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The network for manufacturing innovation: a "tipping point" in U.S. research and development policy?

INTRODUCTION

Over the first decade of the 21st century, the "dire" state of the U.S. manufacturing sector was a topic of American media attention and intense public policy debate. For example, U.S. manufacturing employment had declined from 17.6 million jobs in 1998 to 11.5 million jobs by 2010--a nearly 35 percent decline over a period of just a dozen years (U.S. Department of Labor, 2010). Moreover, as a fraction of Gross Domestic Product (GDP), the manufacturing sector declined from 27 percent in 1957 to 11 percent in 2009 (U.S. Department of Commerce, 2014).

This loss in global manufacturing leadership not only manifested itself in a reduction in high-paying manufacturing jobs and reduced national GDP, but also in technology inventions and knowledge created domestically and now commercialized by foreign firms, thereby weakening competitive capabilities that American firms require to continue inventing high-quality, costcompetitive products (Pisano & Shih, 2009, p. 2012). Moreover, the location of manufacturing production is a critical determinant of which countries continue to be the leaders of both existing and future technology cycles (Helper, Krueger, & Wial, 2012). To illustrate these concerns, a national survey of Americans reported that 75 percent believe the U.S. needs a more strategic approach to developing its manufacturing base; 73 percent believe that the U.S. should invest more in the manufacturing sector; and 68 percent believe that developing a strong manufacturing base should be a national priority (Deloitte LLP and the Manufacturing Institute, 2010).

THE REVITALIZE AMERICAN MANUFACTURING AND INNOVATION ACT

In December 2014, the U.S. Congress passed an omnibus spending bill that included the "Revitalize American Manufacturing and Innovation Act of 2014" ("RAMI Act") (H.R.2996) authorizing the establishment of a Network for Manufacturing Innovation (NMI) Program within the National Institute of Standards and Technology (NIST), U.S. Department of Commerce (IPC, 2014). The purpose of the NMI Program is manifold (Revitalize America Manufacturing and Innovation Act, 2014, p. 3-4):

* to improve the competitiveness of U.S. manufacturing and to increase the production of goods manufactured predominately within the U.S.;

* to stimulate U.S. leadership in advanced manufacturing research, innovation, and technology;

* to facilitate the transition of innovative technologies into scalable, cost-effective, and high-performing manufacturing capabilities;

* to facilitate access by manufacturing enterprises to capital-intensive infrastructure, including high-performance electronics and computing, and the supply chains that enable these technologies;

* to accelerate the development of an advanced manufacturing challenge;

* to leverage non-Federal sources of support to promote a stable and sustainable business model within the need for long-term Federal funding; and

* to create and preserve jobs.

The RAMI Act requires the U.S. Secretary of Commerce to establish, through the NMI Program director, a national network of centers for manufacturing innovation (CMI), with a predominant focus on a manufacturing process, novel material, enabling technology, supply chain integration methodology, or another relevant aspect of advanced manufacturing, such as nanotechnology advanced ceramics, phototonics and optics, composites, biobased and advanced materials, flexible hybrid technologies, and tool development for microelectronics (Revitalize American Manufacturing and Innovation Act, 2014, p. 56). The RAMI Act also recognizes the National Additive Manufacturing Innovation Institute and other manufacturing centers formally recognized as manufacturing innovation centers (but prohibited from receiving assistance under the RAMI Act) as a CMI and participating in the NMI Program (Revitalize American Manufacturing and Innovation Act, 2014, p. 8-9). Moreover, a manufacturing center similar to a CMI, but not receiving financial assistance under the RAMI Act, is to be recognized as a CMI and a participant in the NMI Program (Revitalize American Manufacturing and Innovation Act, 2014, p. 9).

Under the RAMI Act, the U.S. Secretary of Commerce will award financial assistance for the purpose of assisting in planning, establishing, or supporting CMIs (Revitalize American Manufacturing and Innovation Act, 2014, p. 9). Furthermore, the requirements for awarding financial assistance include an open process for soliciting applications and competitive merit-review selection process that includes peer review by a diverse group of individuals from both the private and public sectors (Revitalize American Manufacturing and Innovation Act, 2014, p. 10). The RAMI Act also requires that all Federal matching funds (up to 50 percent per award) will be discontinued after seven years, and that the amount of financial assistance to a CMI decreases after its second year of funding and in each year thereafter and replaced by private and other non-Federal sources of funding (Revitalize American Manufacturing and Innovation Act (2014, p. 15-16).

