{"id":918,"date":"2019-07-09T17:27:17","date_gmt":"2019-07-10T00:27:17","guid":{"rendered":"http:\/\/savingusmanufacturing.com\/blog\/?p=918"},"modified":"2019-07-09T17:27:17","modified_gmt":"2019-07-10T00:27:17","slug":"brookings-recommends-new-focus-for-sbas-small-business-investment-corp-program","status":"publish","type":"post","link":"https:\/\/savingusmanufacturing.com\/blog\/manufacturing\/brookings-recommends-new-focus-for-sbas-small-business-investment-corp-program\/","title":{"rendered":"Brookings Recommends New Focus for SBA\u2019s Small Business Investment Corp Program"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">can\nbetter support America\u2019s advanced industries.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">On June 26, 2019, Mark Muro, Senior Fellow, Brookings Institution Metropolitan Policy Program submitted <a href=\"https:\/\/brook.gs\/2KBDVYg\">testimony<\/a> to the U.S. Senate Committee on Small Business &amp; Entrepreneurship regarding the \u201cReauthorization of SBA\u2019s Small Business Investment Company Program,\u201d and particularly on how the Small Business Investment Company (SBIC) program. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Mr.\nMuro\u2019s expertise is in America\u2019s advanced industry sector, which are the high-productivity,\nhigh-pay innovation industries that anchor American competitiveness and are\ncritical to America\u2019s prosperity.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In\nhis testimony, Mr. Muro wrote that advanced industries are identified using two\ncriteria and must meet both criteria to be considered advanced.: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>\u201cindustry\u2019s\nR&amp;D spending per worker must fall in the 80th percentile of industries or\nhigher, exceeding $450 per worker<\/li><li>The share of\nworkers in an industry whose occupations require a high degree of STEM knowledge\nmust also be above the national average, or 21 percent of all workers\u201d <\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">He\nexplained, \u201cBased on this definition, the U.S. advanced industries sector\nencompasses 50 diverse industries, including 3 energy, 35 manufacturing, and 12\nservice industries. These prime industries include manufacturing industries\nsuch as automaking, aerospace, pharmaceuticals, and semiconductors; energy\nindustries such as oil and gas extraction and renewables; and critical service\nactivities such as R&amp;D services, software design, and telecommunications.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">He\nwrote, Advance industries matter because they \u201care in many respects the\nnation\u2019s core sources of prosperity and economic preeminence.\u201d Specifically,\nthe advanced industries sector:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Encompasses\nmany of the nation\u2019s most crucial industries<\/li><li>Represents a\nkey site of innovative activity<\/li><li>Trains and\nemploys much of the nation\u2019s STEM workforce<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">In\naddition, \u201cits sizable advanced manufacturing sub-sector\u2014delivers critical, specific,\nunder recognized value to the nation and its people and places:\u201d<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Employment \u2013 \u201cIn\n2018, the 50 advanced industries in the United States employed 14 million U.S.\nworkers, or nearly 10%of total employment. Of that, the 35 advanced\nmanufacturing industries contributed 5.7million jobs and 4% of U.S. employment.\u201d<\/li><li>GDP \u2013 \u201cU.S.\nadvanced industries generate $3.7 trillion worth of output annually, or 18.5% of\nU.S. GDP in 2018\u2026advanced manufacturing was a particularly sizable\ncontributor of $1.4trillion worth of U.S. output.\u201d<\/li><li>Productivity\n\u2013 \u201cEach worker generated approximately $260,000 worth of output compared with\n$120,000 for the average worker outside advanced industries.3For the advanced\nmanufacturing sub-sector the figure is $250,000.\u201d<\/li><li>Pay \u2013 \u201cIn\n2018, the average advanced industries worker earned $103,000 in total\ncompensation, double the $51,000 earned by the average worker in other sectors.\nAnd real absolute earnings in advanced industries grew by 63 percent between\n1975 and 2013, compared with just 17 percent for other workers\u2026\u201d<\/li><li>Multipliers \u2013\n\u201cEvery new advanced industry job creates 2.2 jobs domestically\u20140.8 jobs locally\nand 1.4 jobs outside of the region\u2026On average in other industries, new jobs\ncreate only one additional domestic job\u20140.4 jobs locally and 0.6 jobs outside\nthe region.\u201d<\/li><li>Innovation \u2013\n\u201cAdvanced industries perform 90%of all private-sector R&amp;D and develop\napproximately 82%of all U.S. patents.