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Is manufacturing important?
More than 200 years ago, Treasury Secretary Alexander Hamilton recognized a fundamental economic fact. In the 1791 Report on the Subject of Manufacturers, Hamilton stated, "Not only the wealth; but the independence and security of a country, appear to be materially connected with the prosperity of manufacturers."
That fact seems undeniably true today.
Nationwide, an estimated 2.7 million manufacturing jobs have disappeared in the three years since the economy began its nosedive. If manufacturing is a core component of a nation's economy and key to its independence and security, why are we losing companies and jobs in this sector? Is there something we should do?
Trade and currency policies between countries are a necessary part of a nation's strategy, but today, all manufacturers are facing unprecedented demands for change. Not only is technology changing the products that companies sell, but it has also globalized the communication, production and distribution of products.
This capability has made the development and transfer of skills to nations with lower income levels a fact of life for manufacturers. We are seeing this in every manufacturing sector, and locally in the aerospace industry at Boeing.
Because aerospace, like many manufacturing sectors, has been a cyclical industry of boom and bust, many believe that the current situation is just another cycle. However, this is not just another phase to be endured before the next upturn.
The aerospace industry is undergoing fundamental structural change based on several factors. Technology has made it possible to not only design the most complex jet airplanes digitally, but to digitally manufacture them as well. This leap in technology will change Boeing and the other airframe manufacturers into assemblers who simply put together parts manufactured by suppliers from around the world.
This means that local manufacturers will not only have to adjust to new airplanes made of new materials with new processes and techniques, but they also will have to adjust to new customers. Boeing may represent the final customer of their product, but in the future, their immediate customer may call Japan, Korea or Texas home. This structural change in the supplier network will play itself out in most manufacturing sectors over the next several years. It will mean new opportunities for some and lost opportunities for others. How states and regions respond to these issues will determine their economic health.
No long-term strategy
In spite of these growing concerns, federal and state governments have not addressed the issue nor formed a strategy to deal with manufacturing as a significant component of our economy and security.
There are signs of growing awareness and concern in Olympia to address the manufacturing problem. Both Rep. Steve Conway and his counterpart on the House Commerce and Labor Committee, Rep. Bruce Chandler, say a coherent state economic policy is needed on manufacturing and tax breaks.
"We truly need to focus on this issue," Conway said. "I think we need a larger strategy. The danger is we just do one (tax break) here and one there. We need a broader strategy on manufacturing in the state."
Recommendations
As the state prepares for the next legislative session, there are several initiatives that need consideration as part of a plan to retain a healthy manufacturing industry in Washington.
First, identify the real issues that manufacturers face in sustaining and growing their businesses. Because manufacturing is so diverse, there is no regional voice that represents the concerns of all manufacturers.
One solution is to establish an ongoing manufacturing advisory group. An industry-led partnership is necessary to advise the Legislature, economic development, work force, and education partners about the changing requirements of this broad industry. This group could address the specific conditions, policies, and practices that can help boost the long-term competitiveness of the state's manufacturing industry. By working with the Legislature, they can develop a comprehensive strategy to help Washington remain competitive globally in manufacturing.
A second initiative would be to develop a manufacturing research capability. This is needed to advance manufacturing technology as well as to clarify the economic and workforce development policies that would enhance sector competitiveness statewide.
Third, the state should complement federal manufacturing initiatives and support strategies that improve competitiveness. The federal government, through a network of state affiliates designated as the Manufacturing Extension Partnership, has established a resource in Washington known as Washington Manufacturing Services. WMS is designated to reach small and midsized manufacturers that are less likely to be served by large private consulting firms.
Finally, there is the issue of tax exemptions. Wolfgang Opitz, deputy director for Gov. Locke's Office of Financial Management, predicts two major debates for state politicians in the next year: one that looks at costs and benefits of tax exemptions and other breaks given to the business sector, and one that considers exemptions for troubled industries. Among specific tax breaks likely to surface are the state's decade-old deferral of the business-and-occupation tax for high-tech firms that invest in research and development facilities. Another is a sales tax credit for companies that invest capital in new rural plants.
Many believe the state shouldn't just focus on new businesses. There are existing businesses that face some tough decisions, and salvaging those jobs should be just as high a priority as creating new ones. Uppermost in many legislators' minds remains the fact that 200,000 jobs will be lost if the aerospace industry gradually pulls out of this state.
Manufacturing at all levels plays a critical but often overlooked role in our economy. Whether Washington's economy resumes its vigorous growth will depend, in large part, on the success of manufacturers.
