MANUFACTURING EXTENSION SERVICES IN

Manufacturing Extension:
Performance, Challenges, and Policy Issues

Philip Shapira*

* School of Public Policy, Georgia Institute of Technology, Atlanta GA 30332-0345 USA. ps25@prism.gatech.edu. Prepared for the Project on Technology Policy Assessment of the John F. Kennedy School of Government at Harvard University and the Competitiveness Policy Council. Revised version: July 30, 1997. With modifications, published in Investing in Innovation, edited by L.M. Branscomb and J. Keller, The MIT Press, 1998.

One of the major successes of federal technology policy in the 1990s has been the development of a much more comprehensive system to support the deployment of new technologies and improved business practices among small and mid-sized manufacturing enterprises across the United States. At the start of the decade, the nation’s infrastructure for such manufacturing extension services was patchy, comprising a handful of individual state programs, a few embryonic federal manufacturing technology centers, and a series of other rather uncoordinated federal and state technology transfer efforts. However, by 1997, more than seventy manufacturing technology centers or programs were operational in all fifty states, under the aegis of a national network of technology and business service providers known as the Manufacturing Extension Partnership (MEP). The MEP is a collaborative initiative between federal and state governments that also involves non-profit organizations, academic institutions, and industry groups. The MEP’s federal sponsor, the National Institute of Standards and Technology (NIST), within the U.S. Department of Commerce, has emerged as a focal point of federal initiatives to assist manufacturing technology deployment and industrial competitiveness.

During a period when support for federal technology policy has been uncertain, the MEP represents a remarkable exception. The program has garnered a rare degree of broad bipartisan support; it is one of the few new federal technology policy initiatives to see its budget increased between 1992 and 1997. The MEP has also pioneered a collaborative management style: a variety of technology and business assistance providers in the public and private sectors are brought together to offer comprehensive, locally managed, and demand-driven services to small and mid-sized manufacturers. This approach stands in contrast to the fragmented "technology-push" methods that characterized many previous federal technology transfer programs.

At the same time, a series of challenges and opportunities face the MEP program, its stakeholders and industry partners, and the federal technology policy-making community. Institutional, organizational, and funding issues must be addressed as the MEP evolves from its rapid start-up phase of the early- to mid-1990s to one of slower growth and maturity over the balance of the decade. There are concerns about where and how the program should concentrate its resources to achieve maximum effectiveness during the next stage of its development and operation, as well as issues related to the integration of the MEP with other federal technology and business assistance policies. After reviewing the recent growth of the MEP and its performance, this chapter considers these strategic issues and how they might be addressed.

The Development of the Manufacturing Extension Partnership

In the United States, manufacturing extension services focus mainly on industrial companies with fewer than 500 employees. There are some 380,000 of these small and mid-sized manufacturers, forming an important and integral part of America’s industrial base. Many of these smaller firms find it difficult to introduce modern manufacturing technologies and methods.¹ There are market failures on both the demand and supply side. Smaller firms frequently lack information, expertise, time, money, and confidence to upgrade their manufacturing operations, resulting in under-investment in more productive technologies and missed opportunities to improve product performance, workforce training, quality, and waste reduction. At the same time, private consultants, equipment vendors, universities, and other assistance sources often overlook or cannot economically serve the needs of smaller firms; potential suppliers of information and assistance also face learning costs, may lack expertise, or face other barriers in promoting the diffusion of rewarding technologies. System-level factors, such as the lack of standardization, regulatory impediments, weaknesses in financial mechanisms, and poorly organized inter-firm relationships, can also constrain the pace of technological diffusion and investment.

The MEP aims to address these problems by organizing manufacturing extension services that promote the diffusion and deployment of new technologies and improved business practices among industrial firms and also by coordinating networks of public and private service providers to better meet the needs of smaller firms, regions, and industries. Manufacturing extension centers typically employ industrially experienced field personnel who work directly with firms to identify needs, broker resources, and develop appropriate assistance projects. Manufacturing extension centers also offer a variety of other services, including information provision, technology demonstration, training, and referrals. Given the economy-wide benefits of accelerating the deployment of technology (considered in Chapter 2 by Michael Borrus and Jay Stowsky) and the difficulties many companies and industries face in independently implementing technological upgrades, the MEP is a classic example of how collective public action in partnership with the private sector can make markets and the economic development process more effective.

The seeds for the development of the MEP were planted before the 1990s. A few states have operated manufacturing extension programs since the 1950s and 1960s, while several others established programs in the 1980s in response to regional industrial decline and to stem the loss of manufacturing jobs.² These state programs served as models for federal initiatives. Additionally, in 1988, the Omnibus Trade and Competitiveness Act was passed by Congress, under Democratic party leadership, and approved by a Republic administration. Driven by national concerns about the loss of American industrial and technological competitiveness, this Act gave the National Institute of Standards and Technology (created from the old National Bureau of Standards) the mission of strengthening the civilian industrial base and supported the formation of regional manufacturing technology centers to accelerate the adoption of new technologies by industry.

