I recently read an article in USA Today on President-Elect Joe Biden’s top six proposals for small businesses. I thought it might be interesting to look at them through a Supply Chain Initiative filter, looking back at recommendations I’ve made for small- and medium-sized manufacturing companies.
1. Give grants, not loans, to true small businesses that have lost substantial revenue.
Paul’s Take: I’ve written that governmental financial support for manufacturers should go both to OEMs and their SME suppliers. I base my position on the observation that grants to OEMs haven’t “trickled down” to their supply base and aren’t likely to do so in the future. And while grants to large corporations may have led to higher stock prices and larger executive level bonuses, they haven’t led to new investment—or jobs—in the USA.
2. Guarantee that every business with fewer than 50 employees can get relief.
Paul’s Take: There is one fundamental difference in how I see this: Future governmental SME economic support should focus on manufacturing, due to its significant impact on the country’s GDP and its high potential for job creation.
I make this contention based on the fact that service industries—businesses such as to restaurants, lodging, results, etc.—primarily offer minimum-wage jobs—and, for the most part, employees can survive on the kind of direct financial support they received during the COVID-19 pandemic. Manufacturing firms, on the other hand, usually offer higher living wage compensation and, consequently, manufacturing employees have discretionary income that can be spent on services. This is what will be required for a real turnaround in the service industry.
3. Redirect unused funds that were originally targeted for large corporation bailouts and any unused PPP funds to help small businesses.
Paul’s Take: As stated above, my position is that governmental support should take the form of direct payments, rather than loans or credits. In previous articles, I also cited data that shows wages/salaries as a percentage of revenue at small- and medium-sized manufacturers significantly outweighs that at OEMs. For this reason, the bulk of direct payments should go to SMEs. Finally, it makes sense that OEMs that do receive federal grants must agree to sourcing/resourcing an amount equivalent to the grant to U.S.-sited SMEs.
4. Unleash $50 billion in public/private venture capital to entrepreneurs in disadvantaged areas by funding state, local, tribal and non-profit financing initiatives.Paul’s Take: Admittedly, I’m a bit jaded about how states and municipalities currently attempt to enrich their economies. From my seat in the ballpark, it appears that financial support to manufacturing involves “smokestack-chasing”; i.e., incenting manufacturers to relocate from their current locations to other states. Because of this practice, I believe that there should be controls on federal allocation of funds to states and municipalities for economic development. Efforts should focus on increasing national employment and GDP, rather than one specific area of the country over another.
5. Establish a $400 billion federal procurement program to “buy American,” designed to give greater federal contracting opportunities to certified small businesses, especially disadvantaged businesses.
Paul’s Take: Thirty years ago, the U.S. had a vibrant manufacturing base of SMEs. This was undercut when OEMs began re-sourcing overseas in pursuit of lower piece-prices. I believe America’s manufacturing based could be re-established—probably in fairly short order—if all government support and incentives to OEMs were based on sourcing with suppliers located in the United States, or those in the process of reshoring their current overseas-purchased material. For instance, I think that if such requirements were tied to the 2017 corporate tax reduction—rather than just the hope that those OEMs will take their financial windfall and re-invest it here—our country would be well on the way to a manufacturing recovery.
6. Set up a national network of business incubators to help nurture startups. And related: Establish business development programs at every public community college as well as two-year HBCUs (Historically Black Colleges and Universities), TCUs (Tribal Colleges & Universities), and MSIs (Minority Serving Institutions).
Paul’s Take: Innovation is the primary generator of national wealth. It makes sense to innovate, but not without the government taking steps to address the stealing of intellectual property by foreign governments and companies. I recently read that 6%+ of all new U.S. patents are stolen each year. I think encouraging innovation and protecting intellectual property could be addressed in parallel, but doing one without the other will not have the intended purpose.
I’m glad that the Biden administration recognizes that the current state of our manufacturing economy is not what it needs to be, and that changes and/or additions to government’s involvement in manufacturing are needed, especially in the case of small- and medium-sized manufacturers. I am also convinced that any future financial or regulatory support of OEMs should be based on a “carrot and stick” model, with the stick being increasing their required percentage of annual spend with domestic suppliers. Not only would this boost our manufacturing infrastructure, but it would also be a major step in protecting this country’s intellectual property.
Paul Ericksen is IndustryWeek’s supply chain advisor. He has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers.