hearing will come to order good morning everyone i'd like to thank everyone especially our witnesses for coming to this morning's very important hearing on department of commerce programs to support job creation and innovation the purpose of this hearing is to understand the challenges facing small and medium sized manufacturers and to learn about the initiatives of the commerce department which are launched to help these businesses the health of the manufacturing sector is crucial to the health of our economy as a whole it is responsible for creating over one point six trillion dollars worth of goods in fiscal two thousand and eight this sector employees between eleven and thirteen million americans and accounts for over half of this nation's exports small and medium sized manufacturers play a particularly important role in american manufacturing representing the vast majority of the two hundred eighty six thousand manufacturing firms in america even before the economic crisis of two thousand and eight these manufacturers had to weather difficult economic circumstances particularly because of foreign competition the current economic situation has made it difficult for these businesses to access credit many have had to adjust to the slowdown of in the businesses of their large customers like the smaller firms which supply the auto industry these are on top of the existing challenges small and medium sized manufacturers already face such as finding skilled workers successfully exporting to foreign and many times protected markets and keeping pace with rapid changes in technology in the face of increasing foreign competition capitalizing on our strengths in r and d is absolutely crucial firms that transition and manufacture new technology and new services produce new services and new products will be crucial to growing the u s economy i'm glad to have the opportunity today to learn about the pressing problems of small and medium sized manufacturers from individuals who are closely connected with these firms programs like the nist manufacturing extension partnership have a proven track record of helping small and medium sized manufacturing firms becoming to become more competitive and retain and create jobs i have visited many of these manufacturers and m e p the programs which help them in my home state of oregon and they are indeed doing heroic work manufacturing jobs are good jobs and i hope the success p can be replicated in other commerce department initiatives i now recognize the ranking member mr smith from the brassica for his opening statement thank you mr chairman thank you to the witnesses for joining us here today supporting job creation and innovation that our small and medium sized manufacturers is key to american competitiveness competitiveness and i look forward to working with you toward reauthorize authorizing the america competes legislation  chairman at yesterday's hearing benefited from the bird's eye perspective of our nation's business leaders and i'm particularly interested to hear from our panelist today on the details i would like to extend a welcome again to all of you for taking the time and sharing your expertise  i know that you all are very busy this time of economic uncertainty and with unemployment at ten percent there is much this congress can do to spur manufacturing increasing access to foreign markets by approving trade agreements with colombia panama and south korea providing long term certainty in the tax code by setting stable low rates stable low rates and making the r and d tax credit permanent ensuring continued access to private capital for businesses and taking advantage of opportunities to develop our available energy resources including wind hydro solar and hydro carbons within the purview of this committee we must work to keep the united states a world leader in developing new technologies by ensuring our manufacturers have access to the resources necessary to spur innovation this includes developing talent through strong stem education programs providing necessary infrastructure and leadership through nest national science foundation and the department of commerce and assuring government research catalyzes private investment rather than displacing it i look forward to hearing from our witnesses today and to learning not only about the very real issues facing small and medium sized u s manufacturers but also ways in which this committee can assist whether by ensuring access to necessary resources or getting out of their you at this point it is now my pleasure to introduce our witnesses first the honorable dennis hightower deputy secretary of commerce at the u s department of commerce ms jennifer owens is the vice president of ann arbor spark and now i'd like to recognize the gentle lady from pennsylvania ms dahlkemper to introduce our next witness thank you and thank you for inviting me to your committee to do you have the honor to introduce a fellow pennsylvanian rosanne rosenthal's president c e o of the ben franklin technology partners of southeastern pennsylvania and she has been so since one nine hundred ninety six in this capacity she's there in an international reputation with her development of innovative partnerships and initiatives with a current portfolio of over one hundred twenty technology companies the f t p continues to build upon its proven track record of supporting hundreds of southeastern pennsylvania technology companies through her leadership part b s g p partners successfully with two of the region's major universities the university of pennsylvania and drexel university to create the nanotechnology institute furthermore b efforts and now technology has become a model for similar approaches in energy and this rosenthal has led her staff in the creation of new technology commercialization models she serves on several public and private boards and committee has been active as an advisor and state and regional nanotechnology initiative she has served on several national task forces including the us department of housing and urban development and the us economic development administration it's my pleasure to introduce my fellow pennsylvania manufacturing technology center and i had an opportunity to work mr coast on numerous occasions as we work with helping small manufacturers of throughout our state he's been a critical part of the affiliate in michigan for the last fourteen years  has been a great asset to the business community and manufactories operating in our state he's responsible for the partnership between the technology center and the michigan economic development corporation and a partnership that has allowed the m play a leading role in coordinating technology related services and helping our businesses in our state to diversify under his very astute leadership he was awarded the not for profit of the year award from automation alley in two thousand seven he comes to us with more than eight years of technology development experience and sixteen years of manufacturing experience in addition to his work at the technology center so i'm thrilled to have him here with us representing us and it's really great i may add  peters and i'm sure that with your leadership and mr coast leadership that michigan is well on its way back now to the witnesses you each have five minutes for your spoken testimony your written testimony will be introduced into the record in their entirety and when all of you complete your testimony we will begin with questions and each member will have five minutes to question the panel in each round mr tight however please proceed testimony for the record but i would like to spend my five minutes highlighting some of the key initiatives as you know one of the first things that president obama did upon entering office was a sign of recovery act to stimulate an economy that was in free fall one year later although we still face troubling and unacceptable economic difficulties there is agreement amount of comments the cross the political spectrum that the recovery act helped to stabilize the economy and to create jobs and with the naming of ron bloom as senior counsel for manufacturing policy president obama signal that the revitalization of the u s manufacturing sector would be a key component of the administration's economic recovery efforts the department of commerce we believe is uniquely positioned to compliment and build upon the administration's job creation initiatives while the department's portfolio is diverse our overriding mission is to improve the competitiveness of american business is at home and abroad and to this end secretary locke is identified four key departmental initiatives and priorities that will guide our activities going forward and they are first to boost our country's innovative capacity to unlock the tremendous potential and promising new green and blue industries to expanding exports through trade promotion efforts and finally transforming the commerce department into an integrated efficient and effective service provider i'd like to briefly discuss a number of programs and initiatives that support these in office of innovation and entrepreneurship