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A Bias for Manufacturing -- and a Call to Action

North Carolina Manufacturing Summit
Ruth Shaw
CEO
Duke Power

It’s probably a safe bet that no one in this room is satisfied with the current state of our manufacturing sector. We’ve seen too many businesses close their doors, lost far too many jobs, and we’ve all been touched—directly or indirectly—by the wave of competitive loss that has swept our state in recent years.

Since 1998, we’ve witnessed serious employment declines in a number of traditional sectors: textiles are down by 45%; tobacco is down 20%; furniture is down 19%. We’ve experienced similar declines in output during the same timeframe: both textile and furniture manufacturing have declined about 20%.

Sector statistics are one thing—the personal pain of local loss and the community repercussions is quite another. Pillowtex is an emblem for the depth of this pain. Two years ago, Pillowtex was forced to close four plants in Cabarrus and Rowan counties. Nearly 5,000 men and women lost their jobs. A large number of those folks remain unemployed today.

Last year, Drexel Furniture closed two plants in McDowell and Burke counties, and 400 workers were sent home. Broyhill Furniture Industries closed its Catawba County plant this year, and the tobacco exodus continues, with recent closures by Universal Leaf North America and Vector Tobacco affecting Vance and Person counties.

Those direct hits are only a small part of the picture. Just as manufacturing has a strong positive “multiplier” economic impact when it comes to a community or a region—its subtraction from local economies is disproportionately large. And the ripples are widespread.

The effect on electric companies is one that is below the radar screen. But when a Pillowtex shuts the door and turns out the light, the impact on the electric provider is immediate and significant. And such closings have been going on for years.

For example, it is fair to say that Duke Power Company’s generation assets were designed to serve a strong manufacturing sector, which requires a lot of baseload power—not too sensitive to weather, operating 24/7/365. In fact, when most of the modern additions to our generation were made, our industrial sales were nearly half of our total sales. Today, they are just a third. And most of that loss has come from textile plants that closed their doors, shedding between 300 GWH to nearly 2,000 GWH in a single year. One closing; hundreds—even thousands of homes to “make up” the lost revenues.

Residential electric customers are very weather and time-of-day sensitive. We open the windows when the weather is mild, and not many of us are willing to do the laundry in the wee hours of the morning to get a break on our power rates. When those temperatures climb in a hot July, we crank up the AC and drive up the power demand—and that is the peak load your power company must plan for.

So the “multiplier” effect of the textile losses has resulted in changes in how we run our system, how we plan for future generation, and it has kept our sales essentially flat for a decade. We are just now seeing demand growth in our total system that will call for new baseload generation—the first we will have built in over 20 years when it comes into service. I can hardly calculate the Duke Power jobs that “might have been” if we had retained some or all of that manufacturing.

The story is far from bleak, however. Just as we have been affected by the losses in some of our traditionally strong industries, North Carolina has been able to build on our manufacturing strengths, and to attract new manufacturing.

Our collective challenge is to communicate the importance of manufacturing to our economy; to work diligently to retain competitive manufacturing that we have; and to combine forces to attract new manufacturing.

My mama still lives the old adage that she taught me: “Fix it up, wear it out, make it do—or do without.”

If you apply that folk wisdom to North Carolina manufacturing, the choice is clear: “fix it up"!

We have a long and rich heritage of “making things” from the abundant Carolina resources. The very word “manufacture” draws its roots from two words meaning “make” and “hand"—literally, make by hand. Today, of course, the word suggests production by machine. Whether by hand or by machine, Carolinians have taken pride in “making stuff.” We have a heritage of pride in craftsmanship and a well-deserved reputation for a strong work ethic and positive manufacturing environment.

Our rivers and ports provided the earliest ability to transport the goods we made, soon supplemented by the highways of the “good roads” state, and finally punctuated by major airports.

The state was in the vanguard of the South’s transformation from agrarian economy to an industrial economy, as we pulled off the transfer of cotton textile manufacturing from New England to the Carolinas.

By the 1960s, North Carolina was among the states with the highest percentages in its workforce in manufacturing—and today we continue to rank in the top three in the percentage of our non-farm workforce in manufacturing. We likewise made the successful shift to an information-based economy, and attracted high-tech industries and research parks in many parts of our state. From the 1980s to 2000, our state’s population grew by 30 percent—and the number of jobs increased nearly 60 percent. Our per capita income remains one of the highest in the South—and respectably high on a national scale.

We were out front in the creation of innovation hubs like Research Triangle Park, the Biotechnology Center and the Microelectronics Center. And as traditional sectors have declined, we’ve fostered emerging new sectors: biopharmaceuticals, medical equipment, motor vehicle manufacturing and plastics. We know how to make things in North Carolina—and we know how to build on our skills and resources and “fix things,” too.

We must succeed in this effort.

To most of us, the pure common sense of preserving manufacturing capability in the world’s most desirable market is more than a matter of national defense and self-sufficiency. Philosopher-poet Kahlil Gibran says it well in “Pity the Nation":

"Pity the nation that wears a cloth it does not weave, eats a bread it does not harvest, and drinks a wine that flows not from its own winepress."

