Manufacturing innovation is key to boosting growth

Some pundits argue that American manufacturing is rebounding and returning to our shores. Others contend that manufacturing doesn’t matter anymore so we should not even focus on the sector. Neither of these views is accurate. America’s trade sector competitiveness depends on manufacturing and America’s economic vitality depends upon having a large number of enterprises that can hold their own in global competition. That’s why it’s no coincidence that the Great Recession came after the worst eight years for U.S. manufacturing since the Great Depression.

Addressing the challenges manufacturers in America face will require a multi-faceted approach, but a core component will be policies that increase the innovation and productivity necessary to enable American firms to compete against the nations that are innovative leaders at one end of the spectrum and those that are low-cost havens at the other.

{mosads}The Senate Commerce Committee took an important step in this effort with the mark-up of the Revitalize American Manufacturing and Innovation Act (RAMI). The bipartisan bill, cosponsored by Sens. Sherrod Brown (D-Ohi) and Roy Blunt (R-Mo.), would create the National Network for Manufacturing Innovation (NNMI), which would be comprised of up to 15 public-private, manufacturing innovation hubs. These centers would accelerate manufacturing innovation in technologies with commercial applications by bridging the gap between basic research performed at U.S. universities and research laboratories and product development by U.S. manufacturers.

The centers would build on pilot hubs already established by the Obama Administration which are spurring novel research and product development in additive manufacturing and next generation power electronics as well as recently announced institutes focused on digital manufacturing and design and lightweight and modern metals manufacturing.

As ITIF writes in Why America Needs an NNMI and How It Should Work, the network would address a major gap in the American innovation ecosystem. The federal government invests in basic research while companies are increasingly devoting their innovation efforts to later-stage development efforts. What gets lost is the critical applied (or “translational”) research. This type of activity is at the heart of technology transfer and ensures that basic scientific discoveries and knowledge are transferred into commercial applications manufactured in the United States. Unfortunately, all too often, breakthroughs developed in U.S. universities or corporate labs have been commercialized overseas. This is exemplified by the loss of manufacturing in a number of industries, including semiconductor memory devices, flat panel LED displays and lithium-ion batteries, all of which were originally developed in the United States. The NNMI would close this tech transfer gap and ensure that as new industries develop they grow and mature domestically.

This is essential because other nations are already investing billions in industry-university applied research partnerships. As ITIF has documented, Germany invests $2.5 billion annually in its network of almost 70 Fraunhofer Centers that conduct applied research in industrial sectors key to Germany’s economy. And Japan announced in 2013 a $2 billion investment to promote university-industry collaboration in applied research.

For those who would argue that this is government “picking winners,” it’s important to note that RAMI is designed so that industry is the one that comes forward with the proposals to respond to the key challenges that alone they can’t effectively solve. In addition, economists have shown that there are big “spillovers” from research and that firms will underinvest in research, especially in collaborative research, without government support.  

Skeptics would also be well advised to look across the pond to what Conservative Party leader David Cameron has done. Cameron, like a true conservative, wants to cut government when it gets in the way of growth. But he also notes that “reducing tax and regulation is not enough.” He argues that Britain “needs a more strategic, modern approach to maintain and develop our global comparative advantage and make the most of it.” He explains that Britain’s modern industrial strategy is not the dreaded industrial policy of the past but rather “relies on the convening power of national government to get behind what works and to position our key sectors so they have the best chance of winning the global race.” Moreover, as Cameron explains, it’s not about “keeping dead industries on life support” but rather “supporting industries where Britain has a competitive edge and encouraging the high growth industries of the future.” That’s why the Cameron government created a $1.5 billion network of seven “Catapult Centers”, essentially Britain’s version of the NNMI.

Passage of RAMI and companion legislation cosponsored by Rep. Tom Reed (R-N.Y.) and Joe Kennedy (D-Mass.) won’t solve all our economic problems, but it would be an important step in the right direction. The future competitiveness of our economy depends on it.

Atkinson is the president of the Information Technology and Innovation Foundation.