to foster the creation and success of high growth and innovation driven businesses and to accelerate commercialization of federal research and development programs this office will also manage the national advisory council on innovation and entrepreneurship which will include entrepreneur innovators investors and university and nonprofit leaders the department of commerce is also putting more resources into programs that will jumpstart american manufacturing manufacturing extension program as you know is an important part of the national institute of standards and technology and n e p provides manufacturers with technical assistance training and long term strategic planning the also in the process of reconstructing the manufacturing dot gov portal two of i smaller companies information not only on sustainable manufacturing practices but also a full range of manufacturing issues and we're working closely with the manufacturing council on issues of concern specifically to the manufacturing sector last fall secretary locke opened a public commerce connect office just outside of detroit the purpose is to provide main street businesses a single point of contact a one stop shop for services that are offered by the department of experience gained from this pilot which i visited three times in the last three months will be evaluated as a part of our commitment to make the department of commerce more useful to the everyday operation of american companies these are but a few of our initiatives and i hope you will carefully look at my written testimony to see the full scope of our activities mr chairman we certainly appreciate your support and the support of the members of the subcommittee and we certainly look forward to working with you on ongoing job creation innovation and manufacturing average thank you thank you mr hightower my apologies for not greeting you ventures and established technology leaders like toyota google to room of cardiovascular systems the crowley company and thomas reiter an arbor the recently did deemed by a p b s segment as the life preserver of michigan and even with michigan's massive economic struggles our region has still remained relatively strong yet one of our greatest strength is very much at risk our manufacturing base these firms are critical to the success o innovation based startup that need a partner to turn their ideas into reality our manufacturers can produce a new prosthetic limb sonar device or medical science or better entrepreneurs design over the past three years we have seen roughly four thousand manufacturing jobs lost in our county alone their meaning manufacturers are some of the strongest and smartest in the world these businesses are at their absolutely n'est with only critical employees remaining i visited with hundreds of these companies over the past two years and my job is at both michigan economic development corporation and ann arbor spark and the theme is all too common banks are often unwilling to extend credit the remaining employees are taking on the responsibility of three full time positions and they are all living paycheck to paycheck and this is why programs like commerce connect are so critical manufacturers in crisis mode don't have a time or capacity to seek out  opportunity they desperately need someone to hold their hand through the process open doors for them and to essentially be an additional resource or employee commerce can act offers that support and i commend the department for quickly recognizing the need and developing the program however i implore the partner of commerce to utilize the network of economic developers throughout the country to take their math to manufacturers they should not create a new team of outreach professionals rather educate the local economic developers provide them with funding to grow their ranks and allow them to use their existing manufacturing relationships to take those programs directly to manufacturers ideally commerce can actually be integrated into michigan economic development tool kit which regional economic development organization deployed for the retention and girls of companies the current program offered by commerce are very helpful for manufacturing firms that use the manufacturing extension partnership or the michigan manufacturing technology center and our state has seen dramatic results our meat center has been a critical partner and helping manufacturers throughout the state landing roughly three hundred million dollars in new contract work however congress cannot ignore what these firms need most is missing access to capital michigan manufacturers throughout the state are being tossed aside by their banks and being forced into loans with double digit interest rates just to keep their business afloat unless new programs are designed to address the access to capital crisis our manufacturing base will likely be dramatically reduced the time to act is now commerce and congress cannot study and research new options commerce can act as well as new manufacturing capital program must be put into place in early two thousand and ten hammers must partner with economic development organizations like ann arbor spark to develop new programs and take their existing tools directly to manufacturers only through a true partnership with federal state and local agencies can our manufacturing base be saved thank you for the opportunity to address you today and i appreciate your consideration thank you ms owens you may take back an arbor that as our last president was fond of saying help is on the way this congress and this administration are working mightily to improve small business programs so that both loans and become more available for capital purposes and this committee and i have been striving mightily for two congresses to update the f b i our program and hansa loans perhaps up to two million address rosenthal president and chief executive officer of the ben franklin technology partners of southeastern pennsylvania one of four regional private nonprofit organizations created through pennsylvania legislative action in  ben franklin the commonwealth of pennsylvania a partner in innovation technology and entrepreneurship created at an earlier time of economic recession and job loss in our nation the ben franklin partnership mission  catalyze efforts that rebuild pennsylvania's economy knology our mission is consistent with out of the department of commerce his office of innovation and entrepreneurship in the appropriate resources presents an ideal opportunity for implementing new policies the c e o s of the ben franklin technology partners had an opportunity to meet with from the office of the secretary shortly after the announcement was made since then we have exchanged ideas around  the emerging priorities which are fundamental and their support of innovative enterprises we are pleased to understand that the work of this office will be in floor and national advisory council that will bring the experience and ideas of individuals representing state and local laboratories of democracy as david osborne described such efforts including ours back in one thousand nine hundred garamond my associates and i applaud the committee's leadership for holding this hearing and hope that the message you and your colleagues take away is that we in the nonprofit world at the state and local levels have been commercialising technology and seeding enterprises for many years very effectively we can offer concrete practical suggestions for redirecting existing federal dollars to update programs in order to maximize federal investment and generate increased job creation i recommend the following elements be considered as part of a framework for retooling  goals that are clear and non conflicting and they keep the ultimate objective economic growth through entrepreneurial innovation at the forefront to an approach that is less prescriptive and more receptive to new models and allows program design to be driven by the specific challenges and opportunities at regional and local levels three flexibility in implementation enabling timely response as conditions change for programs that focus on reducing the barriers to collaboration and innovation and five designs that catalyzed institutional and private involvement and investment over time  access to early stage growth capital and creating effective pathways to commercialization in some states like ours funding for high growth enterprises and commercialization has come back technology development programs however severely constrained support nationwide has been cut further depleting capital available for innovative enterprises and initiatives and straining local infrastructures for innovation created over recent years combined with a decrease in investment activity from among private angel investors and early stage venture funds companies have nowhere to grow the valley of death a gap that stretches from the need to demonstrate proof of concept through to early revenue generation sales invites creative new approaches and a retooling of existing federal programs written testimony and recommendations finally the new office of innovation