savingusmanufacturing.com

No president, no member of Congress or the U. S. Senate, no governor, and no member of state legislatures can create private sector jobs.  Government programs may help or hinder businesses, but they all require government employees to administer them.  Government jobs cost taxpayers money while private sector jobs generate tax revenue for government.

Data from the Federal Small Business Administration (SBA) shows that 99.9% of all businesses are small businesses and that 80% of all jobs are created by small businesses. About 99% of all manufacturers are small and medium-sized companies, employing more than nine million workers.  Since the recession began at the end of 2007, these companies have lost more than 850,000 jobs, which is 42% of the total jobs lost in the goods-producing sector.

The question is if we are in a recovery, even though weak, why aren’t businesses creating jobs?  The number one reason businesses aren’t expanding and hiring more people is that they are afraid.  They are afraid the weak recovery won’t last and we will have a “double dip” recession.  They are afraid of the increase in taxes when the Bush tax cuts sunset at the end of the year.  They are afraid of the cost to their businesses to comply with the Obama health care program.   They are afraid of the effect on the economy of the escalating national debt.  They are afraid of the possibility of Kerry-Lieberman cap-and-trade legislation passing Congress and being signed into law.  Even though the latter looks unlikely to pass this year, it could be revived in the next session just as the Obama health care bill was revived and passed earlier this year after seeming dead at the end of last year.

While the business outlook for manufactures improved for the fifth consecutive quarter according to the latest Manufacturing Index by the National Association of Manufacturers (NAM) and Industry Week, 58% of respondents said that uncertainty about the business outlook was delaying both their company’s plans to expand employment and their capital spending.  An additional 8% said it was delaying plans to expand employment and another 8% said it was delaying plans to expand capital spending.

After the Bush tax cuts sunset on December 31, 2010, individual tax rates will increase to nearly 40%.  About 68% of all manufacturers are organized as S-corporations or sole proprietorships that are taxed at the individual rate.  Increasing taxes would deal a painful blow to small businesses recovering from the economic recession.  According to NAM’s economic models, manufacturers would lose an additional 238,000 jobs by 2019 if these tax increases were enacted.

On January 1, 2011, the capital gains tax will jump up 33% – to 20% from 15%, and the tax on dividends will go up 164% – from 15% to 39.6%.  The death tax will go up from a tax rate of zero this year to a rate of 55% on estates of one million dollars or more.  This can have a devastating effect on the ability of small family-owned businesses to continue after the principal owner dies.  This exorbitant tax can force survivors to sell the business in order to pay the estate taxes and thus lose their family’s livelihood.

Many other tax cuts from the Bush administration will disappear, and a new set of tax hikes will appear, such as the elimination of the research and development tax credit and widening the application of the Alternative Minimum Tax so that more individuals pay it.  According to the Association for Tax Reform there will “literally be scores of tax hikes on businesses that will take place.  The Congressional Budget Office estimates that the expiration of the Bush tax cuts will cost taxpayers $115 billion next year alone and $2.6 trillion through 2020.

As reported in the July 23, 2010 Wall Street Journal, “Federal Reserve Chairman Ben Bernanke told lawmakers Thursday that the U. S. ‘should maintain or stimulus in the short term.’  Extending the Bush tax cuts ‘is one way’ way of doing that, he said.”   The article also reported, “pressure is growing on the administration from a small number of Democratic lawmakers to extend all the Bush cuts, which include taxes on investment income and capital gains.”

A study conducted by Science Applications International Corporation (SAIC) for the American Council for Capital Formation and the Small Business and Entrepreneurship Council assessed the impact of the proposed Kerry-Lieberman cap-and-trade bill on manufacturers jobs, energy prices, and the overall U. S. economy.  The analysis concluded that as many as 1.9 million jobs would be lost and the cumulative loss to the U. S. Gross Domestic Product (GDP) would be up to $2.1 trillion.    Residential electricity price would increase up to 42% and gasoline prices per gallon would go up 18%.  SBE Council President and CEO, Karen Kerrigan said, “Small business owners cannot create more jobs when costly policies such as Kerry-Lieberman take more of their hard-earned resources.”

