Fixing the Manufacturing Base: The Allocation of Manufacturing Extension

Abstract

Words stay dirty longer than ideas. While Republican attacks on industrial policy retain enough potency to cause Democrats to steer clear of the phrase, the idea that government has a role in assisting U.S. manufacturing has gained wide acceptance. The 1988 Trade Act negotiations saw strong bipartisan backing for the inclusion of Manufacturing Technology Centers (MTCs), managed by the Commerce Department's National Institute for Standards and Technology (NIST). The first few rounds of Technology Reinvestment Project (TRP) awards have increased the number of such centers to nearly 30. The National Competitiveness Act, which has already passed the House, authorizes roughly $65 million for technology centers in fiscal 1995, and TRP is expected to add perhaps $40 million to that. In short, the Clinton administration goal of 100-plus industry-driven manufacturing extension centers, while still much less well funded than Japan's $500-million program, is apparently on the verge of getting big enough to achieve measurable regional and national impacts. This paper is concerned with the effect on those impacts of the geographical placement of extension centers. There are 357,000 manufacturing plants in the United States, and all but 5500 of them have fewer than 500 employees. A growing body of studies suggests that there are large and growing technology, productivity, and wage gaps between most of these smaller shops and the plants of large manufacturers. Moreover, smaller manufacturing enterprises (hereafter, SMEs) in the United States badly trail their Japanese and northern European counterparts in their rate of application of computer-based technologies. The subset of SMEs with 20-499 employees is particularly important. Small enough to lack internal R&D and engineering resources but large enough to mount a conscious program of performance improvement, these 120,000 foundation firms--most of them intermediate goods producers-contribute about 40 percent of final goods' production costs. Yet their productivity and wages are only 70 percent of those of larger firms. And with the SME labor force growing by two million jobs during the same period (1969-1989) that the large firm sector shed the same number, that backwardness is a major explanation for the declining incomes of manufacturing employees since the early 1970s. Effective programs of manufacturing extension can, by remediating many small firms' technical backwardness, make a real difference to the performance of the economy. Moreover, such programs are popular because small firms are a key source of employment growth and because nearly every region has a significant number of them. Supporting manufacturing extension thus