[Senate Hearing 117-243] [From the U.S. Government Publishing Office] S. Hrg. 117-243 THE SUPPLY CHAIN CRISIS AND THE IMPLICATIONS FOR SMALL BUSINESSES ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP of the UNITED STATES SENATE ONE HUNDRED SEVENTEENTH CONGRESS SECOND SESSION __________ MARCH 30, 2022 __________ Printed for the Committee on Small Business and Entrepreneurship [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.govinfo.gov ______ U.S. GOVERNMENT PUBLISHING OFFICE 47-362PDF WASHINGTON : 2022 COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ONE HUNDRED SEVENTEENTH CONGRESS ---------- BENJAMIN L. CARDIN, Maryland, Chairman RAND PAUL, Kentucky, Ranking Member MARIA CANTWELL, Washington MARCO RUBIO, Florida JEANNE SHAHEEN, New Hampshire JAMES E. RISCH, Idaho EDWARD J. MARKEY, Massachusetts TIM SCOTT, South Carolina CORY A. BOOKER, New Jersey JONI ERNST, Iowa CHRISTOPHER A. COONS, Delaware JAMES M. INHOFE, Oklahoma MAZIE HIRONO, Hawaii TODD YOUNG, Indiana TAMMY DUCKWORTH, Illinois JOHN KENNEDY, Louisiana JACKY ROSEN, Nevada JOSH HAWLEY, Missouri JOHN HICKENLOOPER, Colorado ROGER MARSHALL, Kansas Sean Moore, Democratic Staff Director William Henderson, Republican Staff Director C O N T E N T S ---------- Opening Statements Page Cardin, Hon. Benjamin L., Chairman, a U.S. Senator from Maryland. 1 Paul, Hon. Rand, Ranking Member, a U.S. Senator from Kentucky.... 3 Witnesses Kumar, Ms. Cheetie, Chef/Owner, Garland, Raleigh, NC............. 5 Lam, Mr. Jason, Owner/Manager/Chef/Waiter/Dishwasher/Toilet Scrubber, Sake Thai and Sushi Bar, Stafford, VA................ 12 Kota, Dr. Sridhar, Executive Director, MForesight: Alliance for Manufacturing Foresight, University of Michigan, Ann Arbor, MI. 17 Griffith, Mr. Joel, Research Fellow, The Heritage Foundation, Washington, DC................................................. 26 Alphabetical Listing and Appendix Material Submitted Cardin, Hon. Benjamin L. Opening statement............................................ 1 Cato Institute Statement dated March 29, 2022............................... 48 Griffith, Mr. Joel Testimony.................................................... 26 Prepared statement........................................... 28 Responses to questions submitted by Senators Risch, Inhofe, and Young.................................................. 66 Kota, Dr. Sridhar Testimony.................................................... 17 Prepared statement........................................... 20 Responses to questions submitted by Senators Hirono, Coons, and Young.................................................. 58 Kumar, Ms. Cheetie Testimony.................................................... 5 Prepared statement........................................... 8 Responses to questions submitted by Senator Hirono........... 54 Lam, Mr. Jason Testimony.................................................... 12 Prepared statement........................................... 15 Response to question submitted by Senator Inhofe............. 57 Paul, Hon. Rand Opening statement............................................ 3 THE SUPPLY CHAIN CRISIS AND THE IMPLICATIONS FOR SMALL BUSINESSES ---------- WEDNESDAY, MARCH 30, 2022 United States Senate, Committee on Small Business and Entrepreneurship, Washington, DC. The Committee met, pursuant to notice, at 1:46 p.m., via WebEx in Room 215, Dirksen Senate Office Building, Hon. Benjamin L. Cardin, Chairman of the Committee, presiding. Present: Senators Cardin, Cantwell, Shaheen, Hirono, Hickenlooper, Paul, Rubio, Risch, Scott, Ernst, Young, and Hawley. OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, CHAIRMAN, A U.S. SENATOR FROM MARYLAND Chairman Cardin. The Small Business Committee will come to order. Let me just alert everyone that the floor schedule is a little bit up in the air. We were supposed to have started the third vote of the morning 15 minutes ago, and we are still on the first vote of the morning, so--and it is my understanding we might have to have the Vice President on the floor, which could cause a little more of a delay, so we are going to try to keep the hearing moving forward. There is an all-Senators classified briefing on Ukraine I think at 3:00 this afternoon, so we are going to do our best to keep the hearing moving forward. I also just want to acknowledge, earlier today, I was with Vice President Harris on an announcement that she made in regards to a partnership with the Greater Washington Committee that deals with this region in regards to opening up opportunities for minority businesses and minority entrepreneurship. It was a very healthy discussion, and the Administration announced changes in the 7(a) Community Advantage program, which I strongly support, extending the pilot program and expanding its reach. So there was some good news today. Onward to today's hearing, let me welcome all of our witnesses. Today's hearing will examine how the prolonged disruption in the global supply chain has affected American small businesses as well as the role that small manufacturers can play in our efforts to build more resilient supply chains and reshore production of some of our most critical products and technologies. Based on my conversations with Maryland small business owners in recent months, supply chain disruptions are currently their biggest challenge. I was proud to host Spencer Jones, who owns Chick and Ruth's Delly, iconic restaurant in Annapolis, as one of my guests for President Biden's State of the Union Address earlier this month. When I spoke to Spencer after the speech, he said that the supply chain disruptions, along with rising inflation, are the two biggest issues facing his business. As we begin this hearing, it is important for us to remember that the inflation we are experiencing and the supply chain disruptions are linked. When factories close, when products sit in shipping containers and ports, when production capacity decreases due to sick employees, and when products take longer to get from warehouse to store, prices go up. This problem is affecting all sectors of our economy. A recent survey conducted by the U.S. Chamber of Commerce and MetLife found that 6 out of every 10 small businesses surveyed have experienced a supply chain disruption in the past year and have had to alter their supply chains. Half of the respondents reported that disruptions made it difficult to keep up with demand, and I think we have all heard from our constituents about the difficulty in finding products on the shelf. I was very pleased to hear President Biden announce during the State of the Union that rebuilding America's domestic production capacity is central to his Administration's plan to fight inflation and reduce our reliance on foreign supply chains. I am even more pleased that this priority was reflected in the fiscal year 2023 budget request. Rebuilding our domestic manufacturing sector, which has been decimated by decades of offshoring by large corporations will require a whole of government strategy, and it will require an investment in our small manufacturers who will be key to our long-term resilience. One of our witnesses, Dr. Sridhar Kota, is the founding Executive Director of MForesight: Alliance for Manufacturing Foresight, where he leads efforts to accelerate innovation and make the U.S. manufacturing sector more competitive globally. Dr. Kota, I am looking forward to hearing your thoughts on how Congress and the Small Business Administration can support small manufacturers and innovators. I applaud the Biden administration for proposing an increase in the authorized lending capacity of the 7(a) and 504 loan programs as well as the Small Business Investment Companies programs. These three programs are critical to getting capital into the hands of small manufacturers so they can grow and increase their production capacity. One of the consequences of offshoring our manufacturing capacity is that small businesses in the manufacturing sector need more support to access the amount and types of capital they need to grow. The 504 program, which is the program most utilized by small manufacturers to finance large equipment and facility purchases, hit its lending authority in September of last year and is on track to break a record number of loans again this year. Increasing lending capacity of 504, 7(a), and SBIC programs will meet an immediate need for small manufacturers looking to expand. I am also pleased that the SBA's leadership understands the role they must play in this effort and they have focused on increasing collaboration within the Agency to improve its services to small manufacturers. While we take steps to make these long-term investments, we must remember that the current state of our supply chain, from manufacturing to food service industries, was decades in the making, so we will not be able to rebuild our domestic capacity overnight. So for restaurant owners like Mr. Jones and two of our witnesses today, Ms. Cheetie Kumar and Mr. Jason Lam, they need immediate relief. I remain gravely disappointed that the omnibus spending package passed by Congress earlier this month did not include additional assistance for restaurants and other hard-hit small businesses. For the last two years of the pandemic, nearly all restaurants have been under great strain as they struggle to keep staff and adapt to the new variants while facing increased prices due to supply chain disruptions and inflation, and those have been the restaurants that are fortunate to have survived the pandemic. Thousands have closed