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On the Rebound
Following a decade of decline, Connecticut manufacturers are leaner and meaner. But can they compete in the 21st century?
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Business New Haven
1/10/2000
By: Michael C. Bingham
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Does manufacturing have a future in Connecticut? And, if so, what shape will it have assumed ten, 20 or 50 years from now?
It's a key question. Manufacturing has historically been central to the state's identity - especially that of its cities - as well as to the identity of New England as a region.
The industrialization of America began in New England. In the early part of the 19th century New England emerged as the center of American manufacturing. Later, of course, economic patterns shifted as the Midwest and South, and later the West, were opened to settlement followed by increasing industrialization.
Manufacturing remains an important sector of the state's economy - providing jobs for 16.9 percent of Connecticut workers, still above the national average of 14.4 percent - but it is shrinking.
Defense cutbacks have stricken historically stalwart manufacturers such as Pratt & Whitney and Sikorsky Aircraft. Urban flight from centers such as New Haven and Bridgeport has dispersed the skilled workforce. High costs of labor, energy and government have sent Connecticut manufacturers south and west in search of greener pastures.
Corporate conglomeration has transferred ownership of one-time local giants such as Sargent and Echlin either out of state or across the sea. And the state's two-percent unemployment rate - itself in part a by-product of depopulation during the recession - has placed a labor stranglehold on manufacturers dependent of highly skilled workers to keep production lines humming.
And while in recent years state government has moved to bring some costs of doing business - workers compensation rates, for example - under control, no one doubts that manufacturing in Connecticut is on a downward trend. The question is, where will it all end?
To learn the answer to that and other key questions, the Manufacturing Alliance of Connecticut (MAC) later this month will release the results of a comprehensive competitiveness study, undertaken in concert with economists at the University of Connecticut and the Connecticut Economic Resource Center (CERC), of manufacturing in the state.
By placing Connecticut manufacturing over the last two decades under a microscope, MAC Executive Director Frank Johnson hopes to determine the keys to its future viability and prosperity.
Not surprisingly, "The manufacturing employment base has declined fairly dramatically over the past 20 years down to about 275,000 jobs from what used to be close to half a million jobs," notes Donald Janezic, chief financial officer of the R.C. Bigelow Co. in Fairfield, a MAC director who is working on the study.
"The conclusions that have been derived from this in the past are that manufacturing is a dying industry," says Janezic. "What we're finding out as we expand the scope of our study is that that is not at all the case. In fact, while employment has dropped dramatically, productivity has grown dramatically."
Adds Johnson, "Productivity growth in Connecticut is outpacing the nation by 15 percent."
That rising productivity is central to the survival of the industry - and the state's economic health overall. "The ability to add value and export goods and services and import wealth increases our economic well-being in the state," explains Janezic. "That's the foundation on which the service sector relies."
Manufacturing injects dollars into the economy directly as well as indirectly. "One of the things we determined was that manufacturing wages in Connecticut were 45 percent higher than in non-manufacturing jobs," Johnson says. "So despite the fact that service jobs are growing [as a percentage of all jobs], wages in manufacturing continue to be much higher."
Even if manufacturing jobs are higher paying, their numbers have dwindled by nearly half. But that statistic can mislead.
"In the 1980s and '90s Connecticut manufacturing downsized in terms of employment," Johnson says. "That was caused by two things: One was that a lot of manufacturing companies outsourced non-manufacturing functions - maintenance, accounting, legal services. Those counted as lost manufacturing jobs, even though they really were non-manufacturing jobs in manufacturing companies.
"The second thing was the enormous downsizing in the defense industry, which continues even now," Johnson says. "Fortunately, in the last two years the small and mid-sized companies have grown enough to offset the job reductions in the big companies."
Johnson adds that aerospace firms such as Sikorsky and Pratt & Whitney have adapted by concentrating more on production for commercial aviation, a sector that is growing, not contracting.
Now that the number of jobs has stabilized, Johnson says Connecticut manufacturers are focusing on "working smarter, increasing productivity and finding ways to make more products with the same number of people - or in some cases, fewer people."
