Wall Street Journal - August 6, 2007

 

 

COMMENTARY

The Myth of Deindustrialization

t's been a quarter-century since author John Naisbitt blithely described manufacturing as a "declining sport" that Americans could easily offshore to Asia. Since then obituaries for U.S. manufacturing, both mournful and enraged, have been written many times.

The reports of death are premature. Many of the most vibrant economic regions in this country — from the deep South to the Pacific Northwest — are still making and transporting real goods. The success of America's "material boys" suggests that the old economy and its blue-collar workers — so often patronized and pitied — can still more than hold their own in today's global economy.

The area around Dubuque, Iowa, an old industrial region along the Mississippi River with a population of 90,000, was a basket case two decades ago. Manufacturing, agricultural and food processing jobs were vanishing. Unemployment at one point exceeded 20%. Today, Dubuque has the fastest job growth rate of any Midwestern city. Unemployment is below 4%, while average wages have risen steadily over the past five years to over $15.70 from $13.19 per hour. The workforce is up to around 58,000 (it was 36,000 in 1983).

Skilled-labor jobs such as welders, machine-tool operators, plastic and metal patternmakers have been a crucial part of this rebound, according to Rick Dickinson, director of the Greater Dubuque Development Organization. "We've gone with the basics — we've tried to stay good at things that matter, including things like manufacturing and agriculture," he says.

The workforce of the local, unionized John Deere plant, while down from 8,000 in its heyday, has nevertheless added 600 positions in the past five years and is now at 2,000. There's also a network of industrial suppliers that have sprung up around the Deere facility over the past 20 years. Specializing in forestry and construction equipment, the Deere facility has benefited from expanding markets in Canada, Mexico and overseas, which account for roughly 10% of their sales.

Plant manager James Schrempf gives much of the credit to local educational and political institutions, which have worked hard to train, attract and retain skilled workers in the area. "Every time there's an opening we get lots of applicants," says Mr. Schrempf. The local community colleges and the University of Dubuque offer courses in classic "material boys" skills such as production management, machining and engineering. The city has also reached out on the Web to skilled workers who left for opportunities elsewhere.

Sam McMahon, who left Dubuque 15 years ago, remembers the city as a "tough place to be" where "the future was bleak." Four months ago he returned, leaving Milwaukee to become a production manager at Giese, a local firm that employs 170 and specializes in custom metal fabrication. "I didn't think I'd move back here at 32," he says. "But you get a sense the place is really coming back. There's a sense that we are getting to the next level."

Manufacturing's role in promoting job and income growth is often understated. Although overall industrial jobs have diminished by almost five million since the late 1970s, the loss has been concentrated largely in lower-skilled positions. The number of higher-skilled positions, with a median hourly wage of $24, jumped by more than 36% between 1983 and 2002 to nearly 4.5 million, according to a 2006 study by the Federal Reserve Bank of New York.

These skilled workers remain in great demand across much of the country — 80% of manufacturers in a recent survey conducted by Deloitte consulting expected a shortfall in their numbers over the next three years. Construction, logistics management and trucking are particularly important in part because they provide a path to upward mobility for people with less than four-year college degrees. The jobs include welders, machinists and tool-and-die makers.

While much of the new manufacturing and logistics growth is concentrated in smaller economies in the Northern Great Plains (such as St. George, Utah and Grand Forks, N.D.), Texas and parts of the Southeast, such as Savannah, Ga., more prominent regions such as the Seattle metropolitan area are also involved. Since 2003, according to Pepperdine University's Michael Shires, manufacturing employment in Seattle has been growing about as quickly as the information sector, and even faster in the last year or so.

Boeing is one key contributor. Its facilities in Seattle remain the focal point for fabricating many of the hottest-selling panes on the aviation market — most notably the 737 and the new 787 Dreamliner.