and entrepreneurship could be funded to launch broader comprehensive regional models it could be the impetus for a national innovation network with funded public private partnerships able to develop the integrated strategies and programs necessary to drive innovation through the growth companies that create high wage jobs and to encourage partnerships able to stimulate the growth of natural clusters the ben franklin technology partnership was launched in similar fashion to regions across pennsylvania thank you again mr chairman for holding this important hearing and for the opportunity to share ben franklin technology partners experience in stimulating innovation enterprise formation and job creation my colleagues and i stand ready to assist the committee and the administration in every way possible to advance important goals thank you mr rosenthal we look forward to asking you about further about her suggestions mr coast please proceed chairman ranking member smith members of the subcommittee thank you for this opportunity to offer brief testimony on the impact of two federal programs that among the other objectives creating retain jobs in small to mid size manufacturers for more than eighteen years the michigan manufacturers improve quality reduce cost launch new products and diversify their customer base nationally the roughly seven thousand six hundred manufacturers served by the fifty  nine centers treaded the work of those centers with more than nine billion dollars in sales fifty thousand jobs and one point four billion dollars in costs the federal government will spend less than one hundred twenty five million on n e p and f y ten these numbers suggest that has been a good investment and one that should be scaled up to have even larger impact on the critical and struggling u s manufacturing sector in that regard i appreciate the longtime support of this committee and most recently b congressman peters and congressman nadler to reduce the matching requirement for m e p federal funding at a time when many cash strapped states have been forced to reduce their investments in their state's m e p centers m e p is the only program specifically designed to assist small to mid sized manufacturers and we look forward to working with congress and the administration to implement the president's campaign promise to double funding for the program by two thousand and fifteen last year in response to the crisis facing two of the three u s based automotive automakers commerce secretary locke the multiple visits to michigan meeting with dozens of our manufacturers seeing how difficult they found it to access help from federal programs even within commerce secretary proposed piloting an effort to make those programs more assessable more responsive to businesses starting with the manufacturers we began by identifying sixty one programs within commerce and services related to manufacturers next we convened a dozen michigan manufacturers and representatives of a dozen federal and state program offices within the state at that meeting we conducted to exercise in the first we had the manufacturers develop a list of and then rank their most critical me in the second we had the federal program representatives rate how well each of those needs was being addressed by their program services the results made clear that the manufactures lack of knowledge of many of the programs and do not know how to access their services that programs are not focused on the priority concerns of manufacturers and it's a programs are often not aware of each other services based on those findings a pilot came to be called commerce connect was established so far congress connect his work with twenty five companies it has been fewer than four months since the pilot was launched so my remarks today certainly did not represent a full evaluation based on hard data however i believe that we can begin to draw at least four lessons that should inform decisions about whether to launch commerce connect programs in other states and just as important how to design the post pilot phase in a way that delivers the most impact at the least cost first we have learned that navigating the federal program requires a good deal to know about what the programs actually do commerce connect needs to have permanent staff that can invest in learning the program second we have learned that doing case management well requires more than just making referrals there's a great deal of follow up with congress connect case managers that sometimes share frustrations the frustrations of the manufacturers they serve not being able to find personnel able to deal with a client's request this too has a clear implication each program needs to have the desert needs to have a designated point of contact that is knowledgeable about its services and explicitly tasked with addressing commerce connect clients request in a timely manner sir we have learned the manufacturers do not represent did not respect agency or program boundaries a given company may need a loan support from an s b a program ip protection advice and legal aid from an i t a program and help with lean manufacturing from methods from this m e p program the clear implication staff need to understand the full range of business assistance programs forth we have confirmed that there is a vital role for a hands on navigation function like commerce connect thus i would recommend that to continue  michigan at approximately its current scale it probably makes good sense to charter at least a few more pilots in other parts of the country that are less automotive less manufacturing intensive michigan to get a sense of how to make federal agencies responses to distribution and service businesses as well as to manufacturers it would be premature to move from a pilot to a full scale program much work remains to be done to ryde to arrive at a design that is both effective and efficient thank you for the opportunit thank you very much at this point it is in order to open our first round of questions and the chair recognizes himself for five minutes i'd like to ask each member of our witness panel works with especially with community colleges in helping community colleges train for locally available jobs my understanding is that there was an m e p study in two thousand five which found that roughly fifty five percent of community colleges actually have data on what the real training or job needs are of  local economy and adjust their programs accordingly whoever wants to go first to address that set of questions mr hightower let me start off  ninety countries with that period of time so i'm bringing a perspective of actually having worked on the ground and created companies of ron i've been in the valley of death twice myself i have been on the boards of startup companies that have gone through and made that intrigue and exit from the valley including one as we talked this morning right in the state of oregon like fleet and when i think about the linkage  talk with mike a lot about this is a made much number of trips out to detroit to begin to evaluate in commerce committee is that there are a couple of models that i think are instructive one i was aware of a number of years ago and it's very it's very close to us here in the greater washington area it's right at the university of maryland baltimore campus frame and we're about scale as a president of that institution was i think one of the forefront at the forefront and very much a pioneer incubated companies and how he used the research capacity and capability at the university of maryland to invite some thirty to forty entrepreneur start up companies where they are currently on campus they are moving from basic research to applied research to a level of commercialization where many of the students involved in that research many it festers involved in that research have were working with mike and their early start up phases last summer and last fall i had the pleasure of visiting tech town another institution where you look at wayne state university the fact that they actually have physically moved many of their research and development and business capability into that facility to be and on the ground link so that again ideas can find their way to commercialization as we're looking at the construction today i mean only yesterday i was reviewing the final submissions for the members of this national advisory council on innovation and entrepreneurship and you'll be interested to know i think that as that list comes to its final stage after the appropriate vetting there are a number of universities that are steeped in research but not only just research for the sake of research but research with the commercialisation as it's as it's goal which again will find its way into the m e p programs and other programs that will begin to help this really revitalization of the manufacturing sector manufacturing companies and i've spent a lot of time in india and over the last couple of years and when you go to bangalore and you go through the technology in the end of a chanst centers there and you look at what's being done you look at who's doing the