Neither our nation nor North Carolina seeks pity. We seek strength, and we have the capability to weave our own cloth; harvest our own bread; and press our own wine!

We are responding to the sea changes in the automation of manufacturing and the churn of the global economy. We are finding opportunities to recalibrate our economic development approach; to revamp funding and recruitment policies; to forge new alliances; and to advance technology and innovation.

We are turning our gaze firmly forward, thinking in terms of economic renewal and retooling—and acknowledging and coping with the dislocation of such change. We must address the plight of the textile worker who’s lost his livelihood and is running short of mills to move on to. I see many familiar faces here today from our nonprofit organizations. You’ve done a phenomenal job responding to the mounting needs of our citizens—even as your organizations have been affected by the ripples of our challenged economy.

Today’s challenges call for creative and courageous thinking, and getting outside our comfort zones.

Thinking creatively

There’s lots of good, creative work underway today.

You’re going to hear soon from Mark Sweeney of McCallum Sweeney Consulting, so I’m going to tee up a transformational effort that he has his able hand in:

Duke Power has selected McCallum Sweeney to perform a two-phase site evaluation project for industrial sites that Duke Power serves in North and South Carolina. Phase I of the study will be to search the region for new very large industrial sites (“mega-sites”) suitable for extremely large manufacturing operations such as motor vehicle assembly operations. Phase II of the study will identify and evaluate industrial sites in the region that are best suited for new manufacturing facilities in our targeted growth segments: pharmaceutical/life sciences, medical devices & equipment, plastics, fabricated metals, building materials, automotive parts, food & beverage processing, general machinery, paper products and printing.

The goal of the studies is to enhance both the nationwide awareness and the quality of industrial building sites in our service area. We will work closely with the states, regions, and counties during this project to identify, screen, evaluate, and make recommendations for improving selected sites.

Counties will receive thorough detailed evaluations and action plans for their selected sites, and economic developers from Duke Power and both states will have detailed portfolios of our target industry sites to actively market nationally and internationally.

Many of you have seen the report and recommendations developed by Tom Ticknor of Ticknor and Associates on behalf of the North Carolina Economic Development Board. Tom took an expansive, critical view of our state’s competitive position, and offers up some truly breakthrough thinking.

He concludes that we’ve underinvested in some critical, relatively inexpensive high benefit ED tools. We need better operating systems and sophisticated websites, GIS systems and customer information resources.

Duke Power is collaborating with the departments of commerce from both Carolinas to build a world-class GIS-based website that will give site selection consultants, industrial companies and economic developers convenient access to comprehensive information about industrial properties, local communities, workforce and infrastructure in the Carolinas.

We’re also developing an in-house predictive model that will allow us to identify those companies most apt to invest capital in our region. It’s one thing to target industries—quite another to be able to target the companies within those industries most likely to expand, invest and relocate. This analytical model refines our business development focus far more keenly and allows us to direct our resources to real, qualified opportunities.

And finally, many of you are aware of the profit sharing approach Duke introduced last year, that shares 50 percent of our North Carolina profits from our short-term, interruptible wholesale sales to promote economic development in the state.

The sharing mechanism will reduce North Carolina industrial customers’ power bills by an average of 2 percent, and provide $2 million annually to boost the company’s existing Share the Warmth, Cooling Assistance and Fan Relief programs and $3 million annually to support our Community and Technical College Program.

In my mind, this approach—which has been adapted for our South Carolina service area as well—is an innovative approach to a pressing issue. It directs resources toward competitive needs in this state, and toward the critical needs of education and relief for low income citizens.

I know that your organizations have taken similar steps to break the bounds of traditional ED thinking, and we’ve got to keep the good ideas flowing.

Thinking regionally

Earlier I shared the first line of Gibran’s poem “Pity the Nation.” Here’s the last line: “Pity the nation divided into fragments, each fragment deeming itself a nation.”

We need to think more regionally going forward.

We’ve got to recognize that our next-door neighbors are not our real competitors, and that we can and should use the assets of a larger area to market and attract prospective business.

Regionalism was a central theme embraced at the Carolinas Competitiveness Forum, held a year ago in Charlotte. We brought together North and South Carolina thought leaders from business, local and state government, academia and the nonprofit sector for a robust discussion of what we can do to address our region’s eroding manufacturing base.

Now, when you bring together such a diverse, bi-state group of individuals, many of whom consider themselves rivals on the economic development front, you don’t have high expectations around consensus building. But I’ve got to tell you, at the end of the day, we had achieved a high degree of accord around the notion of “regionalism.”

Folks seem ready and receptive to letting go of turf and working together for a greater good than any state or county could achieve independently.

