5

Regional Economic Development

In the 21st century, global technology competition—characterized by multiple centers of research and development around the world, the deep integration of advanced manufacturing and research, and the rapid rise of China as a technology competitor and a strategic rival—has proven that U.S. technology leadership in and of itself is not sufficient. Sustaining global technological leadership and the benefit it brings requires a robust domestic supporting ecosystem that sustains this leadership as well as the manufacturing scale-up environment that takes advantage of this leadership to bolster the nation’s economic growth and national security objectives.

In this context, the Manufacturing USA institutes could serve a critical national mission. It is important that they provide a robust shared space for industry and academia to work together to conduct applied research, develop new technologies, products, and manufacturing processes, and establish programs to build the skilled technical workforce—all with the goal of driving innovations from early-stage research to scalable domestic production at a globally competitive pace.

Although technology-based competition is global, ecosystems supporting manufacturing in the United States are inherently regional, and thus it is critical that new manufacturing technologies be introduced and experimented with regionally and then move toward national adoption at larger scale. So, for institutes to introduce their advanced manufacturing technologies, it is critical that they have regional implementation links.

Although the institutes can play a significant role in connecting stakeholders across a region into a viable network or ecosystem for production and innovation, and although there are important examples of how institutes across the Manufacturing USA network do address aspects of this role, they currently lack the scale and long-term viability to fully address this complex assignment.

To better understand this local dimension, the committee engaged with numerous regional stakeholders. Most notably, during the committee’s roundtable at the ARM Institute, committee members met with regional leaders from southwest Pennsylvania

to discuss assets and capabilities as pertains to the region’s science and engineering enterprise; skilled workforce; facilities and equipment; capital investment; supply chains; entrepreneurship; scale-up challenge; regional networks and institutions; local impact; and federal, state, and local partnership programs. The committee also held a virtual roundtable with NextFlex leadership and stakeholders to discuss key drivers, partnerships, and metrics for regional networks and institutions; hubs, particularly, the impact and role of science and engineering enterprise; skilled workforce; and facilities and equipment.

THE LOCAL CONNECTION

The institutes’ role as ecosystem connector is necessarily regional in focus for three reasons.

Assets are local: Technology development and production scale-up take place in the context of local geographic distributions of capital equipment, infrastructure, know-how, workforce skills, and cooperative arrangements. A given region will have, given its own history, a mix of resources and organizations, including start-ups, manufacturing firms, government agencies, labs, universities, and technical colleges as well as banks, philanthropies, and other providers of financial capital. Also, often in the mix are workforce investment boards, economic development agencies, and community colleges, which can be some of the institutes’ most important nonfederal partners. Each institute—working alongside regional development agencies—has an important role in taking stock of available regional assets and contributing to the establishment of additional capabilities, the repurposing of others, and developing new proficiencies where there are gaps. Indeed, the institutes’ generative role of building the ecosystem is significant. Often, institutes must actively create assets because many regions served by Manufacturing USA institutes do not have a preexisting, well-distributed stock of capital equipment, workforce skills, and cooperative arrangements. The institute is often the catalyst that causes these assets to materialize in a region, particularly in regions that have experienced industrial decline.

Connecting assets requires local cooperative networks: Connecting this stock of local but often disconnected assets into a productive network requires cooperation across a variety of organizations that often have differing missions and operating cultures. Cooperation can stall when there is missing information or when incentives are misaligned. The Manufacturing USA institutes have a role in recognizing the challenges that these various actors have in working with each other and in helping to design locally focused rules that build trust and cooperation. For example, one set of rules may pertain to the shared use of technical facilities where participants need to figure out who contributes what to maintain the facility and who owns the resulting intellectual property and know-how. The committee acknowledges there can be tension between locally tailored rules and the federal oversight framework, including Part 200 of the Code of Federal Regulations prescribing instructions for federal cooperative agreement structures such as specific terms around cost share, intellectual property (IP), and deliverables. Some institutes themselves face the same cooperation challenges they are asked to solve. The federal terms they operate under do not always align neatly with the needs of regional

partners—particularly small and medium-sized manufacturers (SMMs) which can face particular barriers to participation in these cooperative networks because they may lack the administrative capacity to navigate federal compliance requirements.

