Surprises Galore at the Edge of Nowhere

Here in the Lone Star State where I live, there is no shortage of “braggin’ rights” about the valor, vision, pride, and perseverance of Texans. To be sure, the mystique of Texas is promulgated with a certain amount of swagger. It’s pretty much a cottage industry here.

Baseball  pitching legend Jay Hannah “Dizzy” Dean was not a Texan but he should have been. He was fond of saying, “It ain’t braggin’ if ya can back it up.”

I just came from Sioux Falls, South Dakota, this past week, a place that in many ways really can back it up, but where there is scant tradition of bragging. I theorize that this is due to the fact that most of these people come from German/Scandinavian/Lutheran stock. They place much value on work, and will celebrate and suffer quietly.

There is strength and humbleness that resides here, even if most people believe they have it better than other parts of the country. You just don’t crow about it. You put your hands on the plow, do the best you can, and save your money. Providence protects.

Apparently so. The Great Recession was little more than a blip in South Dakota, where the unemployment rate was 4.3 percent in March compared to the national rate of 7.6 percent.

Meet Dennis

Now it’s not every day that you actually get served by a governor. I’m talking about being literally served.  I was among a group of site selection consultants who ate lunch with Gov. Dennis Daugaard, who walked around the table handing out plates, stopping and talking to every person with an outstretched hand.

There is something different about this man, a modesty that I found compelling. He seemed  not smitten by power, almost normal. I like that. I like that a lot.

His background may provide some clues as to his manner. Daugaard was raised on a family farm near Garretson, South Dakota by his mother and father who were both deaf.  Sign language was the main method of communication at home.  Like many in the area, his family stock was from immigrants from Denmark, Norway, and Sweden. He went to a one-room country school.

After attending the University of South Dakota, Daugaard would periodically hop a friend’s egg truck bound for Chicago to attend law school.  While there in the big city, the future governor drove bus to pay for his schooling.

Last fall, South Dakota recently made the cover of Barron’s, the Dow Jones financial weekly, as the best-run state in the nation. The state earned the top spot due to its low debt by keeping spending in check and responsible pension funding. Most governors would puff up and take full credit. Not Daugaard.

“This is great news and a reflection on governors and legislatures, long before me, who understood the importance of debt avoidance, sound financial decisions, and making only commitments that can be kept,” he said.

Not More Taxes, More Taxpayers

While he is a true believer that South Dakota does offer a superior business environment with low taxes, greater productivity and a reasonable regulatory climate, Gov. Daugaard was hesitant to be boastful about it while visiting with companies in California.

“I felt somewhat guilty pointing out the differences,” he told the consultants.

Keep in mind that South Dakota has no corporate income tax, no personal income tax, no personal property tax, no business inventory tax, no inheritance tax. The overriding philosophy: Not more taxes, but more taxpayers. Business has taken notice and people are migrating to this right-to-work state.

Sioux Falls, the state’s largest city with a population of about 156,000 and an MSA of 232,000, picks up about 2,500 new residents annually and has historically driven most of the state’s population growth.

One of the recent transplants was Jason Engle, the CEO of Legacy Electronics Corporation. He moved his company from San Clemente, Calif., to Sioux Falls in 2011 so as to reduce costs and be able to compete with Asian companies that also made high-density memory modules and printed circuit boards.

He said his company has realized a cost savings of about 30 percent by making the move to South Dakota.  Soon after the company began operations in Sioux Falls, the governor came calling.

“He made a point to specifically introduce himself to every employee. He would stop, shake their hand, look them in the eye, and ask questions of each one of them.”

Later one of the Legacy employees received a two-page handwritten letter on governor’s office stationery. It was signed “Dennis.”

We Get Sh-t Done

On the city website, he is referred to as “Mayor Mike.” With a background in marketing, Sioux Falls Mayor Mike Huether is none too shy about calling attention to his city.

“We should make the top two or three with every project you have,” he unabashedly told the assembled site selection consultants.