There are many good examples out there already:
Here’s a great example of cross-state potential in an important industry:

In South Carolina, the $100 million International Center for Automotive Research (ICAR) is fully under development in Greenville. Clemson University, BMW and the State of South Carolina joined forces to make ICAR a true innovation center for the Southeast automotive industry—and it will have a global impact going forward. IBM and Microsoft have gotten on board as well, given the growing need for automotive electronics.

Now, connect ICAR with the UNC Charlotte’s work in Motorsports Management and in automotive testing and measurement. Factor in NC A&T’s expertise in Motorsports Management and Pit Crew Certification, and you’ve got the makings of a strong automotive and motor sports corridor in the Carolinas.

The automotive cluster extends beyond the two states Duke Power operates in, of course. Most of our neighbors have a dog in the race for a share of the automotive industry moving south. We can and will win work from England, Germany and Detroit—but we must initially compete with out-of-region and out-of-country competitors—not one another—to make the short list.

There are many more good examples of clustering—in the fields of microOptics and photonics, biomanufacturing, polymers and plastics, transportation and distribution. The key point: If we want true and sustained momentum for our region, we can’t continue down separate and conflicting paths. We’ve got to build bridges of economic collaboration—and we’ve got to think differently.

Thinking long-term

We need to think collectively, broadly—and for the long haul. And our long-term commitment to community must extend beyond pure business development. At its heart, after all, economic development is about human development.

Success will belong to those regions that nurture and grow their intellectual capital. Here at home, we need to unite our public and private sector energies to ensure that we have a strong and prepared pipeline of talent to take us forward. We have work to do—but it’s the important, deal-breaking sort of work that we can’t afford to overlook.

Our focus can’t be on post-secondary education alone: We need to begin by improving our high school achievement, which is sorely lacking today. North Carolina’s s currently ranks 42nd in the nation in high school graduation rate. Only 60 percent of our ninth graders graduate within four years. That reality will hobble the best of intentions in all other areas.

During our Competitiveness Forum last year, we captured real-time responses from our attendees. You know what the overriding concern and perceived barrier to manufacturing was? Education, training and a quality workforce.

Relocating businesses want to see that state school systems are serious about preparing students for the workplace. They want to be able to count on a steady stream of applicants skilled in math and science, problem solving and communication. They want to know that there are technical schools in the area that allow employees to retrain, refresh and acquire new and expanded skills as business needs change. They want research and development capabilities nearby, either associated with a university like the Charlotte Research Institute, or independent like Research Triangle Park, sitting near some of the most prestigious universities in the country.

For whatever reason, manufacturing’s image has taken a beating in recent years. Unfair and undeserved—but most young people pondering career choices today tend to equate manufacturing with assembly lines, robotic repetition, low-skill, low-tech jobs, and noisy, dingy factories that they’ve seen portrayed in old movies and outdated history books.

That’s not reality today, by any stretch of the imagination. Manufacturing is highly automated—one reason it is the most productive sector in our economy.

It’s also high-tech and cutting edge. The manufacturing sector contributes almost two-thirds of private sector research and development in the U.S. Today’s manufacturing workplace is an idea factory—where tremendous R&D breakthroughs are born and propelled forward.

Twenty-first century manufacturing isn’t about machine and widgets and cogs on an assembly line—it’s about people—bright, ambitious, educated people engaged in creative, challenging careers.

We need to educate young men and women about the reality of manufacturing today. We need to replace the old assembly line stereotype with a true picture of today’s complex and rewarding work environment.

You can help in that regard, and so can businesses like mine, by reaching out to schools, community colleges, and universities. We ought to be seeking out every opportunity to invite students into the workplace—through open houses, intern and co-operative programs, apprenticeships, career planning workshops, employee outreach and mentoring.

We need to make manufacturing a preferred career choice for young people—and for the not-so-young who may be re-entering the workforce.

A recent report by the National Association of Manufacturers, the Manufacturing Institute and Deloitte & Touche focuses on the threat of a pending talent shortage. The report, titled “Keeping America Competitive,” notes if we don’t turn the tide, the U.S. could face a serious labor crisis. The report doesn’t pull any punches—allow me to quote briefly: “This shift could foreshadow a significant decrease in manufacturing’s competitiveness, accelerate the transfer of American productive capacity and well-paid manufacturing jobs overseas—and deliver a decisive blow to the nation’s long-term economic prospects.”

So even as you and I and countless others are lobbying hard for the right tax incentives and policy positions to make our region competitive—we’ll lose the war if we neglect education.

We need to examine and overhaul the pipeline of preparation that brings job seekers to the workplace. Call it educational reform, realignment, whatever you like—but the bottom line is we’ve got to do a far better job of making sure we have new workforce entrants who have the skills and cognitive abilities needed to succeed.

Thinking creatively. Thinking regionally. And thinking long term.

Restoring vibrancy to our state’s economy will require the private and public sectors to act together with a profound and purposeful sense of urgency. Manufacturing stands at a crossroads today, and it is going to take our collective efforts to preserve and advance the capacity to make, invent, design and deliver the goods that make our region strong. Thank your for your role in that important work—and for your time today.