their doors for good. More than 100,000 restaurants received grants from the Restaurant Revitalization Fund that have helped them keep their doors open, but more than 180,000 restaurants that submitted applications--they were in line--have not received the funding. This is a matter of fairness. It was just the luck of where they were in line that they were unable to get the funds. This happened when we had the Paycheck Protection Program, and we replenished the funds without much controversy. We need to do the same for the restaurants. Had Congress not acted quickly to replenish the Paycheck Protection Program when it ran out of money weeks after it opened in April 2020, the program would today be remembered as a half-measure. Instead, we extended the emergency aid needed to meet the crisis we face, and that is exactly what we must do again. As we discuss our long-term effort to strengthen our domestic supply chain and manufacturing sector today, I want us to keep in mind that there are still hundreds of thousands of restaurants and other hard-hit small businesses that require immediate relief. We can, and must, address both of these issues. With that, let me recognize the distinguished Ranking Member, Senator Paul. OPENING STATEMENT OF HON. RAND PAUL, A U.S. SENATOR FROM KENTUCKY Senator Paul. Is the supply chain crisis a result of the nature of capitalism or the malignant nurture of big government? The answer should be obvious. The hallmark of capitalism is that economic freedom always allows supply and demand to intersect in virtually seamless fashion. A trip to Walmart illustrates how advanced technology sends digital information from the checkout register to the suppliers across the country, and the shelves are never bare, that is, until big government inserted its maligned presence in the form of COVID lockdowns. Retail stores were shuttered. Mask mandates and vaccine passports discouraged in-person shopping. Regulations that discouraged trucking, combined with increased demand for online shopping, exploded trucking needs. Government borrowed nearly $6 trillion. And, the money supply, as measured by the M2, peaked at 27 percent last year, a historic high, and has averaged 15 percent growth in the money supply for the past three years. The ensuing inflation, caused by this government expansion of the money supply, cascades unevenly through the economy, adding to supply chain issues as businesses must quickly recalculate the rising costs of an inflationary era. If one is truly interested in what is causing the supply chain crisis, you must first acknowledge that government interfered in virtually every step of the economic production cycle. Government intervention caused this mess. COVID may have changed some behaviors, but the vast amount of the supply chain interference came from government lockdowns. The truth is this; government policies are what pushed us over the edge. As COVID spread, petty tyrants and power-hungry bureaucrats criminalized in-person commerce and locked Americans in their homes. As a result, we lost more than individuals. We lost our freedoms, our liberties, our vibrant, small-town Main Street businesses, our children's growth and learning. For two years, our lives were held captive, and so-called health experts told whomever deigned to speak out that they were killing Grandma, but you were not supposed to notice because the government would simply send you a $1,200 check. When the lockdowns ended, individuals who saved their COVID-related cash distributed through 2020 were free to go shopping, and demand began to rise. Nobody should have been surprised. Americans were emerging from government-directed isolation for the first time in the better part of a year and wanted to purchase goods. Instead of recognizing this trend, Congress threw gas on the fire. They extended unemployment payments unnecessarily, keeping workers at home. They sanctioned another round of so called stimulus checks and, all told, spent another $2 trillion in new deficit-financed spending. Meanwhile, California ports, America's largest, have long been among the most inefficient in the world. Extreme demand, driven by government spending throughout the pandemic, overwhelmed them. Ships carrying goods destined for American stores were left offshore. California laws banning diesel engines older than 2011 and laws limiting independent contractors combined to exacerbate the problem. Anyone interested, truly interested, in fixing this supply chain fiasco should look to the one economic system that has created more wealth and more prosperity and lifted more people out of poverty than any other, capitalism. Chairman Cardin. Thank you very much. We will now go to our witnesses. Let me introduce two, and then I will turn to Senator Paul to introduce the two other witnesses. First, let me introduce--and the way I introduce will be the order in which you will present your testimony. Ms. Cheetie Kumar is the chef and co-owner of the restaurant, Garland, in Raleigh, North Carolina. At eight years old, she immigrated to the United States with her family from India, settling in the Bronx, New York. Later on, she moved to North Carolina where she now calls home. Her cuisine is an interpretation of local ingredients made through the lens of someone who grew up in India, New York, and the South. She is also the owner of the music venue, Kings, and its adjoining cocktail bar, Neptunes Parlour. I cannot wait to visit North Carolina and taste that food. Sounds very delicious and an incredible mixture. Mr. Sridhar Kota is the founding director of MForesight: Alliance for Manufacturing Foresight, a federally funded national consortium focused on accelerating technology innovation to enhance U.S. manufacturing competitiveness. He is an emeritus professor of mechanical engineering at the University of Michigan, where he served for 34 years. In response to the COVID-19 crisis in 2020, he founded Inspire Rx, LLC, that invented and manufactures negative pressure devices to treat COVID-19 patients and protect health care workers. Between 2009 and 2012, Professor Kota served as the Assistant Director for Advanced Manufacturing at the White House Office of Science and Technology Policy. He played an instrumental role in establishing the National Manufacturing Innovation Institute. Senator Paul. We are pleased to have Jason Lam with us today. He is, in his own words, the owner, manager, chef, waiter, dishwasher, and toilet scrubber for his restaurant, which I love the fact that he is proud that he does everything there. The restaurant's name is Sake Thai and Sushi Bar in Stafford, Virginia. He opened his restaurant in 2011 and has worked in over a dozen restaurants since he was eight years old. As his current title suggests, he has worked every job the restaurant industry has to offer. Mr. Lam brings a wealth of experience to this Committee regarding the real day-to-day experiences of operating a restaurant during COVID as well as the problems small businesses face navigating the supply chain issues we are here to discuss. Our other witness is Joel Griffith. Joel is a research fellow for the Institute for Economic Freedom and Opportunity at the Heritage Foundation. Previously, he worked as a researcher for a former member of the Wall Street Journal Editorial Board and served as Deputy Research Director at the National Association of Counties. He most recently was the Director of the Center for State Fiscal Reform at the American Legislative Exchange Council. Chairman Cardin. To the witnesses, your full statements will be made part of our record. You may proceed. Try to keep your comments to five minutes, so we have time for questioning. And we will start with Ms. Kumar. STATEMENT OF CHEETIE KUMAR, CHEF AND CO-OWNER, GARLAND, RALEIGH, NC Ms. Kumar. Thank you, Chairman Cardin, Ranking Member Paul, and members of the Committee. Thank you for inviting me today to talk about the supply chain in the restaurant industry and how this Committee and Congress can help. I am the chef and co-owner of Garland in Raleigh, North Carolina, as you mentioned. We have a music venue and cocktail bar all in the same building. I am a self-taught chef who studied recipes and worked in restaurants while touring across the U.S. as a guitar player alongside my husband and business partner, Paul Siler. Let me start by thanking this Committee and especially Chairman Cardin for all the support you have shown independent restaurants throughout this pandemic. You have given some of us a lifeline to survive in the Restaurant Revitalization Fund, the RRF, and we are eternally grateful. I would be remiss if I testified before this Committee and did not advocate for refilling that fund to take care of the 177,000 restaurants who applied and did not receive a grant. They desperately need help, and the Congress would ensure the success of a generation of independent restaurants by providing the money to fund all the outstanding grant applications. One hundred thousand restaurants have already closed permanently. Many of my friends and colleagues are hanging on by a desperate thread and have taken on crushing personal debts that will be with them for a lifetime, and they are fighting against joining the growing list of closures. More than 80 percent of restaurants who did not receive the RRF report that they are on the verge of permanent closure. I am proud and grateful to be here representing the hundreds of thousands of independent restaurants across the country and their millions of employees today to talk about supply