As to financing the legislative requirements of the RAMI Act, the U.S. Congress authorizes the U.S. Secretary of Commerce to appropriate up to $5 million annually from the NIST's Institute for Technical Services Account in each of FY2015 through FY2024 for administrative expenses (Revitalize American Manufacturing and Innovation Act, 2014, p. 17). Also, the U.S. Secretary of Energy may transfer up to $250 million to the NIST from the U.S. Department of Energy's Energy Efficiency and Renewable Energy account for FY2015 through FY2024 for the purpose of awarding financial assistance to establish CMIs (Revitalize American Manufacturing and Innovation Act, 2014, p. 17).

The U.S. Secretary of Commerce will establish within the NIST the National Office ("National Office") of the Network for Manufacturing Innovation Program to oversee the planning, management, and coordination of the NMI Program; to develop, not less than once every three years, a strategic plan to guide the NMI Program; to establish procedures, processes, and criteria (including memorandums of understanding) to maximize and coordinate the NMI Program's activities with other Federal departments and agencies whose activities impact on advanced manufacturing; establish a clearinghouse of public information related to the activities of the NMI Program; and act as a convener of the NMI (Revitalize American Manufacturing and Innovation Act, 2014, p. 18-19). Lastly, the U.S. Secretary of Commerce will ensure that the National Office incorporates the Hollings Manufacturing Extension Partnership into NMI Program planning to ensure that the results of the NMI Program reach small and medium-sized firms (Revitalize American Manufacturing and Innovation Act, 2014, p. 19), and that the Comptroller General of the General Accountability Office assess the NMI Program's operations biennially (Revitalize American Manufacturing and Innovation Act, 2014, p. 22).

U.S. RESEARCH AND DEVELOPMENT POLICY

Is the passage of the Revitalize American Manufacturing and Innovation Act of 2014, and specifically the establishment of the National Manufacturing Innovation Program, a "tipping point" in research and development policy? A departure point for this discussion is the assertion that the NMI Program is a hybrid which straddles both "innovation policy" and "industrial policy." This statement in itself reflects a significant departure from the previous national public policy consensus on the role of the Federal Government in the manufacturing sector of the U.S. economy.

For example, utilizing the McKinsey Global Institute (MGI) spectrum of public policy intervention framework, Hemphill and Perry (2012; also see Hemphill, 2014) conducted a study of 11 different comprehensive U.S. manufacturing strategy proposals developed by a variety of business associations, multi-stakeholder coalitions, public policy "think tanks," and academic and government institutions over a three-year period (2009-2011). Hemphill and Perry (2012, p. 139) conclude that the overwhelming majority of recommended manufacturing policies are primarily focused in "Setting the Ground Rules and Direction," and secondarily in "Building Enablers," and are reflective of overwhelming multi-stakeholder support for an "Innovation Policy" approach to assisting the U.S. manufacturing sector, rather than "Tilting the Playing Field" and "Playing the Role of Principal Actor" and reflective of support for an "Industrial Policy."

With such a strong consensus among stakeholders from business, government, think tanks and academia supporting policies which are located overwhelmingly in the "Innovation Policy" portion of the MGI public policy spectrum (and mostly supporting policies in the "Setting the Ground Rules and Direction" category) in the period 2009-11, why the recent passage of the RAMI Act containing a distinctly innovation/industrial policy instrumentality, i.e., the "NMI Program?" The RAMI Act had bipartisan support in the U.S. House of Representatives (co-sponsors Representatives Tom Reed (R-NY) and Joseph Kennedy (D-MA) and the U.S. Senate (co-sponsors Senators Sherrod Brown (D-OH) and Roy Blunt (R-MO). Moreover, the legislation had broad support from U.S. industry associations, including the Business Roundtable, the National Association of Manufacturers, and the Alliance for American Manufacturing, and other business, academic and professional associations, individual companies, "think tanks," and universities (Business Roundtable, 2014; Richland Source, 2014). As two presidents and CEOs of advanced manufacturing electronics industry associations--the Association Connecting Electronic Industries and the Semiconductor Equipment and Materials Incorporated--illustrate in their joint statement supporting passage of the RAMI Act in late 2014 (Mitchell & McGuirk, 2014):
   To remain a global technology leader, the U.S. public and private
   sector must better appreciate the importance of domestic
   manufacturing capabilities to innovation. Enactment of the RAMI Act
   would be a great step for the United States to demonstrate its
   long-term commitment to innovation.


