Editorial: The truth about manufacturing in Indiana

John E. Layden, PREVEL

We frequently hear multiple levels of rhetoric detailing Indiana’s answer to a more vital and prosperous economy: “diversification is key”; “we need to move away from manufacturing and try to attract more high-paying life sciences jobs”; “we need to build up the state’s high-tech assets and infrastructure”; and on and on.

 

While these initiatives are important for the state’s long-term strategic economic growth, we need to ask an important question: Are we turning a deaf ear to the most important and influential sector of this state’s economy?

A four-letter word to many economists and economic development professionals of late, the traditional manufacturing sector represents the backbone of the current economy. It will continue this role into the future, even though the role is often misunderstood.

Not only does manufacturing drive both U.S. and Indiana prosperity, it holds a central position for our economic security and national security. All too often the perception appears that the height of manufacturing exists only in the past, but this is hardly the case. In fact, Indiana manufacturing assets drive the state’s primary economy, employing more than 1.9 million Hoosiers and generating a full 35 percent of state and local tax revenues. Our national economy has been driven by a durable goods manufacturing sector that has made up 8.5 percent to 9 percent of the United States gross domestic product since World War II. A constant share of the fastest-growing economy in the world isn’t half bad.

Many are confused by the different signals provided by “employment” and “value of shipments” in manufacturing. Manufacturing employment in the US has been declining since the peak in 1979, even as the value of shipments has continued to increase apace the economy. Those familiar with the real trends know that this is because it is the goal of manufacturing to produce the same or greater output with fewer people. It’s called productivity.

Manufacturing as a percentage of Indiana’s gross state product (GSP) currently represents more than 27 percent of the Hoosier GSP. Despite perceptions to the contrary, Indiana leads its neighboring states in this category, with Michigan the closest competitor with a 20.7 percent share of its GSP. Ohio manufacturing represents 20.1 percent of that state’s GSP, while Illinois manufacturing operations total 13.2 percent of GSP.

What does this mean for Hoosiers? Here are a few additional facts about manufacturing you might not already know:

• Every $1.00 in manufactured goods generates an additional $1.37 worth of additional economic activity - more than any other economic sector.

• Manufacturers are responsible for more than 70 percent of all private sector research and development, which ultimately benefits other manufacturing and non-manufacturing activities.

• The United States is the world's largest exporter; 61 percent of all U.S. exports are manufactured goods, double the level of 10 years ago.

• Over the past two decades manufacturing productivity gains have been more than double (actual figure 2.5 times) that of other economic sectors. These gains enable Americans to do more with less, increase our ability to compete and facilitate higher wages for all employees.

• Manufacturing compensation averages more than $66,000, the highest in the private sector, and manufacturers are leaders in employee training. (Source: National Association of Manufacturers)

American manufacturing today faces numerous challenges, but here’s the good news: we’re seeing increased worker productivity and a higher educated and higher skilled workforce — which ultimately leads to a higher degree of competitiveness. These assets enable Hoosier manufacturing to go head-to-head with international competition and win. And thanks to Indiana’s strategic location (the state has been the median center of the U.S. population for more than a century) and superior transportation infrastructure, manufacturing companies tie directly to the success of two other important and rapidly growing industries — logistics for just-in-time delivery and high-tech information systems to support it.

Failure to recognize the long-term impact and viability of the manufacturing sector hurts Hoosier long-term planning. Economists estimate that the average production sector job creates three times as many employment opportunities as the average service job, an advantage that must not be ignored. The truth remains: In a cyclical free-market global economy that is constantly innovating and advancing, job creation AND job losses are facts of life. People inaccurately regard manufacturing as a dying industry. The reality is that this important sector is thriving, will continue to drive our economy, and must not be ignored.

It’s a great time to be in manufacturing, and Indiana should enjoy the ride (...and Indiana is a great place to do it).

About the author:

John E. Layden is the president and CEO of PREVEL consulting. Drawing on decades of scalable resources, PREVEL Consulting deploys 21st-century analytics to fix issues as well as identify them, all with an objective to achieve maximum profitability and competitiveness. The PREVEL process improves manufacturing velocity, pricing strategies and capacity limits. For more information, visit www.prevelconsult.com.

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