U.K. (where the criminal networks have more of a Caribbean and sub-Saharan African character, meaning they overlap less with extremist networks).
• Of course, the greatest numbers of terrorist attacks by Muslim extremists occur in the broader Muslim world, with Muslims as the primary victims—from Iraq and Syria to Libya and Yemen and Somalia to South Asia. French domestic policies have no bearing on these, of course.

There is no doubt that good work by counterterrorism and intelligence forces is crucial to preventing future attacks. France has done well in this regard—though it surely can do better, and it is surely trying to get better. There is also no doubt that promoting social cohesion in a broad sense is a worthy goal. But I would hesitate, personally, to attribute any apparent trend line in major attacks in the West to a particular policy of a country like France—especially when the latter is in fact doing much to seek to build bridges, as a matter of national policy, with Muslims at home and abroad. 

There is much more to do in promoting social cohesion, to be sure, even here in America (though our own problems probably center more on race than on religion at the moment). But the Nice attacker almost assuredly didn’t attack because his estranged wife couldn’t wear a veil in the manner and/or places she wanted. At a moment like this in particular, I disagree with insinuations to the contrary.

Editor's Note: In September of this year Visiting Fellow Norman Eisen was featured in the Council on Government Ethics Law (COGEL) members-only magazine, The Guardian. An abbreviated version of his interview is featured below.

Interview conducted by Wesley Bizzell, Assistant General Counsel, Altria Client Services LLC.

Recently, you addressed the Italian Parliament to discuss ethics in government, as that legislative body considers adopting its own code of ethical conduct. In that speech, you noted you believe there are four key concepts at the center of Federal U.S. ethics laws. What are those four concepts and why they are important?

Firstly, I’d like to note the importance of focusing on four concepts. The House of Representatives Ethics manual is 456 pages long; too long to be of any real use in creating an ethics system. Instead, these four principles serve as a foundation upon which different governments can build their own sets of rules based on their own unique needs.

I focused on just four to make a point about priorities. The first is “conflicts”—that is, problems that arise when an individual’s personal interests and parliamentary duties may be at odds with one another. The second is “gifts”. Even if there isn’t an explicit quid-pro-quo style agreement involved, when a political figure accepts a gift from someone with a demonstrated interest in government decision-making, the suspicion of misconduct will always be there. “Revolving door” is the third core concept. When individuals rotate from the private sector to the public sector over and over again, they are naturally going to form relationships that tempt them toward unethical behavior. Finally, “use official resources.” Officials must be careful to use official resources only for official purposes, being particularly careful not to conduct any campaign activity on the taxpayer’s dime. The goal with these four priorities is not only to keep people from behaving unethically, but also to make sure it doesn’t seem like anyone is doing anything unethical either.

In that speech, you said that focusing on these four areas keeps you from losing the forest for the trees when working with ethics codes. Can you elaborate on that?

There’s always a danger for members of the executive branch, because the system of rules and regulations that governs ethical behavior is itself so complex. When it’s imbedded in equally complicated and overlapping sets of statute you risk creating rules so specific that they’re practically useless. The same is true in the legislative branch and I dare say in the federal judicial branch, as well as at the state and local levels. You’re always on the edge of being lost in the minutiae.

In fact, you can often make wrong decisions if you focus in too much on the specifics, because you lose sight of the larger picture that guides the rules. There are always options in ethical dilemmas, and the big picture needs to be kept in focus.

While at the White House serving as Special Counsel to the President for Ethics and Government Reform you oversaw numerous significant changes in the area of open government—including helping craft and implement President Obama’s Open Government Directive; publishing White House visitor logs on the internet; and generally improving the Freedom of Information Act (FOIA) process. What change in the area of open government are you most proud?

I was struck when we began the interview by the list of topics—campaign finance, lobbying, ethics, elections, and FOIA issues—because all of those were part of my portfolio as Special Counsel to the President for Ethics and Government Reform during the first two years of the Obama administration. I would have to say that I’m most proud of my role in the President’s decision to put all of the White House visitor records on the internet.