My experience is that a company will often have pretty good ideas on where it needs to be, as was exemplified by an email that I received from a CEO on Friday. My job, of course, is to refine those ideas and then find the best place, based on a whole lot of tailored criteria, where the risks are minimized and the chances for success are optimized.

I’m sorry to report to Hizzoner that Sioux Falls will not always make the finalist list. There are certain practicalities specific to a project that will simply prevent that from happening. I know it’s hard to imagine, Mr. Mayor, but sometimes your city will not be the best fit.

But I do believe the mayor, truly I do, when he passionately states that red tape doesn’t stand much of a chance in his city, with expedited permitting guaranteed. “We get shit done,” he said.

I only wish there were more like him.

Said Matt Healy, operations manager with Glanbia Nutritionals, now building a cereal ingredient processing plant in Sioux Falls: “The city and the state have been remarkably supportive. They have been exactly who they said they were.”

Separating the Wheat from the Chaff

As a site selection consultant, I tend to remember statements like that by Healy. Often it is not what you say about yourself that resonates with me, but what others say about you. I will take all with a certain grain of salt, knowing full well that there are underlying truths and half-truths about every place under the sun. My job is to separate the wheat from the chaff.

Probably what surprised me more than anything about Sioux Falls was the size and scope of the financial services and health care/medical research industries.

Citibank set the stage in 1981 for bigger things to come when it moved its credit card operations center to Sioux Falls prompted by a change in state law. Fast forward to today and the state now ranks No. 1 in the country in total bank assets valued at $2.5 trillion. Yes, it’s true, about 18 percent of the country’s total bank assets reside in South Dakota.

Now who would have thunk?

Jerry Nachtigal, senior vice president of public affairs for Citibank, said the bank’s workforce in South Dakota, which numbers about 3,000, is 15 percent more productive in comparison to the bank’s other operations around the country.

Engle, the CEO at Legacy, noticed that as well.

“People who come to work in South Dakota genuinely want to work. They enjoy working and they give it their all. And that is a breath of fresh air from an employer’s standpoint,” he said.

Health care was also a huge surprise. There are two dominant players, both engaged in medical research the likes of which I have never seen in a community without a major research university.

Sanford Research, part of Sanford Health, the largest rural, not-for-profit health organization in the United States with a presence in 111 communities, eight states and three countries, is housed in state-of-the-art facilities at the Sanford Center.

I was simply wowed by what I saw in this 300,000-square-foot building, which formerly housed Hutchinson Technology, a computer parts maker that shut down in 2009. Today, much of the focus is toward finding a cure for Type 1 diabetes and breast cancer. Space does not permit me to tell you about a Sanford sports complex now being built, but it will be key component to Sioux Fall’s quality of life picture.

I was equally impressed with the Avera Cancer Institute, which was designed with the input of patients in mind and opened in 2010. This was a feel-good place, where hope was purposely brought into play. If I lived in Sioux Falls, I think I would come here just to eat lunch and be inspired. This place touched me in a way that I cannot fully explain.

Avera is the health ministry of the Benedictine and Presentation Sisters, 300 locations in eastern South Dakota and surrounding states. They are good folks doing incredible work.

Living on the Fringe

Slater Barr, president of the Sioux Falls Development Foundation, tells the story of a reporter with The Economist who proclaimed that Sioux Falls was “in the middle of nowhere.”

To prove to the contrary, Slater proceeded to show the reporter a population density map of the United States. That elicited a modified response from the reporter who said that Sioux Falls was on the “edge of nowhere.”

But being a “fringe city” on the edge of greater population density does have it benefits, exemplified by growth that has taken place. To be sure, the site selectors wondered aloud if the labor market was too tight to support a large project.

My take on the people of South Dakota may be somewhat in error. They may not be that humble crew after all. While at the airport waiting for my return flight home, I walked into a gift shop and spied a hunter’s ball cap. It was florescent orange with a camouflaged brim. Embossed on the crown were the words “South Dakota,” below which was a drawing of pheasant in flight.

And then the most memorable proclamation: “Big Cock Country.”

I bought that cap and took it home to Texas, where I hope to muster up the courage to wear it one day. Well, maybe not.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Plano, Texas —http://www.barberadvisors.com He can be reached at 972-767-9518 or at dbarber@barberadvisors.com

If you work for a company seeking site selection consulting or an economic development organization in need of counsel, ask for our separate brochures (pdfs) outlining how we can help. All requests for information will be considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Dean Barber and Barberbiz with specific direction to the original content.

This Time It is Different

While he never came out and actually said it, the gentleman was in essence calling me a Luddite.

Now I have been called a lot worse, and while he did make some valid and reasonable arguments in response to my blog last week, I reject the charge that I am afraid of technology, even if I have yet to figure out how to program my big screen HD TV to do stuff that I probably don’t need it to do.

The Luddites, by the way, were a threatened bunch of textile artisans in 19^th century Britain. They took to bashing the automated looms that they perceived (correctly) were taking their jobs. A few hangings here and there stopped their vandalism.

Now I am not about to start bashing any computers, robots or even software engineers. I am peaceful man who shuns violence. If there is any group, however, that is deserving of persecution, it would be editors for their boneheaded views on just about any subject. Let us hope that robots do take their jobs.

But before I get into the meat of the subject, which is how this new machine age of digital technology has created both winners and losers in terms of our economic future, let me say that the purpose of this blog is not to necessarily garner your support and agreement for my views, although those of you who do will go onto the bonus round.

No, the purpose is to simply get you to think, which is beyond on the scope of computers and, of course, most editors.

A Faster, Stranger New World

One could rightly argue that as long as man has been shuffling about upright, we have been entering a strange new world when it comes to advancing technology. But things are a whole lot faster now. Today’s Playstation is more powerful than yesterday’s military supercomputer.

It’s an age of increasing productivity but fewer jobs. Since 2001, U.S. gross domestic product has risen 20 percent, while the number of jobs have increased by only 1.9 percent.

Wages, too, have taken a hit. Adjusted for inflation, the average U.S. household now has lower income than it did in 1997. Wages as a share of GDP are now near an all-time low at a point in history when corporate profits are near or at an all-time high. 

Now most economists used to believe that if you just keep increasing productivity, everything else kind of takes care of itself. But as Erik Brynjolfsoon and Andrew McAfee point out in their book “Race Against the Machine,” there’s no economic law that says everyone has to benefit equally from increased productivity.

It’s entirely possible that some people benefit a lot more than others, which is what has been happening for about the past 15 years or so. The pie has gotten bigger courtesy of productivity, but most of the increase in income has gone to less than 1 percent of the population. I have to believe that this was a root cause for the Occupy Wall Street movement that we saw sprout up in 2011. Their slogan: “We are the 99 percent.”

The Great Decoupling

According to McAfee and Brynjolfsoon, there has been this “great decoupling” between productivity growth and employment growth. Economist Jared Bernstein calls the gap that’s opened up “the jaws of the snake.” It shows no sign of closing.

Now one could probably argue that our laws, regulations and government tax policy played a large part in creating this gulf that exists, and I won’t argue that point.  But I believe, as Brynjolfsoon and Andrew assert, that digital technology is the primary mover and cause. For what it’s worth, these two fellas work at a little community tech school that you may have heard of called MIT.

Technology has always been creating and destroying jobs. Automatic threshers replaced 30 percent of labor force in agriculture in the 19th century. But it happened over a long period of time, and people could find new kinds of work to do.

But this time it is different. Digital technology, which allows you can reproduce things at close to zero marginal cost with perfect quality and almost instant delivery, is affecting virtually every industry.

Consider the person who writes software. You can take that software and replicate it a million times. And while the person who created it does very well, the people who previously did that job are less important or maybe not even necessary. TurboTax is an example. You’ve got a human tax preparer being replaced by a $39 piece of software.

Service Jobs Take a Hit

Sophisticated scheduling software has eliminated the need for many office assistants and secretaries. Labor Department statistics show a loss of 1.1 million such jobs in the decade between 2000 and 2010. The number of bookkeepers fell 26 percent, word processors and typists, 63 percent; travel agents, 46 percent; and telephone operators, 64 percent.

Online banking services have wiped out many teller jobs; self-service checkout lanes have whittled away at cashier jobs. Utilities have installed smart meters that eliminate the need for meter readers .

These are what McAfee calls the routine cognitive workers, and they are taking hits big time. No sector is spared or will be spared.  The idea that automation has been a job killer solely in manufacturing is simply wrong. Just wait until the day comes when some high-paying professions start seeing job erosion because of digital technology. When doctors and lawyers start getting displaced, you will hear the howls.

I happen to believe that we are still only in the infant stages of robotics in manufacturing. In a PowerPoint presentation/speech that I am currently working on for LiveXchange to be held later this month, I will talk about Baxter, a new creation by Rethink Robotics.

Baxter learns new tasks by observing human performance, usually within 10 minutes. No in-depth reprogramming is required. And “he” costs just $22,000, less than half the price of other industrial robots.

Just What Will We Do?

If an army of future Baxters or his descendants are coming, and I think they are, then I can conjure up a question that may sound a bit outlandish and absurd to some of you, but I think it deserves some consideration.  If machines, which have yet to exceed humans in intelligence but are getting intelligent enough to have a major impact on the job market,  become capable of doing most of the work, just what will we do?

I know that I would like to keep working.

The economist John Maynard Keynes addressed this issue in 1930, when he wrote, “The increase of technical efficiency has been taking place faster than we can deal with the problem of labour absorption.” Keynes imagined 2030 as a time in which most people worked only 15 hours a week, and would occupy themselves mostly with leisure activities.

Moshe Vardi, a professor of computer science at Rice University, writes for The Atlantic magazine that he doesn’t look forward to that kind of future.

“I do not find this to be a promising future. First, if machines can do almost all of our work, then it is not clear that even 15 weekly hours of work will be required. Second, I do not find the prospect of leisure-filled life appealing. I believe that work is essential to human well-being. Third, our economic system would have to undergo a radical restructuring to enable billions of people to live lives of leisure.”

Should We Go Down Every Rabbit Hole?

So this poses another question. Should we ever relinquish or at least consider not to pursue a certain technology on the basis that it could somehow come back to haunt us? Historians debate whether the development and use of the atomic bomb during World War II may have saved more lives that it took. The alternative was a land invasion of Japan, where the casualties could have been much higher.

But is the world safer today with Pakistan having the bomb and with Iran and North Korea having inspirations of developing nuclear weapons? And the nightmare of nightmares is a terrorist group somehow getting their hands on such a device.

In the end, did the pursuit of that particular technology serve us well? More importantly, should we go down every rabbit hole that presents itself? Frankly, I do not have an answer for that one. I’m not sure you can cap it in the long run.

Maybe the ages will tell us, but maybe well after we are gone.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Plano, Texas —http://www.barberadvisors.com He can be reached at 972-767-9518 or at dbarber@barberadvisors.com

If you work for a company seeking site selection consulting or an economic development organization in need of counsel, ask for our separate brochures (pdfs) outlining how we can help. All requests for information will be considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Dean Barber and Barberbiz with specific direction to the original content.

Providence Protects but the Machines Don’t Care

“There is a Providence that protects idiots, drunkards, children and the United States of America.”

So said Otto von Bismark, the father of a modern, unified Germany. The quote would suggest that Bismark believed there was indeed something special and different about America.

And so there is. I continue to subscribe to this concept of “American exceptionalism,” even as our great middle class has been hollowed out with the loss of millions of jobs.  I am now convinced that many if not most of the midpay, midskill jobs that were lost will never return.

