Bacon's Rebellion

Democracy Thrives in Sunlight

Virginia Manufacturing in Decline? Don’t Blame Regulations.

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James A. Bacon
in

Global competition and labor costs are the main reasons that manufacturing employment in Virginia is in decline, concludes a study by the General Assembly’s Joint Legislative Audit and Review Commission. New technology and improved productivity are another important contributor, notes the Associated Press.

“We didn’t find anything that led us to believe that Virginia regulations were the primary factor in the decline,” said Justin Brown, project leader for the study by the General Assembly’s Joint Legislative Audit and Review Commission.

Since 1992, manufacturing employment in Virginia has tumbled 27 percent to about 296,000 workers.

Frankly, the study offers little new — it simply confirms what everyone should know already. Virginia arguably has the general best business climate in the country, as confirmed most recently by Forbes magazine. That’s not to say that we can’t tweak things to improve the climate for manufacturing. One widely cited concern was the machinery and tools tax, which generated $194 million in revenue for local governments in 2005. But even that tax was not regarded as decisive.

“Cutting costs” is largely a dead end. Future growth in Virginia manufacturing will come, if it comes at all, from enhancing the knowledge, productivity and innovation of the companies located in the state. To grow, Virginia-based manufacturers must invent new products, devise process improvements and apply new technologies. We need to move to a new level — embracing a mindset that emphasizes R&D, human capital and the creation of 21st-century institutions for the exchange of ideas.

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15 responses to “Virginia Manufacturing in Decline? Don’t Blame Regulations.”

  1. Larry Gross Avatar
    Larry Gross

    I think someone made the point the other day that in this day and time – our exports will be far smaller physically than our imports because what we are “manufacturing” now is high tech… goods and services rather than textiles, furniture, etc.

    And so Va’s rural areas are essentially “toast” unless they can adapt to a world where companies want/need well-educated workers who.. can be productive in a work environment that is not assembly/manufacturing.

    But this also brings up another interesting point with respect to the strategic nature (or not) of Hampton Roads Ports.

    Specifically – I would question the assertion that upgrading our road network to support our ports.

    Our ports are PRIMARILY used to move foreign goods to consumers which is a benefit to foreign companies and manufacturers – NOT our rural localities.

    In other words – what the ports are doing… is bringing in merchandise for that Dollar General store in Norton, Va – and the road improvements are for that truck… that will deliver those goods to Norton, Va.

    I know I’m probably not seeing the whole picture here but why should the taxpayers of Va pay to construct a road to speed the delivery of goods to Norton Va and environs?

    I can see the argument if Norton was producing something for export – and having a good road meant having good jobs in Norton but I don’t think the reverse of this is true.

    Perhaps that is why … the PPTA study determined that the 460 road could not be built and operated on tolls alone.

    Further – take a look at the LA Port Authority and Union Pacific which is moving containers 24/7 to the interior of the USA… 2 containers per rail car that needs to 18wheeler and no driver for that 18-wheeler and not roadway.

    I’d be interest in hearing from Norfolk Southern on this issue in terms of whether they would consider US 460 as competition to their own business.

  2. Anonymous Avatar
    Anonymous

    Look at it this way. You are not upgrading the road for the trucks. The trucks are coming either way. You are upgrading the road so others can use the road, so 460 doesn’t turn into another 81. The trucks are going to roll either way, baby — it’s you who gets blown off the road. There are some who argue that the Interstate system was primarily designed for trucks and commerce, not commuters. They are already paying far more than their fair share of the cost, far more than passenger cars.

    NS and the state are working on the Heartland Corridor to double stack as many trains as possible out of the port area. But even with that, the trucks will roll. If you won’t help expand the system, better stay out of the way.

  3. Larry Gross Avatar
    Larry Gross

    re: “he trucks are going to roll either way, baby — it’s you who gets blown off the road. There are some who argue that the Interstate system was primarily designed for trucks and commerce, not commuters. They are already paying far more than their fair share of the cost, far more than passenger cars.”

    ummm… I’d have to see some numbers for trucks but don’t the shipping companies pass the cost on to consumers who buy the goods the trucks are delivering?

    Doesn’t that mean that taxpayers are paying entirely for the roads anyhow directly through their own gasoline tax and then as a tack-on for truck-delivered goods?

