Acts of Man: Stories of Faltering Infrastructure

They are commonly referred to as “acts of God” — earthquakes, tornadoes, and hurricanes. Winter Storm Jonas,  a historic blizzard which buried much of the Eastern Seaboard and left at least 19 dead, would be a prime example.

These are natural catastrophes that man cannot prevent, and which frequently result in considerable property damage and loss of life.

These “acts of God” are trying to the soul, but it is our nature to accept them for what they are and put our hands to the plow and move on.

It is more difficult for us, however, to accept circumstances when the “acts of man” put our health and safety at risk. Then we want redress, a wrong set right.

I can think of three communities in the past month in which I have read published reports showing public safety jeopardized because of aging, deteriorating and substandard infrastructure.

Leave it to say, this is not unique to these three places alone, but is commonplace throughout the United States, in both rural and urban environments.

The Foundation to Our Economy

Infrastructure is the foundation that connects the nation’s businesses, communities, and people, driving our economy and improving our quality of life.

It is your water main, the power lines connected to your house and the street in front of your home, as well as the national highway system.

Once every four years, the American Society of Civil Engineers gives a comprehensive assessment of the nation’s major infrastructure categories in the form of a report card.

The last report card in 2013 (the next one is due in 2017) gave America a cumulative grade of D+ for infrastructure.

In the executive summary, the ASCE said this:

“For the U.S. economy to be the most competitive in the world, we need a first class infrastructure system – transport systems that move people and goods efficiently and at reasonable cost by land, water, and air; transmission systems that deliver reliable, low-cost power from a wide range of energy sources; and water systems that drive industrial processes as well as the daily functions in our homes.

“Yet today, our infrastructure systems are failing to keep pace with the current and expanding needs, and investment in infrastructure is faltering.”

Flint, Michigan

This is a city where 40.1 percent of the city’s population is living in poverty. In April 2014, as part of a cost-savings move, Flint opted out of Detroit’s water supply and began drawing water from the Flint River.

Big mistake. It turned out that the water from the Flint River was highly corrosive to the lead pipes still used in parts of the city. In the fall of 2015, researchers discovered that the proportion of children with above-average lead levels in their blood had doubled.

Lead in water is measured in terms of parts per billion (ppb). Some samples taken by Virginia Tech researchers came in at 5,000 ppb, the level at which EPA considers the water to be “toxic waste.”

The city reconnected to Detroit’s water system in October, but it remains unclear how long the old pipes will continue to leach unsafe levels of lead into the tap water supply.

Gov. Rick Snyder, who has apologized for what has become a scandal to his administration, resulting in firings and resignations, says he will “fix it.”

Certainly, he is speaking of the water system itself and not the bodies that have been poisoned. In children, lead can cause irreparable brain damage. For adults, high blood pressure and kidney damage. In pregnant women, miscarriages, stillbirths and premature births.

In past blogs, I have praised Gov. Snyder for being what I thought was the best economic development governor in the country.  Certainly, he changed the culture of economic development in his state.

And now it is the very culture of his own government that he is decrying and blaming for the crisis in Flint.

Speaking on the MSNBC program “Morning Joe” on Friday, Gov. Snyder complained about public agencies lacking a “culture of asking the common-sense questions,” adding there’s “a huge bureaucratic problem and it’s part of the problem with culture in government.”

Keep in mind the governor is speaking about decisions made by people that he appointed, blaming those who answer to him.

Which leads me to this question: Just where does the buck stop?

Gov. Snyder, who has faced intense scrutiny in recent weeks from state and national news media, has hired two public relations firms to help his office deal with the crisis.

Not Far Away in Detroit

At the same time that Flint was garnering national headlines, teachers in Detroit held a mass sickout last week to protest the physical conditions of schools there.

In some schools, students have had to wear coats in class for the lack of heat, along with evidence of black mold contamination and a general state of disrepair.

Michigan was in the news last week for all the wrong reasons, exemplifying how deficient infrastructure can and does hold us back. Not great for economic development.

Porter Ranch, Los Angeles County

For months now, a methane gas leak from an old oil well has been disrupting life in Southern California.

