[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
COMMERCE DEPARTMENT PROGRAMS TO
SUPPORT JOB CREATION AND INNOVATION AT SMALL- AND MEDIUM-SIZED
MANUFACTURERS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION
COMMITTEE ON SCIENCE AND TECHNOLOGY
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JANUARY 21, 2010
__________
Serial No. 111-71
__________
Printed for the use of the Committee on Science and Technology
Available via the World Wide Web: http://www.science.house.gov
______
U.S. GOVERNMENT PRINTING OFFICE
54-451PDF WASHINGTON : 2010
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COMMITTEE ON SCIENCE AND TECHNOLOGY
HON. BART GORDON, Tennessee, Chair
JERRY F. COSTELLO, Illinois RALPH M. HALL, Texas
EDDIE BERNICE JOHNSON, Texas F. JAMES SENSENBRENNER JR.,
LYNN C. WOOLSEY, California Wisconsin
DAVID WU, Oregon LAMAR S. SMITH, Texas
BRIAN BAIRD, Washington DANA ROHRABACHER, California
BRAD MILLER, North Carolina ROSCOE G. BARTLETT, Maryland
DANIEL LIPINSKI, Illinois VERNON J. EHLERS, Michigan
GABRIELLE GIFFORDS, Arizona FRANK D. LUCAS, Oklahoma
DONNA F. EDWARDS, Maryland JUDY BIGGERT, Illinois
MARCIA L. FUDGE, Ohio W. TODD AKIN, Missouri
BEN R. LUJAN, New Mexico RANDY NEUGEBAUER, Texas
PAUL D. TONKO, New York BOB INGLIS, South Carolina
JOHN GARAMENDI, California MICHAEL T. MCCAUL, Texas
STEVEN R. ROTHMAN, New Jersey MARIO DIAZ-BALART, Florida
JIM MATHESON, Utah BRIAN P. BILBRAY, California
LINCOLN DAVIS, Tennessee ADRIAN SMITH, Nebraska
BEN CHANDLER, Kentucky PAUL C. BROUN, Georgia
RUSS CARNAHAN, Missouri PETE OLSON, Texas
BARON P. HILL, Indiana
HARRY E. MITCHELL, Arizona
CHARLES A. WILSON, Ohio
KATHLEEN DAHLKEMPER, Pennsylvania
ALAN GRAYSON, Florida
SUZANNE M. KOSMAS, Florida
GARY C. PETERS, Michigan
VACANCY
------
Subcommittee on Technology and Innovation
HON. DAVID WU, Oregon, Chair
DONNA F. EDWARDS, Maryland ADRIAN SMITH, Nebraska
BEN R. LUJAN, New Mexico JUDY BIGGERT, Illinois
PAUL D. TONKO, New York W. TODD AKIN, Missouri
HARRY E. MITCHELL, Arizona PAUL C. BROUN, Georgia
GARY C. PETERS, Michigan
JOHN GARAMENDI, California
BART GORDON, Tennessee RALPH M. HALL, Texas
MIKE QUEAR Subcommittee Staff Director
MEGHAN HOUSEWRIGHT Democratic Professional Staff Member
TRAVIS HITE Democratic Professional Staff Member
HOLLY LOGUE Democratic Professional Staff Member
MELE WILLIAMS Republican Professional Staff Member
VICTORIA JOHNSTON Research Assistant
C O N T E N T S
January 21, 2010
Page
Hearing Charter.................................................. 2
Opening Statements
Statement by Representative David Wu, Chairman, Subcommittee on
Technology and Innovation, Committee on Science and Technology,
U.S. House of Representatives.................................. 6
Written Statement............................................ 6
Statement by Representative Adrian Smith, Ranking Minority
Member, Subcommittee on Technology and Innovation, Committee on
Science and Technology, U.S. House of Representatives.......... 7
Written Statement............................................ 7
Witnesses:
Hon. Dennis F. Hightower, Deputy Secretary of Commerce, U.S.
Department of Commerce
Oral Statement............................................... 9
Written Statement............................................ 10
Biography.................................................... 14
Ms. Jennifer Owens, Vice President, Business Development at Ann
Arbor Spark
Oral Statement............................................... 14
Written Statement............................................ 16
Biography.................................................... 17
Ms. Roseann B. Rosenthal, President and CEO, Ben Franklin
Technology Partners of Southeastern Pennsylvania
Oral Statement............................................... 18
Written Statement............................................ 19
Biography.................................................... 24
Mr. Michael Coast, President, Michigan Manufacturing Technology
Center (MMTC)
Oral Statement............................................... 25
Written Statement............................................ 27
Biography.................................................... 62
Appendix: Answers to Post-Hearing Questions
Hon. Dennis F. Hightower, Deputy Secretary of Commerce, U.S.
Department of Commerce......................................... 84
Ms. Jennifer Owens, Vice President, Business Development at Ann
Arbor Spark.................................................... 85
Mr. Michael Coast, President, Michigan Manufacturing Technology
Center (MMTC).................................................. 86
COMMERCE DEPARTMENT PROGRAMS TO SUPPORT JOB CREATION AND INNOVATION AT
SMALL- AND MEDIUM-SIZED MANUFACTURERS
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THURSDAY, JANUARY 21, 2010
House of Representatives,
Subcommittee on Technology and Innovation,
Committee on Science and Technology,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:14 a.m., in
Room 2318 of the Rayburn House Office Building, Hon. David Wu
[Chairman of the Subcommittee] presiding.
hearing charter
SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION
COMMITTEE ON SCIENCE AND TECHNOLOGY
U.S. HOUSE OF REPRESENTATIVES
Commerce Department Programs to Support Job Creation
and Innovation at Small- and Medium-Sized Manufacturers
thursday, january 21, 2010
10:00 a.m.-12:00 p.m.
2318 rayburn house office building
I. Purpose
Small- and medium-sized manufacturers employ millions of
Americans and are an important contributor to economic growth.
The Department of Commerce (DOC) has new and existing
initiatives intended to strengthen these businesses and help
them create more jobs. The purpose of this hearing is to learn
about the challenges faced by small- and medium-sized
manufactures, as well as entrepreneurs marketing new
technology. The purpose is also to learn about DOC initiatives
to address these challenges and examine how those programs can
be made most effective for these enterprises.
II. Witnesses
LThe Honorable Dennis F. Hightower, Deputy
Secretary of Commerce, U.S. Department of Commerce
LMs. Jennifer Owens, Vice President, Ann Arbor
Spark
LMs. RoseAnn B. Rosenthal, President & CEO,
Ben Franklin Technology Partners of Southeastern
Pennsylvania
LMr. Michael Coast, President, Michigan
Manufacturing Technology Center
III. Brief Overview
Manufacturing in the U.S. Economy
Employing 11.8 \1\ to 13 million people,\2\ the
manufacturing sector plays a critical role in the U.S. economy.
The Manufacturing Institute estimates that the $1.637 trillion
worth of goods created by U.S. manufacturers in 2008 would
position the sector as the eighth largest economy in the world.
Manufacturing also accounts for more than half of U.S. exports.
And, in addition to the workers directly employed in
manufacturing, the industry also supports 6.8 million jobs in
areas from transportation to insurance. Within this sector,
small- and medium sized firms vastly out-number their larger
counterparts. Of the 286,039 manufacturers in the U.S., fewer
than 3,000 employ more than 500 workers.\3\
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\1\ The Facts About Modern Manufacturing, 8th Edition
(Manufacturing Institute, 2009).
\2\ Next Generation Manufacturing Study Overview and Findings
(American Small Manufacturers Coalition, 2009).
\3\ The Facts About Modern Manufacturing, 8th Edition.
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Even prior to the 2008 economic crisis, U.S. firms faced
increasing competition from foreign manufacturers. Between 2000
and 2007, U.S. global market share of manufactured exports fell
from 19 percent to 14 percent. During that same period, the
Chinese share of these global exports rose from 7 percent to 17
percent.\4\ An array of factors have contributed to the decline
in U.S. manufacturing. However, making progress in a number of
areas could help U.S. manufacturers become more competitive and
grow. These areas include:
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\4\ The Facts About Modern Manufacturing, 8th Edition.
LWorkforce. The National Science Foundation's
Science and Engineering Indicators show that only 5
percent of U.S. college graduates major in engineering,
compared with 20 percent in Asia. The Manufacturing
Institute reports that many U.S. manufacturers have
difficulty finding the qualified engineers they need.
It also reports that many manufacturers cannot find
enough workers with the requisite math and science
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skills necessary for modern manufacturing.
LEngaging in Global Commerce. In 2008, U.S.
imports of manufactured goods from China were seven
times greater than U.S. exports to China. The U.S.
total share of Chinese imports of manufactured goods is
only 8.2 percent, behind Japan's share at 17.7 percent.
Increased trade with foreign markets is beneficial for
American manufacturers. According to the Manufacturing
Institute, U.S. manufacturers in the most trade-
intensive industries paid their employees on average 47
percent more than the average compensation for workers
in the least trade-intensive industries. However, in a
2009 study of 2,500 small- and medium-sized
manufactures by the American Small Manufacturers
Coalition only 28 percent of respondents found ``global
engagement'' to be ``highly important.'' \5\
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\5\ Next Generation Manufacturing Study Overview and Findings
LGreen Manufacturing. In the study of small-
and medium-sized manufacturers by the American Small
Manufacturers Coalition, only 16 percent reported that
environmental concerns were ``highly important.'' The
report notes that increasingly, major companies are
requiring robust environmental standards from their
suppliers and that adopting environmentally sustainable
manufacturing practices are important to
competitiveness.\6\
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\6\ Next Generation Manufacturing Study Overview and Findings
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Commerce Department Programs
CommerceConnect
The CommerceConnect program will set up a website and
physical centers to provide a ``one-stop-shop,'' where DOC
staff can counsel businesses on DOC programs that may benefit
their operations and assist them in applying for these
programs. Potential services include guidance on exporting,
assistance applying for grants or patents, and help using
government census data to do business planning. In addition to
guiding small- and medium-sized businesses toward available
resources, the DOC hopes CommerceConnect will integrate
currently stove-piped programs and reduce the challenge of
navigating federal bureaucracy. In October 2009, the DOC opened
a pilot CommerceConnect facility in Plymouth, Michigan.
The objective of the pilot is to better understand the
needs of businesses and to develop more effective methods of
matching them with the relevant DOC programs and services.
The Office of Innovation and Entrepreneurship
To support the Administration's efforts to encourage
innovative entrepreneurship, the DOC created the Office of
Innovation and Entrepreneurship. The Office, which reports
directly to Commerce Secretary Locke, will focus on a range of
issues, including:
LCultivating entrepreneurship;
LImproving access to governmental data,
research, and technical resources for entrepreneurs;
LAccelerating technology commercialization of
federal R&D;
LIncreasing access to capital for seed and
early-stage innovation-based companies; and
LStrengthening interagency collaboration and
coordination.
The Office is also establishing a National Advisory Council
on Innovation and Entrepreneurship to advise the Secretary. The
council will include successful entrepreneurs, innovators,
angel investors, venture capitalists, and others.
The Sustainable Manufacturing Initiative
The Manufacturing and Services Division within the DOC's
International Trade Administration includes a website
(www.manufacturing.gov) that offers market information from
different industrial sectors, as well as updates from the
Manufacturing Council, and other information. One of the
focuses of the Manufacturing Portal under the Obama
Administration will be the Sustainable Manufacturing
Initiative, originally begun in 2007. A major goal of this
initiative is to help American manufacturers increase their
competitiveness by reducing waste and gaining market share for
more environmentally sustainable products and processes. As
part of this initiative, the DOC has:
LEstablished an Interagency Task Force on
Sustainable Manufacturing, as a subgroup of the
Interagency Working Group on Manufacturing
Competitiveness. The subgroup includes representatives
from 15 federal agencies.
LLaunched (in October of 2009) a central
online clearinghouse of U.S. Government programs and
resources that support sustainable business, which
includes information on 300 federal programs.
LOrganized Sustainable Manufacturing Showcases
where manufacturers tour other manufacturing facilities
across the U.S. which have successfully adopted
environmentally friendly manufacturing practices.
LSupported an Organization of Economic
Cooperation and Development (OECD) study to create
metrics for sustainable manufacturing. Phase II of this
study, to be released later this year, will be a tool-
kit to help businesses assess the cost-effectiveness of
adopting more sustainable manufacturing methods.
Manufacturing Extension Partnership (MEP) Program
The MEP program, run through the National Institute of
Standards and Technology (NIST) at the DOC, is a network of 59
centers located in every State and Puerto Rico, providing a
range of services to small- and medium-sized manufacturers. The
MEP centers advise these businesses in a variety of areas,
including Lean Manufacturing, increasing environmental
sustainability, and information technology. The MEP centers are
non-profit, university or state-based organizations which
receive one-third of their operational funding from NIST with
the matching two-thirds supplied by state funds, other regional
partners, and revenue from fees paid by manufacturers for the
services they receive. Since the early 1990s, MEP centers have
completed nearly 400,000 contracts with small- and medium-sized
manufacturers. NIST reports that assistance from the MEP
program has helped create or retain more than 57,000 jobs and
created or retained $10.5 billion in sales in 2007 alone.\7\
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\7\ http://www.mep.nist.gov/documents/pdf/about-mep/impacts/
Final_2009_Making_a_Difference%208.5_X_11.pdf.
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IV. Issues and Concerns
Through this hearing, the Subcommittee will explore the
following issues:
LWhat are the problems facing small- and
medium-sized manufacturers and entrepreneurs?
LHow will these Commerce Department programs
benefit small- and medium-sized manufacturers?
LSuggestions to improve the programs to best
support small- and medium-sized manufacturers and
entrepreneurs.
Chairman Wu. This hearing will come to order.
Good morning, everyone. I would like to thank everyone,
especially our witnesses, for coming to this morning's very
important hearing on Department of Commerce programs to support
job creation and innovation. The purpose of this hearing is to
understand the challenges facing small- and medium-sized
manufacturers, and to learn about the initiatives of the
Commerce Department which were launched to help these
businesses.
The health of the manufacturing sector is crucial to the
health of the economy as a whole. It is responsible for
creating over $1.6 trillion worth of goods in fiscal 2008. This
sector employs between 11 and 13 million Americans, and
accounts for over half of this Nation's exports. Small- and
medium-sized manufacturers play a particularly important role
in American manufacturing, representing the vast majority of
the 286,000 manufacturing firms in America.
Even before the economic crisis of 2008, these
manufacturers had to weather difficult economic circumstances,
particularly because of foreign competition. The current
economic situation has made it difficult for these businesses
to access credit. Many have had to adjust to the slowdown in
the businesses of their large customers, like the smaller firms
which supply the auto industry. These are on top of the
existing challenges small- and medium-sized manufacturers
already face, such as finding skilled workers, successfully
exporting to foreign and many times protected markets, and
keeping pace with rapid changes in technology. In the face of
increasing foreign competition, capitalizing on our strengths
in R&D is absolutely crucial. Firms that transition and
manufacture new technology, produce new services and new
products will be crucial to growing the U.S. economy.
I am glad to have the opportunity today to learn about the
pressing problems of small- and medium-sized manufacturers from
individuals who are closely connected with these firms.
Programs like the NIST Manufacturing Extension Partnership have
a proven track record of helping small- and medium-sized
manufacturing firms become more competitive and retain and
create jobs. I visited many of these manufacturers and the MEP,
the OMEP programs which help them in my home State of Oregon,
and they are indeed doing heroic work. Manufacturing jobs are
good jobs, and I hope the success of MEP can be replicated in
other Commerce Department initiatives.
Chairman Wu. I now recognize the Ranking Member, Mr. Smith
from Nebraska, for his opening statement.
[The prepared statement of Chairman Wu follows:]
Prepared Statement of Chairman David Wu
Good morning, I would like to thank everyone, and especially our
witnesses, for coming to this morning's hearing on Department of
Commerce programs to support job creation and innovation. The purpose
of this hearing is to understand the challenges facing small- and
medium-sized manufacturers, and to learn about the initiatives the
Commerce Department has launched to help these businesses.
The health of the manufacturing sector is critically important to
the health of the economy as a whole, responsible for the creation of
over $1.637 trillion worth of goods in 2008. This sector employs
between 11 and 13 million Americans, and accounts for over half of the
Nation's exports. Small- and medium-sized manufacturers play a
particularly important role in American manufacturing, representing the
vast majority of the 286,000 manufacturing firms in the U.S.
Even before the economic crisis of 2008, these manufacturers have
had to weather difficult economic circumstances, particularly from
foreign competition. The current economic situation has made it
difficult for these businesses to access credit. Many have had to
adjust to the slowdown of their large customers, like the small firms
that supply the auto industry. These are on top of the existing
challenges small- and medium-sized manufacturers already face, such as
finding skilled workers, exporting to foreign markets, and keeping pace
with rapid changes in technology.
In the face of increasing foreign competition, capitalizing on our
R&D is crucial. Firms that transition and manufacture new technology
will be critical to growing U.S. manufacturing.
I am glad to have the opportunity today to learn about the pressing
problems of small- and medium-sized manufacturers from individuals who
are closely connected with these firms. Programs like the NIST
Manufacturing Extension Partnership have a proven track record of
helping small- and medium-sized manufacturing firms become more
competitive and retain and create jobs. Manufacturing jobs are good
jobs and I hope the success of MEP can be replicated in other Commerce
Department initiatives.
Mr. Smith. Thank you, Mr. Chairman, and thank you to the
witnesses for joining us here today. Supporting job creation
and innovation at our small- and medium-sized manufacturers is
key to American competitiveness, and I look forward to working
with you toward reauthorizing the America COMPETES legislation,
Mr. Chairman.
At yesterday's hearing, we benefited from the birds-eye
perspective of our Nation's business leaders, and I am
particularly interested to hear from our panelists today on the
details.
