Business Working Together with State Government — Key for Economic Future

Governor John E. Baldacci visited a business that received a seed grant from the Maine Technology Institute and matching funds from the North Star Alliance WIRED grant monies. Shaw & Tenney is a family-run business which makes handcrafted oars and paddles in Orono.

"This is a truly remarkable 149-year-old small business," said Governor Baldacci. "They have a brand that is well respected for its craftsmanship, quality, and pride."

by Ramona du Houx

America is waking up more and more every day to the fact that we are living in a global economy. Every area of our lives is affected by it. What we eat, the clothes we wear, how much we pay for gas, where and how we work.

The question is – how will our nation remain competitive?

"We are at a time of transformative change of historic proportions," said former Treasury Secretary Robert Rubin at the annual governors’ conference in Washington, DC. Rubin founded the Hamilton Project at the Brookings Institution. The Project puts forward innovative policy ideas from leading economic thinkers—ideas based on evidence and experience, not ideology and doctrine.

"The current economy is built on debt. That has to change. In order to do that we need to develop the willingness to change politically — to work together regardless of political party affiliations," said Rubin. "We can thrive in the years and decades ahead, and change can be our friend, not our enemy. But, our political system — with governors centrally involved — must rise once again, as our country has so often risen in the past, to address the tough issues of momentous times."

Those issues have been in the forefront of Governor Baldacci’s polices. Last December he brought together a council that was represented by citizens from different business sectors and organizations, specifically not people involved in political circles. This Council on Jobs, Innovation and the Economy was asked to develop an action plan for moving the state forward with innovative activities that will define the state’s investment strategies.

"I wanted people involved who are respected and experienced in the business world, to help Maine’s economy as we navigate the 21st century, trying to modernize our practices and systems," said Baldacci. "I’d like to thank Karen Mills and her team. Karen’s leadership, experience and expertise, has been phenomenal. She knows that our state can transform itself for the 21st century economy, making the 21st century Maine’s century."

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Gov. Baldacci helps explain the cluster development economic strategy that his Council on Jobs, Innovation and the Economy developed with the guidance of Chair Karen Mills.

The governor had just returned from the annual governors’ meeting where the theme was on jobs and innovation in the global economy. "This is an area that is receiving national focus. In this global economy, it’s vital that Maine place itself in a strong, competitive position," said Baldacci.

At the conference, Maine was held up as a model.

"The governor’s leadership and vision has already put Maine on the right track," said Mills. "He sees how all the pieces fit together." Mills was partially referring to the administration’s work with Maine’s boatbuilding industry.

Maine’s boatbuilding cluster model —

"Here you have an industry that’s older than the state, where they marked wood for the king that went to the British navy. I tell people everywhere that we build the Mercedes Benz of boats, and the president of The Hinckley Company corrected me and said they are the Rolls Royces. Maine produces world-class boats. It’s that pride, quality and craftsmanship that makes Maine shine," said the governor.

New Zealand’s Marine Industry Association forecasts that their industry will double in size by 2020, growing from a current turnover of $1.5 billion to almost $3.2 billion dollars, driven largely by export sales. Three years ago Baldacci heard that the similarities in the boatbuilding industry between New Zealand and Maine were vast, so he took action for Maine’s boatbuilding industry, reasoning that if New Zealand could be so successful selling boats internationally, so could Maine.

The Department of Economic and Community Development worked with Maine’s boat builders to help create — Maine Boat Builders. MBB has found that marketing together in the global economy is more productive than seeing other Maine boat builders solely as competitors. They also discovered other advantages and areas that they needed to work on to improve their businesses.

For the past twelve years, advances in composite technology that can make structures lighter, stronger, and faster have been developed at the University of Maine at Orono’s Advanced Engineered Wood Composites (AEWC) Center. These new technologies are being used by Maine’s boat industry and have inspired entrepreneurs to start new businesses utilizing the technology. The use of composites has given many MBB members a competitive edge.

MBB also identified that they needed more trained workers in welding, and building with composites. There were plenty of good-paying positions available, but trained workers had to be brought in from other states. Education facilities needed to be built to accommodate the growing industry.

When an opportunity for a federal grant appeared, all these various groups, the labor department, educators, and others, came together with governor Baldacci’s leadership to form the North Star Alliance. As a result, Maine led the list of grant recipients when the state was awarded the $15 million WIRED grant.

