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SNAPSHOT FROM THE FIELD
A Site Selection Web Exclusive, November 2010
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The Great American Job Purge

A leading corporate location advisor exposes two myths about job creation.

by RONALD R. POLLINA, Ph.D
Snapshot from the Field
T

he sucking noise heard coast-to-coast and border-to-border is from The Great American Job Purge orchestrated by a perfect storm: the recession of 2007 combined with globalization, free trade, offshoring, and politicians selling their souls to lobbyists and special interest groups," writes Ron Pollina. "Unfortunately, lawmakers at the state and local level have also exasperated the situation."

Pollina, the author of the nationally recognized Pollina Corporate Top 10 Pro-Business States Study and the president and founder of Chicago-based Pollina Corporate Real Estate, punctures two myths associated with that purge. This commentary is excerpted from "Selling Out a Superpower: Where the U.S. Economy Went Wrong and How We Can Turn It Around" with permission from Prometheus Books.

 


Myth:

Most governors and state legislators truly understand what it takes to maintain and foster job growth and are aggressively pursuing these efforts.



Current economic development trends are not promising for the United States. Federal efforts are very disappointing, as is true for far too many state governments. Our clients increasingly ask us the same question: "If we are to keep our operations in the U.S., what states have the most pro-business climates?" In response to this never-ceasing question, our company ranks all 50 states based on thirty factors, such as taxation, education, infrastructure, professionalism of the state economic development department, and state incentive programs. All 31 factors are controlled by state government.

Over the years, I've seen efforts by enlightened state political leaders only to be disappointed by other states that reverse a prior governor's or legislature's advances. I have seen new governors come into office and, within a few months, decimate excellent state programs and economic development staffs. I saw this happen in a Midwestern state where my company had assisted in the location of many corporate facilities.

In this case, we had worked with an economic development person for years. She was highly experienced, exceptionally professional, responsive and, most importantly, we and our clients liked and respected her. The new governor decided to replace her and several other excellent staff members with inexperienced political appointees. Even if they proved to be as good at their jobs as she was, it would take at least 18 months before they understood what they needed to do to be successful.

On another occasion, a young state economic development representative who was unable to answer any questions about his state's economic development programs told me he had not bothered to learn about them. He indicated that his uncle, a politician in the state, had gotten him the job, which he saw as only lasting another two years. Due to term limits, when the current governor would be replaced, he would be looking for another job.

The professionalism of state economic development departments varies greatly. Incompetence can harm a state's ability to retain and attract jobs. In some cases, the problem can be attributed directly to a lack of training and concern on the part of the economic development staff. In other cases, the staff is not provided the budget or economic development tools and training that are necessary for success.

Some states annually examine their economic development programs and the programs of competing states to make sure they have positioned their state to be in the most competitive position possible. Of the 50 states, seven have consistently ranked among the nation's top 10 pro-business states. Alphabetically they are Alabama, Georgia, North Carolina, South Carolina, South Dakota, Virginia, and Wyoming.

Unfortunately, after having testified before a number of state legislative groups, it became clear to me that far too many legislators and governors are not well educated when it comes to economic development. Few of these political leaders have a good understanding of the national and international competition at play for the employers currently in their states.

When testifying before state legislatures, I am often representing businesses and economic development groups trying to pass job growth programs. It is most often very difficult to get political support to approve such programs. I once had a senator in a Plains state, who was a well-known agriculture advocate, tell me that financial incentives for companies were nothing but "corporate welfare." I asked how he justified the fact that farmers in his state had been receiving federal agricultural subsidies for decades and whether that should be considered "farm welfare." I also pointed out the fact that substantially more of his constituents were employed in non-agricultural jobs than in farming. He seemed not to recognize that his state was competing for jobs in a global marketplace, and that his state, like other states, needed to be more competitive if it was to maintain and increase jobs.

In another situation where I was testifying, a state senator said that he saw no reason to support the proposed legislation because he did not believe that they had lost a major employer in the state in many years. Having been warned that this senator often made this point, I came prepared. Looking at the state's six largest employers, I showed that indeed they were all growing but the growth was occurring either in other more pro-business states or, as was the case with three of the companies, virtually all of the growth was offshore. The senator and his colleagues seemed surprised to hear this.

In some states, financial incentives are often used as substitutes for the best method for attracting jobs — across-the-board cuts in corporate taxes and the elimination of unnecessary and costly regulations. Since the commencement of the recession, we have never seen so many states that previously had weak economic development programs all of a sudden "see the light." They, however, waited for unemployment to reach staggering proportions (8-15 percent) before taking action.

Waiting for a recession before beginning a serious effort to attract jobs is not the ideal time to start such a program. These programs are not inexpensive, if done correctly, but are an investment that will reap many benefits, both for citizens' job security and the state's financial security. Unemployed citizens do not generate taxes. Companies that move offshore do not create revenue for a state or community. For example, United States companies are in competition with Chinese firms, which receive considerable assistance in the form of financing, protection from imports, and a legal system that favors Chinese-owned companies.

Sadly, the majority of states in the U.S. stack the deck against American companies because they provide too few reasons to stay or expand their operations. It's just too costly and litigious, and American companies must therefore consider offshoring if they are to continue to be competitive in a global marketplace.

