The Case for Breaking Up and Reorganizing the US Department of Commerce

It appears that Congress is finally getting serious about U.S. competitiveness, especially vis-a-vis China, as evidenced by this week’s reintroduction of the Endless Frontier Act, recent enactment of the CHIPS for America Act in the FY 2021 NDAA, and a forthcoming China competitiveness package.

But as critical as these pieces of legislation are (with full funding), they are just the first steps in a long list of policy and institutional reforms the United States needs to undertake if is to ensure its lead over China in advanced-technology industries.

Congress will need to increase the R&D tax credit (and repeal the scheduled phase-out of deductions for R&D expenditures), invest in an array of digital infrastructures, improve STEM education (including pushing back on the efforts by progressives to weaken merit-based STEM education in K-12 schools), and pursue institutional reform.

When it comes to institutional reform, the place to start is overhauling the U.S. Department of Commerce, which is now a grab bag of incoherent functions, lacking key domestic industrial policy capabilities.

To begin rectifying this, Congress should excise the National Oceanic and Atmospheric Administration (NOAA) and put it in the Interior Department where it has always belonged. The only reason NOAA was put in Commerce is that Nixon was furious at his Interior Secretary, Wally Hickel, for opposing the Vietnam War. NOAA is a distraction from the department’s economic mission.

Next, it’s long past time to create a national statistical agency. It makes no sense to have multiple statistics bureaus dispersed in multiple agencies, from the Bureau of Economic Analysis (BEA) and the Census Bureau in Commerce, to the Bureau of Labor Statistics in Labor. The GAO noted in 1996 that the United States has around 70 different statistical agencies. Canada, by contrast, has one. Congress should establish a “U.S. Stats” to house Census, BEA, BLS, and ideally other statistical agencies, too.

This new streamlined Commerce Department also needs new capabilities and an organization focused on U.S. domestic competitiveness. The closest thing it has to this now is the International Trade Administration (ITA) (which at one time was in fact the Bureau of Foreign and Domestic Commerce), which dabbles in the issue, but whose main focus is, as the name implies, international trade. The Office of the Undersecretary of Economic Affairs, which now overseas BEA and Census, should be renamed the Industrial Competitiveness Administration (ICA). Its undersecretary should then oversee two main divisions: industrial sector analysis and domestic industrial competitiveness.

It is striking and troubling that there is no entity in the federal government with either the mission or the capabilities to craft an effective industrial strategy, particularly sector- and technology-based policies. (Ironically, the U.S. government had such capabilities from the formation of the Republic until the New Deal.) Statistical agencies see their job as accumulating facts, not analyzing them. Treasury, the Federal Reserve, and other financial agencies are focused on the business cycle and finance. The Defense Department has capabilities, but they are mostly limited to the defense industrial base. And the analytical capabilities in Commerce are more focused on foreign trade than overall competitiveness analysis.

As such, the industry sector analysis division within the new ICA would have as its mission understanding the competitive position of key U.S. traded-sector, advanced-technology industries. This would mean retaining the chief economist position there, moving some units from ITA (such as the Office of Trade and Economic Analysis) and adding new positions with the skills and mission to understand competitiveness dynamics, including strengths, weaknesses, opportunities, and threats of key U.S. advanced-technology industries. It should also resume publishing the annual U.S. Industrial Outlook as a vehicle for raising awareness about the competitive positions of key sectors. This unit could also take the lead in analyzing critical supply chains.

In addition, the Industrial Competitiveness Administration should be focused on domestic policies to help key U.S. traded sectors, particularly in advanced technologies. The International Trade Administration includes some of these functions, but ITA’s main function is trade promotion, not domestic productivity, innovation, and competitiveness. That is why the position of Deputy Assistant Secretary for Manufacturing should be moved from ITA to ICA. Congress also should establish a number of new industrial support programs and house them at ICA to dispense grant funding.

One key program should be self-organizing sector-based industry investment boards, based on an innovative 1994 proposal by economist Paul Romer. Under this program, a particular industry would be able to petition the U.S. Secretary of Commerce to allow producers in the sector to levy a small tax on their sales to fund expenditures for the benefit of the entire industry, such as precompetitive research, or shared production facilities.

The ICA would also be responsible for managing the technology hubs proposal that is now in the Endless Frontier Act (a concept ITIF proposed in 2020) along with the CHIPs Act programs. In addition, ICA should oversee a critical industries road-mapping program that would work with key sectors, universities, and other government agencies to plan for future technology needs and work with other agencies, hopefully including a newly created NSF Directorate of Technology to align R&D funding. Congress should also reestablish the Advanced Technology Program (a matching grant program) and expand its scope to include support for innovative production process pilot programs.

Commerce should continue doing some of what it already does. For example, the National Institute of Standards and Technology (NIST)—a crown jewel—should continue its missions, both intramural and extramural.

Finally, if Congress really wants to make Commerce a more effective agency for U.S. competitiveness, it should exempt it from many civil service rules, especially when it comes to hiring and firing. A revitalized Commerce Department with a more focused mission will only be able accomplish its mission if it has high-performing personnel. This requires greater ability to fire poor performers and hire the best.

Big organizational reforms that move the heavy boxes on agency org charts is supposedly the new third rail in Washington politics. Maybe so, but if we want to effectively compete with China, it’s time to step on the third rail.