Local stakeholder buy-in is needed to sustain the effort: Regional innovation ecosystems are cooperative networks of regional assets and capabilities that also effectively draw in national resources. Effective innovation ecosystems yield local economic benefits in terms of employment and economic growth. By connecting the local community to the opportunities inherent in a region’s growing industry, each manufacturing institute has a role in helping to drive this regional dynamic. Institute efforts that contribute to workforce development, for example, not only invest in their own needs but also support the emergence of new industries, while also creating a constituency to encourage public and private contributions to maintain the work of the institute. Rooting the institute in the region, in this way, helps sustain the institute over the long run. In turn, the long-term viability and scale of the institute are needed to develop the technology and to create local economic and employment benefits.

In reality of course, the institutes operate within a set of constraints and the operational realities—particularly around federal compliance constraints, SMM accessibility, and the sustainability transition. These are structural challenges inherent in the Manufacturing USA model. While benefits of regional engagement are very important, they does not compensate for the conditions under which these benefits may break down, such as if an institute’s technology focus does not align with the region’s dominant industries or when the regional labor market cannot supply the workforce the institute needs.

KEY CHALLENGES

The committee’s long-term vision is for the Manufacturing USA institutes to serve as reliable and sustainable institutional anchors enhancing regional capabilities to innovate and scale up a variety of technologies that advance regional economic development and employment. In turn, the network of these locally focused efforts collectively contributes to the nation’s competitiveness and national security objectives.

Success depends on sustained efforts over the long term and at sufficient scale. In this regard, the institutes’ role in regional economic development and technology leadership currently faces several major hurdles.

Narrow focus on technical missions: Although distributed across U.S. regions, the Manufacturing USA institutes do not always take full advantage of this network structure to lead and drive regional growth. Most institutes, in part because of limited resources and the national orientation of the agencies that support them, remain focused on their technical missions in accelerating technological development and coordinating pre-competitive research. In many cases, institutes by definition often have a narrow focus by design. Sponsoring agencies define technology focus areas that serve their mission needs, and cooperative agreements bind institutes to those focus areas. Institutes that have successfully broadened their regional engagement have typically done so by interpreting their technology charter creatively to be congruent with the existing technology mission, not around it.

Missing strategic perspective: Moreover, and as a result, many institutes lack the strategic perspective and associated dedicated expertise to build regional ecosystems as a means of accelerating economic development and engaging a stakeholder base positioned to rapidly commercialize their advanced technologies.

Fragmented and subcritical funding structures: The current financing structure for the institutes—which provides small amounts of support over short timelines—does not allow the institutes to build the scale and capacity to grow regional roots needed to address global competitive challenges. The tension between time-limited federal funding and the long time horizons required for regional ecosystem development pose a significant sustainability challenge. Arguably, the transition from federal to nonfederal funding is the single most significant challenge facing the institute network as also addressed in Chapters 3 and 4. Existing sources of funding are often highly fragmented across federal and state agencies. Furthermore, bureaucratic constraints make coordination across federal programs needed to achieve a sufficient scale of effort difficult (see Chapter 4). Support from philanthropic foundations is valuable when available but is often idiosyncratic and, at best, forms a patchwork solution. In practice, an institute pursuing a regional workforce initiative may need to braid funding from, for example, its cooperative agreement, a state workforce board, a Department of Labor grant, and an Economic Development Administration investment—each with different reporting requirements, cost-share rules, and performance metrics. The administrative burden of managing these overlapping compliance frameworks is substantial and falls disproportionately on smaller institutes with fewer administrative staff.

INSTITUTES AS ECOSYSTEM INTEGRATORS

The Manufacturing USA institutes are designed to connect a broad range of stakeholders, including member companies, universities, community colleges, state and federal agencies, and research entities. They can provide shared infrastructure, facilitate public–private partnerships, and focus on region-specific needs to accelerate innovation, integrate supply chains, and revitalize communities, ultimately strengthening the entire U.S. industrial base. This outreach takes place in a variety of contexts.

Partnering with Universities

Manufacturing USA institutes engage universities through collaborative applied research, shared workforce development programs such as internships and apprenticeships, and the creation of integrated technology and innovation ecosystems. For example,¹

• The Cybersecurity Manufacturing Innovation Institute (CyManII) is led by The University of Texas at San Antonio and has named The University of Texas System, Clemson University, University of Pittsburgh, University of California, Irvine, Indiana University, and Purdue University as managing members.

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¹This list was changed after the release of the report to correct the leadership and management of these institutes, the engagement of the universities, and the role of ARM institute as an independent nonprofit.