While there was a small increase in federal support for manufacturing extension in the first few years following the 1988 Act, by far the biggest expansion came after 1992. The Clinton administration pledged to build a national system of manufacturing centers to help small- and medium-sized manufacturers adopt new technology, production techniques, and business practices.³ This promise formed part of the administration’s plan to deal with defense downsizing and to strengthen the country's technological infrastructure. Initially, 170 U.S. manufacturing centers were proposed -- the number of equivalent technology centers in Japan. Later, the administration pared back its goal to one of establishing "100 manufacturing centers nationwide by 1997."⁴ The administration supported this revised commitment with funding from its defense conversion initiative, the Technology Reinvestment Project (TRP), supplemented by additional funds through the regular Department of Commerce appropriation.⁵ Allocated through a competitive process and managed by NIST, federal funds were made available to states through what became known as the Manufacturing Extension Partnership; the states had to provide matching funding. These resources were used to expand existing state manufacturing extension programs as well as to establish new centers and programs. From a base of seven federally sponsored centers in 1992, the system grew rapidly to include MEP centers in 32 states at the end of 1994, while by 1997 there were more than 70 MEP centers covering all fifty states. Regional and national support programs have also been sponsored in such areas as manufacturing extension staff training, methods for customer assessment and performance benchmarking, and evaluation. In FY1997, about $95 million in federal funding for the MEP plus some additional TRP funds were matched by at least a further $100 million, including mostly state and some private funds. In FY1998, NIST will assume the complete federal share of the expanded MEP network without Department of Defense appropriations. Congressional action is pending on the FY1998 budget, with an appropriation of $114 million under consideration (compared with the president’s MEP budget request of $123 million). If approved, the MEP’s FY1998 federal budget will be more than six times the $18 million 1993 federal appropriation.

The change in congressional leadership after the fall 1994 election initially raised fears about ongoing support for the MEP program as members of the new Republican majority expressed skepticism about the Clinton administration’s technology policy initiatives.⁶ However, bipartisan support for the MEP has been maintained. States, MEP centers (through their trade association, the Modernization Forum), and several other associated industry groups have worked with Congress to highlight the MEP’s customer-driven market orientation, the involvement of private sector groups, its leveraging of non-federal resources, the program’s "quality control" methods of ensuring that affiliated centers are well managed, and even its possible "budget-positive" effect through additional tax revenues associated with the program’s economic impacts on industrial firms.⁷ These efforts have deflected the criticisms of ill-advised market interference, corporate subsidization, and general governmental ineffectiveness that have been levied against other federal technology programs. The significant state role in the MEP has also allowed the program to be rationalized on the basis of assistance to economic development and support for small business, which have long been accepted grounds for state government intervention. Finally, with numerous centers established around the country, legislators have identified with particular centers in their states and districts and become amenable to supporting them, party affiliation notwithstanding.

The Performance of the MEP

At the start of the 1990s, the U.S. public infrastructure for manufacturing technology deployment compared unfavorably in scale and scope with the systems found in other advanced industrialized economies.⁸ However, rapid progress has been made: the MEP now offers comprehensive services with a level of market penetration that is not drastically out of line with efforts elsewhere. Around 56,000 firms have been assisted by the MEP since 1989, with current service loads beginning to exceed 30,000 firms a year.

The typical MEP center employs about thirty-five professional and technical staff and uses an additional ten consultants each quarter. The average number of targeted manufacturers in an MEP's service area is around 6,200; smaller MEPs, usually serving dispersed rural areas, target 1,300 to 1,500 enterprises; and a few larger centers in urbanized locations target more than 15,000 firms. Each quarter, an average MEP center assists about 120 firms through a combination of initial visits, assessments, technical assistance projects, and training events (some larger centers serve many more customers, other smaller centers serve fewer firms). More than two-thirds of the firms served have fewer than 100 employees. MEP technical assistance projects tend to focus on process techniques and "soft" business and manufacturing practices rather than "hard" new technologies such as factory automation: for MEP activities involving eight or more hours of staff time, the most common projects involve process improvement, quality and inspection, business systems and management, human resources and market development.⁹

While the MEP has more resources and is serving more firms, the program’s overall impact is harder to measure, for three reasons. First, since many centers in are still in the early years of start-up, evaluations of the program’s performance must be regarded as preliminary. Second, different stakeholders in the system have varied perspectives on how the MEP’s performance should be measured.¹⁰ For example, federal goals emphasize industrial competitiveness and technology diffusion; states are most interested in local economic development and employment effects; individual firms seek such results as cost or time savings, increased sales, better quality, or improved profitability; while for workers, employment security and higher wages may be the desired outcomes. Third, the important "soft" effects of MEP intervention are intrinsically hard to measure in strict economic terms; for example, strengthening long-term inter-firm relationships within industries and localities can improve knowledge flows that cannot easily be assigned a dollar value yet which are critical for business success.¹¹

With these caveats made, what is the evidence to date about the performance and impact of the MEP? Early studies of the original federal manufacturing technology centers found them helpful in assisting firms to modernize business and technological practices, although it was acknowledged that the small number of centers at that time and their separation from other federal and state programs limited their total effect.¹² Since then, the MEP has grown rapidly and has developed a more coordinated service delivery system.¹³ Rather than duplicate services or provide assistance directly from the federal level, MEP awards are designed to get existing public and private service providers to coordinate their efforts and to develop local service networks that are accessible and responsive to manufacturers. The current network of MEP centers directly operates over 300 local offices (Map 1) and works with more than 2,500 affiliated public and private organizations. These organizations are quite varied; they include non-profit technology or business assistance centers, economic development groups, universities and community colleges, private consultants, utilities, federal laboratories, and industry associations. A cooperative relationship between the public and private sectors has been encouraged: MEP centers generally have governing or advisory boards that include representatives from industry, other private groups, and the public sector. In addition to better coordinating public service providers, MEP centers have integrated and leveraged private sources. For example, rather than competing with private consultants, it has been found that the MEP helps companies use private consultants more effectively. Interaction with the MEP assists in the front-end assessment of problems, helps to match firms with qualified consultants, and encourages firms to implement consultants’ recommendations.¹⁴Overall, the program is decentralized and flexible, and individual centers can develop strategies and services which are appropriate to state and local conditions.