I would like to extend a welcome again to all of you for
taking the time and sharing your expertise. I know that you all
are very busy. In this time of economic uncertainty and with
unemployment at 10 percent, there is much this Congress can do
to spur manufacturing: increasing access to foreign markets by
approving trade agreements with Columbia, Panama and South
Korea; providing long-term certainty in the tax code by setting
stable low rates and making the R&D tax credit permanent;
ensuring continued access to private capital for businesses;
and taking advantage of opportunities to develop our available
energy resources including wind, hydro, solar and hydrocarbons.
Within the purview of this Committee, we must work to keep
the United States a world leader in developing new technologies
by ensuring our manufacturers have access to the resources
necessary to spur innovation. This includes developing talent
through strong STEM education programs, providing necessary
infrastructure and leadership through NIST, the National
Science Foundation and the Department of Commerce, and ensuring
government research catalyzes private investment rather than
displacing it.
I look forward to hearing from our witnesses today and to
learning not only about the very real issues facing small- and
medium-sized U.S. manufacturers but also ways in which this
Committee can assist, whether by ensuring access to necessary
resources or getting out of their way. Thank you.
[The prepared statement of Mr. Smith follows:]
Prepared Statement of Representative Adrian Smith
Thank you, Mr. Chairman, for calling this subcommittee hearing
today to examine manufacturing innovation programs within the
Department of Commerce. Supporting job creation and innovation at our
small- and medium-sized manufacturers is key to American
competitiveness, and I look forward to working with you toward
reauthorizing the America COMPETES legislation.
At yesterday's hearing, we benefited from the bird's eye
perspective of our Nation's business leaders, and I am particularly
interested to hear from our panelists today on some of the details. I
would like to extend a welcome to all of you and thank you for taking
the time and effort to share your expertise with us today.
In this time of economic uncertainty, with the unemployment at 10
percent, there is much this Congress can do to spur manufacturing--
increasing access to foreign markets by approving trade agreements with
Columbia, Panama, and South Korea; providing long-term certainty in the
tax code by setting stable, low rates and making the R&D tax credit
permanent; ensuring continued access to private capital for businesses;
and taking advantage of opportunities to develop our available energy
resources--including wind, hydro, solar, and hydrocarbon.
Within the purview of this Committee, we must work to keep the
United States the world leader in developing new technologies by
ensuring our manufacturers have access to the resources necessary to
spur innovation. This includes developing talent through strong STEM
education programs, providing necessary infrastructure and leadership
through NIST, the National Science Foundation, and the Department of
Commerce, and ensuring government research catalyzes private investment
rather than displacing it.
I look forward to hearing from our witnesses today and to learning
not only about the very real issues facing small- and medium U.S.
manufacturers, but also to the ways in which this Committee can assist,
whether by ensuring access to necessary resources or merely getting out
of the way.
Chairman Wu. If there are other Members who wish to submit
additional opening statements, your statements will be included
in the record at this point.
It is now my pleasure to introduce our witnesses. First,
the Honorable Dennis F. Hightower, Deputy Secretary of Commerce
at the U.S. Department of Commerce. Ms. Jennifer Owens is the
Vice President of Ann Arbor Spark. And now I would like to
recognize the gentlelady from Pennsylvania, Ms. Dahlkemper, to
introduce our next witness.
Ms. Dahlkemper. Thank you, Chairman Wu, and thank you for
inviting me to your subcommittee to have the honor to introduce
a fellow Pennsylvanian. RoseAnn Rosenthal is President and CEO
of the Ben Franklin Technology Partners (BFTP) of Southeastern
Pennsylvania, and she has been so since 1996. In this capacity,
she has earned an international reputation with her development
of innovative partnerships and initiatives. With a current
portfolio of over 120 technology companies, BFTP continues to
build upon its proven track record of supporting hundreds of
southeastern Pennsylvania technology companies. Through her
leadership, BFTP partnered successfully with two of the
region's major universities, the University of Pennsylvania and
Drexel University, to create the Nanotechnology Institute.
Furthermore, BFTP's efforts in nanotechnology have become a
model for similar approaches in energy, and Ms. Rosenthal has
led her staff in the creation of new technology
commercialization models. She serves on several public and
private boards and committees. She has been active as an
advisor in state and regional nanotechnology initiatives. She
has served on several national task forces including the U.S.
Department of Housing and Urban Development and the U.S.
Economic Development Administration. It is my pleasure to
introduce my fellow Pennsylvanian, RoseAnn Rosenthal.
Chairman Wu. Now I would like to recognize the gentleman
from Michigan, Mr. Peters, to introduce our final witness.
Mr. Peters. Thank you, Mr. Chairman. It is a pleasure to
introduce Mike Coast, who is the president and CEO of the
Michigan Manufacturing Technology Center (MMTC), and I have had
an opportunity to work with Mr. Coast on numerous occasions as
we work with helping small manufacturers throughout our state.
He has been a critical part of the MEP affiliate in Michigan
for the last 14 years and has been a great asset to the
business community and manufacturers operating in our state. He
is responsible for the partnership between the Technology
Center and the Michigan Economic Development Corporation, a
partnership that has allowed the MMTC to play a leading role in
coordinating technology-related services and helping our
businesses in our state diversify. Under his very astute
leadership, he was awarded the Not For Profit of the Year Award
from Automation Alley in 2007. He comes to us with more than
eight years of technology development experience and 16 years
of manufacturing experience in addition to his work at the
technology center, so I am thrilled to have him here with us
representing us and it is really great, I may add, to have two
individuals from the great State of Michigan representing our
great state, and certainly when it comes to small
manufacturing, we face very tough challenges in our state but
also some tremendous opportunities, so thank you, Mr. Chairman.
Chairman Wu. Thank you, Mr. Peters, and I am sure that with
your leadership and Mr. Coast's leadership that Michigan is
well on its way back.
Now to the witnesses, you will each have five minutes for
your spoken testimony. Your written testimony will be
introduced into the record in their entirety, and when all of
you complete your testimony, we will begin with questions and
each Member will have five minutes to question the panel in
each round
Mr. Hightower, please proceed.
STATEMENT OF HON. DENNIS F. HIGHTOWER, DEPUTY SECRETARY OF
COMMERCE, U.S. DEPARTMENT OF COMMERCE
Mr. Hightower. Thank you. Good morning, Chairman Wu,
Ranking Member Smith, Members of the Subcommittee. I am pleased
to be here this morning to discuss the steps this
Administration and the Department of Commerce in particular are
taking to spur job creation and innovation, particularly among
small- and medium-sized businesses, manufacturers and
entrepreneurs. I have submitted my written testimony for the
record but would like to spend my five minutes highlighting
some of the key initiatives.
As you know, one of the first things that President Obama
did upon entering office was to sign the Recovery Act to
stimulate an economy that was in free fall. One year later,
although we still face troubling and unacceptable economic
difficulties, there is agreement among economists across the
political spectrum that the Recovery Act helped to stabilize
the economy and to create jobs. And with the naming of Ron
Bloom as his senior counsel for manufacturing policy, President
Obama signaled that the revitalization of the U.S.
manufacturing sector would be a key component of the
Administration's economic recovery efforts.
The Department of Commerce, we believe, is uniquely
positioned to complement and build upon the Administration's
job creation initiatives. While the Department's portfolio is
diverse, our overriding mission is to improve the
competitiveness of American businesses at home and abroad, and
to this end Secretary Locke has identified four key
departmental initiatives and priorities that will guide our
activities going forward, and they are first to boost our
country's innovative capacity, to unlock the tremendous
potential in promising new green and blue industries, to
expanding exports through trade promotion efforts, and finally,
transforming the Commerce Department into an integrated,
efficient and effective service provider.
I would like to briefly discuss a number of programs and
initiatives that support these priorities. First, Secretary
Locke has established an Office of Innovation and
Entrepreneurship to foster the creation and success of high-
growth and innovation-driven businesses and to accelerate
commercialization of federal research and development programs.
This office will also manage the National Advisory Council on
Innovation and Entrepreneurship, which will include
entrepreneurs, innovators, investors and university and
nonprofit leaders.
The Department of Commerce is also putting more resources
into programs that will jump-start American manufacturing. The
Manufacturing Extension Program, as you know, is an important
part of the National Institute of Standards and Technology, and
MEP provides manufacturers with technical assistance, training
and long-term strategic planning. The MEP program received an
increase of $14.7 million in fiscal year 2010 and President
Obama has indicated his support for ultimately doubling the MEP
funding over the next several years.
We are also in the process of reconstructing the
manufacturing.gov portal to provide smaller companies
information not only on sustainable manufacturing practices but
also a full range of manufacturing issues, and we are working
closely with the Manufacturing Council on issues of concern
specifically to the manufacturing sector. Last fall, Secretary
Locke opened a pilot CommerceConnect office just outside of
Detroit. The purpose is to provide Main Street businesses a
single point of contact, a one-stop shop, if you will, for
services that are offered by the Department. Experience gained
from this pilot, which I visited three times in the last three
months, will be evaluated as a part of our commitment to make
the Department of Commerce more useful to the everyday
operation of American companies.
These are but a few of our initiatives, and I hope you will
carefully look at my written testimony to see the full scope of
our activities.
Mr. Chairman, we certainly appreciate your support and the
support of the Members of this Subcommittee, and we certainly
look forward to working with you on ongoing job creation,
innovation and manufacturing efforts. Thank you.
[The prepared statement of Mr. Hightower follows:]
Prepared Statement of Hon. Dennis F. Hightower
Chairman Wu and members of the Subcommittee on Science and
Technology, I thank you for the opportunity to appear before you today
to provide you with an overview of how this Administration and the
Commerce Department plan to support the U.S. manufacturing sector. In
particular, I will provide an update on the actions that
Secretary Locke and I are taking to focus the capabilities of the
Department of Commerce on supporting job creation and innovation,
particularly among small- and medium-sized manufacturers and
entrepreneurs.
An Administration Focused on Recovery of the Manufacturing Sector
From the day he took office, President Obama has made exceptional
efforts to provide immediate help to the small- and medium-sized
businesses that are the source of a significant number of new jobs in
America. And with the naming of Ron Bloom as Senior Counselor for
Manufacturing Policy and the recent release of a White House
manufacturing strategy, he signaled that the revitalization of the U.S.
manufacturing sector would be the key to the revitalization of the
American economy.
As you are aware, it all began with the Recovery Act which was
essentially divided into three parts.
One third of Recovery Act funding is going directly to tax relief
for families and small businesses. Another third of the money is being
directed to emergency relief like additional Medicaid and unemployment
insurance funding for those who have borne the brunt of this recession.
The last third of the Recovery Act funding is for investments to put
people back to work and lay a new foundation for long-term prosperity.
These investments include vital infrastructure improvements like
upgrading our roads and our bridges; and renovating schools and
hospitals, as well as investments in things like renewable energy and
broadband expansion. Already, upwards of $140 million has been awarded
to communities through the Department's Broadband Technology
Opportunities Program (BTOP), which continues to fund broadband
infrastructure, public computer centers, sustainable broadband
adoption, and broadband mapping projects around the country.
Thanks to the Recovery Act, $100 billion in funding and loan
guarantees was set aside to encourage and support manufacturing in
America--much of which will assist smaller enterprises. With overall
unemployment remaining at very high levels (10 percent) and
manufacturing employment continuing to fall,\1\ I understand and share
the frustration that the economy is not getting better quicker. But we
should remember what the economy looked like at the beginning of 2009
when this Administration took office. Every day seemed to bring worse
news. A severe recession had begun, and it was at great risk of turning
into something even worse.
---------------------------------------------------------------------------
\1\ Since the recession began, manufacturing employment has fallen
by 2.1 million.
---------------------------------------------------------------------------
The Recovery Act--along with our other economic initiatives--has
begun to stabilize economic conditions and help those harmed by the
economic crisis. But the true measure of the Recovery Act and of
President Obama's entire agenda will not be determined in just a few
months. To put our economy on a sustainable path, we must make
fundamental changes like we have not seen in America for decades.
One company I met during my travels retooled equipment designed to
manufacture hulls for yachts to build wind turbine blades and take part
in the burgeoning green economy. It is our hope and intention to
replicate this kind of success with our manufacturing programs.
Focusing the Commerce Department to Better Support Manufacturing
While the Commerce Department's portfolio is diverse--from
protecting America's oceans and intellectual property to improving
companies' efficiency and opening up markets--our overriding mission is
to improve the overall competitiveness of American business at home and
abroad. The Department's diversity uniquely positions it to support
businesses and entrepreneurs through every step of their lifecycle:
from the birth of an idea, to the creation of a business, to global
expansion--and at each step, the Commerce Department contributes to job
creation and economic prosperity.
Innovation: At the innovation stage, Commerce brings tremendous
value for the U.S. economy--whether in creating a business climate that
supports the development of new inventions through the Patent and
Trademark Office, spurring innovation in manufacturing through the
Technology Innovation Program at the National Institute of Standards
and Technology (NIST), or harnessing the vast economic potential of the
digital economy at the National Telecommunications and Information
Administration--Commerce is a critical player in supporting the
creation of tomorrow's firms, industries, and jobs.
Commercialization: U.S. businesses and entrepreneurs rely upon
innovations developed through the process of technology
commercialization to develop new ideas into new products and services,
which lead to economic growth and job creation. Commerce has a host of
resources to drive this process--by exploring policies and initiatives
to foster high-growth entrepreneurship through the Office of Innovation
and Entrepreneurship, supporting regional innovation clusters through
the Economic Development Administration, helping drive productivity
through NIST's Manufacturing Extension Partnership, and helping
minority-owned businesses capitalize on their market potential at the
Minority Business Development Agency.
Global Competitiveness: Once businesses have become established,
the next stage is growth. With traditional engines of growth like
consumer spending flagging, accessing foreign markets becomes
increasingly important. The International Trade Administration, through
its Manufacturing and Services unit, interfaces with manufacturers to
understand impediments to the global competitiveness of U.S.
businesses, such as market access barriers, while its Commercial
Service unit assists businesses to expand their exports. In addition,
our Bureau of Industry and Security enables export growth in a manner
consistent with national security.
Environmental Stewardship: The National Oceanic and Atmospheric
Administration ensures that business and economic activity is
environmentally sustainable--and also ensures that businesses across
the lifecycle have the benefit of its world-class research to guide and
shape investments, particularly in the massive market potential in
green and blue commercial sectors.
Statistical Infrastructure: Commerce also includes two of the
premier statistical agencies in the U.S. Government within the
Economics and Statistics Administration. The Bureau of Economic
Analysis and Bureau of the Census track changes in the economy, which
can be critical to helping businesses of all sizes and sectors
understand their current and future markets.
Departmental Priorities
Given the diverse range of issues we confront and activities in
which Commerce is involved, Secretary Locke has prioritized his
emphasis on key areas with a focus on job creation and economic growth
in the years ahead. In each in of these areas, support for small- and
medium-sized manufacturers is a key component.
- The first priority area is in boosting our country's
innovative capacity, with a particular emphasis on intellectual
property and entrepreneurship to create a business environment
that cultivates and rewards new ideas, technologies, products,
and services.
- Second, Secretary Locke is committed to unlock the vast
economic potential of the green and blue markets by helping to
grow businesses that are based on clean energy and
environmental conservation.
- Third, we are fundamentally focused on leveraging Commerce
resources to generate growth by expanding exports through trade
promotion efforts.
- Last, Secretary Locke and I are focused on transforming the
Commerce Department into an integrated, efficient and effective
service provider in supporting business competitiveness and job
creation.
At this point I would like to highlight a few specific initiatives
that illustrate how the Department will better serve small- and medium-
sized manufacturers and entrepreneurs under these Departmental
priorities.
Office of Innovation and Entrepreneurship: Under our ``innovation''
priority, we recently established the Office of Innovation and
Entrepreneurship. In his Strategy for American Innovation, President
Obama articulated his vision for innovation, growth, and jobs: ``the
greatest job and value creators of the future will be activities, jobs,
and even industries that don't exist yet today . . .. It is imperative
to create a national environment ripe for entrepreneurship and risk
taking.'' New businesses are the primary engine of job growth in the
United States, with entrepreneurs creating approximately three million
jobs a year. Firms less than five years old accounted for nearly all
net new jobs in the private sector from 1980 to 2005.
Consistent with the President's vision, the goal of the Office of
Innovation and Entrepreneurship is to unleash the economic potential of
new ideas by removing barriers to entrepreneurship and the development
of high-growth and innovation-based businesses.
The Office will work closely with the White House and other federal
agencies to:
Encourage Entrepreneurs through Education, Training,
and Mentoring
Accelerate Technology Commercialization of Federal
R&D
Broaden Access to Capital for Entrepreneurs
Improve Access to Government Resources for
Entrepreneurs
Explore Policy Incentives to Support Innovators,
Entrepreneurs, and Investors
Strengthen Interagency Collaboration and Coordination
The Office will also manage the National Advisory Council on
Innovation and Entrepreneurship, which will advise Secretary Locke on
key issues relating to innovation and entrepreneurship. It will include
a range of stakeholders, such as successful entrepreneurs, innovators,
angel investors, venture capitalists, non-profit leaders, and other
experts on these issues.
Hollings Manufacturing Extension Partnership (MEP): MEP is a
national network with hundreds of specialists who understand the needs
of manufacturers. For the past 20 years, they have worked with
thousands of manufacturers delivering $1.4 billion in cost savings
annually and $9.1 billion in increased or retained sales in one year.
MEP provides companies with services and access to public and
private resources that enhance growth, improve productivity, and expand
capacity. We work with companies willing to invest in their future, to
make improvements in the short term, and position themselves to be
stronger long-term competitors both domestically and internationally.
In his 2010 budget, the President proposed to double MEP funding over
seven years, so its centers can expand their efforts to bolster the
competitiveness of U.S. manufacturers.
Sustainable Manufacturing Initiative (SMI) and manufacturing.gov:
Commerce is increasing efforts to encourage sustainable manufacturing
and increase access to information on sustainable practices that can
help companies reduce operating costs and help sustain or create jobs.
We are expanding the www.manufacturing.gov website to provide the most
comprehensive, and current information on issues surrounding the
competitiveness of American manufacturers and service industries.
Through manufacturing.gov, companies can access the Sustainable
Business Clearinghouse of all major federal programs that support
sustainable practices. Additionally, we are organizing and leading
tours of U.S. companies that showcase sustainable practices that can be
used by small- and medium-sized enterprises.
CommerceConnect: CommerceConnect is a signature initiative to
realize our ``more efficient and effective service provider'' priority.
We are transforming the way we engage with businesses and
entrepreneurs, allowing them to engage with a single Department of
Commerce, rather than twelve separate bureaus with their own myriad of
programs. Here is what this will mean in practice:
- If a business is involved in a cutting-edge field like
nanotechnology or developing solutions to fight climate change,
our CommerceConnect staff will connect it with our world-class
laboratories developing the standards, measurements and basic
R&D for products and services that allow new industries to
flourish.
- If a business has manufacturing facilities, we will link it
with our Manufacturing Extension Partnership, which has experts
who can come onto your shop floor and provide ideas to make
your production line more efficient.
- If a business wants to start selling its products abroad, we
will connect it with industry specialists from the
International Trade Administration, including Commercial
Service officers in any of 77 countries around the world who
will tap their local contacts to find you new customers.
Three months ago, Secretary Locke kicked off a pilot
CommerceConnect office just outside of Detroit, Michigan, to develop
best practices in how to connect with businesses both directly--through
on-the-ground experts that interact with business, assessing their
needs and connecting them with the most relevant services--and
virtually through a web presence and eventually an online tool that can
be used by businesses.
In this short three-month period, we have worked with 25
businesses, successfully connecting them to a wide range of Commerce
programs. For example, Commerce referred, Machine Tool & Gear, Inc.
(MTG) of Corunna, Michigan, to the Michigan Export Assistance Center.
MTG was assisted with their application to join a trade mission to
help. automotive suppliers seeking to develop business opportunities in
Italy. MTG's application was accepted and their company representatives
were able to participate in an automotive trade mission to Turin,
Italy, last month and will be following up on opportunities that were
discussed. Also, CommerceConnect has helped connect Vogel Industries,
located in Marine City, Michigan, to several Commerce programs, as well
as local programs and other federal agency programs that have assisted
them in registering for defense contracts, matching them with an
opportunity that has helped them start engagements with peer suppliers
involved in relevant joint ventures, and participating in an
alternative materials workshop to find areas of opportunity for Vogel
to diversify.
CommerceConnect has also made connections with businesses through
the Patent and Trademark Office, the National Institute of Standards
and Technology, the Minority Business Development Agency, and other
Commerce bureaus' programs and services. We have also reached out to
include local Michigan economic development services as well as other
federal agencies programs and services from the Small Business
Administration and the Departments of Agriculture and Labor.
In the next three months, we will continue to refine the
CommerceConnect approach and offer recommendations on the operational
construct, procedures, processes and systems for maximum efficiency and
effectiveness.
This concludes my statement. I will be pleased to answer any
questions you may have.
Biography for Hon. Dennis F. Hightower
Dennis F. Hightower is a seasoned business executive with extensive
global general management experience. His distinguished career spans
the private and public sectors, including more than 30 years of
experience in global marketing, strategic planning, operations and
international general management.
Most recently, Mr. Hightower was chief executive officer of Europe
Online Networks S.A., a privately held broadband interactive
entertainment company based in Luxembourg. From 1987 to 1996, Mr.
Hightower was a senior executive of The Walt Disney Company, where he
led multi-billion dollar enterprises as president of Walt Disney
Television & Telecommunications and president of Consumer Products,
Europe/Middle East and Africa.
Hightower has made a continuing commitment to training future
business leaders as a former professor of management at Harvard
Business School, where he focused on leadership, building emerging
markets and global general management. He has also been a guest
lecturer at business schools throughout the world including IMD in
Switzerland, INSEAD in France and the London Business School; and at
the U.S. Military Academy (Bicentennial) and the USMA Preparatory
School.
Hightower most recently served on the Boards of Directors of
Accenture, Domino's Pizza, Lightfleet (a start-up high technology
company), and privately-held Brown Capital Management. He has formerly
served as a board member of The Gillette Company, Northwest Airlines,
PanAmSat Corporation, Phillip-Van Heusen Corporation, The TJX
Companies, Inc., and as a member of the Price Waterhouse Chairman's
Advisory Council.
Previously, Mr. Hightower has demonstrated a willingness to serve
his country as a decorated Vietnam veteran and as a member of the
Defense Business Board. Hightower was a Regular Army officer for eight
years, rising to the rank of Major by age 27. While on active duty he
was awarded numerous decorations for meritorious achievement and valor.
Mr. Hightower holds an M.B.A. degree from the Harvard Business
School and a B.S. degree and honorary doctorate from Howard University.
He received the Alumni Achievement Award in Business from Howard
University in 1986, the Alumni Achievement Award from Harvard Business
School in 1992, and the U.S. Department of Commerce Pioneer Award in
1996.
Chairman Wu. Thank you, Mr. Hightower.
Ms. Owens, my apologies for not greeting you personally
earlier. You are so young, I didn't realize you were a witness.
Please proceed.
STATEMENT OF MS. JENNIFER OWENS, VICE PRESIDENT, BUSINESS
DEVELOPMENT AT ANN ARBOR SPARK
Ms. Owens. I will take that as a compliment.
Good morning, Chairman and distinguished Members of
Congress. In particular I would like to commend Congressman
Peters and Congressman Ehlers for their leadership in Michigan
and their work on behalf of our residents. My name is Jennifer
Owens and I am the vice president for business development at
Ann Arbor Spark, and I sincerely appreciate the opportunity to
testify here today.
The Ann Arbor region that I represent is uniquely
positioned with an array of assets. Our community is home to a
world-class university, the University of Michigan, hundreds of
emerging high-tech entrepreneurial ventures and established
technology leaders like Toyota, Google, Terumo Cardiovascular
Systems, the Crawley Company and Thomas Reuters. Ann Arbor was
recently deemed by a PBS segment as the life preserver of
Michigan, and even with Michigan's massive economic struggles,
our region has still remained relatively strong. Yet one of our
greatest strengths is very much at risk, our manufacturing
base. These firms are critical to the success of our
innovation-based startups that need a partner to turn their
ideas into reality. Our manufacturers can produce a new
prosthetic limb, sonar device or medical sensor that our
entrepreneurs design. Over the past three years, we have seen
roughly 4,000 manufacturing jobs lost in our county alone. The
remaining manufacturers are some of the strongest and smartest
in the world. These businesses are at their absolute leanest
with only critical employees remaining.
I visited with hundreds of these companies over the past
two years in my jobs at both the Michigan Economic Development
Corporation and Ann Arbor Spark, and the theme is all too
common. Banks are often unwilling to extend credit. The
remaining employees are taking on the responsibility of three
full-time positions, and they are all living paycheck to
paycheck, and this is why programs like CommerceConnect are so
critical. Manufacturers in crisis mode don't have the time or
capacity to seek out federal opportunities. They desperately
need someone to hold their hand through the process, open doors
for them and to essentially be an additional resource or
employee. CommerceConnect offers that support, and I commend
the Department for quickly recognizing the need and developing
the program.
However, I implore the Department of Commerce to utilize
the network of economic developers throughout the country to
take their message to manufacturers. They should not create a
new team of outreach professionals, rather educate the local
economic developers, provide them with funding to grow their
ranks and allow them to use their existing manufacturing
relationships to take those programs directly to manufacturers.
Ideally, CommerceConnect should be integrated into Michigan's
development tool kit, which regional economic development
organizations deploy for the retention and growth of companies.
The current programs offered by Commerce are very helpful
for manufacturers. Firms that use Manufacturing Extension
Partnership or the Michigan Manufacturing Technology Center in
our state have seen dramatic results. Our MEP center has been a
critical partner in helping manufacturers throughout the state,
landing roughly $300 million in new contract work.
However, Commerce cannot ignore what these firms need most
is missing: access to capital. Michigan manufacturers
throughout the state are being tossed aside by their banks and
being forced into loans with double-digit interest rates just
to keep their business afloat. Unless new programs are designed
to address the access to capital crisis, our manufacturing base
will likely be dramatically reduced.
The time to act is now. Commerce and Congress cannot study
and research new operations. CommerceConnect as well as new
manufacturing capital programs must be put into place in early
2010. Commerce must partner with economic development
organizations like Ann Arbor Spark to develop new programs and
take their existing tools directly to manufacturers. Only
through a true partnership with federal, state and local
agencies can our manufacturing base be saved.
Thank you for the opportunity to address you today, and I
appreciate your consideration.
[The prepared statement of Ms. Owens follows:]
Prepared Statement of Jennifer Owens
Good afternoon Mr. Chairman and distinguished Members of Congress.
My name is Jennifer and I am the Vice President for Business
Development at Ann Arbor Spark. I sincerely appreciate the opportunity
to testify today on this very important subject.
The Ann Arbor region, that I represent, is uniquely positioned with
an array of assets. Our community is home to a world class university--
the University of Michigan, hundreds of emerging high-tech
entrepreneurial ventures and established technology leaders like
Toyota, Google, Terumo Cardiovascular and Thomson Reuters. Ann Arbor
was recently deemed by a PBS segment as ``the life preserver of
Michigan.'' Even with Michigan's massive economic struggles, our region
has still remained relatively strong.
Yet, one of our greatest strengths is still very much at risk--our
manufacturing base. These firms are critical to the success of
innovation-based start-ups that need an established partner to turn
their ideas into reality. Our manufacturers can produce the new
prosthetic limb, sonar device or medical sensor that our entrepreneurs
design. Over the past three years, we have seen roughly 4,000
automotive manufacturing jobs lost in our region. The remaining
manufacturers are some of the strongest and smartest in the world.
These businesses are at their absolute leanest with only critical
employees remaining.
I have visited with hundreds of these companies over the past two
years in my economic development role with the State of Michigan and
Ann Arbor SPARK. The theme is all too common. Banks are often unwilling
to extend credit. The remaining employees are taking on the
responsibility of three full time positions. They all are living
paycheck to paycheck.
This is why programs like Commerce Connect are so critical.
Manufacturers in crisis mode do not have the time or capacity to seek
out federal opportunities. They desperately need someone to hold their
hand through the process, open doors for them and to essentially be an
additional resource. Commerce Connect offers some of that support. I
commend the department for quickly recognizing the need and developing
the program.
However, I implore the Department of Commerce to utilize the
network of economic developers throughout the country to take their
message to manufacturers. They should not create a new team of outreach
professionals. Rather, educate the local economic developers, provide
them with funding to grow their ranks and allow them to use their
existing relationships to take the programs directly to manufacturers.
Ideally, Commerce Connect should be integrated into the economic
development ``tool kit'' which each regional economic development
organization deploys for the retention and growth of companies.
The current programs offered by Commerce are very helpful for
manufacturers. Firms that use Manufacturing Extension Partnership or
the Michigan Manufacturing Technology Center in our state have seen
dramatic results. Our MEP center has been a critical partner in helping
manufacturers throughout the state in landing roughly $300 million in
new contract work.
However, Commerce cannot ignore that what these firms need most is
missing--access to capital. Michigan manufacturers, throughout the
state, are being tossed aside by their existing banks and being forced
into loans with double digit interest rates to keep their business
afloat Unless new programs are designed to address the access to
capital crisis, our manufacturing base will likely be dramatically
reduced.
The time to act is now. Commerce and Congress cannot study and
research new options. Commerce Connect as well as new manufacturing
capital programs must be put in place early in 2010. Commerce must
partner with economic development organizations, like Ann Arbor SPARK,
to develop new programs and take their existing tools directly to the
manufacturing community. Only through a true partnership among the
federal, state and local agencies can our manufacturing base be saved.
Again, thank you for the opportunity to address you today and for
your consideration.
Biography for Jennifer Owens
Chairman Wu. Thank you, Ms. Owens. You may take back to Ann
Arbor that as our last President was fond of saying, help is on
the way. This Congress and this Administration are working
mightily to improve small business programs so that both loans
and grants become more available for capital purposes, and this
Committee and I have been striving mightily for two Congresses
to update the SBIR (Small Business Innovation Research )
program and enhance the loans, perhaps up to $2 million--I am
sorry, the grants-so that they be more meaningful.
Ms. Rosenthal, please proceed.
STATEMENT OF MS. ROSEANN B. ROSENTHAL, PRESIDENT AND CEO, BEN
FRANKLIN TECHNOLOGY PARTNERS OF SOUTHEASTERN PENNSYLVANIA
Ms. Rosenthal. Mr. Chairman and Members of the Committee,
thank you for affording me the opportunity address you today. I
am RoseAnn Rosenthal, President and Chief Executive Office of
the Ben Franklin Technology Partners of Southeastern
Pennsylvania, one of four regional private nonprofit
organizations created through Pennsylvania legislative action
in 1982. Ben Franklin is the Commonwealth of Pennsylvania's
partner in innovation, technology and entrepreneurship, created
at an earlier time of economic recession and job loss in our
Nation. The Ben Franklin partnership mission was and is to
catalyze efforts that rebuild Pennsylvania's economy through
science and technology. Our mission is consistent with that of
the Department of Commerce's Office of Innovation and
Entrepreneurship. This office, given the appropriate resources,
presents an ideal opportunity for implementing new policies.
The CEOs of the Ben Franklin Technology Partners had an
opportunity to meet with the staff from the Office of the
Secretary shortly after the announcement was made. Since then
we have exchanged ideas around this office's emerging
priorities, which are fundamental in their support of high-
growth innovative enterprises. We are pleased to understand
that the work of this office will be informed by a national
advisory council that will bring the experience, insight and
ideas of individuals representing state and local laboratories
of democracy, as David Osborne described such efforts including
ours back in 1988.
Mr. Chairman, my associates and I applaud the Committee's
leadership for holding this hearing and hope that the message
you and your colleagues take away is that we in the nonprofit
world at the state and local levels have been commercializing
technology and seeding enterprises for many years very
effectively. We can offer concrete, practical suggestions for
redirecting existing federal dollars to update programs in
order to maximize federal investment and generate increased job
creation. I recommend the following elements be considered as
part of a framework for retooling. One, goals that are few,
clear and nonconflicting and that keep the ultimate objective,
economic growth through entrepreneurial innovation, at the
forefront; two, an approach that is less prescriptive and more
receptive to new models and allows program design to be driven
by the specific challenges and opportunities at regional, state
and local levels; three, flexibility in implementation enabling
timely response as conditions change; four, programs that focus
on reducing the barriers to collaboration and innovation; and
five, designs that catalyze institutional and private
involvement and investment over time. The goals: increasing
access to early-stage growth capital and creating effective
pathways to commercialization.
In some states like ours, funding for high-growth
enterprises and commercialization has come through state-backed
technology development programs. However, with state revenues
severely constrained, support nationwide has been cut, further
depleting capital available for innovative enterprises and
initiatives and straining local infrastructures for innovation
created over recent years. Combined with the decrease in
investment activity from among private angel investors and
early-stage venture funds, companies we seed have nowhere to
grow. The oft-described valley of death, a gap that stretches
from the need to demonstrate proof of concept through to early
revenue generation or sales, invites creative new approaches
and a retooling of existing federal programs. My full written
testimony offers some recommendations.
Finally, the new Office of Innovation and Entrepreneurship
could be funded to launch broader comprehensive regional
models. It could be the impetus for a national innovation
network with funded public-private partnerships able to develop
the integrated strategies and programs necessary to drive
innovation through the growth companies that create high-wage
jobs and to encourage multi-state partnerships able to
stimulate the growth of natural clusters. The Ben Franklin
Technology Partnership was launched in similar fashion with a
state challenge to regions across Pennsylvania.
Thank you again, Mr. Chairman, for holding this important
hearing and for the opportunity to share Ben Franklin
Technology Partners' experience in stimulating innovation,
enterprise formation and job creation. My colleagues and I
stand ready to assist the Committee and the Administration in
every way possible to advance these important goals.
[The prepared statement of Ms. Rosenthal follows:]
Prepared Statement of RoseAnn B. Rosenthal
Mr. Chairman and members of the Committee, thank you for affording
me the opportunity to address you today.
I am RoseAnn B. Rosenthal, President and Chief Executive Officer of
the Ben Franklin Technology Partners of Southeastern Pennsylvania, one
of four Ben Franklin Technology Partners created through Pennsylvania
legislative action in 1982.
Ben Franklin is the Commonwealth of Pennsylvania's partner in
innovation, technology and entrepreneurship, created at an earlier time
of economic recession and job loss in our nation. The Ben Franklin
Partnership mission was, and is, to catalyze efforts to rebuild
Pennsylvania's economy through science and technology.
Our mission is consistent with the mission of the Department of
Commerce's new Office of Innovation and Entrepreneurship. The newly-
created Office, given the appropriate resources, presents an ideal
opportunity for implementing new policies. We applaud its mission to
``. . . unleash and maximize the economic potential of new ideas by
removing barriers to entrepreneurship and the development of high-
growth and innovation-based businesses.''
The CEOs of the Ben Franklin Technology Partners had an opportunity
to meet with Esther C. Lee, Senior Policy Advisor to the Office of the
Secretary, and members of her team, shortly after the announcement was
made. Since then, we have, exchanged ideas around this Office's
emerging priorities, which are fundamental in their support of high
growth, innovative enterprises. We are encouraged that the Office will
bring together representatives from the multiple agencies whose
programs impact this important, national objective. We are also pleased
to understand that the work of this Office will be informed by a
national Advisory Council on Innovation and Entrepreneurship that will
bring to the table the experience, insight and ideas of individuals
representing national ``Laboratories of Democracy'' as David Osborne
described such efforts, including ours, back in 1988.