"It was a stroke of genius for the state to bring all the players together to work on the grant," said Stephen Von Vogt, who works for Hodgdon Yachts and runs Maine Marine Manufacturing, a spin-off company which specializes in high-tech composites. "The grant is a significant boost to the composite industry, which will enable us to compete better with the rest of the world from Maine."

Bringing together all the various players that make an industry grow makes the economy grow and strengthens and develops what is known in economic terms as a "cluster." The experience of the North Star grant in helping build the boatbuilding cluster has given Maine a map of how to go about successful development of other clusters.

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Betsy Biemann president of Maine Technology Institute talks to Charles Colgan of USM who was the principal investigator of a report that confirmed MTI is doing its job very successfully.

Experience counts —

Karen Gordon Mills also worked on the North Star grant application. As a venture capitalist in New York City, she seeks out companies that show promise, across the nation.

"There is a pretty direct tie with putting together these recommendations for the state, and venture capitalist work," said Mills. "When we look at different sectors to invest in, we look for what we call ‘Macro-drivers’. They are sectors that will grow and have some sort of competitive edge. As the global economy changes, those sectors have changed; basically it’s the same mental process that we are using to look at clusters here."

Mills expressed that, at a time when people are anxious about America’s competitive position in the global economy, there are plenty of opportunities in the United States for growth. "It’s a matter of seeing where they have momentum," said Mills.

The Brookings Institution Report, Charting Maine’s Future, suggested new paths to prosperity in Maine. The document has been heralded as a map for Maine’s future growth. Karen Mills traveled the state with the tour that helped compile the information that was used in the report.

"When I went on the Brookings tour, I saw some really remarkably strong opportunities here in Maine," said Mills. "At the time, I had my venture capital hat on, and that led me to realize that we could duplicate the process we underwent with the boatbuilding-cluster grant with other clusters."

Part of Maine’s North Star Alliance Initiative, the North Star Alliance Technology Fund (NSATF), is available to eligible companies and nonprofit organizations in Maine’s boatbuilding, composite materials, and related marine trade industries that win Maine Technology Institute (MTI) seed grants, development and cluster enhancement awards.

"We offer early-stage, ‘patient capital’ and commercialization assistance for the research and development of innovative, technology-based projects," said Betsy Biemann president of MTI.

A recent evaluation conducted by the Center for Business and Economic Research (CBER) at the University of Southern Maine concluded that MTI-funded companies have shown significant economic growth and are having a positive impact on Maine’s economy.

According to the report, employment in MTI-funded companies surveyed has risen by a growth rate of 6.2 percent compared with 0.9 percent for the Maine economy as a whole, between 2001 and 2006.

The council recommended that the cluster fund should be administered by MTI.

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Shaw & Tenney is a MIT grant recipient because they are applying new technologies to wooden flagpoles and ship masts with the aid of UMO research facilities.

"MTI-funded companies and entrepreneurs are creating quality jobs, leveraging additional money and bringing new products and services to market," said Biemann. "Investing in early stage research and development projects is an inherently risky activity. MTI works with entrepreneurs so more projects are successful. We look forward to implementing the cluster development fund."

How industry has been working with research development facilities —

"There’s a huge benefit of being together as a group in a cluster, in terms of knowledge spillovers, technology sharing, workforce training sharing, education, and skill training," said Mills.

The AEWC 48-thousand-square-foot facility, at the University of Maine is a prime example of that.

"We have a solid partnership between industry and the AEWC Center. What that means to companies like Harbor Technologies, Hodgdon Yachts, Kenway, and all the other composites boatbuilding companies is that this is their R&D facility. Most companies can’t afford to have their own facility; our job is to work with them to develop products," said Robert Lindyberg, PhD, manager of technical services at the AEWC Center. "They find market opportunities; we help them develop the technology."

About three and a half years ago, Martin Grimes partnered with the UMO AEWC Center. Grimes had a concept to build docks and pilings for piers out of composites. The AEWC Center worked with him to develop the technology that made his product stronger and more durable than wooden docks, which led to Grimes launching his company, Harbor Technologies.

"We just helped him secure a $750,000 contract for construction down in North Carolina," said Lindyberg..

