NORTH CAROLINA’S REAL MANUFACTURING FUTURE

My article on the fallacy of wishful thinking based on memories of the past as a planning tool for the future.

NORTH CAROLINA’S REAL MANUFACTURING FUTURE

The NC Rural Economic Development Center recently issued a new report entitled “Our Manufacturing Future”, highlighting the historic prominence manufacturing has had in North Carolina and projecting its importance in the future.  Newspapers and other media statewide covered the release of the report, giving positive coverage to the hopefulness of a manufacturing resurgence. The report, presented in a most colorful and eye-appealing manner, provides a geographic dispersion of manufacturing types by region, gives the numeric ratings of each manufacturing area’s strengths, and outlines plans to promote manufacturing in North Carolina moving forward.

Manufacturing truly has been a cornerstone of North Carolina’s economy and it provided the first (and largest) opportunity for many workers looking to avoid the vagaries of agricultural life.  The NC Rural Economic Development Center represents the 85 (of the state’s 100 total) non-urban counties in the state and works to provide more economic opportunity for its citizens.  According to their website: “Our mission is to develop, promote and implement sound economic strategies to improve the quality of life of rural North Carolinians. We serve the state’s 85 rural counties, with a special focus on individuals with low to moderate incomes and communities with limited resources.”  A plan to improve opportunities in manufacturing certainly fits within the mission of the organization.

The report was developed by an economic development consultancy called Center for Regional Economic Competitiveness out of Arlington, Virginia.  The focal point of the plan is based on an economic development concept popularized twenty-three year ago known as “cluster” economic development.

Promoted best by Harvard professor Michael Porter in his book “The Competitive Advantage of Nations” in 1990, cluster theory advances the ideas that industries best thrive in two scenarios: 1) when companies have the benefit of many or all of the related components of what they use nearby, raising efficiencies and synergies among industry suppliers and, more so, 2) when they are surrounded by like companies, creating a level of shared, yet competitive, expertise and an ever-evolving higher level of competence in that industry.

In many cases clusters are considered the core of the economy in whatever geographic location is being analyzed and it may take decades for a cluster to fully develop.   A cluster strategy is generally applicable to most areas, and economic developers across the U.S. recognize and practice cluster development when it is suitable.  The downside to an aggressive cluster focus is what we in North Carolina are going through right now.  The clusters of furniture, tobacco, textiles and apparel – manufacturing in general – all witnessed a comprehensive, concurrent collapse.

Aggressive promotion of cluster identification and development can produce another set of downsides.  In their zeal to engage in the cluster arena, Greensboro’s economic development organization conducted a series of studies beginning in year 2000.  Over a six year period, five cluster evaluations were performed by a variety of consultants and third-party assistants.  These six studies came up with 24 separate and independently recognized industries to pursue.   The meaning of cluster concentration got a little fuzzy.

Related to the concept of cluster economic development is the measurement of each industry (in this case, manufacturing subgroups) level of size and activity versus others.  The authors of the study used the term “Relative Concentration” to denote the strength or lack of a competitive presence of industries – and in this case focused specifically on the employment strength of 25 different sectors within the manufacturing arena.  “*Relative concentration reflects the percentage of a region’s cluster employment compared with the cluster’s total employment nationally. A value over 1.0 indicates a concentration higher than the national average.”  In other economic development circles, the term “Location Quotient” is used to reflect these values.  By either name, the intent is to identify and measure one’s areas of strength in areas that are growing.  Those areas are often adopted as preferred clusters to develop further.

But as we will soon discuss, times have changed.  Unless the manufacturing that is being pursued involves the well-honed crafters that certain rural areas can proudly call home – like hand-made quilters and Appalachian dulcimer makers – this location quotient /“relative concentration” is merely a reflection of past economic activity and may have absolutely no impact on future manufacturing capacity.  Except for the information expressed on the pages indicating the history of the data collected, this report could very well have been written twenty years ago, right after Dr. Porter’s book was issued.

