By Paul Davidson, USA TODAY
CLEVELAND — Alex Nudelman, a strapping 49-year-old, confidently pushes buttons on a computer-controlled milling machine and suggests it's ready to sculpt a small piece of metal.
His instructor stops him, noting Nudelman has not programmed in all the tools needed to shape the metal block.
A journeyman autoworker who was laid off in 2009, Nudelman is taking a community college class here so he can work on the more sophisticated gear powering the region's growing cluster of medical device makers. If all goes well, he may soon be churning out spinal implants instead of seat brackets.
"I'm trying to compare the new technology with my old experience, and sometimes it's helpful, and sometimes" it isn't, Nudelman says. But, the Russia native adds, blue eyes brightening, "It's the future."
Northeast Ohio is among a growing number of regions that are combating the loss of traditional factory jobs by developing industry clusters in fields such as biomedicine, renewable energy and aerospace. Besides medical devices, the Cleveland area — a more than century-old stronghold for auto, rubber and glass making — aims to carve out niches in clean energy and flexible electronics.
Hubs that group manufacturers, suppliers, training programs, researchers and others in the same region, aren't new. Hot beds such as computers in Silicon Valley, biotechnology in Boston and film in Hollywood developed organically and have thrived for decades.
But with the loss of 8.7 million jobs in the recession, state and local officials are more active in trying to speed the growth of nascent clusters to create new jobs. Emerging industry centers include electric-car batteries in Michigan, clean energy in Colorado and robotics in Pittsburgh. In clean energy alone, 20 regional non-profits have sprung up around the USA in the past three years to coordinate funding and product-launching efforts among companies, universities, entrepreneurs and state agencies.
Now, the federal government is stepping in. President Obama's fiscal 2012 budget proposes a competition to identify 20 potential clusters that would receive a share of $2.5 billion in financial incentives. A separate program involving 16 U.S. agencies aims to advance existing industry hubs. With a report Friday showing job growth slowing, officials say funding for innovation is needed to expand payrolls.
Clusters "are becoming a central framework for how the federal government is engaging," says Assistant Secretary of Commerce John Fernandez.
Some critics say government efforts often fall short by trying to pick winners and losers in the marketplace or create clusters that don't have a sufficient base of companies. Officials in several states downplay such concerns and say they must act to revive a fading manufacturing base. The U.S. lost 2 million factory jobs in the recent recession. Manufacturing employment in the U.S. peaked at about 19 million in 1970, when it made up 21% of the workforce. Today, the USA's 11.7 million factory workers are just 9% of all payrolls, though employment rebounded some in the recovery.
The U.S., with 19.4% of global factory output, was marginally overtaken by China last year as the world's manufacturing leader, according to IHS Global Insight. Cluster development is designed to attract firms and make them less likely to flee for countries with low labor costs or short-term financial incentives.
"Business as usual is broken," says Brookings Institution senior fellow Mark Muro, noting enticing firms with tax breaks alone yields limited benefit.
Cluster theory holds that manufacturers and suppliers often want to be in proximity to collaborate on product design. Companies want to be near universities to benefit from the latest innovations. And bigger clusters attract still more companies that seek access to a large pool of skilled workers.
The class Nudelman attends underscores the synergies of Cleveland's biomedical ecosystem. A year ago, Cuyahoga Community College started the class, which teaches computer-controlled milling to aspiring medical-device and aerospace workers, to supply area firms with more workers at the request of BioEnterprise, a non-profit charged with growing the cluster. The Labor Department kicked in a $600,000 grant, making the class free for students, many of whom lost old-line manufacturing jobs.
BioEnterprise CEO Baiju Shah says business leaders and local officials launched his and other non-profits around the 2001 recession when they realized Cleveland's traditional factory jobs weren't coming back. The Cleveland area has lost 80,000 manufacturing jobs since 2000, according to the Bureau of Labor Statistics.
Officials decided to base the area's future on an existing hub of medical imaging and other device makers — as well as pharmaceutical developers and bioscience researchers — and the presence of the renowned Cleveland Clinic and Case Western Reserve University. Until recently, the cluster had failed to draw the start-up firms and venture capital needed to create jobs, Shah says.
State support
Driving the effort was Ohio's Third Frontier, a $2.3 billion state program to nurture new tech-based industries. The initiative has pumped $235 million into biomedical research and start-ups in northeast Ohio since 2002. Non-profits such as BioEnterprise have recruited medical firms to the region, helped start-ups obtain venture capital and state money and matched manufacturers with suppliers.
Since 2001, the number of biomedical firms in the area has more than doubled to 600, and venture capital investments have swelled to an average $150 million a year since 2005, vs. $30 million a year from 1996 to 2001, according to BioEnterprise. The ventures employ a few thousand, a fraction of the jobs lost, but more are expected as fledgling firms grow.
On Euclid Avenue, an unpretentious artery that connects downtown Cleveland with uptown hospitals and universities, shuttered red-brick factories and social-service agencies are interspersed with tony health care office complexes with names such as CleveMed.
Nearby, ground was broken early this year on the $465 million Cleveland Medical Mart & Convention Center, the world's first marketplace for medical industry buyers and sellers.
