3

Summary of Presentations

This chapter provides a more detailed synopsis of each of the workshop presentations and accompanying discussion.

WELCOME

David Hart, cochair of the Innovation Policy Forum of the National Academies of Sciences, Engineering, and Medicine, welcomed the participants and audience to the workshop. He introduced the Forum as a focal point for national and international dialogue on innovation policy. Previewing the workshop, he said it would “introduce you to the Manufacturing USA institutes and update you on what they are up to and how they are doing it.” The day, he said, would feature the perspectives of some institute directors as they seek to establish their institutes and address their new missions. The presentations would encompass recent external reviews of the institutes, as well as perspectives of what other leading economies are doing to promote advanced manufacturing. Hart invited the participants to “think through the contributions of the institutes to key elements of manufacturing, such as workforce, economic development, and international competitiveness.” He then invited Jeff Wilcox, vice president for engineering and program operations at Lockheed Martin, to deliver his keynote address.

KEYNOTE ADDRESS

Jeff Wilcox said he was honored to be the day’s “lead-off hitter.” He said he would provide an industry view on “why the Manufacturing USA institutes are important, what we are doing, what we are getting out of it, and why we are advocating for it.”

Alexander Hamilton’s Focus on Manufacturing

Wilcox began by recalling the debate stimulated by Alexander Hamilton’s 1791 Report on Manufactures, which outlined the value of establishing a manufacturing sector in the United States for the defense and economic growth of the young republic.¹ Wilcox noted that Hamilton “understood just how precarious the situation was that we did not have a defense industrial base in the colonies at that time. He proceeded to advocate for those policies.” Hamilton’s arguments proved persuasive, and President George Washington declared in his first State of the Union address that the “safety and interest [of a free people] require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies.”²

Hamilton also spoke of the role of the public sphere in nurturing and promoting manufacturing. Wilcox explained that Hamilton did not believe free market forces alone would create a new manufacturing industry. He described Hamilton’s role in establishing a government–industry partnership that harnessed the waterfalls in Paterson, New Jersey, to power mills and stimulate industrial activity. “Samuel Colt started his firearms business there; the first steam engines were manufactured there,” Wilcox noted, adding that this “partnership that Hamilton started as Secretary of the Treasury nurtured an incredible innovation ecosystem.” According to Wilcox, the Manufacturing USA network of institutes follows this American tradition of public–private partnerships that foster ecosystems for innovation and create new products and jobs that grow the economy and advance the nation’s security.

The Impetus for Manufacturing USA

Wilcox traced the origins of Manufacturing USA to a 2011 report by the President’s Council of Advisors on Science and Technology (PCAST) entitled Ensuring American Leadership in Advanced Manufacturing.³ Taking the findings of this report forward, the Advanced Manufacturing Partnership (AMP) made a series of specific manufacturing policy recommendations in 2012.⁴ This group of leading corporate leaders and university presidents was led initially by Andrew Liveris, chairman, president, and CEO of Dow Chemical, and Susan Hockfield, president of the Massachusetts Institute of Technology.

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¹ Alexander Hamilton, Report on Manufactures, Communication to the House of Representatives, Washington, DC, December 5, 1791.

² George Washington, First Annual Address to Congress, January 8, 1790.

³ President’s Council of Advisors on Science and Technology, Ensuring American Leadership in Advanced Manufacturing, Washington, DC: The White House, 2011.

⁴ President’s Council of Advisors on Science and Technology, Capturing Domestic Competitive Advantage in Advanced Manufacturing: AMP Steering Committee Report, Washington, DC: The White House, 2012; President’s Council of Advisors on Science and Technology, National Network for Manufacturing Innovation: A Preliminary Design, Washington, DC: The White House, 2013.

AMP was followed in 2014 by AMP 2.0, a second project and report that included calls for a major outreach and engagement effort to design policies to supplement and support the manufacturing institutes.⁵

“All that led to executive action,” Wilcox said, “which created the first of the National Network of Manufacturing Institutes (NNMI), all of which was eventually codified and made statutory through bipartisan support for the Revitalize American Manufacturing Innovation (RAMI) Act of 2014.” The NNMI was rebranded as Manufacturing USA in 2016.

The Value Proposition for Lockheed Martin

Wilcox described Lockheed Martin as an American global aerospace, defense, security and advanced technologies company that has long seen the value in investing in U.S.-based advanced manufacturing. He noted that the company’s Skunk Works “has probably been one of the nation’s foremost laboratories for advanced manufacturing and still is because it matters so much to our mission.”

Wilcox explained that his company became involved in the Manufacturing USA initiative from the start. “It made a decision early to go all in,” joining the initiative’s first seven institutes. He characterized this involvement as a significant commitment because each institute is different, and calls for different types of interactions and relationships. Despite the added management effort this commitment demands, he said he views it as worthwhile, explaining that “the innovation part is an obvious part of the why.” Describing Lockheed Martin as a steward of the innovation chain of suppliers and partners of various sizes, he noted that the Manufacturing USA institutes draw innovative businesses into this ecosystem. “A large part of the value proposition is the chance to work side by side with small and medium-sized manufacturers,” he said, “and of course academia, and learn from each other and bring them into the fold as a part of our supply chain.”

This ability to draw in innovation in advanced manufacturing is particularly important for Lockheed Martin, Wilcox added, because innovation increasingly takes place on the factory floor and then makes its way back to the design community and the field sustainment community. In this respect, he observed, innovation today is different from the traditional model—pioneered by Henry Ford and others—whereby “most of the value creation is in the design phase and then you make blueprints and you ship them off and somebody else stamps them out for you.” Already, he noted, Manufacturing USA is informing the design community. “Similarly,” he said, “the sustainment community has

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⁵ President’s Council of Advisors on Science and Technology, Accelerating U.S. Advanced Manufacturing, Washington, DC: The White House, 2014. This AMP 2.0 committee presented this report to the members of the National Academies Innovation Policy Forum on October 27, 2014. Access the agenda at http://sites.nationalacademies.org/PGA/step/PGA_152473.

started to realize they have new tools at their disposal—like scanning techniques and 3D printing of parts in the field.”

Integration of Capabilities

Wilcox then described the variety of additional ways in which the Manufacturing USA institutes advance Lockheed Martin’s engagement in a range of emerging technologies (Figure 3-1):

• Cognitive assistants—As a world of information that was previously stovepiped or inaccessible is brought to the desktop, developments in

• artificial intelligence and cognitive assistance aid in understanding the art of the possible by bringing things together without the effort involved in human structuring.

• Human augmentation—These advances create cognitive and physical improvements as an integral part of the human body, enhancing human capabilities and efficiency.
• Designer materials—Advances in lightweight metals and composites are expected to have significant applications in metal printers and in aerospace. “The Manufacturing USA institutes have been really helpful to us in terms of being able to pool resources and get new materials certified and to create allowance sheets,” Wilcox noted.
• Intelligent machines—According to Wilcox, “We are coming to a world where robots work side by side with people. That is going to unlock a really tremendous partnership between people and machines.”
• Transformative computing—New advances in quantum computing and biomorphic computing are needed to provide the tools necessary for the next generation of manufacturing.

Manufacturing institutes are now working to develop technologies and processes in most of these areas.

Wilcox also drew attention to what can be possible through the integration of these capabilities, and how this potential can be realized through the networking of the institutes. “Manufacturing USA is a national network because these are not one-off things,” he observed. “These are not metals over there and composites over there, and robots over there. It is really a whole new way of doing things. That is what advanced manufacturing means to me and to us. That is why this community is so important.”

The Benefits of Working with the Manufacturing USA Institutes

Pointing to a map locating the advanced manufacturing institutes, Wilcox next highlighted many of their features and benefits:

• Developing new manufacturing techniques—Lightweight Innovations for Tomorrow (LIFT), the center that is working to speed the development of new lightweight metal manufacturing processes, has, Wilcox said, “done a super job of looking for new welding techniques and in developing the technology for thin wall castings.”
• Training the workforce—LIFT is also training the workers who will use these new processes in factories. Wilcox noted that this focus on workforce development “by really all the institutes” is a top concern—along with taxes and regulations—for small and medium-sized manufacturers. He added that LIFT and other institutes “have done a

• great job at helping folks become lifelong learners and putting educational products out there.”

• Lowering manufacturing costs—Wilcox explained that, “being in aerospace, composites are a big deal, because they are light and strong, but tend to be expensive.” He observed that the Institute for Advanced Composites Manufacturing Innovation (IACMI) has set a goal of lowering cost by 25 percent, and “this is really going to be great for the whole industrial supply chain.”
• Scaling up—“Getting from invention to scale is something we have not done well, historically,” Wilcox asserted. “The institutes are really designed to do that.”
• Sharing equipment—Wilcox stated that LIFT and IACMI “have done a super job of getting together and collaborating. There is equipment up in Detroit where they do metals as well as composites because both are important for aerospace. This ability to get equipment for member use has been good for us, and I know for many of our partners.”
• Developing standards—“It is one thing to have a new process and a new material,” said Wilcox, “but to get it certified is expensive and time-consuming. But if you are a member of America Makes (the 3D printing institute), they certify these and develop allowance sheets for these new components, and then you have access to it as a part of your IP [intellectual property] rights. That saves a lot of companies—big and small—a lot of money.”
• Ensuring cybersecurity for manufacturing—Wilcox observed that “a lot of factory floor equipment is still running on really old operating systems that are networked and not protected like they need to be. Manufacturing USA has taken it on here, in particular at DMDII [Digital Manufacturing and Design Innovation Institute].”
• Providing access to expertise—“The access to knowledge and intellectual property that we get [through the institutes] for our investment is huge,” Wilcox said.
• Ensuring industry leadership—In Wilcox’s opinion, “For these [institutes] to be successful there has to be a strong industry value proposition. These cannot be sandboxes for research. For the most part, projects are selected and the technology roadmaps are driven by industry and industry need.”
• Convening expertise—“At the end of the day,” Wilcox said, “the power to convene, especially across market segments, has been huge. There is so much that we could learn from other industries, but there is just no time. These centers serve as a place where we get to meet other market segments and learn from each other.”