• The Advanced Robotics for Manufacturing Institute (ARM Institute) includes, for example, the University of Maryland as one of its more than 400 partners.
• North Carolina State University is a long-time partner of Manufacturing USA institutes, including being the lead organization for PowerAmerica.

These partnerships are a win-win for both the institutes and universities. The institutes can help bridge the gap between academic research and market applications, while universities can gain access to state-of-the-art equipment and resources offered by the institutes.

Providing Small Firms Access to Advanced Facilities

Some institutes offer access to pilot-scale manufacturing facilities and cutting-edge equipment that many smaller companies would not be able to afford on their own. For example,

• MxD, in Chicago, Illinois, offers a 22,000-square-foot “future factory” floor where manufacturers can experiment with new technologies.
• LIFT operates a 100,000-square-foot high-bay facility in Detroit, Michigan.
• CESMII offers a nationwide network of Smart Manufacturing Innovation Centers. Through the CESMII Smart Manufacturing Interoperability Platform, members can use shared software and digital tools for data modeling, analytics, and other applications to increase efficiency and productivity.

Connecting Small and Large Companies²

A number of institutes facilitate collaboration by bringing together their large members and smaller technology providers. For example, ARM Institute connected ARIS—a robotics start-up that developed an intuitive, augmented-reality user interface for programming robotic 3D scanning—with a large automotive manufacturer for a human–robot collaboration project.

Partnering with Philanthropic Organizations

Philanthropies can align with Manufacturing USA institutes to address shared priorities, including those focused on workforce development and support for veterans.

• A prime example is the Caterpillar Foundation’s grant, which supports the Heroes MAKE America initiative, a program that provides training and credentialing to help transitioning service members, veterans, and military spouses find careers in modern manufacturing.
• The ARM Institute has acted as a fiscal sponsor for a grant from the Richard King Mellon Foundation to the Keystone Space Collaborative, a Pittsburgh-based

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²An example was deleted after release of the report to remove an incorrect partnership example.

• space industry organization. This grant supports the development of the next generation of space industry businesses and talent in the region. By working with philanthropies, the ARM Institute diversifies its funding sources beyond its primary support from the Department of Defense (DoD) and member organizations.

Engaging State and Local Governments

While the level and scope of engagement vary across the states, several institutes work with state and local governments to establish programs and initiatives that directly benefit their communities.³ States often provide financial investment and other resources to match federal and private investments in the institutes. This co-investment model creates a strong incentive for other partners to join and contribute as well. State and local governments can also contribute to the institutes’ public–private partnership models by investing in shared facilities and equipment, which in turn creates shared resources and expertise that boost local and regional economic development. Finally, states and local governments often collaborate with institutes on programs such as apprenticeships, internships, and mid-career training to build the advanced manufacturing workforce needed to support technological innovation and economic growth in their region.

Drawing in Private Investments

While the institutes themselves are not venture capital firms and do not directly invest in companies or provide venture funding, they can “convene the right people” in their industry clusters, helping to facilitate introductions and build networks that lead to investment opportunities. They can also help to explain or demystify the technology, thereby lowering perceptions of risk and encouraging new investments.

Institutes often bring together a wide range of partners, including industry, academia, and government agencies. This networking helps forge relationships between manufacturers (including small and medium-sized businesses) and financial partners, which can lead to new funding opportunities. The NextFlex institute, for example, has worked with local city planners to attract capital and talent to San Jose. Similarly, America Makes has worked with local municipal planners to attract capital and talent to northeastern Ohio.

The institutes also collaborate with banks and financial institutions indirectly through their industry members and by fostering a favorable ecosystem for innovation and investment. Although financial firms are not typically core members of a manufacturing ecosystem, the institutes’ activities—such as de-risking new technologies and convening industry stakeholders—reduce barriers that help manufacturers secure financing for development and expansion.

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³Manufacturing USA, n.d., “How to Engage with Manufacturing USA Institutes,” https://www.manufacturingusa.com/pages/how-engage-manufacturing-usa-institutes.

BUILDING THE REGION’S ADVANCED MANUFACTURING SKILLED WORKFORCE

As described in Chapter 6, many institutes work with local partners to offer educational and skill development programs, helping to meet the current and emerging needs of the workforce in high-demand manufacturing fields. These institutes partner with universities, community colleges, and local schools to develop the manufacturing workforce pipeline. For example, the ARM Institute has developed an accreditation program to highlight quality training programs and a website to connect students to these opportunities.