As long as the current administration views businesses as “the rich” that need to pay higher taxes, it will be difficult to create the jobs we need to reduce unemployment and foster real economic recovery.  Businesses are employers that provide jobs.  We don’t have an agricultural economy like we did in the Great Depression.  People can’t go back to living off farms when they lose their manufacturing jobs.  We need to help businesses succeed and grow, not put burdens on businesses in the form of tax increases and other onerous laws and regulations.

Government and non-government organizations provide lots of help for San Diego companies.  Whether you are an inventor working on your first product idea, an entrepreneur starting your first business, or an established company, there are a multitude of resources to help San Diego companies grow and succeed.  No matter what the type of business you are starting or have established, there is probably an organization in San Diego that can help you.

If you need basic business consulting, you can get help from the Small Business Administration-sponsored Service Corps of Retired Executives (SCORE) or from one of the government-funded Small Business Development Centers, one located in North County at Miracosta College and the other located in South County at Southwestern College.

If you are an inventor designing your first product, then you should attend the monthly meeting of the San Diego Inventors Forum to learn from and network with other inventors, service providers and successful entrepreneurs.  Topics covered at the meetings include entrepreneurship, all aspects of product development, patents, licensing, manufacturing, funding, and marketing.   An annual best invention competition provides small cash awards.

If you have a technology-based company, then CONNECT would be the best resource for you.  CONNECT was originally launched 25 years ago by the University of California at San Diego (UCSD) as a type of “incubator without walls” program and spun off as an independent non-profit organization a couple of years ago.  CONNECT’s Springboard program is a business creation and development program for innovators at all stages from lab to production, providing hand-on mentoring and coaching by more than 1,000 successful CEO’s, CFO’s and CMO’s in its Entrepreneurs-in-Residence Program. Companies that complete the Springboard program become eligible to present their “pitch” for funding to the Tech Coast Angels.

CONNECT also manages the San Diego chapter of the MIT Enterprise Forum where case studies of local companies are discussed and CEO presenters gain valuable advice to help their company set their course and meet challenges.  CONNECT also gives awards in its annual Most Innovative Product competition.

San Diego Sport Innovators (SDSI) is a new program initiated by CONNECT in the last year to accelerate the growth of San Diego’s vibrant sports economy.  SDSI provides mentoring, education, and capital funding opportunities for startups.  Former basketball star and coach, Bill Walton, became Executive Chairman of SDSI earlier this year.

CommNexus San Diego, formerly the San Diego Telecom Council, is a non-profit network of communications industry companies, defense industry companies, service providers, professional trade organizations, and local government.  CommNexus facilitates new business relationships through their CommNexus Marketlink^TM program and helps early-stage high tech companies through their non-profit incubator, EvoNexus^TM that provides mentoring, education, facilities, utilities, and other services.  The San Diego region has become known as “Silicone Beach” in the telecommunications industry.

There is another incubator for startup companies, the San Diego Technology Incubator, located on the campus of San Diego City College downtown.  SDTI is co-located with the Center for Applied Competitive Technologies, one of 12 centers located through the state to technical assistance, education, manufacturing training, and consulting services to contribute to continuous workforce development, technology deployment, and business development.

Another organization that provides resources for high-tech companies is TechAmerica San Diego, formerly AeA, the largest and strongest voice and resource for technology companies in the United States.  In addition to the usual trade association benefits, TechAmerica San Diego helps member companies through Roundtable groups for chairmen/presidents, operations, marketing, human resources, product development, and CFO’s.  The emphasis for the operations roundtable in which I have participated on the planning group for the past few years has been sharing best practices and tools for continuous improvement in the Lean/Six Sigma journey.

If you have a life sciences or medical industry company, then BIOCOM is the organization for you.  BIOCOM has become the largest regional life sciences association in the world.  BIOCOM

Works to attract investment dollars to its member companies, helps save members money when buying commodity products, helps build professional networks, works with local universities and colleges to partner on professional development courses, and works to provide the life science industry with favorable government policies on the local, state, and federal levels.