Since the leak was detected on Oct. 23, the Southern California Gas Co. has relocated 3,112 households to temporary homes and hotels outside of Porter Ranch, a community of 30,000 whose northeast border is about a mile from the leaking Aliso Canyon well in Los Angeles County.

Another 2,571 households are awaiting relocation, the company said.

Health officials say hundreds of residents have reported health problems such as nausea, headaches and nosebleeds due to additives in the natural gas.

While a cause of the leak has not been determined, experts believe the age of well probably plays a major role, as its pipes, having channeled oil, gas, and water, are 61 years old.

SoCAlGas is in the process of drilling a relief well and expects to locate and enclose the leaky pipe in cement.

When will the leak stop? Maybe next month. Maybe. In the meantime, the old well is spewing 1.6 million pounds of methane each day into the atmosphere.

The Lewisville Dam, North Texas

The age of the leaking well Los Angeles County is about the same age as that of the Lewisville Dam, a six-mile-long earthen structure completed in 1954 and about 22 miles northwest of Dallas.

Work is under way to repair a 161-foot-long slide on the upstream face of the dam. The U.S. Army Corps of Engineers detected safety issues at the dam in August, while saying the landslide occurred in June, which strikes me as a bit odd.

Now the Corps insists that the dam is not at risk at failure, despite having issues. But a Dec. 12 story in The Dallas Morning News entitled “The Dam Called Trouble” paints a different story, one of a Corps that is trying to sugarcoat a real and existing threat.

How big a threat? In 2005, the Corps started screening every one of the 694 dams under its jurisdiction. The goal was to expeditiously identify and classify the highest risk dams requiring urgent and compelling action (Dam Safety Action Classification Classes I and II Dams).

The Corps rated the Lewisville Dam as a Class II. Now I quote the Corps’ definition of a Class II from its own website:

DSAC Class II (High Urgency) – “Dams where failure could begin during normal operations or be initiated as the consequence of an event.  The likelihood of failure from one of these occurrences, prior to remediation, is too high to assure public safety; or, the combination of life or economic consequences with probability of failure is very high.”

In short, what the Corps tells itself about the Lewisville Dam is quite different from what it tells the public.

I am that public. I live an uncomfortable 10 miles below the dam, so this is quite personal for me.

The Lewisville Dam holds back 2 million acre-feet, or 2.5 billion tons, of water when the lake is full. If it failed, the magnitude of all that water unleashed would dwarf the worst dam disaster in American history.

Today, every state but Alabama have dam safety regulatory programs. Since 1998, the number of high-hazard-potential dams has increased from 9,281 to more than 14,700 in the 2013 update of the National Inventory of Dams.

The Cost of Failure

The common denominator to all these stories in Flint, Los Angeles County and North Texas is old infrastructure that is in dire need of improvement if not total replacement. In all three cases, the public safety has been proven to be at risk. These stories are part of a much bigger story.

Certainly, robust infrastructure is of great importance when I consult with a company on location analysis for a future site of operations. It is something that I will focus on when I advise economic development organizations. This is foundational stuff that cannot be ignored.

Aside from the human cost, there are huge economic considerations if we fail to act and fix what needs to be fixed, according to ASCE in a 2013 report:

“Overall, if the investment gap is not addressed throughout the nation’s infrastructure sectors, by 2020, the economy is expected to lose almost $1 trillion in business sales, resulting in a loss of 3.5 million jobs. Moreover, if current trends are not reversed, the cumulative cost to the U.S. economy from 2012–2020 will be more than $3.1 trillion in GDP and $1.1 trillion in total trade.”

Infrastructure built by man, so too, can be maintained, repaired and replaced by man. It’s what we must do to remain a competitive and safe nation.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518.

My Evidence Is Better Than Your Evidence: The Reshoring Debate Continues

Look,  we are all guilty of this – we believe what we want to believe. Maybe that’s why there are different religions in the world.

In the real world, we are being bombarded with information, much of which is often conflicting.  I stopped grappling over whether coffee was good for me or not a long time ago.

While we should make decisions based on which evidence is strongest, people tend to interpret “facts” that are consistent with their desires.

All too often, we believe that the weight of evidence supports the position that we already wanted to believe was true.  That is precisely why I will smugly show my wife any news report that I may come across stating that coffee might actually be good for me.

Aha, take that. Slurp.