In many cases, institutes offer a variety of training initiatives, including internships, entry-level programs, and training for current employees to upskill them for advanced manufacturing technologies. For instance, ARM Institute and CESMII, through the Digital Foundry in New Kensington, Pennsylvania, offer training to workers at SMMs from engineering to the shop floor.

Institutes such as the BioFabUSA project in Manchester, New Hampshire, connect local, underserved residents with job training programs that broaden the skills pool for bioindustrial manufacturing.

Furthermore, some institutes partner with nonprofits and other community organizations to address nonacademic barriers to workforce participation, such as lack of childcare or transportation. The University of Texas at El Paso works with a local economic development agency and CESMII to train area residents in smart manufacturing for local companies. The program specifically aligns the skills of an underserved, local population with the needs of nearby technologically advanced factories.

Key Challenges

Even though there are many such best practices initiated by the institutes to be found, successful institute initiatives and partnerships with local efforts to build skilled workforces face a major challenge in scaling these efforts for reasons that rest within a region’s prevailing institutions and structures.

Missing incentives: Building the highly skilled technical workforce necessary to support the scale-up of an emerging technology presents the proverbial chicken-and-egg problem—missing incentives for students and workers to invest in the skills needed for an industry that does not yet exist, but without which the industry cannot come to be. There is often a mismatch between the need for workforce skills and the institutional capacity and flexibility to provide this training.

Limited local funding: In some regions, there may be insufficient funding or resources at the local level to support the creation of updated training programs that keep pace with evolving technologies and the specialized skill requirements for new technical roles.

Complex processes: Local community colleges and educational institutions often face long and complex bureaucratic processes to update their course offerings. This makes it difficult to quickly adapt curricula to reflect new technologies and industry best practices, leading to a skills lag.

Misaligned incentives and regulations: Out-of-date regulations and misaligned incentives often hinder direct collaboration between local businesses and educational institutions. This limits the flow of information about industry needs and creates missed opportunities for practical guidance for students.

Aligning these incentives is a complex task, and while the institutes are well positioned to provide leadership in this effort, they lack at present the budgetary and political muscle power to redirect priorities. Chapter 6 discusses more about framing workforce activities as a partnership function rather than a stand-alone institute activity to overcome funding constraints.

CONNECTING TO STATE AND OTHER FEDERAL RESOURCES

As currently structured, the Manufacturing USA institutes receive initial “start-up funding” from DoD, the Department of Energy (DOE), and the Department of Commerce (DOC) through cooperative agreements. These federal funds are expected to be matched by substantial nonfederal contributions from industry, academia, and state governments. This funding model is supposed to ensure that federal investment stimulates innovation while being augmented by significant local private and state resources. Moreover, as noted previously, the current approach expects that federal funding will decrease over time as the institutes become self-sufficient.

Addressing State and Local Priorities

State support for the Manufacturing USA institutes—which is expected to complement the federal start-up contribution—varies significantly. This source of funding depends on several factors, including the state’s economic priorities, the technological focus of a specific institute, and the availability of supplementary funding programs.

The focus of a state’s support for an institute can also vary, often concentrating on specific tasks within the broader set of its missions. For example, the State of Pennsylvania’s support to the Pittsburgh-based ARM Institute focuses narrowly on education and job training activities through its Manufacturing PA Innovation Program and Manufacturing Fellows Initiative.

The Manufacturing USA institutes also collaborate with local governments by including them as partners in their public–private partnerships, establishing regional workforce development programs and training networks, investing in local economic ecosystems, and creating new manufacturing hubs to attract businesses and provide access to shared prototyping and manufacturing facilities.

Institutes vary in their ability to address this diversity of state and local priorities. This results in varying levels of financial and resource investment for institutes located across the United States. It also means that each institute has to coordinate and balance funding from its home state with other sources to balance its budgetary portfolio.

Coordinating with Additional Federal Programs

The institutes also leverage support from other federal initiatives that complement their work to advance manufacturing.

Manufacturing Extension Partnership (MEP): MEP, administered by the National Institute of Standards and Technology, and the Manufacturing USA institutes are natural complements (see Chapter 4). The latter focuses on groundbreaking research and development for new technologies, while the MEP National Network, with its local centers, focuses on bringing these emerging technologies and existing best practices to SMMs to help them implement innovations, improve operations, and develop a skilled workforce. Both programs also collaborate to address workforce needs by identifying skills gaps and providing training opportunities. The MEP network helps local manufacturers implement the new technologies by training their existing workforce and developing new talent.

