Bacon's Rebellion

Democracy Thrives in Sunlight

Yes, Virginia, There Still Is Hope for Manufacturing

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by

James A. Bacon
in

I remain skeptical that Virginia’s mill towns should peg their hopes for economic revival on manufacturing (see “Virginia Manufacturing Jobs Still in Decline“). But Stephen Moret, CEO of the Virginia Economic Development Partnership, makes a powerful case that Virginia can improve its track record in luring manufacturing investment.

In a lengthy comment to my post, Moret lays out his strategy, key tenets of which include building a national-class custom workforce training program, investing in site preparedness (building industrial parks on speculation), marketing more aggressively outside the state, and being more creative (and competitive with other states) on incentives.

Among the interesting tidbits of news in his comment is the fact that VEDP has has just recruited one of the top experts in the country to run the custom workforce training program, Mike Grundmann, from Georgia. He will start work next month, says Moret. “We expect to have this program up and running by late this calendar year.”

Moret has thought deeply and comprehensively about what it takes to spark a jobs revival in Virginia’s non-metropolitan areas — an effort that extends to creating small-metro and rural tech centers and a focus on place-making in historic downtowns. I am sure that the reforms he is putting in place will make a difference: Virginia will succeed in recruiting more manufacturing investment than it has done in the past few years. If you’re going to pursue a manufacturing-centric economic development policy, do it right!

Whether that’s the best use of limited resources… well, that’s another matter. But by all means, let’s have that discussion.

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18 responses to “Yes, Virginia, There Still Is Hope for Manufacturing”

  1. Steve Haner Avatar
    Steve Haner

    Always happy to have Moret reading and responding, and he remains a major asset to the state. I lift the following from his comment on the other post and paste it here for further discussion. “Targeted business tax reform is yet to be tackled.” Thank you.

    In a way, you have to view incentive packages like the one put together for Amazon or the one’s I worked on for the shipyard as, at least indirectly, about taxes. They are tax rebates on payroll or property or revenue which, for the corporate bean counters, improve the ROI on the deals. I continue to submit that it is GENERAL business tax reform that Virginia needs to tackle, because if Virginia’s economy only advances when the state or local economic development teams “incentivize” (“buy”) the business, progress will be in fits and starts. A broad move away from business property taxes and you might see broader results. Perhaps that is what Moret meant.

    But standing in that Senate Finance Committee subcommittee meeting and basically being met with laughter and disdain when I pushed a cut in the corporate income tax rate, I looked around and noticed I was standing alone. Even when you are right, that is discouraging.

  2. djrippert Avatar
    djrippert

    I hope Mr. Moret is keeping an eye on tech trends. A lot of the labor intensity in manufacturing, call centers, etc is going away due to automation. And it’s not always science fiction like AI. Robotic Process Automation (RPA) is a grand term for next generation scripting and screen scraping in my opinion. However, even as a traditional technology, it’s cutting the labor out of call centers ….

    https://www.nojitter.com/ai-automation/contact-centers-about-get-smaller

    1. Steve Haner Avatar
      Steve Haner

      How discouraging to know I’m throwing insults at a robot when I’m tricked into picking up the phone…..

    2. smoretva Avatar
      smoretva

      “I hope Mr. Moret is keeping an eye on tech trends. A lot of the labor intensity in manufacturing, call centers, etc is going away due to automation.”

      Indeed we are following those trends pretty closely. I largely would place those trends under the still-relevant quote, “software [and tech more broadly] is eating the world.” I can’t recall who first said it, but it strikes me as very accurate. We want Virginia to be a leader in that shift, which is why we are so excited about the Commonwealth’s big tech-talent pipeline initiative, which is going to double the number of graduates we produce each year in computer science. While most of the tech growth likely will occur in our larger metro areas, there are real opportunities for smaller metros and rural areas to compete. We are aggressively cultivating those opportunities.

      Re: manufacturing and automation, that has been going on for a very long time. But I do think manufacturing as a sector will continue to be around as a significant employer for many years to come. More capital intensive, less job intensive (although often with higher wages), but still a lot of good job opportunities, particularly for smaller regions.

