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Rewiring the Federal Government for Competitiveness: A New Cabinet Agency for the 21st Century

Monday, March 19, 2012

Contributed by Jonathan Sallet, O'Melveny & Myers LLP, and Sean Pool, Center for American Progress/Action Fund

 One fact and one imperative appear to be on a collision course. Federal spending will decrease in the coming years, yet the need to invest in our nation’s innovative capacity and economic competitiveness has never been greater. How do we reconcile the two? The traditional language used in such circumstances is to seek more bang for the buck. But even that's not good enough anymore. The federal budget has to deliver the "best" for the buck, meshing the most efficient use of taxpayer resources with the most effective structure. That is particularly true where the federal government works with businesses, workers, communities, universities, and state and local governments to grow our economy. The historical evolution of federal functions and the jurisdictional scope of Congressional committees no longer justify the current grab-bag organization of trade, technology, economic growth, and workforce functions in our federal government. To take just one example, there are thousands of federal assistance programs that provide grants, loans, credit enhancements, and financing and technical assistance to firms, educational institutions, nonprofits, and local governments to pursue job-creating activities related to innovation and economic competitiveness. But these programs—currently administered separately by the Economic Development Administration, Employment and Training Administration, Small Business Administration, Department of Housing and Urban Development, Department of Agriculture, and a swath of other federal agencies—are difficult and expensive to navigate for the middle class entrepreneur, the mid-sized business, or the under-resourced local economic development board. Beyond assistance programs, other federal efforts that affect competitiveness—such as industry contracts, regulatory compliance, rulemaking, and high-level policy development—are equally fragmented. What we need is to assemble the tools we currently have into one agency able to more effectively leverage them to enhance the competitiveness of the US economy by helping innovators, entrepreneurs, and the communities that both support and depend on them thrive. President Obama took a big step toward making some of these uncoordinated federal activities more efficient and effective in January 2012, when he announced his proposal to consolidate six trade agencies and the Department of Commerce into "one Department with one website, one phone number and one mission – helping American businesses succeed."1 It is now in Congress' hands to give him the authority to do this. In his initial statement, President Obama also suggested that further reform proposals would be forthcoming. Our proposal builds on the President's proposal, and goes further, by showing how four key policy areas of trade, technology, economic growth, and workforce development can be utilized synergistically to promote innovation and competitiveness across our economy. Four key policy areas must be united to promote competitiveness in the 21st century innovation economy:

  • Trade
  • Technology
  • Economic growth
  • Workforce development

Below we describe each of these four pillars briefly, before concluding with a discussion of a Common Application Program to unite existing federal grant, loan, financing, and technical assistance programs spanning all four of these areas.

Trade

Besides contributing a substantial portion to national GDP, international demand for our products and services is an important driver of domestic innovation, and high-tech exports make up a large portion of our export earnings.2 We applaud the President's decision to propose consolidating six trade agencies including the U.S. Department of Commerce's core business and trade functions, the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation, and the U.S. Trade and Development Agency.3 As our colleagues Christian Weller and Luke Reidenbach noted in their 2011 report, the quantity and quality of U.S. trade relationships in high-tech sectors have profound implications on innovation, long-term economic growth, jobs, wages, and standards of living. A more strategic approach to high-tech exports is needed to reverse the recent declines of U.S. trade in these industries, and to stay cutting-edge in the increasingly innovation-driven global economy.4 An integrated Department of Competitiveness along the lines of what the President and we propose could help boost the success of these critical U.S. industries through a shared focus on trade, technology, training, and economic growth.

