US Democratic presidential candidate John Kerry has unveiled a grand scheme to revitalize manufacturing and “invest in the jobs of the future”. Included in his plan is the establishment of Manufacturing Business Investment Corporations (MBICs) to provide venture capital and startup financing for small and medium-sized manufacturing companies. Kerry calls these businesses the “lifeblood of larger urban areas and smaller towns and outlying communities”.
The program is modeled on the Small Business Investment Company (SBIC) programme, which via the US Government-run Small Business Administration (SBA), provides long-term capital to privately managed investment funds, including venture, buyout and mezzanine funds. These SBICs, in turn, distribute the equity to small companies in a broad range of industries.
Small and medium-sized companies have struggled to secure funds to develop products and purchase equipment. The MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association shows that venture capital investment in the industrial/energy sector, which includes manufacturing, plummeted from a high of nearly $2.5 billion in 2000 to less than $700 million in 2003. Complicating matters is the movement of US manufacturing operations to cheaper overseas locations such as Mexico and China.
Kerry's proposal, if implemented, would attempt to follow the success of the SBIC programme, which has had a significant influence on early-stage companies. SBICs distributed approximately $2.7 billion in 2002, providing eight percent of all venture financing dollars and 64 percent of all seed financing dollars, the SBA says.
However, the SBIC mandate already overlaps the critical areas Kerry's MBICs look to address. SBICs allocated more than 27 percent of their collective capital to low and moderate income areas in 2002, with 71 percent of funds committed to areas outside the venture-saturated hotbeds of California and Massachusetts. In the statement, Kerry asks: “Why not give small manufacturing companies the same shot as the SBIC gives to small businesses?” In fact, SBICs already make a quarter of their investments in manufacturing.
If executed correctly, MBICs have the potential to supplant the SBICs' manufacturing activity and allow the latter to focus on other sectors. But his political opponents say Kerry's program may help prop up industries whose decline cannot be reversed with any amount of money, and also question whether it will ever find its way successfully through bureaucratic channels.