Suggestions for Improvement

Finally, Wilcox offered some suggestions for areas in which the institutes can do better. He called for speeding up and standardizing membership agreements, noting that “it is disappointing how long it has taken us to get membership agreements concluded and to get projects going.” Next, he suggested that the manufacturing institutes be more industry-focused, observing that some institutes “tend to have an academic flavor and bent in terms of their initial members.” Third, he suggested that more institutes adopt industry roadmaps as a way of coordinating research teams and industry partners, saying, “The existence of technology roadmaps is something that is not everywhere in all the institutes.” Finally, he proposed that the institutes leverage the Manufacturing Extension Partnership (MEP) system, which provides a wide range of services to small and medium-sized manufacturers, to foster greater collaboration and outreach across the nation’s manufacturing networks.

Wilcox concluded his remarks by reminding the audience that the task of building a successful network and advancing innovation in manufacturing must ultimately focus on the people who work to make it happen and the people who benefit from this effort. Recalling the advice of Winston Churchill, he observed that “this is about people. It is about all the people that we can help reach their full potential.”

PANEL I: INSTITUTE ROUNDTABLE

David Hart thanked Jeff Wilcox and introduced Ravi Shanker, vice president for lightweighting at the Dow Chemical Company, who moderated the roundtable of institute directors.

Shanker began his remarks by noting that Dow’s chairman, Andrew Liveries, shares his passion for “taking raw materials and converting them downstream into value-added products through the power of science and technology.” In keeping with the spirit of championing manufacturing, he continued, “we are obviously big supporters of manufacturing initiatives and manufacturing technologies as they span across from the latest and the cutting edge all the way to existing industries and how we believe some of them can be revived using technology.”

Shanker emphasized that Manufacturing USA is very much a public–private partnership. The advantage of its being public, he said, is that it can “be strategic and be able to take the big bets that companies individually cannot make but are needed for the future and the good of the country.” The advantage of the private side of the equation, he asserted, is that the institutes are “very focused on deliverables, on the results, on the economic, social, and jobs benefits.”

Shanker then turned to introducing the panel. “As you can see in the chart [Figure 3-2],” he pointed out, “14 institutes have been launched. On the

panel we have two directors from institutes that were launched in 2013 (LIFT and PowerAmerica) and two directors from relatively nascent institutes (AFFOA [Advanced Functional Fabrics of America] and NIIMBL [National Institute for Innovation in Manufacturing Biopharmaceuticals]), and we will talk about those and the learnings that each of them can have.” Moreover, he noted, “we have a diversity of institutes in terms of their scope, their characteristics, their experiences, and their backgrounds.”

Shanker asked the panel members to describe the basic rationale for their institutes and how they see their organizations evolving, taking into account their value chains and industrial and public partners. He invited the panel members to comment on how the locations of their institutes were chosen. Over the course of the discussion, he asked them about how the institutes are working with the state MEP offices to develop regional innovation ecosystems. He also asked them about their approaches to IP generated through the collaborative work at their institutes. Finally, he requested that they “give a little flavor” of how they balance the interests of their university, industry, and federal stakeholders, and explore how their institutes plan to remain self-sustaining in the future.

Role of the Institutes

Introducing his institute, Lawrence Brown, executive director of LIFT, explained that “we are all about metals and how they enable lightweight solutions at the end of the day. We look at how we can better employ the use of metals to enable enhanced performance in our various vehicles, platforms, and components.” The institute’s goal, he said, is to take the new technologies that come out of the nation’s universities and government laboratories, develop these ideas, and connect them to industry in a way that has impact. “It is great to have new technology,” he said, “but, from my perspective, if you cannot find a home for it and you cannot have the right individuals to be able to embrace it and to make sure that it gets applied in the workforce, then we have missed our mark.”

Nickolas Justice, executive director of PowerAmerica, highlighted the

role of the institutes in developing industry roadmaps. Not only do roadmaps help ensure that “you are staying focused on your mission, your charter,” he observed, but the process of cooperatively developing a roadmap with academic and industry partners facilitates the sharing of ideas and building of trust needed to grow the manufacturing ecosystem. “It is the transfer of knowledge that happens when I build that roadmap,” he said. Through dialogue and the sharing of ideas, he asserted, “you start building that supply chain because you were building a roadmap, but you were also building trust.”

Yoel Fink, chief executive officer of AFFOA, described his institute’s mission as transforming notions of “traditional fibers, yarns, and textiles into concepts of highly sophisticated integrated and networked devices and systems.”⁶ He explained that AFFOA addresses the spectrum of manufacturing challenges associated with volume manufacturing of revolutionary fibers and textiles, from design to end products. The institute, he said, is “introducing Moore’s Law for fibers, realizing that in the years ahead, the basic functions of fibers are going to accelerate and grow in a way that is reminiscent of the rapid innovation for semiconductors.” He also noted that AFFOA is introducing the concept of fabrics as a service rather than merely as a good, as they are traditionally viewed, “which will allow us to monetize fabrics through the services that they provide.” He stated that the textile products of the future will “see, hear, sense, communicate, store, and convert energy; regulate temperature; monitor health; and change color” while delivering the conventional qualities of textiles to benefit the commercial consumer and warfighter.⁷

Kelvin Lee, director of NIIMBL, explained that his organization is seeking to advance the research and commercialization of biologics—complex proteins used to treat a variety of illnesses, which cannot as yet be made by following a chemical recipe. He noted that the entire industry is about 30 years old, and “as such, the manufacturing paradigms and technologies are frankly quite immature. In order to go to the next level, in order to increase automation, in order to address some of the needs of patients going forward, we need to find a way to bring the stakeholders together. That was really the impetus that helped form NIIMBL.” He added that the institute’s teams have common objectives but varying interests: industry wants to advance the technology and provide value to shareholders; public health authorities want to ensure an efficacious, safe, and reliable supply of medicine; and academia wants to advance knowledge and train students. The institute seeks to advance all these objectives.

Choice of Location

Brown noted that a great deal of thought was given to the location of LIFT in Detroit. The location was based on resources found in the five-state

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⁶ Stephen K. Luckowski, Deborah Kahan, and Abhai Kumar, “A fabric revolution: AFFOA is weaving the next fiber and textile revolution,” Defense AT&L September–October 2016.

⁷ Access at http://go.affoa.org.

region “down the I-75 corridor,” where 50 percent of all the metalwork in the country is done, where significant innovation in metalworking technologies is already occurring, where there is a workforce that understands metalworking technologies, and where the automobile industry is in close proximity. He said that “we chose to have our headquarters in downtown Detroit because we wanted to be a part of the renaissance there.”

Justice said that his institute is located in Raleigh, North Carolina, to take advantage of power electronics research being conducted by the North Carolina State University. “We are doing that because it complements the land grant colleges and the engineering schools so well in a broad sense,” he observed. While noting that PowerAmerica is regionally focused “because our funding agency for the university is the state and the people of the state,” he explained that power electronics is so ubiquitous across every area of manufacturing that the institute is networked with seven of the other institutes.

Fink noted that the business of AFFOA includes traditional knitting, so it includes the established textile firms, but that the majority of its members are startups from across the country. “What we are trying to do,” he said, “is to create a situation where we lower the barrier to innovation and actually enable startups to link into emerging production and distribution systems.” AFFOA's focus on enabling startups to scale new fiber technologies in collaboration with other institute members provides an interesting model for other institutes.

With respect to the choice of location for NIIMBL, the only National Institute of Standards and Technology (NIST)–led institute, Lee explained that the Mid-Atlantic region (Delaware, Maryland, and Pennsylvania) offered a tremendous amount of relevant activity, as did regions in California, North Carolina, and Massachusetts. “We made an early decision that we really are not going to be particularly regionally focused,” he observed, “not that we are not going to leverage state resources and regional impact. I would argue that while we are headquartered in Delaware, really our location, I would just say is the United States of America.”

Partnering with the Manufacturing Extension Partnership

According to Brown, LIFT views the MEP as a key partner, helping to connect the institute with small and medium-sized manufacturers in the region that are involved in the institute’s technology area. “Early on,” he added, “we actually put money on the table for MEP to come in and help to facilitate some of the relationships—so that we could better understand what their needs are, and what we need to make them successful.” Though this process, he found that small manufacturers were interested in becoming more aware of technological advances being developed by LIFT, as well as ensuring that original equipment manufacturers were more aware of their capabilities.

Justice argued that it is essential for the institutes to be engaged with industry “so that you can educate them on what is coming, and about what problems it can be applied to solve.” Reaching out to small businesses is

therefore important to the mission of the institutes. This is where the MEPs come in, he said: “My local MEPs have been around for many years; they have those connections out there. When you work with a MEP, you are instantly plugged into economic development in your state.” He added that this is also why PowerAmerica embeds MEP staff in its offices, “to bring all of them into the organization.”

Managing Intellectual Property

Brown explained that LIFT’s IP policies are embedded in its membership agreement: “Membership has its privileges based upon the level that you come in. Our gold and silver members have nonexclusive royalty-free rights because they are paying into the program at a higher level, meaning that they do not have to participate in the actual project where the IP was generated, but any project that we do, they have access to that.”

Fink noted that IP plays a formative role in AFFOA’s Made in USA policy: “The first step is that we went out and negotiated with universities to basically get the right to sublicense their IP in the area of fibers and fabrics with one stipulation, which is that our licenses require the licensee to manufacture in the U.S. all of the IP-related fiber and fabric products.” His point was that although institutes face difficult intellectual property challenges, the mechanism of acting as an agent for university participants to license their IP allows the institutes to enable institute participants to have collaborative access to IP needed for new manufacturing technologies. He added that the federal investment in AFFOA is vital to convincing universities that, by giving AFFOA this right to license or sublicense, they can bridge the valley of death in terms of investment, and also draw in dedicated marketing resources to get their IP to the market.

Lee noted that his institute is new and is still developing is policies on IP, and that he is learning from what the other institutes have done in this respect. One approach is to establish some basic operating principles in a membership agreement and by-laws. “But at the end of the day,” Lee said, “the IP that is generated for ground IP and relevant background IP is going to be project specific. You have to address it at that level for those partners on that particular project.” In his relatively nascent industry, he added, there is a great diversity of opinion among the major manufacturers about the allocation of IP rights in these contexts. “That is because there are so many opportunities and so much growth potential in the industry,” he suggested.

Justice observed that there is no formula for IP that can be applied across the institutes. “The answer,” he said, “is what works with your industry and what works with your partners, and what you can deal with in the legal constraints you are in.”

Sustainability

Brown noted that the issue of sustainability will vary from institute to institute. LIFT, he said, has no deep pockets, and no university or other organization support. “I look to continue to be a nonprofit in the future,” he said, “but I also look to sustain myself through several elements—primarily looking at being an engineering services provider that creates organic capabilities inside my headquarters to do development, to do workforce education and training, and to create a learning lab for workforce development.” He added that LIFT would seek to form new public and private partnerships that provide value as a way of sustaining itself.

