Wednesday, May 06, 2009

Economic Development Costs and Questions about Manufacturing

It was announced today that a company is locating a plant here that will build the nacelles for wind turbines. They will create 400 jobs. Of course, this is fabulous news. What town wouldn't like to have hundreds of new jobs? And these are going to be $16 an hour jobs.

Of course, we don't yet know what we've paid for these jobs because the incentive package details haven't been announced. Cities, counties and states bend over backwards to recruit plants to their locales. Businesses expect piles of incentives and tax abatements, and why wouldn't they - they are in the business of making as much money as they can. Let me be clear that I have no idea what, if anything, this company asked for. I'm just basing this on past deals.

Generally, the manufacturer arrives, and if they ever reach their stated number of jobs, which is rare, they begin to dwindle almost immediately due to automation. Is this the fault of the plant? No. They're in the business of making a profit and it makes no sense to pay 10 people to do a job that can be done with 1 person and a machine. Machines don't demand health insurance. Until we address that huge elephant in the room in this country we're never going to be competitive, but that's another rant.

So, what happens over time with automation is that those 400 jobs become 350 jobs to 200 jobs to 50 jobs. That is the nature of the manufacturing business. No one is doing anything wrong, it's just the way the business works. Google "manufacturing jobs lost to automation" and you'll find plenty of support for that statement.

People always talk about manufacturing jobs being lost to China. In reality, China is losing manufacturing jobs too - to automation. But, automation makes things more productive, and you can't argue with that if your goal is to make more widgets with less money. Or more nacelles.

I'm thrilled we've got 400 new jobs coming to town. That's wonderful. I'm glad we'll have another great corporate entity in town. More positive news there. I'm tickled we're getting involved in an alternative energy business. Yet more good news.

But I think we always need to be honest with ourselves and look at the facts. I can't yet do that in this case because the facts haven't been made public. Maybe it's worth every single cent in tax abatements and other incentives I'm assuming were involved. I've got no big problem with either of those. But I know that since the mid 90s, 60-80% of net new jobs created were by small businesses. I'm not sure we're offering many incentives to those folks.

I'm not in economic development, and I don't know squat about the intricacies involved in these things, but the facts tell me that manufacturing jobs go down in number while small business jobs go up in number. I'm no math genius, but long term  it would make more sense to invest in the thing that increases its number of employees instead of decreases its number of employees. Wouldn't it?

Maybe the sheer force of 400 new jobs in your town at one time is so incredible that it outweighs everything else. And, of course, if folks are employed there for 10 years or 20 years or even 5 years, that's a large amount of money in the economy, as opposed to growing it slowly with small businesses. Maybe it's the "lifetime value" of those jobs as long as they last. But we do need to be honest about the costs associated with them - upfront and in the future.

I don't have the answers, but I certainly have questions. I really do need someone to explain to me why it's beneficial to keep recruiting manufacturing jobs that we can only assume will dwindle in number. But for the moment, I'm just going to celebrate 400 new jobs coming to our community.

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