A Surprise Lift for Made in America
Thirty years ago, Japan was overtaking the United States as the leading manufacturer of semiconductors. Major U.S. chipmakers and the U.S. Department of Defense (DOD) were alarmed that America was about to lose its global dominance in a technology vital to the military and nondefense industries.
To reverse the trend, Congress and the Reagan administration authorized a public/private partnership called Sematech (semiconductor manufacturing technology), launched in 1987 in Austin, Texas, and headed by Robert Noyce, a founder of Fairchild Semiconductor International Inc. and Intel Corp.
The consortium received annual contributions of $100 million from DOD and $100 million from 14 private companies. The intention was to focus expertise and break down barriers between competing companies, making manufacturing innovations widely available and quickly adaptable up and down the American semiconductor manufacturing supply chain.
It worked. Sematech, aided by a new U.S. trade agreement with Japan and a softening of the Japanese economy, helped America regain its chipmaking leadership in 1993.
Starting in the second year of his first term, President Barack Obama, acting alone, applied the Sematech idea to a broad set of manufacturing challenges, from welding lightweight metal alloys and standardizing 3-D printing methods and materials, to making costly digital design technologies available to small manufacturers via the Internet.
“Supporting innovation and manufacturing in America will help us continue to compete in a global economy.”
—Sen. Roy Blunt (R-Missouri)
Late last year, with bipartisan support, Congress endorsed a nearly $300 million expansion of the program in a $1.1 trillion spending bill. In rare harmony across the nation’s deep political divide, the White House and Congress planted seeds for a greater global market share for U.S.-made goods and a long-term revival of U.S. manufacturing jobs.
“We have not run out of stuff to make,” Obama said in announcing his Advanced Manufacturing Partnership in 2011 at Carnegie Mellon University in Pittsburgh. “We’ve just got to reinvigorate our manufacturing sector so that it leads the world the way it always has—from paper and steel and cars to new products that we haven’t even dreamed up yet.”
“Supporting innovation and manufacturing in America will help us continue to compete in a global economy,” Republican Sen. Roy Blunt of Missouri said in applauding congressional authorization of the program he had co-sponsored with Democratic Sen. Sherrod Brown of Ohio.
But unlike the precisely targeted Sematech campaign for the U.S. microchip industry, the unfocused array of public/private collaborations the White House has labeled the “national network for manufacturing innovation” lacks full buy-in by America’s manufacturers, especially small and medium-sized companies. None of three major business lobbies—the U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable—at press time had even commented on the program after the omnibus spending bill was signed by Obama in December.
A Broad Agenda
Obama proposed up to 15 public-private partnerships or “innovation institutes” to sponsor collaboration among companies, universities and government agencies in a wide range of manufacturing areas. Manufacturers whose CEOs have pushed the effort include Dow Chemical Co., Alcoa Inc., Ford Motor Co., Caterpillar Inc., Siemens Corp., Procter and Gamble Co., United Technologies Corp., Northrop Grumman Corp. and Illinois Tool Works Inc.
Four of the new institutes had launched by the end of last year: additive manufacturing (3-D printing); lightweight materials (focusing on metals); digital design and manufacturing tools (available through the Internet); and power electronics (faster and smaller devices for motors, consumer electronics and the nation’s power grid).
Federal agencies and industry partners are to split the institutes’ operating budgets for the first five years (seven years if institutes are created by congressional legislation). The number of initial partners ranges from 18 companies for the power electronics institute, based at North Carolina State University in Raleigh, to 50 for the 3-D printing institute, based in Youngstown, Ohio.
The pilot program, the 3-D printing institute, began in August 2012. Three others opened their doors last year. So far, each institute has established office space, solicited requests for project proposals in their specialty and reached out to educators in their respective region.
In the early going, no surprise, none of the institutes has announced a breakthrough in improving the U.S. manufacturing base for their assigned technology. Moreover, the program needs a better foothold among small and medium-size manufacturers and distributors that compose much of the U.S. industrial supply chain.
“We haven’t done a great job of publicizing the institute,” says Lawrence Brown, executive director of the Lightweight & Modern Metals Manufacturing Innovation Institute, based in Detroit. Brown is a welding engineer who was director of government technology programs at EWI (previously the Edison Welding Institute), an applied research and consulting firm for manufacturers based in Columbus, Ohio.
Small manufacturers and materials suppliers rightly are asking many questions about his institute, which opened last summer, Brown says. “What does this mean for [me]? What is the business case? Will I be left behind? What are these new materials? How will I machine it, cut it, form it? What is the capital [I] may need to invest so [I’m] not left behind?”
One of the first decisions by the National Additive Manufacturing Innovation Institute (NAMII) was to change its name to the somewhat awkward “America Makes.” The initial name “sounded very Washingtonian, very federal, very bureaucratic,” says director Ed Morris, previously director of mechanical engineering and manufacturing for Lockheed Martin Corp.
Morris’ instinct about the institutes’ image problem among manufacturers rings true to Dave Lerman, CEO of family-owned steel service center Steel Warehouse Co. in South Bend, Indiana. On the suggestion of friends at the University of Notre Dame’s nanofabrication facility, Lerman signed his company up as a charter member of the lightweight materials institute.
But he was disappointed. “This is much more of a research-oriented project, without real practical applications,” Lerman says. “We’re just sitting on the sidelines. I don’t think they’re at a point where there is a contribution that we at the service center level can make.”
A Coalition Born From Recession
Obama wasted no time assembling a science, technology and manufacturing-targeted apparatus in the White House. In December 2008, in one of his first pre-inauguration appointments, he picked Harvard University scientist John Holdren as his top science adviser and enlisted CEOs Eric Schmidt of Google Inc. and Andrew Liveris of Dow Chemical Co. as the first of more than a dozen industry executives to develop a strategy for boosting manufacturing jobs in America. Schmidt became a member of the President’s Council of Advisors on Science and Technology; Obama named Liveris co-chair of his Advanced Manufacturing Partnership.
Unlike the Sematech attack on a specific problem, the falling U.S. microchip market share, the Obama agenda is scattered. Sridhar Kota, a professor of mechanical engineering at the University of Michigan who joined the White House Office of Science and Technology Policy in 2009, recalls asking what niche project he was to undertake in the advanced manufacturing arena: “They said manufacturing as a whole. President Obama asked for recommendations on how to strengthen our manufacturing.”
Two realities drove the creation of the White House manufacturing institutes, Kota says. First, the United States was failing to make long-term investments in manufacturing infrastructure to produce commercial products from the innovations that were flowing from U.S. technology brainpower. Recent examples include lithium-ion batteries, fuel cells and electronic display components.
We invented it, but other countries—notably Japan and South Korea—are making it. The result has been a tragic coda to decades of losing low-skilled jobs to cheap labor nations, and the danger that high-skill brainpower will soon depart American shores as well.
“Our investments in science are not trickling down to help the economy in the United States,” Kota said.
The White House advanced manufacturing initiative needs to find commercially viable innovations, such as high-strength, lightweight metals, machines and materials for additive manufacturing, where America had not already lost first-mover advantage, he said.
A frequently cited example of what Kota called the “ship that has already left” is the lithium-ion battery, used in mobile phones and a wide range of other electronic gear. South Korea and Japan dominate production. A 2005 report for the Commerce Department subtitled “Why Are There No Volume Lithium-Ion Battery Manufacturers in the United States?” concluded, “The United States is an incubator for new technologies relating to the electronics industry, while the Asian and European companies develop the manufacturing expertise.”
Surprisingly, the report found that wage differentials between the United States and Asia “were not a major issue” in making lithium-ion batteries. Instead, it said, the reasons America surrendered the manufacturing of its own inventions included familiar refrains: “American companies tend to focus on short-term profits and stock prices, while Asian companies seek market share. … The Japanese government works with industry to identify new technologies that are ripe for near-term economic exploitation. … This contrasts with the U.S. pattern of business-government relations, which can sometimes be adversarial.”
We invented it, but other countries—notably Japan and South Korea—are making it.
The second reality in the early years concerned adversarial relations on Capitol Hill and between Congress and the White House. Bipartisan legislation Obama supported, which authorized spending for a manufacturing innovation program, stalled in Congress.
As a result, the program became part of Obama’s “We Can’t Wait” strategy of executive actions in the face of congressional gridlock. Through August of last year, $330 million already earmarked by Congress for advanced manufacturing projects in various federal departments and agencies, such as defense, energy and commerce, were repurposed to fund the first four White House advanced manufacturing institutes.
Kota recalled that the White House decided, “Let’s not wait for Congress. Let’s take the money that’s appropriated and find common elements across agencies on a particular topic and call it an institute.” The first institute created was NAMII (3-D printing) because “that was one of the topics where everybody had a little money devoted.”
Additive manufacturing is a timely topic “across the board,” at Illinois Tool Works (ITW), says David Pivonka, chief scientist for electronics and software at ITW, one of NAMII’s industry partners. Pivonka also works with the Digital Manufacturing and Design Innovation Institute in Chicago.
“We’re not a leading-edge technology company,” he says. “We’re looking to gain from this [institute] not only knowledge but also experience from other people about how digitization and additive manufacturing have worked for them, and to take those things and apply them internally.” Each institute is required to adopt rules for licensing the intellectual property it develops to member companies. Pivonka said at the end of 2014 that it was too soon to evaluate ITW’s participation in the institutes.