\u201d<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Muro\nexplained that these advanced industries need government financial support\nbecause \u201cthere is now abundant evidence that the primacy of America\u2019s advanced\nindustries, and especially its advanced manufacturing sector, is being\naggressively contested\u2014and eroding.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The\nchallenge is succeeding because China and other competitor nations \u201care\naccelerating their investments in the key inputs to advanced-sector\ncompetitiveness\u2014basic and applied research and development (R&amp;D), STEM\nworker development, regional supply chain deepening\u2014just as the U.S. commitment\nhas weakened.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">He\nasserted, \u201cAs a result, the future competitiveness of the U.S. advanced\nindustries sector has become uncertain because the United States is losing\nground on important measures of advanced industry competitiveness.\u201d In fact, \u201cthe\nU.S. has since 2000 run negative trade balances with both China and the world\non advanced technology products, with the deficit continuing to grow.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cOn\ninnovation, for example, the U.S. share of global patenting and R&amp;D is\nfalling much faster than its share of global GDP and population. While the U.S.\nlost 1.6 percentage points in its share of world populationbetween1981and 2016,\nits shares of global patenting and R&amp;D spending both fell by over 15 percentage\npoints.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">He\npointed out that \u201cwhen the \u2018Made in China 2025\u2019 industrial policy implies\ndirect support to thousands of firms through state funding, low-interest loans,\ntax breaks, and other subsidies to the tune of hundreds of billions of dollars according\nto third-party estimates, U.S. advanced manufacturing firms\u2014especially smaller\nones\u2014struggle to access affordable capital.\u201d &nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">He\nadded that \u201cwhile the United States has the most developed venture capital (VC)\nsystem in the world, that system remains difficult to access for manufacturing\nfirms\u2026the natural biases of VC and other capital sources skew the existing\nsmall-firm finance system far away from capital-intensive manufacturing\nenterprises and are leaving them to face a debilitating lack of access to\ncritical finance in the United States.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Because\n\u201cinnovative firms engaged in complex, advanced manufacturing production require\ngreater capital and more time to make a profit than non-production firms\u2026most\nexisting small-firm finance sources (especially venture capital) default to the\nlow-risk, high-reward nature of digital start-ups and stay away from the longer\nprofit horizons of manufacturing.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">He\nexplained that \u201cTech\u201d companies, after all, can produce fast-turnaround,\nconsumer-facing products with little-to-no physical infrastructure. Advanced\nmanufacturing firms, by contrast, require much more time, risk, and capital to\ndevelop products, bring them to market, and achieve scale, ensuring they get\nfewer VC opportunities.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">He\nconcluded that \u201cacute capital shortfalls are likely hobbling the ability of\nsmaller advanced manufacturing concerns to grow their operations, contribute to\nlocal supply-chain deepening, and enhance U.S. competitiveness, community by\ncommunity.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Next,\nhis testimony focused on how the SBIC could offer the ideal tool for assisting\nadvanced manufacturing concerns in the coming years.&nbsp; However, the current SBIC program has \u201cseveral\nlimitations that prevent it from investing as helpfully in growth as it might.\u201d\nHe stated that \u201cthe lack of sectoral specificity in SBIC loan-making means that\npublic funds are not always channeled toward the highest public benefit\u2014most\nnotably that of advanced industries\u2026[and}<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">its\nrepayment structure, which begins immediately and is comprised of an SBA annual\ncharge plus interest due semiannually, is not conducive to the nature of the\nlonger-term product development timelines that advanced manufacturing firms\nrequire. In general, the SBIC\u2019s offerings are not \u201cpatient\u201d enough to optimally\nsupport advanced manufacturing business models.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In\norder for the SBIC to help fill the void and maximize the program\u2019s benefit to\nU.S. competitiveness through the support of U.S. advanced industries, he\nrecommended that policymakers should:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>\u201cExplicitly\nprioritize advanced manufacturing growth in the SBIC\u2019s equity capital toolbox.