Policymakers’ Vision Must Be as Big as the Potential of Small and Mid-Sized Manufacturers

Take a look at this chart.

See the plum and green sections in the ovals? That represents the medium-low and medium-high tech parts of the manufacturing sector. Germany and Japan have a lot of plum and green. The United States has too much blue—the low-tech activity.

This chart underscores yet again what my colleagues at ITIF and others have been arguing for years, particularly in the last two years as the country struggles through the ravages of the Great Recession: The United States needs to revitalize its manufacturing sector and can do so only with a coherent national strategy that harnesses national labs, private sector innovators and government.

This chart was presented by Stephen Ezell during an event this morning at ITIF on a new report, “International Benchmarking of Countries’ Policies and Programs Supporting Small and Mid-Sized (SME) Manufacturers.” The thrust of the report is that the governments of many of the United States’ formidable competitors for high-skill, high-wage manufacturing jobs put considerable effort into keeping their companies at the cutting edge of innovation. These governments make sure their SMEs know about ground-breaking research and then put it to use in developing and commercializing new products that can be exported. The U.S. also supports its 326,000 SMEs with the Manufacturing Extension Partnership (MEP), which has an excellent track record. At this perilous time in our economic history, policymakers must recognize that MEP can play a critical role in getting more purple and green (the more tech-intensive activities) in the U.S. manufacturing sector.

In the last decade the United States lost 5.5 million manufacturing jobs and 75,000 factories. As ITIF President Rob Atkinson pointed out recently in a blog post in advance of the President’s speech on the American Jobs Act, this is symptomatic of a slow decline in innovation-based competitiveness and a harbinger of where we are headed—that is, unless we do something about it with smarter tax and trade policies and a serious commitment to technology and to enhancing the talent of our workers. With over 14 million people unemployed, government data out this week shows that 1 in 6 Americans now live in poverty. This is sad for the millions of Americans who want to work, as well as their families and their communities. It is also appalling, because it doesn’t have to be this way.

Germany functions in the same international marketplace that the United States does. German manufacturers and high-wage workers are also up against low-wage, high-skill workers and dubious trade practices. Yet somehow Germany has emerged from the Great Recession with its manufacturing sector stable and without losing its share of the global market. (ITIF will delve into this more at an event next month.) Instead of standing back as market forces hollowed out its manufacturing sector, Germany restructured and retooled. It shed jobs in the low-tech sectors (the blue section on the chart) and shifted toward the higher skill areas. Germany’s Fraunhofer Institutes played an important role in keeping German manufacturers on their toes as new competitors emerged. The Fraunofer system employs some 18,000 people, in contrast the U.S. MEP which employs a mere 1,300-1,400.

As we spelled out in The Case for National Manufacturing Strategy, the multiplier effects of these higher end jobs are impressive. Research shows a modern manufacturing job supports an additional 5.2 jobs throughout the economy. Move into high-tech manufacturing and the multiplier effects are dazzling. Computer manufacturing has a multiplier effect of 16 jobs! In other words, these high-value-added manufacturing activities build and sustain a middle class. Just ask Singaporeans. As Tom Friedman and Michael Mandelbaum point out in their new book, “That Used to be Us,” Singapore is a country so limited in natural resources that it had to import sand for its buildings—but its economy grew at 14.7% in 2010, led by exports of pharmaceuticals and biomedical equipment. (These are sectors where the U.S. is supposed to have an edge.) The 46.2 million Americans now living below the poverty line could sure have used a little more vision from U.S. policymakers when it came to manufacturing.

Instead we are looking at more ideologically driven debates about getting the government out of the way and cutting public investments in education, R&D, science, and programs that connect America’s prodigious talent with its manufacturers. Never mind that the MEP generates $32 of return in economic growth for every dollar of federal investment and created or retained over 70,000 jobs in 2009. While these are returns on investment that would thrill shareholders in private sector, they are discounted by those who determined to shrink the size of government. 

Drew Greenblat, president of Marlin Steel Wire Products, a small manufacturer in Baltimore, told those who attended today’s event that programs such as MEP can play an important role in connecting innovations to SMEs. He noted that Baltimore is home to one of the country’s great medical research institutions, Johns Hopkins University, where scientists  regularly invent highly sophisticated medical devices, which end up being produced overseas (perhaps Singapore). Greenblat’s hope is that a robust MEP program would play a catalytic role in making sure specialized manufacturers such as Marlin manufacture and export the innovations that come from institutions such as Johns Hopkins.

“There are a lot of us,” Greenblat said. “If each hires, two, three or four employees, the recession is over.”