The report the NC Rural Center released was “Part 1: Findings”.  Part 2 is scheduled to be released in the near future “with recommendations for expanding opportunities for North Carolina manufacturers, including small firms and those located in rural communities.”  However, this report did include one piece of guidance:  “One overarching recommendation, however, merits immediate attention: establishment of a high-level North Carolina Manufacturing Council to develop and oversee a cohesive, statewide manufacturing policy agenda”.   (Doesn’t this sound familiar?  Perhaps another “strategic plan” to go with it?)

 

The Rules Have Changed

 

Over the last thirty years that manufacturing has been in an unevenly spaced decline in the U.S., the American South, and North Carolina in particular (most noticeably in the last fifteen years), thousands of families whose livelihoods depended on the mill or plant operating lost their means of supporting themselves.  Due to no fault of their own, the game changed.  Some saw it coming and never adapted and many were blindsided.  The progression of disruptive technologies marched on and we are seeing another tipping point of change.  The same thing is happening now – with a mix of both opportunity and threat to the status quo.

The report cites the turnaround in manufacturing – that for the first time in fifteen years there was employment growth in manufacturing – and that this gives cause to redouble our focus on this resurgent industry.  So, after fifteen years of employment losses, 400,000 in total (going back several more years with 90,000 in the Piedmont Triad region alone), a gain of 3,000 manufacturing jobs in one year is deemed a signal of a turnaround.  A more appropriate name after a one year gain on the heels of fifteen consecutive years of losses, using old stock-brokerage terminology, would be a dead-cat bounce.  (The term was used when describing a market rise after a prolonged decline – “dropped from enough altitude even a dead cat will bounce”).

This abundantly obvious trend is what makes the information that this report was based on so confusing.  The purpose of researching and exploring the “relative concentration” of these industries is to identify where you might have a comparatively stronger position in any of the sub-categories.  But the key element is that the analysis is structured to only focus on areas of growth; clusters in decline are not even eligible for discussion.  A one year blip on the radar of manufacturing improvement hardly qualifies as a growth trend.  In other words, doing a relative concentration study would clearly indicate that North Carolina has a strong position relative to other states in manufacturing.  But because of the substantial decline in manufacturing, one would never pursue that industry – it is not in a growth mode.  The cluster you pursue – by definition of this type of study – is a growth industry, not a declining one.

The predetermination that manufacturing was going to be aggressively pursued is the subject for another article.  But if the basis for that pursuit is related to the results of this study it missed the mark because there is no foundation.  It makes more sense logically to simply say “we like manufacturing a lot” as the basis for trying to re-create a manufacturing resurgence than what was contained in this report.  We could just have easily said “we like newspapers a lot”, do the same relative concentration study, find that North Carolina has a strength there, and focus our efforts on rebuilding this declining industry.

Nevertheless, manufacturing may not be as dead as recent history would indicate – but for different reasons.  As stated before, the rules – the economy – has changed.  Old style manufacturing will always be with us at some level.  But most of our collapse in manufacturing employment has gone and is not coming back.  It is the new methods of manufacturing that will provide the bulk of the growth moving forward.

Robotic participation in manufacturing has been around for years, but the robots have been extremely expensive and difficult to program.  Rethink Robotics (the company created by Rodney Brooks, who previously created the company iRobot, which makes the Roomba autonomous robotic vacuum cleaner) has just introduced its newest creation in the marketplace.  Named Baxter, this $22,000 robot is simple to program, can do most any rote task, and the price makes access to this productive efficiency available to even the smallest manufacturing operation.  The cost of mass-produced products can be substantially reduced utilizing this technology.

The other significant disruptive technology that is becoming mainstream is 3-D printing.  Most of the printers are no bigger than a table-top paper cutter and prices have fallen to as low as $1,000.  Those who attended the recent Institute for Emerging Issue forum on manufacturing held in February got a glimpse of this technology.  Among the presenters giving us a look at the future was Chris Anderson, formerly editor-in-chief at Wired magazine and now a 3-D manufacturer (and the subject of the article “Why I left Wired – 3D Printing Will Be Bigger Than The Web”).  There are many credible reports that the migration of manufacturing from today’s methods to new technologies is beyond simple training with a new apparatus.  The emerging Do-It-Yourself (DIY), Maker movement and Hackerspace models will require more technical training in Computer Aided Design (CAD) and other formats to reach a tipping point of being fully market-ready.  But currently, there seems to be little or no movement in training in that direction.

