This should be reason enough to compel our elected officials to compromise their way out of this debacle, but there are other costs as well. As chairman, president and CEO of a manufacturing company that was founded on innovation and invention, I’m particularly concerned about the threat to American small businesses and our tradition of industrial innovation.
Most innovation in this country comes from the bottom up – from the Wright Brothers’ bicycle shop or Bill Gates’ garage. A 2008 study commissioned by the U.S. Small Business Administration found that small businesses are awarded patents at a much higher rate per employee than large ones, and small business patents tend to be more original and economically significant.
My company is a good example, founded almost 90 years ago by inventor Hugh Lord. Hugh saw how the vibration from modern engines damaged fragile machinery, and designed new mounts to protect sensitive instruments and structures from this harm. His first sales were to trolley companies. When engine vibration destroyed most of Charles Lindbergh’s instruments during his famous transatlantic flight, he started using LORD mounts, setting a new industry standard.
Today, almost a century of accumulated know-how is hard at work managing the exponentially greater stresses of jet engines and other modern aerospace defense equipment. LORD works hard to support tomorrow’s inventions with a money-where-our-mouth is commitment to R&D.
But sequestration cuts would put this type of bottom-up innovation at risk. After all, it’s not just large businesses that will suffer under the coming cuts; it’s the small and mid-sized businesses that are the backbone of our aerospace and defense supply chain.
The Aerospace Industries Association estimates that 70 cents out of every defense dollar goes to supply chain companies, and the Department of Defense says that three-quarters of defense manufacturing jobs are in these businesses. Many of these employers work on only one or two major programs at a time, and don’t have the deep pockets or global business portfolios needed to survive the abrupt business shock of sequestration. When program cancelations begin in January, much of this industrial muscle could be lost.
Underscoring the threat to American innovation, these cutting edge companies are often the home of unique expertise and capabilities – companies that have worked in highly specialized areas for decades, building up irreplaceable industrial “muscle memory” and skills. If we drain this reservoir through sequestration, it won’t just weaken our economy, it will fundamentally erode our military and the high-tech competitive edge on which America’s national security depends.
A big part of the problem is the way sequestration will concentrate cuts on modernization and R&D.  President Obama has rightly decided to exempt military personnel accounts from the cuts, and I strongly support this decision, which keeps faith with our troops who have sacrificed so much in the last decade.
But, with troops exempt, the mindless, rigid sequestration law will automatically ratchet up the cuts to key defense technologies like unmanned aerial vehicles, reconnaissance satellites, and airpower. Secretary Panetta warns that many of these programs could be canceled or delayed. That is equally unfair to our service men and women. Supporting our troops means sending them into battle with the best training, equipment, and logistical support we can provide. Sequestration makes that impossible.
Earlier this month, I hosted a briefing for N.C. Governor Bev Perdue on the perils of sequestration. With defense experts and industry leaders from across our state, we urged quick action on a bipartisan compromise to replace sequestration with a more responsible approach to our long-term fiscal crisis. That means a balanced approach that puts everything on the table—government spending and tax reform—to balance America’s books. This can be done in a way that doesn’t increase the burden on small business owners, who are vital to growing our economy.
Others may prefer a different approach, but the bottom line is this: Whatever the path forward, it’s imperative we start down it now. Businesses are already negatively impacted from the uncertainty of sequestration, and the likelihood of layoffs or work slowdowns is only going to increase as January approaches.
In a swing state like North Carolina, you can’t go a day without seeing another political ad promising to create jobs or accusing the opposition of dragging down small business. The most important thing our leaders can do today to create jobs and protect small business is to stop sequestration.
McNeel is chairman, president and CEO of LORD Corporation, a global company headquartered in Cary, N.C. McNeel also serves on the Board of Governors of the Aerospace Industries Association and the Board of Directors of the U.S. Chamber of Commerce.