Remember, in previous administrations, Democratic and Republican alike, plaintiffs had to litigate for years just to get a handful of visitor records. To have all of the visitor records on the internet, categorized into various types, opens access to the White House to an unprecedented degree. There are now over four-and-a-half million visitor records available on the White House website, with more added every month. I think that that is remarkable.

Truthfully, I was torn between that accomplishment and a second one, which is that the President and his staff in the White House have had the longest run in presidential history (knock on wood) without a major ethics scandal or a grand jury investigation, indictment, or conviction. I was tempted to list that second fact as the accomplishment of which I was most proud. But it occurred to me that the death of White House scandal is actually a function of the exceptional level of transparency that the visitor records represent. Transparency helps ensure people don’t have meetings they shouldn’t be having, which keeps them out of trouble. So I’ll offer that second accomplishment as a part of the first one.

In your view, what was the most significant lobbying and ethics reform during your tenure at the White House?

No doubt about it: reversing the revolving door. Craig Holman of Public Citizen, who studies these issues, says we were the first in the world to create a reverse revolving door. I think it is absolutely critical to slow the revolving door in both directions—both coming out of government and going in.

I should also note that the comprehensive nature of the ethics system we put into place in the Obama administration bears a responsibility for the good results. The first rule, of course, of any ethics system is “tone at the top.” The president exemplifies that. He has the highest standards of ethics himself, and as a result everyone around him feels he will be personally let down if they don’t embrace the ethics system. Good results flow from that. Looking back, we can identify certain aspects that have more and less successful, but it’s important to recognize that the positive results are owed to the gestalt. Our transparency and ethics system was one of the most through and transparent that I’ve seen in any government, and the result speak for themselves.

Tomorrow, President Obama unveils his last budget, and we’re sure to see plenty of proposals for spending on education and skills. In the past, the Administration has focused on investments in early childhood education, community colleges, and infrastructure and research. From a budgetary standpoint, the problem with these investments is how to capture their benefits as well as their costs.

First step: find out what works. The Obama Administration has been emphatic about the need for solid evidence in deciding what to fund. The good news is that we now have quite a lot of it, showing that investing in human capital from early education through college can make a difference. Not all programs are successful, of course, and we are still learning what works and what doesn’t. But we know enough to conclude that investing in a variety of health, education, and mobility programs can positively affect education, employment, and earnings in adulthood.

For example:

1. Young, low-income children whose families move to better neighborhoods using housing vouchers see a 31 percent increase in earnings;

2. Quality early childhood and school reform programs can raise lifetime income per child by an average of about $200,000, for at an upfront cost of about $20,000;

3. Boosting college completion rates, for instance via the Accelerated Study in Associate Programs (ASAP) in the City University of New York, leads to higher earnings.

If such estimates are correct (and we recognize there are uncertainties), policymakers are probably underinvesting in such programs because they are looking at the short-term costs but not at longer-term benefits and budget savings.

First, the CBO’s standard practice is to use a 10-year budget window, which means long-range effects are often ignored. Second, although the CBO does try to take into account behavioral responses, such as increased take-up rates of a program, or improved productivity and earnings, it often lacks the research needed to make such estimates. Third, the usual assumption is that the rate of return on public investments in human capital is less than that for private investment. This is now questionable, especially given low interest rates.

A hot topic in budget politics right now is so-called “dynamic scoring.” This means incorporating macroeconomic effects, such as an increase in the labor force or productivity gains, into cost estimates. In 2015, the House adopted a rule requiring such scoring, when practicable, for major legislation. But appropriations bills are excluded, and quantitative analyses are restricted to the existing 10-year budget window.

The interest in dynamic scoring is currently strongest among politicians pushing major tax bills, on the grounds that tax cuts could boost growth. But the principles behind dynamic scoring apply equally to improvements in productivity that could result from proposals to subsidize college education, for example—as proposed by both Senator Sanders and Secretary Clinton. Of course, it is tough to estimate the value of these potential benefits. But it is worth asking whether current budget rules lead to myopia in our assessments of what such investments might accomplish, and thus to an over-statement of their “true” cost.

