ALCOA CEO: Government Restrictions Can Drive Innovation

At a Brookings Institute panel today on fostering growth through innovation, Alcoa CEO Klaus Kleinfeld made a point you don't hear that often from top executives.

Usually, regulation is regarded by business leaders as at best a necessary evil, and at worst, as something that hampers growth and innovation. In a panel on proven strategies for industry, Kleinfeld argued that smart regulation and smart legislation are essential, and can encourage innovation

He brought up the example of the auto industry as part of a positive trend in manufacturing. No one would have expected that industry to be growing so soon after what he described as the "debacle" of bankruptcies, near bankruptcies, and bailouts we saw a couple of years ago.

Not only is the industry rebounding in America, it's actually becoming more innovative.

"You have the CAFE standards, Corporate Average Fuel Economy standards, which require that cars meet certain efficiency levels," Kleinfeld said, "and that's driven all sorts of innovation. ...We need smart legislation as a new foundation."

One of the things that helped drive the decline of the American auto industry was that it focused on things that were out of step with what customers increasingly wanted, building big trucks rather than lightweight, more fuel efficient cars.

The standards address a policy problem, in this case auto emissions, in a smart way. It gives automakers a significant lead time, but a very high goal, (54.5 miles per gallon on average by 2025) and as a result there's been significant innovation in things like lightweight materials and more efficient engines.

It's a restriction that ends in better products that are more competitive worldwide.

Another part of building a manufacturing renaissance that Kleinfeld emphasized was attracting young people to manufacturing. Since we will see 2.8 million manufacturing workers retiring by 2018, "we have to make manufacturing sexy again."

Not just people with a high school education, but people with higher degrees. Many still have a vision of manufacturing as something where you "Leave with a white shirt and come out with a dirty shirt, with grease under your fingernails," Kleinfeld said. "Most people leaving education don't even know what a manufacturing job is like," he added.

It's about working to change our cultural view and changing education. Kleinfeld mentioned his native Germany as an example where manufacturing is highly valued, and is a perfectly respectable path for young people.

The conference is streaming here

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