How States Can Use Covid Relief Funds for Growth and Innovation

Scientists at the Mirimus lab are preparing to test COVID-19 samples from patients recovered on April 8, 2020 in Brooklyn, New York.

Micha Friedman | Getty Images

Now is a good time to be governor – or state treasurer.

The latest Covid-19 relief bill sent states $ 195 billion. As the debate continues over its size and content, the importance of this boon is clear, and more taxpayer funds could arrive if Congress passes the Biden administration’s infrastructure package.

Of course, a multitude of interests and groups are already clamoring to get their hands on these billions of aid. Given this harsh political reality, heads of state must recognize that this is a unique opportunity. They must be responsible stewards and carefully direct billions of taxpayer dollars into areas that will not only help America recover from Covid-19, but also unlock economic opportunities for decades to come.

We have both been participants and observers of the changing dynamics of the US economy over the past decades. Now, as co-chairs of a Reagan Institute sponsored task force on US Manufacturing and National Security, we firmly believe that there are some key principles that should guide the investments of state policymakers. It is only by integrating these principles into their decision-making processes that they will be able to put their States on the path of job creation, economic revitalization and strengthening our national defense.

Here’s what they need to do:

First, prioritize investments that drive innovation

States should establish, or increase where appropriate, “angel funds” for startups or create catalytic capital funds to attract private investment to innovative small and medium enterprises. They could also encourage greater collaboration between sectors and ecosystems on national security issues.

Our country has tremendous know-how and innovation potential spread across the defense industry, high-tech giants, national laboratories, universities and entrepreneurial startups. With the right set of policies, incentives and regulations, states can create the space for them to collaborate, compete and innovate, for the benefit of both economic growth and national defense.

Second, take action to renew America’s advanced manufacturing

For decades, leaders in the public and private sectors have argued that America must invest in its future to remain competitive and innovative around the world. This need for action has never been greater. Semiconductor shortages, shipping backlogs and scarce raw materials highlight strains on global supply chains and manufacturing capabilities – all of which have been accelerated by Covid-19.

In addition, we now face the most serious economic and military rival in China in a generation. Behind the headlines about China’s growth and technological prowess lies a system of military-civilian fusion that links billions of military investments with billions of trade subsidies to create a national machine for innovation and industrial production.

In contrast, years of unstable defense budgets, offshoring, foreign competition, and Byzantine acquisition policies have combined to weaken the U.S. defense industrial base – a vital link in the chain of our economy, of our base. innovation and our national security.

Not unique to the defense industry, the erosion of the country’s manufacturing capacity has coincided with a long-term slowdown in productivity, which has reduced economic dynamism and slowed growth. Americans have lost their jobs or have seen their communities hollowed out by business closures and the displacement of jobs overseas.

Third, invest in infrastructure that can directly support innovation and advanced manufacturing

States should look for examples abroad. In places like Singapore, Taiwan and South Korea, governments have struggled to establish stable tax, legal and regulatory frameworks for businesses. Municipal governments have supported these efforts by investing in infrastructure such as power plants, water treatment facilities, and internet and communications technologies that allow businesses to be more competitive.

Such actions help to create local manufacturing hubs, where small and medium-sized suppliers can thrive. The efficiency gains of these clusters boost productivity, and second-rate jobs, incomes and economic benefits are almost immeasurable. States should identify gaps in their high-tech infrastructure and take similar action.

Fourth, build the talent pool that can support our global leadership

Nothing replaces the development of human capital, especially for women and people of color most devastated by Covid-19. This means that states must increase resources for STEM education in K-12 schools, create scholarship programs in traditionally underserved communities, and expand and improve continuing education and education programs, such as those community colleges. This would not only provide much needed trained workers today, but also support the growing number of students and mid-career learners seeking practical skills.

States could also bring together local businesses and schools to expand formal retraining programs through apprenticeships and similar programs; provide grants to businesses that will retrain or upgrade their own employees; and relax regulations that hamper the movement of workers and then facilitate their transitions. The list goes on, but it’s clear that too many of them left the workforce believing they lacked the skills needed for a changing US economy.

The letter of the law prohibits states from using their new money to fund tax incentives and reductions. If freed from these constraints – whether through an amendment from Congress or legal recourse – states could truly maximize the opportunity. Either way, the fact remains that states have tens of billions of dollars.

According to a recently released McKinsey Global Institute study, transforming the national security manufacturing base in this way would generate hundreds of billions of dollars in economic growth this decade and over a million jobs.

More importantly, it would increase opportunities for Americans across the country and help America maintain its military advantage, while advancing the frontiers of science, engineering, and medicine. By making wise choices, state governments, with buy-in from private sector leaders, could help lay the groundwork for America to re-establish itself as a competitive and innovative industrial power.

Marillyn Hewson is the former President, President and CEO of Lockheed Martin Corporation. David McCormick is the CEO of Bridgewater Associates. They are the co-chairs of the National Security and Competitiveness of Manufacturing Bases in the United States Task Force sponsored by the Ronald Reagan Institute.

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About Perry Perrie

Perry Perrie

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