Unlike many policy issues which divide Republicans and Democrats in Washington, DC, the issue of global competitiveness and advanced manufacturing has become an issue which both political parties can support in a tenuous, slowly recovering U.S. economy. "This bill is an opportunity for the United States to bring jobs back to our shores, so we can make it here and sell it there," said Representative Tom Reed, the House RAMI bill's lead Republican sponsor (Mervis, 2014). With the passage of the RAMI Act, however, Republicans have moved from a philosophy of essentially "Setting the Ground Rules and Direction"--the first category in the MGI spectrum of public policy intervention--to now embracing the second and third categories of the MGI spectrum of public policy intervention, i.e., "Building Enablers" and "Tilting the Playing Field"--at least as it applies to the nation's manufacturing sector.

In the case of the RAMI Act, Congressional Republicans required that Democrats acquiescence to not authorize new appropriations for this legislation, but to agree to transfer up to $250 million to the NIST from the U.S. Department of Energy's Energy Efficiency and Renewable Energy account for FY2015 through FY2024 for the purpose of awarding financial assistance in the establishment of CMI. Also, the original appropriation request from the Obama administration was for $1 billion in mandatory funding, whereas the RAMI Act limits authorization to a total of $300 million of discretionary funding. Republicans also emphasized that the RAMI Act ensure that the results of the NMI Program reach small and medium-sized firms, an important stakeholder constituency for them.

FEDERAL FINANCIAL SUPPORT AND PARTICIPATION

The NMI Program has potential issues pertaining to its operational characteristics. For example, while Federal funding for a CMI has a declining match over the seven-year period allowed, the U.S. Secretary of Commerce may determine an exception to this requirement for decreasing the amount of financial assistance to the awardee after the second year of funding. The exceptions to this requirement, i.e., if the CMI is otherwise meeting its stated goals; unforeseen circumstances have altered the CMI's anticipated funding; and the center can identify future non-Federal funding sources that would warrant a temporary exemption from the RAMI Act's limitations, offers wide administrative latitude as to potential preferential funding treatment for certain CMIs. Moreover, if the CMI is not considered self-sustaining after the seven-year period is exhausted, under the RAMI Act no additional financial assistance may be made to a CMI. The question remains, however, whether this requirement will be maintained, as the U.S. Congress in 1998 amended the Manufacturing Extension Partnership (MEP) program under the Technology Administration Act of 1998 (P.L. 105-309) to allow its MEP centers to continue receiving Federal funds (after the original self-sufficiency requirement of six years of an MEP center's launch) if the center received a positive evaluation through an independent evaluation at least every two years (Schacht, 2013, p. 4). With the MEP precedent established, will the RAMI Act's financial self-sufficiency requirement of seven years be honored?

In addition, after the Federal funding is exhausted, what role would the U.S. government have in the NMI? Since the intention of the RAMI Act is for the Federal government to provide funding which is eventually phased out for each CMI, will the Federal role be eliminated or will there be a continued "observer" capacity? How will a continued Federal role in the NMI, or specifically with individual CMIs, be funded? Since the RAMI Act requires that the President submit to Congress a "National Strategic Plan for Advanced Manufacturing" to Congress no later than May 1, 2018, and not less frequently than once every four years thereafter, and that the Annual Budget must explicitly consider this advanced manufacturing strategy in its preparation, it would behoove Congress to amend the RAMI Act to mandate an observational Federal presence for informational purposes in the NMI program beyond the date of Federal funding completion, i.e., FY2024.

In conclusion, while Democrats have traditionally favored an assertive industrial policy-type approach to the U.S. manufacturing sector, the passage of the RAMI Act is a noticeable bipartisan "tipping point" for an increased level of public policy intervention in U.S. advanced manufacturing research and development policy. The RAMI Act's passage "puts the lie" to the statement that "policymakers remain beset by indecision and complacency to 'level the playing field' even as the country's share of the global manufacturing market erodes" (Mitchell & McGuirk, 2014).