Mr. Chairman, my partners and I applaud the Committee's leadership
for holding this hearing and hope that the message you and your
colleagues take away from today is that we, in the non-profit world, at
the state and local levels, have been commercializing technology for
many years, very effectively. We can offer concrete, practical,
suggestions for redirecting existing federal dollars to update programs
to maximize federal investment and generate increased job creation.
The Ben Franklin Technology Partners operate as private,
independent, non-profit organizations, strategically located in four
regions of our state. We represent a diversity of cultures, span
geographies from urban to rural, and are in close proximity to
Pennsylvania's respected research universities.
For over 25 years, the Ben Franklin Technology Partners, working
both in our regions and as a statewide network, have assembled public/
private partnerships and developed models that have supported the
formation and growth of technology enterprises--from their earliest,
idea stage, through proof of concept, growth, maturity and reinvention.
Our model has helped Pennsylvania enterprises create over 25,000 \1\
high wage jobs in the years 1989 through 2008 . . . over 2,100 of those
in 2008; and we have worked to retain tens of thousands more. But,
beyond the number, our model has helped to create and strengthen the
culture for innovation and entrepreneurship in Pennsylvania.
---------------------------------------------------------------------------
\1\ 25,371 jobs created (1989-2008)
---------------------------------------------------------------------------
24,736 jobs retained (1994-2008)
2,113 jobs created (2008)
1,221 jobs retained (2008)
The Pennsylvania Economy League, a nonpartisan research
organization, conducted an independent, objective evaluation of the
economic impact of Pennsylvania's Ben Franklin Technology Partners from
2002 through 2006. It found that the Network boosted Pennsylvania's
economy by more than $17 billion. Its report documented that:
Over its history, Ben Franklin has been widely praised and modeled
by other states and countries. The network was acknowledged by the U.S.
Department of Commerce in 2008, our 25th Anniversary, with the
Technology-Led Economic Development Award. In 2009, the International
Economic Development Council named the statewide Ben Franklin program
as the winner of its Excellence in Technology-Based Economic
Development award.
Important to Ben Franklin's ability to effectively serve our
constituents has been the flexibility of our enabling legislation that
allows us to anticipate and respond to market changes and to evolve as
the needs of our communities change. Often, government-funded programs
are overly prescriptive, with multiple, conflicting goals that confuse
their purpose and cloud implementation. The Ben Franklin model charges
each region to develop comprehensive strategies for the implementation
of state resources based on the needs and opportunities of our region.
We develop approaches that attract other investment to match the state
funding, and then we assume responsibility for results, under the
direction of our private boards of directors.
Today, Ben Franklin pursues its mission of growth through
technology-based entrepreneurship and innovation by:
Seeding emerging technology enterprises that have
gone on to become leading technology employers and partnering
to create private investment pools for seed and early-stage
investment;
Providing the facilities, business and technical
advice, mentoring, coaching and the networks that help emerging
and growing enterprises thrive;
Developing new pathways to accelerate intellectual
property discovered in universities and federal laboratories to
the marketplace;
Helping existing manufacturers and research
development companies to source and fund the specific technical
and business assistance they need to move a concept to the
marketplace quickly, leveraging their existing capacity to
generate new revenues;
Working with leading technology corporations to
identify open innovation partners and approaches that can help
fill their new product pipeline; and,
Collaborating with institutions and diverse
constituencies in our areas to develop regional core
competencies into robust economic development strategies that
leverage our strengths to address regional challenges to future
growth and prosperity.
The three part philosophy that drives our actions in Southeastern
Pennsylvania is one that starts, first, with a focus on the
entrepreneur as the agent of change and economic growth. Everything
that we do is structured to assist the formation and growth of
technology entrepreneurs across all sectors. Our strategy links
Capital, Knowledge and Networks into a comprehensive framework for
regional growth.
Second, we work at the margins. With limited resources, we seek to
deploy just enough capital and support to stimulate the flow of other
public and private investment to help insure sustainability; then we
exit.
And, third, we operate through partnerships as a way to engage the
community in the business of innovation, thereby strengthening the
regional infrastructure for innovation.
The observations I share, today, are those of an economic
development practitioner who has worked for just over 40 years to
leverage and integrate public and private resources into coherent,
effective, regional growth strategies, and who is gratified to see
attention to science, technology development and innovative, growth
enterprises move closer into the mainstream of policy and economic
development agendas.
There are many federal economic development programs, tools, and
structures that seek to spur growth. However, some, designed to address
needs identified 40, 50, or more, years ago, warrant a fresh look and
some retooling to accommodate the challenges we face, today, in
assembling the assets required for sustained innovation.
The formation and growth of technology enterprises requires access
to patient capital at the very earliest stages . . . for translational
research, for pre-seed and seed capital for enterprises, for the
business and technical assistance needed by both emerging and
reemerging companies, and for the work of planning and network building
that is critical to insure returns on the public's investment. Yet,
that capital is in short supply . . . or in forms that do not quite fit
the bill.
Federally-funded research at universities is vital to technology
breakthroughs and advancement. The goal of this work, however, is not
the development or commercialization of a new product . . . or the
establishment of a new enterprise. The ``product'' of that work is the
knowledge generated. The process of transforming new discoveries into
technology that has commercial application . . . the translational
process . . . is not adequately encouraged or supported through federal
funding, nor does federal research funding support partnerships with
economic development organizations or private entities able to advance
this work. The result is that many discoveries remain undeveloped . . .
and economic opportunities are lost. With the right level and form of
federal support, organizations like ours could bridge the gap between
federally-funded university research and high-tech job creation in
order to generate a greater return on the federal investment.
The work of identifying technologies worthy of further development,
exploring the best application of any technology, and mitigating some
of the early risks in order to attract private technology developers,
are pre-competitive, technology development activities that could be
accelerated through support of public/private partnerships
incorporating market input at appropriate stages of development and
enabling organizations such as ours, and others, to partner with large
with small institutions in support of commercialization objectives.
The Nanotechnology Institute (NTI) is one such partnership. The NTI
is a joint effort of Drexel University, the University of Pennsylvania
and the Ben Franklin Technology Partners of Southeastern Pennsylvania,
funded by the Commonwealth of Pennsylvania, with the participation of
ten additional universities and research institutions. It has put in
place systems to accelerate the evaluation and further development of
federally-funded research by reducing barriers to collaboration and
partnering with private enterprises, both large and small.
A key accomplishment of the NTI is the establishment of its
innovative legal and programmatic structure within which regional
universities collaborate at all levels to promote nanotechnology
research with potential payoff in economic development. The NTI model
incorporates commercialization objectives through the expertise of
BFTP/SEP. By breaking down barriers between institutions and
disciplines, and focusing on technology transfer and commercial
outcomes, the NTI brings the best talent to bear on specific technology
areas, yielding a tangible increase in IP creation and commercial
development. The NTT's efforts in increasing the research enterprise,
linking research institutions, creating new intellectual property,
fostering a vibrant environment for new ventures, and marketing the
region nationally and internationally have been highly successful.
These activities are generating steadily, accelerating, outcomes as
measured by their ability to leverage federal research and development
funding to generate new intellectual property, technology licenses, and
new company spinoffs.\2\ The accomplishments of the NTI became the
impetus for the Commonwealth of Pennsylvania to support the creation of
the Energy Commercialization Institute (ECI), managed by our
organization, and based upon similar principles and practices.
---------------------------------------------------------------------------
\2\ NTI: 18 months 2008-2009: IP assets: 380; Licenses: 23; Spin-
off companies: 11; federal leverage: $25M.
---------------------------------------------------------------------------
The NTI and ECI operate at the earliest phase of the pre-enterprise
formation capital gap. That gap extends as new companies are formed and
seek investment capital to launch their enterprises . . . the oft-
described ``Valley of Death.''
Capital for these emerging technology innovators has come primarily
from the individual entrepreneurs themselves, often in the form of
sweat equity, and from private investors. However, particularly over
the past year to 18 months, we have seen angel investments decline as
individual investors adjust to losses in their own financial
portfolios. Several states have instituted favorable tax treatment
designed to encourage the flow of such capital into emerging, growth
enterprises. Consideration of such incentives at a national level could
stimulate the flow of private, risk capital.
Venture capital is vital to many high-growth technology
enterprises. However, the pace of investment from venture funds has
also slowed and the number of venture funds making seed and early-stage
investments has decreased. These funds are critical sources of follow-
on capital . . . but, today, there are fewer of them. In recent years,
successful repeat funds grew in size and moved further downstream,
needing to deploy larger sums of capital into later-stage
opportunities. Smaller, and first-time, early-stage funds find it
difficult to attract private capital in today's market. Even when
institutional investors were very active, they sought opportunities to
place larger sums than could be effectively invested by small, early-
stage funds. And, the funds that do exist are reserving more of their
committed capital for follow-on investments in their current portfolio
companies, understandably, and undertaking new investments selectively.
So, while venture funds remain an important source of follow-on
investment once companies reach a certain scale and achieve critical
milestones, by and large, they are not a source of investment capital
at the earliest stages of company formation and development that are
characterized by the triple threats of technology, market and
management risk.
In some states, like Pennsylvania, pre-seed and seed capital has
come from state-supported technology development programs. Over our 25+
years, the four Ben Franklin Technology Partners have seeded and
invested in more start up and early stage technology ventures than any
other similar organization in the nation . . . with investments in over
3,000 companies and technical support and service to thousands more.
The Ben Franklin Technology Partners co-invests with individual
investors and, as our companies mature, with private venture funds. In
2008, companies funded by Ben Franklin attracted $872 million of
follow-on investment.
However, with state revenues severely constrained, support for
state technology-based economic development nationwide has suffered
cuts, further depleting the capital available for innovative
enterprises and initiatives, and straining infrastructures for
innovation created over recent years. Combined with the decrease in
angel investing and the reduction in venture activity . . . companies
we seed have no where to grow.
This Valley of Death, a gap that stretches from the need to
demonstrate proof of concept through to early revenue generation or
sales, invites creative new approaches and a retooling of some existing
federal programs. I recommend the following elements as part of a
framework for retooling:
1) Goals that are few, clear and non-conflicting and that keep
the ultimate objective . . . economic growth through
entrepreneurial innovation . . . at the forefront;
2) An approach that is less prescriptive and more receptive to
new models, and allows program design to be driven by the
specific challenges and opportunities at regional, state and
local levels;
3) Flexibility in implementation, enabling timely response as
conditions change;
4) Programs that focus on reducing the barriers to
collaboration and innovation; and,
5) Designs that catalyze institutional and private involvement
and investment over time.
The core areas: 1) Access to capital and 2) Creating effective
pathways to commercialization.
Some examples:
1) The Department of Commerce Economic Development Administration
(EDA) has revamped many of its programs over the years to support
innovation . . . funding incubators and technology partnerships.
However, the resources available to it for regional strategic planning
and high-growth innovation are insufficient, may not be available on a
consistent basis, and are encumbered by regulations that limit local
creativity and ultimate effectiveness. I encourage EDA to reach out to
regional and local organizations as part of its process of continuous
reinvention.
EDA's University Center Economic Development Program could be
modified and boosted to enable the formation of ``Commercialization
Partnership Centers.'' These partnerships could bring together multiple
universities and research institutions, with regional technology
development organizations and/or private commercialization entities to
drive technology to commercialization. Unlike traditional university
centers of excellence, the Commercialization Partnership Centers would
not require up front research funding, but be structured to leverage
university expertise and resources by funding, on a cost-share basis,
commercialization engagements that produce defined outcomes. Federal
support could co-fund the engagement activity and the related technical
and business assistance.
We have found that this form of direct, targeted, assistance is as
beneficial to mature, established enterprises, who may not be
comfortable or have a history of working with universities, as it is of
benefit to emerging firms. In addition, it offers ways to extract the
often, specialized, core competencies of small educational and research
universities and partner them with other institutions to form larger,
more robust commercialization centers.
EDA has capitalized Revolving Loan Funds for over 30 years. While
they were innovative and effective tools designed back then, to provide
debt financing to existing businesses in distressed areas, they are not
a fit for today's equity-based investments in pre-revenue, technology
enterprises, that have no hard assets, and whose choice of location is
often determined by cost and access to needed technical resources. I
recommend consideration of a pilot version that updates and retools
this program as a viable source of co-investment capital, managed by
qualified, experienced, technology organizations.
2) The SBIR and STTR research-support programs are useful to
advance technology development; however, they have a limited focus on
commercialization. Many recommendations have been offered regarding
these programs. I would urge action on measures that: a) increase
funding, particularly for later, commercialization phases; b) enable
companies to enter the process at any phase; c) recognize the role of
private capital to the growth of enterprises that require significant
capital, such as in the life sciences and energy sectors; and d) insure
consistency of administration to address non-significant, yet real
barriers such as the form and source of other capital investment in
enterprises.
3) The Small Business Administration's New Markets Fund offers a
template for the creation of a New Markets Innovation Fund. Investments
in innovative, growth opportunities could be its driving principal, and
it could offer organizers the operational assistance funds needed to
support the outreach, coaching and portfolio management functions that
are time and cost intensive at the seed stage.
4) The National Science Foundation's Partnership for Innovation
Program is a creative, yet sorely underfunded and lately, dormant, tool
that provides incentives for innovative, effective public/private
partnerships. It should be brought back and updated to enable.
technology-based organizations to lead collaborative, multi-
institutional, commercialization focused efforts.
5) NIST's Technology Innovation Program that funds ``high risk''
research and solutions that address areas of critical national need and
societal challenges and that encourages collaborative industry/
university approaches is an example of a successful program reinvention
. . . but it is sorely underfunded. It could implement measures to
encourage partnerships with state technology development organizations
who can aid the partnering between large and emerging enterprises.
6) Our nation's federal laboratories have a wealth of discoveries
that can be the basis for commercial growth; however, there is no
mechanism to help absorb the local cost of transforming those
possibilities into economic opportunities.
7) And, finally, the new Department of Commerce Office of
Innovation and Entrepreneurship. It could be funded to launch even
broader, comprehensive, regional models, in partnership with states. It
could be the impetus for a National Innovation Network, with funded
public/private partnerships able to develop the integrated strategies
and programs necessary to drive innovation through growth companies
that create high-wage jobs. Special incentives could be provided to
encourage multi-state partnerships that can stimulate the growth of
natural clusters. In our region, the EDA funded the planning effort for
the Mid Atlantic Nanotechnology Alliance, one such multi-state
partnership, and efforts are underway to create Power Valley, bringing
together the region's substantial energy assets.
The Ben Franklin Technology Partnership was launched in similar
fashion . . . with a state Challenge Grant to the regions across
Pennsylvania, to organize and compete for the Ben Franklin designation
and to match the Commonwealth's investment.
Thank you, again, Mr. Chairman, for holding this important hearing
and for the opportunity to share Ben Franklin Technology Partners'
experience in stimulating innovation, enterprise formation and job
creation. My colleagues and I stand ready to assist the Committee and
the Administration in every way possible to advance these important
goals.
Biography for RoseAnn B. Rosenthal
RoseAnn B. Rosenthal, President, CEO and member of the Board of
Directors of Ben Franklin Technology Partners of Southeastern
Pennsylvania (BFTP) since 1996, has forty years of experience in
business investment, regional planning, and economic development.
Praised by regional leaders as an invaluable resource for the tri-state
area, she has earned a strong international reputation with her
development of innovative partnerships and extraordinary initiatives.
Since assuming her CEO position, Rosenthal has significantly
enhanced Ben Franklin's investment, technology commercialization, and
business service initiatives, creating initiatives that have brought
the organization national and international recognition. With a current
portfolio of over 120 technology companies, BFTP continues to build
upon its proven track record of seeding hundreds of southeastern
Pennsylvania's technology leaders in biotechnology, information
technologies, communications, advanced materials, nanotechnology and
now, energy.
Rosenthal's leadership and alliance-building attributes proved
invaluable in 2000 as BFTP/SEP partnered successfully with two of this
region's major universities--the University of Pennsylvania and Drexel
University--to create the Nanotechnology InstituteTM. Funded
with $17.8 million from the Commonwealth of Pennsylvania, the NTI has
attracted funding and support from the National Science Foundation
(NSF), the U.S. Department of Education and has leveraged more than
$110 million in federal research grants and corporate support.
Moreover, the NTI has attracted national recognition for its multi-
disciplinary, multi-institutional, research to commercialization model.
Rosenthal serves on the NTI's three-person Oversight Committee and
co-chairs a regional team that developed the Mid-Atlantic
Nanotechnology Alliance (MANA that encompasses eastern Pennsylvania,
Delaware and New Jersey to strengthen and promote the region's
competitive position in nanotechnology. Founded in 2004, MANA is the
nation's first tri-state nano collaboration. She also serves on the
External Advisory Board for the Nano-Bio Interface Center (a National
Science Foundation-funded Nanoscale Science and Engineering Center) at
the University of Pennsylvania.
BFTPs efforts in nanotechnology have become a model for similar
approaches in energy, and Rosenthal is leading her staff in the
creation of new technology commercialization models and programs in
conjunction with the state's $40 million Alternative Energy Development
Program. BFTP/SEP is a founding partner of the Energy Commercialization
Institute where Ms. Rosenthal serves as a member of its three-member
Oversight Committee.
Rosenthal has led and supported initiatives to stimulate angel
investments in early stage technology companies, including efforts
focused on women- and minority-owned technology enterprises. Most
recently, she led efforts to create the Emerald Stage2 Venture Fund, a
private fund focused on investments in early stage IT companies across
the Greater Philadelphia tri-state region. In 2007, she partnered BFTP
to develop the Building 100 Innovation Center at the Philadelphia Navy
Yard, a catalyst for the formation of new enterprises and
commercialization partnerships, particularly in the energy sector.