work these are mostly young people who are under thirty years old with ph d s in esoteric areas that you need a dictionary i did you know to sort of spell what it is they are actually doing that's the scary part because they have to reinvest it in their technology they have reinvesting in innovation at a level that outpaces what we're doing quite frankly i mean with the chinese we talked about the stem program someone mentioned stem you know the chinese produce six hundred thousand engineers a year india produces three hundred fifty thousand engineers a year we produce seventy thousand engineers here that's you know that's telling in terms of what we say but where we put our emphasis where we put our resources so we are looking at many of the ideas that the other panelists have promoted already in terms of how we get this better linkage so that mattress but how can we do that amongst the resources where we have the talent we have the educational capability we have people who know how to do these things but need the facilit government and agencies such as those who are here on the panel can bring to fruition to the local communities and the m e p offsets another level of expertise to go work with those small companies those types of relationships are in place around the country if you look at the m e p system nationally there's about three hundred and one of those relationships around the country right now one hundred thirteen of those are in community colleges and there's one hundred eighty eight with universities and colleges so when you when you look at manufacturing extension partnership that becomes partnership become that one word in that relationship that we go out and we leverage the precious dollars that we get from the federal government to go out and maintain those relationships so that we can maximize our  effective chairman let me first say that the community college system is critically important i would not be here but for my start in higher education through a community college to the community college of philadelphia so i understand the importance of  college systems in our area the manufacturing extension partner and ben franklin and others have come together to form a compact among the danes of engineering from colleges and universities across this tri state area and through that effort there is there are programs that link to community colleges into these four year institutions so that there are effective articulation agreements at ben franklin years ago we supported the effort of of the community college of philadelphia at that time with the with star institute to develop a model program for training biomedical technicians that started with training at the community college and then mr chairman i think you're very correct that that connection very much needs to take place and i think mike and his team have done a very great job connecting with our community colleges in michigan where that connection has happened as a complementary effort where the training program that community college maybe not be the most effective in providing say for instance lean manufacturing mike and his team will come in and provide that innovation and the challenges we have in michigan in terms of opportunities or job opportunities in manufacturing is currently there the not a lot of opportunities in our manufacturing environment so what we're facing is kind of an a wealth of very skilled talent that need to be retrained and really focused in terms of their efforts so we've developed a program called shifting gears which takes  manufacturing talent skill talent and connect them with our entrepreneurs and provide the partnership between those two groups so it's essentially an internship for displaced manufacturing talent could try out that entrepreneurial climate and pair their assets together so i think that's something that's very important is looking at retraining our you know our displaced workers in the manufacturing environment we have and connecting them with the invasion that's taking place if  songs and also the sicko's comments particularly as it relates to this retraining and sort of retooling of the human capital that we're talking about and there is a real story in the state of washington in conjunction with our own economic development people who are actually funding grants at the farming community level and working in conjunction with some of the peace capability there as well it was a company that specialized in making fiberglass homes for recreational yauch on this environment there not too many people buying recreational yachts this company was teetering on the at the cusp of going out of business and working with them through e t a in this case and we had been look at what were the other applications of that technology they are now one of the leading providers of wind turbines so they are now they have taken that technology that was sort of the old application and reapply it and reapplied those skills into a growth industry a green and distrait where their current product has been assessed by nist as having better capacity stronger twenty percent more life to it and they instead of laying off and perhaps a second or third generation coming going out of business they are stabilizing and i'm beginning to move in a different direction so we've got to find more of those kinds of ways to not only retool but to reschedule and reapply those skills and what and two months earlier point about looking at areas other areas of opportunity we have one model that we are waiting in plymouth greater detroit area but as we think about and we're doing that analysis now of other areas that may have different demographics they may have or maybe there are regions where we can have a center that can be pulled together by the kind of activity that is being provided by commerce connect and detroit this is where i think directionally we're going to be heading thank you very much mr hightower and i thank the entire panel for your very thorough answers that question mr hightower you point out something very very important about transitioning in that data and adaptation one of my last professors was fond of talking about a major wall street bank i believe it's chase which started out as a small water company two hundred years ago in manhattan and i once heard a talk by a stanford business school professor  how few companies transition well there was only one survivor from the original dow jones twelve in the current dow jones index mister and  i suggested to him that he ought to study the vatican and how it has survived over a significant period of time and he may be taking that suggestion  smith please proceed thank you mr chairman and again thank you to the panel for your time and sharing of your expertise rosenthal thank you i appreciate the work that you do can you tell me once  our investments is there is a provision in the agreement that requires the company to have a significant presence in the area and in pence or in pennsylvania in our either our specific region or if not in our region in the state for at least five years once the company gets rolling beyond that we can't restrict the company have to move then we need to negotiate a settlement with them for for a claw back of the of the investment that was made and that for pennsylvania as a state for the entire country pennsylvania because our funding is from the commonwealth of pennsylvania so our goal is to keep companies growing in pennsylvania when you say significant presence a pretty decisive definition of that it's going to depend on the company you know you have to understand that some of our most of our companies are out of the box one person two people three people so significant for three people it means two s four hundred means something else so we don't have numbers because we'll take a look at what is the company doing where are they look kind of value are they creating for the state what kind of downstream purchases are involved do they have a relationship with a local manufacturer so we take the whole into consideration we make that decision would it be conceivable that your r and d might be in terms of a new and your manufacturing might be elsewhere it's conceivable i manufacturers in my district small and medium sized i hear a lot from egg producers which in many cases are manufacturers as well in a little different way or take the processing of various things and including the employee free choice act can you elaborate on how those would help the small and medium sized manufacturers things are i think in sort of the largest setting it is i think the objective as an umbrella would be innovation riven scale moderation which then leads to sustainability and i think it's it's you know my experience of being at all phases of that spectrum of whatever life cycle your you know your company might be and if we are able to bring programs that intersect at  that particular need whether you're a pharma company whether you're a farmer or whether you're in medical devices whether you're in the product or service is bringing those resources to bear will either get leverage and or collaborative effort realizing