Made in America?

A Little Help From Friends?

Some manufacturing entrepreneurs believe that with a bit more help from Washington, companies could move into higher-value industries, securing a future for small manufacturing in the United States. "The government needs to recognize that manufacturing is still important, because it helps R&D, and it creates well-paying jobs," says Hutter. Indeed, according to researchers at the National Institute of Standards and Technology, manufacturers fund 70 percent of U.S. industrial research and development. Scott's research, meanwhile, shows that manufacturing pays, on average, more than 20 percent more than blue-collar service jobs. And Jeff Faux, a distinguished fellow at the Economic Policy Institute, has estimated that in the 1980s and 1990s, manufacturing was responsible for five times the productivity growth of nonmanufacturing sectors. In fact, a recent report by NAM warned that a continued loss of America's manufacturing activity could, in the long run, cut U.S. economic growth rates by as much as 50 percent.

Manufacturers and economists believe the government could adopt several measures to help small companies. "Before signing future free-trade deals, we need to consider more seriously how exchange rates will affect trade and manufacturing once the deal is struck," says Blecker.

Lubrano believes that, as the Reagan administration did in 1985, the Bush administration could work with other leading economies to reorient currency exchange rates. Faux has suggested that Washington reduce tax incentives provided to companies to invest overseas. Other small manufacturers have argued that, since foreign companies do not have to meet the pension and health insurance demands that American firms do, the government should help promote association health plans, medical savings accounts and other measures designed to reduce companies' health burdens. A group of Michigan small manufacturers has even begun pressuring the Bush administration to establish the secretary of manufacturing as a cabinet-level position. And there are some signs that Washington is listening. A coalition of Democrats and Republicans in Congress is proposing legislation that would slash American manufacturers' corporate income tax rates, while other Congress members are proposing bills designed to raise the amount of material the Department of Defense buys from U.S. manufacturers.

But most manufacturers and people who study the sector do not have high hopes for government assistance. "The Bush administration is very pro-free trade and will not want to talk down the power of the dollar or do other things to help manufacturing," Blecker says.

Lubrano agrees: "I've tried to arrange meetings with Rhode Island senators and [house representatives], and they just ignore our state manufacturing associations." Other entrepreneurs complain that Washington seems to be cutting manufacturing programs. Indeed, the Bush administration has proposed slashing funding for the Manufacturing Extension Partnership, a program designed to encourage small manufacturing firms.

Accordingly, many in the industry fear the economic situation will not improve in the near future. In its most recent national survey of manufacturers, the Institute for Supply Management (ISM), a forecaster of manufacturing, found that less than 50 percent of manufacturing executives expected growth to resume soon. "You have to be a bit crazy to try to make a small manufacturing business work these days," Hutter says. "The obstacles are huge."

Still, some small manufacturers retain their optimism. In July 2003, the most recent month for which information was available, ISM reported the manufacturing sector was expanding. Hutter believes that manufacturers who can get their health-care costs down can remain competitive internationally, while other manufacturers are heartened by the Bush administration's recent trip into America's heartland, in which administration officials got an earful about small companies' problems. And the Department of Commerce recently reported that factory orders rose in June for the first time in months, suggesting that demand for American manufactured goods could be rising. Perhaps the crazies will survive after all.

Survival tactics
  • Deal with your health-care and pension costs. "Part of the difference between U.S. companies and foreign firms is all the extras, like health insurance," says Al T. Lubrano, president of Technical Materials Inc. in Lincoln, Rhode Island. "You have to show employees that health insurance can't cover everything--it should cover the essentials and catastrophic problems."

Greg Scandlen, a health policy analyst at the Galen Institute in Alexandria, Virginia, suggests that small companies use medical savings accounts, which are becoming simpler to use as more insurance providers offer MSAs. He suggests visiting the Galen Institute's health-care policy links for MSA primers or MSN Money's Health Insurance portal.

  • Get out of extremely labor-intensive sectors. "You have to look at your business and think about what parts of it are so labor-intensive that there's no way you could compete with people in India or China," says Chip Coker of Coker Textiles in Anderson, South Carolina. "Figure out which these are, and cut them."

  • Look for federal contracts. "Federal contracts are still one of the places where U.S. manufacturing companies can really develop a cash cow," says Collie Hutter, owner of Click Bond in Carson City, Nevada. Both the SBA and The Catalog of Federal Domestic Assistance offer information on federal contracts.

By Joshua Kurlantzick is a writer in Washington, DC.

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This article was originally published in the October 2003 print edition of Entrepreneur with the headline: Made in America?.

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