In his remarks, NIIMBL’s Lee noted that “as a new institute, we have not hit our steady state yet. It is to be seen whether our governance model is going to be the right one for our community. We have to be flexible in that.” He explained that his institute has consulted with its stakeholders, as well as with other institutes, on what works and tried to integrate that into what can work for the institute’s particular community. To craft a sustainable structure, he said, he wants to understand “why any single organization would want to join” and to ensure that “they have some value back in the context of governance. With our tiered membership structure, the tier one organizations, those companies, they have a relatively large cash contribution. They would expect to get something back in terms of their ability to make decisions for the institute.” With smaller businesses, he added, “it is a much more modest buy-in, but it is important to ensure and require their engagement on projects and other activities.”

Justice observed that he started out very optimistic about his institute’s being sustainable and being a big player, but that it had been a challenge to get the institute up and running. He noted that the offshoring of manufacturing and related research activities resulting from globalization raised questions about the future of advanced manufacturing in the United States. He asserted that the institutes are important to reestablish “the lost connection with our people by designing here, by working together with people, and then trying to figure out how you are going to translate that into the economy.” He suggested that the sustainability of the institutes would depend on how seriously policy makers take up the issue of globalization and offshoring.

Concluding this roundtable, Shanker lauded the directors for their efforts to develop their institutes and thanked them for their service to the nation.

PANEL II: MANUFACTURING USA AND REGIONAL ECONOMIC DEVELOPMENT

Introducing the second panel, on regional economic development, David Hart said that speakers would provide a variety of regional and institutional perspectives.

Workforce Development and the Institutes

Brennan Grignon, senior advisor and program director in the Office of the Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy, explained that she works with the Departments of Commerce and Energy to help coordinate all of the education workforce development efforts around the institute network, writ large. Together, they seek “to integrate from an education workforce development perspective the core competencies that shape all of the technology areas that are represented by the 14 institutes.”

Grignon identified as the overall challenge that a decline in the number of people in manufacturing is occurring even as there are an increasing number of new types of manufacturing jobs that are going unfilled. Even as the institutes develop and commercialize new manufacturing technologies, “we have to ensure that we have a skilled technical workforce that can support at all points in the life cycle.” She emphasized that new technologies are not making manufacturing work obsolete; rather, they are creating new types of labor requiring new competencies. She added that these occupations also call for highly qualified and skilled workers who are well paid.

The Competency Model

Grignon observed that institutes such as America Makes, LIFT, and DMDII are identifying core employability and technical skills needed for many areas of advanced manufacturing. The standard competency model, she noted, looks at the common employability skills, such as reading, math, and writing. These skills are supplemented by critical thinking skills, as well as common skills related to the use of information technologies. Specialized skills, she continued, build on these standard competencies: “And then you get into your advanced technical skills, which then feed into the technology-specific areas like fibers, textiles, additive manufacturing, robotics, et cetera.”

Referring to lifelong learning, Grignon said her office also looks at workforce development “from K to grey: We are trying to help employers with that on-the-job training component that helps their employees be more adept in this new environment.” She gave the example of the NextFlex institute, which is using the competency model in partnership with two community colleges in the San Jose area. “They have taken existing curriculum, plugged it into the competency model, created joint curriculum across the two community colleges,” she explained, “and they are also using that as a basis for a flex factor, which is a program that is in the local high schools.”

Veterans’ Transition

As the sister and daughter of veterans, Grignon said she is passionate about teaching already competent veterans the skills needed to take on the new

jobs being offered in advanced manufacturing. She noted that “America Makes has a program called 3D Veterans, which focuses on teaching additive manufacturing skills. They had a pilot already that closed in December 2016 which had a graduation rate above 75 percent. They have three more pilots that are starting this summer.”

Grignon also made note of LIFT’s Operation Next, which was launched at Fort Campbell, Kentucky. The program targets servicemen and -women 6 months prior to their separation from the military, offering a combination of online and lab-based learning through the local community colleges in three areas certified by the National Institute of Metalworking Skills. “They come out with an industry credential that allows them to be employed in jobs that the local employers have said they need people in…,” she elaborated. “Instead of waiting until post-separation for these men and women to figure out what they are going to do and what additional training they might need, we provide them the training prior to separation. And then when they separate, they are employable.”

Apprenticeships

Finally, Grignon noted that her team is working with the institutes on relevant apprenticeship models. She explained that “DOL [the Department of Labor] has an apprenticeship model as well as models like the U.S. German Chamber of Commerce is doing with a number of German companies, who have come over to the United States and set up apprenticeship programs similar to what is in Germany. We are looking at what best practices we can utilize from those areas, working with the MEPs.”

Essentially, Grignon concluded, the institutes are working with the Department of Defense (DOD), the Department of Energy (DOE), NIST, the National Science Foundation (NSF), and the Departments of Labor and Education to draw in best practices and share ideas, experiences, and lessons learned in order to grow high-value employment, foster regional development, and advance national missions.

A State Perspective from Massachusetts

In her presentation, Katie Stebbins, assistant secretary for technology, innovation, and entrepreneurship for the Commonwealth of Massachusetts, spoke of the need for the institutes to demonstrate to state policy makers a return on investment in terms of regional development and jobs even as they pursue specific technology and mission objectives. As someone who hails from the postindustrial communities of western Massachusetts, she said, “there is a particular compelling drive in me to try and figure out how we really invigorate manufacturing into places that built our states, which built our country and are now literally unfortunately the backbone of a lot of poverty and a lot of disinvestment.”

State Investments in Manufacturing USA

Stebbins noted that her state is very fortunate to host a super cluster centered in Boston. The state invests in these institutes in part, she said, to “add more synergy into the story of this super cluster.” But she added that a key goal was also to spark this dynamism across the state: “There is a big part of the rest of Massachusetts here waiting for us.”

Stebbins reported that Massachusetts participates in some way with nine of the Manufacturing USA institutes. The commonwealth also provides $40 million in support to AFFOA, which is located in the state; $28 million to the American Institute for Manufacturing Integrated Photonics (AIM); $20 million to NextFlex; $20 million to NIIMBL; and $5 million to Advanced Robotics Manufacturing (ARM). Pointing to a map indicating the growth of innovative activity across the state, she observed that “innovation centers are happening in places where manufacturing used to thrive, where manufacturing in some respects still does thrive. These are the real touch points around the state where we see the interaction between innovation and science.”

Articulating the Return on Investment

Elaborating on the importance of articulating to state policy makers that there is a clear return on investment for the state cost share, Stebbins acknowledged that this objective can create a tension between the real need to organize a complex national system around a series of emerging manufacturing technologies very quickly and the need to integrate these efforts with state economies and demonstrate tangible benefits to local constituents. “The manual to set these up did not come with this is how you do a technology roadmap alongside a state supply chain,” she observed. “That was not really in there. We are inventing it. We are building as we are flying it.”

Finally, Stebbins said she would look more closely at how the institutes, working with the MEP centers, can improve the connection to

regional economic development. This topic would be explored in by the next panel discussant.

Embedding MEPs in Manufacturing USA Institutes

Introducing the MEP program, Jennifer Hagan-Dier, director of the Tennessee MEP program, stated that the program’s mission is to “enhance the productivity and technological performance of U.S. manufacturing.”⁸ She described the program as a national network of 51 MEP centers located in each state and Puerto Rico and as the only public–private partnership dedicated to serving small and medium-sized enterprises (SMEs).⁹ Describing its impact, she reported that MEP centers interacted with 25,445 manufacturers in 2016, leading to $9.3 billion in sales, $1.4 billion in cost savings, and $3.5 billion in new client investments.

MEP centers across the nation, Hagan-Dier continued, work with SMEs to identify and address their most critical needs, challenges, and opportunities. They provide comprehensive consulting services at a fraction of the cost of similar services from a private firm; they connect industry to resources, including research assets state- and nationwide; they serve as the “voice of the manufacturers and industry”; and they engage SMEs in the difficult conversations necessary to identify growth opportunities and assist in planning and deployment. The MEP centers also have experience with cluster development initiatives within their state and region as well as nationally with NIST MEP network partners.

Hagan-Dier suggested that the Manufacturing USA institutes and state MEP centers both could benefit from closer collaboration. By partnering with MEP centers, she argued, the institutes could increase their visibility to manufacturers, researchers, and educators. Greater collaboration also could help ensure the involvement of SMEs in the processes and activities associated with

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⁸ Access at http://www.nist.gov/mep/who-are-we.

⁹ For a review of the MEP program, see National Research Council, 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program, Washington, DC: The National Academies Press, 2013.

informing and developing the research agendas of the institutes, increase SMEs’ participation in Manufacturing USA research, and ensure the transition of the results of that research to manufacturers for implementation. (See Box 3-1 for Hagan-Dier’s listing of the benefits to the institutes of partnering with MEP.)

Hagan-Dier believes this collaboration can be advanced by embedding MEP staff within the Manufacturing USA institutes. “We currently have nine embedded projects that are standing and [for which staff have] been brought on,” she said, adding that “the new institutes will also then have a chance to have MEP embedded staff.” She explained that each of these collaborations will be specific to the participating institute; thus “the way that New York is handling their embedding with AIM is different than the way that Tennessee is handling our embedding with IACMI.” Lastly, she noted that the nationwide MEP network provides an opportunity to compare notes across the institutes to see what is working, where, and why.

Economic Development: Lessons from New York

Charles Wessner, a professor of global innovation policy at Georgetown University, began his presentation by asserting that policy makers are not paying enough attention to what the rest of the world is doing to promote growth, employment, and national strength. He explained that leading countries of the world are responding to the global competitiveness challenge through sustained policy attention at the highest levels, growing funding for universities and research and development (R&D), encouragement to innovative small

businesses, and support for new public–private partnerships aimed at supporting manufacturing and bringing new products and services to the market.

A Renewed Focus on Clusters

The synergies of these initiatives are brought together within innovation clusters, Wessner elaborated. He defined clusters as mutually reinforcing geographic concentrations of knowledge and skills. By collocating skilled labor and fixed-cost resources such as laboratories and by developing connecting infrastructure to encourage collaboration and lower transportation costs, these agglomerations, he suggested, could encourage the exchange of tacit knowledge and foster rapid learning from peers and competitors. He cited the work of Michael Porter, who described clusters as “geographic concentrations of interconnected companies and institutions in a particular field.”¹⁰ He explained that a self-reinforcing innovation ecosystem features interactions among firms linked to industries; specialized services; connected universities, vocational training centers, and research facilities; and supportive public and private organizations.