that commerce can't do it all treasury can't do it all department of agriculture can't all but you need more than an interagency level of cooperation and that's what we're beginning to see and what we're beginning to to actually find that is taking hold and as we go through for example with the commerce connect activity sixty two different elements within commerce today but we also are working with a on the capital issue we're also working with the partners of labor who have these thirty two hundred training centers around the country so how then do you get the pipeline which gets to the sustainability issue and how does e t a for example with you on figuring out what the right strategic plan is and a part of that strategic plan is the scale ability of the operation for long term stability so do i tell these constituents of mine but that these are really good programs for them even though they're opposed to those programs well here's what i found i have found as i've gone around that company is that that national pride trumps whatever their particular local political persuasion might be and i say that g respect because doesn't really matter when you have a working a hundred hours a week or you have a payroll to meet and the bank has changed the coverage ratios on you really doesn't matter what you concerned about is whether you can finance your inventories whether you can feed your family whether you can don't have to put a second mortgage on the house and many of the young when it's the entrepreneurs that i've been talking through as i go out and sort of the rubber meets the road that's what they're concerned about and the extent to which we can bring these kinds of services and resources to bear will help i think that issue and i think that's where we've got to find the right intersections and programs that work that when we say it's going to be deliberate it is deliberate and we are there to follow through for the sustainability because it doesn't make any sense to put all of the effort into something that in three months from now or six months from now they'll be the worse off than they were before or maybe not in business and what i found too is that many of these companies that i speak are second third fourth generation they are really committed and it's one thing that whenever i've lived outside the u s it was very difficult getting foreign into those understand that the u s is a collection of small towns and communities it's not boston new york chicago d c philadelphia l it's small communities where you are a part of that community appollo the fabric of that community and that's what we've got to get these programs down to the man or woman the family business on main street that provide ninety five percent of the jobs in this country it's not the fortune thousand it's these ninety five percent that really we've got to be on the best ways in the most effective ways to touch when you speak of individual workers then can you elaborate maybe on how the employee free choice act would help enhance opportunities and competitiveness for small and medium sized manufacturers actually i'm not prepared to talk about that today but i do have some ok you mentioned generational transfer of businesses and so forth and i appreciate that because that is a reality perhaps you could save your next inquiry for the next round of questions unless they relate to your current set of questions i was following up on some remarks that generational please proceed thank you it's very and the transition here can you tell me what the administration is doing in terms of advocating for a compromise or something to that effect that my direct answer is no i can't but i can tell you ok i think i'll save questions for another round thank you thank you mr hightower thank you mr smith mr hightower you're obviously someone has operated a business and business well let me take a crack at answering some of mr smith's questions since what we do around this institution is politics but try to bring this back to a policy discussion somewhat the interesting thing about green energy and clean energy is that  it is a straight transfer payment from one sector of the economy to another and one that results not only in bringing extra analogies in but it also makes us more competitive internationally i came to this conclusion  visiting a business in my own community which makes fume hood and they are anti regulation they are anti tax they're anti government but it is also the case that their entire business is predicated on e p a regulation and without that e p a regulations they would have no business and that those their revenues are derived from payments made by other american businesses they also export their products that industry is created by e p a regulation it makes our environment cleaner and it creates jobs in my home state of oregon and yes it does cost a manufacturer somewhere else it forces burger king to clean up its exhaust fumes number two health care no one thinks of health care as related to the american economy david kennedy a historian at stanford university argues very persuasively that the programs of the franklin roosevelt administration are responsible for the post war world war two prosperity of america in the following way without social security without unemployment insurance and without access to housing individuals would be my more risk averse because they have no safety net by empowering individuals to take risks by empowering individuals to move from place to place in america we created a more efficient economy in addition to a more humane society the employee free choice act is a realignment of power between employees and employers under the prior administration rep aisha's capitalism became prevalent rather than a working market economy it is time there have been generations during which employees have been denied their rights of association by very skilled consultants and employers who are not as publicly spirited as mr hightower no matter what one's views are on the individual requirements of the employee free choice act our it is a real which is probably helpful and finally let me address the inheritance tax which was first created by abraham lincoln endorsed by theodore roosevelt and which prevents the creation of a permanent economic talk recy in our society i work with small businesses i help create small businesses i try to get folks like mr hightower to be my clients the most important factor in generational transfer of businesses is not the inheritance tax it is having a next generation in the family which is willing and capable of taking over the perhaps you could flesh out a little bit some of the challenges that we have particularly in michigan but in other states that are also seeing a state match which is why mr ayers and i have sponsored a bill dealing with that if you could talk a little bit about the ramifications of that bill with the  program and some of the challenges that you'll have going forward and any suggestions that you may have as to how we can make the program even better thank you very much when you look at i was surprised last week we went  to a national meeting in utah with all of the center directors and as this committee knows there are fifty nine senators around the country and i was surprised that when we sat down to talk to all of the centers we found out that about ten of those senators their state funding is stable disappoint that means the forty nine obviously of the other centers are in trouble and when you take a look at that the services that we provide the small to mid sized manufacturers are going to be in trouble because centers are going to start to cut staff because they want to have some of this pressure dollars and so with the bill that you're going to put into place is going to allow us to go out and reduce the match and it goes from thirty three percent to fifty percent that all  p center to continue to go out and provide those services to the manufacturers there are states that are around the country right now that have literally not illinois does not have any state mass california does those numbers are one down ten percent cuts fifty percent cuts and so the system is fragile in my humble opinion right now and it needs that federal investment to continue to help those manufacturers as commerce secretary hightower said the vast majority of manufacturers out there the small companies you know there's three hundred thirty thousand small to mid sized manufacturers in america eighty five percent of all the manufacturing is out there in those small companies is so there we don't look at what the m e p system does that's what we go out and we provide that kind of assistance to help them pick up pick themselves up by the bootstraps and stay in the game and employ people manufacturing jobs that have been lost in this country and hundreds of thousands but i'm the vast majority of them have been in one state and are concentrated in a group of states but what's the sense of the commerce department to help out those states that are being hit the hardest and yet their small as felt is that we have to also look at it from the supply