Sunday, January 10th, 2010
The Bay Bridge
SF Public Press ran a lengthy article on the Bay Bridge replacement span. It’s an interesting piece, but I was struck by a couple of passages that really drove home to me the erosion of America’s technical and industrial capacity:
Some of the most expensive overhead involves keeping qualified Caltrans engineers and contractors on the ground overseas to ensure bridge components can stand the test of time and the next big earthquake. Much of the steel fabrication and know-how for the self-anchored suspension span—the project’s crown jewel—has been outsourced to at least seven countries: Canada, China, England, Japan, Norway, South Korea and Taiwan. In previous eras it would seem inconceivable that the major steel components for such a project would be built in China, but that is exactly what is happening.
Randy Rentschler, director of legislation and public affairs for the Metropolitan Transportation Commission, the Bay Area’s lead transit planning agency, said the extensive foreign involvement is simply because “we’re just not doing anything anymore as a country.”
Factories big enough to construct the Bay Bridge components were hard to come by in the United States. Were an American fabricator bundled in the winning bid package, it is likely that an entirely new facility would have needed to be built before work could begin.
“No one would have been happier than we if we had had this bridge fabricated in the United States,” Heminger said. “But we also have an obligation to the taxpayer that we spend their money wisely. And I think it says more about the state of the American steel industry than it says about China or Japan.”
A key element of ABF’s winning bid was its steel fabricator, the Shanghai Zhenhua Port Machinery Company (ZPMC), a subsidiary of China Communications Construction Company….While foreign fabrication may be less expensive, it creates problems of its own. For two years, Caltrans and ABF have been sending quality-control inspectors to ZPMC’s plant in Shanghai to oversee construction….Auditors anticipated construction of a new facility—devoted entirely to fabricating the tower—by the following spring and that ZPMC would purchase equipment necessary to comply with manufacturing requirements….Materials auditors expressed concern that “ZPMC does not have the required experience” or knowledge to fabricate this complicated type of bridge….To insure that fabrication meets standards, Caltrans and ABF collectively have 250 inspectors at ZPMC’s facility in Shanghai.
We built the original Bay Bridge – along with other engineering masterworks like the Golden Gate Bridge, the Hoover Dam, and the Empire State Building – in the 1930’s, during the height of the Great Depression. Today, we lack the ability to build the Bay Bridge’s replacement.
This motivated me to write a piece on our need to maintain America’s manufacturing and industrial capability, which is posted over at New Geography. It’s called, “Will Anyone Stand Up for American Industry?”
Industrial World Views
There seem to be three primary schools of thought on this matter in America.
- Dogmatic Free Trade. This logic says “So what?” to any decline in American manufacturing. In this world view, open markets are always best, regardless of what anyone else does. If the Chinese want to subsidize our bridges, who cares? It’s also pointed out that industrial production in the US has not gone into a downtrend (true) and that most jobs losses are due to productivity gains (true) and that this is a good thing and we should be no more sad about their loss than we are about the huge losses in jobs and job share in agriculture.
- Post-Industrialism. This view embraces the knowledge economy and high technology as the future. Manufacturing (except, perhaps, that chimerical “advanced manufacturing”) is seen as yesterday’s news. Focusing on industry is a loser’s game for people who don’t want to adapt to the modern economy. Also included here might be various urbanists who increasingly see industrial uses in cities as a form of blight, and environmentalists who are more or less opposed to all industry on green grounds.
- Paleo-Industrialism. This view believes we ought to be trying to preserve the former system of American industry, with large number of high wage jobs for low value added work. This is the view of people who blame NAFTA and free trade for industrial decline and who don’t just like things the way they are, they like them the way they used to be.
It isn’t hard to see from this that there isn’t much of a constituency for industry in America, at least not a viable 21st century version of it. As for those industrial production numbers, a look at the chart show a clear flattening of the chart since 1999.
FYI: This was taken directly from a Federal Reserve publication.
Why Support Manufacturing?
I am a strong and unapologetic believer in free trade. I don’t support protectionism (i.e., import quotas or tariffs designed to protect American firms from more efficient foreign producers). I believe in a world of comparative advantage, where we shouldn’t aim for autarky, and where we need to be realistic that other countries can do certain things better or cheaper than we can, and we should let them. I don’t support traditional industrial policy in the form of picking winners and losers. And I’m not worried about trade deficits per se, nor do I think boosting domestic industry is a jobs panacea.