Rosenthal garnered 18 years of her economic development experience
at the Philadelphia Industrial Development Corporation (PIDC). As
Senior Vice President for Strategic Development at PIDC, she launched
and implemented several regional initiatives, including the Southeast
Pennsylvania Export Consortium, now the World Trade Center of Greater
Philadelphia. As a key member of the City of Philadelphia's Defense
Adjustment Team, she authored the City's $50-million Defense Conversion
Fund. She was responsible for shaping, growing and managing PIDC's
direct-lending capability from an initial resource of $3 million, to
over $200 million of direct loans to commercial and industrial clients,
leveraging federal and foundation funds for industrial and community
development. While at PIDC, Rosenthal served as Acting Executive
Director of the Delaware Valley Industrial Resource Center, the
region's NIST Manufacturing Extension Partnership center. Earlier in
her career, Mrs. Rosenthal staffed efforts in support of manufacturing
competitiveness, waterfront development and historic district renewal.
Rosenthal serves on several public and private boards and
committees. She has been active as an advisor on state and regional
nanotechnology initiatives through the National Nanotechnology
Initiative and the National Science Foundation for Small Business
Innovation Research (SBIR) and Partnership for Innovation programs. She
has served on several national task forces including the U.S.
Department of Housing and Urban Development, and the U.S. Economic
Development Administration.
Rosenthal is on the Boards of the Fox Chase Bank, the World Trade
Center of Greater Philadelphia, the America Israel Chamber of Commerce,
the Mayor's Sustainability Advisory Board in Philadelphia, and the
Greater Philadelphia Life Sciences Congress. She is on the Advisory
Committee of Emerald Stage2 Venture Fund, and numerous, regional
committees focused on technology-based economic growth and
entrepreneurship, including the Philadelphia Chapter of the national
Network for Teaching Entrepreneurship. She is active at the national
level with the National Association of Seed Venture Funds was a Board
member of the National Council for Urban Economic Development, now the
International Economic Development Council, where she helped to develop
the curriculum for its Technology-led Economic Development Course
Rosenthal has presented and consulted on various economic
development initiatives around the country and has served on mayoral
and gubernatorial transition teams through the years. Most recently,
she was a delegate to the November 2008 Small Business Financing Forum.
She has a B.A. From Temple University and in 2007 was awarded an
Honorary Ph.D. in Humane Letters from Philadelphia University. She was
presented the Early Stage East Founders Award in 2008 and the Blair
Thompson Lifetime Venture Award from the MAC Alliance in 2009. She was
awarded 2009 Champion of Small Business Award by the National Capital
Coalition in July, 2009 and will be honored with Philadelphia
University's Lifetime Innovation Award in May, 2010.
Chairman Wu. Thank you, Ms. Rosenthal. We look forward to
asking you further about your suggestions.
Mr. Coast, please proceed.
STATEMENT OF MR. MICHAEL COAST, PRESIDENT, MICHIGAN
MANUFACTURING TECHNOLOGY CENTER (MMTC)
Mr. Coast. Chairman Wu, Ranking Member Smith and Members of
the Subcommittee, thank you for this opportunity to offer brief
testimony on the impacts of two federal programs that aim,
among other objectives, to create and retain jobs in small to
mid-sized manufacturers. For more than 18 years, the MMTC has
helped Michigan manufacturers improve quality, reduce cost,
launch new products and diversity their customer base.
Nationally, the roughly 7,600 manufacturers served by the 59
NIST MEP centers credited the work of those centers with more
than $9 billion in sales, 50,000 jobs and $1.4 billion in cost
savings. The Federal Government will spend less than $125
million on MEP in fiscal year 2010. These numbers suggest that
it has been a good investment and one that should be scaled up
to have even larger impacts on the critical and struggling U.S.
manufacturer sector. In that regard, I appreciate the long-time
support of this Committee and most recently by Congressman
Peters and Congressman Ehlers to reduce the matching
requirement for MEP's federal funding at a time when many cash-
strapped states have been forced to reduce their investments in
their states' MEP centers.
MEP is the only program specifically designed to assist
small to mid-sized manufacturers and we look forward to working
with Congress and the Administration to implement the
President's campaign promise to double funding for the program
by 2015.
Last year, in response to the crisis facing two of the
three U.S.-based auto makers, Commerce Secretary Locke paid
multiple visits to Michigan, meeting with dozens of our
manufacturers, seeing how difficult they found it to access
help from federal programs even within Commerce. The Secretary
proposed piloting an effort to make those programs more
accessible and more responsive to businesses starting with the
manufacturers. We began by identifying 61 programs within
Commerce and services related to manufacturers. Next we
convened a dozen Michigan manufacturers and representatives of
a dozen federal and state program offices within the state. At
that meeting we conducted two exercises. In the first we had
the manufacturers develop a list of and then rank their most
critical needs. In the second, we had the federal program
representatives rate how well each of those needs was being
addressed by their program services.
The results made clear the manufacturers' lack of knowledge
of many of the programs and that they do not know how to access
their services, that programs are not focused on the priority
concerns of manufacturers and that the programs are often not
aware of each others' services.
Based on those findings, a pilot came to be called
CommerceConnect was established. So far, CommerceConnect has
worked with 25 companies. It has been fewer than four months
since the pilot was launched, so my remarks today certainly do
not represent a full evaluation based on hard data. However, I
believe that we can begin to draw at least four lessons that
should inform decisions about whether to launch CommerceConnect
programs in other states, and just as important, how to design
the post-pilot phase in a way that delivers the most impact at
the least cost.
First, we have learned that navigating the federal program
requires a good deal to know about what the programs actually
do. CommerceConnect needs to have permanent staff that can
invest in learning the programs.
Second, we have learned that doing case management well
requires more than just making referrals. There is a great deal
of follow-up that is needed. CommerceConnect case managers
sometimes share the frustrations of the manufacturers they
serve not being able to find personnel able to deal with the
client's request. This too has a clear implication. Each
program needs to have a designated point of contact that is
knowledgeable about its services and explicitly tasked with
addressing CommerceConnect clients' requests in a timely
manner.
Third, we have learned that the manufacturers do not
respect agency or program boundaries. A given company may need
loan support from an SBA (Small Business Administration)
program, IP protection and legal aid from an ITA (International
Trade Administration) program, and help with lean manufacturing
methods from NIST MEP program. The clear implication: staff
need to understand the full range of business assistance
programs.
Fourth, we have confirmed that there is a vital role for a
hands-on navigation function like CommerceConnect. Thus, I
would recommend that the effort continue in Michigan at
approximately its current scale. It probably makes good sense
to charter at least a few more pilots in other parts of the
country that are less automotive, less manufacturing intensive
than Michigan to get a sense of how to make federal agencies
responsive to distribution in service businesses as well as to
manufacturers. It would, though, be premature to move from a
pilot to a full-scale program. Much work remains to be done to
arrive at a design that is both effective and efficient.
Thank you for the opportunity to speak today.
[The prepared statement of Mr. Coast follows:]
Prepared Statement of Michael Coast
Chairman Wu, Members of the Subcommittee--Thank you for this
opportunity to offer brief testimony on the impacts of two federal
programs that aim, among their other objectives, to create and retain
jobs in small- and medium-sized manufacturers.
I am Mike Coast, president of the Michigan Manufacturing Technology
Center (or ``MMTC''), my state's affiliate of the NIST Manufacturing
Extension Partnership (or ``MEP''). For more than 18 years, the MMTC
has helped Michigan manufacturers improve quality, reduce costs, launch
new products, and diversify their customer base. In the past year, our
Michigan manufacturer-clients credit us with $430 million in new or
retained sales and more than 2,000 jobs created or retained, plus
nearly $50 million in cost savings. Nationally, the roughly 7,600
manufacturers served by the 59 NIST MEP centers credited the work of
those centers with more than $9 billion in sales, 50,000 jobs, and $1.4
billion in cost savings. The federal government will spend less than
$125 million on MEP in FY10; these numbers suggest that it has been a
good investment and one that should be scaled up to have even larger
impacts on the critical and struggling US manufacturing sector. In that
regard, I appreciate the long-time support of MEP by this Committee,
most recently Congressman Peters' efforts, along with Congressman
Ehlers, to reduce the matching requirement for MEP's federal funding at
a time when many cash-strapped states have been forced to reduce their
investment in their states' MEP centers.
MEP is the only program specifically designated to assist small-
and medium manufacturers, and we look forward to working with Congress
and the Administration to implement the President's campaign promise to
double funding for the program, by 2015. As much as I enjoy bringing
the news of MEP's good works to the Congress, my remarks today focus
instead on a new initiative, one that holds potential to make the
federal government's investment go further in helping American
businesses.
Last year, in response to the crisis facing two of the three US-
based automakers, Commerce Secretary Locke paid multiple visits to
Michigan, meeting with dozens of our manufacturers. Seeing how
difficult they found it to access help from federal programs, even
within Commerce, the Secretary proposed piloting an effort to make
those programs more accessible and more responsive to business,
starting with manufacturers. Secretary Locke asked NIST MEP's director,
Roger Kilmer, to oversee the pilot, and Mr. Kilmer turned to us at the
MMTC to help. He also detailed one of his senior program managers to
oversee the Michigan pilot on a day-today basis. The Commerce
Department gave MMTC $185,000 of unobligated funds to execute the pilot
program, so we did not have to pull funding away from our ongoing,
effective programs. Further funding for CommerceConnect should be
separate from and in addition to future increases in MEP funding.
Working with Mr. Kilmer, we began by identifying the 61 programs
within Commerce with services related to manufacturers. Next, we
convened a dozen Michigan manufacturers and representatives of a dozen
federal and state programs with offices in the state. (We included the
Small Business Development Center, for example, because it is the
Michigan window for SBA's loan funds, as well as offering other
services for manufacturers.) At that meeting, we conducted two
exercises. In the first, we had the manufacturers develop a list of,
and then rank, their most critical needs. In the second, we had the
federal programs' representatives rate how well each of those needs was
being addressed by their programs' services. I attach the prioritized
list of needs as voted on by the manufacturers. (We convened a second
group of manufacturers in November during a session with Commerce
Assistant Secretary Hightower, and the list and the rankings remained
essentially the same.)
The results made clear that manufacturers lack knowledge of many
programs and do not know how to access their services; that many
programs are not focused on the priority concerns of manufacturers; and
that the programs are often not aware of each other's services.
Based on those findings, a pilot that came to be called
``CommerceConnect'' was established. I stress that this pilot, while
housed at the MMTC; is not (and logically cannot be) an MMTC program.
It is an independent effort to help Michigan manufacturers navigate
among the many relevant programs in Commerce and beyond. So far,
CommerceConnect has worked with 25 companies. I understand that Deputy
Secretary Hightower's testimony describes the experiences of some of
those 25 companies.
Again, it has been fewer than four months since the pilot was
launched, so my remarks today certainly do not represent a full
evaluation based on hard data. However, I believe that we can begin to
draw at least four lessons that should inform decisions about whether
to launch CommerceConnect programs in other states and, just as
important, how to design the post-pilot phase in a way that delivers
the most impact at the least cost.
First, we have learned that navigating federal programs requires
knowing a good deal about what those programs actually do. Their
websites help, but are not enough. Only now, after nearly four months,
is the current six-person CommerceConnect staff beginning to understand
the services of just the dozen or so programs with the most
manufacturer-relevant services. This has a clear implication:
CommerceConnect needs to have permanent staff that can invest in
learning the programs. That staff will be even more effective if it has
good general business knowledge. Our pilot benefited greatly by having
three individuals; including NIST MEP's Phillip Wadsworth, with
substantial manufacturing and business backgrounds.
Second, after servicing the initial 25 clients, we have learned
that doing ``case management'' well requires more than just making
referrals. A great deal of follow-up has been needed to make sure that
clients actually got relevant assistance from the programs to which
they were referred. CommerceConnect case managers have sometimes shared
the frustrations of the manufacturers they serve, not being able to
find personnel able to deal with the client's request. This too has a
clear implication: each program needs to have a designated point-of-
contact that is knowledgeable about its services and explicitly tasked
with addressing CommerceConnect clients' requests in a timely manner.
Third, we have learned that manufacturers' needs do not respect
agency or program boundaries. A given company may need loan support
from an SBA program, IP protection advice and legal aid from an ITA
program, and help with lean manufacturing methods from NIST's MEP
program. The clear implication: staff need to understand the full range
of business assistance programs, though over time they may reach the
useful conclusion that a subset of the programs are more effective and
responsive than the others.
Fourth, we have confirmed that there is indeed a vital role for a
hands-on navigation function like CommerceConnect. Thus I would
recommend that the effort continue in Michigan at approximately its
current scale. It probably makes good sense to charter at least a few
more pilots in other parts of the country that are less automotive- and
less manufacturing-intensive than Michigan to get a sense of how to
make federal agencies responsive to distribution and service businesses
as well as to manufacturers. It would, though, be premature to move
from a pilot to a full-scale program. Much work remains to be done to
arrive at a design that is both effective and efficient.
Thank you for the opportunity to testify. I stand ready to answer
your questions.
Needs and Services Overview
----------------------------------------------------------------------------------------------------------------
Total Total
Need company provider
rating rating
----------------------------------------------------------------------------------------------------------------
Increasing productivity 88 50
----------------------------------------------------------------------------------------------------------------
Acquiring reduced-cost financing 81 36
----------------------------------------------------------------------------------------------------------------
Reducing state and/or local tax burden 76 14
----------------------------------------------------------------------------------------------------------------
Training/coaching company leaders and managers 73 49
----------------------------------------------------------------------------------------------------------------
Winning government contracts 70 39
----------------------------------------------------------------------------------------------------------------
Training the hourly workforce 70 33
----------------------------------------------------------------------------------------------------------------
Reining in healthcare costs 70 14
----------------------------------------------------------------------------------------------------------------
Developing business and/or strategic plans 65 52
----------------------------------------------------------------------------------------------------------------
Streamlining process of bidding on government contracts 65 30
----------------------------------------------------------------------------------------------------------------
Improving skilled worker pipeline 65 27
----------------------------------------------------------------------------------------------------------------
Acquiring new technologies and/or intellectual property 63 30
----------------------------------------------------------------------------------------------------------------
Winning defense contracts (as prime or sub-prime) 62 33
----------------------------------------------------------------------------------------------------------------
Addressing unfair trade policies 62 17
----------------------------------------------------------------------------------------------------------------
Identifying prospective non-automotive customers 57 52
----------------------------------------------------------------------------------------------------------------
Improving quality: reducing scrap, rework, and rejects 54 27
----------------------------------------------------------------------------------------------------------------
Translating R and D into volume production 52 33
----------------------------------------------------------------------------------------------------------------
Protecting intellectual property 52 17
----------------------------------------------------------------------------------------------------------------
Determining the causes of defective products 52 14
----------------------------------------------------------------------------------------------------------------
Increasing exports 47 26
----------------------------------------------------------------------------------------------------------------
Launching new enterprises 45 44
----------------------------------------------------------------------------------------------------------------
Improving health and/or safety 45 9
----------------------------------------------------------------------------------------------------------------
Diversifying into alternative energy 39 39
----------------------------------------------------------------------------------------------------------------
Reducing energy usage 38 25
----------------------------------------------------------------------------------------------------------------
Finding people with strong electronics skills 36 25
----------------------------------------------------------------------------------------------------------------
Instituting emergency preparedness plans 36 17
----------------------------------------------------------------------------------------------------------------
Retraining displaced employees 31 27
----------------------------------------------------------------------------------------------------------------
Certifying compliance to quality system standards 31, 25
----------------------------------------------------------------------------------------------------------------
Responding to trade-related dislocation 28 20
----------------------------------------------------------------------------------------------------------------
Imposing Buy American requirements 27 14
----------------------------------------------------------------------------------------------------------------
Modifying codes and standards to permit and reward innovation 25 9
----------------------------------------------------------------------------------------------------------------
Achieving LEED (green) certification 19 15
----------------------------------------------------------------------------------------------------------------
Reducing company's carbon footprint 14 20
----------------------------------------------------------------------------------------------------------------
Winning more orders for minority businesses 11 26
----------------------------------------------------------------------------------------------------------------
Selecting, assembling, and/or remediating industrial sites 3 20
----------------------------------------------------------------------------------------------------------------
Biography for Michael Coast
Chairman Wu. Thank you very much.
At this point it is in order to open our first round of
questions, and the Chair recognizes himself for five minutes.
I would like to ask each member of our witness panel about
your knowledge of, impressions of how well MEP programs work
with community colleges in general and how well MEP works with
especially with community colleges in helping community
colleges train for locally available jobs. My understanding is
that there was a MEP study in 2005 which found that roughly 55
percent of community colleges actually have data on what the
real training or job needs are of the local economy and adjust
their programs accordingly. Whoever wants to go first to
address that set of questions? Mr. Hightower.
Mr. Hightower. Let me start off by, one, prior to assuming
my role last August, I had run businesses for the last 35
years, mostly outside of the United States, manufacturing
operations, service operations and the like across a broad
spectrum of industries including being a management consultant
at McKenzie and Company for a number of years as well. I have
lived in Asia twice, Latin America twice, Europe twice, and I
have visited probably 90 countries over that period of time, so
I am bringing the perspective of actually having worked on the
ground. I have created companies. I have run--I have been in
the valley of death twice myself, have been on the boards of
startup companies that have gone through and made that entry
and exit from the valley including one as we talked about this
morning right in the state of Oregon called Light Fleet.
And when I think about the linkage, and I talked with Mike
a lot about this as I made a number of trips out to Detroit to
begin evaluating CommerceConnect is that there are a couple of
models that I think are instructive. One I was aware of a
number of years ago and it is very close to us here in the
greater Washington area. It is right at the University of
Maryland, Baltimore campus, Freeman Rabowski, who is the
president of that institution, was I think one of the
forefront--at the forefront and very much a pioneer in
incubator companies, how he used the research capacity and
capability at the University of Maryland to invite some 30 or
40 entrepreneurs, startup companies where they are currently on
campus. They are moving from basic research to applied research
to a level of commercialization where many of the students
involved in that research, many of the professors involved in
that research have actually been part of the startup of these
companies and have subsequently in many cases joined these
companies through their commercialization and their market
access. Right in Detroit as we were working with Mike in the
early startup phases last summer and last fall had the pleasure
of visiting Tech Town, another institution where you look at
Wayne State University, the fact that they actually have
physically moved many of their research and development and
business capability into that facility to be an on-the-ground
like so that again ideas can find their way to
commercialization. As we are looking at the construction today,
I mean only yesterday I was reviewing the final submissions for
the members of this National Advisory Council on Innovation and
Entrepreneurship and you will be interested to know, I think,
that as that list comes to its final stage after the
appropriate vetting, there are a number of universities that
are steeped in research but not only just research for the sake
of research but research with commercialization as its goal,
which again will find its way into the MEP programs and other
programs that will begin to help this revitalization of the
manufacturing sector.