chain. Make no mistake, when we talk in general terms about the supply chain, what we are really talking about is the rising cost that results from a broken or damaged chain. My restaurant adapts to supply chain issues every day, and we always have. It is our skill set. We look for seasonable produce. We look for cuts of meat with great flavor and potential to be featured in dishes that do not cost a lot. So as long as they can remain affordable, we can serve them. As a great example is flank steak. You know, it used to be a less expensive cut of meat, and so it was on a lot of restaurant menus, and for a time we could afford to put it on our menus. It is a long, flat, thin, boneless cut. It is delicious. It is easy to cook. But like most cuts of beef, there are only two flank steaks per cow, one on each side. With limited supply and increased demand, prices increase to the point once people discovered them, and then the price goes up. So it does not make sense for us to put it on our menu with margins being so close, so we make changes. We are skilled at pivoting. When hundreds of thousands of restaurants closed or severely limited capacity, at the beginning of the COVID-19 pandemic, it created a giant gap in the supply chain. Millions of dollars' worth of food was spoiled or thrown away. In the best circumstances, restaurants like mine donated food to those who really needed it. In the worst circumstances, commodity farmers and ranchers were forced to destroy or euthanize their crops and animals. With each surge of the virus and change in consumer demand, the supply chain has struggled to keep pace with the market, with inconsistencies as the only predictable characteristic. At Garland, we source our food and supplies locally as often as possible. When we shut down in March 2020, I watched my suppliers suffer, too, and these are farmers and purveyors that we know by name. Overnight, they lost hundreds of thousands of dollars in sales, and the recovery has not been easy for them either. For instance, my seafood supplier, local seafood in Raleigh, goes to the coast and brings fresh catch into town every week, twice a week. They lost most of their wholesale customers in the matter of a few days when the pandemic began. As restaurants had uneven recovery--I returned to capacity and operations in March, but say my neighbor cannot do it until June--locals faced a challenge of prioritizing restaurants as their customer base while still serving their direct-to- consumer market. We have seen a lot of small farmers and purveyors simply close because so many restaurants have closed or because as a variant rages through our community restaurants have had completely unpredictable revenue and volume of sale, which directly impacts these producers. I was lucky enough to receive an RRF grant, and I am eternally grateful for that. As a result, as I am struggling to deal with supply chain disruptions, but I am able to do so in the same way that I was pre-pandemic. But those who are not as fortunate are compounding their pandemic problems with supply chain issues. Again, thank you for holding this very important hearing, and I look forward to working with you on refilling the RRF and on issues like farm policy, food security, fishery issues, and labor in the coming weeks and months. [The prepared statement of Ms. Kumar follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Ms. Kumar, thank you very much for your testimony. We will now hear from Dr. Kota. [Pause.] Chairman Cardin. I have been told that the order should be as it is on the table. So, Mr. Lam, you will go next. STATEMENT OF JASON LAM, OWNER, MANAGER, CHEF, WAITER, DISHWASHER, AND TOILET SCRUBBER, SAKE THAI AND SUSHI BAR, FREDERICKSBURG, VA Mr. Lam. Chairman Cardin, Ranking Member Paul, members of this Committee, thank you for having me. My name is Jason Lam. I am 34. I own a restaurant in Stafford. It is about an hour south from here, actually. And like Ms. Kumar, I actually started in the restaurant business when I was eight years old. I learned how to answer the phone, work the registers, slide credit cards over carbon paper, if you remember that. Credit card machines were not a thing back then. I learned how to stack cardboard and Styrofoam boxes into bags, like little Legos, making sure they were perfect, how to stack plates on a dishwasher rack, even went to college, and then I still worked in a restaurant after classes. My repertoire expanded. I learned how to cut, slice, dice, chop, fricassee, chiffonade, julienne, a bunch of fancy terms you will find in a French cookbook. And even when I stepped away and I thought I would make my own way in life and I would become a contractor to support our military, I worked my day job, and I still went to the restaurant, often working from 8 to 4 and then 5 to 11. I know the meaning of hard work and what it means to sacrifice for your restaurant and do everything you can to make sure it succeeds. I worked as a manager, an accountant, managing inventory. I mean, just name it. I have done everything that there can be done in the restaurant industry. At the start of the pandemic, I remember it was a Tuesday. I was driving on 95 going to work when we got the announcement restaurants had to cease. I called my employees while I was in the car, and I told them, I do not know what we are going to do, but none of you can come to work today, and we closed. In April, we lost over $30,000. The costs, it was insane. I threw out--like Ms. Kumar said, we threw out inventory. We threw out food. We threw out a lot. And I had to come up with $30,000 out of my own pocket to pay my employees, to pay my rent, the bills. In May, it got a little better, but I still lost over $10,000. In June, I finally saw a little bit of a breakeven point. In July and so forth, it got better. Then in October 2020, we decided that we would open back up for socially distanced spacing, and we went to 50 percent capacity, and we opened back up for dine-in even though carryout still made the bulk of our sales. As the pandemic restrictions have lifted in the past year and a half, two years, our volume is crazy. It has gone up 15 to 20 percent what it used to be before in 2019. And as all this volume has come up, we need more stuff, we need more inventory, we need to be able to keep up with this demand for all these customers who are coming in through my door that want to eat and want to get carryout or dine-in. My restaurant's name is Sake, but over half of the sake on my menu is unavailable due to supply chain issues here, at home, and abroad. I have been told that there is a glass issue in Japan and they cannot bottle the stuff, and we cannot get it, and I know that that is specific to my genre of food because I am a Japanese and Thai restaurant. And I know it is not entirely fair to say, oh, tuna has gotten more expensive, which it has. It has gotten from $15.99 to $20 a pound. That is a 25 percent increase in 16 days in this month alone. That is crazy. So let us go and talk about something that other restaurants would use, like Ms. Kumar herself. Zucchini has gone from $12.50 a case to $21 a case. That is a 68 percent increase in 17 days alone in this month. Brown paper takeout bags. I cannot just hand my customers boxes and tell them, no, you should bring it out to your car yourself. That has gone from 14.5 cents apiece to 22 cents apiece. That is a 66 percent increase. Chicken. Chicken used to be $1.97 a pound. Now it is $3.10 a pound. Now that has gone up 64 percent, and that is in 21 days in this month alone. Vendors used to be able to work with us restaurant owners. They used to be able to tell us, ``Hey, look, there is going to be a price increase soon. It is coming. You should probably order more so you can keep par with your inventory.'' They cannot do that anymore. They tell me the day before, ``Oh, yes, your tuna, it was $17 a pound last week; it is $20 a pound this week.'' There is no amount, no amount, of planning that can compensate for that. I am sure you know that restaurant margins are notoriously thin. Notoriously thin. They go anywhere from 3 to 8 percent. And when you have items on your menu and in your inventory that jump 50, 60, 70 percent, how am I supposed to succeed? It is increasingly easier to fail. Now I say all this knowing that starting a business is my choice. It is inherently risky and especially the restaurant industry. Most do not make it past two or three. But I have been in this business long enough to know that you should never take a good day, a good week, a good year for granted, but the current climate is making it very difficult for businesses like mine to succeed. As I mentioned earlier, our volume has increased, but we cannot continue to serve our clientele without more inventory, and the supply chain issue is killing us. It is frustrating to serve customers and tell them, here is the list of things we cannot sell you today, or, yes, our prices have gone up again, for the third time in the past six months. It is incredibly frustrating, but they understand, for the clients who know us. But what about the new customers? That does not make for a very good first impression. Fixing the supply issues at the core will help all businesses, not just mine. Drycleaners, salons, tutoring centers, whatever you want to name. But throwing money at the challenges we face, like the RRF, is like putting a Band-Aid on a wound that needs stitches. It will stop the bleeding, but it does not fix the issue. You are still going to bleed out in the end. I did not apply for RRF