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.

2013 Aviation Summit Highlights Industry’s Contributions to U.S. Economic Competitiveness

April 2, 2013
| Blogs & Op-eds

The 2013 Aviation Summit, held on Thursday, March 28 at the U.S. Chamber of Commerce, showcased the critical contributions the U.S. aerospace and airline industries make to the U.S. economy, while highlighting policy issues that must be addressed if these industries are to remain globally competitive. This matters because, as ITIF explains in Fifty Ways to Leave Your Competitiveness Woes Behind: A National Traded Sector Competitiveness Strategy, the health of U.S. traded sector enterprises in industries such as aerospace, automobiles, and airlines—all far more exposed to global competition than local-serving firms and industries—simply can’t be taken for granted. 

Strengthening America’s Clean Energy Manufacturing Capability

March 28, 2013
| Blogs & Op-eds

In a piece for Ideas Lab, Matthew Stepp and Clifton Yin argue for continued support for DOE's recent Clean Energy Manufacturing Initiative. Manufacturing has been an overlooked and underfunded component of the nation’s economic competitiveness strategy for far too long and it’s particularly important for the nascent clean energy economy. The Initiative is a significant first step on the path to a robust U.S. clean energy manufacturing sector and will be a boon to clean energy innovation as a whole.

The Obama Administration should transform Fannie Mae into an industrial bank.

Former Intel CEO Andy Grove notably has called for a “scaling bank” to help scale innovations to production in the United States. To do this, the Obama administration should call for repurposing Fannie Mae into an industrial financing organization. The very existence of Fannie Mae reflects the fact that America has put more emphasis on consumption (housing) than on production (manufacturing). The new Fannie Mae (perhaps called the Federal National Industrial Mortgage Association) would buy and resell loans made to traded sector firms from banks and other lenders.

Why the 2000s Were a Lost Decade for American Manufacturing

March 14, 2013
| Blogs & Op-eds

ITIF estimates that over 60% of U.S. manufacturing job losses in the 2000s were due to competitiveness challenges, rather than productivity gains. While this was occurring, and while our leaders could not agree on whether it was a problem, other nations such as China and India were greatly increasing market share in the same industrial sectors, through coordinated national efforts to expand innovation, productivity and exports. We can expect overall manufacturing output, and the jobs that are based on it, to continue to recede unless we address the real problems we face. Namely, how do we make American firms more globally competitive to increase output, production and real growth? But that will be the topic for another day.