 


Myth:

If Americans lose their jobs to offshoring, the government needs only to provide a safety net to protect their healthcare and pension while retraining them for a new, secure job.


High-skilled and technology jobs don't exist in the numbers necessary to accommodate the millions of Americans who have lost their manufacturing jobs. Additionally, many Americans would find it very difficult to qualify for such jobs. According to the United States Education Department, one in seven U.S. adults could not read this paragraph.

How are these Americans to be trained to operate sophisticated manufacturing equipment? The U.S. government, while spending billions of dollars to shore up its banks and other industries, has the distinction of spending less on training its citizens than almost any other country in the Organization for Economic Co-operation and Development (30 high-income, developed countries). Obviously, those who believe we can simply retrain Americans for high-tech jobs need to get out of their offices and closer to the American people.

However, there are some political leaders at the state level who are working hard to help their unemployed workers. Michigan, one of the hardest hit states in the nation due to its long-term dependency on the automotive industry, is fortunate to have a governor who "gets it." Governor Jennifer Granholm of Michigan has built on the economic development programs of former Governor John M. Engler (who has now served for six years as president and CEO of the National Association of Manufacturers). She has a two-prong approach to building employment. First, she has in place some of the best economic development programs among the Great Lakes states, designed to encourage the attraction of new employers and the growth of existing companies. Second, Michigan has developed the "No Worker Left Behind" program that provides Michigan workers with up to $10,000 for two years of training in a high-growth sector industry.

Finding these jobs may not be easy. However, if a trained work force can be developed for specific promising Michigan industries, it will help to maintain the state's vitality and attract other similar companies. Community colleges within the state have played off of this leadership and are designing training programs around these industries.

While there is a very small handful of governors in hard-hit manufacturing states who are making the effort, it amazes me how many simply talk a good talk, but take little or no constructive action.

What many governors say publicly and how they actually run their administrations is most often miles apart. My company specializes in international corporate site selection. We had a project in a state with a governor who talked about having a great economic development program. He gave dramatic speeches about preserving existing jobs and creating new jobs. In his words, his entire administration had made this a top priority.

We were representing a company with a research and development facility located in a major metropolitan area of this governor's state. This Rust Belt state had lost a large number of jobs in recent years. The company needed to expand its 280-employee operation by approximately 100 scientists and engineers, and this could not be accommodated in its current facility. The company was deciding whether it should offshore all or part of the operation or go to another location in the same metropolitan area. We estimated that, with some assistance from the state, our client didn't need to move offshore. Because this was retention, rather than an attraction (new jobs to state) project, the governor's economic development department was less than enthusiastic. This is common in many states as retention projects do not play as well to the press as does attracting new jobs.

The CEO and CFO planned to fly in and tour their old facility. They asked if we would join them and bring the state economic development department representatives to discuss the possibility of remaining in the same area. A call was placed immediately to the two state economic development officials assigned to the project. They asked if the CEO and CFO could come to their office.

We indicated they did not have time to drive downtown from their suburban facility and then back to the airport, where their plane would be waiting to take them to an appointment in another city. The state officials insisted the meeting be held in their office, admitting that they did not want to drive out to the suburbs for a 3 p.m. meeting as they would get caught in rush-hour traffic coming back. They refused to make the effort. I called the secretary of commerce for the state and left a message about the problem. He didn't call back until after the meeting date, and then provided a half-hearted apology and assurance that his people would meet with the executives the next time they were in town.

When we explained the situation to our client, the CFO said, "It's clear they're not interested." The CEO said simply, "We don't have time for this. Focus on the other locations." Within 12 months, the operation began to be phased out. Most amazing was that no one from the state ever called to find out what was happening. Keep in mind that the governor of this state was often very vocal in proclaiming publicly that preserving existing jobs and creating new jobs was a top priority. You have to wonder how he staffed his departments that had less priority.

Based on the type of jobs lost, there were at least ten governors I could have called that would have been more than willing to attend such a meeting. If these governors could not make a meeting on such short notice, they would have sent the lieutenant governor or secretary of commerce. In the end, there were 280 families worried about making their mortgage payment, school tuition, and car payments, very likely due to two bureaucrats who did not want to drive in rush hour traffic and a governor with an administration that did not really care.

In 1950, manufacturing accounted for 33.7 percent of all non-farm jobs; by 2006 this percentage had dropped to 9.4 percent, and is projected to drop further, to 7.6 percent, by 2016. While increased productivity accounts for some of these losses, my experience tells me the majority of the losses can be attributed to offshoring of jobs.

We must stop thinking of manufacturing as a relic of the industrial revolution. Manufacturing has certainly brought many benefits to America. For many immigrants, it was their stepping-stone to the American Dream. It impacts all aspects of an economy. It pays well, especially for the millions of Americans with a high school or less education, as well as those more educated. This industry employs a broad range of skills and has a huge multiplier effect on job growth of all other sectors of an economy. It is an essential element of any broad-based stable economy and is vital to the development of a balance of trade and in paying down the national debt.

For insights into what states are doing to foster a better business climate, look for the "State of the States Data Pages" in the January 2011 issue of Site Selection.


Story in Pictures

Ron Pollina, President and Founder, Pollina Corporate Real Estate
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