Critical Barriers to Success
ITW’s embrace of the Obama program illustrates a central problem cited by the program’s backers. Many manufacturers, large and small, do not have their own research and development systems to translate costly and risky new technologies, such as additive manufacturing and Internet-based digital design, onto their shop floors. They hesitate to invest in the technology unless it can demonstrate practical value for them.
On the other hand, manufacturers making big-ticket R&D investments have no natural incentive to share with potential competitors. Typically, they prefer to install proprietary solutions that may result in conflicting standards among companies and delay national industry-wide implementation of new technologies. Government, supporters say, can bridge the gap by forming public/private partnerships—a manufacturing innovation commons for America—to generate knowledge around applied technology that gives no competitive advantage and generates uniform standards.
“In Congress, there are those who believe the government should not put any money into this,” says Morris of NAMII in Youngstown. “Surely, industry will fully fund this technology. Let competitive forces prevail. [I say] you’re absolutely right. U.S. industry will fully fund everything that needs to be done. They’ll just do it last. You’re competing against other nations and their budgets.”
Unlike Sematech, which celebrated its 25th anniversary in 2012 and is now a global organization, the advanced manufacturing initiative does place U.S. workforce training on the agenda. Programs at state and local levels to prepare young people for manufacturing jobs, frequently in collaboration with local employers, are growing throughout America, according to the Manufacturing Institute.
“We don’t want to reinvent the wheel,” says Brown of the lightweight materials institute. Still, each nonprofit organization bidding to host one of the institutes is required to specify an education/training component in its proposal.
“U.S. industry will fully fund everything that needs to be done. They’ll just do it last. You’re competing against other nations and their budgets.”
—Ed Morris, director, America Makes (NAMII)
Asian nations outside Japan now dominate global semiconductor manufacturing. Nonetheless, several metrics can be applied from Sematech’s success to evaluate the advanced manufacturing institutes, says Michael Lercel, chief technologist for Sematech, which is now based in Albany, New York.
“The biggest one is the fact that we’re still around more than 25 years later as a self-sustaining business model” without federal matching funds, he says. Sematech ended its DOD matching funds subsidy in the mid-1990s.
“There is an expectation that all of the institutes can be self-sustaining at the end of their five-year period,” says Morris of the 3-D printing institute. “We are confident we can do that.”
Indeed, legislation authorizing the program under the Commerce Department requires organizations seeking to host an institute to pledge “a stable and sustainable business model without the need for long-term federal funding.” Institutes newly proposed by the White House for 2015 cover such topics as photonics, smart manufacturing and flexible hybrid electronics.
Weaning institutes off the 50% government match requires several steps, Lercel explains. “There has to be a sense of trust [among participating companies] that the consortium can protect their ideas,” he says. Next, “these things have to be centered on real industries or soon-to-be industries. It’s not like you’re trying to invent a new industry.”
The manufacturing industry in America is highly fragmented, from multinational conglomerates to sole proprietorships and family enterprises. “The institutes must retain a sufficiently broad base of corporate commitments so they are not captured by any one company,” says David Hart, director of the Center for Science and Technology Policy at George Mason University and one of the architects of the advanced manufacturing innovation program.
Better outreach to small and medium-size companies might help. Late last year, Brown’s lightweight materials institute was developing a special project to address the “challenge of welding on thinner materials without distortion and buckling.” Yet at that time, one of his industry partners with considerable experience in welding said he had had no contact from the institute.
“I haven’t been invited to any of their meetings,” says Anthony Ananthanarayanan, who in 2007 established his own welding and welding technology research firm, Innovative Weld Solutions Ltd. in Dayton, Ohio, after 19 years as a welding engineer at General Motors Corp. and Delphi Corp. He holds 25 patents in welding technology.
At the end of 2014, only one of the four manufacturing institutes created by the White House tracks the Sematech strategy of boosting U.S. manufacture of particular products—in this case, “power electronic devices, like motors, consumer electronics and devices that support our power grid.”
The other institutes center on nascent industrial processes—accelerating 3-D printing as an industrial tool, improving and broadening manufacturers’ access to digital design and manufacturing technologies, and broadening the market for lightweight metals, composites and other materials.
Each is an important goal. But enabling industrial processes is not the same as making “stuff,” as Obama put it. That’s why measuring the success of the advanced manufacturing initiative in the next few years will be difficult. And yet, the bipartisan support for $300 million in additional funding may indicate that the program “has legs,” as they say in Hollywood. There seems little disagreement that the objective is valuable. It will, as usual, come down to savvy management, and the nurturing of that spark in Congress that is keeping the program alive.
Bill Barnhart, a Chicago-based financial writer, was a business editor and columnist for the Chicago Tribune for 30 years. He is the author of MSCI’s 100th anniversary history, “Links in the Long Chain.”