And this is another place where the report with its recommendations fails.  This plan presumes that very little has changed in rural North Carolina (which is arguably true), but completely ignores the fact that the world outside has changed.  (Note to report authors: It has.)  These new manufacturing techniques are game-changers and need to be aggressively pursued.

The report and plan totally missed robotics and 3-D printing – the two technologies that will dominate manufacturing in the not-too-distant future.  And the beauty of these new technologies is that they can be placed anywhere – especially the 3-D printers.  The good news is that 3-D printing, for the most part, does something to benefit rural areas that all of this “relative concentration” view of history doesn’t.  With the exception of specialized situations such as printing biological objects (like organ replacement) that take unique skills and access to high-tech lab operations, 3-D printing democratizes production.  In as little as a spare bedroom or as big as one of the thousands of unoccupied factory and warehouse buildings that are equal-opportunistically dispersed across the state, there is plenty of room to manufacture in the new paradigm.

 

Education and Training are Critical

 

Community colleges have a significant role to play in how this plays out.  For generations these schools have provided the training and education for tens of millions of Americans to better their lives.  To the community colleges’ credit, if an existing business or a possible business relocation or expansion needs specific training, every community college I have ever encountered goes through walls to make it happen.  They fulfill those requests admirably.

However, community colleges have the notoriety for being re-active to requests for training – or simply teaching the same curriculum they have always taught.  (Excerpted from “Pardon the Disruption. The Future You Never Saw Coming” ©2013 – in publication process):   “We are teaching today the same message in much the same style as we did when Dwight Eisenhower became president. The style of learning and the content of what is being taught are largely preparing our youth for jobs that have now disappeared.  (Continuing…)

… someone with an eye on the future will realize that robots will be doing most of the assembly and distribution work inside five-eight years.  Are they teaching an intro to robotics course?  Robotics repair?  Anything?  3-D printers are now priced between $1,000 and $2,000 dollars.  Cost is no barrier to entry for getting the equipment to teach students how to use one.  Businesses will be adding them and there is room for entrepreneurial opportunity.  Anyone can get in the business.  Do you see any courses on 3-D printing in their course catalog?  Hardly.”

Are our friends at the community colleges up to the challenge?  We’ll see.

The NC Rural Economic Development Center has done great work in the past to encourage opportunity in the less populated, less developed parts of the state.    In manufacturing’s heyday, these industrial jobs provided opportunities for workers to provide a steadier, more predictable source of income.  Because it worked once, there is some wistful look backward to try to recreate the past.  That is what this report seeks to promote – by evaluating a segment of the economy based on its present and, more so, its past stature.  It’s analogous to evaluating the opportunities in agriculture based on the current number and location of plows and mules.

Because there are still manufacturing operations being sited and expanded with the old operational lift and tote mentality, we don’t notice the rapid changes in this sector.  The future for manufacturing in rural areas will only be marginally based on the old evaluative model of “location quotient” or “relative concentration”, and more so on education and training – in areas that our education system has yet to accept – much less, deliver.  The undeterminable timeframe to close the gap of knowledge that can be applied to manufacturing work and jobs in these new areas is the challenge before us.  And this report has us looking in the wrong direction.

Let’s look to the future and build our rural economies with the tools of growth and productivity as opposed to simply trying to re-create our past.  The infrastructure is in place: we have the physical structures with our high schools and community colleges; we have extensive enough broadband to access that which we don’t have on the ground.  If there is enough of an aim to grow this area as to create a Deputy Secretary of Commerce for Manufacturing (as proposed by Governor McCrory) and the will to create a North Carolina Manufacturing Council, then maybe we could expend some level of effort in finding capable instructors to teach these new technologies.  I cast my support for more direct capacity-building education over two new suggestions for well-intentioned, but increased, bureaucracy.  The proud heritage of the NC Rural Economic Development Center can lead the way.

 

Rob Bencini, MBA, is a Certified Economic Developer (CEcD) and an Economic Futurist.  He may be reached at www.robbencini.com   rbencini@earthlink.net  or @robbencini.

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