A steadily growing body of evaluation studies using varied quantitative and qualitative methods shows that the MEP’s impacts on businesses and the economy are also broadly positive. For example, in a recent congressional oversight study, 73 percent of 389 business respondents to a survey of manufacturing extension customers indicated that their overall business performance had been improved.¹⁵ Evaluation studies of the Georgia Manufacturing Extension Alliance indicate that one year after service, 68 percent of assisted firms had taken action, with more than 40 percent reporting reduced costs, 32 percent reporting improved quality, and 28 percent indicating a capital investment was made.¹⁶ A benefit-cost study of projects completed in one year of the Georgia program finds combined net public and private economic benefits exceeding costs by a ratio of 1.2:1 to 2.7:1.¹⁷ Structured case studies of MEP projects show that program services help smaller manufacturers to modernize their operations, improve quality, and increase profitability through such means as reducing waste, redesigning plant layouts, and improved inventory control and employee training.¹⁸ A study in Michigan using seventeen key technology and business performance metrics finds that manufacturing technology center customers improve faster overall than comparable firms in a control group that did not receive assistance.¹⁹ In this study, however, the assisted firms had smaller increases in computer-based technologies, raising some questions about the assistance strategies of the center -- an issue considered below. Less ambiguously, studies in 1994 and 1996 of New York’s Industrial Extension Service (an affiliate of the MEP) find that the business performance of assisted firms is improved when compared with non assisted but similar companies.²⁰ Longitudinal controlled studies using census data also suggest that assistance by extension services improves productivity.²¹

Progress has also been made in identifying "best practices" for industrial modernization -- processes, practices and systems recognized as improving the performance and efficiency of MEP programs and service offerings.²² The early federal manufacturing technology centers were envisaged as transferring federally developed advanced technology to private industrial firms. It was soon realized, however, that small firms generally need assistance with commercially proven technologies. These firms also need assistance with workforce training, marketing, and overall business management so as to make best use of existing and newly introduced technologies. Most MEP centers now structure their services to address industrial customers’ training and business needs, as well as promote technology deployment. The MEP has found that industrially experienced staff and consultants are better able than researchers to deliver services to firms, that services must be offered geographically close to industrial clusters, and that the quality of affiliated center operations and services can be maintained through merit-based competition for funding and regular management reviews (which often involve outside reviewers).

Challenges and future directions for the MEP

In many ways, the MEP is a model program. More than most other recent federal technology policy initiatives, it has gained bipartisan sponsorship in Washington and appreciable support and matching dollars from the states. Over the past four years, the program has ramped up quickly to achieve national coverage. Support systems, in terms of training, information sharing, and evaluation, have been put into place. Most importantly, the early evidence indicates that the services of MEP affiliates are leading to desired business and economic impacts. The MEP has also incorporated most of the principles of flexible operation, collaborative partnership, and quality control advanced by recent advocates of governmental reform and "reinvented government."²³ Nonetheless, four major categories of issues and challenges face the MEP in the next years: the program’s strategic orientation, its operation as a partnership, the underlying funding framework, and its role within an overall technology policy framework.

The Strategic Orientation of the MEP

Like other public programs, the MEP pays considerable attention to issues of justification. The MEP has to address questions about the need for the program, its effectiveness, and the extent to which the program is subsidizing or substituting services that could be better provided by the private sector. In a dynamic political and economic environment which values accountability, desires to strengthen rather than replace market incentives, and has many other pressing demands for scarce public tax resources (including not raising those taxes), these are appropriate concerns. The growing body of evidence about the MEP’s performance, impacts on customers, and linkages with industry and private service providers has allowed its proponents to argue that the program addresses clearly identified market failures and produces net economic and social benefits. The ability of a program, especially a young one, to marshal evidence about its effectiveness and to motivate a constituency of support is crucial to survival; yet, the focus on program justification has at times overshadowed equally important challenges for the MEP related to program improvement and strategic orientation. For example, can the program be more effective? What changes in MEP intervention methods and its service delivery mix would lead to further improvements in program outcomes?

To date, the services offered by MEP affiliates have tended to help firms become leaner, and more efficient, through assistance with solving production problems, improving quality and lowering costs, and encouraging firms to adopt modern manufacturing technologies and management techniques. These services are consistent with the design of the MEP as an incremental business improvement intervention. But reducing costs and improving efficiency is only one part of a strategic approach to manufacturing and technology-based economic development. Although the number of small and mid-sized manufacturing firms in the United States has grown in recent decades, the average wages paid by these smaller firms have increasingly lagged behind those of larger companies.²⁴ While the reasons for this are complex, at least part of the problem is that many U.S. small firms produce routine commodities that are now subject to intense worldwide competition. If they are to offer higher wages in the future, more smaller American manufacturers must find ways not only to reduce waste and improve productivity but also to command market premiums through distinctive products, processes, and business strategies.²⁵ To help small firms develop these capabilities, the MEP may need to offer a different service mix and approach -- a change that would have implications for the system as a whole. There is some recognition of this point within the MEP, with several centers shifting to offer deeper and more long-term services. But more needs to be done.

For instance, the MEP could increase its product design and development assistance to help more small firms enter new high-value domestic and export markets. This would affect MEP staffing needs, and would require stronger links with research and development centers and with financing and marketing specialists. Similarly, the MEP could give greater emphasis to collaborative inter-firm and industry-level initiatives, for example in promoting local networks of small firms to accelerate the dissemination of information and to encourage collaborative problem solving, product development, and marketing. Already underway is a project to improve supplier development, with the MEP working as a service franchise to upgrade multiple suppliers of a firm or industry across state boundaries; such efforts ought to be expanded. Support might also be deepened to help clusters of small and mid-sized firms deploy those new technologies and methods that are likely to be critical for market leadership in coming years, such as environmentally conscious manufacturing, working with new materials, or exploiting new communications technologies in organizing production within related industries.