And I can say one other thing, then I will turn it over to
my panel colleagues, is that the thing that concerns me the
most, as I said, I spend a lot of my time with technology-based
companies, with basic manufacturing companies, and I have spent
a lot of time in India over the last couple of years, and when
you go to Bangalore and you go through the technology and the
innovation centers there, and of course all the usual suspects
there, whether it is Siemens, Phillips, Oracle, you name it,
and they are there. What is amazing and frightening at the same
time is that as you go through and you look at what is being
done, you look at who is doing the work, these are mostly young
people who are under 30 years old with Ph.D.'s in esoteric
areas that you need a dictionary to sort of spell what it is
they are actually doing. That is the scary part because they
have reinvested in their technology. They are reinvesting in
innovation at a level that outpaces what we are doing, quite
frankly.
I mean, with the Chinese--we talked about the STEM
(Science, Technology, Engineering, and Math) programs. I want
to mention STEM. You know, The Chinese produce 600,000
engineers a year. India produces 350,000 engineers a year. We
produce 70,000 engineers a year. That is telling in terms of
what we say but where we put our emphasis, where we put our
resource, so we are looking at many of the ideas that the other
panelists have promoted already in terms of how we get a better
linkage so that we don't have to depend on DARPA (Defense
Advanced Research Projects Agency), you know, for, you know,
GPS commercialization. We don't have to depend on NASA
(National Aeronautics and Space Administration) for, you know,
how do you determine which mattress position or what level of
firmness you want in your mattress. But how can we do that
amongst the resource where we have the talent, we have the
educational capability, we have people who know how to do these
things but need the facilitation that government and agencies
such as those who are here on the panel can bring to fruition.
Mr. Coast. Mr. Chairman, in Michigan we work quite well
with community colleges, just to mention two, Macomb on the
east side of the state and Grand Rapids Community College on
the west. What typically happens is, those community colleges
go out and provide services to the local communities and the
MEP offsets another level of expertise to go work with those
small companies. Those types of relationships are in place
around the country. If you look at the MEP system nationally,
there is about 301 of those relationships around the country
right now, and 113 of those are in community colleges and there
is 188 of them with universities and colleges. So when you look
at Manufacturing Extension Partnership, that becomes--you know,
partnership becomes that one word in that relationship that we
go out and we leverage the precious dollars that we get from
the Federal Government to go out and maintain those
relationships so that we maximize our effectiveness.
Ms. Rosenthal. Mr. Chairman, let me first say that the
community college system is critically important. I would not
be here but for my start in higher education through a
community college, the Community College of Philadelphia. So I
understand the importance of community college systems. In our
area, the manufacturing extension partner and Ben Franklin and
others have come together to form a STEM compact among the
deans of engineering from colleges and universities across the
tri-state area, and through that effort there are programs that
link the community colleges into these 4-year institutions so
that there are effective articulation agreements. At Ben
Franklin years ago, we supported the effort of the Community
College of Philadelphia at that time with the Wistar Institute
to develop a model program for training biomedical technicians
that started with training at the community college and then
went on to practicans through the Wistar Institute and through
the Nanotechnology Institute. Years ago we also had a program.
I worked with Penn State and worked with others to reach into
the community colleges again and connect them up into the 4-
year institutions as their education developed. So a lot of
efforts across our region, both through the MEP but also
through other economic development organizations in the region.
Ms. Owens. Mr. Chairman, I think you are very correct that
that connection very much needs to take place and I think Mike
and his team have done a very great job connecting with their
community colleges. In Michigan, where that connection has
happened is a complementary effort where the training program
that community college may not be the most effective in
providing, for instance, lean manufacturing, Mike and his team
will come in and provide that innovation.
The challenges we have in Michigan in terms of
opportunities or job opportunities in manufacturing is,
currently there are not a lot of opportunities in our
manufacturing environment, so what we are facing is kind of a
wealth of very skilled talent that need to be retrained and
refocused in terms of their efforts, so we have developed a
program called Shifting Gears, which takes manufacturing
talent, skilled talent, and connects them with our
entrepreneurs and provides a partnership between those groups.
So it is essentially an internship for displaced manufacturing
talent who can try out the entrepreneurial climate and pair
their assets together. So I think that is something that is
very important is looking at retraining, you know, our
displaced workers in the manufacturing environment we have and
connecting them with the innovation that is taking place.
Mr. Hightower. If I can make one final comment to piggyback
Ms. Owens and also Mr. Coast's comments, particularly as it
relates to this retraining and sort of retooling of the human
capital that we are talking about, there is a real story in the
State of Washington in conjunction with our own economic
development, the people who are actually funding grants at the
community level and working in conjunction with some of the MEP
capability there as well. There was a company that specialized
in making fiberglass hulls for recreational yachts. Well, in
this environment, there aren't too many people buying
recreational yachts. This company was teetering on the cusp of
going out of business. In working with them through EDA
(Economic Development Administration) in this case and MEP, we
had them look at what were the other applications of that
technology. They are now one of the leading providers of wind
turbines, so they are now--they have taken that technology that
was sort of the old application and reapplied those skills into
a growth industry, a green industry where their current product
has been assessed by NIST as having better capacity, stronger,
20 percent more life to it, and instead of laying off and
perhaps as a second- or third-generation company going out of
business, they are stabilizing and are beginning to move in a
different direction. So we have got to find more of those kinds
of ways to not only retool but to reskill and apply those
skills.
And to Mike's earlier point about looking at areas, other
areas of opportunity, we have one model that we are evaluating
in Plymouth, greater Detroit area, but as we think about it and
we are doing that analysis now of other areas that may have
very different demographics or maybe there are regions where we
can have a center that can be pulled together to provide the
kind of activity that is being provided by CommerceConnect in
Detroit. This is where I think directionally we are going to be
heading.
Chairman Wu. Thank you very much, Mr. Hightower, and I
thank the entire panel for your very through answers to that
question.
Mr. Hightower, you point out something very, very important
about transitioning and adaptation. One of my law-school
professors was fond of talking about a major Wall Street bank,
I believe it is Chase, which started out as a small water
company 200 years ago in Manhattan, and I once heard a talk by
a Stanford Business School professor on how few companies
transition well. There is only one survivor from the original
Dow Jones 12 in the current Dow Jones Index, and I suggested to
him that he ought to study the Vatican and how it has survived
over a significant period of time, and he may be taking that
suggestion under advisement.
Mr. Smith, please proceed.
Mr. Smith. Thank you, Mr. Chairman, and again thank you to
the panel for your time and sharing of your expertise.
Ms. Rosenthal, thank you. I appreciate the work that you
do. Can you tell me once the investments have been made in new
technologies and they are ready for the marketplace and, you
know, the ball is rolling, how do you ensure that jobs will
stay either in Pennsylvania or the entire country?
Ms. Rosenthal. What we do with our investments is, there is
a provision in the agreement that requires the company to have
a significant presence in the area or in Pennsylvania, either
our specific region, or if not in our region, in the state for
at least five years once the company gets rolling. Beyond that,
we can't restrict the company. If they have to move, then we
need to negotiate a settlement with them for a clawback of the
investment that was made.
Mr. Smith. And that is for Pennsylvania as a state or the
entire country?
Ms. Rosenthal. Pennsylvania, because our funding is from
the Commonwealth of Pennsylvania so our goal is to keep
companies growing in Pennsylvania.
Mr. Smith. When you say significant presence, is there a
pretty decisive definition of that?
Ms. Rosenthal. It is going to depend on the company. You
have to understand that some of our--most of our companies are
out of the box, one person, two people, three people, so
significant for three people means two. Significant for 100
means something else. So we don't have numbers because we will
take a look at what is the company doing, where are they, what
kind of value are they creating for the state, what kind of
downstream purchases are involved, do they have a relationship
with a local manufacturer. So we take the whole into
consideration when we make that decision.
Mr. Smith. Would it be conceivable that your R&D might be
in Pennsylvania and your manufacturing might be elsewhere?
Ms. Rosenthal. It is conceivable. It is conceivable. That
is right.
Mr. Smith. Okay. Thank you.
Mr. Secretary, thank you. I appreciate your time and
certainly your impressive resume with us here today. I hear a
lot from manufacturers in my district, small- and medium size.
I hear a lot from ag producers, which in many cases are
manufacturers as well in a little different way or take the
processing of various things and they are very concerned about
various issues, and I know that the Administration's
priorities, whether it is cap and trade, health care and the
commensurate taxes included, the Employee Free Choice Act. Can
you elaborate on how those would help small- and medium-sized
manufacturers?
Mr. Hightower. Thank you, sir. I think in sort of the
larger setting, it is--I think the objective as an umbrella
would be innovation-driven scale of operation, which then leads
to sustainability, and I think it is my experience in being in
all phases of that spectrum of whatever lifecycle your company
might be in, if we are able to bring programs that intersect at
that particular need whether you are a farmer company, whether
you are a farmer, whether you are in medical devices, whether
you are in a product or service, it is bringing those resources
to bear whether we either get leverage and/or collaborative
effort, realizing that Commerce can't do it all, Treasury can't
do it all, the Department of Agriculture can't do it all but in
more of an interagency level of cooperation, and that is what
we are beginning to see and what we are beginning to actually
find that is taking hold, and as we go through, for example,
with the CommerceConnect activity, 62 different elements within
Commerce are there but we are also working with SBA (Small
Business Administration) on the capital issue, we are also
working with the Department of Labor, who have these 3,200
training centers around the country, where do you get the
pipeline, which gets to the sustainability issue, and how does
EDA, for example, work with you on figuring out what the right
strategic plan is, and a part of that strategic plan is the
scalability of the operation for long-term stability.
Mr. Smith. So do I tell these constituents of mine that
these are really good programs for them even though they are
opposed to those programs?
Mr. Hightower. Well, here is what I found. I have found as
I have gone around companies that national pride trumps
whatever their particular local political persuasion might be,
and I say that gingerly and with great respect because it
doesn't really matter when you are working 100 hours a week or
you have a payroll to meet and the bank has changed the
coverage ratios on you, it really doesn't matter. What you are
concerned about is whether you can finance your inventories,
whether you can feed your family, whether you don't have to put
a second mortgage on the house, and many of the young
entrepreneurs that I have been talking to as I go out into
where sort of the rubber meets the road, that is what they are
concerned about, and the extent to which we can bring these
kinds of services and resources to bear will help, I think,
that issue, and I think that is where we have got to find the
right intersections and programs that work that when we say it
is going to be delivered, it is delivered and we are there to
follow through for the sustainability because it doesn't make
any sense to put all of the effort in to something that in
three months from now or six months from now they are either
worse off than they were before or maybe not in business.
And what I found too is that many of these companies that I
speak with are second, third, fourth generation owners. They
are really committed, and it is one thing that whenever I have
lived outside of the United States, it was very difficult
getting foreigners to understand that the United States is a
collection of small towns and communities. It is not Boston,
New York, Chicago, D.C., Philadelphia, L.A. It is small
communities where you are a part of that community, a part of
the fabric of that community, and that is where we have to get
these programs down to the man or woman, the family business on
Main Street that provide 95 percent of the jobs in this
country. It is not the Fortune 1000. It is these 95 percent
that really we have got to find the best ways and the most
effective ways to touch.
Mr. Smith. When you speak of individual workers then, can
you elaborate maybe on how the Employee Free Choice Act would
help enhance opportunities and competitiveness for small- and
medium-sized manufacturers?
Mr. Hightower. Actually, I am not prepared to talk about
that today but I do have some points of view on that which I
would be happy to talk with you but I am not prepared in terms
of formal testimony to talk about that today.
Mr. Smith. But are you working and advocating for the
Employee Free Choice Act?
Mr. Hightower. Yes.
Mr. Smith. You mentioned generational transfer of
businesses and so forth, and I appreciate that because that is
a reality--
Chairman Wu. Mr. Smith, perhaps you could save your next
inquiry for the next round of questions, unless they relate to
your current set of questions.
Mr. Smith. I was following up on some remarks of
generational--
Chairman Wu. Please proceed.
Mr. Smith. Thank you.
It is very concerning to me on generational transfer when
it comes to the death tax, and can you tell us--I know that we
are in a bit of limbo with death tax and its amounts and the
transition here. Can you tell me what the Administration is
doing in terms of advocating for a rate or a compromise or
something to that effect?
Mr. Hightower. My direct answer is, no, I can't, but I can
tell you as the son of an entrepreneur who died nine years ago,
there are issues that, you know, strike one personally as
opposed to the academic approach to this and, again, but that's
not again in my area of expertise at all.
Mr. Smith. Okay. I think I will save questions for another
round. Thank you.
Chairman Wu. Thank you, Mr. Hightower. Thank you, Mr.
Smith.
Mr. Hightower, you are obviously someone who has operated a
business and know business very, very well. Let me take a crack
at answering some of Mr. Smith's questions, since what we do
around this institution is politics but try to bring this back
to a policy discussion somewhat. The interesting thing about
green energy and clean energy is that it is a straight transfer
payment from one sector of the economy to another and one that
results not only in bringing externalities in but it also makes
us more competitive internationally. I came to this conclusion
in visiting a business in my own community which makes fume
hoods, and they are anti-regulation, they are anti-tax, they
are anti-government, but it is also the case that their entire
business is predicated on EPA (Environmental Protection Agency)
regulation, and without that EPA regulation they would have no
business, and their revenues are derived from payments made by
other American businesses and they also export their products.
That industry is created by EPA regulation. It makes our
environment cleaner and it creates jobs in my home State of
Oregon, and yes, it does cost a manufacturer somewhere else. It
forces Burger King to clean up its exhaust fumes.
Number two, health care. No one thinks of health care as
related to the American economy. David Kennedy, a historian at
Stanford University, argues very persuasively that the programs
of the Franklin Roosevelt Administration are responsible for
the post-World War II prosperity of America in the following
way. Without Social Security, without unemployment insurance
and without access to housing, individuals would be much more
risk-averse because they have no safety net. By empowering
individuals to take risks, by empowering individuals to move
from place to place in America, we created a more efficient
economy in addition to a more humane society. The Employee Free
Choice Act is a realignment of power between employees and
employers. Under the prior Administration, rapacious capitalism
became prevalent rather than a working market economy. It is
time. There have been generations during which employees have
been denied their rights of association by very skilled
consultants and employers who are not as publicly spirited as
Mr. Hightower. No matter what one's views are on the individual
requirements of the Employee Free Choice Act are, it is a
realignment which is probably helpful.
And finally, let me address the inheritance tax, which was
first created by Abraham Lincoln, endorsed by Theodore
Roosevelt, and which prevents the creation of a permanent
economic plutocracy in our society. I work with small
businesses. I help create small businesses. I try to get folks
like Mr. Hightower to be my clients. The most important factor
in generational transfer of businesses is not the inheritance
tax, it is having a next generation in the family which is
willing and capable of taking over the business.
Mr. Peters, five minutes.
Mr. Peters. Thank you, Mr. Chairman. I thank you for the
panelists as well. There has been a very interesting discussion
here related to manufacturers.
Mr. Coast, I want to get back to the MEP, and as you know,
the full Science and Technology Committee is working on the
America COMPETES Act, which there will be reauthorization of
MEP as well in that process. I want to get a sense from you,
one, some of the challenges that you see for the MEP program in
the coming years. I know you mentioned the financial ones, and
perhaps you could flesh out a little bit some of the challenges
that we have, particularly in Michigan but in other states that
are also seeing a state match, which is why Mr. Ehlers and I
have sponsored a bill dealing with that. If you could talk
about the ramifications of that bill with the MEP program and
some of the challenges that you will have going forward and any
suggestions that you may have as to how we can make the program
even better.
Mr. Coast. Thank you very much. When you look at--I was
surprised last week. We went to a national meeting in Utah with
all of the center directors, and as this Committee knows, there
are 59 centers around the country, and I was surprised when we
sat down and talked to all of the centers, we found out that
about ten of those centers, their state funding at this point
had stopped. That means that 49 obviously of the other centers
are in trouble. And when you take a look at that, the services
that we go out and provide the small to mid-sized manufacturers
are going to be in trouble because centers are going to start
to cut staff because they won't have some of those precious
dollars.
And so with the bill that you are going to put into place
is going to allow us to go out and reduce the match and it goes
from 33 percent to 50 percent. That will allow the MEP centers
to continue to go out and provide those services to the
manufacturers. There are states that are around the country
right now that have literally none. I mean, Illinois does not
have any state match, California doesn't, New Jersey doesn't.
We can certainly provide you a list of those, a more
comprehensive list, but it is fairly typical, but as states go
through this type of budgetary issues right now, that those
numbers are going down, ten percent cuts, 50 percent cuts. And
so the system is fragile, in my humble opinion, right now and
it needs that federal investment to go out and continue to help
those manufacturers. As Deputy Secretary Hightower said, the
vast majority of manufacturers you there are the small
companies. You know, there is 330,000 small to mid-sized
manufacturers, you know, in America. Eighty-five percent of all
the manufacturing is out there in those small companies. And so
when you are looking at what the MEP system does, that is what
we do. We go out and we provide that kind of assistance to help
them pick themselves up by the bootstraps and stay in the game
and employ people.
Mr. Peters. Thank you.