      1. djrippert Avatar
        djrippert

        Marc Andreessen first noted that software is eating the world in an essay printed by the Wall Street Journal in 2011.

        The talent pipeline initiative is a good idea if we can keep the talent in Virginia. For that we need a) a catalyst, b) an effective entrepreneurial environment and c) walkable, urban areas. Amazon in Arlington is a great example of a catalyst but will there be sufficient venture capital to fund the inevitable spin-offs? Let’s hope so. Will Potomac Landing become the kind of walkable urban community that millennials love? Let’s hope so.

        But that’s just one catalyst. What might be some others:

        1. Blockchain along with the Port of Virginia in Hampton Roads.
        2. Biotech along with the UVA Medical Center in Charlottesville.
        3. Internet of Things around Tridium and Decisiv in Richmond.

        Those are all big metro ideas. I am a lot less convinced that rural Virginia and small metro Virginia will effectively compete around technology. It doesn’t seem like that happens elsewhere so I’m not sure why it will happen here.

  3. smoretva Avatar
    smoretva

    “investing in site preparedness (building industrial parks on speculation)”

    That’s not quite what we are suggesting, although I realize my comment may have left that impression. Most of the investments we envision relative to site preparedness focus on site characterization, due diligence, and site planning/engineering (i.e., soft costs). Most of the sites we need to succeed in landing more manufacturing and distribution projects already have been identified and generally already are earmarked for such projects. The problem is that the timelines for them to be ready for a manufacturing project generally are too long. We can close most of the gap with soft cost investments (like those referenced above), although certainly we will recommend some targeted infrastructure investments, as well. We envision that most (but not all) of the substantial site investments in hard infrastructure (roughly 80% of total site development costs) will occur only after a quality project has been secured, and with a long-term job and capital investment commitment from the company involved.

    Virginia is behind right now versus many of our competitors relative to site investment, but the work we’ve begun with continued investment could help us leapfrog other states over the next few years.

    1. Acbar Avatar
      Acbar

      Thanks for this clarification. Actually shortening the generic infrastructure and permitting timelines by getting ready to move quickly makes good sense. But instead, I get the sense that all too often the local government goes out and designates a chunk of scrub timberland as a “future industrial park” and, with nothing more, declares victory.

      Do you have a sense how much incremental benefit there is to placing concrete and steel in the ground — actual infrastructure construction — as opposed to doing the soft engineering preparedness and waiting?

      1. smoretva Avatar
        smoretva

        “Do you have a sense how much incremental benefit there is to placing concrete and steel in the ground — actual infrastructure construction — as opposed to doing the soft engineering preparedness and waiting?”

        Having everything ready, including infrastructure, is super enticing to prospects. The problem is that it is difficult to determine with any precision when an acceptable prospect will take the site — in some cases, it could take many years, even if everything is done well. Accordingly, while fully prepared sites (with all necessary infrastructure in place) definitely are the most attractive to prospects, they also entail the greatest fiscal and political risk to public funders. We can get many more sites in a competitive position by focusing mostly on soft costs, increasing the number of wins while minimizing fiscal (and political) risk. That said, I do think it would make sense for several attractive/strategic sites to be fully prepared, including necessary infrastructure.

        We also are exploring potential ways to entice the private sector to do some of the up-front investment, with the state potentially providing incentives to them on the back end (i.e., once an acceptable project has been secured).

        Additionally, utilities can play a role by developing infrastructure in areas with real potential. Recent legislation will enable this to happen more frequently.

        1. Reed Fawell 3rd Avatar
          Reed Fawell 3rd

          Steve –

          I find the new high tech aspect that you suggest now might be to brought to this economic development arena quite fascinating. In addition, I have long thought that modular construction – factory built and then site assembled – if properly appreciated, funded, organized, and deployed for the benefit of the site acquisition clients could bring great value to the marketability of a site or collection of sites within a market, given the great time, cost, and simplicity benefits that modular if properly done, can bring to most any site transaction, soup to nuts delivered.

