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
Tom: Thanks for your comments - they add some experienced texture. Unfortunately for us out here, California represents the leading edge of the negative factors which you mention in your last paragraph.
Posted by: bill bowen | April 25, 2009 at 02:30 PM
Bill - manufacturing will always be with us here in the U.S. Your friends who think lower wage rates are the main determinant are smoking too much California weed. Let's not forget Adam Smith: land (space) labor, capital and entrepreneurial ability. I've spent the better part of my adult life recruiting industry from other states to North Carolina, and it's been fun and easy. (One from Chatsworth California, by the way. Almost got Berger Boats from Wisconsin, as well).
Some products are too large and bulky to be made overseas and labor cost is relatively unimportant. Some decisions are also related to the availability of raw materials such as corn or phosphate ore. There are also quality control problems, as we have seen only too painfully this past year re China. An finally, there is the trade off between labor and freight. The formula is simple: if the shipping cost of a 40' container from China is greater than the U.S. labor cost, the product will be made here. That's why small, labor intensive products such as TVs are imported.
Manufacturing is following closely in the economic tradition of farming, which, in 1900, employed 90% of the work force. Manufacturing employed 40% of the workforce in 1940; today it's probably around 10%. In both case, productivity improvements allowed the workforce to increase overall productivity, producing more and better food and more and better products. The high tech manufacturing labor force is actually growing very well; it's up about 37% in ten years.
The growth of the service industry is actually function of manufacturing. Blue Cross was (and I think still is) the largest supplier to GM, not the steel industry. The service industry itself would most likely die if manufacturing disappeared because, as you well know from your career, sourcing, distribution and financing and many other service sector vocations depend on a physical product of some sort to service. Manufacturing also pays well above average wages and is the source of a large part of our health care provision.
The biggest threat to manufacturing in the U.S. is the Federal Government which seems to think that excessive environmental regulation, high tax rates, imposed social costs, and higher and higher taxes are the road to prosperity.
That last paragraph describes the Obama administration perfectly. We all need to pray for our country.
Posted by: Tom Thompson | April 24, 2009 at 09:56 PM
Mary: There are lots of excellent small manufacturers like Trek in Wisconsin; I tried to limit myself to the "best of the best".
Posted by: bill bowen | April 24, 2009 at 08:52 PM
WOW! Thanks for having us swim with the big fish! I'm flattered and we're trying to deserve it! I will point out another WI company that deserves mention: Trek Bicycle Corporation out in Waterloo, WI. Since I am a Trek ambassador for "Women Who Ride" this year I would be remiss not to mention Trek with nearly 1,000 employees and probably 80MM in sales (but that figure is a only meager guess)! Mary Strupp, CEO Bardes Plastics, Inc.
Posted by: Mary Strupp | April 24, 2009 at 02:30 PM