“By 2030, a typical manufacturing enterprise will have more highly skilled workers, more sophisticated automation, require more advanced infrastructure and depend on new innovations and new global markets to succeed. Things that are not yet conceived of will be produced in places that cannot currently compete. Some places will emerge as the best destination for manufacturing, and other places will see manufacturing jobs disappear. The question is what can our policy makers do to improve the region’s long-term manufacturing competitiveness.”
– “A New Blueprint—Making the American South’s Manufacturing
Sector More Competitive by 2030”
Jennifer Jett Prezkop
The manufacturing industry has long been a vital component of the American economy. Despite the rapid-fire challenges resulting from globalization, automation and technological advancement, according to the 2016 Global Manufacturing Competitive Index, the U.S. remains one of the top three countries for manufacturing, along with China and Germany. Currently, the U.S. produces close to 20 percent of all products worldwide, and by 2020, the U.S. is expected to retake the number one spot.
Reaching that top spot will require innovation and investment on both a statewide and national level within the U.S. manufacturing industry. In an effort to identify areas of improvement and incite action within the industry, Ted Abernathy, the managing partner at Economic Leadership LLC, published “A New Blueprint—Making the American South’s Manufacturing Sector More Competitive by 2030.”
According to the blueprint, “If the United States and the American South want to compete for new manufacturing, we need to maintain our business competitiveness, educate and train our citizens with new and higher skills, enhance our infrastructure with an emphasis on digital and improve the flow of new ideas and innovation.”
Building the Blueprint
A great deal of potential exists within the U.S. manufacturing industry. One of the primary keys to unlocking that potential is increasing each state’s competitiveness. This is no small feat, but it is made more easily achievable thanks to the insight provided in “A New Blueprint.” The report acknowledges both the important role manufacturing plays in America’s economy—particularly in America’s southern states, including West Virginia—and the challenges the industry is currently facing.
Abernathy’s manufacturing blueprint came about as a result of the efforts of the Southern Governors Association (SGA) to identify and address the issues surrounding the industry. “As the South was emerging from the Great Recession, the association saw an opportunity to strengthen manufacturing competitiveness in the South as well as a way to attract good manufacturing jobs,” he says. Using the SGA’s 2013 annual report as a foundation, he and his team took the initiative one step further by conducting their own research.
“We focused on several policy areas that are impacting manufacturing competitiveness, rapid technological change, workforce skills mismatches, slow growth in productivity, the impact of innovation and our struggle to make investments in infrastructure,” he says. “We concluded that given the hyper-competitiveness manufacturers face from global competition, if we want to successfully compete, there are things we can do.”
The end result was “A New Blueprint,” which was meant to encourage both efficient collaboration and immediate action. What the report determined was that improving manufacturing competitiveness must be addressed, and in order to do so, focus must be given to four key areas: business climate, workforce, innovation and infrastructure.
For the report, Abernathy worked with an advisory group to develop these four key areas into four indexes that assess the relative competitiveness of each of the southern states. The indexes provided information that allowed Abernathy to help the states identify their individual strengths and weaknesses instead of merely comparing them with the others, which allows him to help guide each state toward more competitiveness.
Ranking the Mountain State
“A New Blueprint” was presented to members of the West Virginia Manufacturers Association (WVMA) at the association’s first annual Winter Convention in December 2016. At the event, Abernathy shared his report’s findings for the industry as a whole as well as how West Virginia faired among the four indexes.
“A pleasant surprise was West Virginia’s strong performance in infrastructure. West Virginia scored the best in the infrastructure index—in the top 20 best states nationally,” he says.
West Virginia ranked in the middle among southern states for workforce and, to Abernathy’s surprise, ranked lowest for business climate. “The business climate score was a little surprising,” he says. “The state’s business tax climate is ranked 18th by the Tax Foundation, but the U.S. Chamber of Commerce’s Institute for Legal Reform ranks West Virginia 50th, and the state’s effective tax rate for labor-intensive manufacturing operations is ranked 47th.”
As a result, his advice for the Mountain State is simple: focus on making improvements to the state’s business climate and improving the skills of the workforce.
West Virginia Manufacturing
In the Mountain State, manufacturing alone accounted for $7.43 billion in output, $3.92 billion in exports and 48,300 jobs in 2015, according to the Center for Manufacturing Research. Those in the industry recognize its challenges—like the growing lack of a qualified, skilled, drug-free workforce—as well as its opportunities.
“West Virginia’s tax structure is less favorable than other states,” Rebecca McPhail, executive director of the WVMA, says of the challenges facing the state’s industry. “Our state is one of the few that taxes inventory and machinery, which is an issue for manufacturers. West Virginia’s current financial situation does not lend itself to addressing this issue in the short term. We hope lawmakers and leadership will continue to look for ways to create a more competitive and modern tax structure in West Virginia.”
Despite the challenges, McPhail is optimistic about the potential she sees in the Mountain State. “There is tremendous opportunity for manufacturing growth in West Virginia related to the downstream development of ethane and other shale derivatives,” she says. “The resource lends itself to the likely rebirth of the chemical manufacturing industry and West Virginia.”
Path to Prosperity
As Abernathy reports, all southern states have the opportunity to improve their competitiveness, but it requires a commitment to growth and the support of policymakers, who play a crucial role in addressing competitiveness in manufacturing.
“Once policymakers have a clear analysis of the state’s current competitive position, they have to ask, ‘What efforts will it take to move the state from its current competitive position to where it aspires to be,’” he says. “Then they must make very hard choices about investments and regulations.”
West Virginia is no stranger to hard choices. Facing a financial crisis, the state is struggling to balance harmful budget cuts with the exploration for new revenue sources. As optimistic chatter about the potential for a manufacturing renaissance spreads throughout the state, the report couldn’t have come at a better time. “A New Blueprint” provides a roadmap to prosperity for an industry full of potential. Today, competitiveness is king, and in order for West Virginia to capture the throne, state and industry leaders will need to commit to investing in the state’s talent and addressing its business climate.