\u201d\n<\/li><li>\u201cEncourage\nrobust and patient capital in SBIC funding.\u201d <\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">He explained\nthat these actions are needed because \u201cadvanced-sector production enterprises\nare not specifically mentioned in program policies and criteria. They should\nbe, because as of now they are losing out.\u201d And \u201ccurrently the program favors\nlow-risk, high-reward, relatively short-term enterprises, which discriminates\nagainst advanced manufacturing concerns.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Accordingly,\nthe committee should amend the Small Business Act to create within the existing\nSBIC a program that will offer preferred financing terms to VC firms that\ninvest in advanced manufacturing firms. To determine eligibility for\nparticipation in this funding activity. manufacturers\u2019 \u2018advanced\u2019 status could\nbe confirmed by their location in designated NAICS codes, employing the same\ndefinitional methodology and industry list as employed in this testimony\u2026Funding,\ntherefore, should be growth-oriented, as much as possible\u2014not time-bound.\nChanges can include tying repayments to a percentage royalty from sales, as\nwell as denoting full repayment as a multiple of the original loan amount,\nrather using the current fixed payment-plus-interest model.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In\nconclusion, he stated, \u201cAmerican\u2019s medium-and long-term competitiveness and\neconomic prosperity will be determined by success in a few select, but\nsignificant, industrial sectors: namely, the nation\u2019s advanced manufacturing,\nenergy, and digital industries. Success or failure there, meanwhile, will be\ndetermined by our choices, both what we choose to do and choose not to do, in\nworld of state competition for valuable industries. Fortunately, one tool for\nwhich we can make good choices is the SBA\u2019s SBIC program. Given its important\nrole in enterprise finance, it is well worth the time and effort to make sure\nit is optimized to serve as a tool for national competitiveness. If rigorously\ntargeted to investment in America\u2019s advanced manufacturing sector, it will\nabsolutely help us reassert national competitiveness, support vibrant\ncommunities, and promote dignified work.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I\u2019ve worked\nin the advanced manufacturing sector my whole career and was part of the team\nof a startup technology-based manufacturing company in the past. I\u2019ve been a\nvolunteer mentor for startup entrepreneurs for the San Diego Inventors Forum\nfor the past ten years and was also a mentor for entrepreneurs in the CONNECT\nSpringboard program simultaneously for three years. I know how hard it is for\nentrepreneurs to raise seed capital, but the crowd funding programs such as\nKickstarter and IndieGoGo are greatly helping.&nbsp;\nI\u2019ve seen entrepreneurs raise all the money they needed to get their\nproduct into the marketplace, but it\u2019s raising the funds to scale up to full\nproduction that is the problem.&nbsp;\nInvestors are looking for quick profits or the kind of company that will\nbe able to do an IPO rapidly.&nbsp; I believe\nthat the Brookings recommendations for expanding the scope of the SBA SBIC\nprogram will be beneficial in helping to rebuild America\u2019s advanced\nmanufacturing sector.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>can better support America\u2019s advanced industries. On June 26, 2019, Mark Muro, Senior Fellow, Brookings Institution Metropolitan Policy Program submitted testimony to the U.S. Senate Committee on Small Business &amp; Entrepreneurship regarding the \u201cReauthorization of SBA\u2019s Small Business Investment Company Program,\u201d and particularly on how the Small Business Investment Company (SBIC) program. Mr. Muro\u2019s expertise [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[216,51],"tags":[],"class_list":["post-918","post","type-post","status-publish","format-standard","hentry","category-legislation","category-manufacturing"],"_links":{"self":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/918","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/comments?post=918"}],"version-history":[{"count":1,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/918\/revisions"}],"predecessor-version":[{"id":919,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/918\/revisions\/919"}],"wp:attachment":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/media?parent=918"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/categories?post=918"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/tags?post=918"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}