Economic Development

The Competition for Jobs

When Boeing announced it had chosen North Charleston, S.C., as the location for its second "final assembly site" for the new 787 Dreamliner, Jim Albaugh,...
by | March 1, 2010

When Boeing announced it had chosen North Charleston, S.C., as the location for its second "final assembly site" for the new 787 Dreamliner, Jim Albaugh, president and CEO of the firm's commercial airline division, used classic corporate-speak to describe it as a move that would build "synergies," strengthen "competitiveness" and add "sustainability" to one of the largest manufacturing firms in the country and leader in aviation technology. Nothing was said about the millions of dollars in loans the company received from South Carolina as part of the arrangement; the transfer of hundreds of jobs from a high-wage, union-friendly state to one where labor marches to a different drummer; or the fact that two states were competing fiercely for Boeing's highly prized tech jobs.

The latest move was simply an extension of the company's apparent long-term strategy of migrating significant portions of its core manufacturing away from Washington State. After all, Boeing Charleston already performed fabrication, assembly and systems installation for the new 787 aft fuselage sections. And across the street, Global Aeronautica, 50 percent of which is owned by Boeing, was already joining and integrating aft fuselage sections of 787s from other structural partners. And of course, the company's corporate headquarters is now located in Chicago.

By Nov. 20, 2009, Boeing was already breaking ground on construction for the second final assembly at the Charleston facility. And it soon became apparent that there was more than simple synergy at work here. Early this year, South Carolina lawmakers approved more than $270 million in state bonds to lend to Boeing so it could finance building the new assembly line in North Charleston. This was reportedly the most the state has ever borrowed for an industrial prospect, but was necessary to move the Palmetto State out of recession, according to Senate Finance Committee Chairman Hugh Leatherman, who argues that the state needed to make this kind of investment to attract "world-class blue-chip companies like Boeing" that could then create much-needed jobs: the kind of high-skilled assembly work that has been a stronghold in Washington, until recently.

State legislators in Washington are certainly not taking lightly what some might regard as "incentive warfare" among states to attract big business activities. In mid-January, in what some regarded as a relatively lame measure, lawmakers introduced HB 2833, which sought to require any firm that received aerospace tax incentives (read: Boeing) to periodically reaffirm their commitment to the economic well-being of Washington.

At the same time, the state tried to downplay the latest migration of aviation jobs. Rogers Weed, director of Washington's Department of Commerce, described the 800 jobs that will move to South Carolina as insignificant when compared to the 70,000 aerospace employees who are still employed in Washington. "I think people who say the sky is falling and Washington state is going to be out of the aerospace business anytime soon are overstating the situation," he said. But Weed, the state Legislature and the governor recognize that the latest Boeing decision indicates change for the state's aerospace industry. And the small size of the move doesn't mitigate that state competition for jobs and economic development is fierce as ever.

Last year, Wyoming Gov. Dave Freudenthal reminded lawmakers attending an energy symposium in Jackson, Wyo., that cooperation among states is a far lower priority than competition. According to an Associated Press account of his remarks, Freudenthal declared, "Cooperation is contradictory to the fundamental way we relate to each other. As states, we compete."

The governor's frank statement sums up why the economic wars for good-paying jobs in innovative industries will continue. Meanwhile, Washington, with two of the most high-tech and innovative companies in the country - Boeing and Microsoft - is not about to surrender.

The stakes are high in Washington because the aviation industry has been so dominant in terms of good-paying jobs. A state-commissioned study by McKinsey & Company found that the aerospace industry, directly and indirectly, still accounted for 28 percent of the state's overall job growth from 2004 to 2008. Moreover, McKinsey said, much of this growth was still, in fact, attributable to Boeing, especially as a result of its 787 Dreamliner and 747-8 jumbo jet programs.

But the glory days of growth are numbered. In January, the Department of Commerce's Washington Council on Aerospace published a troubling report that found the state has not been competitive for several recent high-profile aerospace initiatives, including the Honda Jet program (North Carolina), the Bombardier C-Series (Quebec), a Rolls-Royce engine plant (Virginia), a new Spirit Aerosystems facility (North Carolina), the Global Aeronautica joint venture (South Carolina), and most recently, the second line for the 787. Putting the situation in blunt terms, the report laments that, "Against our competitor states and provinces, we are at a disadvantage in areas of incentives offered, R&D expenditures, and labor costs. Our aerospace labor force is aging, and our education and training system is not meeting current and future industry needs."

