Romancing the Factory

Forget about the brightly lit movie complex and pedestrian shopping patterns. The New Economy isn't for everyone.
August 1, 2008 AT 3:00 AM
William Fulton
By William Fulton  |  Columnist
Director of the Kinder Institute for Urban Research at Rice University and former mayor of Ventura, Calif.

Not long ago, Area Development magazine, one of the leading site and facilities location publications in the country, released the results of its 22nd annual survey of corporate executives. The results: Cost, speed and labor force matter. Quality-of-life issues don't. Incentive packages are important but need to be tailored to the situation.

Surprising as these results may seem, they are an accurate reflection of the views of corporate executives -- at least in the manufacturing sector. Almost 90 percent of the executives who responded to the survey run manufacturing companies. And that alone reveals an often-overlooked nuance about economic development these days: It's not just about the new, knowledge-based economy.

The old economy is still really important. And while technological breakthroughs and increasing skill levels are ever more important in manufacturing, some things don't change. The key criteria for manufacturers and other old-economy sectors are not taken from the pages of a Richard Florida book. The quality of the symphony and the quantity of the gay bars doesn't compute. The cost of labor, access to the rail and highway system, and the speed with which plants can get built matters a lot.

Which is why we sometimes get conflicting messages about what it takes to create economic development success these days. Different things matter to different types of companies. And although the Richard Florida-style creative companies -- the ones that come up with technological breakthroughs and set the table for economic progress -- want quality of life in spades, it's still the old-economy companies that actually make what we use.

And they need different things than their creative counterparts. According to Area Development, the six things manufacturing executives want the most -- and they want these considerably more than they want anything else -- are:

o Highway accessibility

o Low labor cost

o Cheap and available energy

o Skilled labor

o Low construction costs

o Available land

All of these things, except possibly skilled labor, are becoming harder and harder to come by in the booming metropolitan areas in the United States. These are the regions typically viewed as the winners in the nation's competition for top-level jobs -- the ones that are capturing the research institutions and growth companies. And that creates an opportunity for the rest of the country.

To a surprising degree -- headlines to the contrary -- we still make a lot of stuff here in the United States. According to the National Association of Manufacturers, manufacturing still accounts for almost 12 percent of the nation's gross domestic product. This is down significantly from the 1990s, but that's mostly because other parts of the economy are growing faster, not because manufacturing is declining in absolute terms. There are still more than 300,000 manufacturing companies in the United States and they employ more than 13 million people.

The future of American manufacturing will probably be a story of increased productivity, although it is not likely to be a tale of increased employment. In many ways, factories are the new farms. They require lots of capital and technology but not nearly as many people as they used to. And there will still be a considerable amount of churn -- obsolete plants will continue to shut down or retool. But this means that there will be great opportunity to recruit and retain manufacturing companies. The Area Development survey found that 34 percent of manufacturing companies had expanded their operations in the past year, while 13 percent had contracted.

That's why it makes sense for cities and states to understand specifically where they should position themselves in the economic development marketplace. Sure, everybody wants to be "the next Silicon Valley," and once a decade or so somebody actually succeeds in this great quest. But not every place is a San Jose, San Diego, Austin or Research Triangle -- places with great universities, a highly educated workforce, and a cachet that keeps the venture capital flowing. Cities are likely to succeed if they're realistic about what they've got, and if they can differentiate themselves in important ways from the increasingly expensive and congested places that get all the cool "new economy" stuff.

If what you've got is highway access and land -- and this is increasingly what most struggling cities have lots of -- then that's what you should sell. Because, as the Area Development survey suggests, there are more folks out there looking for what you've got than you might think.