Tuesday, June 19, 2007

Is manufacturing still a viable economic option?

Manufacturing’s death has been predicted by the media, economic experts and government bean counters for more than twenty years. While the U.S. has seen the number of manufacturing jobs decline since their peak in the mid-1970s, American manufacturing continues to keep its head above water and in some cases, is experiencing significant growth in sales, burgeoning export figures and upward trending capitalization numbers.

As we sail forward in the “flat world” of Friedman, rather than fall off the edge the earth, we seem to be finding new market frontiers for U.S.-manufactured products. In the June 25, 2007 issue of BusinessWeek, in their Business Outlook section, there is a brief about upward trends in global capacity, tight overseas job markets, combining with the weaker dollar, which should translate into higher U.S. export activity. This could help close our nation’s trade gap and boost U.S. economic growth for the first time in decade.

So, as we surge into the 21st century, should Maine build economic growth around the tried and true manufacturing model? The state certainly has some precision manufacturing firms that are increasing capacity, while paying very well. CNC machinists can pull down in excess of $50K/year and skilled metal fabricators can make in excess of $60,000. Rather than hitch our state’s economic wagon to big-box development, maybe someone in Augusta should at least lend an ear to advocates of manufacturing in the state, since manufacturing firms in Maine supply the aircraft, aerospace and aviation industries, to name a few and also provide cutting edge components for biotechnology and healthcare.

Michael Porter, the “guru” who leads the Institute for Strategy and Competitiveness, based at Harvard Business School, has written extensively on the ability of states and regions of the U.S. to compete globally. Porter’s work, which centers on clusters—geographically concentrated groups of interconnected companies, universities, and related institutions that arise out of linkages or externalities across industries.

In addition to Porter’s work on clusters, is the research that he has led in the area of competitiveness in rural regions of the U.S., of which very little research has been done.

While much of our policy, particularly at the national level, but unfortunately, also at the state government level, is concerned with urban economies, or worse, not much more than the small world that exists between their office and parking garage, rural economies need attention beyond giving away the farm to the next Wal-Mart that wants to come to town.

From ISC’s report released in 2004, on rural economies, Porter and his researchers write,

“Current policies to improve the disappointing economic performance of rural regions are, by and large, not working. This is increasingly the consensus among policy makers across political parties, not only in the United States but also in many other countries around the globe. Not only is the performance of rural regions lagging, but the gap in performance levels between rural and urban areas seems to be widening. This state of affairs exists despite significant efforts to boost rural regions through a wide variety of policies with budgets of billions of dollars in the United States alone.

The failure of current policies for rural regions has many costs: First, it draws on limited government resources at a time of budget deficits and cuts in spending. With many other competing demands on public sector funds, policies that fail to generate results are getting increasingly hard to defend.

Second, rural counties account for 80% of land area, and 20% of U.S. population. Weak performance in rural regions retards national productivity and national prosperity, and fails to effectively utilize the nation’s resources. As the growth of the U.S. workforce slows, making all parts of the economy productive is an important priority.

Third, the inability of rural areas to achieve their potential leads to an inefficient spatial distribution of economic activity in the United States. Activities that could be performed more efficiently in rural areas either migrate offshore or add to the congestion of urban

Fourth, weak rural performance creates demands for interventions that threaten to erode the incentives for productive economic activity. The lack of competitiveness of rural economies has been a prominent cause of agricultural subsidies as well as import barriers that hurt the U.S. position in the international trading system without addressing the underlying challenges rural regions face.”

These broad conclusions about rural economic development are , by and large, not surprising. The United States has the need and the opportunity to lead in this field. Advances in thinking on competitiveness and regional economic development over the last decade provide an opportunity to now examine rural regions in new ways.”

Since most of Maine would fall into Porter’s classification of rural, his work takes on added importance for the long term economic well-being and seems worthy of at least some consideration by those in charge of economic development in the state.

From Porter's work at the ISC, to some of the findings of the Brookings Report, it's obvious to many that one-size-fits-all economic develoment models won't work. We need to find areas of strength, particularly areas where Maine and other rural areas can compete in a global economy. Regardless of your views on globalization, it's here to stay and we've got to find ways to adapt. Strengthening and adding needed skills to the workforce is a start and supporting clusters that can remain competitive, or find new markets for their products is another.

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