chain aspect you look at in the old days when i was doing work in the auto industry every one job meant maybe ten to twelve additional jobs well that's probably double now in terms of the supply chain implications so it's not just concentrated as you certainly know in michigan you still have ohio you have pennsylvania you have four out of california you have texas you have about these regional programs such as the one with spark and you know i was in detroit about a month ago talking with the one of the southwest recent councils there about how one of our other agencies the economic development agency has been working with them to help them with their strategic planning process of how that region or that subset of the southwest and extension of detroit how will they come about income around their other centers that we're looking at through e t a particularly in conjunction with commerce connected figure out where one that effort should be and what the nature of that that service or resource where the opportunities for private public partnerships and other strategic alliances where as the innovation and entrepreneurship advisory council gets underway how do we get those for small company  areas that those kinds of services can be provided to begin to look at the effect that one particular industry and the supply chain impact that it has had in areas that heretofore had not many really thank you very much mr peters we are going to recognize all the members of the subcommittee first and we will proceed to non subcommittee members mr garamendi five minutes please thank you very much mr chairman and thank thank you for your comments years ago back in the early eighty's california was faced with heavy duty competition and chairman of the joint science and technology committee in the legislature undertook a study and we came out with five six things that needed to be done to maintain the competitiveness of the california economy first was education much of which was discussed yesterday by the full committee and i note that the witnesses which represented the major manufacturers of this nation willing to really put their money where their mouth was that is to invest heavily in education and all the talk in the world about stem all the talk about the need for scientists engineers and the like of no value unless we're willing to pay for that crucial investment i appreciate the testimony of mr hightower this morning once again pointing out that need but again it takes money to do this and apparently america is not willing to spend its vast resources in this critical way the second thing we talked about was research which will undoubtedly be a subject that we'll pick up in later hearings the third was manufacturing the fourth was infrastructure and then the fifth was international and finally ending up with a critical word called change we have to be willing to change let's focus on the manufacturing here for a while bottom line it takes money it takes  money there are wonderful networks out there the issue of coordination of all of those networks some of which were discussed by our witnesses today and even more are critical and i would recommend that we spend some time really looking at the issue of coordinating all of the resources state and federal private on the interrelationship and then s s city of coordinating those but my issue here really goes to money once again there's a lot of talk about these buildings about making money available some of it is called direct lending by the federal government what i'd like to focus on is the indirect lending that is loan guarantees small business administration other loan guarantee mechanisms so my question goes to mr hightower and then to the other witnesses let's talk about loan guarantees otherwise known as leveraging the federal dollars using the existing private sectors  what do we need to do to really maximize the availability of money to entrepreneurs manufacturers so that they can once again have money to carry on their businesses mr hightower thank you my my view on this comes from speaking with those companies travel throughout the u s who are suffering from the relative inability to access what has been granted part of it i think is a function of the will to put the money at the move cross section the cross the united states and that is they know what has been granted what has been authorized whether it's from s b a or other funding sources they know that the banks  getting it but they're saying but it's not getting to us to the extent that it gets to us the rules keep changing on us in a situation a setting where revenues  d operating margins or or or low to non existent profit margins are negative why do the banks my local bike why do they impose a different coverage ratio on me then i had in the good times so it's the double whammy it's almost a triple whammy so unless we figure we can figure out how to  force the grant making process more of a grant maker than a direct and i don't think that's that is the government's role but the granting and the loan guarantees and in the applauding of moving tho guarantees and seventy five to ninety percent is fine but it's not doesn't mean anything if the money doesn't actually get down to the areas where it's needed if i might just home in on that drill his word i talked yesterday to the former president of the national bankers association about this issue and he was saying that there are two problems one he's in a bind he continues to be a banker in georgia and he said i'm in a bind i want to make the loans but the oversight agencies keep coming down on me about the requirements part of what you talked about here  it seems to me that the loan guarantee program should give those federal regulators bank regulators a high level of assurance that that loan is going to be paid off if not by the company then by the federal government so we've got a problem here with the regulators and the bankers he mentioned the other problem being the s b a is almost impossible to deal with their regulatory their mechanisms for giving a loan or for not giving but underwriting a loan is up to some complex constantly changing and if streamlined he would be in much better shape to make loans that are guaranteed by the federal government ninety percent or whatever i would recommend ninety percent the remaining ten percent he can put on his books and be responsible for and the federal regulator would then say o k let's move forward we have to make the money available otherwise this is just a lot of talk type of way to allow banks to be able to take that extreme risk because it is an extra that's what the loan guarantees all about isn't it but i still have companies who look at s b a loan guarantees and cannot find a banking partner who is willing to do back to the issue of the regulators on the back of the banks and setting down regulations that do not take into account the loan guarantee taking up ninety percent of the risk in the small and medium sector it's about money they have to have access to money and there is something terribly wrong here the loan guarantee seems to me to be the best way to proceed and then to couple that with administration modifications at the regulatory system to take into account the significant reduction in risk to the bank and or to the lender and the process done and you tell us there any any bits of information you can share concerning those success stories why they've endured how they made it through a tough cycle and is there anything we can learn from them as an example i think the manufacturers and in particular are willing to recreate themselves to learn to discover new industries and opportunities to take amazing risks have meant success on michigan we have an array of small manufacturers and watching our county in particular who are one hundred percent on a motive and i'm now transition fully to under other industries are twenty percent into our motive but how they've done that is they've taken tremendous risk they mortgage their homes they mortgage all their assets they've taken in my coast and the meat center and welcome them with open arms all the opportunities that are available they use the procurement technical assistance centers which are wonderful resource so they're willing to take that risk and take that education secondly i think for manufacturers today a lot of them in the auto industry have lost the ability to sell or market their products and so they've been essential in order takers to just kind of waited for the orders to roll in the manufacturers of invest in sales and marketing and can recreate themselves for the other industries marketing the auto industry is very different the marketing to the medical device industry those are the ones that have been successful there are many manufacturers who kind of dug their heels in have seen the auto industry go up and down and are just one point was about a hundred forty million dollars company with four hundred twenty five employees which in the last couple of years is now only six million dollars company with thirty five employees when they introduced them to the department of energy to apply for