However, efforts that go beyond incremental short-term problem solving into a more strategic approach to intervention would require parallel changes in the MEP’s underlying incentive framework. At present, many MEP centers strive to maximize the number of completed individual projects with firms. Center staff typically work "one-on-one" with specific firms, focusing on immediate needs. This approach can generate fee revenue from individual customers, but may also result in high marketing and service costs as well as many short-duration, low-contact, and probably low-impact projects. Longer-term initiatives to address structural industry problems, build stronger inter-firm relationships, or pursue riskier but potentially more rewarding product development outcomes tend to get postponed due to the day-to-day pressures of maintaining project counts or fee income. In part, this focus on the short term reflects funding uncertainty and weaknesses in the systems of incentives offered to centers and field staff. A longer-term federal funding commitment and changes in NIST management guidance and grant formulas would improve the climate for a more strategic approach. However, there is a limit to the effectiveness of "top-down" management directives given the MEP’s decentralized partnership structure and the powerful engineering culture evident among many MEP field staff which leads them to focus on immediately fixable problems. Also needed are parallel measures to strengthen learning and evaluation systems and to promote informed comparison and feedback at the local level: such efforts would help center managers, staff, governing boards, and state program sponsors better understand the impacts of different types of interventions, identify best practices, and work with industry stakeholders to determine strategic needs and opportunities.

The Operation of the MEP as a Partnership

The MEP’s working partnership between the federal government, the states, and other public and private service providers has improved the coordination and flexibility of manufacturing extension services, integrated a wider range of service expertise, reduced inefficient overlaps, and helped new centers expand quickly by leveraging existing resources.²⁶ Yet partnerships have costs too. They can be expensive to maintain, in terms of administrative coordination and political capital. Some local MEP partnerships were put together hastily, for the purposes of grant application, leading to instability in the partnership; in other instances, technically competent but politically weak service providers have been subordinated. As the MEP shifts from rapid growth to maturity, it must address these deficiencies. MEP’s ongoing review process allows it to deal with poorly organized or sub-par local affiliates. The issue now is to continue to ensure the integrity of the review process, to include external reviewers, and to avoid undue political interference when NIST has to make hard decisions about discontinuing funding or recommending organizational changes that affect local centers.

Other issues related to MEP structure and organization will also need fresh attention in the next few years. One such issue is the geographic coverage of the MEP. The program has grown in disjointed stages, reflecting separate rounds of federal funding as well as variations in state and local abilities to prepare winning proposals and find matching funds. While MEP affiliates have now been funded in all states, there is a mismatch between the allocation of federal resources and the geographic distribution of industry. For example, dense concentrations of manufacturers in California and the Northeast are relatively under served, while several rural areas are relatively over served. The targeting of competitions to expand MEP services to under served major industrial clusters may be a useful next step, if additional federal funds for new centers are forthcoming. Otherwise, NIST may have to revisit how it distributes its federal funding and consider how it could allocate its existing resources to better match the clustering of industry.

Another key issue is the role that the states and private interests should play in the MEP. While states have put up money to match the federal commitment, they differ in their degree of participation. Some states play a minimal role: they let the federal government act as the dominant partner. Other states wish to be very active in setting directions for their MEP program, which has at times led to conflicts of policy. The management capabilities and experience of individual MEP centers also varies: some centers are brand new while others have been in operation for two or more decades. These differences raise the question of how NIST should relate to the states and individual centers: there is a wish to avoid seeing the states just as voiceless funders and the centers as mere operational arms; at the same time, a "hands-off" federal role would probably result in wide variations in local program performance and might actually diminish states’ support. NIST has worked through organizations like the National Governors Association to create inter-governmental mechanisms to consider MEP policy issues, and there is a need to extend such discussions between federal and state policymakers, particularly on the strategic orientation of the MEP and on how to make the partnership most effective. Similarly, what role should industry play? While there is local advisory participation, small and mid-sized manufacturers are weakly organized to participate in the MEP. Industry associations may have to be not only convinced, but further strengthened, to be more fully engaged with the MEP, to more efficiently diffuse knowledge about improved technologies and practices to association members, and to serve as full partners in strategic efforts to upgrade particular industrial clusters. More vigorously involved industry, state, and local partners will help to minimize the risks of bureaucratization and micro-management that could affect NIST’s administration of the MEP now that the rapid growth phase is over.

The Underlying Funding Framework

A major area of uncertainty for the MEP is its underlying funding framework -- an issue that is tied to questions about the program’s objectives and to expectations about the longer term commitment of its strategic partners, particularly the federal government. The 1988 Omnibus Trade and Competitiveness Act set a six-year limit on federal funding to a manufacturing technology center, with a "ramp-down" of federal dollars after the third year of NIST funding. The aim was to encourage centers to become "self-sustaining" without federal funds. In part, the "self-sustaining" clause reflected a necessary political compromise to avoid an open-ended commitment to a new government program; there was also the idea that if the centers were truly market-driven and customer-focused, they would be able to generate significant fee revenues from private firms, once established with initial public seed funding.

The original legislative design is admirable in that it motivates MEP centers to seek fee revenues, which helps to ensure that they provide services that firms want and for which they are willing to pay. But the idea that centers can completely replace federal funds with fee revenues has proven to be flawed, for several reasons. There are policy conflicts among MEP centers and sponsors -- not so much on fee-generation per se, but on the aggressiveness in which it should be sought. In several cases, the state partner has taken the view that industrial extension is a "public service" mission that should make assistance available to all small firms, even to those with limited capabilities to pay. In other locations, MEP centers (often with less secure state funding) have aggressively sought fee revenue. However, these centers tend to narrow their scope of service to maximize fees by "selling" short-term projects (which may not be the projects of most strategic value to companies or industries) and serving larger firms (who can afford to pay more). Direct competition with private consultants is also increased. Additionally, as a practical matter, it seems that even the most aggressive centers cannot cover much more than one-third of their real costs through fee revenue. Indeed, most centers have found that the unit costs of marketing and servicing small firms are high relative to the fees that can be charged. (This is a reason why the private market for consulting services to small firms is weak and is one of the market failures that the MEP seeks to address with public subsidy.)

