Manufacturing Job Creation is a State Issue

Jack Stewart
Board Member, National Alliance for Environmental Reform and former President of the California Manufacturers and Technology Association

A few days ago, Governor Brown made the surprising statement that our state’s massive loss of manufacturing jobs is not a unique California problem because we have “lost manufacturing at about the same rate as the rest of America.”

While it is true that both the US and California have suffered manufacturing job losses, California’s industrial job loss rate was nearly ten percent higher than the U.S. loss rate.  In real numbers, we’ve lost a staggering 626,000 manufacturing jobs in the past decade.  If California had tracked with the national manufacturing job loss percentage, we would have 55,000 more Californians receiving paychecks than we do today.

More significantly, economists are proclaiming manufacturing growth is leading the national recovery.  Bloomberg notes, “Manufacturing accounts for about 12 percent of the economy and was at the forefront of the recovery that began in June 2009.”   Contrary to this national trend, California manufacturing is moving in reverse.  During 2011, the U.S. created 227,000 new manufacturing jobs, while California lost an additional 4,000 manufacturing jobs.  These are the middle class jobs that our elected leaders say they covet, but do very little to encourage and protect.

State policy has a tremendous impact on manufacturing job growth.  States with a positive business climate (competitive operating costs, a trained workforce and a predictable regulatory climate) outpace states with negative business indicators.  California’s 34 percent manufacturing job loss compares with Texas at 21 percent, Indiana at 29 percent and Louisiana at 19 percent.

Business climate issues also have a direct impact on new investment.  From 1977 to 2000, California received 5.6 percent of the nation’s new and expanded industrial facilities.  Since 2001, California’s share of those facilities has plummeted to 1.9 percent.  Industrial investors plan on a 10 to 15 year time horizon when making large investments in land, buildings and equipment.  States with long-term budget deficits, excessive infrastructure needs and aggressive regulatory agendas seldom make the short list of corporate planners.

It’s true that California continues to be the innovation state – we receive a large share of investment capital.  But in the past decade, we have lost our ability to both innovate and manufacture new products here.   From 2005 to 2009, California received 48 percent of U.S. venture capital investment, but only 1.3 percent of U.S. industrial investment.

The current model is to innovate in California, manufacture in a more cost-competitive state or country, and market back to California consumers.  Under this scenario, California gets the jobs advantage of small, start-up research and development firms, but loses the enormous jobs benefit when those new products move to the production stage.

California’s modern government grew up of an era of rapid industrial expansion.  During the 1950s, 60s and 70s, California led the nation in industrial growth, becoming the top manufacturing state in 1977.  With that growth came a flood of new tax revenues allowing California to invest in infrastructure, education and new social programs.  California became dependent on the largess of a robust industrial economy.

During the ensuing 40 years, California found pride in implementing “first in the nation” environmental regulations.  Clean air, land and water are laudable goals, but the associated regulatory costs have had an impact.  Four decades of accelerating environmental activism have taken a toll on our ability to attract new investment and jobs.

We’re told by financial analysts that American corporations have $3 to $5 trillion available for investment when the current recession ends and that more and more U.S. manufacturers are re-shoring their overseas operations.  The question is: will California attract a fair share of manufacturing investment, or will investors look for states with a more favorable business climate? Our efforts should be to prove that California is serious about rebuilding a manufacturing economy by acknowledging where we must make improvements, not resting on an assumption that this is simply a national problem.

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