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Connecticut
Manufacturing Retools
A new survey says that manufacturing in the state has a long way to go before it's alive and well again
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Business New Haven
1/12/1998
By: Linda Mele
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Manufacturing in Connecticut dates back to before the American Revolution. The state's eventual position as one of, if not the top defense manufacturing states began when its mines and foundries produced arms and armaments for the colonists' rebellion against the British.
Eli Whitney, called the “father of mass production,” invented the cotton gin in 1794 and introduced specialized labor, interchangeable parts and the “assembly line” concept in his firearms factory located in what is now Hamden.
Textile mills were erected in Vernon, Pomfret and Jewett City and soon hats, brass buttons and iron nails were being manufactured and silk, woolen and paper mills were turning out goods.
At the beginning of the 19th century, peddlers filled their wagons with wares manufactured in Connecticut and went west to sell them.
The guns that won the West - Colt revolvers and Winchester rifles - were made here, and during World War II, Connecticut was the leader in the per-capita production
of munitions.
Today, the state ranks among the top ten in the production
of many kinds of manufactured goods, including ball
and roller bearings, office and store machines, metalworking machinery, industrial electrical devices, aircraft and aircraft parts and household appliances. Its factories also turn out engines, submarines, helicopters, needles, pins and
fasteners.
Small and home-based businesses produce everything from clothing and pasta to mandolins and racing shells.
While Connecticut is one of the country's smallest states, it has made some of the largest contributions to the nation's economy and, in the first 150 years of the U.S. Patent Office, it was awarded more patents per-capita than any other state and still ranks second in the nation in the number of patents issued.
With this rich history, how can Connecticut now be ranked 43rd overall out of the 50 states in its “friendliness” to manufacturers, according to a Manufacturing Competitiveness Index report released in October by the Manufacturing Alliance of Connecticut (MAC), the state's largest manufacturing trade association?
The study, coordinated and prepared by Middletown-based DataCore Partners Inc., ranked all 50 states in 13 categories:
1. Average industrial user costs for electricity
2. Manufacturing gross state product per production worker (productivity)
3. Employer-paid health care expenditures per worker
4. Total industry R&D expenditures per capita
5. Average weekly workers compensation
disability payments
6. Average weekly unemployment compensation
benefits as a percentage of per-capita wages
7. State and local tax burden per capita
8. State corporate income taxes per capita
9. Manufacturing employment growth
10. Average annual manufacturing wages as a
percentage of total wages
11. Ratio of commercial and industrial loans to
total loans
12. Manufactured exports per capita or per
manufacturing employee
13. Elementary and secondary school expenditures
per pupil
As reported last month, all the news isn't bad because the state did rank high in loan ratios (first), school expenditures (fourth), unemployment benefits (eighth), R&D expenditures (eighth) and productivity (ninth).
But, in the areas the report said Connecticut “dramatically underperformed,” it really underperformed.
Now that the experts know where the state stands, the next question is: why? Why does Connecticut rank 50th in health-care costs, 49th in the amount of state and local taxes paid, 47th in corporate income taxes, 46th in workers compensation costs, 47th in electricity costs and 36th in manufacturing employment growth?
Can a state that was once a national leader in manufacturing be that bad? And, if it is that bad, how did it get there and what, if anything, is being done to correct it?
MAC executive director Frank Johnson says it took the state a long time to get as expensive as it is to do business in - and reversing the trend won't happen overnight.
“In a lot of states, business personal property is not taxable, corporation taxes are much lower and many things subject to sales taxes here are not subject to them in other places,” Johnson says. “It's hard for the state to control some of the taxes manufacturers must pay because they're decided by each municipality.”
According to the study, manufacturing employers pay an average of $4,618 and $213 per capita for state and local taxes and corporate income taxes, respectively, in Connecticut. The U.S. average is $3,078 and $110.83, respectively.
Fleet Bank associate economist Patrick Flaherty, one of the economists who helped define the parameters of the study, says there is no question that Connecticut is one of the states where the cost of doing business is high, especially taxes.
“The state could be more aggressive on some of the tax issues,” Flaherty says, “and deal with local property-tax relief from a larger perspective.”