In Houston, not only is employment in the energy industry up, there's also a growing manufacturing sector and an expanding port complex, which together have contributed to a more than 10% increase in jobs over the past three years. "Everything's now hitting on all cylinders," suggests Bill Gilmer, a Houston-based economist from the Federal Reserve Bank of Dallas. He adds that other parts of Texas — Dallas, Midland-Odessa, Corpus Christi — are also experiencing rapid growth, particularly in exploration and oil services. While engineers and geologists are at or near the top of the food chain, manufacturing compensation averages $80,000 — $20,000 more than in information and financial services, and more than three times that in retail.

Broad-based growth of this kind in the manufacturing and allied sectors is intimately tied to infrastructure. Houston has recently completed a major expansion of its port, with an investment of $2 billion. Its airport is undergoing a $3.1 billion upgrade, and an additional $65 billion in road and transit projects are being planned for completion by 2025. Such infrastructure investment should be regarded as critical to a regional economy, as Minneapolis is no doubt learning now.

Charleston, S.C. is another community that knows the importance of infrastructure. It is investing $2 billion to expand its port system and improve its airport, roads and other critical infrastructure. Over the past 10 years the value of cargo at the port has nearly doubled to $55 billion. This investment has helped create tens of thousands of port-related jobs, and also provided an ideal platform for an expanding manufacturing and trade service economy.

Charleston has also become a haven for skilled blue-collar workers in industries as diverse as robotics, automobiles and aerospace. Manufacturers, according to the state's "Ready SC" training program, have trained over 1,500 workers for skilled positions, where the hourly pay generally starts at the $15- to $20-an-hour range.

Nicole Conover, 37, worked in retail most of her adult life, and the highest wage she earned was $9 per hour. After a 12-week training course as a machine operator, she joined a new facility manufacturing parts for Vought Aircraft Industries. Her starting hourly pay a year ago, $14 per hour, has increased to $15. "I never thought I could even think of buying a home or helping my kids with college," she says. "But now I think I have a chance."

The success of the "material boys" (and girls) could be mirrored in urban areas such as New York and Los Angeles, at least in theory. The opportunities do exist, albeit for unsexy jobs in warehousing, trucking, couriers, railroads, air cargo, sea cargo and specialized functions like stevedores, freeway tow-truck drivers, crane operators at rail yards and supply-chain managers.

Such jobs may not be so easy a sell in big cities, where the educational establishment often disdains skills training. There's also an apparent unwillingness to stand up to environmental interests which, in L.A.'s Long Beach, for example, have been working to reduce trade going through the local ports in order to reduce pollution and carbon emissions. L.A.'s ports are the nation's largest, and are responsible for upwards of 500,000 blue-collar jobs, according to John Husing, an economist based in Redlands, Calif., who has studied the port's impact on the region. These jobs — in fields such as warehousing, trucking and manufacturing — typically pay over $40,000 annually, Mr. Husing estimates, while the service jobs available to the same workforce pay roughly $10,000 less.

These positions could be threatened if regulation and declining new investment lead customers to shift to competitors like Houston, Savannah, Charleston or perhaps even down to a proposed new megaport in Baja, Calif. "The issue of blue-collar upward mobility in Southern California is driven by the ports and trade," Mr. Husing notes. He fears "the greens would just as soon kill this whole sector. They would like to eliminate the port, eliminate manufacturing and eliminate construction. They want to eliminate the entire blue-collar economy." Such conflicts are likely to become sharper in the years ahead, as power shifts further to green-oriented politicians who might find quick media support for cutting back on sectors like logistics and manufacturing that tend to rely on fossil fuels, trucks or chemical solvents.

In New York as well, "material boys" face an uphill battle. Mayor Michael Bloomberg appears to place relatively low priority on the city's once bustling port and logistics-based economy. This is unfortunate, since New York continues to hemorrhage its manufacturing jobs while the wholesale trade economy remains stagnant, despite a global trade boom. Mr. Bloomberg might think that the manufacturing and logistics sector is nothing more than a relic, and that the city can rely purely on information-age billionaires in technology, finance and entertainment who perform their "dirty" work behind computer screens and in booths at posh restaurants.

Such an approach may well benefit some of America's elite. But for many others, careers in the material world offer a surer shot for a better future.

***