a grant which will now help them to develop an alternative energy product so again it's that transition issue and providing find those kinds of companies and work with them on that transition process this is where i think we're going to get the payoff for these kinds of programs are there i'm sorry if i might follow up on that i've got two examples of companies that we've worked with one is a screw machine company they had a mega screw machine they used to make parts that went into the chevy roadster if you know anything about the chevy roaster you know that it is now obsolete and they had twenty five employees we helped take that company that particular company from making parts for that roaster they now make parts that go into a prosthetic leg and the good news is there's still twenty five employees there so they still have those folks one another one happens to be in congressman peters district which is non automotive and is a company called total door and they have made a complete transformation so when you start to look at this this particular company they moved from one facility they used to  have told by twelve would be named and it completely transformed themselves and went into another building and they have a product flow that is in place now and they are competitive and when you take a look at what they have done with technology they have also used some of the current technology off the shelf technologies out there these to paint doors and so now what they have is a weight when you paint doors and in the old days you had a lot of fumes of the o c that kind of thing well now they paint the doors and they  light and so when you start talking about green technologies and off the shelf technology that's another example of those opportunities that are out there for these for these companies that they can do this kind of work and back to  a point jennifer made is that the companies i can give you dozens of examples of companies that will show up to a bank with an order in hand and order in hand for ten million dollars but they can't get a loan chain money might be a possibility i don't know but i know it's not getting down to the small guys and they have and then once again they have orders in hand you want to bring people back off on employment give that guy it's a stamp or in detroit access to that capital and he'll bring thirty people off unemployment tomorrow speaking what would be the best option to provide for that economic need for that cash flow that that business person needs  and that seems to be a bottleneck so we've had good experience with the s b a in our state it's just a matter of trying to figure out banks that will go out lending companies and the automotive guys that's another huge issue because you have ria companies that are reinventing themselves through through the commercialization of a new technology what we will do is provide them capital on a joint basis they can take those steps that are highly highly highly risky we wouldn't expect a bank to lend against those kinds of needs we can capitalize we can help capitalize the company to move that product that technology into the marketplace in a very in an equity like with an equity like vehicle we don't we don't want to look like that we don't want to burden the company with debt but we are taking the risk with the company and hope to get the reward down downstream so sometimes i work with programs and guarantee programs in my career they're i've gone well beyond my time so i appreciate your tolerance we have a soft gavel on the subcommittee dr a last five minutes i did i said soft gavel i didn't say a soft voice about your answer chairman i'm assuming the soft gavel because i've been sitting here watching all the minutes accumulating elsewhere but in any event first i want to commend mr garamendi for his comments and and say we have faced exactly the same problem in michigan we have the highest unemployment in the country would probably make california is in a race with michigan to see who can reach the bottom first but we face same problem and the loans it is a problem had its right to federal regulators come into the banks and say you need more assets on hand to meet your responsibilities and so they'd don't have the money to loan and mr coast had the identical situation of one of my manufacturers he needed t seven hundred fifty thousand dollars loan just to buy the equipment for the pardon me buy the parts and so forth that he needed to manufacture the machine and could not get a loan anywhere even though he had the the broader question which involves the congress as well as the administration and mr hyde mr secretary i certainly commend you for the comments that you made and the experience that you  most of my relatives are farmers and but i find it striking when you go back to nine eighteen eighty eighty percent of the workforce in this nation was in agriculture and we had an agriculture department a very important department today roughly two percent of the workforce is a negative culture and we still have the same  department cooperative extension service has been marvelous throughout the country really established a good culture and helped them and i certainly don't denigrate to think it's wonderful but today we need a manufacturing extension partnership and i have fought hard for him a p and for its funding every year and i think it's nonsense that the congress and the administration over the years has maintained four hundred million dollars a year for quite a bit of extension service a leg or culture and that's fine they need it it's well worth it but at the same time manufacturing has fifteen percent of their employees in the country and i had to fight like mad just to keep the funding constant for m e p every year was a battle and i appreciate that mr peters fring this bill that's going to help if we can get  in the department of commerce again i have fought for a number of years to have a deputy secretary for manufacturing within the department of commerce we should have it we have an entire department in agriculture and i couldn't even get one position for manufacturing in the department of commerce what i did get was the creation of the council but mr fred keller from my district chair and they've done marvelous work but that's we need a greater infrastructure within the department of commerce to deal with manufacturing you don't have the time with all of your responsibilities to devote full time to manufacturing there should be someone in roughly your position that deals entirely with manufacturing and so i hope that the congress and the administration can can work together to put more emphasis on manufacturing i don't put it in your hands mr secretary because you've got enough to do manufacturing and does provide the funding and they had registration ability sufficiency that they can really tackle the problems of manufacturing in this country they do it in other countries and that's why they're  beginning to beat us beat us hollow i have a bad habit of falling into a preaching mode because my dad was a preacher but this is one area i feel very strongly about not be happy to preach to anyone about the importance of manufacturing and what we should be doing the m e p should be at least close to the four hundred million a year we spend on the agricultural crop of extension i could easily argue it should be double or triple that and i don't mean to lower cost years it's beautiful it works why not transfer that model fully over to manufacturing and the department these issues i think it just sort of gets to your point of focus and putting the the resources behind it so yes there is a lot more to be done but at least we do have someone at the level from a policy standpoint and   into the m e p into the centers in their results or feed on street feed on the street create jobs work with the companies they hire people so i know it sounds self serving but you have a shovel ready program in place now i need more engineers and more manufacturing specialists out there let me just say that don't worry about being self serving that's the only way you get anywhere  which is scheduled to occur sometime or be called sometime in the next fifteen minutes but let us go on for as long as we can for the outside witnesses like you to comment on  ether a department of commerce folks have sought your input in developing their initiatives like commerce connect and the office of innovation and entrepreneurship do you feel of what can be done where we where we see in the field the gaps again to pick up the recommendation to be self serving there is a need for capital to flow to the very youngest companies so that they can someday grow up to be the manufacturers of the nation so that's our sweet spot in terms of looking at also flexible capital that will help companies reinvent themselves connect with universities move forward with new technology products those are not needs that are adequately addressed by current we can retool those programs doesn't necessarily mean new money but it means a restructuring of existing programs you have the manufacturing base that can take a look and be supported