The issue of six-year self-sufficiency (also known as the "sunset" provision) has been a nagging problem within the MEP system and has hampered long-term planning. However, there are optimistic signs that this issue is now being addressed. There is an improved recognition in the policymaking community that maintaining an effective array of manufacturing extension services for small and mid-sized firms requires a core of public support. A clause in the federal 1997 appropriations language for the MEP allowed several centers that had exceeded the six-year limit to continue to obtain funds. However, this is a temporary and ungainly fix. There remains a need to revisit the legislative intent of the MEP program, to rescind the six-year sunset clause, and to legitimize an ongoing a continuing public role in manufacturing extension. Indeed, in mid-1997, Congressional committees are considering a legislative amendment (supported by a number of state governors, both Republican and Democrat) to remove the sunset provision and to allow continued federal funding after the sixth year of an MEP center’s life at one-third of operating costs subject to positive performance and reviews.

As yet, no final action has been taken on the sunset provision, but it does seem that the principle of an ongoing public commitment to manufacturing extension is being established. However, this still leaves plenty of room for debate about the size of the system, the appropriate level of funding, the precise nature of the federal role, and the methods and mix of support from other governmental and private stakeholders. Many practitioners advocate that the MEP should be funded over the long-term in equal thirds by federal, state, and fee-generated revenues. This appears to be a workable formula to support the direct delivery of services to small and mid-sized firms, but there are circumstances where variations are warranted. For example, the possibilities for fee generation are likely to be greater in urban locations than in rural areas, and an allowance for this should be made.

The strategic and infrastructural investments necessary for an effective manufacturing extension framework also require different funding methods. For key technologies and industrial priorities, national or regional (rather than state) centers of excellence may appropriate to stimulate the sharing of expertise and tools, encourage information flows across state lines, and avoid the duplication of specialized services in several states. One example of a center of excellence is the Ohio-based Edison Welding Institute, which has worked with MEP affiliates in other states to provide its materials joining expertise to manufacturers. Similarly, efforts to promote supply-chain improvement, inter-firm collaboration, worker training consortia, and program infrastructure services like staff training, resource networks, or evaluation are often most optimally implemented with regional or national (and, in some cases, international) coordination. "State-less" federal investments in these areas are important in integrating the MEP system together, allowing strategic priorities to be emphasized, realizing spillovers from state investments, and promoting learning and the spread of best practices. State and private resources can be obtained in some instances for these activities, especially for industry-focused technology centers; in other areas, for instance the development of new tools or the promotion of information exchange, it is harder to find matching funds and a greater federal contribution is usually required to start and maintain such initiatives. Currently, about $12 million is allocated by the MEP for such efforts, under the heading of "national programs." NIST has established initiatives in environmental, information, and printing technologies, in supply chain optimization, and has supported pilot projects to promote inter-firm networking. Further efforts to deploy advanced technologies are planned. As the MEP shifts from the phase of establishing new centers to one of optimizing an in-place system, increased federal funding to the level of about $30 million for national programs (matched in part with additional state and private funds) would allow a more extensive portfolio of strategic and infrastructural initiatives to be implemented.

Although the likely FY1998 MEP budget will allow the current MEP system to be maintained, there is a case, in succeeding budget years, to enhance the level of MEP services in selected key manufacturing clusters. An additional $30 million to $40 million (matched by equivalent state, local and private funds) could usefully increase market penetration in under served large urban industrial areas such as New York or Los Angeles.²⁷ In total, adding together the costs of this system expansion with those of an increased budget for strategic and infrastructural initiatives, an annual federal investment of some $180 million to $190 million is implied. Matched with state funds and private fee revenues, this would result in a manufacturing extension system that more completely served U.S. industry; through intensive projects, it would aid about 10 percent of American small and mid-sized manufacturers each year and offer training, information, referral, and other forms of assistance. The system would also have the resources to introduce strategic new initiatives. With effective management, the potential productivity benefits from this investment should result in compensating net positive returns to the economy. One estimate suggests that if the average annual growth of productivity in U.S. small and mid-sized manufacturers could be increased by one-tenth of one percentage point and sustained for five years, about $6.7 billion in savings would be realized by firms and customers. Workers could also realize up to $3.8 billion in added payroll.²⁸ These returns significantly exceed MEP program expenditures.

The ability of the MEP system to generate these kinds of improvements requires stable, long-term core support from the states as well as the federal government. While funding for industrial extension is quite solid in several states, in many others it is not. As economic conditions and political priorities change among these states, some MEP centers may find it increasingly difficult to obtain their state matching funds. However, there does appear to be a relationship between the availability of federal funds and the continued commitment of state resources. An ongoing federal commitment will make state withdrawals less likely.

The Broader Technology Policy and Economic Development Framework

A final challenge for MEP is how the program can be better coordinated with other federal technology and business development initiatives for manufacturers. The federal government invests more than $3 billion annually in an array of cooperative technology programs and sponsors at least thirty separate programs to help industrial enterprises.²⁹ Perhaps it is not surprising that one recent congressional task force reported "a deep sense of confusion about what federal initiatives are available to assist manufacturers."³⁰ Federal programs include support for numerous small business development and export centers, the Economic Development Administration’s industry-university centers, the National Aeronautics and Space Administration’s regional technology transfer centers, and a series of defense-related technology and trade assistance adjustment centers. There are also various financial assistance, training and workforce programs. Additionally, federal laboratories have been encouraged to establish their own systems of technology transfer to business. On paper, the federal lab transfer mission is different, but in practice there is an overlap with the MEP; for example, federal labs market and provide relatively simple technical assistance to many of the same small and mid-sized firms served by MEP centers.