In essence, Washington's competitive advantage in aerospace had weakened significantly. Meanwhile, the aerospace industry itself has been changing in fundamental ways. Globalization and the move away from original equipment manufacturers toward a systems integration model were clearly beyond the influence of Washington state policy. Indicative of how far-reaching and deep the challenges facing the state are now seen to be, the report offers no easy fix that lawmakers could simply legislate into existence. Instead it exhorted Washington to focus on work force training, research and economic development.

The aerospace industry has been a crucial pillar of Washington's economy for more than a century - about 160 companies in the state specialize exclusively in aerospace, and another 500 provide manufacturing, maintenance and engineering services to the industry. But Boeing dominates, employing more than 75,000 workers there. Factor in the multiplier effects, and Boeing's total impact on the state is roughly 285,000 jobs, according to estimates from the Washington Alliance for a Competitive Economy. So when the state's biggest private-sector employer starts leaking jobs to non-union states, lots of people start to worry.

But can it be done in an age where supply chains are global, especially in aviation? The 787 Dreamliner exemplifies this shift. For this new plane, the majority of component design, manufacturing and sub-tier supply management has been done by firms located outside Washington. And the recent announcement of a second 787 assembly line in North Charleston was the final straw, prompting the state's Department of Commerce to seek a multifaceted attempt to re-establish its competitiveness.

But making the state's aviation industry economically competitive with South Carolina - or China, for that matter - won't be easy. The state's work force is highly educated and experienced, but that translates into much higher labor costs compared to competing states. Labor disputes between management and the unions, which lead to work stoppages including an eight-week strike in 2008, have not helped.

In addition, the work force is aging rapidly, and the current training system for aerospace workers is considered fragmented. More than half of the state's aerospace workers are over age 45. Should these workers lose their jobs in the next few years, they won't be easy to retrain. In addition, the competition is relentless. Developing countries such as China and Brazil are building up sizable aerospace industries of their own, while Canada, Germany and France continue to compete at the highest levels for bigger portions of the much sought-after aerospace industry pie. The Council on Aerospace found that in the last five major competitions for attracting new aerospace companies, Washington was not considered due to unattractive economic factors, such as cost of living, wage rates and expensive infrastructure.

Some states probably wish they had Washington's dilemma of protecting its turf of knowledge-sector jobs. Besides aerospace, the state is home to the world's largest software firm: Microsoft. In addition to the thousands of IT workers based in the Seattle suburb of Redmond, tens of thousands more support the digital business. But the state feels it can't afford to rely on two industries that are the poster boys of today's globalized economy, in which jobs can move quickly from one location to the next.

In January, just as the state Legislature was drafting its wrist-slapping legislation known as HB 2833, Gov. Chris Gregoire addressed an economic conference in Seattle and unveiled a 10-point plan to create as many as 40,000 jobs in the state over the next three years. The aerospace industry wasn't specifically mentioned. Instead, she focused on the next generation of economic development for the state. "The President's Council of Economic Advisors said there are two fields in particular that are going to drive the economy by 2016. Both of these, we are very engaged in," Gregoire explained. "One is in health care and we have our initiatives we've begun there. And the other is in clean technology and clean energy, and we obviously have our leadership role we are playing there."

Gregoire referred to these two areas as the sweet spot for job growth, pointing out that Washington has more than 400 clean technology businesses operating in the state and 47,000 workers employed in the sector, surpassing the state's own target of 25,000 clean tech jobs by 2020.

From his perspective in the state's Department of Commerce, Weed says the Pacific Rim is where the world's gross domestic product (GDP) growth will occur. "The Asia Pacific region has obviously dramatically increased its share of world GDP in the last 10 years," he says. "So I think one of the long-term trends that can really power our state's economy is the growing influence of that part of the world and our gateway position to it."

But Washington, even with its geographic location on the edge of where the world's economic activity is poised to grow, and with its well trained, highly educated work force, can't rest easily. South Carolina and other states are also looking at the same scenario and are willing to compete aggressively for the businesses that thrive in clean energy, health care, software and, yes, aviation. "There are great economic opportunities for us down the road," Gregoire says of the future. "The trouble is, we aren't there yet."

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