However, there’s a long way from that to saying we should do nothing to support our own industry when other countries aggressively promote theirs. It doesn’t mean we have to do nothing while other countries manipulate their currencies, or that we shouldn’t do anything to open up other countries’ closed markets, or that we have to allow foreign billionaire controlled firms built through dubious state connections to buy strategic US assets, etc., etc.
And given how well dependence on Middle East oil has worked out for us, it isn’t a huge leap of logic to suggest that we might not want other strategic parts of our economy – such as our ability to construct major infrastructure projects – controlled by or dependent on dubious foreign powers.
Just as one example of thinking differently, how about instead of implementing a disastrous cap and trade regime, we implement a trade neutral carbon tax on products that includes global emissions at all stages of the supply chain, with a deduction for bona fide carbon taxes paid in foreign jurisdictions?
I’m convinced that a major impetus for the offshoring of production is not just cost or traditional comparative advantage, but regulatory arbitrage. In this scenario, the fact that foreign countries are non-democratic or even corrupt isn’t necessarily a problem – and may even be an advantage for firms looking to get deals done. At a minimum we should make sure we aren’t hobbling out own firms here at home.
Manufacturing and Cities
What does this have to do with cities, you might ask. Good question. I’m getting there.
Again, in urbanists circles there appears to be an implicit or even explicit anti-industrial bias. For example, in the NG piece I note how Portland wants to remove an active barge builder from the waterfront to bring in higher class uses like condos. I think even Rust Belt urban advocates often think this way. They see industry, and the paleo-industrial mindset that is often still entrenched, as a relic of the past. They are eager to shed that dowdy image and reinvent themselves as cool knowledge cities and talent magnets.
Also, as people begin coming back into the city, residential development often encroaches on industrial areas, bringing conflict. Mixed us, it seems, only extends to neighborhood retail and office space, not industry. Indeed, there may even be legitimate conflicts between old school heavy industry and residential.
We saw this play out recently in Louisville, Kentucky where residents of a neighborhood called, I kid you not, Butchertown, asked the city to shut down a long established meat packing plant that employs over 1,000 people. The city didn’t do it, but the fact that the residents got a quite a hearing, and that the firm was left to twist in the wind for some time, sends off an unmistakable odor of “bad for business” to industry in that city.
Craft and Specialty Manufacturing
I won’t try to solve this problem entirely in this blog post, but want to focus in again on craft and specialty manufacturing. You may want to read my previous piece on the topic entitled “The New Industrial City.” In it I call for a pro-industrial policy in urban areas based around these. I’ll give a couple examples of these types of businesses and how they are potentially threatened by urban redevelopment.
You may not be familiar with Chicago’s Horween tannery, but you surely know their products. They make the leather for all NFL footballs (not actually pigskin, interestingly) and are also by far the dominant supplier in the world (and one of only a handful of producers anywhere) of shell cordovan leather, which is highly coveted for high end shoes and other products.
Horween is located in the greater Goose Island industrial district along Elston Ave. next to a redi-mix plant. However, a Best Buy anchored complex just opened a stone’s throw away, and as retail development pushes down the Elston strip, it isn’t hard to imagine this land coming under pressure. I’m told the firm has already had many complaints about the odors from their operation. It has been there for about a hundred years.
Another Chicago original is Oxxford Clothes. Oxxford is simply the finest suit maker in America, and the only one whose product commands the respect of the world. Their hand made suits are cut and sewn in house at their headquarters in an old factory building in the West Loop, where residential construction has gone crazy. While I’m not aware that their operation is in any danger, their tax bill at a minimum has to be going through the roof.
These are just two super high end products that are actually manufactured in Chicago. Horween leather and Oxxford suits rank up there with the best Italy has to offer. They are true handcrafted, specialty products. But they are both in the cross-hairs of gentrification. Again, I don’t want to start a panic or claim either of them are on the way out. But clearly they are in neighborhoods undergoing radical change.