Technology

Technology, or the production of new and better products, and faster and cheaper ways of making them, has always been at the heart of America’s long-term economic growth.5 And even in the near term, innovation has a direct impact on jobs and wages. According to a Department of Commerce report, job wages grew in innovation-intensive industries at two-and-a-half times the national average in recent years.6 The federal government currently does a good job of cultivating fundamental scientific research, as well as technology innovation in some mission-oriented areas. But we currently lack a national platform to help translate our science resources into general purpose technologies that create jobs, businesses, and drive growth. Yet the most important general-purpose technology of our time, the Internet, was spawned and developed largely through public-sector support. There are currently many government functions that provide services in support of the research, development, and commercialization of science and technology:

  • National Institute of Standards and Technology
  • The Department of Energy
  • Office of Science Manufacturing Extension Partnership Program
  • Small Business Innovation Research Program
  • National Technical Information Service
  • Patent and Trademark Office

Bringing the industry-facing services of these agencies together with programs that can bring workforce development, regional economic planning, and support for small and startup businesses would streamline and simplify access and enhance coordination of these related federal resources.

Economic Growth

Our nation is dotted with communities full of promise, talent, and potential. But a lack of expertise, financial capital, and confidence prevents many of these communities from maximizing their potential. Strategically deployed support to regional development organizations, microenterprise development funds, community development councils, and venture and angel investors looking to deliver risk capital to entrepreneurs with promising ideas can go a long way in helping communities large and small achieve their full potential. Ensuring all of our nation’s communities have something to add to the national economy is key to sustaining jobs, enlivening regions, and promoting national competitiveness. That's why economic growth is the third pillar of our new Department of Competitiveness. The EDA provides a range of services including technical assistance, strategy development, revolving loan fund capitalization, trade adjustment assistance and public works investments to support these efforts. At the same time, the Small Business Administration today maintains a network of approved lenders, small-business development centers, and small-business investment companies designed to give small businesses in economically underserved regions a leg up. Given that a region's economic success is determined ultimately by the success of private-sector businesses in the region, the two belong together. We applaud the administration’s recent initiatives to better coordinate small business assistance with regional economic development, and technology innovation programs through the jobs and innovation Accelerator program,7 the energy regional innovation hubs,8 and other programs. But we can do much better. Combining traditional "economic development" tools, many of which reside in the Economic Development Agency, with research funding and technology commercialization programs, trade and financing assistance, and workforce development programs under one agency will ensure that federal tools to aid economically underserved communities are used to their fullest potential.

Workforce Development

In the end it is workers who drive innovation, economic development, and competitiveness. The firms that research, design, market, build, manufacture, repair, and service the products that drive economic growth cannot exist, much less remain cutting-edge, without skilled, creative, and capable workers. Competitive regional economies, and the innovative firms they support depend upon the availability of a qualified workforce, and the talent of America’s workers has long been a reason for companies to locate here. Efforts to better integrate workforce development with economic development and industry-facing trade and technology programs are not new.9 The new Department of Competitiveness should build on past success, and combine existing efforts in the departments of Education and Labor to pursue the goal of universal attainment of an associate’s degree or industry-recognized credential. At the same time, it should focus on better linking existing workforce investment dollars to the rapidly changing demands of industries and regions, while enhancing service delivery to help job seekers trying to keep up. By linking these efforts under one roof, similar programs can be combined to support more robust missions, and complementary programs can be coordinated to make the most of their combined impact.

The Proposal

There has never been a U.S. cabinet-level agency like the one we propose. And there has never been a time when it is needed more than it is today. Bringing together key competitiveness functions around trade, technology, workforce training, and economic growth under one umbrella will elevate the effectiveness and the status of key cross-cutting competitiveness issues within the government and in the President's cabinet. This agency would be built primarily around the existing structures of the Department of Commerce and Small Business Administration, but would also include relevant trade, technology, workforce training, and economic growth functions from other agencies where such consolidation could help increase economic competitiveness. (see Diagram 1 below) We envision such a department being headed by a Secretary of Competitiveness; by a first Deputy Secretary for Trade and Competitiveness, who would also serve as the United States Trade Representative (and who could, as the President proposes, have direct reporting responsibility to the White House as well); and by a Second Deputy Secretary, who would act as COO of the department and administrator of the Common Application program. Each of the four functions—trade, technology, economic growth, and workforce development—would be headed by an undersecretary who would oversee the programs. (see Diagram 1) Strategically managing federal grant, loan, and other assistance programs, as well as regulatory compliance, rulemaking, contracting and high level policymaking across these four pillars together would:

