Congress and NSF can work together to eliminate the requirement that new proposals for Engineering Research Centers (ERCs) include an international partner.

Current regulations perversely require that proposals for new ERCs include an international partner. This is in part a reflection of the NSF culture which views its mission as advocacy of science—because science is internationalized, NSF wants to fund international collaborations. While certainly policy should not prohibit ERCs from including international partners, NSF should eliminate the requirement that an international partner must be involved, since the ERCs’ main goal should be to strengthen U.S. engineering and manufacturing.

Congress should increase funding for key federal statistical agencies assessing traded sector competitiveness and create a national statistical agency.

It makes little sense to have separate economic statistical agencies; other nations combine theirs into national statistical agencies, and the United States should do the same. At the same time, years of budget constraints have caused U.S. statistical agencies to lack the resources needed to effectively measure key elements of the traded economy. There are numerous examples, including the following, which should be rectified through increased or restored funding: The International Labor Comparisons Program at the Bureau of Labor Statistics (BLS), which produces timely, high-quality international comparisons of labor force, productivity, hourly compensation, and prices for many industrialized countries, was terminated in the Administration’s FY 2013 budget; The Bureau of Economic Analysis (BEA) no longer measures manufacturing foreign direct investment specifically and can’t distinguish between “greenfield” new plant investment in the United States and foreign purchases of existing U.S. establishments; BLS reporting of state level data on manufacturing property, plant, and equipment data ended in 2007; BLS lacks and needs to build an import price index so it can fix the productivity measurement problem with regard to imported manufacturing inputs; NSF needs to produce industrial R&D data in a timelier manner, as the most recent data is from 2008. It would also be helpful if the NSF data reported on three distinct components: scientific research, engineering research, and development; BEA should improve its existing annual surveys and five-year benchmark surveys of companies with facilities overseas to identify the type of products manufactured abroad and the number of employees at these facilities.

Congress and the SBA should assist SMEs in traded sectors in obtaining access to credit, in part by creating a 95 percent loan guarantee program.

Particularly in the wake of the recession, small manufacturers are having a difficult time accessing credit from financial institutions, and several policies could help remedy this. First, to help small manufacturers that have work orders in hand get credit, Congress should enact a 95 percent loan guarantee program for small manufacturers under the SBA 7(a) guarantee program. Second, the Federal Reserve should consider relaxing some of the stringent guidelines it has placed on local banks with regard to the liquidity ratios SME manufacturers must meet to be eligible for commercial loans. This would allow local banks to better understand and service SMEs’ capital requirements, given their particular cash flow constraints.

Congress should direct the Small Business Administration to shift its focus toward traded sector firms.

The U.S. Small Business Administration should focus more on traded-sector firms through its financing programs, including its 7(a) loan guarantee program. However, the SBA does not appear to give any special priority to traded sector firms, treating all industries alike in its funding priorities, in large part because this is SBA’s charge from Congress. But there are significant differences for U.S. job creation and prosperity between a small manufacturer and a small retail firm, for example. The former plays a significantly more important role in driving economic growth and—through the multiplier effect—jobs. Moreover, the United States will anyway have all the retail firms it needs (e.g., that the market demands), since the sector is not traded. As such, Congress should require the SBA to develop a report for Congress within six months on two items: an analysis of all SBA financing by sector (e.g., how much financing went to manufacturing, retail trade, personal services, information, etc.) and a plan for how SBA can significantly increase the share of SBA financing going to firms in traded sectors. Congress should then require that a significant share of SBA lending—both guarantee and direct lending—go to fund scale-up activities for SMEs in traded sectors.

Congress should increase funding for the Department of Defense Manufacturing Technology (ManTech) program and encourage expanded use of Title III of the Defense Production Act and to help rebuild America’s defense industrial base.

Manufacturing is vital to U.S. national security, but as the U.S. industrial base has moved offshore, so too has the defense industrial base. In response to the country’s inability to reliably manufacture key defense components and to the proliferation of foreign counterfeit parts in the defense supply chain, Congress should double funding for the Department of Defense’s Manufacturing Technology (ManTech) program to approximately $450 million annually. Congress should further encourage federal agencies such as the Department of Defense and Department of Energy to make broader use of Title III of the Defense Production Act, which would help expand U.S. production capabilities to promote national defense while addressing industrial production shortfall issues.

Congress should create a Spurring Commercialization of Our Nation’s Research program that allocates 0.3 percent of agency research budgets to support university, state, and federal laboratory technology commercialization initiatives.

The current federal system for funding research pays too little attention to the commercialization of technology. Accordingly, Congress should establish an automatic set-aside program that takes a modest percentage of federal research budgets and allocate this to a technology commercialization fund. Specifically, Congress should allocate 0.3 percent of agency research budgets—about $250 million per year—to fund university, federal laboratory, and state government technology commercialization and innovation efforts. Half the funds would go to universities and federal laboratories that could use the funds to create a variety of initiatives, including mentoring programs for researcher entrepreneurs, student entrepreneurship clubs and entrepreneurship curriculum, industry outreach programs, seed grants for researchers to develop commercialization plans, etc. and the other half would go to match state technology-based economic development (TBED) programs.

Expand funding for the Engineering Research Center (ERC) and Industry/University Cooperative Research Center (I/UCRC) programs at NSF to spur research commercialization.

Congress should double the National Science Foundation’s funding for ERCs from the current base of $55 million up to $110 million over a three year period and increase funding for the IUCRC program from $7.1 million to $50 million over that time-frame. This would support the creation of additional I/UCRC centers and expand NSF engineering support provided to each center. Further, to ensure that ERCs represent a true joint university-industry research partnership, funding for all ERCs should have at least a 40 percent industry match by 2017.

Congress should enable SMEs to create Manufacturing Reinvestment Accounts.

To help SME manufacturers bootstrap themselves, Congress should establish a 401(k)-like “deferred investment” program for SME manufacturers allowing them to make tax-deferred investments into manufacturing reinvestment accounts, where the funds can be subsequently withdrawn tax-free if used for research and development, workforce training, or capital equipment investments. In 2011, Connecticut put such a program in place for its SME manufacturers.

Congress should create a United States Economic Competitiveness Commission.

One step Congress could take to bolster U.S. traded sector competitiveness would be to create a 13-member United States Economic Competitiveness Commission, which would release a report every other year providing an independent assessment of the competitiveness of the U.S. economy (particularly its traded sectors, including but not limited to manufacturing) in the global marketplace. The report would offer targeted recommendations to improve U.S. competitiveness across key economic sectors. Senate and House Republican and Democrat leaders would each appoint three members and the Administration one member.

Congress should create a new traded sector analysis unit within the federal government.

There is no entity in the federal government tasked with performing competitiveness analysis. The statistical agencies see their job as accumulating facts; not analyzing them. To remedy this, Congress should task the National Institute of Standards and Technology with the creation of a new traded sector analysis unit which prioritizes interpretation and analysis over collection and aggregation. This new entity should have two core functions. The first would be to regularly assess important aspects of overall U.S. traded sector competitiveness (e.g., trends in FDI, growth of traded sector jobs and output, changes in global market share of U.S. traded sectors, etc.). The second would be to focus on select traded sectors that are critical to the United States’ economic future (sectors where the United States has some competitive edge and where value added and wages are higher than average) and develop strategic road maps (by coordinating with DoD, DoE, NSF, and industry leaders) of how the federal government can promote the competitiveness of these sectors.