Not to be overlooked is the San Diego Venture Group, providing education and networking opportunities for early-stage to well-established companies.  Month after month, 300-400 attendees show up for breakfast at 7:00 AM to network and enjoy a well-prepared presentation, forum, or panel discussion on topics of interest to entrepreneurs.  Entrepreneurs wear blue badges, service providers wear yellow badges, and investors wear green badges.  Of course, some investors want to “hide” as service providers, and some entrepreneurs also invest in other startup enterprises.

A new non-profit organization was formed in 2008 to accelerate San Diego as a world leader in the clean technology economy  — CleanTECH San Diego.  Its mission is to stimulate innovation and advance the adoption of clean technologies and sustainable industry practices for the economic, environmental, and social benefit of the greater San Diego region.

The above-mentioned organizations are by no means a complete list of government and non-government organizations that help business in the San Diego region.  Other organizations can be located using the Biz San Diego directory.

Although San Diego businesses have to contend with the same adverse business climate as the rest of California, the plethora of resources and help available still make it an attractive area for startup companies.  In fact, CONNECT reported in the Sunday, July 18, 2010, issue of the San Diego Union-Tribune that more than 300 technology startups were formed here in 2009 and another 57 startups were formed in the first quarter of 2010.  San Diego has always been a region of startup businesses, especially in the manufacturing and high-tech industries.  American entrepreneurism and inventiveness are the two strongest assets for saving American manufacturing.

The National Institute of Standards and Technology (NIST) is the agency that would get the least amount of funding of the three agencies mentioned in last week’s blog article about the America COMPETES Reauthorization Act of 2010.  However, it is the agency that has ongoing programs benefiting manufacturers, especially through the Manufacturing Extension Partnership (MEP), established in 1988.

The MEP program is a national network with thousands of specialists who understand the needs of manufacturing and small businesses. The MEP program has assisted more than 200,000 firms through a network of centers across the country to assist small-and medium-sized manufacturers adopt and use the latest and most efficient technologies, process, and business practices.

MEP is participating in Manufacture America events launched by the International Trade Administration’s Manufacturing and Services unit.  The Manufacture America program is designed to help American manufacturers rethink, retool, and rebuild their operations through exploring new products, markets, processes, and sources of finance.   A series of Manufacture America regional conferences will convene to allow manufacturers to:

• Learn how they can retool and rebuild through entering new market segments, new industries, or new supply chains and modernize processes to become more sustainable and efficient while lowering operations costs.
• Hear success stories form manufacturers who have successfully retooled.
• Learn about growing industries.
• Learn about export opportunities as well as how to export.
• Learn about resources and funding that are available to help rethink and retool, including technical assistance and financing.
• Discuss issues the manufacturers face with federal, state, and local governments
• Network with representatives from other companies.

The other events will take place between August and October in Morgantown, WV, Pittsburgh, PA, Detroit, MI, Canton, OH, and Chicago, IL.   These states are home to the industries that have been hit the hardest by the recession; namely the automotive and machine tool industries.  The problem with events such as this is that they don’t receive publicity so very few companies are aware of them.

If your company isn’t already involved with a MEP center or with the trade and commerce agencies of one of the states in which an event will be held, you wouldn’t hear about the Manufacture America events. There are MEP programs in nearly every state from Alabama to Wisconsin.  To locate the nearest MEP program, visit www.nist.gov/mep.

In California, two organizations administer the NIST MEP Program:

California Manufacturing Technology Consulting (CMTC) – serving southern California from San Diego up to Fresno County in central California.

Corporation for Manufacturing Excellence (Manex) – serving northern California.

Both organizations leverage NIST funds with California’s Employment Training Panel (ETP) funds to reduce the costs of training to employers.   Companies qualify for ETP funding if they pay into the unemployment insurance fund, have a 20 percent turnover rate or less, and have a manufacturing NAICS code or can prove they face out-of-state competition.   Their employees are eligible for training if they are residents of California, work full time (35 hours a week or more), meet the minimum wage requirements, which vary by county, and have been employed at least 90 days prior to the first day of training.