Thomas A. Hemphill, University of Michigan-Flint

REFERENCES

Business Roundtable (2014, April 10). America's business leaders applaud committee passage of revitalize American manufacturing and innovation act. Press Release. Retrieved January 24, 2015, from http://www. businessroundtable. org/media/news-releases/america's-business-leaders-applaud-committee-passage

Deloitte LLP and the Manufacturing Institute (2010). Made in America? What the public thinks about manufacturing today (Annual Index). Retrieved January 9, 2015, from http://www.wmep.org/sites/default/files/US_CIP_PublicView ManufacturingStudy2010.pdf.

Helper, S., Krueger, T., and Wial, H. (2012, February). Why does manufacturing matter? Which manufacturing matters: A policy framework. Metropolitan Policy Project at Brookings, Brooking Institute. Retrieved January 18, 2015, from http://www.brookings.edu/-/media/research/files/paper/2012/2/22/manufacturing helper Krueger wial/0222_ manufacturing_helper_krueger_wial.pdf.

Hemphill, T.A. (2014). The U.S. advanced manufacturing initiative: Does it translate into an innovation or industrial policy? Innovation: Management, Policy & Practice, 16(1), 67-70.

Hemphill, T.A. and Perry, M.J. (2012). A U.S. manufacturing strategy for the 21st century: What policies yield national sector competitiveness? Business Economics, 47(2), 126-147.

IPC (2014, December 23). IPC secures passage of critical advanced manufacturing innovation legislation. IPC Association Connecting Electronics Industries. Retrieved January 18, 2015, from https://www.ipc.org/ feature-article.aspx? display=print.

McKinsey & Company (2010, March). How to compete and grow: A sector guide to policy. McKinsey Global Institute. Retrieved February 6, 2015, http://www.mckinsey.com/mgi/reports/freepass_pdfs/competitiveness/Full_ Report_ Competitiveness.pdf.

Mervis, J. (2014, October 2). After election 2014: Advanced manufacturing. Sciencelnsider (American Association for the Advancement of Science). Retrieved February 4, 2015, from http://Zwww.news.sciencemag.org/ policy/2014/10/after-election-2014-advanced-manufacturing.

Mitchell, J. and McGuirk, D. (2014, November 26). Congress must act and pass advanced manufacturing bill during lame duck. Roll Call. Retrieved January 23, 2015, from http://www.rollcall.com/news/congress_must_act_and_pass_advanced_ manufacturing_bill_during_ lame_duck238257-1.htm?zkPrintable= true.

Pisano, G.P. and Shih, W.C. (2009). Restoring American competitiveness. Harvard Business Review, 87(7-8), 114-125.

Pisano, G.P. and Shih, W.C. (2012). Does America really need manufacturing? Harvard Business Review, 90(3-4), 94-102.

Revitalize American Manufacturing and Innovation Act (2014) H.R. 2996, 113th Congress, 2nd Session, U.S. House of Representatives. Received in the Senate of the United States, September 16, 2014. Washington, DC.

Richland Source (2014, April 12). Endorsements for the revitalize American manufacturing and innovation act. Retrieved February 2, 2015, fromhttp://www.richlandsource.com/news/endorsements-for-the-revitalize-american manufacturing-and-innovation-act/article_917e6b04-c274-11e3-85e4-001a4b.

Schacht, W.H. (2013, November 20). Manufacturing extension partnership program: An extension. CSR Report (97-104), Congressional Research Service, The Library of Congress, Washington, DC.

U.S. Department of Commerce (2014). GDP by industry accounts. Survey of current business (2006-2009). Retrieved January 20, 2015, from http://www.beagov/industry/gpo-action.cfm.

U.S. Department of Labor (2010). B-1-employees on nonfarm payrolls by major industry sector, 1961 to date. Bureau of Labor Statistics. Retrieved January 20, 2015, from http://www.bls.gov/opub/ee/2011/ces/tableb1_201104.pdf.
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Author:Hemphill, Thomas A.
Publication:Competition Forum
Date:Jan 1, 2015
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