Urban Manufacturing Ecosystems
But beyond just losing the production of products with cachet, the loss of specialty supplier companies to some extent robs the city of being able to incubate different types of new businesses. In her book The Economy of Cities, Jane Jacobs noted that the proximity to suppliers played a key role in where businesses located. She related an anecdote about an acquaintance who went through just that sort of process:
My acquaintance could start another company producing something different, anywhere but in California. He decided to produce the amplifiers, and to sell them nationally from the first. Thus he did not have to be concerned about a local market for his product and he could choose any location that struck his fancy as long as it provided the goods and services his new company would need to get started. During a three-month scouting trip he visited more than twenty cities with the result that he found his choices more limited than he had anticipated…Only Chicago, Baltimore, Boston, and New York offered the goods and services – many of them highly technical – that he required.
Obviously the internet and modern logistics make virtual supply chains much more feasible today. But there are still benefits to having expertise and suppliers close at hand. It should be no surprise that Los Angeles is where the stylish and inexpensive clothing line American Apparel is based. LA already had a significant garment manufacturing industry. LA is also home to the production of many high end denim lines, among other fashion products. New York as well famously has its garment district, and often close working relationships between fashion designers and fabricators. Brands like Engineered Garments carry the “Made in New York” label.
A recent article that I unfortunately did not save talked about the challenges Chicago had in trying to build an indigenous fashion design industry. In addition to the difficulty of trying to break into a field with already dominant players, the lack of fabricators in Chicago was cited as a problem. Chicago simply lacks a complete ecosystem for fashion. (Unsurprisingly, Oxxford does all their work in house)
The Agricultural Analogy
Agriculture seems to be further ahead than manufacturing. There is already significant mindshare around organic and regional foods. Books like Home Grown Indiana document the burgeoning scene. Farmers markets are going crazy in America, as are specialty groceries like Goose the Market. Microbreweries, now nearly ubiquitous in America, are in the same line. There are more and more local processed food producers, in house charcuterie operations, etc. There is significant awareness of the distance food has traveled from farm to market. There is a developing ecosystem that is actually starting to relink cities to their rural hinterlands. It’s not a huge employment or economic base yet, but it is getting there.
I would like to see something analogous happen on the product side.
Why High End Products?
The products I am discussing in this post tend to higher end specialty or luxury products. Of what relevance is this to the broader economy, one might ask.
For things like organic and locally sourced foods or other artisanal and craft products, they are often targeted and marketed as luxury products today. However, there’s room to believe they could be more mass market tomorrow. Many product categories started out as luxury products for the rich such as automobiles and flat screen TV’s. But eventually scale economics won out.
Products that are truly hand crafted will likely always be somewhat pricey due to the increasing scarcity value of human labor. But it is easy to see how the values embodied in them could be applied to more mass market products. Especially for food, many people associated with that movement are interested in promoting broader changes in the American diet and lifestyle. That can only be done by getting to the right price points and volume.
Of course, that might again lead to offshoring, but there is a lifecycle to these things. Nevertheless, I feel we ought to take a balanced view of urban economies, one that embraces, protects, and champions a 21st century manufacturing industry.
What Others Are Saying
There has been quite a bit written on this topic elsewhere.
Paul Krugman devoted a column to Chinese mercantilist policies. Regardless of whether you like or dislike his politics, Krugman is a first rate economist.
The January 2010 edition of the politically left American Prospect has a special section on manufacturing:
- The Plight of American Manufacturing
- The Great Industrial Wall of China
- Industrial Policy: The Road Not Taken
- Losing Our Future
- FDR Had It Right
- Playing Ourselves for Fools
- The Politics of Industrial Renaissance
Ryan Avent, writing in the Economist, takes a dim view of all this hand wringing.
He also pointed me at some articles on this topic by Noam Scheiber in the New Republic:
- Upper Mismanagement
- Why Do German and Japanese Manufacturers Innovate More?
- Do We Even Have a Manufacturing Problem?
As always, I don’t endorse what all these people say, but am trying to present interesting points of view.
As a post-script, I snapped this photo while at an open house at the Columbia Club in Indianapolis, traditionally the most important Republican city club in town. It was founded around helping to elect local Benjamin Harrison president. It is apparently a piece of campaign paraphernalia for his candidacy.