Is Obama's ‘Manufacturing Hub’ Another Corporate Welfare Scheme?

President Barack Obama’s recent $70 million initiative in North Carolina will lead to a potential corporate welfare boondoggle, according to a Heritage Foundation analysis.

President Barack Obama speaks on the economy at North Carolina State University in Raleigh, N.C., Jan. 15, 2014. (AFP/Getty Images/Mandel Ngan)

“Companies can make those investments with their own money and concentrate their resources on what they believe is most promising,” Nicolas Loris, an economic policy analyst for the Heritage Foundation wrote on TheFoundry.org blog. “When the federal government distorts those investments by sweetening the pot with taxpayer money to direct funding where they want it to go, it cripples the process of innovation.”

Obama traveled to North Carolina State University last week where he vowed to "help make Raleigh-Durham and America a magnet for the good high-tech manufacturing jobs that a growing middle class requires and that is going to continue to keep this country on the cutting edge.”

The Obama administration initiative, through the Department of Energy, will be a consortium of 18 business and six universities, led by North Carolina State University, focused on materials for power electronics, and manufacturing chips and devices that improve motors, consumer electronics and devices making the power grid more efficient.

“Programs like this also promote cronyism,” Loris wrote. “In this relationship, the politician helps the business gain market advantage, and the successful business helps the politician advance his political agenda.”

In May 2013, Obama launched a $200 million commitment for three new manufacturing innovation institutes working through five different agencies, Defense, Energy, Commerce, NASA and the National Science Foundation. The first pilot program was based in Youngstown, Ohio. Obama first called for 15 such institutes, but later upped that to 45.

Obama said last week that the government’s establishment of one manufacturing hub was not enough, pointing out that Germany had 60.

“I don't want the next big job creating discovery, the research and technology, to be in Germany or China or Japan. I want it to be right here in the United States of America,” Obama said last week during his announcement. “Republicans and Democrats in the House and Senate introduced bills that would get this going, that's good, but they haven't passed the bills yet. So I want to encourage them to continue to pass the bill would pass 45 of these manufacturing hubs. In the meantime, I'm directing my administration to move forward where we can on our own.”

Most of the companies that are getting federal funds through this new initiative for Obama’s manufacturing hub have gotten federal money in the past, according to the Heritage Foundation. These companies include:

• ABB for offshore wind;

• Arkansas Power Electronics International for motor drive research;

• Avogy for developing “highly efficient low cost vertical Gallium Nitride transistors”;

• Cree for more efficient light bulbs;

• John Deere in the Department of Energy’s cost-shared Commercial Building Partnership;

• Delphi, a stimulus recipient for electric vehicle development;

• Delta for electric vehicle charging infrastructure;

• GridBridge for cost-effective, solid state transformer for grid modernization;

• IQE for solar development;

• Monolith Semiconductor for improving efficiency in power conversion;

• Toshiba for solar energy installation in the Virgin Islands;

• Transphorm for electricity conservation; and

• United Si Carbide for high-temperature smart sensors.

“Since these are primarily the companies that focus on energy efficiency applications, it’s logical that they would be recipients. But so long as the government directs the flow of investment, the companies connected to the government will continue to benefit,” Loris wrote. “This is why Congress should eliminate these programs that promote corporate welfare and allow private companies, using their own resources, to use America’s lab and university system or partner with other private companies if they believe it is in their best interest to do so.”

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