Mr. Hightower, maybe you can comment on some of that as
well, that you have got those states in the case of Michigan,
for example, where the services of MEP and other support for
manufacturers is most critical. In fact, as you know, most of
the manufacturing jobs that have been lost in this country and
hundreds of thousands but the vast majority of them have been
in one state or concentrated in a group of states. What is the
sense of the Commerce Department to help out those states that
are being hit the hardest and yet their small manufacturers are
in the greatest need?
Mr. Hightower. Thank you, sir. I think what is often missed
when we think about the tremendous impact that Michigan has
felt is that we have to also look at it from the supply chain
aspect. You look in the old days when I was doing work in the
auto industry, every one job meant maybe 10 to 12 additional
jobs. Well, that is probably double now in terms of the supply
chain implications. So it is not just concentrated, as you
certainly know, in Michigan. You still have Ohio, you have
Pennsylvania, you have as far out as California, you have
Texas, you have South Carolina, North Carolina where other
elements of that supply chain have expanded. So I think one of
the things that we have been thinking about and we have
certainly talked, you know, to Mike about this and are going to
continue is that as we think about these regional programs such
as the one Ms. Owens has with Spark--I was in Detroit about a
month ago talking with one of the southwest regional councils
there about how one of the other agencies, the Economic
Development Agency, has been working with them to help them
with their strategic planning process of how that region or
that subset of the southwestern extension of Detroit, how will
they come about and come around. There are other centers that
we are looking at through EDA particularly in conjunction with
CommerceConnect to figure out where, one, that effort should
be, and what the nature of that service or resource, where are
the opportunities for public-private partnerships and other
strategic alliances, where as the Innovation and
Entrepreneurship Advisor Council gets underway, how do we get
those former small company startup entrepreneurs who are now
successful, how do they reach back and sort of climb to go back
into those communities to help figure out what the right plan
is, how to get that capital, how to get you kick started if you
have already gotten to the point of commercialization, then is
there an export opportunity. It is bringing again that full
range of services to bear, and we are actively looking at other
areas that those kinds of services can be provided to begin to
look at the effect of that one particular industry called auto
and the supply chain impact that it has had in areas that
heretofore had not been really fully appreciated.
Chairman Wu. Thank you very much, Mr. Peters.
We are going to recognize all the Members of the
Subcommittee first and the we will proceed to non-Subcommittee
Members. Mr. Garamendi, five minutes, please.
Mr. Garamendi. Thank you very much, Mr. Chairman, and thank
you for your comments.
Years ago, back in the early 1980s, California was faced
with heavy-duty competition, and I was then chairman of the
joint science and technology committee in the legislature. We
undertook a study and we came out with six things that needed
to be done to maintain the competitiveness of then the
California economy. First was education, much of what was
discussed yesterday by the full Committee, and I note that the
witnesses which represented the major manufacturers of this
Nation were unwilling to really put their money where their
mouth was, that is, to invest heavily in education. All the
talk in the world about STEM, all the talk about the need for
scientists, engineers and the like is of no value unless we are
willing to pay for that crucial investment. I appreciate the
testimony of Mr. Hightower this morning, once again pointing
out that need. But again, it takes money to do this and
apparently America is not willing to spend its vast resources
in this critical way. The second thing we talked about was
research, which will undoubtedly be a subject that we will pick
up in later hearings. The third was manufacturing. The fourth
was infrastructure and then the fifth was international and
finally ending with the critical word called change. We have to
be willing to change.
Let us focus on the manufacturing here for a while. Bottom
line, it takes money. There are wonderful networks out there.
That issue of coordination of all of those networks, some of
which were discussed by our witnesses today and even more are
critical and I would recommend that we spend some time really
looking at the issue of coordinating all of the resource, state
and federal, private, on the interrelationship and the
necessity of coordinating those. But my issue here really goes
to money once again. There is a lot of talk around these
buildings about making money available. Some of it is called
direct lending by the Federal Government. What I would like to
focus on is the indirect lending, that is, loan guarantees, the
Small Business Administration and other loan guarantee
mechanisms. So my question goes to Mr. Hightower and then to
the other witnesses. Let us talk about loan guarantees,
otherwise known as leveraging the federal dollar, using the
existing private sectors. What do we need to do to really
maximize the availability of money to entrepreneurs,
manufacturers so that they can once again have money to carry
on their businesses? Mr. Hightower?
Mr. Hightower. Thank you. My view on this comes from again
speaking with those companies as we travel throughout the
United States who are suffering from the relative inability to
access what has been granted. Part of it I think is a function
of the will to put the money at the local levels, the small
banks, and not change the ground rules. If I have heard it
once, I have heard it at least 50 to 80 times, that is as many
companies that I have spoken with a cross-section across the
United States, and that is, they know what has been granted,
what has been authorized, whether it is from SBA or other
funding sources. They know that the banks are getting it but
they are saying it is not getting to us. To the extent that it
gets to us, the rules keep changing on us in a setting where
revenues are down, operating margins are low to nonexistent,
profit margins are negative, why do the banks, my local bank,
why do they impose a different coverage ratio on me than I had
in the good times? So it is a double whammy. It is almost a
triple whammy. So unless we can figure out how to enforce the
grant-making process, because I am more of a grant maker than a
direct--I don't think that is the government's role. But the
granting and the loan guarantees and the applauding of moving
those guarantees from 75 to 90 percent is fine but it is not--
it doesn't mean anything if the money doesn't actually get down
to the areas where it is needed.
Mr. Garamendi. If I might just hone in on that or drill
down, which is the current word, I talked yesterday to the
former president of the National Bankers Association about this
issue and he was saying that there are two problems. One, he is
in a bind. He continues to be a banker in Georgia. And he said
I'm in a bind, I want to make the loans but the oversight
agencies keep coming down on me about the requirements, part of
what you talked about here. It seems to me that the loan
guarantee program should give those federal regulators, bank
regulators, a high level of assurance that that loan is going
to be paid off if not by the company, then by the Federal
Government. So we have a problem here with the regulators and
the bankers. He mentioned the other problem being the SBA is
almost impossible to deal with. Their mechanisms for giving a
loan or for--not giving but underwriting a loan is obtuse,
complex, constantly changing, and if streamlined, he would be
in much better shape to make loans that are guaranteed by the
Federal Government, 90 percent or whatever. I would recommend
90 percent. The remaining 10 percent, he can put on his books
and be responsible for and the federal regulator would then say
oh, okay, let us move forward. We have to make the money
available. Otherwise this is just a lot of talk.
Ms. Owens. I agree with you completely and I think the
money has to be available. The issue with our manufacturing
base is they aren't bankable so, you know, they are continually
losing profits. Their assets, their equipment is valued at a
quarter of what their loans are. So banks are in some cases
making a smart decision because it is not a good risk for them.
So if these manufacturers want to move forward, we have to look
at other options outside of the banking community or provide
some type of way to allow banks to be able to take that extreme
risk, because it is an extreme risk.
Mr. Garamendi. That is what the loan guarantee is all
about, isn't it?
Ms. Owens. But I still have--I have companies who look at
SBA loan guarantees and cannot find a banking partner who is
willing to do that even with the program right now. It is
intended to do that but I still find very much in Michigan
financial institutions are not trusting in our automotive
sectors or any manufacturers at this point.
Mr. Garamendi. I think that comes back to the issue of the
regulators on the back of the banks and setting down
regulations that do not take into account the loan guarantee,
picking up 90 percent of the risk.
Ms. Owens. Right, and I actually have a small business that
was started because of an SBA loan guarantee about four or five
years ago so I think the program can work, but I think the
automotive sector is so different right now that the loan
guarantee program just, either the banks aren't educated or
they are not willing to take that risk for our manufacturers.
Mr. Garamendi. I notice my time has long since expired so I
will pass it off, but with one final comment. It seems to me
that if we are going to deal with manufacturing in the small-
and medium sector, it is all about money. They have to have
access to money, and there is something terribly wrong here.
The loan guarantee seems to me to be the best way to proceed
and then to couple that with administration modifications at
the regulatory system to take into account the significant
reduction in risk to the bank or to the lender and the process
that is necessary even to go through all the paperwork. I think
we have to hone in on that. The rest of it is just a lot of
talk. Thank you, Mr. Chairman.
Chairman Wu. Thank you, Mr. Garamendi.
The gentleman from New York, Mr. Tonko.
Mr. Tonko. Thank you, Mr. Chair.
Ms. Owens, you deal with a number of companies and we have
had a very difficult economic period over the last several
years, and I am certain there are success and failure stories
that are part of the networking that you have done. Can you
tell us, are there any bits of information you can share
concerning those success stories, why they have endured, how
they have made it through a tough cycle and is there anything
we can learn from them as an example?
Ms. Owens. I think the manufacturers in particular who are
willing to recreate themselves to learn, to discover new
industries and opportunities, to take amazing risks have been
successful in Michigan. We have an array of small manufacturers
in Washtenaw County in particular who are 100 percent
automotive and have now transitioned fully to other industries
or 20 percent into automotive but how they have done that is,
they have taken tremendous risk. They mortgaged their homes,
they mortgaged all their assets, they have taken in Mike Coast
and the MEP center and welcomed them with open arms, all the
opportunities that are available. They have used the
procurement technical assistance centers, which are a wonderful
resource, so they are willing to take that risk and take the
education.
Secondly, I think for manufacturers today, a lot of them in
the auto industry have lost the ability to sell and market
their products and so they have been essentially order takers
who just kind of waited for the orders to roll in. The
manufacturers have invested in sales and marketing and can
recreate themselves for the other industries. Marketing the
auto industry is very different than marketing to the medical
device industry. Those are the ones that have been successful.
There are many manufacturers who kind of dug their heels in,
have seen the auto industry go up and down and are just waiting
for the phone to start ringing again. Those are the businesses
that have closed. The ones who have taken extreme risk, offered
all the help and assistance provided by the state and the local
government are the ones that have been successful and have been
able to diversify.
Mr. Tonko. Have any concentrated on export opportunities?
Secretary Hightower.
Mr. Hightower. Yes, in fact in Michigan there is a company
by the name of Vogel Industries, a precision machining supplier
which at one point was about $140 million company with 425
employees, which in the last couple of years is now a $6
million company with 35 employees. When they came to Mike's
operation and we worked with them in coordination with the
CommerceConnect pilot, we introduced them to the export
assistance center to find opportunities for export, and we also
introduced them to the Department of Energy to apply for a
grant which will now help them to develop an alternative-energy
product so again it is that transition issue and providing the
way that if they get this, which we think there is a fair
chance they will get the alternative-energy grant, this will
actually mean reemploying 250 workers. So the more and more we
find those kinds of companies and work with them on that
transition process, this is where I think we are going to get
the payoff for these kinds of programs.
Mr. Tonko. Are there--Mr. Coast. I am sorry.
Mr. Coast. If I might follow up on that, I have got two
examples of companies that we have worked with. One is a screw
machine company. They used to make parts that went into the
Chevy Roadster. If you know anything about the Chevy Roadster,
you know that it is now obsolete. And they had 25 employees. We
helped take that company, that particular company from making
parts for that roadster. They now make parts that go into a
prosthetic leg. And the good news is, there are still 25
employees there. So they still have those folks. Another one
happens to be in Congressman Peters' district, which is non-
automotive, and the company is called Total Door, and they have
made a complete transformation. So when you start to look at
this particular company, they moved from one facility. They
used to have 12 12 wood beams in it, completely transformed
themselves and went into another building and they have product
flow that is in place now and they are competitive. And when
you take a look at what they have done with technology, they
have also used some of the current technology, off-of-the-shelf
technology that is out there. They used to paint doors. And so
now what they have is a way--and when you paint doors, in the
old days you had a lot of fumes, VOCs (Volatile Organic
Compounds), that kind of thing. Well, now they paint the doors
and they cure them with ultraviolet light, and so when you
start talking about green technologies and off-the-shelf
technologies, that is another example of those opportunities
that are out there for these companies so they can go do this
kind of work.
And back to a point Jennifer made is that the companies--I
can give you dozens of examples of companies that will show up
to a bank with an order in hand, an order in hand for $10
million but they can't get a loan from the bank to go buy the
materials to make the product. You know, I am not sure--I am an
old manufacturing guy, okay? And so I am not sure about all the
intricacies of how to move that money down the supply chain.
TARP (Troubled Asset Relief Program) money might be a
possibility. I don't know. But I know it is not getting down to
the small guys, and they have--once again, they have orders in
hand. You want to bring people back off unemployment? Give that
guy, a stamper in Detroit, access to that capital and he will
bring 30 people off of unemployment tomorrow.
Mr. Tonko. Creatively speaking, what would be the best
option to provide for that economic need, for that cash flow,
that businessperson needs?
Mr. Coast. Well, the SBA in Michigan, I don't know about
the other states but we work real well with the one in
Michigan, and they are somewhat constrained sometimes because
they are backing up--the company has to go to the bank and then
the SBA will back up the loan, and that seems to be a
bottleneck. So we have had good experience with the SBA in our
state. It is just a matter of trying to figure out banks that
will go out and lend to companies, and the automotive guys.
That is another huge issue because you have automotive--we do a
lot of market diversification with companies and so they are
automotive and so you want to move from automotive into
aerospace, wind turbine, you know, defense but they want to
make the transition. They go to the bank and say you are
automotive, red-lined.
Mr. Tonko. Ms. Rosenthal, you were going to respond to
that?
Ms. Rosenthal. Yes, please. In Pennsylvania, the companies
that we work with are both startups for which, back on the
issue of debt or guarantees, has no bearing. It is just totally
irrelevant. In terms of companies that are reinventing
themselves through the commercialization of a new technology,
what we will do is provide them capital on a joint basis so
they can take those steps that are highly risky. We wouldn't
expect a bank to lend against those kinds of needs. We can help
capitalize the company to move that product, that technology
into the marketplace in a very--in an equity-like--with an
equity-like vehicle. We don't want it to look like debt. We
don't want to burden the company with that debt but we are
taking the risk with the company and hope to get the reward
downstream. So sometimes I have worked with debt programs and
guarantees in my career. They are not necessarily appropriate
for a company that is taking a high-tech risk and so we have to
find other ways of creating vehicles that are more equity like
than debt like.
Mr. Tonko. Thank you.
Mr. Chair, I think I have gone well beyond my time so I
appreciate your tolerance.
Chairman Wu. We have a soft gavel in this Subcommittee.
Mr. Tonko. Dr. Ehlers, five minutes.
Mr. Ehlers. Mr. Chairman, I am assuming the soft gavel
because I have been sitting here watching all the minutes
accumulating elsewhere. But in any event, first I want to
commend Mr. Garamendi for his comments and say we have faced
exactly the same problem in Michigan. We have the highest
unemployment in the country. We are probably-California is in a
race with Michigan to see who can reach the bottom first, but
we face the same problem, and the loans, it is a problem. It is
right. The federal regulators come into the banks and say you
need more assets on hand to meet your responsibilities and so
they don't have the money to loan.
Mr. Coast, I had the identical situation with one of my
manufacturers. He needed a $750,000 loan just to buy the
equipment for--pardon me--to buy the parts and so forth that he
needed to manufacture the machine and could not get a loan
anywhere, even though he had the firm orders in hand from
reliable companies. Loan guarantees may be a good approach for
that particular part of it.
But let me get back off that a bit and get to the broader
question, which involves the Congress as well as the
Administration, and Mr. Hightower, or Mr. Secretary, I
certainly commend you for the comments that you have made and
the experience that you have. I don't want to irritate Mr.
Smith, who represents highly agricultural areas, and I am not
trying to denigrate agriculture in any way. Most of my
relatives are farmers. But I find it striking, we go back to
1880, 80 percent of the workforce in this nation was in
agriculture and we had an agriculture department, a very
important department. Today, roughly 2 percent of the workforce
is in agriculture and we still have the same agriculture
department. Cooperative Extension Service has been marvelous
throughout the country. It really established agriculture and
helped them, and I certainly don't denigrate that. I think it
is wonderful. But today we need a Manufacturing Extension
Partnership, and I have fought hard for MEP and for its funding
every year, and I think it is nonsense that the Congress and
the Administration over the years has maintained $400 million a
year for the Cooperative Extension Service in agriculture, and
that is fine. They need it. It is well worth it. But at the
same time, manufacturing has 15 percent of their employees in
the country and I had to fight like mad just to keep the
funding constant for MEP. Every year was a battle, and I
appreciate Mr. Peters offering this bill. That is going to
help, if we can get it passed. But when Joe Nolenburg was here,
the predecessor for Mr. Peters, he was on the Appropriations
Committee and he and I worked very hard every year. About the
best we could do is just maintain the level of MEP, not even
keeping up with inflation. We have to change our attitude in
the Administration and in the Congress about programs such as
MEP. We know it works. Why don't we fund it appropriately for
the number of workers in that field?
I do want to add another factor, and, Mr. Hightower, that
is why I appreciate what you are doing. But more needs to done
in the Department of Commerce. Again, I fought for a number of
years to have a deputy secretary for manufacturing within the
Department of Commerce. We should have it. We have an entire
department in agriculture and I couldn't even get one position
for manufacturing in the Department of Commerce. What I did get
was the creation of the council that Mr. Fred Keller from my
district has so ably chaired, and they have done marvelous
work. But we need greater infrastructure within the Department
of Commerce to deal with manufacturing. You don't have the time
with all of your responsibilities to devote full time to
manufacturing. There should be someone in roughly your position
that deals entirely with manufacturing. And so I hope that the
Congress and the Administration can work together to put more
emphasis on manufacturing. I don't put it in your hands, Mr.
Secretary, because you have got enough to do, but the Congress
working with the Administration should create an infrastructure
within the Department of Commerce that recognizes the
importance of manufacturers and manufacturing and does provide
the funding and the administrative ability, the sufficiency
that they can really tackle the problems of manufacturing in
this country. They do it in other countries. That is why they
are beginning to beat us hollow.
I have the bad habit of falling into a preaching mode
because my dad was a preacher, but this is one area I feel very
strongly about and I will be happy to preach to anyone about
the importance of manufacturing and what we should be doing.
