March 18, 2014    Volume 21, No. 4

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With Little Federal Support For Economic Development, States Must Nurture Their Industrial Strengths


By Richard A. McCormack
editor@manufacturingnews.com

The states have given up on Washington to address the economic development crisis affecting the country, and some have started their own programs to nurture industries that create good-paying jobs, according to the Brookings Institution. Two states have taken the lead in developing advanced industries: Colorado, with its "Colorado Blueprint" plan to grow its aerospace industry; and Tennessee, which is focusing on the automotive industry.

"In both cases, a focused state sensed disruptive change in the air and sought to defend and expand a critical industry, so as to grow more and better jobs during a pivotal decade," says Brookings. The two states "have acted on their own to renew the nation's strategic economic base from the 'bottom up'; state by state and region by region."

Brookings found that there are 23 industries that drive the best jobs in the country -- 17 of them are in the manufacturing sector and six are in service. These industries pay excellent wages (averaging $94,000 in 2012), employ skilled workers and engineers, drive productivity in other industries, support "long" supply chains that generate additional jobs and stimulate local economies. These industries account for only 5 percent of American jobs, but they generate 11 percent of GDP and 80 percent of the private-sector investment in R&D. These industries "matter because they are on the leading edge of innovation," says Bruce Katz of Brookings' Metropolitan Program.

Faced with economic uncertainty, Colorado surveyed its aerospace sector and found that it generated $9 billion in state GDP, employed 66,000 workers, and had a particular strength in satellite services and earth observation, with companies providing data to power such applications as Googlemaps. But the state risks losing this industry. "The Colorado General Assembly passed the Advanced Industries Accelerator Act with bipartisan support, launching a competitive 10-year, $15-million-a-year matching grant program to encourage applied research collaborations, foster technology commercialization and provide support for early-stage advanced industries companies," says Brookings' Metropolitan Policy Program.

The governor hired a chief innovation officer and an aerospace and defense "champion." It created an Advanced Industries Export Grant program to boost exports. It is now conducting a roadmap of advanced industries to see how they work together. It also created the Colorado Innovation Network (COIN) that hosts a summit every two years aimed at matching entrepreneurs and small and large companies with research coming from the National Renewable Energy Lab, NOAA, Colorado University, the University of Colorado, the Colorado School of Mines and the University of Denver.

The result: "We attracted the global headquarters of Arrow Electronics, a $20-blllion-a-year company that loves to acquire other businesses," says Colorado Gov. John Hickenlooper. The state is planning another COIN Summit this August that will include the participation of Jeff Immelt, CEO of General Electric. "We are in the process of putting together a fund that would [have] a lot of large companies involved -- raise $15 million that would specifically try to give investment to these very small companies that are providing specific solutions to issues," Hickenlooper told a recent Washington meeting held at Brookings.

Tennessee has done a similar assessment of its automotive sector with a competitive agenda released in October 2013 called "Drive: Moving Tennessee's Automotive Sector Up the Value Chain."

The governor will appoint an automotive "project manager" to oversee programs aimed at advancing automotive technology. The state, which has 94,000 automotive workers and factories owned by Nissan, GM and Volkswagen, is planning to launch an Automotive Industry Infrastructure Initiative to foster networking, supply chain and cluster development. It is spending $10 million on addressing workforce skills issues and is creating a statewide accelerator network called LaunchTN. Its governor has proposed the "Tennessee Promise" program, providing every Tennessean who graduates from high school with two years of free tuition to earn a degree from a community college or technology college.

"When you look at the quality of these advanced industry initiatives, you feel the only thing missing is scale," says Mark Muro, senior fellow at Brookings. "But you begin to feel like we could actually wind up as a nation with a series of sophisticated industry strategies."

Expanding the nation's advanced industrial sectors "will not be easy, however," says Brookings. "Strong challenges from other nations, inconsistent engineering and workforce training systems and negative trade balances in some advanced industries mean that U.S. dominance of the global sector is contested. Moreover, while efforts to expand the advanced industries sector will largely depend on private initiative, political paralysis in Washington has stalled needed national action on R&D investment, skills-building, taxes, trade and infrastructure. The United States now trails many global competitors in terms of R&D investment as a percentage of GDP, STEM education and training, tax policy that promotes investment and innovation, and trade deals."

The Brookings report on the subject, "Powering Advanced Industries, State By State," is located at http://www.brookings.edu/~/media/research/files/papers /2014/02/19%20ai/advancedindustriesstatebystate.pdf.

Advanced industries "display above-average R&D spending as a share of total sales and employ a workforce in which the average worker is expert in at least one discrete STEM field," according to Brookings Institution. Here they are:

Advanced Manufacturing Industries:

  • Pharmaceutical and medicine
  • Industrial machinery
  • Commercial and service industry machinery
  • Engine, turbine and power transmission equipment
  • Computer and peripheral equipment
  • Communications equipment
  • Audio and video equipment
  • Semiconductors and other electronic components
  • Navigational, measuring, electro-medical and control instruments
  • Magnetic and optical media
  • Household appliances
  • Electrical equipment
  • Other electrical equipment and components
  • Motor vehicles
  • Motor vehicle parts
  • Aerospace products and parts
  • Medical equipment and supplies

Service Industries:

  • Software publishers
  • Other telecommunications
  • Data processing and hosting
  • Computer systems design
  • Management, scientific and technical consulting
  • Scientific research and development

Economic Development 101: Nice Houses And Good Music Are Required

Successful state economic development programs require more than tax incentives and real estate subsidies aimed at attracting factories and companies from other states.

"There's one [California] company that we worked really hard to recruit to Tennessee," said Tenn. Gov. Bill Haslam. "We finally got them to come and they moved. We went to dinner afterwards and I asked the CEO, 'So, tell me now that it's over, how did you decide on Tennessee? Was it our incentive package? Was it the incredible win-someness of the Governor? What was it?' And he said, 'Honestly?' And I said, 'Yeah.' And he said, 'My wife and I saw a place we wanted to live.' So [I said] 'You could have saved us a lot of money. We'd have bought the house, you know.' "

In Colorado, all the economic development programs can't compete with other factors. "More and more, that's where young people want to live, because they are the workforce of the future and they attract those companies and entrepreneurs who we're looking for," says Colorado Gov. John Hickenlooper. "So when we're out recruiting headquarters to come to Colorado, or an entrepreneur who's got a small business that you think is going to really grow, they ask questions like, 'How many miles of bike paths do you have in your metropolitan area?' They ask questions, 'How's your music scene?' And I brag all the time that in 2009, 2010 and 2011, more 25-to 34-year-olds moved to metropolitan Denver than any metropolitan area in the country, not per capita, but in raw numbers. And part of that is we've got a vibrant music scene."


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