Both organizations provide industrial services that are divided into practice areas that specifically support manufacturers:

• Strategic Business
• Lean Enterprise
• Information Technology
• Energy Services
• Quality
• Supply Chain Management

CMTC also operates the Small Manufacturers Advantage ™ program in which a no-fee assessment is conducted and a written report of improvement recommendations is provided.  The report includes the assessment, a roadmap, self-implementation tools, relevant articles, and a listing of other California business resources.  The report is designed in a format for self-implementation, but a follow-on “Jump Start” program of consulting by CMTC professionals can be scheduled at no cost.

When budget deficits are so high at the federal and state level, we can’t waste taxpayer money with programs and events that don’t reach the people that would benefit from them.  Now is the time for agencies and organizations receiving government funding to think “out of the box” and use new channels of communication to make people aware of events and programs that would be beneficial to them.  It’s time for all of us to be more proactive in keeping informed about programs and events that could benefit our businesses.  One such site is www.manufacturing.gov

On May 28, 2010, the House of Representatives passed the America COMPETES Reauthorization Act of 2010 (H.R. 5116) on the third try.  The bill would authorize $85.6 billion over five years for research and education programs at key federal agencies in an effort to boost U. S. competitiveness.  The bill moved over to the Senate, and on June 29^th, the Senate referred it to the Committee on Commerce, Science, and Transportation.

The original America COMPETES bill was passed in 2007 as a bipartisan effort in response to the 2005 National Academy of Sciences’ report, “Rising Above the Gathering Storm.  This Act authorized appropriations through FY 2010, and the reauthorization Act would authorize appropriations through FY 2015.  The goal of the original Act was to provide enough funding to double the federal budgets for the physical sciences and engineering over the next five years.  It also established the Advanced Research Projects Agency for Energy (ARPA-E)

The National Science Foundation, the Department of Energy Office Science, and the National Institute of Standards and Technology were appropriated 10.6 billion in FY 2008, 11.8 billion in 2009, and 12.3 billion for FY 2010.  These three agencies were highlighted for their support of economic competitiveness-related basic research.  However, these agencies were actually appropriated one to two billion less for FY 2008 through FY 2010 than the funding plan contained in the 2007 Act.   The reauthorization Act funding plan is even more conservative, only increasing funding for these agencies by 8.4% year over year, meaning that the goal of doubling the 2007 funding for the physical sciences and engineering is not even achieved by 2015.

Federal R& D funding declined between 1985 and 2004, dropping from 1.25 percent of the U.S. GDP to .080 percent in 2004.  What is even more serious is that technology R&D represented 48 percent and life sciences represented 36 percent.  By 2005, technology R&D represented only 32 percent and life sciences represented 54 percent.

Increasing federal R&D spending in technology is critical to maintaining American competitiveness in a global economy.  The maintenance of an effective U. S. R&D network is essential for attracting private domestic and foreign R&D funds and the subsequent manufacturing that results from the innovation process, which increases U S. value-added resulting in economic growth.

Innovation is the hallmark of U. S. manufacturing, and it requires a certain mass of interconnected activities, which like a snowball rolling downhill, grows in size as it proceeds towards end users.  R&D is required to keep the ball rolling to ensure more successes than failures.

Innovation resulting from federally funded research is responsible for the Internet, web browsers, the Mouse, fiber optics, MRI scanners, Doppler radars, global positioning satellites, and Nanotechnology just to name a few.  Consumers have benefited greatly from the large selection and quality of manufacturing goods available as a result of the innovative new products resulting from R&D.

America’s manufacturing innovation process leads to investments in equipment and people, to productivity gains, the spreading of beneficial technology to other sectors, and to new and improved products and processes.  It is an intricate process that begins with R&D.  This intricate process generates growth and higher living standards than any other economic sector.  But, it requires a critical mass to generate this wealth.  If the U. S. manufacturing base continues to shrink at its present rate, the critical mass will be lost.  The manufacturing innovation process will shift to other global centers.

It is imperative that the Senate pass the American COMPETES Reauthorization Act of 2010 without any further cuts in R&D funding.  Doubling or even tripling federal R&D funding for physical sciences and engineering is essential to saving American manufacturing and maintaining America’s competitiveness and national security.   Contact your senator today to support this critical bill.  All you have to do is click on www.senate.gov and type in your zip code, and you are automatically directed to your senator.