funds. Spending billions of taxpayer dollars is not the answer. Giving grants to these restaurants is not the answer. I want you to look my kids in the face and tell them that they are not going to be responsible for paying that back. They will. I cannot do it. I can fail or succeed in owning my business just fine on my own. The real help I need is things that I cannot control. The supply chain, there is nothing I can do about that. So what I want the Federal Government to do for me is to fix that problem. Thank you for your time and attention. [The prepared statement of Mr. Lam follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Thank you very much, Mr. Lam, for your testimony. We will now hear from Dr. Kota. STATEMENT OF SRIDHAR KOTA, Ph.D., EXECUTIVE DIRECTOR, MFORESIGHT: ALLIANCE FOR MANUFACTURING FORESIGHT, UNIVERSITY OF MICHIGAN, ANN ARBOR, MI Mr. Kota. Chairman Cardin, Ranking Member Paul, distinguished Committee members, thank you for the opportunity to appear before you today to discuss the supply chain crisis and how to be better prepared for the next crisis. My comments are based on my over 30 years' experience as a professor at a university, but I also worked 20 years as a founder and CEO of a small engineering firm and in addition to the work I have done for the last seven years or so through this think tank, MForesight. So I would like to focus on small manufacturers, who are the economic engines for our local communities, as you know, and backbone to the entire manufacturing sector. Challenges facing all manufacturers, large and small, are broad, deep, and systemic. The supply chain crisis has its roots in gradual erosion of our manufacturing sector over four decades as we steadily offshored manufacturing to low-wage countries. That strategy has worked and continues to work very well for private sector companies that remain focused on short-term profits. For too many companies, manufacturing could be done cheaper abroad, avoiding capital costs and operational expenses of building and running factories. By offshoring manufacturing, we eroded our manufacturing know-how, infrastructure, machinery, and engineering skills, all of them are collectively called ``industrial commons'' or what we used to call ``American ingenuity.'' We may still be the most inventive country in the world but not the most innovative, at least in hardware. We also eroded our military preparedness with growing dependence on other countries for critical military components and systems. More recently, we all realized suddenly we did not have the masks and ventilators when we so desperately needed them. In fact, I had a frustrating experience with this company I started for COVID-19 patients wherein I co-invented a device for preventing virus transmission while treating COVID patients, but I was trying to find U.S.-based manufacturers of electric motors. After several months of trying everywhere, finally I reluctantly entertained some proposals from China. And by the way, they were fantastic technically and incredible pricing and delivery options, very enticing. But I remained focused on trying to find somebody here, and fortunately I was able to find a manufacturer ultimately in Kentucky, which was great. But that story I just described is nothing new. This kind of lack of domestic producers is very common in almost every manufacturing sector for over two decades. So reestablishing supply chains is difficult. It is not about bringing back the jobs we lost. It should be about how to establish industries of the future, how to rebuild our foundational capabilities that are critical to our national security as well as economic health and energy security. Yes, it is the Federal Government's role, not the role of the private sector, to secure and advance our national interests. A good example of that is the current bipartisan efforts in strengthening our domestic manufacturing of semiconductors and electric vehicles. Likewise, we need to have a whole-of-government approach with a national strategy for other critical sectors by investing, not just spending without any metrics. We need metrics that define what to do, not how to do it. And for those products that are best produced elsewhere, we should consider nearshoring to countries, friendly countries, nearby rather than bringing them across oceans. And small manufacturers are the backbone. If the backbone is strong, the large manufacturers will come. And small manufacturers are similar constrained in resources to make investments in R&D and upgrading their equipment, and they routinely face even more challenges in attracting and retaining a skilled workforce. And SBA can help in meaningful ways, and I outlined some of them in my written testimony. Current and pending legislation in creating Regional Innovation Hubs, the new Technology Directorate for NSF, and a new Manufacturing Office in SBA, these are all very encouraging signs. However, if these programs, like every other Federal program and agency, act in silos, the results will be mediocre at best. For instance, the SBA Manufacturing Office can play an effective role in helping entrepreneurs and small manufacturers advance technologies developed by other agencies to initiate pilot production here in the U.S. Rather than continue to fund programs that have not yielded desirable results in decades, government needs to launch a series of listening tours across the Nation to understand the real-world challenges faced by small manufacturers and entrepreneurs. MForesight did just that in 2018, and I outlined some of those insights in my testimony. Shortage of skilled workforce, raw materials, components, these are all intertwined, and no single Federal agency can truly fix the supply chain crisis by itself, and SBA is no exception. We already have numerous well-established, well- funded Federal agencies and institutions, but each is focused on its own mission, understandably. It is like having a great team of players but we do not have a coach. We need a coach to win. We need a strategy. We need to connect the dots. We need a new entity in Federal Government whose sole focus is to strengthen U.S. manufacturing competitiveness and to ensure what is invented here is manufactured here. It sounds like ``industrial policy,'' a term derided for decades. Yet, oil and gas, telecommunications, aerospace, they all benefited from a successful industrial policy we enjoyed for nearly a century. Even if we pretend it is not, whatever you want to call it, we should replicate that policy boldly to other sectors that are critical to national interests, to create a stronger, wealthier nation that is better prepared to confront the next crisis and to finally get a return on investment of taxpayer dollars. I will end with a quote attributed to Churchill. ``We can always count on Americans to do the right thing after they have exhausted all other options.'' Now is the time. We have had two Sputnik moments, COVID-19 and China 2025. Thanks again for giving me the opportunity to share my thoughts. [The prepared statement of Mr. Kota follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Thank you very much for your testimony. We will now hear from Mr. Griffith. STATEMENT OF JOEL GRIFFITH, RESEARCH FELLOW, FINANCIAL REGULATIONS, INSTITUTE FOR ECONOMIC FREEDOM AND OPPORTUNITY, THE HERITAGE FOUNDATION, WASHINGTON, DC Mr. Griffith. Chair Cardin and Ranking Member Paul, members of the Senate Committee, my name is Joel Griffith. I am a research fellow at the Heritage Foundation. These views are my own. Supply chain issues continue to empty shelves, bottleneck production, and delay deliveries. The mismatch between supply and deficit-driven demand also contributes to the steepest rise in prices in 40 years. The Biden administration has falsely insisted that these problems are transitory while blaming the pandemic, scapegoating businesses trying to fix the problems, and now even blaming the war in Ukraine. Meanwhile, this Administration refuses to acknowledge the primary culprits. That would be the ill-advised COVID restrictions that throttled production, the ill-targeted government transfer payments and diminished childcare options that shrank the workforce, the opposition by organized labor to common-sense port operations in California and New Jersey, new environmental regulations targeting diesel semi-trucks in California, and record government spending financed by the Federal Reserve. In short, government reduced supply and stoked demand the past 2 years. This is a recipe for both shortages and higher prices. The primary factor behind the supply chain issues are the ill-advised COVID restrictions. The pandemic itself did not shutdown the world. Government lockdowns and oppressive restrictions shut down large parts of the world. Erratic, unpredictable, arbitrary decisions by government bureaucrats made planning even for the short term nearly impossible. Politicians pushed millions of families and businesses off an economic cliff while blaming the pandemic. Government policies also created the unprecedented labor shortage in the United States, with an employment gap of nearly 5 million workers presently. This directly contributes to supply chain issues. Of course, early in the pandemic, government restrictions on businesses resulted in mass layoffs as schools in many parts of the Nation closed their doors for much of the year and many of those formerly working in the childcare industry left. This made employment difficult for many parents. But then compounded with that were generous Federal