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A Grand Goal for More U.S. Manufacturing Jobs

When General Electric (GE) Chief Executive Jeffrey Immelt delivered a speech at the Detroit Economic Club in June, he sounded more like a Midwestern governor than the leader of a $143 billion company whose ultimate responsibility is to his shareholders.
/ Source: Business Week

When General Electric (GE) Chief Executive Jeffrey Immelt delivered a speech at the Detroit Economic Club in June, he sounded more like a Midwestern governor than the leader of a $143 billion company whose ultimate responsibility is to his shareholders.

"We should set a goal to have manufacturing jobs be no less than 20% of total employment, about twice what it is today," Immelt said. "This is a national imperative." According to Susan Helper, chair of the economics department at Case Western Reserve University's Weatherhead School of Management, the speech turned heads. "GE had been a leader of offshoring, saying it was just too expensive to manufacture in the U.S., so to hear Immelt arguing that we need to rebuild our industrial base is significant," she says.

For those workers and communities hardest hit by the disappearance of manufacturing jobs in the U.S., Immelt's words offered a glimmer of hope in an otherwise bleak picture. The July employment report released on Aug. 7 by the Bureau of Labor Statistics, while better than expected, showed that the sector had lost 52,000 jobs in July. That brings the total drop since December 2007 to 2 million jobs, or roughly 14.2% of that sector's employment. And even before the current recession, manufacturing faced immense challenges. The Alliance for American Manufacturing [which last month published a book, Manufacturing a Better Future for America, laying most of the blame for the current state of affairs on U.S. trade policy] estimates that more than 40,000 factories across the nation have closed in the past decade.

But how realistic is Immelt's claim that "good jobs can return to manufacturing centers across America," and what kinds of jobs would those be? What forces could reverse the decades-long trend of multinationals shipping low-value factory jobs, such as assembling circuit boards, to lower-wage regions? And if those jobs aren't coming back, will enough new ones be created in emerging sectors to realize his goal of manufacturing jobs making up 20% of all U.S. employment? Immelt thinks the bulk of new manufacturing jobs will be in clean energy and health care, not in more traditional, low-skill areas.

A Manufacturing Renaissance?

In the last six months, Wright Engineered Plastics, a small injection-molder in Santa Rosa, Calif., with clients in the medical and telecom industries, has signed three new clients that have decided to move production back to the U.S. "Their reasons ranged," says Wright President and CEO Barbara Roberts. "Higher transportation costs and rising wages in China are making it more cost-effective for some to manufacture here. Two, in particular, were having significant quality issues."

Some companies are moving production back to the U.S. simply to make their supply chains faster. "Companies these days want to keep their inventories lean, and they can't afford to let product sit for 30 days on a boat from China," says Richard Sinkin, a San Diego consultant who scouts manufacturing sites in the U.S., Mexico, and China for multinationals. "People used to talk about just-in-time manufacturing, but now we have just-in-time retailing and that changes the dynamics incredibly."

But don't expect a sudden return of low-skill jobs to the U.S. "This has been going on for a century with no sign that it is going to let up," says Ken Goldstein, an economist at the Conference Board, a business research group. "Low-value activities move elsewhere, and you replace those jobs with higher value-added activities. Jobs in biotech, high tech, and the energy field." But even counting in those higher-skilled jobs, Goldstein called Immelt's 20% goal "unrealistic," saying "that would be almost 30 million jobs -- we didn't even have that many manufacturing jobs in 1960."

Immelt's speech was not a nostalgic call for a reincarnation of America's 20th century manufacturing landscape. But he did admit that, in some areas, GE had outsourced too much and that it planned to "insource" some higher-value activities such as aviation component production and manufacturing-related software development. To that end, he announced plans to build a Manufacturing Technology & Software Center to develop next-generation manufacturing technologies for GE's leading renewable energy, aircraft engine, gas turbine, and other high-technology products. The $100 million, 100,000-square-foot facility in Wayne County, 25 miles east of Detroit, would create 1,100 jobs.

Pennsylvania Factory Park

A similar renewal may be starting to happen in Fairless Hills, Pa., 22 miles east of Philadelphia, where a sprawling industrial site, once home to U.S. Steel (X), is active again. In 2006, Gamesa Corporacin Tecnolgica, a Spanish manufacturer and one of the world's biggest suppliers of windmills, expanded the plant to make nacelles, the covers that house the moving parts of turbines. Blades and towers are produced at the company's plant in Ebensburg, Pa.

And Gamesa isn't the only company that has moved to the 2,400-acre site, which is still owned by USS Real Estate, the steel company's property management arm, and has been renamed Keystone Industrial Port Complex. Dominion Generation's Fairless Energy plant, which produces power from natural gas-fired generators, is also a tenant, as are AE Polysilicon, which produces a substance needed for solar cells, and biodiesel producer Biofuel Advanced Research & Development.

In total, 18 companies -- roughly one-third of which are in the clean energy or recycling business -- are now operating at the complex, lured by a combination of industrial amenities, such as access to two railroads and a deepwater port on the Delaware River, and tax incentives. Gamesa, for its part, negotiated a package of approximately $10 million in state and local grants, loans, and tax credits for its Fairless Hills operation.

The windmill maker hasn't been left untouched by the recession. With demand for turbines slowing and credit tight, Gamesa USA has cut 150 jobs in Pennsylvania, though it hopes those will be temporary layoffs. Still, it employs 850 people and indirectly created manufacturing jobs in Pennsylvania through its efforts to build a local network of suppliers to produce the nearly 8,000 components of its turbines, 75% of which are now made oversees. "We've been working with U.S. suppliers and have also convinced some of our European providers to come here and set up shop," says Michael Peck, a Gamesa USA spokesman.

Providing Incentives for Expansion

While it's too early to count Pennsylvania's $10 million Gamesa gambit a success, it offers a model for rebuilding manufacturing through a combination of public incentives, research-and-development tax credits, and corporate investments focused on a burgeoning area like clean energy -- along the lines Immelt laid out in his speech. It's worth noting, too, that GE's planned Manufacturing Technology center in Michigan reflects the same public/private approach. The state will provide more than $60 million in incentives to GE over the next 12 years to support the center. Spurred by up to $17 million in state and local incentives, and a temporary wage freeze negotiated with the union, GE also recently decided to expand an appliances plant in Louisville rather than manufacture its new hybrid water heaters in China. "The Louisville team has committed to quality and productivity standards that make them competitive, and we can make the same profit," Immelt told his Detroit audience.

"Solving the clean energy challenge will create broad economic opportunity in this country," said Immelt, and he urged business and government to work together to that end.

Pennsylvania and Michigan's incentives are smart, says Sinkin. "But we need dramatic policies at the federal level. Obama [requiring] that every government building had solar panels, for example," he says. "Now that would stimulate jobs."