Yet still I am hopeful that this 21^st century can and will be an “American century.”  Of course, there is a certain hubris to predicting the future, as we will never understand all the consequences of history as it unfolds before us.

But in this blog, as some have discovered, I do make predictions on how things may play out. As a business consultant, I should not be so shy. You see, if I bill myself a “futurist,” I just might command more money and become in greater demand, even if my predictions fall short of reality.  Of course, this is predicated on the belief that few of you will be keeping score.

A Return Performance

So I am in the process of building a rather ambitious speech/PowerPoint presentation that I will give next month at LiveXchange, a forum where site selection consultants and corporate executives meet with economic developers from around the country. I spoke at this event in 2012, and must have said something of interest that warranted me to be invited back again.

Jack Rogers, the editor at Business Facilities magazine, which sponsors the event, said he found my presentation last year to be “zappa-esque,” a reference to the late Frank Zappa. I took that as a compliment, knowing full well that Jack viewed my presentation as weird but somehow satirically biting. 

Generally, I pay editors no mind. They are a tiring, bombastic class of opinionated, shallow-thinking neer-do-wells who should be rounded up and barged out to sea, were it not for a First Amendment. It is but more proof that the Lord protects drunkards and idiots.

I can say that with some authority because I once was a member of this despicable class. But I cannot help but like Jack, because, well, he asked me back.

Without giving away too much of my upcoming presentation, which is a work in progress, I will tell you that I am coming to this not-so-remarkable conclusion that technological change and innovation both creates and destroys, some for good and some for ill.

Now we all know this. Smallpox has been eradicated in the U.S. because of the implementation of a vaccine. Advances in medical technology, particularly when they actually work, is a good thing. A nuclear weapon that could be hijacked and used by a terrorist group or rogue country, now, that’s a bad thing. Let us pray we never see it happen.

A Disturbing Premise

But I am thinking more about how technology both creates and destroys jobs. This has long been happening, but for the first time maybe in world history, I am now wondering if technology may be killing more jobs than creating. Some experts agree with this premise and some disagree. But this will be the topic that I broach at LiveXchange, May 19-21, in Frisco, Texas.

As I reported in my Barberbiz blog of two weeks ago, which I would recommend that you read, Sometimes You Get and Sometimes You Get Got, it is by virtue of technology that we are only now coming to realize just how much vast reserves of natural gas (and even oil) that we are sitting upon here in the U.S.

The Potential Gas Committee, an independent organization of geoscientists and petroleum engineers that is affiliated with the Potential Gas Agency at the Colorado School of Mines,  now estimates the country’s potential natural-gas resources at 2,384 trillion cubic feet. That is a whopping 26 percent increase from the group’s previous calculation at the end of 2010.

That number of 2,384 trillion cubic feet is more than 90 times the amount of gas consumed in the U.S. last year, according to federal data. Hydraulic fracturing, also known as fracking, is the technology that it made this possible. It is the technology, which was pioneered and advanced not far from where I live here in Texas, that has unlocked gas from shale-rock formations all over this country.

Not surprisingly, the shale gas boom has created thousands of new jobs in Pennsylvania and Ohio with the Marcellus Shale and Utica shale plays; in North Dakota, Montana and Saskatchewan, Canada with the Bakken formation; and down here in Texas with the Barnett and the Eagle Ford shale plays.

Right now, there is about $62 billion in plant construction set to get underway in Lake Charles and along the Gulf Coast of Louisiana, driven by the ample supply of cheap natural gas in the Haynesville shale play in northwest Louisiana.

Also, not surprisingly, consulting firms are making bold predictions as to job creation caused by the natural gas boom, again spurred by the fracking technology. IHS Global Insight produced a study for America’s Natural Gas Alliance in 2011 that estimated the shale gas industry could eventually create 1.6 million jobs in the coming decades.