          We just need a new up-to-date way of thinking about how to lever up modular construction. Such as:

          Might today’s advantages of modular be leveraged by the other high tech advantage that you mention? Do these co-joined advantages of this new approach multiply given the crying need for affordable housing today? And many other applications, too. Modular technologies now with today’s higher tech can apply to single family, residential mid-rise and high rise, and commercial buildings, ranging from manufacturing to high rise office, and most everything in between.

          Why should not Amazon consider all these possibilities? And consider not only what it can bring to industry, but also for itself, as well as for others clients in a rapidly expanding market given advantages of scale?

          1. smoretva Avatar
            smoretva

            Reed, interesting ideas. Thank you for sharing them. There are a bunch of companies looking at doing what you describe. We are exploring that sector, but there doesn’t appear to be as much activity there right now as in some of the other areas we are pursuing. Stay tuned.

  4. smoretva Avatar
    smoretva

    “I continue to submit that it is GENERAL business tax reform that Virginia needs to tackle, because if Virginia’s economy only advances when the state or local economic development teams ‘incentivize’ (‘buy’) the business, progress will be in fits and starts. A broad move away from business property taxes and you might see broader results. Perhaps that is what Moret meant.”

    I generally agree with you. I would just submit that this is not an either/or proposition. Broad-based business tax reform definitely would help Virginia improve its economic development results (and reality and perception of our business climate), particularly with respect to manufacturing expansions and new manufacturing sites. At the same time, even for states with the most attractive state/local tax environments for manufacturing, there will always be high-quality, highly competitive manufacturing projects for which some kind of temporary incentive can represent a tipping point factor once a company has narrowed its choices down to a small number of locations offering relatively comparable advantages.

  5. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    From my observations on the periphery of the mechanics of economic development, I had gotten the impression that tax burden was not at the top of the lists of features that companies looked at when choosing a new location. Based on a couple of articles and surveys on the internet, that is still the case. The quality and cost of the labor market, transportation, and other community factors generally rate above taxes.

    Mr. Moret recognizes this in his comments emphasizing workforce development. I am not sure what he means by “customized, turnkey workforce recruitment and training solutions”. It sounds like the state and locality will be willing to provide whatever employee training a manufacturer needs.

    This issue of workforce development has stuck in my craw for a long time. In the past, companies looked for a community in which a large segment of the population had a good work ethic and the companies themselves then trained its employees for the tasks they needed to perform. It was the public sector’s responsibility to provide their residents with good reading, math, science, and reasoning skills and the companies would use that base to provide training in the specific skills needed, using apprentice programs, among other methods.

    Apparently that is no longer the case. Not only are the state and localities expected to provide tax breaks, a prepared site, and bribes (er, incentives), they are also expected to train the company’s employees. I find one small example illuminating. VCCS runs a program at Ft. Pickett which teaches potential employees of Dominion and Apco to climb utility poles. No longer do the utilities have to use time and resources training their employees for this task.

    One other statement in Mr. Moret’s comments caught my eye: “… Virginia, which for the last few years (until the current fiscal year) had a zero marketing budget for economic development”. I thought that was the function of VDEP—marketing economic development. What was it doing with all that state appropriation for which it is largely unaccountable, if not marketing economic development?

    1. djrippert Avatar
      djrippert

      The lack of corporate training is pretty astonishing. I guess it’s easier for companies like Microsoft to apply for lots of H1B visas than to train Americans. Virginia ought to consider what it allows with respect to non-compete clauses. California banned these clauses years ago and, if anything, it seems to have catalyzed their innovation culture. Virginia could consider making non-compete clauses available to those companies which commit a certain level of training for Virginia-based employees.

    2. smoretva Avatar
      smoretva

      “From my observations on the periphery of the mechanics of economic development, I had gotten the impression that tax burden was not at the top of the lists of features that companies looked at when choosing a new location.”