  • Streamline interaction between businesses, universities, and other economic actors and the federal officials, regulators, and program officers with whom they must interact.
  • Increase efficiency by bringing together related functions of government.
  • Increase visibility and accessibility of existing grant, loan, technical, and other assistance programs.
  • Exploit potential synergies among businesses, universities, inventors, investors, community lenders, and regional economic development organizations whose economic goals share a regional and/or sectoral focus.
  • Allow for more strategic use of existing and complementary policy tools in the four interrelated domains affecting competitiveness: trade, technology, training, and economic growth.

Studies show that one of the first steps to fostering innovation is forming networks of innovation participants, such as institutions of higher education, federal laboratories, small startup businesses, financial institutions, community and microenterprise development organizations, workforce training providers, industry, and local and state governments. Contrary to the widespread belief that innovation comes exclusively from scientists in laboratories or a few inventors in a garage, all of these different players have a role to play in innovation and job creation.10 When these players reinforce each other through appropriate cooperation and innovation-producing competition, their combined efforts spawns innovation. A new cabinet agency able to manage the federal government’s existing efforts to aid all innovation participants in a coordinated and strategic way would go a long way toward strengthening bottom-up economic growth, supporting small businesses, and creating jobs.

A New Common Application Program for Trade, Technology, Workforce Training, and Economic Growth

At the center of the Department of Competitiveness would be a new "Common Application" program to manage together the hundreds of direct assistance programs for businesses, universities and non-profits that support trade, technology, workforce training, and bottom-up economic coordination. A common application—not unlike the common app for college admissions—would make the effort of applying for several related programs at this new department far easier, faster, and less expensive for businesses, research institutions, and non-profit organizations. It would also empower this new department to streamline information sharing between parallel programs, and consolidate management of programs where there is redundancy or considerable overlap. Most importantly, it would enhance coordination of complementary programs that work better when deployed together than when deployed separately. To illustrate the benefits of enhanced program coordination, take the example of an entrepreneur working to start a small business and create jobs around the commercialization of a new idea in an underserved region. Today, such an entrepreneur might be eligible for a dozen assistance programs spread across several different agencies. But finding and applying to them all separately is prohibitively costly. Furthermore, if the business plan involved the commercialization of university research, that university too could be eligible for different programs from entirely separate agencies, for example through the Small Business Technology Transfer grant program administered separately by 11 agencies. And, if the business plan required a particular kind of workforce talent, local workforce training organizations (such as community colleges or career counseling providers) would be eligible for still separate assistance programs. In short, the entrepreneur, the university, and the technical training organization can accomplish more by working together than they can acting separately, but the federal assistance programs for which they are eligible do not reflect this. Under current policy, there is no way to ensure all of the potential innovation participants—the small business, the university lab, and the workforce training provider—would have their bid for assistance reviewed jointly, despite the mutual interdependence of their activities. That's where the consolidation of a number of these existing programs under a new Department of Competitiveness and accessible via a Common Application program would add value. This kind of consortia-based thinking isn't new. The 2011 debut of the Economic Development Administration's Jobs and Innovation Accelerator program, which encourages joint applications put together by consortia of small businesses, training providers, and regional economic councils, is a great example of how this can work.11 By aligning the resources of 16 federal agencies and programs, the program made it easier for 20 public-private consortia in underserved regions around the country to self-assemble around the commercialization of new technologies. The program, at a cost of $37 million, is expected to leverage $69 million in private finance and support 339 new businesses, 4,800 new jobs, and new skills training for 4,000 workers. Despite a tight application period of only 40 days from the funding announcement to the application deadline, the program was vastly oversubscribed, with 121 applications for only 20 winning consortia. Our proposal would systematize this thinking by replacing the dozens of separately managed programs operating in disparate policy silos across a dozen agencies with one, streamlined system capable of bringing to bear a full array of policy tools—grants, loans, contracts, credit enhancement, technical assistance and others—flexibly on the challenges of bottom-up, regional innovation, job creation, and growth. Figures 1 and 2 show how many separate programs from different agencies could be aligned to better support their unified goals. From the uncoordinated web of funding streams in figure 1, the common app would instead coordinate federal functions strategically, and make them available in one place:

  • Research and development: Providing low-interest loans and loan guarantees to small businesses for basic research into novel platform technologies.
  • Technology transfer support: Providing grants and loans to university-industry partnerships centered on tech transfer and commercialization of promising technologies.
  • Workforce development: Investing in technical education, training, and apprenticeship programs to help link regional workforce capabilities to local demand, and to position workers to take advantage of emerging industries and occupations in their region.
  • Regional economic strategy development and implementation: Providing project grants and technical assistance to self-assembled regional or industry consortia or development organizations for design and implementation of multi-stakeholder plans that fulfill necessary criteria.
  • Investment in underserved markets and communities: Leveraging private dollars for small business in underserved or economically distressed communities with increased coordination with larger regional economic development and technology innovation strategies.
  • Export assistance: Providing loans, loan guarantees, insurance, and other forms of financing assistance, as well as foreign market intelligence and trade negotiations support to small and mid-sized businesses looking to tap foreign demand by selling their products abroad.
  • Leverage for private finance: Managing and leveraging regional networks of local financiers currently participating in the SBA microloan, Small Business Investment Corporations, and Small Business Development Companies programs.
  • Support for incremental innovation: Helping industrial enterprise in underserved regions, markets, or strategic industries to acquire necessary human, physical, and financial capital necessary to upgrade, innovate, increase exports, and stay cutting-edge.

Having one program able to leverage different existing tools ensures that every worthy applicant receives the appropriate support to foster innovation, spur job creation, and sustain economic growth. Combining related resources under one administrative roof benefits both the applicant (a streamlined and simple interface where they can see and understand all of the opportunities available), and for the government (increased proximity among related programs, opportunity for enhanced strategic and regional coordination, elimination of redundancy). Most important, value will be added by fostering new and appropriate collaboration—both among currently uncoordinated federal programs pursuing similar goals, and among the public and private sector players working to catalyze innovation and growth in their regions.

Making It happen

President Obama has already issued a Presidential memorandum instructing agencies to assess opportunities for consolidation and increased collaboration, and on January 13, 2012, asked Congress for the authority to take the next step.12 The Business USA portal, which the White House launched in February, represents an important step towards increasing accessibility, though it does not address the key challenge of increasing strategic coordination or eliminating redundancy.13 As this process unfolds the president should also issue an executive order that creates interagency working groups in trade, technology, workforce training, and economic growth to ensure close coordination of programmatic efforts. These working groups could begin to do the detailed work of designing the coordination we advocate for in broad strokes here, and present its findings to Congress for a single up or down vote. Even without Congressional authority to formally restructure the government, these working groups could be empowered with substantial authority to reform existing rules and regulations in order to form a sort of "virtual agency" that fulfills many of the goals we lay out. This step would ensure that applications for governmental support can be handled through 'one-stop shopping" that matches efforts at the federal level to the competitive advantages of the nation’s regional economies. Using executive authority to begin the process and explore the challenges and opportunities for much closer interagency collaboration would pave the way for Congress to act to give the president the formal power to create the new department. Our full paper, available free at the Center for American Progress website, includes a detailed appendix that examines the eligibility and rational of dozens of federal programs for inclusion in this proposal.14 For American firms, workers, and our economy to compete globally in the 21st century, we must rewire our government infrastructure to more effectively focus on innovation and competitiveness. While the strategy proposed in this document represents only an initial stab at a hugely complex undertaking, the proposal to streamline and integrate the implementation of federal programs around these four intrinsically linked areas of trade, technology, economic development, and workforce development is a necessary first step. 

© 2012 Center for American Progress 

Jonathan Sallet is a partner in the Washington D.C. office of O'Melveny & Myers LLP. Sean Pool is a Science and Innovation Policy Analyst and Managing Editor of Science Progress at the Center for American Progress.

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