Wessner argued that the development of such linked manufacturing clusters is essential to resolve the growing loss of capacity in U.S.-based manufacturing, with its implications for economic growth, innovation, and national security. He described this contraction in manufacturing as the result of the disaggregation of large vertically integrated manufacturers that were traditional mainstays of U.S. manufacturing. As many production functions were outsourced or moved offshore, research activities in the United States also suffered losses.

According to Wessner, the regeneration of manufacturing needs to draw on the lessons of past successes (notably those from the revival of the semiconductor industry in the 1980s through inter alia the formation of Sematech) and on the successful policies and practices of other nations in supporting advanced manufacturing (notably the German Fraunhofer institutes). Also necessary, he argued, is the diffusion of current best practices from the U.S. states.

Growth of the Albany Nanocluster in New York State

Wessner cited the Albany model as an example of what is working in one region of the country, asserting that it deserves to be understood more widely and adapted as a template for public policy. This cluster began to develop when the State University of New York (SUNY)-Albany and Renssalaer Polytechnic Institute created the College of Nanoscale Science and

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¹⁰ Michael E. Porter, “Clusters and the new economics of competition,” Harvard Business Review, November–December Issue, 1998. Access at https://hbr.org/1998/11/clusters-and-the-new-economics-of-competition.

Engineering (CNSE). The college was founded in cooperation with IBM, which lent its reputation, resources, and commitment and served as an anchor tenant for the nascent cluster. The cluster continued to grow as the State of New York and IBM built a 300 mm fabrication facility at CNSE, which in turn lured Sematech to relocate to Albany from Austin, Texas.¹¹

As an industry-oriented university, guided by entrepreneurial leadership, CNSE provided the reputation, researchers, and resources while serving as a neutral site for applied research. The construction of an up-to-date, 300 mm fabrication facility in a university setting was “unprecedented,” observed Wessner, in that it allowed research, testing, and training on cutting-edge manufacturing equipment to take place in a modern commercial-scale semiconductor fabrication facility.

In turn, Wessner continued, this clustering of specialized talent, research activity, and unique facilities allowed the region to compete for and attract GLOBALFOUNDRIES, a major semiconductor design, development, and fabrication company. GLOBALFOUNDRIES invested $6 billion, and then $2 billion more, and more recently another $15 billion in its vast semiconductor fabrication facility in Malta, New York. The Malta facility created large-scale employment, drew in specialized suppliers, and significantly enhanced the region’s reputation as a center of advanced manufacturing, further contributing to regional growth.

Best Practices and Key Lessons from Albany

Wessner listed a number of best practices in clustering emerging from the Albany experience (see Box 3-2). He also identified some key lessons learned from the New York experience about growing innovation clusters:

• The need for sustained funding—Sustained funding, Wessner emphasized, is necessary for the effective operation of consortia focused on mid- to long-term development of new materials, processes, and, ultimately, products.
• The benefits of prepermitting—This approach is designed to obtain clearance for generic manufacturing projects and to screen out regulatory and political showstoppers early on. Wessner explained that it was intended to address New York’s poor reputation for ad hoc regulatory challenges to new manufacturing. Prepermitting helps reduce the risk faced by potential investors that after they have committed substantial time, resources, and reputational capital, a project could suddenly be blocked by the failure to obtain permit

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¹¹ For a review of the development of the Albany cluster, see National Research Council, New York’s Nanotechnology Model: Summary of a Symposium, Washington, DC: The National Academies Press, 2013.

approvals. These permits were often required by local jurisdictions, some quite small, and most capable of making unpredictable decisions.

• The role of innovation intermediaries—According to Wessner, the role of the Center for Economic Growth (CEG), an umbrella group of businesses and regional leaders, was key in helping to brand the region, advocate for investments, share information, and finance studies. He described CEG’s ability to work across the fragmented political units of the region as a key contribution, noting that this is an important consideration in other states, such as Ohio and Pennsylvania, that have many small jurisdictions.
• The importance of professional proposals—Wessner explained that Saratoga Economic Development Commission (SEDC) assembled a first-class engineering project team of planners, engineers, and technical experts to create a proposal that resonated with semiconductor executives.
• Robust incentive package—Wessner observed that the $1.2 billion assembled by the State of New York was seen as too much by some, but fortunately, it was more than the competing amount from Dresden, Germany, which also bid on the GLOBALFOUNDRIES fabrication facility. The region, he said, realized the necessity of competing on a global scale.

Sustaining the Albany Semiconductor Cluster

Wessner asserted that one of the most salient measures of success for high-tech investments is the impact on job creation. The promised return for the incentives package for GLOBALFOUNDRIES was some 1,205 jobs, a total ultimately surpassed by the creation of 3,538 on-site jobs. Given the multipliers for high-tech and industrial employment (i.e., just under 5 times), he said, a net yield of some 17,300 indirect jobs could also be anticipated. Further, the CNSE complex directly provides more than 4,000 jobs, which would yield another 20,000 jobs given this multiplier. Induced employment in the region, including the hospitality sector (restaurants/hotels/gaming), financial services, housing, and consumer goods, is substantial and growing.

In conclusion, Wessner noted that while substantial progress has been made, real challenges remain. First, he observed, despite achieving great progress, Albany Tech Valley remains highly concentrated in one volatile sector that is subject to the strong winds of global competition. Second, while the Albany strategy has attracted the investment of a major manufacturer, other elements of a robust manufacturing ecosystem are yet to manifest. A startup culture is emerging slowly, Wessner explained, and access to Small Business Innovation Research (SBIR), angel, and venture capital funds backed by incubators and accelerators is still needed. Other challenges center on maintaining the commitment by state and local leaders to continue to focus on the needs of this developing cluster, even as there is pressure from other areas of the state to diversify and reallocate state resources. Regional universities and community colleges also face ongoing financial pressures, Wessner noted. Lastly, he warned that domestic innovation-based economic development can collapse under assault by foreign state-supported firms that are unrestrained by normal market competition.

Discussion

The discussion following this panel centered on the need for the state, private industry, and the workforce, among other actors, to work together to bring about a successful manufacturing innovation cluster. Charles Wessner emphasized the need for leadership and a sizable allocation of resources from the state as a signal to others of the commitment and purpose involved. “You have to do the funding because that is how the game works, he asserted. “What is remarkable about New York is that they are willing to step up to it.” Jennifer Hagan-Dier added that the State of Tennessee similarly reached out to attract a major automobile manufacturer to the state, and that the investment was worthwhile. She recalled that as assistant commissioner to the previous governor of Tennessee, she “got a lot of flak for giving away all our money,” but noted that the “eight times multiplier that came with the Volkswagen plant” validated the decision.

Hagan-Dier added that the state also had to provide leadership in building a skilled technical workforce that could support locally based advanced manufacturing. She noted that many students believe manufacturing work is dirty and are not attracted to manufacturing workforce training programs. She also cited the need “to have some certifications and some consistency and standardization around certifications and technical skills.” Finally, she observed that “we do not talk about apprenticeships in a way that is meaningful to our local communities.”

Katie Stebbins agreed that making large investments in advanced manufacturing technologies and developing the skilled technical workforce remain big challenges, even in a high-technology state like Massachusetts. Many traditional manufacturers, she noted, struggle with making long-term investments in technology and workforce training, focusing instead on satisfying their immediate hiring needs: “It has been a really difficult conversation all across the state when so many of our legacy manufacturers are still going through temp agencies,” she said. “They are not hiring full-time. They are not training from within.”

Brennan Grignon noted that it is difficult to fit the skilled workforce needs of advanced manufacturing into a “pretty dense landscape” of existing educational and training organizations. “We are trying to get our arms around all the things that are already in existence,” she said, “and where we can help facilitate the dialogue and change the conversation around job replacement into job translation and also help influence curriculum development.”

David Hart thanked the panelists and invited the participants to reconvene following the lunch break.

PANEL III: ASSESSING THE MANUFACTURING USA INITIATIVE

Welcoming back the participants, David Hart introduced Brett Lambert, vice president for Corporate Strategy at Northrop Grumman, to moderate the next panel. Lambert observed that the workshop participants included many people who were present at the beginning of the effort to revive U.S.-based advanced manufacturing. He added that “it is the absolute appropriate time to take stock of where we are now and if and how this process and these efforts will move forward, and take any lessons learned from them.” He then requested that Susan Helper, a former chief economist at the Department of Commerce and a professor at Case Western Reserve University, begin her presentation.

The Role of the Federal Government in Strengthening American Manufacturing

Helper introduced her presentation by stating that it would answer three key questions: What happened to U.S. manufacturing? Will the market provide a socially optimal manufacturing sector? and What obstacles hinder a better U.S. manufacturing sector?

What Happened to U.S. Manufacturing?

Pointing to Figure 3-3, Helper explained that “we had a fairly constant size manufacturing sector—15 to 17 million people—then it fell off a cliff between 2000 and 2010. We lost a third of manufacturing jobs then, and there has been a comeback—about 900,000—since.” Factors behind this decline, she said, have “something to do with globalization, trade agreements, strong dollar, automation, financialization, a focus on short-term corporate results, and a lack of support for sustaining the so-called industrial commons.”

Next, Helper shared Figure 3-4, which shows the value added to the economy from manufacturing. She noted that the line showing manufacturing minus computers—which is a small but highly productive sector—shows a

significant decline in value added relative to 2005. The bottom line, she concluded, is that “manufacturing is doing a lot better than it was in 2010, but still is a little bit challenged.”

Helper added that there is nothing inevitable about this decline. Germany and other northern European countries have higher wages than the United States, she pointed out, and 19 percent of their workforce is in manufacturing. According to Helper, this means public policies do make a difference. Other factors that may auger a comeback for manufacturing, she suggested, include a rise in unit labor costs elsewhere and “a realization by a lot of American companies that the hidden costs of a far-flung supply chain are really quite high and larger than they imagined.”

Will the Market Provide a Socially Optimal Manufacturing Sector?

Helper noted that because of knowledge spillovers, private companies are likely to underinvest in producing new knowledge. “If you are a profit maximizing investor at a company,” she said, “you think about the benefits to your company when you make an investment. You don’t think about all the other people that might benefit from your investment, whether those are your suppliers, your workers, the environment, et cetera.”

