Does Building Metro Economies Around Manufacturing Still Make Sense? BRR Researchers Say Yes

5.16.12 | Urban studies scholars are busy debating the lessons of the Great Recession, even as we’re all still living in its wake. How can we better brace ourselves for the housing markets of the future? How should cities prepare to support coming demographic shifts and new waves of immigration? And should U.S. metros make strengthening our manufacturing sector a priority for economic development?

Richard Florida, known for his book on “The Rise of the Creative Class,” cautions against placing all our eggs in the manufacturing basket. He’s argued for years that it’s jobs in the knowledge and information sectors that will be the key driver of metropolitan economic growth in future years.

Florida is also an editor at Atlantic Cities, where he has a new series of videos about grassroots development efforts going on in Detroit, which has been the classic example of how the loss of manufacturing has decimated a local economy.

“How did the economic crisis impact Detroit?” Florida asks in the first of the five-part video series on “Detroit Rising.”  “The economic crisis flattened Detroit and the metro area. The rate of unemployment for the region surged by 15 or 20 percent. Obviously the city had been so dependent on automotive manufacturing and that industry and the manufacturing industry have been impacted,…over the past half century.   Detroit faced terrible trauma, – huge numbers of foreclosures, businesses shutting down, construction grinding to a halt.”

In a recent article, Florida blames the high concentration of manufacturing jobs in the Midwest for the slowdown in economic growth, citing research by William Testa and Norman Wang from the Chicago Fed showing metros with a higher share of manufacturing employment in 1969 experienced a significantly slower rate of employment growth in the years since.

He concludes that all this focus on reviving manufacturing jobs in the American Midwest may be a big mistake. Instead, metros should be leveraging their universities and human capital – to promote growth in knowledge sector jobs.

But BRR Network Member Howard Wial and his colleagues at the Brookings Institution say not so fast.  Wial had a thoughtful Op-Ed published in The New Republic last week in which he argues that manufacturing and non-manufacturing sectors should be complements to each other, not rivals. Adding some needed nuance to Florida’s contention that too much manufacturing is a drag on an economy, Wial writes:

Heavy losses of manufacturing jobs were associated not only with slow overall job growth but also with slow growth in the high-wage advanced service jobs (jobs in the professional service, financial, and information industries), where much of Florida’s “creative class” works (See chart).

Looked at this way, the data show that manufacturing and non-manufacturing jobs, and manufacturing and advanced service jobs, are complements, not rivals.

In effect, when manufacturing tumbles, so too do creative class jobs. The reason: manufacturing is an export industry that brings in income from outside the metro area. In addition, manufacturing sparks innovation. It employs a lot of engineers and attracts R&D funds. The spillover can be sizable. Employees might strike out on their own and start up their own shop making a medical product they figured out how to make or improve on while tinkering with a problem on the shop floor.

Wial says growth of non-manufacturing jobs in a city can also make it easier for that metro to keep manufacturing jobs, especially among manufacturers of new and high-tech products, because firms often need to produce near R&D facilities and engineering firms. A skilled labor force and good highway access may also be good for both kinds of jobs.

“The bottom line,” Wial writes, “is that the retention and growth of manufacturing employment go hand-in-hand with the growth of non-manufacturing employment, including advanced service employment. Policies to strengthen manufacturing in the Midwest’s metropolitan areas will strengthen the rest of those areas’ economies, and vice versa.”

Wial has a new report examining the state of U.S. manufacturing in nature and location, Co-authored with Susan Helper and Timothy Krueger, the report looks at how American manufacturing has been geographically differentiated and how manufacturers can benefit from factors related to location.

Bruce Katz has more on what cities can do to recharge the US manufacturing sector in another op-ed co-authored with former longtime Chicago Mayor Richard Daley. Katz and Daley say we need to look no further than local metros to understand how to revive American manufacturing.

“U.S. cities and metropolitan areas still possess significant manufacturing capability and, by extension, innovation capacity,” they write. “A rich industrial heritage has endowed American cities and metros with the companies, skilled workers, educational and advanced research institutions, and production strength essential for moving toward a new economic vision.”

They point to things local governments can do to help revive this sector  — like providing skilled workers through partnerships with local community colleges, for example, and helping to provide firms with a safe, stable place to do business. They include powerful examples like the case of Pelican Products, a firm that produces “high-performance protective cases and portable lighting equipment” sold all over the world. Authors say Pelican chose to remain in Torrence, Calif., because of the skilled workforce and strong flexible supply chain. And in Chicago they point to the city’s work in creating industrial districts – through tax increases, rezoning, and investing in infrastructure and improved freight transport.

For more on recent work in this area see Barbara’s blog post about manufacturing and regional economic development.

 

Photo by School of Natural Resources

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