Catalytic converters are another area that composites are making a significant inroad into. The EPA mandates that all coal-burning plants have to have catalytic converters on their smoke stacks to stop the sulfur dioxide, which causes acid rain, entering the atmosphere. "Composites are really key in this, because the sulfur dioxide that filters pull out is very corrosive; it can eat through three-quarters of an inch of steal in a year, so you really need fiberglass [a composite] because it doesn’t corrode. This market represents huge opportunities for Maine’s composite companies — worth billions of dollars within the next few years."

When the Navy Special Forces’ 83-foot launch needed upgrading, because the aluminum didn’t absorb the impact as it hit waves at high speeds, transmitting the shock to the passengers, Von Vogt of Hodgdon Yachts saw an opportunity and proposed they build the launch from composite materials.

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Gov. Baldacci listens to Dr. Lindyberg, on his left, and Von Vogt explain how composite technology developed at UMO’s research facilities is helping boat builders at Hodgdon Yachts, while they watch a demonstration.

Von Vogt came up with the new Navy boat design and composite technology using the AEWC facility. The new state-of-the-art boat will debut later this year.

At the AEWC Center, structural and materials engineering research takes place alongside composite development. Houses can be built in a matter of days using new composite wood technologies that can withstand hurricane-strength winds

"Ballistic panels designed and built from composite technology developed at AWEC were sent out to Afghanistan recently, and there are hopes for future military contracts which would create jobs, as well as saving lives," said Lindyberg.

Why the focus on cluster development? —

"In Italy a pair of shoes could cost $200 to $2,000 — in Bangladesh, $20. It’s about how you promote and how you produce that changes economies," said Professor Michael Porter from Harvard Business School, on a visit to the Statehouse where he spoke to the Governor’s Council and legislators. "There is a wealth of opportunity in Maine. With strategic investment, Maine can grow its clusters successfully. You have to build off your natural strengths." Potter recommended that the best process is to allow clusters to self-organize and compete for available resources. His advice has been heeded.

The council proposed funding cluster development at $10 million a year, to be open to all sectors with a competitive process for the funding. These recommendations reflect the Brookings Institution report recommendation for cluster development of $20 million over two years.

"What the cluster grant will do is put a pool of money on the table. Industry sectors will come together and apply for the money and identify what they can do to produce jobs through their particular sector. In the process, the similar industries working together create a cluster that will be able to focus on the resources they need to grow their industry and how they can be more competitive," said John Oliver of LL Bean, who sits on the council.

"Maine has the promise inside our state to grow with already established businesses. A cluster will gather similar businesses together — which gives it momentum," said Mills.

Maine’s population is about 1.3 million, which represents 600,000 jobs, of which 450,000 or so are in the private sector. About two-thirds of those private-sector jobs are in the local community, like restaurants, corner stores, and other shops.

"In order for those jobs to grow at a substantial rate, the other third, which are in the traded sector, like boat builders, paper mills, disability insurance companies, need to grow first. This represents about 170,000 jobs that are the core drivers of the economy. If you add jobs directly to the core, you end up making a big difference," said Mills. "In Maine it should be a fairly manageable task to grow the sector of traded jobs at the core, because of the size and scale. The increase in core jobs will help local businesses grow."

"Identifying the clusters that need investment and increasing R&D funding is critical. It’s a recipe for Maine’s growth," said Dr. Lindyberg.

The cluster seed money could potentially create more than 2,000 jobs.

"As part of our study, we also examined the state’s capacity to bond," said Mills. "Some projections indicate the state could afford $500 million of new bonds."

The council recommended a three-year bond package totaling $150 million, making $50 million available each year:

"Investment in research and development will give Maine companies access to world-class technology. These investments will allow some of the vibrant clusters of Maine companies to compete and succeed in the global economy. If we make these investments in a focused and disciplined way, they will lead to the growth of well-paying jobs in successful and enduring Maine companies," said the council in their report.

"The cluster development grant with R&D bonds represents the core of a business plan for Maine, an exciting, focused direction for economic development. It’s the strategic focus we need to move forward in the global economy," said Oliver.

"Cluster development is a growth strategy for the future of Maine. It’s about using our competitive assets and building on our strengths. We, as state government, cannot guarantee success; we should guarantee opportunity," said Baldacci. "On a level playing field with anyone anywhere in the world, Maine will be successful."