The MEP should be at least close to the $400 million a year we
spend on the agricultural Cooperative Extension. I could easily
argue it should be double or triple that. And I don't mean to
lower agriculture's. It is beautiful. It works. Why not
transfer that model fully over to manufacturing and the
Department of Commerce and make it a higher priority?
Mr. Hightower. Yes, sir. Thank you for your comments. We
have made a little bit more progress since your last awareness
that we do now have an assistant secretary who does focus only
on manufacturing and services--she just had her hearing just
before Christmas--and again, working now very closely with Ron
Bloom from the White House on these issues. I think it just
sort of gets to your point of the focus and putting the
resources behind it. So yes, there is a lot more to be done but
at least we do have someone at a level from a policy standpoint
and with background in that area. She happens to come from
Detroit, so she does understand the issues and I think will
make a tremendous contribution once she is confirmed.
Mr. Ehlers. Well, we will see if this all results in more
manpower and more money for the project. I commend you for what
you are doing. I am just saying you have got support here in
the Congress.
Mr. Hightower. Thank you very much.
Mr. Ehlers. We have to work together on it so that we are
trying to achieve the same objective. I notice Mr. Garamendi
has moved on here so apparently he is going to join the
Republican Party. Thank you very much.
Mr. Coast, you had a comment?
Mr. Coast. I do, and at the risk, if you will, of sounding
self-serving, if you want to make an impact, get those precious
dollars you are talking about out into the MEPs and to the
centers and the results will be feet on the street, create
jobs, work with the companies, they hire people. So I know it
sounds self-serving. But you have a shovel-ready program in
place now.
Mr. Ehlers. Well, but--
Mr. Coast. We just need more engineers and more
manufacturing specialists out there.
Mr. Ehlers. Let me just say that don't worry about being
self-serving. That is the only way you will get anywhere in
this city. We expect you to be self-serving.
Also on the issue of loans, you mentioned TARP. It is very
frustrating, and I have tried to work with the Administration
on this too. It is very frustrating that we bailed out the
banks, the big banks, and none of that money is coming down to
the small manufacturers, the local communities, and loan
guarantees are wonderful, that would be great, but I would like
to see the TARP reimbursements allocated as they come in,
allocate them to this particular field. Manufacturers
desperately need to be able to borrow the money.
With that, I will yield back, Mr. Chairman.
Chairman Wu. Thank you very much, Dr. Ehlers.
Mr. Garamendi, please let me know if this is a permanent
move for you.
And Mr. Smith and I are in full accord that we support
getting a person in place as soon as possible but not a czar.
An assistant secretary will be just fine. In fact, one czar at
a time would be just hunky-dory.
Mr. Hightower, I understand that you need to leave by noon
or a little bit more. We will accommodate that schedule. There
is also a Floor vote which is scheduled to occur sometime or be
called sometime in the next 15 minutes but let us go on for as
long as we can.
For the outside witnesses, I would like you to comment on
whether Department of Commerce folks have sought your input in
developing their initiatives like CommerceConnect and the
Office of Innovation and Entrepreneurship. Do you feel
consulted? Were you consulted? And was your input acted upon?
Ms. Rosenthal. I would be happy to lead that one off. We
have been consulted, as I mentioned in my comments, both long
and short. We have had good dialog in terms of what can be
done, where we see in the field the gaps. Again, to pick up the
recommendation to be self-serving, there is a need for capital
to flow to the very youngest companies so that they can some
day grow up to the manufacturers of the Nation. So that is our
sweet spot in terms of looking at that. Also, flexible capital,
that will help companies reinvent themselves, connect with
universities, move forward with new technology-based products.
Those are not needs that are adequately addressed by current
programs. We can retool those programs. It doesn't necessarily
mean new money but it means a restructuring of existing
programs. You have the manufacturing base that can take a look
at and be supported by more traditional financing. You have the
new company base and the company transitioning that needs
flexible equity-type capital.
Ms. Owens. Previous to this career, I was with Michigan
Economic Development Corporation and we worked very closely
with Mike and the Department of Commerce and the
CommerceConnect program. My organization, Ann Arbor Spark, was
not consulted so this is a new thing, and that is kind of what
I brought to the organization was an education for them. The
Office of Entrepreneurship, we have not met with that group and
actually are looking forward to later today to meet with them
and learn about that. I know that they have worked with the
University of Michigan and have kind of met with the university
to ask about their insight and input. Our organization manages
a venture capital fund and three incubators that have turned
out roughly 300 high-tech startups, so we are very excited
about collaboration and opportunities that can take place
between Ann Arbor Spark and this new office.
Chairman Wu. Thank you very much.
Mr. Coast.
Mr. Coast. I can say from a CommerceConnect perspective
that we have worked hand in hand with the folks at the
Department of Commerce. The way that it is structured, I think
some of it was in my testimony. The written testimony is, we
actually have four people from the Department of Commerce
collocated in my building, and one of my staff that is also a
manufacturing person, so we have gotten the good people that
they have brought, and they have been very energetic and very
open to this process. But that is also one-half of the pilot.
The second half of the pilot is trying to figure out how to
reach inside the Department of Commerce and find those programs
and have them become customer friendly, if you will. But that
process is well on its way. That is the second half of the
pilot that you are looking at. And one of the things that I
would offer up, and when we work with a small company we go in
and we talk to them about improving their processes before you
automate them, and so there are many steps down the road that I
think need to be taken that can put into place a good,
sustainable system that is going to allow for us, and one other
point that Jennifer mentioned was one of the critical parts of
that is to use the economic development folks that have feet on
the street already that know some of these things and so you
leverage those, and that is also part of the mix but it has
been--they have listened and we are in the process of getting
through that final design so that the end product will be
something that works.
Chairman Wu. Thank you very much, Mr. Coast. And offline we
will take your and Mr. Hightower's comments on when
CommerceConnect will expand beyond Michigan and what the time
frame for that expansion will be. In connection with the
Commerce Department's emerging innovation programs, I would
just like to add that I have followed the Brookings and ITIF
(Information Technology and Innovation Foundation)
recommendations on systematizing and creating some structure
for the study of innovation and the promotion of innovation.
Other countries have systematic ways of promoting innovation.
We have had a very innovative society. We have been good at
invention. It has been a byproduct of a very strong science and
R&D enterprise. We do not have a systematic way of promoting
innovation whether it be in finance, regulatory hurdles, the
best and fastest way of transferring intellectual property, et
cetera. I used to do university technology transfer and it is
akin to Boswell's comments about a dog walking on its hind
legs. It is not done well but one is amazed that it is done at
all. We have led the world in innovation. People do come here
to look at our innovative companies but they no longer come
here to look at the systematic promotion of innovation. That
activity is really being led by the Europeans, Japanese and
some other folks.
So looking at the potential for an innovation institute or
innovation foundation or locating that office at NIST or
Commerce or OSTP (Office of Science and Technology Policy) or
NSF (National Science Foundation), that is something that I
think this Subcommittee and the Full Committee would like to
explore. Perhaps creating such an entity will not take quite as
long as the creation of the National Science Foundation after
World War II but I think that we should approach it in a
careful and systematic way because the goal is to promote
innovation in an appropriate federal way, to study it, to
understand it, to promote it in the private sector, to promote
it in state and local government and also Federal Government
policies. The goal is very much to avoid injecting bureaucratic
process in what is an inherently vibrant and bubbling activity.
Mr. Smith, five minutes.
Mr. Smith. Thank you, Mr. Chairman, and again thank you for
your time with the panel.
I take very seriously my charge as an elected
representative of the 3rd District of Nebraska, one that is
quite diverse but certainly agriculturally based, and my prior
questions are only a result of the hearing charter stated as
the purpose of this hearing is to learn about the challenges
faced by small- and medium-sized manufacturers. Again, I take
that very seriously, and I am simply conveying the concerns
that I hear from my constituents, and while I am a product of a
community college, proudly so, I know that we need community
colleges. I know that Nebraska has literally thousands of
automotive-based manufacturing jobs. What I am saying is, we
are in this together. Nebraska enjoys a far lower unemployment
rate than does Michigan, but acknowledging that, please know
that we are all in this together. And while we do need to
support community colleges, we do need to support various
programs of extension and otherwise, there are many and
numerous other concerns out there facing manufacturers, and
that is simply why I bring up the issues that I have today. And
I guess I would only wish that we could have a Treasury
Department representative here today given the fact that we
have talked about lending and how the shortage of lending is
causing problems for all businesses, small and large, and I
struggle to think that creating new regulations on financial
institutions who are now bad actors, have not been bad actors,
would increase lending, and I guess I am in the preaching mode
too, Mr. Ehlers. But I also struggle to think that the creation
of new regulations because it would require job creation
following those regulations is a good reason for creating new
regulations. That is not sustainable economically. And I hope
that we can get to the bottom of some of these things. I look
at the trade issues and how important those are across the
board, though. For example, I have in my district the largest
natural wool yarn manufacturer in America, a whopping 45
employees. Now, I am kind of proud of the fact that they not
only are in my district but right down the road from where I
live, even though I don't really use their product, but they
get my attention when they say that the estate tax would
devastate their business. Those are their words. I am prompted
by any question that I had when I visited their facility. And I
look forward to working together.
I admire each and every one of you for working in the
trenches and it is not about improving your own lot, it is
about improving many, many others, and so that is why I am
grateful for not only my opportunity but I am grateful that you
would share your expertise as well. So please know that I just
want to share information and convey a message of concern for
my constituents.
Now with a question. Sorry. Uncertainty. The marketplace is
uncertain enough on its own but the marketplace in terms of
ancillary concerns appreciates certainty. What would you like
to see the government do or the Federal Government, the Science
Committee, the Innovation and Technology Subcommittee perhaps,
do to ensure more certainty? Is it the CommerceConnect? Where
would that be, and if any of you would choose to answer, maybe
starting with the Secretary if you would choose to answer.
Mr. Hightower. I think, one, it is important to say that we
have enjoyed a tremendous amount of support and openness and
accessibility for the Subcommittee and your support of NIST as
one of the major elements of the Department of Commerce. As we
move forward, I would want to be sure that this would be an
opening or beginning, if you will, to the opportunity to
continue to bring these ideas forth because there are going to
be a number of new and innovative and untried and untested
approaches, and we all know from a business perspective that
when you start laying out new ideas and new programs, those
that have a track record will always win against those that
have no track record where the idea is at its early stage of
coming into being. So we would ask for sort of your forbearance
and your understanding that every time we want to do something
new and different, it may not have the legs that a program that
has been around for 15 or 20 years might have. And it goes back
to something I learned in my first general management job under
Jack Welch from 30 years ago, and that is that if you know 60
percent of everything you want to know before you make a
decision, you are lucky. What you get paid for is the other 40
percent which is your judgment. So hopefully you will accept
our judgment when we come to you having talked to our
stakeholders, talked to the clients, if you will, the users of
the intended services, and we will bring as much of that to
bear as we can and discuss the merits and the pros and the cons
and hopefully come out of that with your support for some of
these very risky, quote-on-quote, new ventures that we think
are important to help get back this economy back on its feet
again.
And with that, I do respectfully request that I can leave
now because my next meeting is on trade.
Chairman Wu. I understand. I got a note that the White
House is looking for you, and perhaps you could share with them
Mr. Smith's concerns, and for me to ask them to, counter to
what the President said yesterday, let us get health care done
quickly so that we can reduce risk for individuals so that they
can assume risks elsewhere and truly engage in entrepreneurial
activity.
Mr. Smith, I completely respect your efforts to represent
your constituents and your constituents' concerns. We all take
these concerns very, very seriously, and our oath of office and
Constitutional duties. I carry a copy of the Constitution in my
hip pocket. It is the authoritative Cato Institute version.
There are many things on which we will continue to work
together, and in that bipartisan spirit, Mr. Ehlers and I have
worked mightily to preserve as much of the MEP program and the
ATP (Advanced Technology Program) program, now the TIP
(Technology Innovation Program) program, because there are
important and legitimate public interventions in the private
sector to compensate for externalities, market defects and
underinvestment in things like science and research. I just
want to note that we spend more on fishing tackle and potato
chips, not combined but individually, than we do on the space
program or on NIH (National Institutes of Health).
Are there any further--Mr. Ehlers? Oh, Mr. Hightower,
please--
Mr. Hightower. Thank you very much, and really, I thank you
and the Committee for the opportunity to appear before you
today and hopefully, again, this will be the beginning of a
mutual exchange where we can really move this forward and get
people back to work in this country. Thank you very much. I
look forward to it.
Chairman Wu. Thank you, Mr. Hightower.
Dr. Ehlers, any further--
Mr. Ehlers. I think I pretty well concluded my sermon. It
would probably help if we had a few amens from the chair.
Chairman Wu. Amen.
Mr. Ehlers. Thank you. Let us go do it.
Chairman Wu. Mr. Smith?
I want to thank the witnesses for being here today, and
please pass on my good wishes to Assistant Secretary Hightower.
This hearing is now adjourned, and comments and questions will
be submitted to the witnesses in writing. Thank you very much
for being here today.
[Whereupon, at 12:01 p.m., the Subcommittee was adjourned.]
Appendix:
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Answers to Post-Hearing Questions
Answers to Post-Hearing Questions
Responses by Hon. Dennis F. Hightower, Deputy Secretary of Commerce,
U.S. Department of Commerce
Questions submitted by Chairman David Wu
Q1. What criteria do you use to judge the success of innovation
services/programs provided for small- and medium-sized manufacturers?
A1. The Manufacturing Extension Partnership (MEP) uses a client impact
survey to collect impacts from clients receiving MEP services. Specific
measures that capture the impact of innovation services include new and
retained sales along with new and retained jobs. Recognizing that
innovation-type services may generate longer-term measurable impacts
that would not be captured in a survey administered six months after
project completion, MEP has modified its data collection process to
collect these impacts over time. As MEP expands the innovation and
growth services offerings for U.S. manufacturers, the program will
continue to explore measure and options to collect the impact of these
services.
For more information on the MEP Client Impact Survey and the latest
results, refer to: U.S. Department of Commerce, National Institute of
Standards and Technology Manufacturing Extension Partnership Delivering
Measurable Results to Its Clients, Fiscal Year 2008 Results, January
2010 http://www.mep.nist.gov/documents/pdf/about-mep/impacts/
fy2008_dmr_final.pdf.
Q2. In her testimony, RoseAnn Rosenthal made several suggestions for
retooling existing federal programs to increase their impact on
innovation and job creation. For example, she suggested modifying the
Economic Development Program to create Commercialization Partnership
Centers. Could you please give us your views on the recommendations in
her testimony?
A2. In her testimony, Ms. Rosenthal suggested two core areas to retool:
1) Access to capital and 2) Creating effective pathways to
commercialization. These issues are of paramount importance to the
Obama Administration and the Department of Commerce (Commerce).
The Economic Development Administration (EDA) at Commerce strongly
supports university-led economic development and technology
commercialization as a strategy to support collaborative regional
innovation to create sustainable growth in American regions. EDA's
University Center program is a diverse and flexible tool that supports
a broad range of economic development activities from technical and
financial support to businesses and entrepreneurs, to helping
communities grow innovation clusters, to support for university-led
technology commercialization partnerships. EDA recognizes the great
benefits that such partnerships afford and will look for ways to
continue to prioritize and support such activities in the future.
Additionally, Commerce's Office of Innovation and Entrepreneurship
is working closely with the Small Business Administration, the National
Science Foundation, and other federal agencies to address other
programs that can be more focused on innovation and commercialization,
including the SBIR and STTR programs.
Q3. All of the witnesses stated that access to capital is the top
priority for manufacturers. What specific programs or mechanisms does
CommerceConnect have in place to help connect manufacturers with
available funding through the Small Business Administration?
A3. As you know, the first pilot office of CommerceConnect is located
in Plymouth, Michigan. The CommerceConnect case managers have a base
knowledge of the federal, Michigan state and local loan and grants
programs. They also have developed working relationships with local
Small Business Administration (SBA) representatives to help connect
local companies with information on various SBA loan programs. SBA
representatives have introduced local lending institutions to
CommerceConnect case managers to help them better understand the
specific business requirements needed before referring their clients to
apply for SBA loans directly to local lenders. CommerceConnect case
managers also follow up with their clients after the meetings with SBA
and lenders to determine if they need to search for additional
suggestions for alternative financing.
Answers to Post-Hearing Questions
Responses by Jennifer Owens, Vice President, Business Development at
Ann Arbor Spark
Questions submitted by Chairman David Wu
Q1. What criteria do you use to judge the success of innovation
services/programs provided for small- and medium-sized manufacturers?
A1. The success of programs are usually determined by the business
served staying in business and investing in their facilities. Success
should not be judge by the creation of job as most manufacturers who
are adding new equipment, implementing lean practices and increasing
innovation will often maintain status quo employment levels or even
reduce employment as they become more efficient. Investment in
facilities be it through research or machinery and equipment by
manufacturers served is often the best sign that a company is headed
toward success.
Answers to Post-Hearing Questions
Responses by Michael Coast, President, Michigan Manufacturing
Technology Center (MMTC)
Questions submitted by Chairman David Wu
Q1. What criteria do you use to judge the success of innovation
services/programs provided for small- and medium-sized manufacturers?
A1. Judging the success of a ``new Program'' is always interesting.
Innovation falls into that category. We--the MMTC and MEP from a
national perspective have been looking for the next best ``Innovation
Tool'' to put into our tool box. The best measure over the years has
been the ability of the small- and medium-sized manufacturers (SMM) to
purchase the ``services''. With the thought that if they find value in
the services they will but it. Which then follows that if they buy it
and then use it there will be a return on investment (ROI). In this
case the ROI would come in the form of increased sales. One way NIST
measures this is with the NIST/Turner system--which is a post project
survey of the companies. Unfortunately they do not break it out by
product line--Quality, Lean manufacturing, market diversification,
growth services, product development, etc. So the main criteria is
increased sales--or in some cases increased RFP's which lead to sales.
The national system numbers as reported by Turner/MEP HQ is: