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Working Papers | January 22, 2021

Strengthening Manufacturing Innovation Ecosystems Before, During, and After COVID: Lessons from Massachusetts

Elisabeth Reynolds, Daniel Traficonte, Anna Waldman-Brown

WP11-2021

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Concerns about structural weaknesses in the US manufacturing sector have been voiced for decades, particularly since the dramatic decline in manufacturing establishments and jobs following the 2000 recession. A common thread in these analyses was the hollowing out of the shared institutional infrastructure—alternatively, the manufacturing ecosystem—that firms could turn to for support. Work by MIT researchers and others pointed to the loss of critical capabilities in the American manufacturing base and had long highlighted the problem that manufacturers, particularly small and medium-size, were “home alone” when it came to finding the institutional support they needed to increase productivity and innovate (Bonvillian and Singer 2018; Berger 2013; Glasmeier 2000; Cohen and Zysman 1987). As larger firms became more vertically disintegrated, outsourcing and offshoring many of their activities, the positive spillovers and public goods that they once provided both to their suppliers as well as the communities within which they operated, disappeared. Without increased attention and investments, experts warned that the U.S. was jeopardizing its national security, capacity to innovate, and economic growth opportunities more broadly, while other countries continued to make massive investments in manufacturing capabilities across a range of technologies and industries (Shih and Pisano 2012).

In part, these warnings were heeded. Since the start of the recovery from the Great Recession of 2008, there has been a flurry of new interventions by both the public and private sectors aimed at recovering lost ground and reviving the dynamism of American manufacturing. This recommitment to manufacturing was led in part by the federal government under the Obama Administration, with the largest federal investment in manufacturing in over 20 years (approximately $600 million (Manufacturing USA 2020)). Many state governments invested alongside the federal government, and also launched new initiatives which have catalyzed additional investments by cities, universities and non-profits, prioritizing manufacturing as an important part of their economic development strategy. State-level manufacturing ecosystems, though still lacking the institutional strength of industrial ecosystems in Germany or Japan, have to some degree rebounded and have the potential to support an American industrial comeback (Armstrong 2019).

Despite major investments and rebuilding in recent years, the COVID-19 pandemic exposed continued structural weaknesses and vulnerabilities in American manufacturing. As the crisis exploded in the United States in March of 2020, and continued into the fall, massive shortages across the country of personal protective equipment (PPE), and more recently product testing equipment for new entrants to the PPE market, have revealed the fragility of the country’s domestic manufacturing capabilities when faced with a sudden shock to global supply chains and a lack of federal intervention. American industry’s vulnerabilities have been on full display as healthcare providers in hot-spots nationwide struggle to find able suppliers who can meet quality, quantity and timeliness demands. The country’s sclerotic domestic supply chains have been slow to meet the new production challenge, and—in the absence of robust leadership from the federal government—state and local governments have been forging their own paths forward. While some crises have been averted, others may still lie ahead. Regardless, there is general agreement that the need for PPE for health care workers and other front-line workers will not abate for many months to come.

State-level responses to the shortages of PPE and testing equipment have varied dramatically. While some states continue to scramble for medical supplies as infection rates remain high, other states, including Massachusetts, have managed to largely avert a supply crisis by mobilizing local and regional manufacturing ecosystems. State-level ecosystems have played a critical role in states’ COVID-19 response plans—or lack thereof—and have enabled some states to draw on the full range of productive capacities embedded in their local economies.

What has helped some states respond to the crisis better than others? We argue in this paper that recent public and private-sector investments in regional manufacturing ecosystems, specifically in Massachusetts, have played a critical role in mobilizing manufacturers to produce PPE and creating resiliency in the economy more broadly. Investing in rebuilding manufacturing both in terms of firm capabilities as well as organizational capabilities in the state over the last 5-8 years has created a solid foundation that could be quickly mobilized in the face of a state-wide and national crisis. In particular, we show that the state government’s prior ecosystem investments and pre-existing relationships with key stakeholders allowed for the quick deployment of the Massachusetts “Manufacturing Emergency Response Team” (M-ERT), a group that was able to identify capable manufacturers and help them pivot and ramp up production of PPE. The successful initial rollout of M-ERT is a positive byproduct of the investments made in previous years to strengthen manufacturing and position the state to compete globally.

As the country faces the dual threat of economic downturn and public health crisis, manufacturing ecosystems are proving critical to both the resiliency of local economies and the mobilization of healthcare resources. The percentage of US manufacturers surveyed by the National Association of Manufacturers who were positive about their own company’s outlook rose from a low of 34% in May 2020 (the lowest since early 2009) to 66% in September 2020 (NAM 2020). Anecdotally, all of the manufacturers we interviewed for this research were classified as essential firms and none of them shut down entirely during the pandemic.

With respect to mobilizing the ecosystem for healthcare resources, we demonstrate that recent investments in the state’s manufacturing ecosystem bolstered the state government’s response to the COVID-19 crisis and the rapid ramp-up of PPE production by manufacturers in the state and beyond. The basic infrastructure already in place as a result of recent ecosystem investments helped Massachusetts avoid worst-case scenarios in medical supplies and move more quickly to support the state’s health care providers.

Though M-ERT arose from the existing ecosystem in Massachusetts in collaboration with subject matter experts as a response to an acute crisis, it underscores not only what should be taken forward to better prepare for the next “black swan” event, but more broadly, what investments in the manufacturing ecosystem can create more resiliency, increase manufacturing capabilities and take advantage of opportunities for growth going forward. This paper outlines three key areas of new investment within the Massachusetts manufacturing ecosystem that largely played a role in the state’s pandemic response: innovator institutions, broker institutions, and educators.

The following provides a closer look at some of the major investments in the state’s manufacturing ecosystem as well as details about the creation and implementation of M-ERT. After a brief review of our research methods, section III provides an overview of the roots of manufacturing innovation ecosystems and the Massachusetts ecosystem specifically. Section IV highlights some of the most important new

innovators, brokers and educators engaged with manufacturing in the state. Section V turns to the state’s manufacturing response to the COVID-19 crisis and the creation of M-ERT, reviewing its organizational structure, activities, and challenges. Chapter VI concludes with a look post-COVID crisis at Massachusetts’ manufacturing ecosystem and offers a set of priorities going forward that can better prepare the state for the next crisis while, most importantly, building a stronger, more resilient and more capable manufacturing ecosystem for years to come.

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