unemployment bonuses in terms of payout and duration. These payouts acted as a powerful disincentive to returning to work even as the economy reopened, especially when combined with multiple Federal stimulus checks. Many people delayed their return to the workforce even after benefits ended, instead, choosing to live off the stockpiled government cash. Private vaccine mandates and the Federal threatened mandate pushed others out of the labor force. In short, misguided government policies shrank the number of people willing or able to work. Now businesses across nearly every sector in this country are desperate for workers and have expanded their pay and benefit packages. The number of unfilled jobs remains at record levels. Nearly half of business owners are unable to fill open positions, more than double the historical average. Domestic government policies are compounding the global shipping problems in this country. California specifically matters because California receives nearly half of all containers coming into the United States. Yet, in the midst of the pandemic and the supply chain crises, California continued a phase-out of older diesel trucks. Furthermore, organized labor in California continues to resist modernization in favor of inefficient modes of operation and, in fact, refused to fully expand their hours to alleviate the shipping backlog. The unions even secured a provision in the bipartisan infrastructure package that would prevent any funds from going toward automation. It should be no surprise that California ports are among the least efficient on the planet. After sitting up to weeks on boats off the coast of California, containers of goods can wait weeks longer for the select few trucks and truckers that California's environmental and labor laws actually allow into the State. From there, those items are transported to California's border where those goods are transferred once again to other trucks that can, at last, distribute those goods to the rest of the country. These restrictions add time and hassle and back up the supply chain even further, raising the cost of goods themselves. Last, while government has hampered the supply of goods and services, a tsunami of government spending financed by the Federal Reserve contributed to a rise in demand, including future demand, as households stockpiled income from both wages and government COVID-19 relief checks. The Federal Government has used the Federal Reserve as a piggybank, selling trillions of dollars of debt for newly printed money that then floods into the economy, driving inflation while bribing resources and workers away from businesses that desperately need them. The Central Bank more than doubled its balance sheet from just $4 trillion in March 2020 to nearly $9 trillion today as our overall M1 money supply jumped nearly five-fold, from $4.3 trillion to $21 trillion. In conclusion, misguided COVID-19 restrictions combined with a Central Bank-financed government borrowing and spending spree set in motion the economic turmoil, skyrocketing inflation, and supply chain havoc that Americans are experiencing. Proposals for yet more government spending, more labor regulations, and more attacks on energy production, combined with the massive tax hikes in the latest budget package, risk further shocks. A full recovery, including a functioning supply chain, requires a full reopening across the world and an unleashing of our fossil fuel energy resources here at home. Thank you. [The prepared statement of Mr. Griffith follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Cardin. Mr. Griffith, thank you for your testimony. I thank all four of you for your testimony. We will now go to five minute rounds. First, I really appreciate Ms. Kumar and Mr. Lam, two restauranteurs, one using the government programs, the other not using the government programs, both coming together at this hearing, raising the issue of supply chain. I think that is helpful for us to have that. I want to just go back to the beginning of the COVID-19, when we got together particularly on this Committee under, at that time, Chairman Rubio--we had Senator Collins and Senator Shaheen and myself--in order to try to deal with the fact that small businesses are the growth engine of America. We need to keep them going during a pandemic. We know they do not have the resiliency. What can we do in order to keep small businesses afloat, to keep our economy from going into a deep recession? And we came together with near unanimous actions in the House and Senate, signed by President Trump and later by President Biden. The centerpiece of that was the Paycheck Protection Program. The purpose of that was, pretty simply, to keep employees employed by small businesses, which have a challenge finding workers under any scenario, but if they were to lay off their workers they would collect unemployment insurance. It did not seem to make a lot of sense. Let us try to keep it going so we can keep the small businesses going. And it was successful. We then expanded the EIDL program, the Economic Injury Disaster Loan program, because we knew there would be a great need for low-interest loans, and it was widely used for the very smallest of the small businesses, a very modest grant up to $10,000. And then later we added specific sector relief for those industries that were basically ordered to be closed by government, restaurants being a prime example. Now, quite frankly, we did not envision that every small business would need this help. So, Mr. Lam, I applaud you for making your decision. I do not know a lot about your business, but in the restaurant field, if it is a business that can do a robust carryout, it can do very well during a pandemic when people are eating at home. So we could not define that in the legislation we adopted. Otherwise, we would have hamstrung its use. But if you are a restaurant that is in an area where there is not a lot of opportunities for outdoor dining and you really have to be in a confined space, you were out of luck. So we did expect small business owners to exercise discretion. We were very disappointed by some small businesses that chose to use the PPP program that did not really have an economic need. So the bottom line was the program, in its totality, worked. Why do I say that? Because our economy got through the worst of the pandemic without going through a major recession. And we have problems today. You identified them, and I agree. High prices. So I want ask both of you because you both seem to agree on the need on the supply chain challenges. It seems to me that it is not only a price issue. It is also an availability issue so that you can carry out what your restaurant is famous for and be able to use a product. So tell us just how deep is this problem today and what type of relief do you need in order to be able to do your business in regards to having a reliable supply of reasonably priced or competitively priced products? I will start with Ms. Kumar. Ms. Kumar. Thank you for that. You know, for me, like I said, I am pretty used to pivoting and finding different suppliers for different things because we work so closely with farmers, but one thing I cannot get from farmers is fryer oil. I used to pay $35 a box for non-GMO canola oil because, you know, we like the healthier option. I have paid up to $120 for the same box of fryer oil, and now it has sort of settled at $85, if it is available. I have had to go from canola to sunflower to mixed blends and what not. You know, I cannot operate a restaurant without oil. We have to cook with oil. So you know, that is an example of something that I cannot really come up with a creative solution for. I just have to sustain the increase in price, and if it was not for the restaurant grant I would not have been able to do that. And before that, the PPP I utilized for keeping my staff employed and being able to, you know, pay them fair wages. So it is a combination of things, I think. You know, there is not one single solution. A restaurant like mine is a fine dining establishment, and takeout is not something that we normally relied on. That is just not our business model. So you know, not all restaurants are created the same, and we all have different needs and strengths and abilities to pivot. But there is a blanket consistent problem, I think, that we are all facing, and I think you know, economic injury is not the same across the board. But for those restaurants that qualify for the grant are restaurants that suffered a lot of loss, and that is something that you do have to prove before you qualify for it. So you know, it is great that somebody Mr. Lam is able to operate at a profit in June or July 2020, but that was not the case for us and for hundreds of thousands of other restaurants in this country. Chairman Cardin. Mr. Lam? Mr. Lam. How do I say this? I am not insensitive to the struggles of restaurants. My family has had 17. I have had--we have had 6 successes, 11 failures. When I say failures, I mean we sold the restaurant at a loss. There was a recession. My stepfather actually had to declare bankruptcy. We owed so many people so much money. I know what desperation feels like. I know what it tastes like. I have never forgotten that. But I am sure that Ms. Kumar and her family, much as the same as my family, we came here because America promised a fair shot. We started our businesses, I am guessing, for the reason, the pursuit of happiness, one of our inalienable rights. It did not promise us success. That is upon us. Now I understand that