Signals For An Upturn?
This is news for thinkers and doers. At the grass roots, there is the sense of an economic upturn -- not in every place or in every line of business, but in enough places and businesses to be noticeable. I have seen and heard about the return of risk taking in Waltham, Mass.; Decatur, Ill., Portland, Oreg.; Chandler, Ariz.; and Great Falls, Mont. If it is really there, it may be advance notice from the grass roots to Wall Street and Washington.
Three news items within two weeks clarify what our long-range problems and potentials are. First, California's Commission on Industrial Innovation made 50 recommendations based, in part, on a report from the Stanford Research Institute. Said the report: "At no time in history has there been a broader range of new inventions and technologies poised for commercial development and diffusion. . . . The range of emerging or fastgrowing technologies is broad, diverse, and advancing with increasing rapidity. Similarly, the range of applications of these technologies is continuously expanding. There is as much invention in the applications area as there are in the technologies themselves."
Second, 15 business and community leaders from 14 states -- individuals who obviously agree with the Stanford forecast -- formed the Small Business High Technology Institute a week after the California report was released. "We have founded this institute," said its chairman, Roger Hill, of Racine, Wis., "as a direct response to the expressed desire of the President and the Congress that this program be carried on by a vigorous partnership of government and small business. In signing [the Small Business Innovation Development Act] five weeks ago, the President said that 'small business is a tonic for what ails this country. By passing and signing this Act we are showing our resolve to unleash this most innovative sector. The Act recognizes that we in government work in partnership with small business.' " He hopes to draw into the institute's program people from all over the country, including people who have founded and built growth businesses, such professionals as engineers, bankers, accountants, and lawyers; and venture capitalists who work most closely with technology entrepreneurs
No one doubts that we have a long, hard road to recovery still ahead. Peter Passell, writing that same week in The New York Times, said it well:
These are not times that breed optimists. After a decade of economic stagnation, the American standard of living has slipped to 11th in the world, well below those of northern Europe. Autos and steel, the industries on which the postwar expansion was based, are in steep decline. Our road, bridge, mass-transit, and water systems are literally collapsing. Our banks are loaded with the debts of overdeveloped companies and underdeveloped countries. Our energy supplies are vulnerable to the whims of desert nomads. Our farmers rely on our enemies to buy their surplus. Millions can't find jobs; millions who have them don't bother paying taxes on their earnings.
It is easy to find hard statistics to back Passell's assertions. And there is more he doesn't say. At this writing, for example, we are losing about 600 business enterprises a week through bankruptcies. And I estimate that 6 to 10 times that number of companies are simply paying their bills and shutting their doors.
The nation's task is not limited to putting 10 million Americans back to work. We have to start the economy growing again, we need to add perhaps 15 million more jobs in the next 10 years. Without a noninflationary, full-employment economy, there can be no balanced federal budget. Without a massive national retraining effort there will be no revolution in skills to equip our management and labor forces to compete in tomorrow's fast-track, high-tech economy.
But formation of the Small Business High-Technology Institute underscores that passage of the Small Business Innovation Act this past summer may have good ripple effects beyond its direct intent. The program set in motion by the act directs nine federal agencies that spend more than $100 million annually on research and development to launch small business programs, beginning on October 1, 1982. In its first year, each agency must set aside not less than 0.2% of its extramural R&D budget for small business R&D. (The one exception is the Department of Defense, which must set aside 0.1%.) Over the next five years, the set-aside requirement for all of these agencies will rise to 1.25%.
The institute's two main tasks will be to mobilize the private sector to use the new law and to stimulate the federal government to work with private enterprise in order to maximize the prospects that the new program will succeed. These can help to ensure that the new technologies cited by the Stanford Research Institute report find their way as quickly as possible to the marketplace. Specifically, the institute has mapped out five goals:
1. To persuade the best of the small, high-tech companies to participate in the new federal SBIR program. In the past, top-notch small companies have avoided doing business with the government -- and with good reason. They found that agencies often tailored specifications to big-company products. Applying for a government contract was enormously time-consuming and expensive. The innovation program specifies that application procedures must be simple and not costly. It is the job of institute members to convince small businesses that governmental scales have now tipped, at least partially, in their favor.