Helper then argued that the benefits to society from R&D are large. In particular, she said, R&D that feeds a healthy manufacturing sector benefits manufacturing workers, advances innovation, and promotes environmental sustainability. She argued that this means there is a role for public policies in encouraging research that underpins advanced manufacturing, especially given that the market will not produce this activity on its own.

What Obstacles Hinder a Better U.S. Manufacturing Sector?

Helper described three types of obstacles to a better U.S. manufacturing sector. The first is what she called the “missing middle” of the innovation process. Pointing to Figure 3-5, she noted the gap between investment by government and universities in maturing technologies in their earliest stages and investment by the private sector in the later stages. She asserted that public–private partnerships such as the Manufacturing USA institutes have a role to play in sustaining investments in manufacturing-related R&D to fill this gap.

The second obstacle derives from weaknesses in the supply chain. As firms restructure to rely more on outside suppliers, Helper explained, incentives to invest in research are diminished because the supplier can also offer the benefits of the innovation to the company’s rivals. Smaller firms, which increasingly do the manufacturing and supply the larger companies, also face a variety of obstacles, she added, from securing financing to commercializing new and unknown technologies. As a result, while small manufacturers make up 98 percent of manufacturing establishments, they perform only 33 percent of R&D.

The final obstacle to a more robust U.S. manufacturing sector is a poorly trained workforce. Helper explained that students and workers face a variety of challenges in linking to and staying with appropriate training programs and in keeping in pace with the changing needs of the manufacturing sector. Lack of training, she elaborated, is related to stigma associated with manufacturing, poor linkages between employers and educational organizations, and inadequate K–12 preparation.

Overall, Helper concluded, “we have a fragmented ecosystem, with a lot of potential for sharing and a lot of interdependence that is not being captured. Manufacturing USA could be a key hub to overcome that and become a key lynchpin of future policy.”

Government Accountability Office (GAO) Report: Strengthening Interagency Collaboration

Christopher Murray, assistant director with GAO’s Natural Resources and Environment team, began by explaining that his team looked at the status of the Manufacturing USA network and the extent to which manufacturers and other entities have used the institutes. (For a list of institutes and sponsoring agencies, see Figure 3-6.) They also examined the extent to which performance measures are in place to help the Department of Commerce assess progress toward achieving the program’s statutory purposes. A final objective of the GAO review was to gauge the extent to which Commerce has taken steps to coordinate the efforts of agencies that contribute to the Manufacturing USA program.¹²

Murray cautioned that the GAO review did not seek to assess the technologies being developed and commercialized by the institutes, as this was not the team’s area of expertise. Rather as generalists, they were applying the criteria set out in the legislation to see whether the initiative was effective in maximizing the use of federal dollars.

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¹² Government Accountability Office, Advanced Manufacturing: Commerce Could Strengthen Collaboration with Other Agencies on Innovation Institutes, GAO-17-320, Washington, DC, 2017. Access at https://www.gao.gov/assets/690/683973.pdf.

Requirements under the Revitalize American Manufacturing Innovation (RAMI) Act

Murray explained that the RAMI Act requires the secretary of commerce to establish a Network for Manufacturing Innovation program within NIST; to establish, also within NIST, a national program office to oversee and carry out the program; to establish a network of centers for manufacturing innovation; and to provide financial assistance for the establishment of more such centers.¹³

Further, Murray continued, the RAMI Act contains a number of provisions related to collaboration between the Department of Commerce and other agencies. In addition, several of the functions of the Advanced Manufacturing National Program Office (AMNPO) under the RAMI Act also pertain to collaboration. This includes establishing such procedures, processes, and criteria as may be necessary and appropriate to maximize cooperation and coordinate the activities of the program with programs and activities of other federal departments and agencies whose missions contribute to or are affected by advanced manufacturing.¹⁴

Utilization of the Institutes

GAO collected information on the use of the institutes between May and September 2016. The analysis showed that about 520 manufacturers and about 260 other entities were members of the seven operating institutes in 2016, including academic institutions, state government agencies, and MEP centers. Murray explained that these participants joined the institutes at a variety of membership levels. At the highest two membership levels, participation by manufacturers and other entities was fairly evenly divided. At lower levels, GAO found that manufacturers represented a larger proportion of participating members relative to the other entities. Looking more specifically at the size of the manufacturers, Murray reported that GAO found, as expected, that manufacturers that joined the institutes at a higher membership level were typically the large manufacturers, while those at lower levels tended to be the smaller manufacturers.

Small manufacturers often cited networking opportunities as a key benefit of participation, Murray noted. Membership helped them establish connections with large manufacturers and other small manufacturers and suppliers, and enabled them to obtain contracts they might otherwise have been unable to secure. Large manufacturers cited being able to accelerate their technology by 2 to 5 years and to get their products ready for commercial release more quickly.

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¹³ Some of the Manufacturing USA institutes were established prior to the passage of the RAMI Act.

¹⁴ Government Accountability Office, Advanced Manufacturing: Commerce Could Strengthen Collaboration with Other Agencies on Innovation Institutes, 2017.

Performance Measurement

Quoting from the GAO report, Murray said that “while the Department of Commerce, DOD, and DOE developed an initial set of performance measures for the program, reporting on institute performance is the responsibility of the sponsoring agency, and institutes are required to report only on measures that have been agreed upon with their sponsoring agencies. The RAMI Act does not include reporting requirements for institutes sponsored by DOD and DOE, but does require the secretary of commerce to report annually on the performance of the program.”¹⁵

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¹⁵ Ibid.

Murray added that the Department of Commerce “has taken steps or has identified options to address challenges in measuring program performance. At the same time, he acknowledged that some of the program’s statutory purposes (e.g., creation or preservation of jobs) are inherently difficult to measure because the timeline for measuring progress may be too short, and agencies also may face challenges in collecting performance information from institutes after their agreements end.”¹⁶

Mechanisms for Program Coordination

Murray reported that the Department of Commerce uses a variety of mechanisms to help coordinate the Manufacturing USA program. He noted the efforts of AMNPO and other agencies involved in the program to develop the December 2016 Manufacturing USA network charter, and asserted that the Manufacturing USA strategic plan and governance system represent important steps toward enhancing interagency collaboration under the program. In particular, he observed, the Manufacturing USA governance system defines roles and responsibilities for the agencies contributing to the program.

Murray explained that the program’s governance system identifies the network functions and subfunctions for which agencies that sponsor institutes (DOD, DOE, and Commerce), as well as those that do not sponsor institutes (NSF, DOL) are responsible, accountable, informed, and consulted. For example, as part of the function to sustain, strengthen, and grow the network under the governance system, agencies that sponsor institutes are responsible for identifying and helping to establish long-term nonfinancial support mechanisms for the program, which the program’s governance document notes should provide valuable nonfinancial support to help institutes succeed and thrive. Murray added that non-sponsoring agencies are responsible for one general function under the framework: promoting advanced manufacturing to a variety of external stakeholders, such as Congress and the public.

To enhance interagency collaboration on the Manufacturing USA program, Murray continued, GAO recommends that AMNPO work with nonsponsoring agencies whose missions contribute to or are affected by advanced manufacturing to revise the Manufacturing USA governance system so that it fully identifies the roles and responsibilities for these agencies in contributing to the program.¹⁷

Bringing R&D Innovation to Manufacturing

Mark LaViolette, specialist leader for Deloitte, opened his remarks by saying he was honored to share a third-party assessment of the Manufacturing USA program. This assessment was conducted between August 2016 and

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¹⁶ Ibid.

¹⁷ Ibid.

January 2017, and so includes the eight institutes that were operating at that time. LaViolette noted that Deloitte looked at the theory of the program, its progress to date, its metrics for impact, and its sustainability strategies and made some recommendations for how the program or institutes could evolve to further improve their performance and effectiveness.

LaViolette explained that the study’s methodology included collecting information from each institute that had data on project calls, members, and member interactions. Members of the research team also visited each of the institutes and interviewed its director and other senior staff. Finally, Deloitte conducted interviews with external experts and others with experience operating and participating in the program.

LaViolette emphasized the importance of advanced manufacturing for the U.S. economy, supporting trillions of dollars of production in other parts of the economy through a multiplier effect that comes from purchasing from and selling to more than 80 different industries, ranging from transportation to education. He then displayed a visualization of the interactions among the various institutes (Figure 3-7), pointing to the “scrum” or “mosh pit” of collaboration found in the center of the diagram. “What you can see here,” he said, “is that although there are only 753 organizations that have formal membership, there are almost 1,200 that have some sort of affiliation and want to be part of this. And then what you’re looking at right there is over 9,000 relationships amongst the organizations.” This type of visualization, he added, could enable the institutes to help stakeholders at the local and state levels understand the scope of the institutes’ economic reach.

LaViolette then outlined the six major findings of the Deloitte analysis. First, the Manufacturing USA program provides the focus and collaboration needed to invest in and develop new manufacturing technologies. Second, the institutes accelerate innovation by providing access to equipment, pooling project costs, and developing roadmaps that coordinate research activities. Third, by moving a series of complementary technologies forward at the same time, the program has a portfolio approach that captures complementarities and reduces risk. Fourth, and relatedly, the network of institutes promotes connectivity among firms, research organizations, and other actors in the manufacturing ecosystem. Fifth, this networking activity strengthens the growth of regional economic clusters. Finally, the institutes are helping to identify and develop the skilled technical workforce necessary to sustain advanced manufacturing in the United States.

Concluding his presentation, LaViolette itemized the recommendations of the Deloitte report.¹⁸

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¹⁸ Deloitte, Manufacturing USA: A Third-Party Evaluation of Program Design and Progress, January 2017. Access at https://www2.deloitte.com/content/dam/Deloitte/us/Documents/manufacturing/us-mfg-manufacturing-USA-program-and-process.pdf.

• Develop and execute an overarching growth strategy for the institute portfolio, accounting for new institute formation, member overlap, and competition. Going beyond the published strategy documents, institutes need to address a myriad of issues, from the pooling of intellectual property rights to ensuring that the institutes complement each other’s efforts.
• Facilitate further connections to relevant organizations and resources, especially among institutes, to increase program impact.
• Provide shared services to promote quality operations.
• Ensure an enduring focus on U.S.-centric goals. The program should create more robust plans for maintaining U.S. government involvement with and support of the institutes. Multiple levers are available for this purpose, including providing additional funding, referring institutes to other government customers, and offering high-value support services.
• Increase activities that emphasize transition and deployment activities that expand commercialization efforts.
• In creating contracting and membership agreements, the institutes should encourage a less restrictive approach to contracting and membership agreements.
• Further align institute workforce programs with existing federal, state, and local programs

From Concept to Practice: The Manufacturing USA Annual Report

Mike Molnar, founding director of AMNPO, described the Manufacturing USA program as a journey. He noted that the most difficult part of any trip is the take-off and landing. The Manufacturing USA journey started in 2012 with the Advanced Manufacturing Partnership report issued through PCAST that called for a coordinated government effort. Since then, Molnar observed, an interagency team has come together, breaking down barriers and establishing the first set of advanced manufacturing institutes.