How can we make better sense of this federal technology and business assistance system? Unfortunately, there are significant political and administrative barriers in Washington to more logically organizing the package of manufacturing services supported by the federal government. Agencies and constituencies frequently defend individual programs against cuts or reallocations of resources. Moreover, indicating that small firms are helped as part of an agency or laboratory mission provides an aura of relevance that assists in maintaining funding in tight budgetary times -- even if those services are not entirely necessary and overlap with other federal and state programs. It is too much to expect that the MEP, by itself, can rationalize this system. This is a task for a broader review of technology and business support for manufacturers. Additionally, caution should be exercised before suggesting that the MEP can supersede some of these federal programs, lest it become overloaded with too many missions and mandates.

However, the MEP can play a critical role in the selective integration and improvement of services offered to manufacturers by existing programs. The MEP, through NIST and the Department of Commerce, can help to broker agreements at the national level with other agencies to coordinate and deliver services. NIST has coordination agreements with the Labor and Agriculture Departments, a pilot collaboration with elements of the Small Business Development Centers program, and is working with the Environmental Protection Agency to use the MEP network to provide environmental services to small and mid-sized firms; there will likely be further opportunities to use the MEP as an effective distribution network for other federal services targeted to small firms. Equally important, the MEP’s flexible structure can be used to actively promote working relationships at the local level among different programs, seeking to bring together expert service providers who can add value to manufacturing firms. For example, MEP programs can develop agreements with federal laboratories in particular regions through which the MEP would focus on outreach and routine services to small manufacturers, but then join with experts from federal laboratories to address more sophisticated problems. Similarly, as is already beginning to happen, MEP programs can be encouraged to co-locate their field offices with small business assistance centers to offer a full range of advice in technological, marketing, business planning, and financial areas to local firms.

The MEP’s role in coordinating technology and business services to manufacturers is not restricted to federally sponsored programs. MEP partnerships already help to integrate varied service providers at the local level, including colleges, state and local business development programs, and private groups. Encouraging the MEP to play an even greater role in coordinating assistance services to manufacturers can reduce confusing and wasteful overlaps, share marketing and service tools, and lead to important improvements in the quality and comprehensiveness of services available to firms. However, the development and operation of effective local partnerships incurs economic and political costs, including transaction costs associated with information sharing, quality monitoring, and dealing with inter-organizational tensions. Although the benefits appear to outweigh the costs, these costs should not be ignored. Indeed, a more coordinated service framework is an externality that benefits industrial firms and regional economies more than any individual program. In most cases, local manufacturing service partnerships could not exist without the stimulus (and absorption of coordination costs) possible with the relatively small amount of flexible federal funding provided through the MEP.

While the MEP can help to improve the coordination of manufacturing assistance services within our rather fragmented federal system, there are limits to coordination and to the ability of any single initiative to effect substantive change within a complex and large political economy. The MEP must be complemented by supporting policies and reforms in such areas as workforce training, tax incentives and financing for research and technological investment, and regulatory compliance. Often, manufacturing extension agents help firms to overcome barriers that are caused by other failures in the policy system. A case in point: the use of MEP resources to assist firms in developing literacy and basic educational programs for their industrial workers -- critical before new technology can be used effectively -- demonstrates the glaring need to restructure public education and training, particularly in urban areas where many smaller manufacturers are located. Manufacturers in the United States will continue to be disadvantaged, to degrees that manufacturing extension cannot overcome, as long as such deficiencies in basic public services remain.

Conclusion: Charting a Strategic Future for the MEP

The MEP represents an important development in federal technology policy in at least three interrelated ways. First, it marks a fundamental additional policy thrust. For at least the past five decades, federal policy has stressed technological innovation (the development of new technologies, often in defense, space, and energy). More recently, the federal government has paid increased attention to technology transfer (shifting federally developed advanced technology into commercial use). Yet, while the federal government has long supported programs of agricultural extension, an explicit federal concern with civilian manufacturing technology deployment and best practice (promoting the widespread adoption of proven as well as new technologies and the improvement of manufacturing and business methods) is new. In the context of rapid international flows of information and capital and increased global competition, many have argued that strategic national and regional efforts to maintain industrial competitiveness depend not only on innovation but more than ever on the diffusion, effective application, and further improvement of proven technologies.³¹ This is not a new concept, and earlier state programs recognized the importance of technology deployment. But only with the growth of the MEP has the United States begun to put in place a nationwide system to match industrial needs and opportunities concretely with real technology deployment services.

Second, the MEP represents an important investment in the social infrastructure for diffusing technologies and improved business practices. Such factors as institutional arrangements, inter organizational relationships, trust, and the balance between competition and collaboration within regional and national economies are increasingly believed to affect technological and industrial success.³² (The role of social infrastructure in facilitating technological development is discussed in Chapter 4 by Jane Fountain.) Through its emphasis on building local manufacturing service partnerships and public-private linkages, the MEP is starting to play an important role not just in aiding particular manufacturers but also in strengthening manufacturing communities. The MEP could and should do more along these lines, for example, through increased support for collaborative initiatives that get suppliers and buyers to talk more to one another, that promote inter-firm networks for business development, and that support local industrial associations.

Finally, the MEP is significant because, in a period of renewed debate about the effectiveness of government, it is a program that works. This is not to say there are no weaknesses and opportunities for strategic improvement. But, overall, the MEP has, in a remarkably short period, established a national presence and stimulated a series of state manufacturing service partnerships involving hundreds of associated organizations. Centers are operational, staff are in place, working relationships have been forged between public and private service providers, assistance tools have been developed, and firms are being aided. The early evaluations of program performance are positive.