Change is a complicated thing in Cuba. On the one hand, many Cubans remain frustrated with limits on economic and political opportunity, and millennials are emigrating in ever rising numbers. On the other, there is more space for entrepreneurship, and Havana is full of energy and promise today.

The island’s emerging private sector is growing—and along with it, start-up investment costs. Three years ago, Yamina Vicente opened her events planning firm, Decorazón, with a mere $500 in cash. Today she estimates she would need $5,000 to compete. New upscale restaurants are opening: Mery Cabrera returned from Ecuador to invest her savings in Café Presidente, a sleek bistro located on the busy Avenue of the Presidents. And lively bars at establishments like 304 O’Reilly feature bright mixologists doing brisk business.

Photo credit: Richard Feinberg.

Havana’s hotels are fully booked through the current high season. The overflow of tourists is welcome news for the thousands of bed-and-breakfasts flowering throughout the city (many of which are now networked through AirBnB). While most bed-and-breakfasts used to be one or two rooms rented out of people’s homes, Cubans today are renovating entire buildings to rent out. These are the green shoots of what will become boutique hotels, and Cubans are quitting their low-paying jobs in the public sector to become managers of their family’s rental offerings.

Another new sign: real estate agencies! Most Cubans own their own homes—really own them, mortgage-free. But only recently did President Raúl Castro authorize the sales of homes, suddenly giving Cubans a valuable financial asset. Many sell them to get cash to open a new business. Others, to immigrate to Miami.

WiFi hot spots are also growing in number. Rejecting an offer from Google to provide Internet access to the entire island, the Cuban government instead set up some 700 public access locations. This includes 65 WiFi hot spots in parks, hotels, or major thoroughfares, where mostly young Cubans gather to message friends or chat with relatives overseas.

Economic swings

2015 was a good year for the Cuban economy, relatively speaking. Growth rose from the disappointing 2 percent in recent years to (by official measures) 4 percent. The Brazilian joint venture cigarette company, Brascuba, reported a 17 percent jump in sales, and announced a new $120 million investment in the Mariel Economic Development Zone. Shoppers crowded state-run malls over the holiday season, too. 

Photo credit: Richard Feinberg.

Consumers still report chronic shortages in many commodities, ranging from beer to soap, and complain of inflation in food prices. Alarmed by the chronic crisis of low productivity in agriculture, the government announced tax breaks for farmers in 2016. The government is already forecasting a slower growth rate for 2016, attributed to lower commodity prices and a faltering Venezuelan economy. It’s likely to fall back to the average 2 percent rate that has characterized the past decade.

Pick up the pace

Cuban officials are looking forward to the 7th Conference of the Cuban Communist Party (CCP) in mid-April. There is little public discussion of the agenda, however. Potential initiatives include a new electoral law permitting direct election of members of the national assembly (who are currently chosen indirectly by regional assemblies or by CCP-related mass organizations); a timetable for unification of the currency (Cubans today must deal with two forms of money); some measures to empower provincial governments; and the development of a more coherent, forward-looking economic development strategy.

[T]here are now two brain drains: an internal brain drain, as government officials abandon the public sector for higher incomes in the growing private sector; and emigration overseas.

But for many younger Cubans, the pace of change is way too slow. The talk of the town remains the exit option. Converse with any well-educated millennial and they’ll tell you that half or more of their classmates are now living abroad. Indeed, there are now two brain drains: an internal brain drain, as government officials abandon the public sector for higher incomes in the growing private sector; and emigration overseas to the United States, but also to Spain, Canada, Mexico.

The challenge for the governing CCP is to give young people hope in the future. The White House has signaled that President Obama may visit Cuba this year. Such a visit by Obama—who is immensely popular on the island—could help. But the main task is essentially a Cuban one.

Richard Feinberg’s forthcoming book, “Open for Business: Building the New Cuban Economy,” will be published by Brookings Press later this year.