the issues we face today are largely out of our control. So if you are asking me, what can the government do, fix the supply chain issue. I understand what she says when she means that oil has gone up. I am seeing the exact same prices. She is not lying. It is just very difficult to deal with these kinds of price hikes. So as I said in my testimony, I am perfectly capable of failing and succeeding and taking care of my business on my own however I see fit, but the government can help me by stabilizing these prices. That is how it can help. Chairman Cardin. Thank you. I want to try to keep to the five minutes so every member can have a chance before we have to adjourn at 3:00. Senator Paul. Senator Paul. Jason, thank you for your testimony. I am amazed by your story and your work ethic. We have a country right now where 38 percent of the people who can work choose not to work. So it is great to hear, you know, how hard you have worked in all facets of the restaurant business and how, you know, you really believe in the American Dream. I understand you have a couple of guests here. I wonder if you would like to introduce your guests. Mr. Lam. Yes. It is my daughter and my son right behind me, Paige [phonetic] and Colin [phonetic]. They are in high school and middle school. Senator Paul. And I guess I had one general question. How did you get your work ethic? Did it just happen? Were you born that way? Did you get it from your parents? Mr. Lam. Grandparents, uncles, and parents, my family. Senator Paul. Do you think it is important that kids work? Mr. Lam. Oh, I put them to work in my restaurant. Oh, trust me, I am teaching them how to pack orders and wash dishes. Senator Paul. Good. I think the commonality--and I think, you know, I said in my statement, you know, this is nature or nurture. Is this just some sort of accident that sort of happened? You hear from people, and they say, oh, the supply chain. It is just like it mysteriously came out of nowhere, or COVID caused it. No. It was our reaction to it. You know, in the beginning, it was that we would not let you open up. So you did better with takeout than your counterpart, but government forced her to lose business because government closed her down. We should be asking the question whether or not any of the things we did, the so-called mitigation, putting stickers on the floor--can you imagine the millions of dollars we spent on these idiotic stickers? Did we save anybody's lives? Did we change the course of the disease? A million people died with what we did. I am not positive any of these things changed the course of the disease at all other than immunity. We now have immunity. Ninety-five percent of us have immunity from either the vaccine or having had the disease. But we need to know what the cause of this was. Otherwise, we are going to do this again. We are going to get another flu. We are going to get another pandemic. We are going to get another maybe worse virus the next time. But when you describe the rising prices, they are twofold. Either your supplier is under quarantine from the government, shutting your supplier down, reducing the supply to elevate the price, or it is part of generalized inflation. But it is also part of this bigger thing, something for nothing. People think, oh, well, there is no penalty to the PPP program. Everybody got lots of money. We kept everybody open. Or, everybody got unemployment checks. Well, the penalty is this; it destroys work ethic in people. But also, we are finding the penalty now is generalized inflation, and that is part of your problem in trying to figure out. And you are right. It is beyond your control, but it is making your job, which is already a difficult job, predicting and running a restaurant, so much more difficult. So I understand this, but I am not sure everybody does. And there is not agreement yet on both sides of the aisle what causes inflation. Basically, deficit spending, printing up the money, now the money is worth less. And that is what we have is this generalized inflation. They said it was going to be transitory, and yet the Federal Reserve Chairman, yesterday, said transitory is now three years. I predict it is going to get worse before it gets better. But it comes from the notion of something for nothing, which gets back to the whole idea of work ethic. So while I am incredibly proud of your work ethic, we need to be proud of the idea and understand the idea that there is no free lunch. There is nothing for free really. And when we offer people things for free, ultimately there is a penalty, and that is the penalty we are paying now. Mr. Griffith, I think it is perplexing to people when they look on TV, even to myself. You look on TV, and you see just the ships lined up off the coast of Long Beach and Los Angeles. One thing that you mentioned and others have mentioned--and I did not really realize this, but if you could go into any more detail--is that I guess most ports in the world work 24 hours a day. They have shift work. My brother grew up doing shift work at Dow Chemical. All the plants, I thought, did shift work. You do not have to work 24 hours. You work shifts, either of 8 or 12 hours, and then someone else comes on. It is not like inhumane, but it is the way we get things done. But tell us a little bit more about what goes on in Long Beach, why there is not 24-hour--you know, why they have not adapted, you know, to all those ships sitting out there. How could we possibly just look at all those ships and leave them there? Mr. Griffith. Thank you, Senator Paul. One interesting data point coming out of the past year is the year-over-year number of containers coming in to Long Beach-Los Angeles were virtually unchanged, and yet this backlog continued. And this was twofold. A lot of these social distancing restrictions, capacity restrictions, actually were perpetuated both in Long Beach and also in New Jersey. They refused to lift those in a timely manner. And instead of going ahead and expanding those operations to the 7 days a week and 24 hours a day, the unions there, the organized labor bosses, were incredibly resistant to going ahead and expanding those hours to actually alleviate the problem. And then when we saw the infrastructure package that passed in a bipartisan fashion in Congress, some of those resources could have gone to helping them modernize and become more efficient, and the union groups balked again. And that is a big part of the reason why that backlog continues now off the coast of California. Senator Paul. Thank you. I guess I am in charge now. Senator Shaheen. Senator Shaheen [presiding]. No. Actually, Senator Cardin asked me if I would take over while he went and voted, but I want to thank all of our witnesses for being here. And, Dr. Kota, I would like to begin with you because you said I thought very persuasively in your opening remarks about the importance of the role of government to help invest in innovation, to help encourage innovation, that we need if we are going to be successful with manufacturing and technological development. One of the programs that I think has been very important in encouraging innovation is the SBIR/STTR program, and I understand your firm received the Tibbetts Awards in 2015 through the SBIR program. Can you talk about what you were able to do as the result of getting that SBIR grant that you might not have been able to do without that kind of support? Mr. Kota. Yes. Thank you, Senator. So we have this firm it is more than 20 years now old--and this technology we developed for morphing aircraft wings in flight because it has been known for a long time to save fuel but also reduce noise, and there are many other benefits. But stuff like that, you know, the private sector businesses do not fund because it takes many years of building and testing prototypes and all. So none of that would have happened had it been not for SBIR. It started as a phase one SBIR contract, and that led to several successes where thanks to U.S. Air Force, SBIR program, and beyond, that were able to demonstrate it on actual flight tests and now we are implementing on military aircraft, which is all a good thing. So none of that would have happened without the SBIR program. I had a few other SBIRs as well through other agencies. So I think that is one of the really good tools in or tool box, SBIR program, and I hope you all strengthen that program in many ways. And I testified earlier on ways we could--I had several years of experience working on SBIR programs with various agencies. So I certainly hope that you continue to strengthen it, and I can elaborate more on ways we can strengthen it. Senator Shaheen. Well, before I ask you to do that, as you know, you are probably aware that those programs are going to expire in September of this year, and so that would--if we do not reauthorize them, that would eliminate that support that encourages the kind of innovation that you are talking about. Do you have thoughts about what we could do to strengthen the program? Mr. Kota. First of all, I hope it will continue to grow. Senator Shaheen. Me, too. Mr. Kota. I do not know the details about any of that, but I hope it continues to grow. And there are ways we can strengthen it in terms of--you know, I do not want to get too much into the weeds, but you know, even--you know, with startup entrepreneurs, they have different sets of needs. It is not the tax breaks they need. It is actually having some funding to file patents, so the patent expenses should be included, on one hand. On the other hand, the