As described by Molnar, the Manufacturing USA journey is guided by a vision of U.S. global leadership in advanced manufacturing. In turn, he said, the mission of the program is to “connect people, ideas, and technology to solve industry-relevant advanced manufacturing challenges, thereby enhancing industrial competitiveness and economic growth and strengthening our national security.” He added that this mission is driven by the objectives specified in the RAMI Act, which fall within the four program goals of competitiveness, technology advancement, workforce development, and sustainability.

The initiative thus far has developed 14 institutes. To describe the program’s accomplishments to date, Molnar said he would draw on the results of a fiscal year (FY) 2016 report produced by AMNPO, and also report on how the Manufacturing USA program is responding to the recommendations of the Deloitte and GAO studies.

Measuring Performance

According to Molnar, the interagency team driving the Manufacturing USA program has worked hard to create top-level metrics. He pointed to a slide summarizing the key categories, metrics, and units of measure used in tracking the progress of the institutes and the overall program against its vision and mission (see Figure 3-8).

Molnar reported that in terms of impact as of 2016, the Manufacturing USA program had 830 members, two-thirds of which were manufacturers, and that two-thirds of these were small manufacturers. Other participants included 177 universities, community colleges, and other academic institutions. There were also 105 other entities, including federal, state, and local government agencies; federal laboratories; and not-for-profit organizations.

In terms of financial leverage, FY 2016 matching was nearly 2 to 1, Molnar reported. Of the $333,808,455 in total institute expenditures, 66 percent of institute funding came from nonfederal matching funds and 34 percent from non-program matching expenditures. This funding supports all aspects of institute operation, including technology advancement projects, education and workforce training efforts, and capital equipment.

In terms of technology advancement, Molnar reported that in FY 2016, there were 191 active R&D projects at the institutes. As an example of this research, he cited development of a prototype high-power inverter for hybrid motors in heavy-duty construction vehicles and trucks—a partnership between researchers from John Deere and PowerAmerica. Based on this advance, Deere plans to hire American production workers in Fargo, North Dakota, to manufacture and sell inverters starting in 2019. A second example is a competition organized by DMDII to analyze data provided by Indiana’s ITAMCO and to develop software applications and other tools. Molnar noted that “ITAMCO learned so much about their operations that they would never have had without this deep dive into their data.”

Finally, in terms of developing an advanced manufacturing workforce, Molnar said he was stunned to find that nearly 28,000 participated in institute-led workforce programs, including 23,560 students involved in institute R&D projects, internships, or training. A further 3,386 workers completed institute-led certificate, apprenticeship, or training programs, while the program drew in 1,023 teachers and trainers in institute-led training for instructors. As a network, Molnar added, Manufacturing USA also recognized that certain common skills are needed across advanced manufacturing technologies. Thus the program developed a common training model built around those core competencies, with each institute then working to adopt, refine, or develop technology-specific modules to meet its industry’s needs.

Building on External Assessments

Molnar continued by noting that AMNPO is working on responding to the recommendations resulting from the Deloitte and GAO reviews, in the spirit

of continuous improvement. He reported that, building on Deloitte’s recommendation, the program will expand and modify its metrics as the program matures. He added that, to address GAO’s concern about including nonsponsoring agencies whose missions contribute to or are affected by advanced manufacturing, Manufacturing USA now includes DOL and the Department of Health and Human Services (the Food and Drug Administration and the Biomedical Advanced Research and Development Authority) on its interagency working team.

Discussion

Brett Lambert asked Mark LaViolette and Chris Murray to compare and contrast their assessment efforts. LaViolette noted that while he knew of the GAO audit, Deloitte’s broad third-party assessment was an independent effort; he not aware of GAO’s process and methods. Murray agreed that these were essentially two separate reviews, with the GAO review focused on compliance with the criteria established in legislation and elsewhere.

Lambert then asked Susan Helper and Mike Molnar about where they think the program will be 5 years from now. Molnar responded that while the institutes have a common framework, they are characterized by a diversity of approaches that adapt to the needs of their industries and technologies. Even so, he believes there is significant scope for learning from each other and expects that going forward, learning across the institutes will be more rapid. To this end, he noted, the program has established the Institute Directors’ Council to allow the directors to talk with each other on a monthly basis. He added that he looks forward to being able to gauge project impacts as they begin in time to bear fruit.

Helper expressed the hope that, as the program’s outcomes become apparent, it will be possible to demonstrate its broad social and economic benefits. There are now a “lot of cool institutes,” she said, and “they are working together.” But “they are small and their funding is not assured. So can we scale up these institutes and give them some kind of long-term lease on life?” Helper also noted that, beyond advancing new technologies, there are challenges to be addressed in facilitating their transition to the marketplace. In some cases, she observed, rules and norms governing particular markets create silos, inhibiting fuller participation by small innovative firms, while in other cases, purchasing incentives of some firms may not be consistent with their innovation objectives. She asserted that more work needs to be focused on the organization of firms and the market to understand, among other dynamics, how the structures of supply chains and linkages binding local and regional clusters affect the adoption of new technologies.

A participant raised the issue of the roles of states in augmenting the impact of the institutes and helping to ensure their long-term survival. Molnar emphasized that the institutes should do more than carry out successful projects,

saying that “the ultimate goal of every successful institute is to really catalyze that regional manufacturing hub to have national impact.” Helper expressed the view that economic development policies pursued by states and regions need to evolve from simply offering tax breaks that encourage a “race to the bottom” to reflecting a strategy of investment in shared assets—including resident advanced manufacturing institutes—to create a “stickiness” so that companies will want to grow, thrive, and contribute to a locally based but globally linked productive cluster. She said she was encouraged to learn about initiatives in New York and Massachusetts in this regard.

PANEL IV: ADVANCED MANUFACTURING AROUND THE WORLD

Bill Bonvillian, lecturer at the Massachusetts Institute of Technology and the panel’s moderator, began this session by arguing that the United States needs to move ahead in advanced manufacturing because that is where its competitors are going. “Tracking the metrics on our international competitors—especially Germany and China—and what they are moving on is going to be crucial,” he asserted, “in part to understand our own position, but in significant part to understand lessons that we are going to need to understand and learn from abroad.” He then introduced the panelists and invited Erica Fuchs, a professor at Carnegie Mellon University, to explain why the United States needs to lead in developing and commercializing advanced technologies.

Manufacturing Abroad and Innovation in the United States

Fuchs began her presentation by making three points. First, the capacity to innovate and manufacture leading technologies in the United States is important for national security. Second, developing and commercializing advanced technologies in the United States is necessary for the nation to remain a global leader. And third, in order to lead, the United States needs to understand the capabilities and potential of different organizational forms for advancing innovation and manufacturing.

Fuchs next provided some data to animate these points (Figure 3-9). She noted that while the United States’ manufacturing value added has slowly increased over time, “what has changed is the percentage of the global pie that we are producing.” This phenomenon, she observed, is driven largely by the rapid growth of Chinese manufacturing, reducing the U.S. market share.

Fuchs observed that this shift in manufacturing presents several problems. The first, she said, concerns what the United States is no longer manufacturing—a variety of products that support the defense industrial base. She noted that IBM has sold off its last trusted foundry, meaning that the U.S. government can no longer ensure the integrity and confidentiality of integrated circuits used for applications in national security during their design and

manufacture. The second problem she identified concerns an erosion of the capacity to innovate as the center of gravity in advanced manufacturing for a number of leading technologies moves overseas due to lower production costs. “Technological superiority has repeatedly been a fundamental part of military security and military dominance,” Fuchs observed. Third, she noted that “when you move manufacturing overseas, it becomes unprofitable for firms to pursue the technological frontier and the most advanced technologies.” Citing her research on the shift in production by optoelectronic firms from the United States to countries in East Asia, she pointed out that public companies increasingly face incentives to produce old technologies overseas and abandon the development of new technologies in the United States.¹⁹ As a result, she said, “it is only the private venture and government supported firms that actually attempt to pursue the new technology back in the United States, as in the optoelectronics case.” If this the case, she asked, what role should the state play in advancing manufacturing?

Addressing her third point, Fuchs briefly examined different models of public–private partnerships to support U.S.-based advanced manufacturing:

• The Defense Advanced Research Projects Agency (DARPA) model—Central to this model, Fuchs said, is the role of the program manager, who is appointed to a 3- to 5-year term, serving primarily as a network agent, matching ideas and people, and connecting emerging research themes to future military needs. She characterized the DARPA model as designed primarily to prevent technological surprise rather than to develop the broad platform of advanced manufacturing technologies.
• The Semiconductor Research Corporation—Fuchs described this as a technology research consortium in which industry, with public support, funds research projects in universities to carry semiconductor technologies forward. She noted that, while this model has been successful in coordinating precompetitive research through the development of shared technology roadmaps, this paradigm faces a major challenge as it approaches the end of Moore’s Law and the availability of a common complementary metal oxide semiconductor (CMOS) technological platform.
• Manufacturing USA—Fuchs characterized this model as seeking to develop platform technologies in a variety of emerging areas that “economists tell us are going to be underfunded” by the private market. The challenge, she explained, is that when the costs are targeted and the benefits are diffuse, it is difficult to align incentives among firms in an industry to contribute to this work.

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¹⁹ Erica Fuchs and Randolph Kirchain, “Design for location? The impact of manufacturing offshore on technology competitiveness in the optoelectronics industry,” Management Science Vol. 56, Issue 12, pp. 2323–2349, 2010.

Commenting on the limited toolset available compared with the importance of manufacturing for economic growth and national security, Fuchs asked if these available options are right or adequate for scope of the challenge. These remarks set the stage for the next group of panelists to consider what other countries do to support the development and domestic manufacture of advanced technologies.

Germany’s Fraunhofer Institutes and the Industrie 4.0 Initiative

Patrick Bressler introduced himself as executive vice president of Fraunhofer USA. He said Germany understands the importance of manufacturing as a key engine that stimulates not only production but also R&D in a virtuous cycle. “That is one of the reasons why Germany has always kept the manufacturing sector up and running,” he observed.

