During the course of discussing California's dysfunctional government system and the state budget problem of progressively increasing taxes and declining revenues, my premise has been that the root of the problem is that the state is strongly biased against business, and in favor of big government. I've been challenged by a number of (largely liberal) friends to explain how the United States can be competitive in the global economy of the 21st Century, with outsourcing and lower overseas wage rates. My first reaction was to accept the premise that American manufacturing can no longer be competitive, but then I realized that not all states are California.
First, the landscape in the "Rust Belt" flyover state of Wisconsin:
-- Aside from the agriculture-related businesses - Oscar Mayer, many cheese and paper plants, Miller Brewing, high end shoe companies - the southeast quarter of the state is home to a diverse base of globally-competitive manufacturers. Some are technology leaders -GE Medical Systems; Rockwell Automation; Johnson Controls. Many are just very competent manufacturers - Harley-Davidson; Briggs & Stratton (small engines); Quad/Graphics; Bardes Plastics; Rite Hite (loading dock equipment); the Manitowoc Company (industrial cranes); Kohler (plumbing); RexNord Machinery; Ladish (metalworking); etc. The point is that while a lot of the high visibility manufacturing base has migrated overseas, there is still a lot here.
-- According to the Bureau of Labor Statistics, about 16% of Wisconsin's employment is in manufacturing, as compared to 9% in California. The major offset is "Professional and Business Services" where California has 15% of its labor force compared to Wisconsin's 9%, and "Government" where California has 18% versus 16% in Wisconsin. Surprisingly, Wisconsin has 3% more in "Education and Health care".
-- Wisconsin is in the middle of the pack in terms of unemployment at 8.5% versus California's 11.2%, maintaining a longer-term differential. Manufacturing in both is subject to a long term downtrend while being more quickly impacted by economic cycles.
I would posit a few reasons for Wisconsin's relatively better performance in manufacturing - which give me more hope for the rest of the country:
1. The education system is geared toward the skills needed for an effective labor force. Wisconsin ranks in the top third in many k-12 education surveys, while California has fallen to the bottom tier - despite the fact that California is first in terms of teacher salaries. Particularly important for manufacturers, Wisconsin has a network of sixteen area technical colleges, as well as an extensive state university system and numerous excellent private schools.
2. While outdoors-oriented, Wisconsin does not share California's obsession to be in the lead on environmental regulations such as truck, auto, and electricity standards. Both states have effectively banned new nuclear power plants since 1983, so both will suffer if President Obama's plans for a carbon tax is implemented.
3. At the risk of political incorrectness, the heavily German population (40%) possesses a strong work ethic, and an appreciation for clean government - as evidenced by the "Golden Fleece Awards" originated by Senator William Proxmire, and Senator Russ Feingold's recent advocacy (with John McCain) of campaign finance reform. This is not Chicago.
This is not to say that American manufacturing is in for a new Golden Age, just that there remain enough viable companies in diverse industries to show that it is not a lost cause. And, in a sense it is not manufacturing employment that counts, but manufacturing output - as the sector declines as a portion of our employment, we need to produce and sell enough stuff (as well as commodities and services) to pay for what we are buying in the global market. The California model will not get us there, but the Wisconsin model might.
Unfortunately, I was not able to identify any agency interested in providing information for those contemplating moving to Wisconsin.
This week's YouTube is some very clever rhyme from "The Economy Herself" courtesy of VersusPlus.com
For those up to a long, but thoughtful article on the American economy, this essay by John Lounsbury in Seeking Alpha should fill the bill.
Next week we'll get off of economics, and start talking about the first hundred days of the Golden Era.
Bill Bowen - 4/24/09