The Reshoring Brouhaha

A few years back, I wrote a blog stating that while there was certainly anecdotal evidence of reshoring taking place, I was unconvinced that I was witnessing an actual megatrend in the making.

Judging from some of the emails I got, you would have thought I had called the Pope a Satanist. One muckety muck, I kid you not, said that he had lost of all respect for me because of my stated skepticism concerning reshoring.

Now imagine that. My response to him: “So you lose respect for anyone that you may disagree with?” How adult is that? This fellow would seem well suited for Congress.

Well, to continue this saga, late last month, the consulting firm A.T. Kearney published a study concluding that “the reshoring phenomenon appears to have been more a one-off aberration than an inexorable trend.”

Yikes! Now don’t you know that caused a bit of a firestorm. Magazine articles, far from anything that could be called scholarly work, promptly came out questioning A.T. Kearney’s findings.

“They are just plain wrong about reshoring efforts in America,” wrote one consultant. “We continue to base our opinions on actual evidence and we continue to see the outlook as optimistic.”

The Things Consultants Will Say

Let me tell you something about consultants, because I am one. A goodly number of them, not all mind you, will whisper sweet nothings in your ear. They will tell you what you want to hear, if only you will let them.

They are, after all, selling their consulting services.

I’m currently finishing up a SWOT analysis for a community and I know of at least one rather major thing that the client would want us to include in our final report. But in good conscious, we have to recognize that client’s desire for this one particular finding is just not supported by the facts on the ground.

We owe it to them to be straight with them. We just do.

Not Surveying Plans and Predictions

The 2015 A.T. Kearney Reshoring Index compares the relative evolution of goods manufactured in the U.S. with those imported from 12 key Asian ‘offshore countries’ like China and Vietnam. Unlike other studies, it does not survey plans, speculations, intentions, or predictions of company executives.

Rather, A.T. Kearney relies on a set of macroeconomic analyses of publicly available data.  The intent is to go beyond the hype and determine what actually happened.

Their study shows that U.S. imports from the ‘offshore countries’ grew at a faster rate than domestic manufacturing, and that companies, in response to rising labor costs in China, are increasingly switching their sourcing decisions towards other Asian countries rather than returning to the U.S.

“In our 2015 study, we agree that, on the whole, manufacturing in the U.S. is in decent shape. However, we note that this is for a significant part due to increased Foreign Direct Investment and not reshoring, an important distinction that other studies often fail to make.”

Boston Consulting Group Lead the Charge

People started getting themselves worked up into a cheerleading frenzy when the Boston Consulting Group in 2013 predicted millions of manufacturing jobs would be created as a result of reshoring.  And yet here comes this latest A.T. Kearney report saying that it is just not happening.

This past week, I spoke with Morris Cohen, Professor of Manufacturing & Logistics with the Wharton School of the University of Pennsylvania. He has been studying supply chain patterns and the issue of reshoring for several years now.

His conclusion: “Their (A.T. Kearney’s) data is consistent with what we have seen,” he said.

A lot of stuff is happening, a lot of supply chains are being restructured, maybe more so than ever before, but there is little reshoring on a net basis taking place in the U.S. (Do I detect the gnashing of teeth?)

“We observed two things. One, there is a lot of restructuring going on, a lot of shifting, but it is going in multiple directions,” Dr. Cohen said.

“Companies continue to offshore. Companies in China go someplace else, and some companies are indeed reshoring. It was a puzzle and we wanted to get a better sense of what was going on.”

Initial findings were published last year and a new set of findings, largely consistent with the first, are soon to be published in a second 200-page report, Dr. Cohen said.

A Mixed Bag

What Dr. Cohen’s report will show is that companies are doing a lot of different things, and that the same company can go in both directions (offshore and reshore at the same time.)

“Some opened factories in China. Some shifted back to the U.S.  Some added capacity in Mexico and on and on. Some companies didn’t do anything,” Cohen said.

Cohen’s research shows there a great flows of manufacturing from a source to a destination but that it was a mixed bag.

“We found that yes, there are companies that are shifting manufacturing to North America. We found there are a lot of companies shifting production from China to places like Vietnam. Some are shifting from Western Europe to Eastern Europe,” he said.