2. To cooperate with about 28 federal agencies. Some will run SBIR programs; others will be expanding small business R&D contracts, a few have supervisory roles. The institute will establish a network to monitor agency effectiveness. It will publish an annual evaluation, beginning late in 1983.
3. To conduct an ongoing cost-benefit study to see whether the program represents a good investment for the taxpayers. The study, to be designed by a team of economists, will draw on a computerized database to be established by Price Waterhouse & Co. It will keep track of costs, jobs created, and new technologies developed by small companies.
4. To establish model "Joint Small Business-University Technology Councils" in at least 10 cities to experiment with cooperative research programs linking academics in the basic sciences and small technology entrepreneurs.
5. To encourage and help all 50 state governments and some local ones to develop their own means of helping as many qualified companies as possible to make use of this program.
Perhaps the best omen for the success of the new institute is a handsome starter grant given it by the J. Howard Pew Freedom Trust of Philadelphia. This action in itself is trail-blazing. The grant is, as far as I know, the first financial support yet given to an organized small business effort by a major foundation, with the exception of some welcome minority-related programs. The Pew family trustees have shown that they have a laudable awareness that the big companies of tomorrow will include some that are small today -- as small as the onetime family business that grew into the Pews' Sun Oil Co.
It is hoped that the institute will help spark an upturn at the local level. Certainly the people involved know how that happens. For example, Roger Hill and his wife, Emily, run the Gettys Motion Control Division of Gould Inc. They started Gettys Manufacturing Co. as a small family business in Racine, Wis., and made it a leader in the development of advanced numeric controls for machining, before selling it to Gould.
Philip A. Sprague, from Chicago and Michigan City, Ind., was elected financial vice-president of the institute. From 1949 to 1972, Sprague headed Hays Corp., a family business making scientific instruments. He has served as president of the Instrument Society of America and the Scientific Apparatus Makers Association and is a director of several corporations
Other directors are:
Wayne S. Brown, former dean of engineering at the University of Utah, now president of the Utah Center for Innovation, Salt Lake City.
Morton Collins, a chemical engineer, general partner of DSV Partners Ill, a Princeton, N.J.-based venture-capital company, and immediate past president and current chairman of the National Venture Capital Association.
Willis Drake, chairman of Minnetonka Minn. -- based Data Card Corp.
Vincent A. Fulmer, secretary of the Massachusetts Institute of Technology and director of several small high-technology companies.
George Goetz, chairman of Rollins, Burdick, Hunter of Wisconsin, an insurance company, and currently Professor of the Berens Chair of Entrepreneurship, Graduate School of Business and Public Administration, Cornell University.
C. Roland Haden, dean, College of Engineering and Applied Sciences, Arizona State University.
Charles G. James, president of Columbus, Ohio -- based Scientific Advances Inc., a subsidiary of Battelle Memorial Institute that manages venture capital partnerships.
Gordon O. F. Johnson, chairman, Log-Etronics Inc., a graphics and communications company based in Springfield, Va.
Arthur D. Little, chairman of Providence, R.I.-based Narragansett Capital Corp., and past president, National Association of Small Business Investment Companies.
Dan L. McGurk, an entrepreneur involved in several California companies.
Duane Pearsall, general partner, Englewood, Colo.-based Equitech Fund Ltd, a venture capital company, and president of Small Business Development Corp. in Golden, Colo.
Donald Rappaport, partner, Philadelphia-based Price Waterhouse & Co., and national director of its small business services.
Finally, I am very pleased to be serving as president of the institute. That will mean, among other things, a changed role at INC., where I will become editor-atlarge.
The creation of the new institute also means that the national innovation legislation has come full circle. It was initiated in the private sector by small business-people. It moved, in accordance with our constitutional procedural minuet, from the citizenry, to Congress, to the President, and now back to the citizenry. The private sector has shown that it is ready to share in the responsibility for the success or failure of the effort it initiated.
This has been a year in which, for more and more businesses, the going has gotten tougher and tougher I cannot guarantee that what I have seen and heard and felt is the beginning of a long-term upturn. But what finally makes the economy turn around are hundreds and thousands of decisions -- decisions to start businesses, to hire, to invest, to buy machinery. And those decisions are made by individuals, such as those involved in the institute.