Dean Barber

Archive for April, 2013|Monthly archive page

Providence Protects but the Machines Don’t Care

In Uncategorized on April 28, 2013 at 6:35 am

“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 21st 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.

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Faces, Names and Nuggets Do Have a Way

In Uncategorized on April 21, 2013 at 7:03 am

Now I am no glad-hander – I cannot work a room like a veteran politician — but I do like making new acquaintances and re-establishing contact with old ones.  For most of us, business hinges on relationships with people.

We are, in fact, in the people business, whether we know it or not. As a self-employed consultant, I better know it.

Now I am fortunate to live in the Dallas-Fort Worth metro area, as contingents or packs of economic developers regularly come here to call on site selection consultants. The economic developers, of course, hope to establish a rapport with the site selectors who could possibly bring a capital investment project to their respective communities.

While that is not the single most productive approach to economic development (I would bet most my chips on a robust business retention and expansion program in terms of sheer job creation), I do believe these pilgrimages are worthwhile, both for the economic developers and the consultants.

Tennessee and Kansas Came Calling

Faces, names, and nuggets of information do have a way of coming back to me. And while I do keep rather extensive files on many places across North America (the inventor of the pdf deserves a Pulitzer Prize), I learned some rather useful tidbits this past week in meeting with economic developers from Tennessee and Kansas.

With the Tennessee group, I sometimes watched a Memphis Grizzlies/Dallas Mavericks’ game from a corporate suite at the American Airlines Center. It was my second NBA game of the season. More importantly, I met and learned some interesting things from the economic developers from Knoxville, Memphis, Oak Ridge, Cleveland, and Gallatin.

Down on the court, just before the game started, I got a stark reminder just how tall and athletic these NBA players truly are. I was an awestruck runt.

The next night, I enjoyed a memorable five-course nice dinner with economic developers from Kansas in a nice little restaurant in Dallas.  I re-established contact with economic developers from Topeka and Overland Park, and listened politely as Pat George, the secretary of commerce, so ably made the case for his fine state.

I Never Met a State …

And Kansas is a fine state, but so is Tennessee, and Louisiana, and Pennsylvania and Michigan. I’m like Will Rogers, who said he never met a man that he didn’t like. Well, I’ve never met a state that I didn’t like.

And that goes for California, a beautiful place with a reputation of having a not-so-beautiful business climate, which is why the governors from Texas, Utah and Virginia have gone there on recent corporate hunting expeditions.

California Gov. Jerry Brown, who just got back from China on his own industry hunting trip, called the poaching efforts of Texas Gov. Rick Perry as “barely a fart.”  Gov. Perry has lately set his sights on Illinois.

Governors have this way of thinking that their states are the best states for business. But experienced economic developers have come to realize what is beyond the comprehension of most politicians — that a “best place” is often dictated by circumstances.

If there was a perfect place for business, there would certainly be no need for me. Every company would recognize the attributes of this nirvana and flock there. But that’s a pipe dream, despite the outlandish claims made on certain ED websites.

Having said all that, there are better places to do business, which should be determined by the specific needs of a company if a site search is to be done with any sort of foresight. Believe it or not, in certain circumstances, it makes quite good sense for a company to have operations in a higher cost state like a California or a New York. Suppliers and customers may dictate as much, as well as talent. (One of many reasons why I largely disregard magazine rankings of states.)

The Reality of Place

Now I have no idea what the brand is or about for Topeka, Kan., and to the horror of horrors to some, I don’t really care. But when the economic developer from there told me that her community built and implemented the nation’s first secondary education course in industrial robotics, well, that made me sit up and take notice.

Here’s my card, Dawn Wright. Nice to see you again.

When the economic developer from Cleveland, Tenn., told me about his new 330-acre industrial park fronting Interstate 75, and that much in-depth documentation had been assembled about the site, with its close proximity to the Volkswagen plant in Chattanooga, well, I also filed that away.

Here’s my card, Doug Berry. Nice to meet you.

Faces, names and nuggets do have a way. After handing me a drink and telling me how brilliant they thought my blogs were (Ok, they didn’t say that), both Dawn from Kansas and Doug from Tennessee informed me about some key assets and the resources in their respective communities.

It was not the promise of place that I found compelling. No, it was the reality of place that caught my attention. And in a nutshell, that’s why I find the topic of place branding so, well, just doggone tedious.

If there is a Coon Dog Hunting Capital of North America, and I don’t know if there is, it would be difficult for me to imagine how that would play out to that community’s advantage in a site selection project. Unless, of course, that CEO has a special affinity for his coon dogs.

I have had some conversations with some CEOs who have thrown me a curve ball on a site selection project. Rest assured, the conversation below never happened, and let’s just hope it never will.

There is One Thing

CEO: Dean, we are very pleased that Barber Business Advisors will be helping our company determine a best location for our next manufacturing plant. This is exciting.

Me: Thank you, sir. It is exciting. We will find that best community for your purposes and thereby save your company millions of dollars in the process. Now would you mind if I recap some of the things that we have discussed today about our site search?

CEO: Certainly, please do.

Me: Per your instructions, I will be working directly with your executive committee – CFO Sharon Brown;  Jim Wetherington, VP of operations; and your VP of strategic planning, Sam Overby,

CEO: That’s correct. You’ll have my best team working with you on this.

Me: Thank you, sir, that’s very important. Now the executive committee has already provided me with some very useful documents and instructions that will greatly assist in our efforts. I now have a much better understanding of the skill sets required at this future plant.

CEO: Well, we must have a skilled workforce. Frankly, that’s been a concern for us at some of our other locations.

Me: And because of that fact, we will want to look at those communities that have a community college/tech school that would be receptive to working with you in developing the needed off-site and in-house training programs.

CEO: I cannot emphasize too much just how important that is to us.

Me: Yes, sir. I have also been provided with information on the anticipated utility loads, and the location of current customers and suppliers, which will permit us to develop a transportation- logistics cost model. There could be some huge cost savings involved.

CEO: Yes, these are all very important things. I’m glad to learn that the executive committee has provided you with this information.

Me: I will soon have an RFP prepared for the review of the executive committee and will seek input on any needed changes. I will not publish this RFP to any economic development organization until or unless I get approval from the executive committee.

CEO: That’s good. I really like your systematic approach which will keep us a partner in this process.

Me: Thank you, sir. I am going to need your help to best help you. Is there anything else that we haven’t discussed today that you think is pertinent to the site selection process.

CEO: Well, there is one thing. I think we need to go to a community with an appealing brand.

Me: Sir?

CEO: You know, some place that is viewed as being cool and forward thinking.

Me: Would you mind elaborating?

CEO: I just want to go someplace that has a reputation of being tech savvy and where I can find a Starbucks coffee and drink a local craft beer. Maybe it’s a university town.

Me: I’ll speak to the committee on this. Certainly, there are some advantages to university towns. Austin has done very well.

CEO: Austin! Yes, that’s it! That’s the ticket! Austin! That’s where we need to be. I’ll inform the executive committee. Gosh, you’ve been of great service to us, Dean.

Me: Wait, wait a second, what just happened?

Thankfully, most corporate clients have wanted an in-depth understanding of a place that would permit for successful, long-term, sustainable operations before committing to go there.  They want to accurately hone in on those functional capabilities and resources that could support a capital investment.

And, again, that is why I like to talk to experienced economic developers, because they get it. They will tell me of the real assets on the ground that could very well make a difference.

So I will gladly go to basketball games and dinners to hear about these things. And yes, I’ll do like “fam tours,” when my schedule permits. Faces, names and nuggets of information can pay off.

To the people of Boston and West, Texas. You are the best of us. You make us proud.

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.

 

 

 

 

 

 

 

 

 

 

Sometimes You Get and Sometimes You Get Got

In Uncategorized on April 15, 2013 at 10:13 am

If what I am reading and hearing firsthand from the experts is true, and I actually believe it is in this case, then this may very well be the biggest business story in my lifetime.

And I’m telling you this as a former business editor and now a sage-like business consultant, which means my predictions and assessments are about equal to your average baseball fan.  My advice: Beware of editors and consultants. They often seek to impress but not necessarily to impart.

No doubt because of my journalistic roots, I am and always will be a skeptic. I don’t buy everything told to me as fact.  I don’t necessarily think that all the dogma out there is done out of malice, to fool you into believing something that is not true.

Rather, I think a herd mentality often dominates, characterized by “informed” people just repeating what they have heard (a manufacturing renaissance is good example) without a lot of critical thinking. One magazine editor criticized me for using the word “hype” in last week’s blog and then went on to defend “renaissance” as “the perfect word.”

No matter the evidence that such a term is premature, my advice to the editor would be, when you’re in a hole, stopping digging.

But good things actually are happening, even if we continue to see anemic GDP growth and high unemployment. Never forget that we have 12 million unemployed people in this country, not counting those who have become too discouraged to look for a job. For them and the millions of underemployed, the Great Recession, which supposed to have ended in 2009, still lingers.

But despite all that, to coin a cliché for my own purposes here, we just might be the cleanest dirty shirt in a bag of dirty laundry when compared to the rest of the world.

To our good fortune, we find ourselves almost suddenly awash in underground seas of natural gas. And that, folks, should give us a competitive edge, particularly in manufacturing, in what has become a very competitive world. I hate to say it, but this really could be that game changer.

The Vast Seas Below

I have always been of the belief that we really don’t know how much oil and gas that we are sitting on. That’s because the technology of extraction keeps advancing and the numbers thereby keep changing.  We make educated guesses and those guesses are revealing that we are in pretty good shape in comparison to the rest of the world.

The Potential Gas Committee, in a report published last week, pegged 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.

Their estimate of 2,384 trillion cubic feet represents more than 90 times the amount of gas consumed in the U.S. last year, according to federal data. And as I suggested, the increase is driven by technological innovations such as hydraulic fracturing, also known as fracking, that have unlocked gas from shale-rock formations all over this country.

There are a surprising number of shale plays in this country. I can think of four off the top of my head here Texas. Most of you have probably heard of the Marcellus Shale, which stretches across Pennsylvania and into New York, Ohio and West Virginia.

You may have also heard of the Bakken formation, a subsurface rock formation that stretches 200,000 square miles beneath 12 counties in North Dakota and parts of Montana and Saskatchewan, Canada. It was first discovered on North Dakota land owned by a farmer by the name of Henry Bakken.

Some Farmer Logic

Now I will impart upon you an old farmer’s saying, one that Henry may have even repeated: “Sometimes you get and sometimes you get got.”

We’ve been in the “get got” camp for a long time. The 1973 oil crisis, in which Arab members of OPEC proclaimed on oil embargo on the United States, revealed just how dependent we were on what they had.  One could argue that our dependency on foreign oil has been an underlying aspect to much of our military misadventures around the world.

I believe that history will one day show just how costly our dependence on dirty foreign oil to our country in terms of blood and treasure.  I say “dirty” because the amount of CO2 produced by natural gas is about 30 percent less than gasoline, diesel and fuel oil.

The good news is that we seem to be lessening our dependency on dirty foreign oil. Fracking not only has unleashed a torrent of natural gas, but crude oil production in the U.S. is rising as a result.

U.S. output is expected to top 8 million barrels per day (bpd) by the end of 2014, according to the EIA, the statistical arm of the Energy Department said. That would be the highest level since 1988.

U.S. oil output has surged from less than 6 million bpd in early 2011 to above 7 million bpd currently. Since late 2010, a combination of higher production and falling demand has slashed the need for imports from just under 10 million bpd to less than 8 million bpd, according to EIA data. That’s the good news.

But we still continue to have reliance on more expensive crude from overseas, which is why is why we are flinching at the pumps. That could change, would change, if policy makers in this country would only do the right thing and embrace the energy policy recommendations by T. Boone Pickens.

I think he’s got it right. He thinks Washington has it wrong.

The World According to Boone

“When I started the Pickens Plan in 2008, there were about 200,000 vehicles on natural gas in the world; now there’s about 16 million. That growth’s coming from everywhere but the U.S. Places like Iran and Argentina. China’s already got 40,000 trucks on LNG [liquefied natural gas], and they import the stuff. And here we are in the U.S., with more natural gas than any other country in the world, and we aren’t doing a thing about it. It’s just amazing to me that these dumb f-‍-‍-s in D.C. don’t see this opportunity and try to capitalize on it.”

Pickens wrote that earlier this month for Bloomberg Businessweek. Now I must admit that I am partial to just about any man, including a billionaire, who would refer to our nation’s policy makers as “dumb f—s.”

Pickens is rich and he is old and can afford to tell the truth. I am getting old (but certainly not rich) and trying my best to tell the truth with the possible foolish belief that it may actually help my site selection/economic development consulting business.

Now I’m going to quote some more of Boone Pickens, because this is my blog and I can.

“Transportation in America accounts for two-thirds of all oil use. There are many options, but to me, the one that makes the most sense is natural gas as a fuel substitute for OPEC oil/diesel/gasoline, with a focus on the heavy duty and fleet markets.

“We are now a nation awash in natural gas, so much so there’s a push to allow the export of America’s natural gas to Asia, Europe and elsewhere where it sells for up to four times as much.

“While I fully support the producers’ right to sell into higher price markets, I think it shortchanges America’s energy future. Why rebuild another country’s economy on the back of our cheap energy? Wouldn’t we be better served by rebuilding our own with our own natural gas?”

I swear that Boone possesses the logic of a farmer. Rebuilding our own. Now I do like the sound of that. No more being the world’s oil police. (Our military spends nearly $6 billion a year keeping the Strait of Hormuz open, of which we get about 15 percent of that oil passing through it).

Another “R” Word to Consider

Wisely using and (conserving) the vast natural gas resources that we are blessed with would not only liberate us from buying dirty foreign oil from people who largely don’t like us, but could give, should give, manufacturing in this country a substantial competitive advantage.

As you well know, I have been critical of the use of the word “renaissance” in describing the modest growth in the last couple of years. But I would like suggest another “R” word for your consideration. Revolution.

What is currently happening with our domestic with oil and gas industry could be revolutionary if the “dfers” in Washington would only permit it.

Rebuilding. Revolution. And, yes, even Renaissance. It’s all within our grasp.

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.

Is a Manufacturing Renaissance Real or Hype?

In Uncategorized on April 7, 2013 at 7:09 am

For awhile there, I was feeling like a voice in the wilderness. I was going against the tide and still am to some degree. But I no longer feel so much alone.

Now others, with more credibility than me, are saying what I’ve been saying in this blog for more than a year. It was a Wall Street Journal last week from which I felt some vindication. Here’s the headline: “Signs of Factory Revival Hard to Spot.”

And here is the first sentence or the lead, which states it better than I ever have: “The idea that American manufacturing is on the cusp of a renaissance is everywhere these days – except in the hard numbers.”

As my friend Paulie on the Lower East Side would say, “badda bing, badda boom.”

But forget Paulie. He doesn’t read the Journal, but the Daily Racing Form. Let’s hear from Daniel Meckstroth, chief economist with the Manufacturers Alliance for Productivity and Innovation. This is what he told the Journal: “There’s simply no statistical evidence of a broader renaissance at this point.”

Now I’m not an economist, and I have never played one on TV, but that is what I have been saying, to the ire of some. More than a year ago, when I was taking this line of inquiry in my blogs, I received an email from some muckety-muck who said he had “lost respect” for me for not jumping on the renaissance bandwagon.

My reply to him was: “So you lose respect for those you disagree with?” If I took his extreme position, I might not respect myself, as I have been known to change my mind on occasion. I wonder if he can?

Remember What Was Lost

It is true that manufacturers have added more than 500,000 jobs in the United States since early 2010, but economists see those gains as too small relative to what was lost in previous years to suggest a full-blown revival. Let us not forget that U.S. factories lost nearly 5.7 million jobs from 2000 to 2010.

(By the way, of the those 500,000 jobs, only about 50,000 were due to “re-shoring,” according the Chicago-based Reshoring Initiative.)

Add to that the recent claims of the National Association of Manufacturing (NAM), which states that the U.S.-based manufacturers operate at a 20 percent cost disadvantage compared to our largest trading partners because of the current tax and regulatory climate that exists in this country. Now if your costs are 20 percent higher than your competition, you have a serious problem.

The advocates of a U.S. manufacturing renaissance suggest that low domestic energy prices, largely due to the shale oil-gas boom and the associated technologies with it, increasing productivity, and rising costs overseas would invigorate the production of goods in this country.

A Potential Game Changer

I actually do believe that our energy cost advantages can pose to be that game changer and will spark increased industrial investment in this country. Wood products, refined petroleum, and basic metals are manufacturing sectors in which energy is an overwhelming driver of costs.

It is therefore most economical to locate production in the places with the cheapest energy, even if the labor costs are high. Just look at the multi-billion dollar projects being announced with some regularity in Texas and Louisiana.

Despite the good news, yet another economist, Goldman Sachs’ Jan Hatzius argues that all of the signs reflect a recovery that is “squarely cyclical” and not structural.

“Evidence for a structural renaissance is scant so far,” writes Hatzius. “Measured productivity growth has been strong, but U.S. export performance — arguably a more reliable indicator of competitiveness — remains middling at best. And at least so far, there is not much evidence for large positive spillovers from the U.S. energy cost advantage to broader manufacturing output.”

If you look at the share of manufactured goods purchased in the U.S. that are imported, you would think that a revived U.S. manufacturing sector ought to be grabbing more of its home market. But there is no statistical evidence showing that happening, at least not yet.

Manufactured Imports Continue to Rise

Imports accounted for nearly 40 percent of the manufactured goods consumed in the U.S. in 2012 – slightly more than the year before. The share of imports has been rising for years. It was a mere 9 percent in 1967, when the government began tracking this measure.

Hatzius’ report would indicate that the strength in U.S. manufacturing output reflects more the relative weakness of Europe and Japan, rather than a long-term positive shift in the U.S. itself.

“Over the next few years, the manufacturing sector should continue to grow a bit faster than the overall economy,” notes the report. “But the main reason is likely to be a broad improvement in aggregate demand rather than a structural U.S. manufacturing renaissance.”

There have been a lot of studies in the past year on the state of U.S. manufacturing, where we are and where we are going. My favorite to date was published in November by the McKinsey Global Institute. It shows the importance of manufacturing to our future as a nation, but it also shows that what we usually think of as a traditional manufacturing job isn’t coming back.

A Reduced Need for People

Robotics and other technologies are eliminating the need for people. In the newest factories, you may see only a small number of technicians staring at computer screens, monitoring the work of the machines. Manual labor is nowhere to be seen.

“Manufacturing cannot be expected to create mass employment in advanced economies on the scale that it did decades ago,” concludes the McKinsey report.

Today, at least 30 percent of the new manufacturing jobs are things that would look to most people like white-collar service jobs: sales, engineering, and design. Lab coats have replaced lunch pails.

The manufacturing sector continues to be a mainstay of our nation’s economic productivity, generating $1.8 trillion in GDP in 2011 (12.2 percent of total U.S. GDP). U.S. manufacturing firms lead in exports. The $1.3 trillion of manufactured goods shipped abroad constituted 86 percent of all U.S. goods exported in 2011. Moreover, manufacturing has a larger multiplier effect than any other major economic activity – $1 spent in manufacturing generates $1.35 in additional economic activity.

Why Manufacturing Matters

“Manufacturing matters because it’s simply impossible to have a vibrant national economy without a healthy globally traded sector, and manufacturing is America’s most important traded sector,” wrote Rob Atkinson, president, Information Technology and Innovation Foundation in his Feb. 20 blog.

I have talked to Rob on several occasions and I think he usually nails it. We pick up from his blog:

“As Gene Sperling, Chairman of the White House National Economic Council, explained last year, ‘If an auto plant opens up, a Wal-Mart can be expected to follow. But the converse does not necessarily hold.’ Moreover, if the auto plant closes, the Wal-Mart will likely downsize or close as well. This is why studies have shown that every lost manufacturing job means the loss of two and a half additional jobs throughout the economy. Indeed, the anemic overall performance of the U.S. economy over the last decade can be tied directly to the loss of U.S. traded sector, and particularly, manufacturing competitiveness.”

Manufacturing’s value can be measured in many ways, but at the most fundamental level, it provides that we remain an innovation nation. As I have quoted two economists in this blog, I might as well quote a business professor from Harvard in support of my view that manufacturing, essentially, keeps us smart.

“Having a strong domestic manufacturing base is vital to the United States maintaining its world leadership in innovation,” wrote Willy Shih in his blog from last month. “That is because advanced manufacturing provides an important institutional foundation for learning and developing process skills and capabilities that are increasingly intertwined with core R&D in some of the industries most important to the country’s economic future.

In short, we have to make things to innovate and we have to innovate to make things.

As long as we can remain an innovation nation, we will stand a better chance for a revival, not just in manufacturing but in our hollowed-out middle class. That’s the renaissance that I am hoping for, a dignity restored to and wealth creation for the middle class. Manufacturing lends itself to that.

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

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