BioEnterprise is the cluster's nerve center. In earth-toned open offices, venture capitalists sit in windowed cubicles along the perimeter; BioEnterprise marketers toil in the center.
Across the hall is an incubator with 19 biomedical start-ups, which pay nominal rents to BioEnterprise, and in some cases, share offices. One, CardioInsight, developed a vest with sensors to capture electrical signals from 250 body areas to better diagnose weak spots in the heart.
The vest was the brainchild of a Case Western graduate student and partly funded by Third Frontier and a local non-profit venture capitalist called JumpStart. The original prototype was a 15-pound medieval-looking garment strewn with wires. A local design firm, Nottingham Spirk, situated three blocks from CardioInsight, turned it into a lightweight, disposable vest with 250 printed circuits. "The fact that they were five minutes away allowed us to have multiple face-to-face meetings," says CardioInsight CEO Steve Arless. "You need to not only see it, you need to feel it."
The firm could double its 20-person staff in two years after the vest is cleared by regulators.
Nottingham has invented consumer products such as the Dirt Devil vacuum cleaner and a $5 battery-operated toothbrush. Located in a former church, the firm — whose designers rim a rotunda while technicians build prototypes in a workshop a few steps below — has doubled the medical-device portion of its portfolio to about 40%. "We read the tea leaves," says partner John Nottingham, who often stands beside surgeons during operations to see how tools can be improved.
Cleveland also has wrested biomedical start-ups from far-flung locales. In 2002, city and business officials went to Israel to lure Simbionix, a maker of computers that simulate surgery for medical students.
The simulators are made by Astro Manufacturing & Design, which has long produced auto and aerospace parts for other companies but is increasingly cranking out medical devices. In a quiet workshop off the whirring aerospace factory, two former industrial machine workers assemble computers and connect them to syringes and scalpels. They learned on the job.
"I don't know anything about the heart or lower arteries," says worker Ken Valardo, 53.
At another Astro plant nearby, employees make the screws and plates that go into broken spines and bones. That required a culture shift and more exacting procedures. Titanium rods are labeled and stored behind a locked gate until they're ready to be shaped. That way, finished goods can be tracked in case defects are found and a lot has to be recalled. Parts are sandblasted and inspected under microscopes for tiny imperfections.
Don Perish, a lanky, graying 52-year-old, has been turning out bone screws since he lost his job making auto industry tools two years ago. His margin for error is much smaller as he programs computer-controlled lathes to shape the screws to within a human-hair's width of the prescribed dimension. He also has to keep meticulous records of everything he does.
"You have to pay more attention," he says. In his old job, "If I dropped something on the floor, you'd just put it back and keep on going." Perish, whose hourly pay of about $17 an hour hasn't changed, says his new gig is more rewarding. "I know I'm helping somebody out who might otherwise be paralyzed."
Astro officials meet weekly with physicians at the Cleveland Clinic to work on new products. One recent morning, Astro executive Brett Crawford sat at a table in the office of orthopedist Joseph Iannotti to discuss ways to improve a long metal tool they're developing to guide surgeons during shoulder implants.
"The problem is the foot piece," Iannotti said, noting that the device's lower part didn't line up with a badly degenerated shoulder as he held it against a model. Crawford nodded and took notes: "We're doubling the (foot piece's) length." A new version was ready in three days.
Some skills in short supply
There are challenges, including a shortage of skilled workers and entrepreneurs to lead start-ups. Astro, with 275 employees, added 45 last year and is struggling to hire a dozen engineers, managers and machinists. "It's impossible," says Vice President Rich Peterson, adding that many old-line workers lack essential math and computer skills.
Also, U.S. approval of medical devices can take years. AxioMed, a Cleveland area start-up, has been selling its artificial spinal discs in Europe for 18 months but doesn't expect federal Food and Drug Administration approval until 2012, delaying a planned expansion from 15 to 30 employees. "It's much more difficult in the U.S.," says CEO Patrick McBrayer.
To hedge the region's bets, another non-profit called NorTech is working to develop clusters in clean energy and flexible electronics, which involves putting tiny, malleable printed circuit boards on clothing and other products so ski goggles, for example, can tint with a touch. "If biosciences starts to dip, others can pick up," says NorTech President Rebecca Bagley.
The flexible electronics cluster has only 20 firms, but it's attracted $60 million in state funding, and virtually no other region has a foothold in the space. By contrast, Harvard's Institute for Strategy and Competitiveness lists at least 40 medical-device clusters in the USA.
Critics say cluster development is misguided. Consultant Gary Kunkle says his study of 1.3 million firms showed success or failure is based on companies' distinctive qualities, not location. And, he says, governments are far more likely than the marketplace to fund lemons. "You have a bureaucracy that has no idea about the feasibility of these ideas," he says, noting nearly every state has been trying to form a biotech cluster.
Norman Chagnon, executive director of Ohio's Third Frontier, says officials are simply trying to hasten the development of industries and companies that have obvious strengths. "It would have been foolish and hubris for us to pick an area that's hot and say that's where we're going to go," he says.
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