      Not usually at the top but often an important factor, particularly when comparing 2-3 locations with otherwise similar attributes. Most corporate real estate execs (>82%) and most site-selection consultants (>94%) indicate that taxes and incentives are “very important” or “important” site-selection factors. See recent national survey results here:

      http://www.areadevelopment.com/Corporate-Consultants-Survey-Results/Q1-2019/33nd-annual-corporate-survey-15th-annual-consultants-survey.shtml

      “I am not sure what he means by ‘customized, turnkey workforce recruitment and training solutions’. It sounds like the state and locality will be willing to provide whatever employee training a manufacturer needs.”

      We will be collaborating with VCCS to create a program offering comparable to (and eventually better than) the top-ranked custom workforce programs in Georgia and Louisiana:
      https://www.georgiaquickstart.org
      https://www.opportunitylouisiana.com/faststart

      These programs (and the one we are creating) provide employee recruitment, screening, development of customized training down to the position level, and delivery of that training at at no cost to participating firms. Each solution is customized for the particular project in question, with program and community college staff working closely with company subject matter experts.

      You are correct that many companies used to (and many if not most still do) handle their own position-specific training, but those who regularly locate manufacturing facilities (either greenfield sites or expansions) often love the full-service offerings of places like Georgia and Louisiana. The program we are creating will only be offered for competitive projects where it could make a difference in the company’s location decision.

      “One other statement in Mr. Moret’s comments caught my eye: ‘… Virginia, which for the last few years (until the current fiscal year) had a zero marketing budget for economic development’. I thought that was the function of VDEP—marketing economic development. What was it doing with all that state appropriation for which it is largely unaccountable, if not marketing economic development?”

      VEDP has always had staff to directly work with prospects and site consultants, as well as a research team and other staff necessary to support business development efforts. A few years ago, I think during the lean years of BRAC/sequestration, the state eliminated VEDP’s third-party marketing budget, which meant extremely limited funding was available for major trade shows, targeted paid media in trade pubs, consultant fam tours, sponsored conferences, etc. Following that cut, awareness of Virginia’s assets and advantages for business among c-level execs and site consultants dropped substantially. You can see that drop in all of the national business climate surveys of business execs going from about 2012 to 2015. Less awareness resulted in fewer leads for new project opportunities.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        Note Steve Moret’s statement above, namely:
        “We will be collaborating with VCCS to create a program offering comparable to (and eventually better than) the top-ranked custom workforce programs in Georgia and Louisiana:
        https://www.georgiaquickstart.org
        https://www.opportunitylouisiana.com/faststart”

        This statement is very reassuring. Its initiative is critically needed. Now combine it with Steve’s earlier statement below Jim’s earlier post, namely:

        “Georgia and Louisiana (and to a lesser extent South Carolina, North Carolina, and Alabama) offer customized, turnkey workforce recruitment and training solutions for manufacturing expansions and new manufacturing locations. Such programs are particularly helpful for rural areas and smaller metros where workforce availability often is of greater concern to prospects. With funding from the General Assembly, we are about to create just such a program in Virginia, in close partnership with VCCS. We just recruited one of the top custom workforce development experts in the country from Georgia to run the program … Mike will be starting next month, and we expect to have this program fully up and running by late this calendar year …

        (Plus) with new funding from the General Assembly, we are about to characterize roughly 400 potential manufacturing sites across Virginia, and we expect to begin preparing many of them for projects starting in 2020. …

        (Plus) With new funding from the GA, we are ramping up (Virginia’s) marketing efforts this year. I expect we will be seeing greater awareness and more leads in the near future. … ”

        (S0) Custom workforce solutions, site preparedness, and marketing are actively getting addressed. The FastForward program at VCCS also is helping on the workforce front. Incentive challenges are being addressed on a case-by-case basis for larger projects, but more can be done there. Targeted business tax reform is yet to be tackled … But, I also think there is more good work to be done (there) with placemaking, particularly in historic downtowns. DHCD and some localities are doing important work in this space, and we think there will be opportunities for VEDP to assist, particularly with tech-related jobs (see below).” END QUOTE

        Why are these initiatives so critically important?