There is a temptation, in today’s good economic (but poor budgetary) times, to suggest that the MEP may no longer be necessary, or at least that federal support might be reduced. This would be a misreading of both the present situation and future possibilities. At present, despite some short-term improvements, the long-run growth rate of American industrial productivity is still very modest, with small firms on average continuing to lag in technology use, productivity, and wages. In the future, the effective use of technology is likely to grow ever more important in influencing industrial competitiveness, regional development, jobs, and wages. Without federal investment, the infrastructure to support and stimulate the effective use of available and emerging technologies by small and mid-sized firms will be substantially weakened, and potentially very significant private and public benefits will be lost. Public investments in the MEP are complementary to, and stimulate the use of, private sources: there is little evidence that private sources will, by themselves, be able to profitably step in and profitably serve the range of firms currently assisted by the MEP. Moreover, while a number of states would probably continue to support manufacturing modernization at a reduced level, without a significant federal role there would be a reversion back to the incomplete patchwork of unconnected programs that existed before the MEP and the interstate sharing of expertise, tools, and best practices would be stymied.

Thus, the importance of both the MEP and the federal role in structuring comprehensive manufacturing extension services must be recognized. There are cautiously optimistic signs here. Already, a base of support has been built for the MEP that crosses political, industrial, and geographic lines. As a minimum, this base of support needs to be drawn upon to ensure that the existing MEP network is stabilized. Federal funding for the MEP should be at least maintain the scale of what has already been established, with commitments to individual centers based solely on performance. The MEP’s underlying legislative framework should also be updated by removing the clause that generally limits ongoing federal support for MEP centers.

Yet, there is also the opportunity to move the MEP into an even more strategic role to build on the basic infrastructure already established. Even in an era of tight budgets, it has been argued in this chapter that there is justification for increasing federal support of the MEP by perhaps a further $60 million to $70 million. This additional investment, leveraged by further state and private funds, would deepen coverage in key urban manufacturing clusters and enhance shared infrastructural capabilities. Such an expansion should be linked to refining the strategic approach of the MEP; strengthening its activities at the level of manufacturing communities as well as individual firms; supporting the diffusion of emerging technologies; and further integrating MEP centers with other federal technology transfer, business development, and workforce training policies.

Whether an enlarged and more strategic future is possible for the MEP depends on a shared understanding about ends as well as means. A broader social accord needs to be fostered -- one that not only promotes a high-wage, technologically capable sector of small and mid-sized manufacturing firms but also values a collaborative public-private deployment strategy like the MEP as a means to achieve this, and supports policy measures to address associated concerns such as training, finance, and regulation. Industrial, workforce and community groups must be involved with federal policymakers and the states in further building this consensus. It is a task that will require ongoing political and economic investments to ensure success: if it can be done, the payoffs to the nation’s technological and economic development will be considerable.