    Hmmm.. I guess that is what is meant by “business friendly” policies. 😉

  4. Randolph Avatar
    Randolph

    Jim: I and probably others would like to hear some elaboration on your last paragraph. I’m not a big follower of business & economic issues, so I come at this question as an amateur, but when it comes down to it, where and how do we turn things around? What will bring about the future growth that you are talking about, and enhance the knowledge productivity and innovation? Are there other states doing this and being competitive on a global level? Thanks for your insight…

  5. James Atticus Bowden Avatar
    James Atticus Bowden

    Jim: Also, please consider that economic situations are dynamic. The price of labor, energy, transportation, etc. – all the variables – are in flux. At some point some old manufacturing may be a profit maker if, as you indicate, it is done in a new way or sold or distributed in a new way to make the profit margin solid.

    The trick is to to have the capital to move when the time is right. And to have the clear vision to see when it is time.

  6. Ray Hyde Avatar
    Ray Hyde

    Or, you can do what the airlines have done: slash labor costs and pensions, and get rid of anyone who actually uses the health benefits.

    I don’t know the facts on this, but I suspect there is a clear deficit in the amount of industrial zoned land. This raises the price of going into production, long before the first worker is hired. Recently there was a story in the Post about a lack of industrial zoned property in the District, and how this meant that many old line businesses were moving out, to Virginia and Maryland.

  7. Larry Gross Avatar
    Larry Gross

    It appears to me that Virginia’s economy is driven by the Fed Presence both in NoVa and Tidewater.

    That leaves me wondering – what are the primary non-Federal industries in Va that might be subject to unhelpful regulations – something I’m pretty ignorant on that I’m sure others in this blog have good knowledge of.

    I think we can pretty much write-off any manufacturing/assembly industries that primarily rely on unskilled or lower-skilled labor. It’ gone overseas and it’s never coming back – and we would not want it to come back because unskilled manufacturing itself is destined to be a dinosaur. Eventually, computers will manufacture virtually everything with humans only performing the intermediate tasks than cannot be easily computerized.

    That leaves me wondering… what are realistic opportunties for Virginia to seek for non-Fed industry.

  8. Ray Hyde Avatar
    Ray Hyde

    It leaves me wondering what we are going to do with all those people that don’t have the skills,and aren’t likely to get the skills to do those higher level jobs.

    I read somewhere that when it actually comes down to producing all the goods we need for everyday use, all we need is 15% of the workforce. What the heck is everybody else doing that is so important?

    Obviously we have teachers, but if low skilled workers are doing all the production, then what are we teaching people to do?

    We’ve got planners, inspectors, and accountants, to keep track of what the production people do, and salesmen to sell it, and shippers to move it. That’s still only half the workforce, then what?

  9. James Atticus Bowden Avatar
    James Atticus Bowden

    Ray: The answer on what everyone will do is provide services more than goods. But…the key is capital creation.

    I’ve been thinking about writing an op ed before CHRISTmas on the ‘Virtue of Stuff’. I have written on our ‘Munificent Destiny’ as a Nation.

    If we don’t kill the capitalist goose that lays the golden eggs, AND don’t get overrun by an ILLEGAL immigrant population the capital per capita of the U.S. and Virginia will continue to rise so 7% over 10 years equals a doubling of wealth – real wealth taking into account inflation.

    Look at how many lawn services there are. Cleaning services. There will be a huge market for visiting seniors in their homes etc. and caring for them. Those jobs pay low wages for entry workers and a good,not rich, but good income for the business owners.

    Even for the few workers who choose – usually through socially pathological behaviors and decisions – to stay entry level workers all of their lives – if we got rid of socialist security but had individual savings accounts – the lowest wage worker would retire with 3 times what social security provides for a standard of living now – and have a nest egg for the family to inherit.

  10. Jim Bacon Avatar
    Jim Bacon

    Randolph, You asked how Virginia can approach economic development by building the capacity for knowledge, productivity and innovation. Virginia is moving haltingly in that direction by trying to tie university R&D to local industry strengths. But we’re just not doing it very systematically or well.