        Why are these initiatives such an important new realm for the heavy involvement and commitment of Virginia’s state government?

        Simple put, these programs are an essential key to the revival of many of our faltering communities, and the revival of many Virginian’s who live in those faltering communities.

        Why?

        These are the solutions that work. These solutions give citizens real hope, and real respect, while they put citizens back to work with real skills, without the cost of a college degree. On this basis alone, the costs of these initiates are minuscule compared to any alternative. Not only that, these initiatives fill a huge gap, and do so in a surefire investment way. Without handouts.

        Instead these solutions create the best kind of wealth of all – skills, confidence, spirits, independence, and vitality within citizens who then build for themselves strong futures, naturally within a far stronger communities. These sorts of jobs and human resources are the essential ingredients to reconstructing the lives and human places that have been neglected for far too long. These are programs and initiatives that built platforms for people to stand on, places where they can gain and earn a vast array of other skills and benefits, like those needed to make families, children, and schools that really work. A citizen with such skills and job is a citizen reborn with not only hope, but also with the means and ambition to fulfill his or her human potential. With college or without it. They will change the world. Virginia now apparently knows this. I suspect that is reason why Steve Moret says: “We will be collaborating with VCCS to create a program offering comparable to (and eventually better than) (0ther) top-ranked custom workforce programs (elsewhere.)

        Of course there is a whole other component to this initiative, namely:

        “One other driver beyond manufacturing that we think holds great potential in Virginia is small metro and rural tech centers. Think of CGI in Lebanon, for example. We are actively cultivating several projects in that space. The new tech-talent investment program coming out of the Amazon HQ2 project will help open up new tech-related opportunities across Virginia (about half of the new investments in computer science programs will happen outside of NOVA). These tech projects may be small to start, but they are real and represent part of a fast-growing segment of the U.S. economy.”

        Targeted business tax reform is yet to be tackled. It surely needs to be. As do other obstacles to these programs, if all places within Virginia, and all of its citizens, are to achieve the future and renaissance they deserve.

      2. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        Note Steve Moret’s statement above, namely:
        “We will be collaborating with VCCS to create a program offering comparable to (and eventually better than) the top-ranked custom workforce programs in Georgia and Louisiana:
        https://www.georgiaquickstart.org …”

        This statement is very reassuring. Its initiative is critically needed. Now combine it with Steve’s earlier statement below Jim’s earlier post, namely:

        “Georgia and Louisiana (and to a lesser extent South Carolina, North Carolina, and Alabama) offer customized, turnkey workforce recruitment and training solutions for manufacturing expansions and new manufacturing locations. Such programs are particularly helpful for rural areas and smaller metros where workforce availability often is of greater concern to prospects. With funding from the General Assembly, we are about to create just such a program in Virginia, in close partnership with VCCS. We just recruited one of the top custom workforce development experts in the country from Georgia to run the program … Mike will be starting next month, and we expect to have this program fully up and running by late this calendar year …

        (Plus) with new funding from the General Assembly, we are about to characterize roughly 400 potential manufacturing sites across Virginia, and we expect to begin preparing many of them for projects starting in 2020. …

        (Plus) With new funding from the GA, we are ramping up (Virginia’s) marketing efforts this year. I expect we will be seeing greater awareness and more leads in the near future. … ”

        (S0) Custom workforce solutions, site preparedness, and marketing are actively getting addressed. The FastForward program at VCCS also is helping on the workforce front. Incentive challenges are being addressed on a case-by-case basis for larger projects, but more can be done there. Targeted business tax reform is yet to be tackled … But, I also think there is more good work to be done (there) with placemaking, particularly in historic downtowns. DHCD and some localities are doing important work in this space, and we think there will be opportunities for VEDP to assist, particularly with tech-related jobs (see below).” END QUOTE

        Why are these initiatives so critically important?

        Why are these initiatives such an important new realm for the heavy involvement and commitment of Virginia’s state government?

        Simple put, these programs are an essential key to the revival of many of our faltering communities, and the revival of many Virginians who live in those communities.