by more traditional financing you have a new company based in the company transitioning that needs flexible equity type capital  previous to the career i was at michigan economic development corporation and we worked very closely with my can department of commerce on the commerce program my organization ann arbor spark was not consulted so this is a new thing and that's kind of what i brought to the organization with an education for them office of entrepreneurship we have not met with that group but i actually are looking forward to later today to meet with them and learn about that i know that they work with the university of michigan and i've kind of met with the university to ask about their inside an employee our organization manages about your capital fund and three incubate are set up turned out roughly three hundred high tech startups so we're very excited about collaboration and opportunities that can take place between ann arbor spark and the new office testimony is we actually have four people from the department of commerce colocated in my building and one of my staff that's also a manufacturing person so we've gotten the good people that they brought any been very energetic and very very open to this process but that's also one half of the pilot the second half of the pilot is trying to figure out how to reach inside the department of commerce and find those programs and have them become customer friendly if you will but that process is well on its way that's the second half of the pilot that you're looking at and one of the things that i would offer up when we work with small company we go in and we talk to them about improving their processes before you automate them and so there's there are many steps down the road that i think need to be taken that can put into it put into place a good sustainable system that's going to allow for this and one of the point that jennifer mentioned was one of the critical parts of that is to use the economic development folks that are on have feet on the street already that know some of these things and so you leverage those and that's that's also part of the mix but it has been they have listened and we are in the process of getting through that final design so the the the end product will be something that works thank you very much mr coast and offline i'll take your and mr hightower's comments on when congress can act will expand beyond michigan and what the timeframe for that expansion will and creating some structure for the study of innovation and the promotion of innovation other countries have systematic ways of promoting innovation we have had a very innovative society we've been good at invention it has been a byproduct of a very strong science and r and d enterprise we do not have a systematic way of promoting innovation whether it's in finance boswell's comment about a dog walking on its hind legs it is not done well but what is a made that it is done at all we have led the world in innovation people do come here to look at our innovative companies but they no longer come here to look at the systematic promotion of innovation that activity is really being led by the europeans japanese and some other folks so looking at the subcommittee and the full committee would like to explore perhaps creating such an entity will not take quite as long as the creation of a national science foundation after world war two but i think that we should approach it in a careful and systematic way because the goal is to promote innovation in an appropriate federal way to study it to understand it to promote it in the private sector to promote it  is quite diverse but certainly agriculturally based and my questions are only the result of the hearing charters stated as the purpose of this hearing is to learn about the challenges faced by small and medium sized manufacturers again i take that very seriously and i simply conveying the concerns that i hear from my constituents and while  am a product of a community college probably so i know that we need community colleges i know that nebraska has literally thousands of automotive based  manufacturing jobs what i'm saying is we're in this together and rask enjoys a far lower unemployment rate than does michigan and but acknowledging that please know that we're all in this together and while we do need to support community colleges we do need to support various programs of extension and otherwise there are many and numerous other concerns out there facing manufacturers and that is simply why i bring up the issues that i have today and i would only wish that we could have a treasury department representative here today given the fact that we've talked about lending and how the shortage of lending  is causing problems for all businesses small and large and i struggle to see that creating new regulations on financial institutions who are not bad actors have not been bad actors would increase lending and i guess i'm on the preaching mode too but i also struggle to think that the creation of new regulations because it would require job creation for following those regulations is a good reason for creating new regulations that's not sustainable economically and  i hope that we can get to the bottom of some of these things i look at the trade issues and how important those are across the board though for example i have in my district the largest really use their product but they get my attention when they say that the estate tax would devastate their business those are their words unprompted by any question that i had when i visited the facility and i look forward to working together i admire each and every one of you for working in the trenches and it's not about of improving your own about improving with many many others and so that that's why i'm grateful for not only my opportunity but grateful that you would share your expertise as well so please know that i just want to share information and convey a message of concern for my constituents now with a question sorry uncertainty the marketplace is uncertain enough on its own but the marketplace in terms of ancillary concerns appreciates certainty what would you like to see the government do or the federal government the science committee the innovation and technology subcommittee starting with secretary if you would choose to answer i think one think it's important to say that we have enjoyed a tremendous amount support openness and accessibility for the  support of nest as one of the major elements of the department of commerce as we move forward i would want to be sure that this would be an opening or a beginning if you will to the opportunity to continue to bring these ideas for because there are going to be a number of new and innovative and untried and untested approaches and we all know from a business perspective that when you start laying out new ideas and new programs those that have a track record will always win against those that have no track record where the idea is at its early stage of of  have the legs that and a program that's been around for fifteen or twenty years might have and it goes back to something i learned in my first you know a management job of some thirty years ago and that is that if you know sixty percent of everything you want to know before you make a decision you're lucky what you get paid for is the other forty percent which is your judgment so hopefully you will accept our judgment  when we come to you having talked to our stakeholders talk to the clients if you will the users or the end of the intendant services and we will bring as much of that to bear as we can and  discuss the merits and the pros and the cons and hopefully come out of that with your support for some of these very risky quote unquote new ventures that  chairman i understand i got a note that the white house is looking for you and perhaps you could share with them mr smith's concerns and for me to ask them to counter to what the president said yesterday let's get health care done quickly so that we can reduce risk for individuals so that they can assume risks elsewhere and truly engage in entrepreneurial activity  and mr smith i completely respect your efforts to represent your constituents in your constituents concerns we we all take these concerns very very seriously and are both of office and constitutional duties i carry a copy of the constitution in my hip pocket it is the authoritative cato institute version  program now the chip program because there are important in legitimate public interventions in the private sector to compensate for extra nowadays market the facts and under investment in things like science and research and i just want to note that we do spend more on fishing tackle and potato not combined but individually then we do on the space program and i h are there the beginning of a mutual exchange where we can really move this forward and get people back to work in this country thank you very much look forward to it thank you mr hightower dr elders any further well i think i've pretty well can and comments and questions will be submitted to the witnesses in writing thank you very much for being here today