    The first step is to truly understand our economy. What are the strong industrial clusters that already have a competitive advantage in the global economy? We haven’t done a good job of identifying those clusters. You can’t just look at SIC codes — you have to conduct an in-depth look at an entire business ecosystem of dominant companies, their supply chains, and the specialized companies and professionals (like IP attorneys, venture capitalists, investment bankers, etc.) that support the industry, as well as the not-for-profit institutions such as universities, think tanks, trade associations and professional associations. These clusters represent large reservoirs of knowledge and expertise necessary for innovation.

    As an example of a significant but unappreciated industry cluster, I refer you to the specialty chemicals sector in the Richmond area. (See the article “Cluster Klatch.“)

    Once we’ve identified globally competitive clusters, we (a) focus our economic recruitment efforts on building those clusters, rather than recruiting random businesses; (b) focus on building educational programs that build knowledge and expertise in cluster-related disciplines, and (c) build ties between the clusters and Virginia research institutions. We could probably learn from places like Silicon Valley, San Diego and the Research Triangle, that are decades ahead of most of Virginia. Northern Virginia is ahead of the rest of the state, but could refine its efforts.

    But the bottom line shifts from “creating jobs” and “recruiting businesses” to building the regional capacity innovation and productivity — which results, in the long run, in more, better paying jobs.

  11. Ray Hyde Avatar
    Ray Hyde

    JAB, you disappoint me. I thought sure you would spike the set-up I put up for you.

    Of the reaming 50% of workers, more than half are government bureaucrats, who are diligently working to kill the goose that laid the capitalist egg.

    Anyway, I don’t think we can all make a living taking in each other’s Laundry. Sooner or later someone is going to have to make something of value and sell it.

    For the past ten years the economy has been driven by builders and the housing market, plus people buying things to fill those homes. Now that the housing market is flat, I expect to see bad repercussions.

  12. James Atticus Bowden Avatar
    James Atticus Bowden

    Oops, sorry Ray. So, that’s why I wasn’t in the Olympics.

    Agree that someone has to produce something – and that is what I mean by the capitalist goose laying those golden eggs.

    Having said that, producing something can be all the junk in Walmart for Halloween – for example – products that someone buys.

    As capital increases there is more to be used in new goods and services. It can’t be a service only economy – got it – but there is a lot of room there for un-educated, low-skilled labor.

    Read a great article years ago about the underclass economy in some poor communities where nothing is produced. The source of capital is the government welfare, social security, etc check. It is redistributed around the economy by doing one another’s hair, nails and food. The poverty remains because nothing is produced to sell outside of the poor community.

    At a higher level of pay much of the fuel to NoVa and Tidewater are good paying government jobs and better paying contracts. That is our golden goose for now – and for a long time to come.

  13. Ray Hyde Avatar
    Ray Hyde

    “Read a great article years ago about the underclass economy in some poor communities where nothing is produced. The source of capital is the government welfare, social security, etc check. It is redistributed around the economy by doing one another’s hair, nails and food. The poverty remains because nothing is produced to sell outside of the poor community.”

    Good one. I think that is the point I was trying to make, but couldn’t seem to circle around to it. Today I was in two different strip malls. One was an older one where the anchor store (Food Lion) had pulled out. The other one was a brand new one in a much rebuilt area near Lorton.

    In both malls there were a weight loss place, a nail salon, a hair salon, barber shop, a tanning salon, a bottled water store(?!) and some other services like package mailing.

    One had an auto parts store, and both had a floor coverings shop. Other wise, there was basically nothing for sale in these places.

    All of these places are paying taxes in order to support the good paying government jobs, which, as you have pointed out, don’t produce much of anything either, and are largely wasteful in themselves.

    Talk about a Ponzi scheme. this can’t pssibley be a good situation, and yet the market is at an all time high.

    Go figure.

  14. Toomanytaxes Avatar
    Toomanytaxes

    What are the possible implications on our significant illegal immigrant population if the housing slowdown lands harder than everyone is hoping? I understand that commercial construction is still fairly strong and many work in other low-skill jobs. But what if construction in general slows?

    I’m not attacking or defending this group of people. I’m just wondering what happens to them and the rest of us if a sizable number lose their jobs and cannot find other work? What is the impact on that segment of the community, society and the public fisc?

  15. Ray Hyde Avatar
    Ray Hyde

    My weekend farm hand works construction during the week. His company has reduced the hours they work, and he tells me other large companies have begun layoffs.

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