Fraunhofer-Gesellschaft

Bressler described Fraunhofer-Gesellschaft (the Fraunhofer Society) as a network of German institutes for applied research. Its primary mission is to perform contract research for German industry, particularly SMEs, which translate basic research from universities and nonuniversity research organizations into commercial products and industrial processes.

Fraunhofer’s research activities are conducted by 69 institutes and research units at locations throughout Germany. System-wide, it employs a staff of 24,500, the majority of whom are qualified scientists and engineers. Bressler explained that each Fraunhofer institute specializes in a particular technology or sector, and an institute exists for virtually every sector of significance to a modern industrial economy, ranging from renewable energy, to aerospace, to automotive manufacturing, to microelectronics and information technology. He added that institutes working in related subject areas cooperate in Fraunhofer Groups and foster a joint presence on the R&D market.

Collaboration with Universities

Bressler explained that each Fraunhofer institute is paired with a German university and can utilize the most promising students as part-time researchers, thereby giving students practical experience in commercially oriented research and manufacturing environments. He noted that this partnership gives the Fraunhofer institutes access to basic research conducted at the partner universities while also providing a ready pool for the recruitment of students and junior scientists. It also provides opportunities for Fraunhofer employees to gain additional scientific qualifications. In sum, Bressler said, “The institutes generate technology for commercial products and processes, enable companies to test equipment and industrial processes on pilot

manufacturing lines, and foster a continual flow of trained engineers and technicians to the private sector.”

Funding Scale and Stability

Bressler reported that Fraunhofer’s funding is derived from diverse sources, including federal, state, and European Union public funding; fees from contract research for industry and public organizations and foundations (see Figure 3-10); and licensing fees for intellectual property. The annual research budget totals 2.1 billion euros. Of this sum, 1.9 billion euros is generated through contract research. One-third of Fraunhofer’s funding consists of “core” funds provided by the German federal and state governments; roughly another third comes from research contracts with government entities; and one-third is provided through research contracts with the private sector, which are frequently supported by government grants and other financial assistance.²⁰ Bressler drolly described this high level of ongoing public funding to support large and midlevel manufacturing, embedded along with the German system of dual education and vocational training, as “un-American,” but noted that it has provided great stability over the 70-year life of Fraunhofer-Gesellschaft.

Together, Bressler said, the Fraunhofer institutes operate in a “dynamic equilibrium between application-oriented fundamental research and innovative development projects.” He explained that industry can commission research, development, and validation projects; gain access to cost-intensive state-of the-art laboratory equipment; and hire experts experienced in the newest and most relevant technologies. The institutes also help maintain “critical mass” in technologies; train interns, students, and postdoctoral fellows on relevant technologies; provide validated solutions; and secure and manage intellectual property.

Industrie 4.0

Bressler explained that Industrie 4.0 is the name given to a strategic initiative to establish Germany as a lead maker and purchaser of advanced manufacturing solutions. Heralding the next industrial revolution, he elaborated, this initiative seeks to integrate digitization, new manufacturing processes, and the interconnectivity needed to develop sustainable and efficient manufacturing platforms that enable the mass manufacture of tailor-made, individualized new products. He went on to say that this initiative has the potential to be disruptive, creating new value chains and business models.

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²⁰ National Research Council, 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program, 2013, Appendix A2: “Fraunhofer-Gesellschaft: The German Model of Applied Research.”

Bressler noted that Fraunhofer has a strong focus on Industrie 4.0 technologies throughout the entire production value chain. Together with university research partners, experts at Fraunhofer are working to develop the smart factory of the future, including in such areas as deep-drawing to laser applications, and services related to the Internet of Things.

Citing a recent publication by Reimund Neugebauer and colleagues, Bressler said that “key enablers for harnessing the benefits of digitization for Industrie 4.0 are widely accepted standards, extreme low latency in digital communication as well as safety and security for data analytics and data exchange.”²¹ The “Fraunhofer layer model,” he added, has been developed to translate these challenges and developments into corresponding technologies.

China’s Specialization in Innovative Manufacturing

Jonas Nahm, assistant professor at The Johns Hopkins University, began by observing that “it is no news to anyone that China has rapidly added to its manufacturing capacity and increased its manufacturing value added. But we often forget that for the last 10 or 15 years, the Chinese central government has been trying to get away from manufacturing and into innovation based on earlier stage research.” This top-down push has failed, however, because the incentives of localities and firms were not aligned with this approach. Nahm explained that a new strategy introduced in 2015 entails a shift from forging industrial leadership through innovation toward a more German-inspired model of upgrading manufacturing through a rolling series of technological advances.

China’s Indigenous Innovation Policy

Nahm described the Indigenous Innovation Policy as focused on gaining independence in technological innovation from foreign partners, with innovation being defined as invention and the government seeking to advance it by increasing R&D expenditures in basic research. This strategy, Nahm opined, has achieved some mixed success: “I think China is on track to meet its R&D expenditure goals, but it probably is not on track to meet its basic research expenditure goals.” Nahm went on to observe that this policy reached its pinnacle in the 2010 Strategic Emerging Industries Initiative, which identified a number of critical sectors for technological independence from foreign partners, “focused again on this idea of innovation as invention.”

Researching how this policy was being implemented in the wind and solar energy sectors, Nahm found that Chinese firms focused on bringing new technologies to scale very quickly at lower cost by substituting materials, upgrading product architectures, and often integrating new technologies at a rapid pace. He added that “a lot of this engineering was performed on

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²¹ Reimund Neugebauer, Sophie Hippmann, Miruim Leis, and Martin Landher, “Industrie 4.0—From the perspective of applied research,” Procedia CIRP Vol. 57, pp. 2–7, 2016.

technologies that were coming from abroad.” In short, he said, “the Chinese firms basically figured out they could buy the technology and they were going to invest their time and resources in trying to bring this stuff to scale.”

These firms were responding to incentives promulgated by local governments in China, Nahm continued, which differed from the strategic goals announced by the central government to foster indigenous innovation. As an example, he cited wind turbine manufacturer Goldwind, which used 863 Program funds not to replace foreign partners but to improve capabilities in commercialization and scale-up. In summary, “local governments in China are incentivized to produce short-term economic growth, which means that they are not investing in some grand innovation strategy that may or may not work out. It is funding mass production.”

Made in China 2025

Nahm explained that the lessons and limitations of this strategy led the central government to announce a new Made in China 2025 policy, starting in 2015. Describing this as “a very top-down policy framework that comes out of the State Council in Beijing,” he said it reflects a “shift in focus from the sort of U.S. model of research-driven innovation, as China saw it in 2006, to a much more German or Japanese model of trying to upgrade within manufacturing, rather than upgrade out of manufacturing.” He described the current policies as seeking to address “a huge concern about getting stuck in the middle-income trap”—not being able to compete on cost with other developing economies as wages in China rise, while at the same time being squeezed from below by higher efficiencies in the advanced economies. He added that “it is clear that this is very much about import substitution and not buying the German production equipment anymore.”

According to Nahm, the Made in China 2025 strategy targets a number of technology platforms and industrial sectors that are seen as critical to the future of China’s economy, revealing a comprehensive investment and competitiveness strategy (see Figure 3-11). Leading features of the new push include

• the creation of a network of manufacturing centers, similar to the U.S. effort;
• the forging of industry consolidation to ensure that firms make money;
• a focus on green manufacturing; and
• initiation of a large research program on high-end manufacturing equipment.

Nahm added that these initiatives are backed by “massive investments in these technologies”:

• A $3 billion Advanced Manufacturing Fund has already made investments in firms that produce electric vehicles and robots.
• The Ministry of Industry and Information Technology has pledged to open 40 Manufacturing Innovation Centers. A battery innovation center opened in 2016, with $400 million in funding through 2020.
• The central government claims to have spent $3 billion on 300 enterprise-level experimentation programs focused on various sorts of advanced manufacturing–related technologies, from radio frequency identification (RFID) in components to cloud technologies and beyond.
• There has been a pledge to open 40 industrial parks—just for robots.
• Subsidies worth 40 billion yuan have been pledged for advanced manufacturing products. Guangdong, for example, has promised $150 billion to upgrade its domestic local manufacturing plants.

Some Notes of Caution

Nahm reminded the audience that advanced manufacturing in China is progressing in different stages. He noted that many Chinese firms have not yet fully upgraded to integrating computers and automation into production, much less anticipated the current trend of developing intelligent cyber-physical systems, often called Industry 4.0, to create smart manufacturing. “When you talk about advanced manufacturing in China,” he continued, “it is worth paying attention to what they are actually talking about. Certainly, if we look at the use of industrial robots, for instance, China is far behind anybody else and is not catching up very much.”

Concluding his remarks, Nahm suggested several notes of caution, China’s remarkable ambitions and investments notwithstanding.

• Policy misalignment—The goals of the central government, the incentives faced by regional bodies, and the capacity of enterprises to execute on plans continue to be misaligned.
• Limited absorptive capacity—Many firms lack the absorptive capacity to participate in the new programs to foster advanced manufacturing.
• Limited training—The workforce training needed to support the scale of advanced manufacturing being planned is lacking. “If this amount of robotics manufacturing is going to happen,” Nahm asserted, “we need a lot more people who know how to use CNC [Computer Numerical Control] machines.”
• Overcapacity—Duplication of effort at the local level can lead to problems of overcapacity.

Overall, Nahm observed, Chinese firms are finding ways to integrate themselves into global innovation networks through a very nationalistic strategy.

The scale and ambition of the effort require attention, not least for its potential to disrupt, he concluded, even as “I am both worried and skeptical about how it is going to work.”

Discussion

Bill Bonvillian thanked the speakers and summarized some of their key points. He said that Erica Fuchs “taught us about the consequences for ‘innovation here’ by ‘outsourcing there.’” It is necessary, he added, to look more closely at the relationship between “production strength” and “innovation capability,” and doing so requires understanding the role of other innovation players and partnerships.

Citing Patrick Bressler’s presentation, Bonvillian suggested that there is a lesson to be learned from Germany, which, through its Industrie 4.0 initiative, is utilizing the resources, facilities, and talents of its research institutes to develop a technology roadmap for the next generation of advanced production. He posed the question of whether there is “a way of bringing our institutes together to think more broadly, not just about their sector, but more broadly about the whole system of advanced manufacturing that is going to entail [gathering] a lot of their particular strands into an overall effort.” His point was that the future factory would include many advanced manufacturing elements, and the network could play a role in pulling these individual elements into a system. In regard to workforce training, he added that the Fraunhofer Academy is a valuable mechanism for advancing specialized skills for manufacturing, and that this model may offer ideas for the U.S. institutes, including operations at a network level.