Johnson says while commercial, industrial and residential property revaluation happens every ten years, personal property taxes on equipment and inventory are revalued and reassessed every year - a practice he believes is unfair to business owners.
“If, as a state, we make the decision that we want to help manufacturing, then it's up to the state to take action on the issue of taxes,” Flaherty says, “which means dealing with local as well as state property tax relief.”
Recognizing that the state's corporate tax rate was high, Gov. John G. Rowland's administration has implemented a program that would reduce that tax from 11.75 percent to 7.5 percent by 2000.
Johnson says the data used to index the corporate tax rate position came from 1995 figures (the most current available) and more current data would show an improvement in this area for Connecticut.
Though not really taxes, many employers view workers and unemployment compensation benefits paid for employees as such.
“The index on worker's compensation was based on the maximum benefit payable which, in Connecticut, is higher than that of other states,” Johnson says.
Johnson says workers' compensation is one area where state government has been responsive and, according to state Department of Economic & Community Development Commissioner James Abromaitis, state-level reforms have reduced workers compensation costs by 33 percent since 1993. Unemployment costs are also decreasing.
High employment costs make unemployment and workers compensation costs high, too, Johnson says.
“We have a history of paying manufacturing employees good wages,” Johnson says, “and as a high-income-per-capita state, so the cost of living and doing business here would be proportionately higher than that in other states.”
Electric utility restructuring and deregulation should go a long way to reducing the cost of electricity to manufacturers, according to experts.
“A ten-percent reduction in electricity costs would move us up one notch in the index,” Johnson says, “and would also provide relief to the industry's vendors and suppliers as well as the municipalities in which they are located.”
“Perhaps if the suppliers and towns had lower costs, they could lower what they charge industry,” Johnson says.
Health-care costs in the state ($3,758 per worker) are the highest in the U.S., according to the report. The national average is $2,822.
Hap Perkins, president of Connecticut Container Corp. in North Haven, also has facilities in New York, Massachusetts and Vermont. He says the cost of health-care benefits for an identical benefits package is up to 27 percent higher per worker in Connecticut than it is in the other states in which he does business.
There are more than 50 hospitals and major medical centers in Connecticut, and “It's my hunch we have more of these facilities per square mile than other states,” Flaherty says.
“If one of the benefits of living here is a lot of hospitals, we have to understand it won't be a free benefit,” Flaherty says.
Fleet Bank Chief Economist Nicholas Perna, another of the economists who helped with the study, says in a state in which the overall cost to live and do business is expensive, the cost of medical care and other services will be proportionately high, too.
“It's an issue that's addressable,” Perna says. “Maybe we need to spend as much time studying health care restructuring as we have electric restructuring.”
Johnson says that many of the efficiencies people thought would come with managed care haven't shown up yet so the cost of health care and the cost of insuring workers hasn't decreased.
All the experts agree that the state's position in manufacturing employment growth (36th) is, perhaps, the most important issue that needs to be addressed.
Jeffrey Blodgett, director of information resources for the Connecticut Economic Resources Center, says that while the state has lost one in every three manufacturing jobs since 1984, productivity is up.
Where one of every two people employed in the state through the 1970s was employed in manufacturing, today it's only one in six workers, but the number of manufacturers increased by ten percent between 1975 and 1994, according to Abromaitis.
“Manufacturers have found less labor-intensive ways to produce things,” says Abromaitis, “but manufacturing still accounts for 40 percent of our gross state product.”
According to Johnson, it's not the number of available jobs, it's the number of available, skilled workers qualified to fill the jobs there are. “We could have a one-percent increase this year in manufacturing employment if we had the people to fill the jobs,” Johnson says.
“There are currently 11,000 students enrolled in the state's vocational-technical schools - and only 400 are training for manufacturing jobs,” Johnson says. “The average age of a tool-and-die maker in Connecticut is 57, and we have no young people being trained to fill the void that will inevitably happen.”
Blodgett says the workforce shortage is key to dealing with employment growth.
“If firms are going to be competitive, they need to have skilled workers,” says Blodgett. “And we're not producing them.”
All agree the perception of manufacturing needs to be changed so that young people, and those who are advising them about their future careers, know that manufacturing today is not the “dirty, oily, sweaty, hot environment it once was,” Johnson says.
