Rethinking Federal Policymaking for the Small Urban Manufacturing Sector

In researching our soon-to-be-released Field Guide study of the Manufacturing Renaissance Council we discovered an illuminating 2011 Brookings Institution white paper, “The Federal Role in Supporting Urban Manufacturing,” co-authored by Joan Byron and Nisha Mistry.  The paper focuses exclusively on the emergence of Small Urban Manufacturers (SUMs) as a trend that is transforming the American manufacturing landscape.  SUMs are defined as urban manufacturers employing less than 100 people.  The authors offer specific suggestions on how federal policy, which has largely failed to serve the needs of these entities, can be retuned to support them.

SUMs have been making an ever greater contribution to the domestic employment rolls in recent years:  Between 1972 and 1992 while employers of 500 or more employees shed 3 million workers, those employing less than 500 added 2 million workers to their workforce.  Currently 91.4% of all American manufacturers employ less than 100 people. By overlooking the importance of SUMs to both the domestic manufacturing sector and to metropolitan economies, the authors’ argue, the federal government’s policymaking in support of urban economies and the manufacturing sector has clearly been suboptimal.

Byron and Mistry target three specific areas in which Federal policy or programs are either inadequate in their support of the contemporary manufacturing sector, or are directly hindering the growth and formation of SUMs and SUM networks.  They recommend the following correctives: 1) The development of a new, more accurate narrative about manufacturing and metropolitan economies that will be used to guide programs and policies. 2) More robust support of SUMs regional cluster growth and development. 3) Federal help to ensure SUMs have the space and infrastructure they need to grow and thrive.

Updating the American manufacturing narrative would be extremely valuable in fostering more effective federal policy initiatives.  The new view, the authors hope, will reflect the importance of urban and regional manufacturing assets.  The authors state that this new description of American manufacturing should be applied to both existing and future programs.

The authors also call for funding government research into the factors that are most conducive to the formation of SUMs beyond their mere amalgamation into regional clusters.  These include: suggestions for joint research studies conducted by the U.S. Department of Housing and Urban Development and the U.S. Economic Development Administration; the formation of advanced manufacturing centers that provide technology research and worker education to SUMs; and the designing of metropolitan export strategies tailored to SUMs producing specialty products.

The federal government, the authors maintain, has also failed to provide adequate support to SUMS with regard to the acquisition of space and funding for the infrastructure and technical assistances they need to survive. The remedy suggested is a better integration of economic development and sustainability objectives, replacing the current mixed-bag of programs and policies implemented by various uncoordinated agencies.

For example, the study recommends the following:

•    The federal government should redouble its efforts to find and support SUM clusters and should conduct these efforts under the Partnership for Sustainable Communities to ensure that physical development activities are aligned with regional economic development plans.

•    The U.S. Small Business Administration should revisit the inner workings of its loan programs in order to vary types of financing and amounts of capital available to manufacturers of all sizes.  In particular, the SBA should ensure that SUMs have access to adequate capital for the land, space and equipment needed to expand their operations.

The authors also maintain that the federal government must act to revive the market for industrial real estate through various means.  Currently, many nonprofit industrial developers with access to capital, are actively seeking to convert traditional, large industrial space, and are willing to accept a lower rate of return.  SUMs, on the other hand, demand suitable industrial space in urban areas where there is only a supply of large, traditionally single-operation facilities.

The federal government should promote strategies compatible with the already successful efforts of nonprofit industrial real estate developers.  For example, the Internal Revenue Code should be revised to allow funds raised through Industrial Revenue Bonds (IRBs) to be used for the acquisition and redevelopment of multi tenanted rental industrial buildings, not just owner-occupied buildings as is currently the case.  Through this revision of IRB code, redevelopment opportunities of industrial properties that would fulfill SUMs needs would become more attractive.  The government should also facilitate the flow of IRB benefits issued for for-profit entities through to non-owner occupants in privately owned urban industrial real estate.  The authors call for the government to plan a recoverable grant program to underwrite predevelopment costs, and provide assistance to build the capacity of nonprofits to engage in industrial development.  The authors believe that the federal government should encourage the conversion of abandoned urban federal properties for industrial use, and should ease the restrictions on reuse of federal properties.

By marrying policy with the realities of the new manufacturing demographic, government can foster the growth of an efficient and resilient manufacturing sector.  If federal policy ineffectual and continues to fail to support the formation of versatile SUM clusters, there is a risk that those initiatives that do succeed will remain isolated and multimodal.  By creating powerful sources of information and support for the SUM sector, the federal government can usher in the new age of American manufacturing, an age that is sustainable, flexible and resilient, and a vital component of the 21st century economy, the authors conclude.—Evan Lozier is a 2012 summer intern at Capital Institute.