other one is the different agencies have different ways of running this program. Some do much better than others. There is a way---- Senator Shaheen. Yes, that is absolutely correct. Mr. Kota. And there is definitely a way we can, you know, make it uniform and minimize, make it like a 1040EZ for an SBIR form, so to speak. And the other thing you could do is actually if you think-- if you go back and look at the data about how many SBIR phase twos that were successful and did not go anywhere because there was no follow-on funding. There is a phase three program. It has its own challenges. But having said, there are ways to make sure that we just do not drop the ball. We need to have a strategy what to do with our own good ideas so that ideas turn into products made in this country. So there are other programs like the Rapid Innovation Fund in Department of Defense as an example. Those are the kinds of things we need to put in place so then we know how to take a success and take it to the next step. That is something that we need to connect the dots. Senator Shaheen. Thank you. Ms. Kumar, you talked about the importance of the Restaurant Revitalization Fund, which I am a big supporter of and hope that we can get that funded in a way that we address the applications that are still in the queue. But obviously, there are long-term challenges that restaurants and the hospitality industry face that are not going to be addressed just by that program. As you talked about adapting to address the changing markets and to respond to COVID, are there other things, other lessons that you learned, that you think are translatable to other restaurants and small businesses that we should be taking away from what we have just experienced? Ms. Kumar. Absolutely. I think restaurants like mine have tried so many different things over the pandemic, and we have walked away with a lot of lessons. One is, you know, how to pay our employees more, how to make sure that they not only have an entry-level job but they can stay with us and build a career, a very respectable and well-paying career in hospitality. But more so, there was a period in the beginning of the pandemic where we were able to, you know, participate in feeding the hungry, and there were grants available to do packaged meals for folks in need, children who were not in school and needed school lunches. And there are continuing to be more programs that are developing out of former nonprofits that would just do sort of a little bit more elitist fundraising for hunger causes but now are figuring out ways that--you know, lessons that we learned during the pandemic of how to bridge the gap between, you know, a restaurant that has to charge a certain price point to serve its guests but then also be able to keep people, give them more hours, give our staff more hours, but--and also feed people who are food-insecure, which unfortunately is a very high number, especially among children in North Carolina. So those items in particular are very inspiring to me, and I think that there are very real ways that we can push our industry forward and take care of our staff and take care of our communities, which is something that I think our industry has always been very proud to do. Senator Shaheen. Thank you very much. Senator Rubio. Senator Rubio. Thank you. Thank you all for coming in today. Let me start with Dr. Kota. It is great to see you again. You were here with us in 2019 for a reauthorization hearing. And you know, there was a recent study of 150 MIT manufacturing startups over the past decade, and it found that 70 percent of them scaled in China and none of them in the United States. I guess my question is--you know, I think you have alluded to this already--how common is it to see offshoring or international transfer of a product or IP that is developed using U.S. taxpayer funds? Mr. Kota. It is over many, many years I have seen that happen. I am not talking about the intellectual property theft part. That is a big issue to be addressed. That is leaving that aside. Willingly giving our IP--unwillingly giving away our IP to other countries, particularly to China. Why China? Because what happens is when you even look at comments about SBIR you have-- the typical scenario is a professor or a company spends like 5, 10 years working on a program with one of the Federal agencies, gets 10, 15, 20 million dollars in funding, and does the research, and then finally a little nugget of a great idea that comes out that is worthwhile scaling that has a promising future. Then once you do that, that agency, that particular program, they have nothing to do with it. You are done with it. You are on your own, and there is nowhere to go to. So there is no--innovation is about--you know, it is like what do you call it? The relay race. You hand the baton to the next and take it all the way. So what happens is many people I personally know and heard stories of and read about, they get frustrated. There is no way to know. Here is a great idea. It is already tested. Now what do we do? I need some money to scale it and test it in a wind tunnel or whatever. This is when the phone rings, at least the phone used to ring, or an e-mail comes from China, particularly because they are doing everything they can to do what is good for them. And so they offer all kinds of incentives for you to go there. So there are lots of researchers being tapped in that way. The technology that we spent millions of dollars developing goes over there, the best ideas, and that is where the scaling is done. And the MIT is a great--that 150 manufacturing startup study, that is a great example. It happens all the time. Senator Rubio. Mr. Lam, I wanted to ask you because your story in particular is one I think resonates with a lot of people. If you could just describe both--on the labor shortage side, what is it that people say, or what is the rationale people use, or what is your sort of real-life understanding of why it has been so hard to get people to come into the labor force and do this job? And secondly, and more important I think to this overall discussion, is when product--when the prices of your supplies and/or labor go up, I am not sure people fully appreciate that at some point the numbers have to work. You cannot charge less for something than what it takes for you to bring it. You cannot do it at cost. You have got to make some profit, or you will not be a business for long. If you could describe the mechanics of the labor shortage, why you think people are not working or what they say, and the second piece is what happens when the price of labor and the products goes up, how you have to price that through to the extent you can. Mr. Lam. So from just personal experience, on the onset of pandemic, obviously everyone started getting unemployment checks, and then I tried--after we opened back up for dine-in around mid-October, I called everyone back as part of my duty to extend and invite them back to get their jobs. I never said they were laid off. I never said they were fired. At any opportunity, they could come back, at any time. And resoundingly, my staff all said, ``No, because I was getting paid more to sit at home collecting my unemployment check than I would be coming into work.'' That is separate. So now I am still hiring. I am still short-staffed. I still need people, front of house mostly--servers, busboys, hostesses, whatever. And I am willing to pay anywhere from 15 to 20 dollars an hour. And these kids and these people are saying, increasingly, ``No. I actually do not want to do that. I actually want to like work in the kitchen. I do not want face-to-face interaction with people. I just want to work in the kitchen,'' which makes no sense to me. I am willing to give you a job paying you good money, and you can become a manager. You can become just--you have to start at the bottom, and I am willing to give you an opportunity to do so. They do not want it, and no one is really applying for it. No one is really interested in doing that. Second part, the supply and the inventory. You are right. I have had to increase my prices, like I said in my opening testimony, three times in the past six months alone. Part of the reason why I think the EIDL and these grants and programs is a bad idea is because I have my invoices. I have all of them here. I can show you real, tangible numbers of how much money I am paying. As Ms. Kumar alluded to earlier, oil has gone up like crazy, and chicken, vegetables, very, very simple items, which in and of itself is innocuous when you see price increases like this. But when I am selling one plate of chicken teriyaki, let us say, the chicken has gone up. The bell peppers has gone up. The mushrooms in it has gone up. The onions has gone up. The box I am putting it in has gone up. The bag that I am putting the box in has gone up. The price that I have to pay for the online services I have to pay for has gone up. The propane has gone up. Everything. The pay that I have to pay my employees has gone up. I cannot continue to sell this one plate of chicken teriyaki for the exact same price as I did in 2019. It used to be $12.50. I am selling it for $15 now. That price is reflective of what I have to deal with and the supply chain issues that I see on a day-to-day basis. Now, the programs. Let us say I can get $10,000 from this EIDL program. You can do the math on these invoices. That $10,000 is going to last me exactly one month. Let us say I get $100,000. Great. I can skimp along for another 10 months. What I need, what restaurants