“We found that the companies that were adding capacity to the U.S. and there were a fair number, were not U.S. companies. They were European companies. They were Asian companies. But very few American companies are adding capacity in the U.S.”

Cohen’s findings are consistent with A.T. Kearney’s that many foreign companies are more interested in establishing a manufacturing footprint in the U.S. than their domestic counterparts are interested in repatriating their operations from Asia.

Chinese FDI is Robust 

China has been the fastest-growing source of non-domestic business expansion in the U.S. in the past seven years. Chinese foreign direct investment here reached record levels in 2014, about $12 billion dollars, up from $5 billion in 2009.

Chinese manufacturers have acquired or built facilities to produce textiles, copper, steel, automobile supplies, renewable-energy equipment, and industrial machinery in dozens of states.

Of the 60,000 new U.S. manufacturing jobs that, according to the Reshoring Initiative, were created in 2014 as a result of the combination of reshoring and foreign direct investment, about 8,000 were at China-owned companies.

The President’s Spin

And in his last State of the Union address, President Obama cherry-picked when he spoke of manufacturing jobs. The president said, “That’s just part of a manufacturing surge that’s created nearly 900,000 new jobs in the past six years.”

But if you look at his entire time in office, the U.S. has lost 230,000 manufacturing jobs, dropping from 12,561,000 jobs in January 2009 to 12,331,000 in December 2015, according to the Bureau of Labor Statistics.

For the whole year of 2015, and for the first year since the 2009 recession, the U.S. Bureau of Economic Analysis expects U.S. manufacturing gross output—which includes the input values of raw materials and intermediate goods—to shrink by as much as 3.6 percent.

Of the 2.65 million new jobs created in the private sector last year, only 30,000 were in factories, according to the Labor Department. You may want to read that again.

I’m Just Saying

Our trade deficit with China in 2015 will break the all-time record set in 2014. And nobody thinks 2016 is going to be any better, with the dollar rising, China’s currency weakening, and its industrial overcapacity not abating.

What’s more, this expansion is starting to get long in the tooth – six and a half years. The average expansion since World War II lasted less than five years. While there may be no recession this year, the odds could shift in 2017.

And the impact of China in the global economy is larger than ever before. As a result, says former Treasury Secretary Lawrence Summers, the “global risk to domestic economic performance in the U.S., Europe and many emerging markets is as great as at any time I can remember.”

Going back to my original statement, we believe what we want to believe.  To that end, we don’t always weigh the evidence objectively but through a biased lens. It is why I will continue to drink coffee, until or unless I get an epiphany to do otherwise.

And, weighing the evidence, I happen to believe that A.T. Kearney and Professor Cohen at the Wharton School have concluded correctly that reshoring is not the big megatrend that so many people have touted it to be.

As the good professor said: “That’s my story and I’m sticking to it.” As it should be.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518.

How Self-Driving Cars Will Change Our Lives

Any self-respecting consultant should on occasion make predictions as to what the future shall hold. Thankfully, few people actually keep score.

At the start of a new year when people are looking forward, I figure it is fitting for me to take a stab at this. I mean, why not?

In many of my past blogs and in speeches around the country, I have conveyed how we are just entering a revolutionary new machine age dominated by digital technologies which will transform our lives in ways that we cannot fully imagine.

To say there will be the birth of entire new industries, borne out of this transformation, would be an understatement.

I think we have begun what is now an inevitable long march in which artificial intelligence will lead to computers becoming truly self-aware. That in itself could very well make people largely irrelevant if not extinct.

But relax, the day in which we have a planet without human beings is still a good ways off. In the meantime, we should take advantage of our amazing gift to appreciate not only our immediate surroundings but our world and our universe.

And that’s a pretty cool thing. So we best make the most of our brief moment in the sun. It’s why I get out of bed in the morning, and try to serve others in my role as a consultant.  Heck, it’s why I write this blog. We can affect change.

Not If But When

You have heard it before and you will hear it again that self-driving cars are coming. That’s a given. The debate no longer surrounds if, but when.

And while we may still be some years away from seeing autonomous cars and trucks streaming down the world’s roads in large volumes, vehicles today have become rolling sensor and processing platforms. Even low-cost models have more sensing capabilities than fighter jets a decade ago.

