As we approach 2016, we need to stop and look at what it takes to keep manufacturing in America.
Our country has advantages, which include higher product quality, shorter delivery times, rising offshore wages, lower inventory, and the ability to be more responsive to changing customer demands.
But there are some glaring disadvantages, which include higher taxes, mounting costs of government regulations, and increasing electricity prices.
Nowhere is that more evident than in Washington State.
Our state and local politicians got sobering reality check 15 years ago. Because of high costs and work stoppages, some Boeing’s 787 final assembly work was sent to South Carolina and key components were outsourced offshore.
Three years ago, Washington’s legislature and Gov. Inslee addressed manufacturing competitiveness when they pushed through $8.3 billion in tax incentives, provided some relief from overly stringent regulations, and enhanced worker training programs just to land Boeing’s new 777 carbon wing plant. As a result there will be more than 20,000 jobs at Paine Field.
Today, we cannot forget that Boeing’s customers are leveraging the company for a part of the production. Cost matter and the higher they climb, the more difficult it is to keep those high-paid manufacturing jobs here.
Washington has made progress. In the last 20 years, the state legislature implemented some hard-fought reforms to workers compensation and unemployment insurance, a sales tax exemption for manufacturing machinery and equipment and spent millions for workers training programs.
However, those manufacturers worry that if Inslee’s climate change rules are adopted, the accompanying costs of energy would likely force them to move elsewhere.
One of the key reasons the semiconductor companies came to Washington was low-cost electricity. The same is true for carbon-fiber manufacturers such as BMW in Moses Lake.
Even though carbon fiber is six times stronger than steel and 30% lighter than aluminum, it has been expensive to produce. A Rocky Mountain Institute study found that for carbon-fiber-based autos to compete with steel ones at the same production volume, carbon fiber costs need to decrease by 60%.
The bottom line for manufacturers is the availability of adequate and reliable electricity at a competitive price is a determining factor in locating factories today.
Many smaller Washington manufacturers have kept their production here because they have highly-trained workers, better quality control, timing of component delivery, and can better protect their intellectual property or trade secrets. However, they struggle with higher costs as well.
A group called the Reshoring Initiative produced a list of 300 companies who relocated manufacturing facilities back to the United States or have chosen to remain here. They also list foreign companies which have decided to build plants in America.
For example, Airbus is putting the finishing touches on an A-320 production line in Mobile, AL. When fully operational, the plant will house 1,000 workers which will assemble passenger jets that compete directly with Boeing’s best seller, the 737.
Interestingly, Airbus cites one of its reasons for locating in Alabama was the cooperation by government at all levels.
Whether manufacturers stay or move, largely depends on costs and how our local, state and federal government leaders respond to those mounting competitive pressures.
They can either re-establish a climate where the private sector is encouraged to invest, innovate and create new and better products; or, they can smother manufacturers with more regulations, higher fees and taxes, and added time delays in siting plants.
The one lesson we have learned over the years, is companies will move to survive. They must or they go out of business. Then we all of lose. That’s a topic every politician should address in 2016.
Don C. Brunell is a business analyst, writer and columnist. He retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at theBrunells@msn.com.