Uncle Sam’s New Role in Manufacturing

For the rubber hit to the road, private and public sectors agree that the ideal environment of the future to facilitate the generation, growth and commercialization of innovation is found in technology clusters – geographical concentrations of related technology firms that include competitors, suppliers, distributors and customers. Examples of current technology clusters in the metalworking sector are Okuma Partners in THINC, Mazak Value Inspired Partners (VIP), and the Research Triangle in North Carolina. In the semiconductor sector is Silicon Valley in California.

To help promote the formation of more of these clusters, the administration allocated some public funding through the America COMPETES Act, but more private collaboration and leadership could energize the development of these manufacturing hubs at little cost. We will see more of these clusters in the future.

Imagine a future where private technology clusters around the U.S. continually unlock new technologies, quickly patent them through a streamlined federal agency, accelerate their distribution into highly-profitable mainstream global markets, then replace them with newly patented technologies before the original applications plateau and slip into high-margin aftermarkets. An integrated set of public laws would be enforced to protect this ultra-competitive state from fraud, monopoly, labor abuses, foreign mercantilism, environmental abuse, and other destructive market forces at home and abroad.

WORKFORCE EDUCATION
Innovation cannot be sustained without a better educated and trained workforce, but our education system has fallen into dire straits. “According to the World Economic Forum,” notes Woods, “the U.S. now ranks 52^nd in Math and Science, even though we have doubled the amount of money spent in education. In other words, if the improvements from all this spending could be monetized and added to our GDP, education represents a $2 trillion growth opportunity.”

AMT has lobbied for “government, academia, and industry to collaborate and build a better educated and trained ‘smartforce.’” Woods bluntly states that “there is little to be done about the shortage of skilled labor. Developing and training workers to become skilled production labor doesn’t happen overnight. That is why this collaboration should specifically develop a national manufacturing skills certification program with supporting grants, scholarships and/or incentives for Science Technology Engineering and Mathematics (STEM) degrees, and use Manufacturing Extension Partnerships (MEPs) as centers of manufacturing excellence to train and support local manufacturers.”

The administration responded in January 2010 by extending $500 million in funding from the government and its partners for its “Educate to Innovate” campaign, a collaborative effort between the feds, the private sector, and non-profit and research communities to raise K-12 STEM literacy and expand educational and career opportunities around STEM programs. In defining what “Educate to Innovate” is all about, President Obama smiled, “We’re going to show young people how cool science can be.”

Uncle Sam didn’t stop there. Last September, the administration launched Change the Equation, another part of “Educate to Innovate” that is led by business community CEOs wanting to duplicate successful privately-funded programs in 100 high-need schools and communities. They want more students engaged in robotics competitions, improved professional development for math and science teachers, more students taking and passing rigorous advanced placement math and science courses, more teachers with a STEM undergraduate degrees, and more career opportunities for these students and teachers.

Envision a tomorrow where U.S. graduates, the smartest STEM students in the world, line up for the highest-paying jobs at private U.S. technology clusters. To meet the demands of global market competition, these clusters identify, plan and fill their specific skills needs through the facilitation of local Manufacturing Extension Partnerships which, in turn, coordinate and develop those needs early-on through schools with nationally certified STEM programs.

GLOBAL COMPETITIVENESS
Most important of all, our national strategy must create a business environment that allows manufacturers to compete effectively in the global marketplace. “The purpose of this strategy is not to prop up manufacturing sectors that no longer have a comparative advantage and cannot compete against emerging foreign competition,” states Thornton, “but to ensure that U.S. manufacturers have and keep the advantages inherent in an innovative, lightly regulated and dynamic economic system.”

What needs to be done to create this sort of favorable business climate? “Major improvements are needed in corporate tax policy, regulatory regime, international policy and export controls, health care costs and infrastructure investment,” says Thornton.

Congress responded last September by passing The Small Business Jobs and Credit Act of 2010 that extended Section 179 equipment deductions and related depreciation through 2011. This is good news, says Woods, because “the average age of production machinery shot up between 2000 and 2004, and again over the past two years. A portion of the skilled labor shortage can be offset investing in more productive equipment. Replacing older, less productive equipment will alleviate some of the stress on the skilled labor shortage.” But he also is quick to note that “there is no substitute for developing the ‘smartforce’ of the future.”

Woods emphasizes how crucial credit access and Small Business Administration (SBA) lending are right now, because the “key to keeping this recovery on the move is money and materials. While the credit situation has improved dramatically since the end of 2009, many manufacturers, particularly the smaller ones, have been denied working capital or are facing unusually challenging terms. Materials are very tight, resulting in short supplies and higher prices. The recovery has not been overwhelmingly strong, but inventories were small before the recession began. That is why the economic pick-up in mid-2009 led to shortages that basic materials producers have yet to catch up on.”

Credit access should be addressed by the National Export Initiative (NEI), a critical new government effort launched last year with the goal of doubling U.S. exports over the next five years – an increase aimed at supporting two million American jobs. For the first time, the U.S. will have a government-wide export promotion strategy with focused attention from the President and his Cabinet, as evidenced from the formation of an Export Promotion Cabinet consisting of top leaders from across the administration.

The Department of Commerce and International Trade Administration play critical roles in the NEI by:
(1) Providing more funding for export promotion and more coordination between government agencies.
(2) Ensuring commercial advocacy objectives obtain government-wide support and more effectively advocate for U.S. products.
(3) Creating an Export Promotion Cabinet that reports to the President and consists of leaders from the Departments of Commerce, State and Agriculture, the Export-Import Bank, the U.S. Trade Representative and the SBA.
(4) Increasing the government’s focus on barriers preventing U.S. manufacturers from getting free and fair access to foreign markets.

Under the Jobs Act, SBA 7(a) export-related loan limits were raised to $5 million to help small business exporters through three different export loan programs: Export Express, Export Working Capital Loan and International Trade Loan. Progress is being made, too, because export-related loans to small businesses already reached nearly $110 million by the end of last December. “We are building on the efforts already underway through the NEI by helping small businesses tap into the global market,” said SBA administrator Karen Mills.

That’s not all. “To take that next step to begin exporting or expanding into a new market, a small business often needs both financial and counseling resources,” adds Mills. “We are assisting in both those areas by enhancing our export loan programs and making counseling and technical assistance more accessible. We’re already seeing these tools put to use by small businesses that are in a position to grow and create good-paying jobs in their communities.”

Without question, there is still much to be done in the areas of tax and regulatory reform, export controls and VISA reforms that can help and protect U.S. manufacturers. But with a newly-elected Republican House and an administration that appears to take manufacturing seriously, the word on the streets is patience – it appears this too will come, in varying degrees of one form or another.

FUTURE GAMES
The old business saying goes “you invent the future that you want face.” U.S. manufacturers are vested in a new industrial playground, an unlevel global field where foreign government bullies have rewritten the playing rules by inventing a new way of competing. If that is what they want to face, that is what they get to face.

A different lineup has entered the game for America. Now batting cleanup is Uncle Sam, in a new strategic role as leader of innovation, workforce education, and a competitive global business environment. The foreigners out in the field can replace those business gloves with shovels. It’s time to relevel the playing field.