When this pilotless-vehicle technology does comes of age, our world will dramatically change. For one thing, our roads should become safer. Autonomous vehicles could save up to 300,000 lives per decade in the United States, according to the consulting firm McKinsey & Co.

Paying for the Miles

With the advent of self-driving vehicles, there is a likelihood that the desire to own a car will fall. Think about it. The utilization rate of automobiles in the U.S. is now about 5 percent, which means 95 percent of the time (23 hours a day), a car sits somewhere and depreciates.

In the not-so-distant future, autonomy will make it possible for unmanned automobiles to be summoned, via an app, to your location for as little or as long as you will need it.

You don’t pay for the car. You pay for the miles. I think young people especially will jump on this like a dog on a bone.

Traffic jams will occur less frequently, and we as passengers will have extra time to work our phones, computers and with other people.

The changes will be so large, so profound, that we will change how we view transportation in general, becoming a relatively seamless act as we “transition” from place to another without losing our connectivity and focus of thought.

Transportation as Service

Automakers sense this is the future and in response will largely pivot from engines, gears and wheels to software, content and “user experience.”

Ford Motor Co. and Google will announce a partnership this coming week at the Consumer Electronics Show to build self-driving vehicles with Google’s technology, a huge step by both companies toward a new business of automated ride sharing.

Google currently has 53 test vehicles and has covered 1.3 million miles in autonomous mode in Mountain View, Calif., and Austin, Texas.

Ford CEO Mark Fields has repeatedly said Ford now thinks of itself “as a mobility company.” Said Ford Chairman Bill Ford: “We have to make great cars and trucks today but we also have to imagine a future of transportation as service.”

And don’t you know that related industries, including telecommunications, software, media, freight transportation, semiconductors and insurance, are going to have to fall in line and start thinking of transportation as service.

Driving Savings, Productivity     

The bottom-line savings alone are formidable. “Beyond the practical benefits, autonomous cars could contribute $1.3 trillion in annual savings to the US economy alone, with global savings estimated at over $5.6 trillion,” wrote Ravi Shanker, Morgan Stanley lead analyst covering the North American auto and related industries, in a research note.

For the U.S., it could represent 8 percent in annual GDP, the reallocation of which could have major implications of its own.

Again, this paradigm shift will impact everyone. For companies dependent on shipping products, the supply chain management implications are huge, and could possibly influence what kind of products are provided and where manufacturing plants are built.

And you can bet that as more autonomous vehicles become prevalent, all sorts of billion-dollar opportunities will arise and new industries spawned.

Skepticism Is Only Human

Still, this idea of a driverless vehicles is not an easy sell with much of the public. It is difficult for many people, myself included, to imagine putting their lives, or the lives of their loved ones, into the passenger seat of an autonomous car.

But I believe that the technology will prove itself in terms of safety, reliability, savings and convenience. The day may come when public opinion will shift to “I don’t want to share the road with people driving their own cars.”

California Being California

Mind you, there will be plenty of speed bumps along the way, including building sufficient infrastructure and government regulation.

California, being California, wants to regulate self-driving cars to the degree that it would all but make Google’s driverless vehicles illegal. Proposed regulations would require individuals licensed to operate autonomous vehicles to be present in these new-age cars at all times.

The Department of Motor Vehicle rules also say these drivers must be able to take control of the vehicles at any time, essentially requiring pedals and a steering wheel.

It is interesting to note that DMV’s proposals are getting pushback, even from politicians, who fear that California might relinquish its leadership role.

“Autonomous-vehicle technology will continue to advance in spite of DMV regulation, but it may well relocate to states [or nations] that adopt a more flexible and accommodating regulatory structure,” said Michael Cunningham, senior vice president of public policy at the Bay Area Council.

“We would stand to lose the economic benefit of having this cutting-edge industry based in California, and we’d fail to secure the full safety, mobility and access benefits that autonomous vehicles could offer.”

Said California Lt. Gov. Gavin Newsom: “We must guard against unreasonably holding back California from doing what it does best — inventing the future.”

With self-driving cars, the future is here. The potential gains — less fatalities and injuries due to driver errors, emergency response and medical savings, less lawsuits, reduced road congestion and more efficient use of time — could ripple through every aspect of the economy and our mobile lives.

And that’s a pretty cool thing. I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518.