In addition, state manufacturers are finding ways to level the ever-more global playing field by concentrating their efforts in niche markets "where the product made in Connecticut is the best product made in the world," says Johnson. "Therefore, competitively they will always have a position in the manufacturing economy."
By now it is almost universally accepted that the most serious constraint facing the state's manufacturers is the dearth of well-educated and -trained workers. "It's the most important issue facing the industry right now," says Greater New Haven Chamber of Commerce Senior Vice President Fabio Sampoli.
While the state's population has remained relatively stable in the last few years, Sampoli notes that "The composition of our population has changed. We have a lot more immigrants, [especially] lesser-educated immigrants. So instead of getting a more educated workforce, we're getting a less educated workforce - which is absolutely contrary to what we need."
The challenge, then, is to educate them. But the record of the state's public schools on that front is spotty at best.
"The state's educational institutions have been responsive over the last year or two in taking a look at what they need to do to recraft their curricula to train people for these jobs," says Johnson. "That's true in the vocational-technical schools, the state university system and the community-college system."
Even so, "We'd like to get the vocational-technical [secondary] schools moved away from [training students for] service-sector jobs like food service, heating/ventilation/air conditioning and auto mechanics and back toward technical careers such as welding, chemical engineering," Johnson adds.
In response to the worker shortage, Connecticut companies are forced to look further afield to recruit trained workers - including targeting states that were the original beneficiaries of Connecticut's "out-migration" a decade ago.
"We have to become importers of people," says Johnson.
However, "Even if we go after the employees who left Connecticut to go to Michigan or to the Carolinas," notes Johnson, "we're going after an aging workforce. Our best investment is to train a new workforce that's going to be around for the next 30 or 40 years."
That's easier said than done. Sampoli notes that out-migration is highest among the state's best-educated young people, a majority of who seek higher education in another state - and typically never return.
"Because we are such a rich state, about 50 percent of graduating [high school seniors] go out of state to college. Of that 50 percent, 80 percent never come back. So the problem is not just attracting [educated] people to the state, but retaining our own."
Even among the best and brightest of the state's young people who stay, the outmoded image of manufacturing as difficult, dangerous and dirty wage-slavery or Lucy-and-Ethyl-style assembly line drudgery is hard to shake.
"Most kids who are going to college still view manufacturing as people viewed it a generation or two ago," Sampoli says. "Manufacturing can take people with a high school diploma who [become] well-trained and offer them a high standard of living, [and do the same] all the way up to Ph.Ds."
And the playing field must continue to be leveled for Connecticut manufacturers to be able to compete with their peers in other states.
Despite recent tax reforms, Janezic says that state government "needs to continue to look at more ways to mitigate the cost burden of doing business here." That, plus legislators must resist pressures to impose new legislative burdens such as so-called corporate-responsibility or "living wage" laws that add costs, Janezic says.
However, Sampoli notes that "The state's cost structure for manufacturing is always going to be out of sight. We can never compete with North Carolina, Arkansas, Utah - let alone Singapore. The manufacturing that's done here needs to be very high-tech, very high value-added. So in that sense the cost structure doesn't matter if you are building something only you can build."
But can't jet engines be manufactured just as well in North Carolina as in Connecticut? "Actually, they can't," says Sampoli. And the statistics bear him out: Production workers in the Tar Heel state rank just 39th in the nation in value added per worker, at $117,390, well behind Connecticut's $161,484, which places it 13th in the U.S.
"Connecticut manufacturers have done as many creative and innovative things as they can" to remain viable, Johnson says. But the bar remains high. "Costs are still very high in Connecticut - but the cost of living is very high here compared to other states, and that's not something manufacturers can change. So they have to find other ways to adapt to the economy in Connecticut in order to grow and prosper."
"Manufacturing absolutely has a future in Connecticut," asserts Johnson. But that future, as best anyone can tell, is likely to be "more of the same," in Sampoli's words - more automation and fewer jobs, but higher value added per production worker.
Maybe that's not so bad after all.
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