Dean Barber

Where the Buffalo Roam: Observations on Manufacturing

In Uncategorized on January 8, 2012 at 8:00 am

Back in 1928, Robert Murray Haig came up with the rather bright idea of economic base analysis. Now Ol’ Bob never won a Nobel prize in economics, but some of his ideas serve as a foundation for much of the way that economic development is practiced today.

Along the way, Bob wrote some humdinger books, like “A History of the General Property Tax in Illinois,” and my favorite, “The Public Finances of Post-War France.” Real page turners.

Bob postulated that there were two types of business operations in any given locale. There were those that exported goods or services outside the region, thereby essentially bringing money back home from outside. He called them “base” or “basic” industries.

Then there were essentially everybody else — businesses that served the local market exclusively, often in a supporting role to a base industry, with money that was pretty much recirculating within the community.

Now you can poke holes at Ol’ Bob’s theory on economic base analysis on a lot of different levels, but you cannot deny he was onto something.

In the wild and wooly world of economic development recruitment, much of the emphasis has been on concentrating on attracting base industries, (whether they know it or not) on the theory that these business enterprises are the ones that are more likely to build wealth within a community. I think that theory is largely correct.

Silicon Valley is not a rich place because of a clustering of Burger Doodles.

For most economic development organizations (not all), manufacturing has been the golden calf and for good reason. Manufacturing is a base industry, and has historically formed a bedrock of wealth and stability for a community largely because of good paying jobs that resulted.

As you well know, the bedrock has been eroding for decades for reasons we will explore here. Yet, many if not most economic development organizations still plug away on the hopes of bagging an industrial beast. And I truly understand that, largely because they have been put in the jobs-creating business, whether that is a reasonable expectation or not.

Unrealistic expectations are the primary reason why economic developers lose their jobs. But that’s another blog for another time.

I have brought some beasts, and that is not a reference to temperament but rather impact, to some communities and have seen the resulting positive effects. I have been that buffalo hunter, but over the years have witnessed the thinning of the herds.

The decline in manufacturing employment, which peaked in 1979 at 19.6 million workers, has been long and painful. Today, factory jobs number about 11.8 million, a decline of 40 percent from the high.

It is tempting to blame China or Mexico for our shuttered plants. It is easy to demonize the companies that shut down plants here in the United States, only to shift operations abroad in search of cheap labor.

But I suggest the root cause for the astounding job losses in manufacturing has been advances in technology. It’s the robots, the software, and the more effective machines and gadgets that populate factory floors with greater frequency.

Lately, it seems that everyone and their brother has been writing about a manufacturing renaissance in this country. They correctly point out that wages in China are rising and that the transportation costs associated with long and vulnerable supply lines make re-shoring a winning strategy.

Well, that may all be true. And I will concede that there is currently a rise in manufacturing jobs in this country, possibly as a result of some off-putting experiences of U.S. manufacturers in China and elsewhere. But I’m here to tell you that job growth in manufacturing that is now taking place is bucking a long-term megatrend.

It all comes down to efficiencies in production. As we automate (usually in response to cheap labor abroad), we become more productive, and as a result, we simply need fewer bodies. That’s the real story behind manufacturing.

From an emotional standpoint, it hurts me to come to this realization. Manufacturing meant the bread and butter in my home, the reason my family attained any sort of  middle class values and lifestyle. Manufacturing or rather my father’s job in manufacturing was the precise reason why I was the first in my family to go to college.

After graduating from high school, I didn’t go to college right away, much to the concern of my parents. I just wasn’t ready. Instead, I worked for two years smashing my fingers and toes in a grey iron foundry outside Milwaukee. It was the foundry that convinced me that going to college was probably a pretty good idea after all.

But until I made that move, I lived and breathed the rigors of foundry work, which was hot, dirty, dangerous, and always exhausting. Yet, I will always treasure that experience, as it gave me a certain depth and level of strength that I didn’t know I had. And I will always respect the men who hung in there and did that work.

To this day, I still carry some very Joe Lunchbucket views on life, and I don’t apologize for that. I hate pomposity, which is almost an everyday occurrence in business.

And you want to hear something crazy? Five years after I left the foundry and graduated with a bachelor’s degree from the University of Wisconsin, my first job as a newspaper reporter in Columbus, Ga., paid less than my job in the foundry.

But I digress. Going back to my point about productivity, we’re making more stuff for less money and with fewer workers. In that regard, manufacturing is mirroring agriculture. Because of productivity gains, farm employment today represents only about 2.5 percent of total employment compared to more than 12 percent of America’s workforce in 1950.

In the early 1800s, 80 percent of both U.S. employment and output were directly tied to a labor-intensive farming sector. But over time, technology revolutionized farming, resulting in huge increases in farm worker productivity and reduced farm employment.

The very same thing is happening today with manufacturing.  Since 1995, even as manufacturing employment has dropped around the world, global industrial output has risen more than 30 percent.

Between 1995 and 2002, 22 million manufacturing jobs disappeared worldwide, according to the findings of economists at Alliance Capital Management. The United States lost about 11 percent of its manufacturing jobs in that period, while the Japanese lost 16 percent. Even China had a 15 percent drop.

Productivity growth tends to follow business investment with a long-time lag time, and you would be right to point out that business investment in equipment, software and factories has been at near historic lows for a decade now. As I said in my last blog, we live in a time of fear and caution, where corporate America is more content to sit on cash rather than risk investing it in new plants and equipment.

I get that — low investment today may constrain productivity increases in the future. But  advancements in technology loom, resulting in greater efficiencies, greater productivity and fewer factory workers.

Lately, however, you might not get that notion.  Since February 2010, the economy has added 2.4 million jobs through November, of which 302,000 were in manufacturing. Factories added 23,000 workers to payrolls just last month.

The Institute for Supply Management survey of manufacturers has shown more companies planning to hire than to fire in every month since October 2009. That string of 27 months is the longest such string since 1972.

But I still look at what happened in farming and think about the long term.

I also ponder about the new kinds of jobs, some of which we couldn’t have even imagined a decade ago. They come as a result of knowledge and innovation.Writes former Secretary of Labor Robert Reich:

“A growing percent of every consumer dollar goes to people who analyze, manipulate, innovate and create. These people are responsible for research and development, design and engineering. Or for high-level sales, marketing and advertising. They’re composers, writers and producers. They’re lawyers, journalists, doctors and management consultants. I call this “symbolic analytic” work because most of it has to do with analyzing, manipulating and communicating through numbers, shapes, words, ideas.”

So rest assured that there is a future. There will be jobs, just not many routine manufacturing jobs. The jobs of the future will be more demanding for those who lucky enough to avoid and escape businesses that need people but not high skills.

On a personal level, I expect to continue to help manufacturers and other business enterprises in my capacity as a site selection consultant. It’s what I do. It’s what I love. And I would be lying to you if I told there was no lure to the hunt. There are still buffalo out there.

I hear there is a big herd over to the west. I think I will go there and try my luck. But I won’t be hiring another hunter to join me. You see, I bought this new software …

Need a partner in results-oriented site selection? Contact Dean Barber at 972-890-3733 or at dbarber@barberadvisors.com Barber Business Advisors, LLC, is a site selection and economic development consulting firm based in Plano, Texas. Please visit our website at www.barberadvisors.com

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  1. Hello Dean,

    Interesting post, as always.

    Manufacturing is important. It’s just that, like farming, it’s trending towards less manual labor and more value-added activities, where less people make a better living out of it. Like growing our own food, it’s important to know how the stuff we design and sell is put together. Otherwise, in a few year, we’ll be at a disadvantage over those who do by missing on the “what ifs” that come up the factory floor. There’s also significant potential for competitive advantage by not giving away all our ideas as soon as we want to make them tangible.There’s also the “green” argument about local producers.

    Your buffalo metaphor brought something to mind. In the 1920’s and 30’s, the Mexican Government expropiated many profitable Haciendas and rural properties that went as far back as the 14th Century. On the best cases, those where best intentions prevailed, land was partitioned and given to the peasants so they could improve their condition. The small village got a few impreganted pigs and poultry. When the idealistic government agents came back a year later, the productive machinery was in disrepair and there was no pigs or chicken around. People had killed and eaten them at the patron saint’s festival.

    I’ll spare the John Galt speech for now. You need to bring the buffalo alive, and then people have to be educated so it can be cloned and reproduced and its calves raised and sold, with every generation improved over the previous ones. Hell, some Russians are already figuring out how to clone a mammoth. They need to see that, by sending the buffalos halfway around the world to be raised and slaughtered by slaves and then heavily borrowing from their masters to get carcasses with the good stuff trimmed out is not very smart.

    Best wishes for 2012.

  2. Dean this is a great article on manufacturing. I was thinking we are going to need more help in this industry with programming and PLC’s. something we are always in high demand for.
    I enjoy all of you commentary, please keep it coming. Best regards. Charles

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