by James A. Bacon
Manufacturing output in Virginia increased 3 percent between the 4th quarter of 2007 and the third quarter of 2015, yet manufacturing employment decreased more than 14% during the same period. Put another way, Virginia added $1 billion in manufacturing output, even after adjusting for inflation, but lost more than 40,000 manufacturing jobs, writes Aaron Williams in the Commonwealth Institute blog.
Overall Virginia employment is gaining steam. The state gained almost 20,000 jobs in the first quarter of 2016 and 100,000 jobs over the last year. But the gains were concentrated in service sectors like education, health and business services. The bastions of blue-collar employment such as construction, mining and manufacturing remained close to flat.
Williams’s commentary focuses on manufacturing. One possible explanation for increased output with declining employment is increasing productivity — the adoption of new technologies such as robotics to enable each person to produce more goods. While Williams doesn’t rule that out, he leans toward a second explanation: a turnover in manufacturing enterprises from low-value, high-labor intensive enterprises to high-value, low-labor businesses. “For example, high-end craft breweries and wineries replace textile mills and furniture factories,” he writes.
Between 2007 and 2013, food, beverage, and tobacco products manufacturing increased 40 percent while furniture manufacturing decreased 51 percent, textile mills decreased 57 percent, and petroleum and coal manufacturing decreased 65 percent. Simply put, manufacturing is a quickly changing sector in Virginia’s changing economy.
Bacon’s bottom line: Whether or not you except Williams’ analysis of the why manufacturing jobs are drying up, there is no disputing that manufacturing output is increasing while jobs are shrinking.
What does this mean for public policy? First, it calls into question the economic development priorities of the Commonwealth of Virginia — the Virginia Economic Development Partnership, regional economic development partnerships, the Tobacco Indemnification and Community Revitalization Commission, and time spent by Virginia governors on traditional economic development salesmanship — which have changed little since the model was perfected in America’s 1970s industrial-era heyday. If the goal is to create jobs, then pursuing manufacturing investment offers diminishing returns. Virginia still lands deals, but the deals offer less employment.
Another point: the high value-added model of breweries and wineries is a largely bottom-up phenomenon. While the Commonwealth has bolstered the wine industry through research, education and marketing under the auspices of the Virginia Wine Board — 2015 budget of $350,000 — please notice that the state is not in the business of subsidizing the start-up new vineyards and wineries. (Subsidies for craft breweries is a different matter, especially if they are big breweries coming from outside the state. Witness Stone Brewery.)
The trend toward local artisan food products is one that has occurred largely outside the eye of the traditional economic development apparatus, geared as it is to finding tenants for industrial parks. The Virginia’s Finest marketing campaign promoting craft food manufacturers is the exception that proves the rule. But, similar to the wine board, the support has been entirely at the level of branding and marketing… which is as it should be.
If Virginia wants to support the emerging craft economy, it needs to re-think its approach to economic development. I haven’t given much thought to which supporting structures are needed to boost the sector, but I’m pretty sure it’s not tax breaks and subsidies for individual enterprises, or industrial real estate development. The best approach may be thinking about reducing regulatory barriers and obstacles for entrepreneurs.