A December 2011 report by PricewaterhouseCoopers and the National Association of Manufacturers said fracking could help add 1 million manufacturing jobs in the U.S. by 2025, whereas a May 2012 study by the American Chemistry Council, which represents the chemicals industry, estimated that increased gas production could create 200,000 jobs in the broader manufacturing sector.

The Skeptics Among Us

Still, some remain skeptical and are taking a more wait-and-see posture. I would put myself in this camp. I have no doubt about the job growth in the energy sector created largely because of technological advances. It’s happening before our eyes. It’s hard to ignore billion dollar projects being announced with now some regularity in Texas and Louisiana.

But I think it may be premature to advance that it will necessarily translate into millions of new manufacturing jobs, although the unlocking of abundant supplies of domestic energy should present U.S. manufacturers with a cost competitive edge. (If only our policy makers in Washington permit.)

“Even though the U.S. is more competitive globally, manufacturing doesn’t give you the kind of direct job creation it did in years past,” said Joseph G. Carson, director of global economic research at AllianceBernstein, a Wall Street investment firm, in an interview with The New York Times. “At the end of the day you still want a strong manufacturing base, but there aren’t as many people on the factory floor.”

There aren’t as many people on the factory floor.

Why is that? Were most of those jobs essentially shipped abroad, off-shored to lower cost developing countries? Well, certainly many were, but I am now of the belief that the demise of most of those jobs – most of the people – on the factory floors across America were due to advances in technology.

Yes, there was a movement for cheaper labor by going offshore, but bigger yet was a movement to produce more with fewer people by employing state-of-the-art technology. Machines have long been a part of the process of manufacturing, but in a sense, the machines may soon rule the factory floor. The robots are here, they are getting smarter and cheaper, and they are coming.

There has been much talk of late about a “manufacturing renaissance” in this country. I happen to regard most of it as bandwagon gibberish that editors, the foul group that I was telling you about, permit to be published without casting a critical eye.

The truth is while the manufacturing sector has added 500,000 jobs since the recession ended and the production value of factory output is close to an all-time high, there are still nearly 6 million fewer manufacturing workers today than in 2000. Since the early 1960s, the share of U.S. manufacturing jobs has been on a nearly uninterrupted downward slope. Manufacturing now accounts for less than 9 percent of all jobs in this country.

The Real Job Killer

I used to blame the Chinese as the main culprit. And in many ways, they have not been the best trading partner.

But we did compete and we continue to compete with the Chinese and everybody else by employing more and better technology – robots, automation, new software advances.  You see, that’s the only way for our manufacturing sector to remain viable.

It’s why we must remain an innovation nation. We have to invent new technologies and continue to improve on existing technologies. It’s our only hope at remaining a world power and sustaining this idea of “American exceptionalism.”

And that’s your job killer right there. Advances in technology, almost by its very nature, means pushing the envelope in terms of productivity and efficiency.  It means employing machines to do things that people were doing, particularly repetitive tasks. It means replacing people with machines that can do the job better, faster and cheaper.

Factory floors in this country look radically different than they did not so long ago when “turning machines” were run by hand. The truth is that plants are increasingly devoid of people.

There’s a joke going around in South Carolina that a modern textile mill employs only a man and a dog. The man is there to feed the dog, and the dog is there to keep the man away from the machines.

But if you think that job loss due to technological change has been happening only in manufacturing, you are quite mistaken. It’s happening in service industries as well, much of it driven by how we conduct our lives. We’ll talk more about that in next week’s blog.

I think old Otto was right. Providence protects, as I am reminded by an old Irish fiddle tune, which says nothing about productivity. But the machines don’t care.

“Lord protect us, Saints preserve us. We’ve been drinking whiskey ‘fore breakfast.”

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Plano, Texas —http://www.barberadvisors.com He can be reached at 972-767-9518 or atdbarber@barberadvisors.com

If you work for a company seeking site selection consulting or an economic development organization in need of counsel, ask for our separate brochures (pdfs) outlining how we can help. All requests for information will be considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Dean Barber and Barberbiz with specific direction to the original content.