Blodgett says an initiative to revamp the state's vocational-technical schools is in the works. It would devote at least one facility wholly to modern manufacturing training.
“By and large, there are a lot of well-paying jobs out there,” Johnson says. “We just the need skilled workers to fill them.”
Flaherty says if schools, parents and the media continue to spout the fact that manufacturing in the state is dead, why would young people choose it as a career?
“Pratt & Whitney might not be making many jet engines for the defense industry, but there's still a civilian aircraft industry and, at some point in time, they'll need new engines. Pratt would get some of those orders, but if there aren't any skilled workers to build the engines, what good will it do?” Flaherty asks.
Brian Beaudin, director of the Connecticut Business & Industry Association's manufacturing council, says it's the small companies, not the big ones, that will provide job growth into the next century.
“It's good to have the big companies here, but that's not where the growth will be. We have to promote manufacturing jobs as viable ones and continue pro-manufacturing legislation and reforms if we're to keep the companies we have and encourage others to locate here,” Beaudin says.
The reaction to the report has been mixed, according to Johnson, who says a number of companies have requested copies of it.
“I don't think anyone was really surprised we didn't rate well overall,” Johnson says, “but I think we all were surprised at how bad we actually did.”
“It's obvious we've got some problems in terms of being attractive to manufacturers,” Perna says, “and that it will take a lot of effort to come back. It's something we have to keep working on.”
Blodgett says we can't look at our place on the list as the only barometer of how well we're doing.
“Bringing costs down is not the only thing we have to address. In and of itself, that won't be enough,” Blodgett says.
“Does it necessarily follow that the state that spends the most per pupil on education [New Jersey, at $9,318] is the one that does the best job educating its students? We need to look at the value of the dollars spent,” adds Blodgett.
Flaherty says if locating or doing business in Connecticut is solely a cost-driven decision, it doesn't measure the other benefits of living and working in the state.
“Some of the positive things, like the overall quality of education, cultural and recreational activities and quality of living are harder to measure,” says Flaherty. “We need to look beyond the numbers.”
Donald Janezic, chief financial officer of the Fairfield-based Bigelow Tea, says the cost differential between doing business in Connecticut and at his company's other facilities in Kentucky and Idaho has eroded over the past few years, but is still significant.
“It's great that we're trying to improve our position,
but if other states improve theirs, too, we won't move up in rank, so we can't let our rank in this report be the only way we gauge how successful our efforts are,” Janezic says.
DataCore's recommendations include “the creation of viable, prudent public and private policy decisions designed to revive a Connecticut manufacturing sector which has become increasingly non-competitive over the last 20 years.”
Abromaitis says the state has taken steps in the last three years to improve the business climate in Connecticut and, while small, manufacturing employment increased in the state by 0.25 percent, the first increase in 13 years. And the value of manufacturing shipments in the state is still more than $44 billion annually.
The state has also begun an “industry cluster initiative,” a public-private project to identify industry groups that hold the key to Connecticut's economic future, according to Abromaitis.
Manufacturing, high technology, financial services, health services, telecommunications and tourism have been targeted as the primary industries that will fuel the state's economy in the future.
This month, an “economic competitiveness” package
of recommendations will be presented to Rowland that includes legislative, regulatory and organizational changes which should give competitive advantages to those in targeted industries.
And MAC isn't through with its work, either.
The second phase of the project will include case studies that more clearly define the factors that go into the decisions about selecting a manufacturing location and survey manufacturers regarding their concerns and
priorities about costs.
The third phase will be to use all the data from the
first two to develop a five-year “Manufacturing Competitiveness” plan.
“Manufacturing is still very important to Connecticut's economy,” Johnson says, “and it's important to remember that, in addition to a lot of positive things, the report was based on the most current data available, some of which dates back to 1993.”
“I can't say we're happy with the results,” Johnson says, “but it does show us where we are now and where we need to go.”
“When trying to discuss these issues in the past with legislators, we could always cite anecdotal stories, but we never had the numbers to quantify what we were complaining about. Now we do,” Johnson says.
“The response has been universal,” adds Johnson. “We need to work a lot harder to keep jobs and companies here.”
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