Notes

See, for example, Office of Technology Assessment, Making Things Better: Competing in Manufacturing (Washington, D.C.: U.S. Congress, USGPO, 1990); Stuart Rosenfeld, Competitive Manufacturing: New Strategies for Regional Development (New Brunswick, N.J.: Center for Urban Policy Research, 1992); and National Research Council, Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers (Washington, D.C.: Manufacturing Studies Board, National Academy Press, 1993).
David S. Clifton, Larry R. Edens, Harris T. Johnson, and Robert W. Springfield, "Elements of an Effective Technology Assistance Policy to Stimulate Economic Development," Economic Development Quarterly, Vol. 3, No. 1 (1989), pp. 52-57; Philip Shapira, "Modern Times: Learning from New State Initiatives in Industrial Extension and Technology Transfer," Economic Development Quarterly, Vol. 4, No. 3 (1990), pp. 186-202.
William J. Clinton and Al Gore, Jr., Manufacturing for the 21st Century: Turning Ideas Into Jobs (Little Rock, A.R.: National Campaign Headquarters, September 8, 1992); William J. Clinton and Al Gore, Jr., Technology for America's Economic Growth: A New Direction to Build Economic Strength (Washington, D.C.: Executive Office of the President, February 22, 1993).
National Science and Technology Council, National Security Science and Technology Strategy (Washington, D.C.: Executive Office of the President, 1995).
The TRP is described in Advanced Research Projects Agency, Technology Reinvestment Project: Program Information Package (Arlington, V.A.: U.S. Department of Defense, 1993).
National Coalition for Advanced Manufacturing, "New Direction of the House Science Committee," NACFAM Alert, (Washington, D.C.: December 15, 1994); E. Andrews, "Congress and White House Split on High Tech, New York Times, January 3, 1995, p. C19.
Modernization Forum, The Role and Importance of the Manufacturing Extension Partnership Centers, (Dearborn, M.I.: 1994).
Committee for Scientific and Technological Policy, Diffusing Technology to Industry: Government Policies and Programmes, OECD/GD(97)60 (Paris: Organisation for Economic Cooperation and Development, 1996); Philip Shapira, "Modernizing Small Manufacturers in the United States and Japan: Public Technology Infrastructures and Strategies." In Technological Infrastructure Policy (TIP): An International Perspective, edited by Morris Teubal, Dominique Foray, Moshe Justman, and Ehud Zuscovitch (Boston, M.A.: Kluwer Academic Publishers, 1996).
Lucy Richards, The Manufacturing Extension Partnership: An Overview (Washington, D.C.: Office of Technology Administration, US Department of Commerce. Presentation at OECD Workshop on Technology Diffusion, Paris, December 13, 1996); Manufacturing Extension Partnership, MEP National Data Highlights (Gaithersburg, M.D.: National Institute of Standards and Technology, April 18, 1997).
Philip Shapira, Jan Youtie, and J. David Roessner, "Current Practices in the Evaluation of U.S. Industrial Modernization Programs," Research Policy, Vol. 25, No. 2 (1996), pp.185-214).
Maryellen R. Kelley and Ashish Arora, "The Role of Institution-Building in US Industrial Modernization Programs," Research Policy, Vol. 25, No. 2 (1996), pp. 265-279.
U.S. General Accounting Office, Technology Transfer: Federal Efforts to Enhance the Competitiveness of Small Manufacturers, GAO/RCED-92-30 (Washington, D.C.: 1991); U.S. Department of Commerce, Manufacturing Technology Centers: Broad Programmatic Issues, Third Year External Review Panel (Gaithersburg, M.D.: National Institute of Standards and Technologies, 1992).
Philip Shapira and Jan Youtie, Coordinating Industrial Modernization Services: Impacts and Insights from the Manufacturing Extension Partnership (Atlanta, G.A.: School of Public Policy and Economic Development Institute, Georgia Institute of Technology, 1996).
Nexus Associates, Manufacturing Extension Centers and Private Consultants: Collaboration or Competition (Belmont, M.A.: Nexus Associates, Inc., 1995).
U.S. General Accounting Office, Manufacturing Extension Programs: Manufacturers’ Views of Services, GAO/GGD-95-21-216BR (Washington, D.C.: 1995).
Jan Youtie, Alan Olisko, Philip Shapira, and Michael Lane, GMEA Customer Progress: Results of a One Year Follow-up Survey, GMEA Evaluation Working Paper E9505 (Atlanta, G.A.: School of Public Policy and Economic Development Institute, Georgia Institute of Technology, 1995).
Philip Shapira and Jan Youtie, Assessing GMEA’s Economic Impacts: Towards a Benefit-Cost Methodology, GMEA Evaluation Working Paper E9502 (Atlanta, G.A.: School of Public Policy and Economic Development Institute, Georgia Institute of Technology, 1995).
Cosmos Corporation, A Day in the Life of the Manufacturing Partnership: Case Studies of Exemplary Engagements with Clients by MEP Centers (Gaithersburg, M.D.: National Institute of Standards and Technologies, 1996).
Dan Luria and Edith Wiarda, "Performance Benchmarking and Measuring Program Impacts on Customers: Lessons from the Midwest Manufacturing Technology Center," Research Policy, Vol. 25, No. 2 (1996), pp. 233-246.
Eric Oldsman, "Does Manufacturing Extension Matter? An Evaluation of the Industrial Technology Extension Service in New York," Research Policy, Vol. 25, No. 2 (1996), pp. 215-232; Eric Oldsman, Impact of the New York Manufacturing Extension Program: A Quasi-Experiment (Belmont, M.A.: Nexus Associates, Inc., 1996).
Ron Jarmin, Measuring the Impact of Manufacturing Extension, Working Paper CES96-8 (Washington, D.C.: Center for Economic Studies, U.S. Bureau of the Census, 1996).
Philip Shapira, J. David Roessner, and Richard Barke, "New Public Infrastructures for Small Firm Industrial Modernization in the USA," Entrepreneurship and Regional Development, Vol. 7 (1995), pp. 63-84.
David Osborne and Ted Gaebler, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector (New York: Plume, 1993).
Matt Kane with Dan Luria, Jack Russell, and Chris Heye, "The Value of Manufacturing Extension Programs in America." In Manufacturing Modernization: Learning from Evaluation Practices and Results, edited by Philip Shapira and Jan Youtie (Atlanta, G.A.: School of Public Policy and Economic Development Institute, Georgia Institute of Technology, 1997), pp. 21-28.
Dan Luria, "Toward Lean or Rich? What Performance Benchmarking Tells Us about SME Performance, and Some Implications for Extension Center Services and Mission." In Manufacturing Modernization: Learning from Evaluation Practices and Results, edited by Philip Shapira and Jan Youtie (Atlanta, G.A.: School of Public Policy and Economic Development Institute, Georgia Institute of Technology, 1997), pp. 99-108.
Shapira and Youtie, Coordinating Industrial Modernization Services.
NIST staff note that enlarging the MEP’s urban coverage has been difficult in some areas due to the difficulty of finding adequate state and local matching funds and to the rural influence often found in state legislatures.
Kane et al., "The Value of Manufacturing Extension Programs in America."
Chris Coburn and Dan Beglund, Partnerships: A Compendium of State and Federal Cooperative Technology Programs (Columbus, O.H.: Batelle Memorial Institute, 1995).
Charles Bartsch, Kerry Sutten, and Richard Purcell, Advancing Manufacturing Competitiveness: A Practitioners' Guide to Federal Assistance (Washington, D.C.: Northeast-Midwest Institute, 1995).
Organisation for Economic Cooperation and Development, Technology, Productivity and Job Creation: The OECD Jobs Strategy (Paris: 1996).
Rosenfeld, Competitive Manufacturing; AnnaLee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128 (Cambridge, M.A.: Harvard University Press, 1994).

Map 1. The U.S. Manufacturing Extension Partnership

[Available in Acrobat PDF version]

Source: Mapped from data provided by the National Institute of Standards and Technology.

Acknowledgements

Helpful comments and suggestions were provided by Kevin Carr, Marc Cummings, Ruth Haines, Jim Keller, Hans Klein, Phil Nanzetta, Robert Springfield, David Roessner, Jack Russell, and Jan Youtie, for which the author is most grateful. The author alone remains responsible for the views expressed in this chapter.

Biosketch

Philip Shapira is an Associate Professor in the School of Public Policy at Georgia Institute of Technology where he teaches and conducts research on technology policy, industrial restructuring, and economic and regional development.

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