How Procurement Policies Can Promote Innovation and Good Jobs
This study advances a policy framework capable of supporting a major revival of the United States manufacturing sector. We are especially focused on the prospects for greatly expanding good job opportunities for U.S. workers that would result through the revival of the U.S. manufacturing sector. We focus, further, on using one set of policy tools—U.S. public sector purchases of manufactured goods, or procurement policies—to promote growth and expanding job opportunities within one manufacturing industry, i.e. the production of rail car transportation equipment. We show how some significant, though still straightforward, reforms of the official U.S. Department of Transportation (DOT) procurement program known as Buy America are capable of generating major benefits to domestic rail car manufacturers as well as to workers in this sector.
We reach the following main conclusions with respect to the Buy America procurement program as it operates presently throughout the U.S.:
- Domestic content standards are too low. The official domestic content requirements include 60 percent domestic production for components and 100 percent for final assembly in rail car manufacturing. But as we show, these standards amount to an overall requirement of only 40 percent domestic production. That is, up to 60 percent of production can be provided by imports.
- Monitoring and enforcement standards are too weak. The monitoring and enforcement levels for even these low domestic content requirements are weak. Moreover, few local transit agencies have adequate capacity to conduct audits in-house and public interest groups face major obstacles in obtaining relevant compliance information.
- Too many waivers are granted. The available evidence suggests that the Department of Transportation has been too willing to grant waivers to contractors bidding on transportation procurement projects covered under Buy America. The Department of Transportation needs to keep systematic records on waiver applications and decisions and to establish consistently high thresholds for granting waivers.
- Lowest-price standards are too narrow. Procurement contracts under Buy America are predominantly awarded to firms offering the lowest-price bids. This pattern suggests that the broader benefits generated by domestically-based manufacturing projects are likely being undervalued. These are tangible benefits that accrue to U.S. taxpayers—in terms of strengthening innovative manufacturing firms in the U.S., as well as generating more jobs, better jobs, and better access to job opportunities, including for women, minorities and recent labor market entrants with lower formal credentials. The U.S. Employment Plan developed initially in 2010 by the Los Angeles County Metropolitan Authority demonstrates how these other important considerations can be readily incorporated into an employment-enhanced best-value evaluation system.
From a broader perspective, we conclude that strengthening the DOT’s Buy America procurement policies, and combining these stronger policies with employment-enhanced best-value contract evaluation criteria, can make major contributions toward promoting a revival of the manufacturing sector in the United States and creating millions of good manufacturing jobs for U.S. workers.