The subtle landscape of U.S. manufacturing

For the past two years Mary Isbister, president of GenMet—one of The FABRICATOR’s past Industry Award winners—had a friendly bet with colleagues of the Manufacturing Council, a group that meets to propose ideas to Secretary of Commerce John Bryson, who in turn reports those ideas to the president.

How many times would the president mention manufacturing in his State of the Union address?

In both 2011 and 2012 Isbister won the bet. Last year Obama didn’t mention manufacturing at all. This year it was more than 15 times. Watching the address with her family, Isbister felt a bit of pride. Some ideas the Manufacturing Council had proposed, such as worker training and regulatory simplification, made it into Obama’s speech.

Isbister got involved with the council after a call from the local Manufacturing Extension Partnership office, a government program funded by the National Institute of Standards and Technology that helps small and medium-sized shops improve their operations.

The council meets quarterly, either in Washington, D.C., or at a council member’s facility. Most members have more than one facility, of course. The majority, in fact, are employed by global corporations, including Dow Chemical and Illinois Tool Works. The few from small organizations happen to lead two metal fabricators previously covered in this magazine—Ace Clearwater, an aerospace fabricator in Torrance, Calif.; and Isbister’s GenMet, short for General MetalWorks, a 70-employee shop based in Mequon, Wis.

Is this a representative mix of U.S. manufacturing as a whole? Not really, considering most of the manufacturing in this country occurs in small businesses. But those small businesses sell to the ITWs of the world and so probably couldn’t prosper without them. If the battleships didn’t set up plants here at home, the tender ships wouldn’t have anyone to serve.

Still, the council’s discussions do show how different the big fish are from the small. As Isbister explained, larger companies bring up problems with corporate taxes, EPA regulations, and the like—all hurdles for large corporations setting up plants stateside. Small businesses do face a few of these problems, including issues on corporate taxes (such as how S Corporations are taxed). But for the most part, small business has one overriding challenge: finding skilled labor.

Here’s where the game of perception versus reality begins. The general public might think that a national manufacturing council would go on and on about how U.S. manufacturers can’t compete against cheap labor abroad. They contract out or open plants where people make pennies an hour, because that’s the only way they can keep their product price down.

But according to Isbister, labor costs have rarely if ever come up at meetings. “Their decision whether or not to build in the U.S. rarely has to do with labor costs,” she said. “Labor availability is key. Labor costs, not so much.”

Boiled down, the council members want the U.S. to be an easier place to set up shop and sell products both domestically and abroad. Being part of global organizations, most council members support various free trade measures. And even as a small-business owner, Isbister does too.

“My husband and I did some soul-searching on this,” she said. “Organizations our size typically work in domestic supply chains. We offer various services, timeliness, engineering support, and other benefits that can’t be obtained with a partner that’s overseas. So for us, we hope we can support our OEM customers to the extent where they will want to keep their manufacturing here even if it means exporting into markets outside, as opposed to locating a plant out there or partnering with facilities outside the country.”

That statement might help build a foundation for a succinct U.S. manufacturing policy. It’s about making it easier for large manufacturers to do business here. Those are the companies that for decades provided the employment anchors for thousands of communities, and those anchors supported countless contract fabricators, suppliers, and related businesses.

There are numerous wrinkles of complexity beyond this, of course. U.S. companies like steel mills may have to compete with state-supported enterprises overseas, but it’s this state support that throws the playing field off-kilter, not just labor costs.

The government has renewed interest in manufacturing. Whether it’s all a fleeting part of election-year politics or a long-term focus remains to be seen. (If history’s a guide, I’d bet on the former.) But after a decade book-ended by busts, first the dot-com and then housing, our politicians seem to be grasping for one area of the economy that can employ people and pay above-average wages.

The problem with the government’s approach, Isbister said, is that policymakers seem to be tackling the employment problem from the wrong end. If a company wants to sell more to customers, managers research and develop new products or services to meet customer needs. But when it comes to employment, the government doesn’t seem to be considering the customer—that is, businesses that hire. They focus on the unemployed—that is, the angry voter. But if the government wants to help the unemployed, it needs to help businesses that need workers. And at this writing, manufacturing needs more than a half-million of them.

Now for a reality check. Like any job, manufacturing work isn’t a panacea. Statistics show that manufacturing does indeed offer high wages relative to other industries, but statistics come from means and averages. According to a 2010 wage survey from the Fabricators & Manufacturers Association, wages vary significantly. The lowest reported welder salary is $19,380; the highest is $83,200—and this is base pay, not including overtime and benefits. A full-time checkout clerk in retail may not make much less than $19,380, but I don’t know many clerks who clear more than 80 grand a year.

Much of the variation hinges on local market forces. A welder benefiting from North Dakota’s oil boom will have a far different W-2 than a welder in another part of the country. Frustration is brewing. One reader of thefabricator.com blog said he knew welding, but he worked at the local Wal-Mart because the starting pay was only a little less, and it wasn’t “in a 115-degree welding shop … Why would someone expect you to work in a job that pays only slightly more in a difficult environment with little to no chance of advancement or increases in pay?”

Another shop manager responded, saying her company does indeed pay high wages and good benefits. Even so, finding the right person hasn’t been easy. “We looked for almost a year for a competent, skilled welder/fabricator and finally found one with not quite all the qualifications we wanted, but at least he was willing to learn … There are employers out there who know their most valuable asset is not their facility or their machines.”

Manufacturing companies aren’t all the same, and neither is worker pay. Reality is subtler than that. Despite all the complexities, though, the massive U.S. contract manufacturing base can’t grow if multinationals continually choose to build plants elsewhere. If more OEMs open large plants stateside, more work for contract fabricators will be the result. That demand will cause OEMs to hire and more suppliers to open up shop. All this, ultimately, will help the U.S. economy grow. This, Isbister said, is exactly what the Commerce Department’s Manufacturing Council hopes to communicate.