Tech Hubs Program: Established by the CHIPS and Science Act, the program of the DOC Economic Development Administration allows states and regional consortia to receive federal funding to build innovation ecosystems, which can include Manufacturing USA institutes as key partners. The Advanced Regenerative Manufacturing Institute (ARMI), for instance, was able to secure additional grant money for its regional technology hub through the Tech Hubs program.

State Manufacturing Leadership Program: This DOE program helps states fund initiatives that assist SMMs in adopting smart manufacturing technologies. Funded by the Infrastructure Investment and Jobs Act (P.L. 117-58), this program involves states such as California, Ohio, and Pennsylvania.

Taken together, the regional integration mission of the Manufacturing USA institutes is a complex one requiring simultaneous outreach across these many actors each of whom has differing policy objectives, operating procedures, and budgetary cycles. As a result, these available resources are rarely aligned, making it difficult for institutes to readily create cohesive regional networks that effectively link stakeholders involved in research, workforce development, and production capabilities across different businesses and locations. While this ecosystem building role may be essential to their success, institutes are often constrained, lacking the resources, expertise, and strategic outlook to carry out this essential task.

The distribution of assets, people, and cooperative networks supporting manufacturing are highly local in nature. Although regionally located, however, these capabilities are not necessarily aligned with each other. Building cooperative ecosystems requires strong alignment across these many actors.

The Manufacturing USA institutes are a platform to build innovation ecosystems by bringing together industry, academia, and government to develop and scale new manufacturing technologies. The institutes act as a neutral ground to convene diverse stakeholders where corporations, SMMs, start-ups, universities, and government agencies can collaborate on shared challenges. This cooperation leverages existing resources and expertise to drive innovation. By providing shared access to world-class facilities and expertise, the institutes help companies—especially start-ups and SMMs—to de-risk

technology development and bridge the “innovation valley of death.” This lowers the cost and risk of developing, prototyping, and scaling new technologies for domestic production. Each institute has a distinct technological focus, allowing it to act as a hub for its local and regional economies and drive regional economic development.

Mapping and coordinating existing public and private resources—often a patchwork of disparate elements—is a significant challenge. Although existing local ecosystems are home to varied combinations of public and private assets, these often are not connected and are in various states of maturity to support manufacturing missions, especially for emerging technologies. The institutes face a daunting task in connecting a variety of public and private actors into a network that supports the scale-up of research and development into a growing industry.

Institutes often lack the expertise and resources to carry out their mission to grow manufacturing ecosystems. Building cooperative networks, aligning incentives, and connecting resources and stakeholders are challenging work. As documented in Chapter 2, other leading industrial nations have dedicated and well-resourced programs to grow supportive ecosystems to advance their technological strengths. The Manufacturing USA institutes have a critical mandate in this regard but face significant constraints in terms of dedicated expertise and budgetary resources.

Recommendation 5-1: By 2030, Congress should provide sustained dedicated funding above current appropriations to establish business development offices at each Manufacturing USA institute to support commercialization, scale-up, and regional ecosystem integration for entrepreneurs and small and medium-sized manufacturers, working in coordination with regional economic development organizations and federal manufacturing programs.

In some cases, formalizing these existing relationships, rather than building entirely new offices from scratch, may be a more practical and cost-effective path. Additionally, business development offices should incorporate lessons learned from university business development offices that are engaged in regional development, such as the Digital Foundry. As with workforce development, The Advanced Manufacturing National Program Office could also consider adding a one- to two-person coordination cell at the national level to support these efforts and to share best practices. These offices would deliver coordinated business development services for entrepreneurs and SMMs, accelerating domestic adoption and promoting production of institute-developed technologies. Together, these functions will strengthen regional manufacturing ecosystems and accelerate domestic adoption and production of institute-developed technologies.

Responsibilities for this office would include identifying business growth opportunities and investment partners, engaging with state and regional economic development officers, and supporting new business development and entrepreneurship. This office would also be instrumental in attracting regional and national investments to facilitate rapid scaling and dissemination of institute intellectual know-how, capabilities, and services and ensuring that business development expertise is in place to execute these tasks.

A regional economic development office aligned with each manufacturing institute could advance the mission of the institute in ecosystem building by crafting partnerships and other mechanisms to institutionalize cooperation across local networks. It could also empower SMM business growth, including business and technology assessments, supporting demonstration scaling, and providing upskilling and reskilling education and training to enable the business needs of their small and medium enterprise network.