In response to a question from the audience, Bressler explained that the Fraunhofer institutes can create alliances among themselves to advance technologies that cut across disciplines. He gave the example of an advanced hip implant, in which institutes with a complement of competencies cooperated to address the needs of a German company.

Finally, Bonvillian thanked Jonas Nahm for furthering an understanding of China’s “quite dynamic model for innovation change.” He observed that the results of China’s previous strategy of indigenous innovation may not have worked as central planners had expected, but still led China to dominate world production. What would be the impact of China’s new strategy more directly focused on manufacturing? He added that “the levels of money that are being discussed here are almost unimaginable.”

Charles Wessner drew attention to Nahm’s statement that China has allocated $150 billion to the development of a vertically integrated semiconductor industry. Nahm noted in this regard that the semiconductor fund is one of the major items in China’s Advanced Manufacturing Fund, which was kicked off in 2016. He cautioned that even though there are inefficiencies in the Chinese system,” it is enough money that some if it will be productive.”

PANEL V: POLICY ROUNDTABLE

David Hart invited Mike Russo of GLOBALFOUNDRIES to moderate the final panel. Russo began by suggesting that the Manufacturing USA institutes play an important role not only in extending American leadership in R&D but also in growing an educated and trained workforce and in forging linkages across the supply chain. He added that his own company, GLOBALFOUNDRIES, a large contract chip maker, “is driven to make sure that the ecosystems that we need to compete are in place wherever we set up shop.”

Introducing his panel, Russo noted that while other panels had addressed the issues from the perspective of innovation, employment, and economic development, this panel would “look at things more from a national security perspective and a manufacturing industrial base perspective.” He then introduced Sridhar Kota, a professor of mechanical engineering at the University of Michigan and an early champion of developing a network of advanced manufacturing institutes, and invited him to speak.

Connecting the Dots

Kota began his presentation by asserting that the United States needs a strong advanced manufacturing base to carry out national missions in defense and to promote economic growth and that the Manufacturing USA institutes are designed to build and reinforce this base. He added that a strong domestic manufacturing base is essential for national security. While critical elements of the U.S. defense infrastructure need to be produced in secure and trusted production facilities, he continued, there are serious gaps, an observation he illustrated by citing the finding of a 2012 report of the Senate Armed Services Committee that there are numerous examples of counterfeit products and parts in the nation’s military equipment. “As more and more advanced work is conducted abroad,” he argued, “the U.S. will increasingly rely on others to provide our weapons.”

Kota also stressed that a strong domestic manufacturing base, as a part of a functional innovation and technology ecosystem, is essential for the nation’s economic well-being. Suggesting that a focus on inputs alone is not sufficient, he noted that the United States invests $140 billion in science and technology as an input but has as one outcome a $100 billion trade deficit in advanced technology products. “We can’t possibly have that,” he said; “we should have a trade surplus in advanced technology products and we should have trusted sources.”

Kota continued by asserting that “while we are still the best in the world when it comes to science, if we do the invention and someone else does the manufacturing, then there is no real return on the taxpayers’ investment.” Recalling the market failures described by Susan Helper earlier in the day, he averred that “the government has a role to nurture and mature these technologies

and reduce the technical and market risk.” And beyond this, “we want to ensure that we anchor manufacturing of these technologies here; you cannot just mature the technology and give it to your friends and competitors overseas.”

Kota noted that other leading countries have robust and well-funded national strategies to support advanced manufacturing. In the United States, by contrast, the manufacturing institutes and the MEP system are the only real policy tools currently available to build the nation’s industrial base. While these programs can be improved, Kota argued, “we should absolutely double down on them. How could we not afford to have funding for these two entities?” “So, we really need strategic and coordinated investment,” he continued. “We are so good at science because we have an incredible scientific infrastructure in this country. We really need to build an infrastructure for engineering, technology, and innovation, sustained by strategic and coordinated investment—that’s what it is all about.” DOD, DOE, NIST, NSF, and other agencies all play a role, he added, but “we just need to connect the dots.”

Rebuilding the Manufacturing Commons

André Gudger, founder and CEO of Eccalon, began by suggesting that the Manufacturing USA institutes are showing signs of regenerating the manufacturing commons. This commons began to degrade starting in the late 1980s, he continued, when U.S. businesses began to disinvest in large-scale, billion-dollar research organizations such as Bell Labs. These research organizations generated intellectual property, anchored the innovation ecosystem, and served to provide technological advantages to the warfighter. However, Gudger explained, “such long-term research and development investments didn’t look good on corporate balance sheets, so out they went. As a result, we eroded that part of our industrial base.” To recover from this legacy of disinvestment in manufacturing innovation, Gudger argued that what is needed now is “a resurgence of technical innovation, technical dominance, and technical superiority—whether it is governmental or commercial.”

According to Gudger, the Manufacturing USA institutes are helping to fill that void. While many of the institutes are in their early years, he observed, the recent reviews show signs that the institutes are working. Already there are new activities in workforce development; growing intellectual property portfolios; and early activity in connections among industry, academia, local governments, and the federal government in ways that have not been seen before, including cooperative agreements that help these actors work together to rebuild the industrial commons. These signs indicate, Gudger said, “that we need to do more, not less, of what we have been doing.”

In comparing the scale of the U.S. effort with that in China reported by Jonas Nahm, Gudger reminded the audience that “our investment may not be as high as some people who are starting from scratch. We are actually building on a strong platform and with a workforce that is knowledgeable. We are bending that workforce so that we can then bring back the high-paying jobs. We are

solidifying our technical dominance across both commercial and federal markets.” Concluding his remarks, Gudger challenged the audience to stay the course, to rebuild the innovation commons to ensure the future of advanced manufacturing in the United States.

Manufacturing Strength and National Security

Kirk McConnell, professional staff member on the staff of the Senate Armed Services Committee, acknowledged that as someone who handles intelligence and cybersecurity for that committee, he was a newcomer to manufacturing policy. Still, he said, what struck him about the day’s deliberations was the systemic problems in the manufacturing sector and more broadly in the innovation system. Given the importance of manufacturing and innovation for national security, he asserted, these problems require national action.

McConnell described the collapse of manufacturing employment in the first decade of the 21st century as having serious negative social impacts, including—in some areas—rising mortality rates and high levels of opioid addiction among working-class white Americans. He observed that the decline of the manufacturing sector also has coincided with poor gains in productivity, adding that “if you don’t gain in productivity, you have a moribund economy. And if you don’t have a healthy economy, you don’t have a strong defense.”

McConnell cited Germany as an example of a country that pays attention to nurturing a thriving manufacturing sector. While this is possible for the United States, he suggested, policy makers here are focused on reforming the tax system, rewriting trade policies, and pulling back regulations rather than paying attention to manufacturing and other engines of economic growth. There are some systemic problems with U.S. innovation policy, he concluded, which he characterized as disturbing.

Communicating the Value of the Institutes

Arun Seraphin, professional staff member on the staff of the Senate Armed Services Committee, asserted that for the Manufacturing USA initiative to survive, it must make the case for its value to Congress, to decision makers in the Pentagon, to universities, and to incumbent firms. He suggested that members of the Senate Armed Services Committee are likely to support the institutes if they think that the advances in manufacturing the institutes enable are lowering costs and speeding acquisition and procurement. These senators, he added, are grappling now with the challenge of meeting the surges in equipment required for the war efforts in Afghanistan and elsewhere, and are likely to support the institutes if the case is made that advanced manufacturing is responding to current mission needs.

In general, Seraphin added, members of Congress also like to support efforts in their states or districts that create jobs and support economic activity.

He expressed the view that the Manufacturing USA model of distributing institutes across the country works to this advantage. In any event, he urged the institutes to develop a better communication strategy to reach members of Congress. In particular, he suggested, members need to be able to recall a good story related to something that was produced by a manufacturing institute. For congressional staff, he continued, the institutes need to determine how to communicate succinctly the advantage of sending an extra dollar to a manufacturing institute over other alternative and competing mechanisms. The question they must answer, he said, is, “Why is this dollar better spent at an institute rather than with a prime contractor, programs like SBIR that draw out innovative solutions from small businesses, or university research programs?”

Seraphin argued that the institutes also need to reach out to the organic industrial base—the shipyards and arsenals where much of the work of producing and repairing gear used by the armed forces is carried out. The institutes need to emphasize these connections, he advised, and develop programs so that they are more visible to leadership in the Pentagon and on Capitol Hill.

As a final point, Seraphin observed that the manufacturing ecosystem being developed by the Manufacturing USA institutes is only as robust, rich, and interconnected as its dollar flows. “If we don’t actually come up with ways to flow dollars among all these actors we are trying to interconnect—the universities, the industry, the government labs—we don’t have the ecosystem we are looking for,” he asserted. He urged the audience to think hard about the challenge of moving and sharing dollars among these organizations.

Discussion

Mike Russo asked the panelists for their thoughts on improving and sustaining the Manufacturing USA institutes. “If the conclusion is that this is a tool in the toolbox that we need to keep,” he said, “then we need to figure out how to make them more effective. With other nations making huge investments, we need to figure out how to sustain the model.”

Sridhar Kota suggested that an important lesson from the German Fraunhofer institutes is the role of government in providing matching funds to reinforce private investment. Kirk McConnell emphasized that public investment in the manufacturing institutes plays an important role in a space where venture capitalists are not willing to make large and sustained investments in startups planning to manufacture “hard” technologies. He added that large companies, reacting to incentives that reward short-term returns to shareholders, have also retreated from performing manufacturing R&D in house.

André Gudger observed that addressing workforce development is essential if advanced manufacturing is to take root on U.S. soil. In part, he said, this challenge requires educating students and workers about what manufacturing looks like today: “The next generation of shop-floors doesn’t look like it did 20 years ago.”

Arun Seraphin noted the “tension between wanting to do good science and technology and manufacturing research at a place like an institute, and then doing nothing to ensure that it actually creates American jobs in America.” While the institutes find support on Capitol Hill for their role in strengthening U.S. competitiveness and in ensuring access to trusted technologies, he warned that there will be “frustration if we start to see the intellectual property generated out of the institutes appearing in overseas production lines.”

Bringing the workshop to a close, David Hart thanked the panelists and the audience, saying, “The one thing we can say is that the conversation will continue.”