        Why?

        These are the solutions that work. They give citizens real hope, and real respect, while they put citizens back to work with real skills, without the cost of a college degree. On this basis alone, the costs of these initiates are minuscule compared to any alternative. Not only that, these initiatives fill a huge gap, and do so in a surefire investment way. Without handouts.

        Instead these solutions create the best kind of wealth of all – skills, confidence, spirits, independence, and vitality within citizens who then can build for themselves their own strong futures, naturally within a far stronger communities. These sorts of jobs and human resources are the essential ingredients to reconstructing the lives and human places that have been neglected for far too long. These are programs and initiatives that build platforms for people to stand on, places where they can gain and earn a vast array of other skills and benefits, like those needed to make families, children, and schools that really work. A citizen with such skills and job is a citizen reborn with not only hope, but also with the means and ambition to fulfill his or her human potential. With college or without it. They will change the world. Virginia now apparently knows this. I suspect that is reason why Steve Moret says: “We will be collaborating with VCCS to create a program offering comparable to (and eventually better than) (0ther) top-ranked custom workforce programs (elsewhere.)

        Of course there is a whole other component to this initiative, namely:

        “One other driver beyond manufacturing that we think holds great potential in Virginia is small metro and rural tech centers. Think of CGI in Lebanon, for example. We are actively cultivating several projects in that space. The new tech-talent investment program coming out of the Amazon HQ2 project will help open up new tech-related opportunities across Virginia (about half of the new investments in computer science programs will happen outside of NOVA). These tech projects may be small to start, but they are real and represent part of a fast-growing segment of the U.S. economy.”

        Targeted business tax reform is yet to be tackled. It surely needs to be. As do other obstacles to these programs, if all places within Virginia, and all of its citizens, are to achieve the future and renaissance they deserve.

        1. Reed Fawell 3rd Avatar
          Reed Fawell 3rd

          There is a very important point to be made with these sorts of programs called quick start or fast forward, Although I have yet to see it expressly made, I assume it is well known that there is the powerful connection between a job, a marriage, and a responsible citizen. The literature is full of this, particularly as it regards young men. Gainful and meaningful work for them is critically necessary if they are to have the best, or even a fair chance, of hooking into their community in a positive way. This is often the most critical building block of a young man’s adult life. Here is where they can build and reaffirm the social, emotional, control and discipline, and confidence skills, they need to take the next key steps in their lives to adulthood within their community, a family, and support network. How are fast forward programs buttressed or enlarged to help in this continuing process of maturation and integration into society? I sense this in Virginia’s evolving program. In any case, these program about far more than the old definition of job training. Or surely they can be.

  6. LarrytheG Avatar
    LarrytheG

    Fascinating conversation and interesting insights into Mr. Morets thinking on issues (which I put much stock in).

    In terms of Dick’s comment on workforce training and then a later comment by DJ on H1B visas.

    For what it is worth (or not) – folks who are able to immigrate on H1B Visas seem to be “shovel-ready” for employers – a wide range of tech employers… apparently.

    So that makes me wonder if the basic competencies of math, science, reading – those need to be higher in the 21st century and it’s not really job-specific training but workers now must have higher levels of competencies in the basics reading, writing, arithmetic (STEM writ large) and other countries are already doing that and we are not – and so we get folks from overseas on H1B Visas ready-to-work to take available jobs while we ourselves have folks like Mr. Moret urges us to work more diligently on workforce training.

    Perhaps if he is still listening -he might further elaborate on this issue.

    For what it’s worth – if Virginia upped it’s game on education but not on ED – at least our kids would be able to find jobs – even if not in Va!

    Mr. Moret is on target in my view and until he came on the scene – we had not such a good approach… incompetence mixed in with crony capitalism and wacka-doodle special interest deals that pretty much failed the smell test even before they got on the ground.

    We’ve squandered our tobacco settlement money, for example. Turned that money over to carnival barkers and charlatans to enrich their own pockets instead of helping citizens in RoVa.

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