across the board need, is more stability and going back to the prices that it was in 2019, 2018, where it was actually affordable and competitive to be able to do business. I am not an economics professor or a fellow or a student, but I think the way it works is that prices go up, you charge people more, and it is just an ever growing fire that feeds on itself and makes it worse. Ms. Kumar. Can I add something to that real quick? Chairman Cardin [presiding]. I am afraid I cannot because we are running short on time because of a briefing we have on Ukraine. So let me give Senator Hirono a chance. Senator Hirono. Thank you very much. I was sitting here listening to all of you testifying, and thank you very much for being here. What I do understand is that this is not a simple situation because for a long time manufacturing in our country was outsourced to other countries providing cheap labor. Isn't that a true statement, Mr. Kota or Professor? Mr. Kota. Yes. Senator Hirono. And I emphasize the words ``cheap labor.'' We in our country, in America, got used to getting our goods cheaper because it was made through cheap labor in other countries, and now that we are all focused on making it in America we are not necessarily willing to pay the prices that we need to pay. And you cannot blame workers because why should we exploit cheap labor in order to get cheap goods. I do not think that is where I want our country to be. So I do not know how--Mr. Lam, you said you would like things to be the way it used to be, where costs were lower, et cetera, but I do not know how you achieve that really. Dr. Kota, I am sorry. Are you ``Dr. Kota'' or ``Mr. Kota''? Mr. Kota. Mr. Kota is good enough. Senator Hirono. So how do we get back to that? Is that really not where we are heading, that we are going to go back to some kind of situation where we continue to basically use cheap labor in other countries to get us the goods that we need? Is that what we are needing to do? Mr. Kota. No, not--no. It started out that way back in the late 1970s and early 1980s, but the point is we are no longer going to China necessarily for cheap labor. China is well past that. On the other hand, think about countries like Germany, Japan, and South Korea. They have a very strong advanced manufacturing and a very strong manufacturing innovation ecosystem. Wages in Germany are 40, at least 40, percent higher than here. In Japan and South Korea, they have high wages. They have higher taxes. Their energy costs are significantly higher. Their regulations are just as strict. And their automation is significant, three to six times more automated than we are here, and yet, they have a strong manufacturing base because their private sector companies have longer-term goals. They have--they care about stakeholders, not just shareholders. In fact, they are investing here in, our manufacturing facilities in this country. You know, from Siemens to Toyota, they have been around for a long time, and Honda and other companies, BMW. They are investing here, and we are rushing over there to other countries. So I think it has to do with two things. One is our large corporations have, you know, these quarterly shareholder profits that have taken over for 40 years, and that seems to be working just fine for them, and I do not think it will change. COVID-19 or something else, that is not going to change it. They are going to go to a different country now. But we need to think about how to build our capacity to innovate, and that means we need to invest in small manufacturers, I say, because when we invest in small manufacturers then the big guys will come. Senator Hirono. I think you noted in your testimony how we can encourage the small- and medium-size manufacturers through grant programs and you laid out an array of suggestions based on some of the discussions that you have been having across the country with small manufacturers as to what would meet their needs, and I think that those are some suggestions that we should incorporate. And recently, the President announced a new Manufacturing Office at SBA. I think you noted that that program could really facilitate the support for medium and small manufacturers. Can you expound a little bit how you think that an entity like this could provide the kind of support that we are talking about? Mr. Kota. Absolutely. I think that is a very encouraging sign, to have this, because SBA has focused mostly and broadly on businesses at large, not so much manufacturing. But now with the Manufacturing Office, it is very encouraging. How they can support is, again, connecting the dots and looking at what--you know, we are investing so much in other agencies, and they are investing in so many technologies. What happens is just like I described before. When the technology is proven, then there is nowhere to go. This is where, instead of nowhere to go after the technology is proven, SBA can play a critical role in leveraging other technologies developed by other agencies and then nurturing the technology and then putting the pieces together so that we can do at least pilot production, start the pilot production here, so they can work with it, whether it is a new Technology Directorate at NSF or even existing offices, existing Federal agencies. So, yes, we need that. I was talking about having a coach, having somebody, you know, looking across and connecting the dots. And I think that would be a very--it would be very, very it will have a great multiplier effect in terms of what SBA can do in that way. Senator Hirono. If I could mention, Mr. Chairman, you obviously have a familiarity with SBA programs that are successful. Yes? Mr. Kota. Yes, yes, I am very familiar with the SBIR program. Senator Hirono. Yes. Mr. Kota. Because of personal experience for over 25 years. Senator Hirono. STTR/SBIR, I very much support. I was going to ask, Mr. Chairman, if he could provide us a list of those programs. I do acknowledge that you say that a lot of these programs are in their silos. They need to be talking to each other, but--you know, it would be--I would like to know which of the SBA programs actually help small businesses and manufacturers, if you could maybe help us with a list so we can continue to provide support for these programs that actually work. Thank you, Mr. Chairman. Chairman Cardin. Senator Hirono, thank you. I know Senator Shaheen also asked about the SBIR/STTR programs. We have a challenge because they have to be reauthorized, so we have a time problem getting that done. The Administration is aware of that. So we are going to be working on that this year to make sure that program is extended. Ms. Kumar, you wanted to respond? Ms. Kumar. Well, Ms. Hirono kind of touched on it. I was going to say that, you know, supply chain issues and pricing is not just a domestic issue. We rely so heavily on the global market for even food and canola oil and things like that. So it is not just something that the government can just magically fix when, you know, China is in lockdown and different countries have different waves at different times. It is a complicated issue, and it is not something that anybody can wave a magic wand over. Chairman Cardin. You are exactly right. The supply chain challenges could be eased considerably if we had domestic source, and manufacturing is a good example. How do we preserve manufacturing for supply chain and technology and innovation and job growth in America? And to me, the key there is what do we do encourage small manufacturing companies because that is where the growth will take place. But the entire supply chain, really much depends upon domestic sourcing as much as possible so that we are not subject to international interruptions, whether it is because of autocratic governments, because of war, because of transportation issues, energy issues, et cetera. So we have a bill that has passed both the House and Senate--it is now heading toward conference--the Competition Bill that deals with a lot of these supply chain challenges but more on the larger scenes. We have to make sure that we have supply chains so your restaurants can get a predictable--I like, Mr. Lam, when you said predictability. That is a critically important part of your business, to know how you can plan your business for the next year, let alone your challenge whether you do it for the next week right now because of the changes. How do you invest in decisionmaking if you do not know what the supply chain is going to be and the pricing of that is going to be? So the more we can do this domestically, the more we can protect our own sources, the better off we are going to be. Dr. Kota, I think your comments are right on target about manufacturing and incentives for smaller companies. Several of our colleagues were here, but because of the briefing that I mentioned earlier for all Senators on Ukraine they had to leave. I know Senator Risch is going to be asking some questions for the record. I saw that we had Senator Hickenlooper here; Senator Ernst was here. I believe Senator Hawley was here by WebEx. So we have had other members that have been here, but unfortunately could not stay because of the briefing. Let me thank you all for your testimony. The record will stay open for two weeks, and if members have questions we would ask that you try to respond in a prompt way. With that, with the Committee thanks, the Committee will stand adjourned. [Whereupon, at 3:04 p.m., the Committee was adjourned.] APPENDIX MATERIAL SUBMITTED [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]