Top [gulp] of the Heap

Politics by Emerson Lynn

In Connecticut there is the continual debate as to why its manufacturing costs are so high and why its business climate makes it so hostile as a place to operate.

Sound familiar?

But to find out whether the continual complaint was accurate, several economists at the University of Connecticut decided to gather all the relevant information – taxes, rent, labor, energy, license fees, capital costs, materials, etc., - and calculate the cost of manufacturing. The figures came from the Economic Census data for 2007. They calculated all costs and then divided by the value of the state’s gross output to get the average unit cost of doing business. The researchers determined that it cost 79.3 cents to produce a dollar’s worth of manufactured goods in Connecticut.

Using the same data source for each state, they were able to determine a national average of 83.3 cents. It turns out, according to their research, that Connecticut ranks 43rd in terms of manufacturing costs. That would seem to take the wind out of the sails of those in Connecticut who complain about the cost obstacles facing their manufacturers. A myth debunked.

But that wasn’t good enough for the university’s team of researchers. What they were trying to do was to describe the full picture. They were looking at other studies that had ranked Connecticut as an expensive place to do business. But those studies, according to the researchers, were considering input costs, not total production costs. Connecticut, for example, has among the nation’s highest wages, but, as the researchers proved, that’s not the complete picture. Just because they pay a lot in wages doesn’t mean the total cost of producing something is high.

They went on to show the complete picture, and one of the points of the research was to show that Connecticut’s costs are actually below those of most others. But to do that, they had to show a comparative analysis.

Good for Connecticut.

Bad for Vermont.

The researchers conclude: “By this more comprehensive measure of cost, Vermont has the dubious distinction of being the most costly manufacturing state in the nation: a dollar of manufactured goods costs 95.9 cents to produce in the land of good dairy and small profits.”

Now that’s a paragraph we’re not likely to send out in our marketing material.

(It’s interesting that the state with the lowest manufacturing costs was Oregon, a state similar to Vermont in its progressive politics. Its costs were 70.6 cents.)

There is the perpetual complaint that it doesn’t help to advertise weakness, and we ought not accept what some of our politicians say as fact. In a Vermont Public Radio commentary this week Bill Schubart writes: “During this election, Vermonters are going to hear a lot about lowering taxes, job creation, size of government – all hot button issues designed to keep up from going deeper on the complex underlying issues. Hopefully the press corps and the electorate will not swallow these placebos without reading their ingredients. Problem statements are easy. Solutions are not.”

That, of course, was precisely the reason the University of Connecticut researchers took on this task. They wanted to know what the complete picture showed and they used a national database available as a constant for all. And Vermont is hardly a competitor to Connecticut in the manufacturing world, thus, there would be no reason to distort the figures. The conclusion doesn’t taste much like a placebo.

Obviously, there is a lot more to a state’s economic profile than its cost of manufacturing. But it’s also ridiculous to pretend it’s not important. Manufacturing jobs are among the best we provide. If our costs lead the nation, then we need to recognize that and work to become more competitive. What we should not do is to pretend that the University of Connecticut’s conclusion is shoddy work, politically motivated and somehow biased against the state with “good dairy and small profits.”

But it also needs to be recognized that beyond finding ways to become more competitive, we also need to develop strengths that mitigate some of our costs that, as the result of being a small state, we can’t bring down to the national average. Chief among them is education.

Vermont’s demographics are challenging even in the best of times. We have a low unemployment level basically because we have little growth and the nation’s second oldest workforce. But look ahead. Presently, we have a declining student population and one of the lowest percentages of high school graduates going on to college. How does that look for future growth potential in a 21st century knowledge-based economy?

The general election campaign should be focused in no small part on these twin realities. In the short term we need to focus on our lack of cost competitiveness in manufacturing (for instance, not raising the cost of energy), while recognizing education as the place to readjust our vision and our investment to raise the quality of what we produce in our schools. One’s now, one’s for the future.

This is not a contradiction. It’s essential.

(Emerson Lynn is editor & publisher of the St. Albans Messenger where this essay first appeared.)

 

Comments

[Allan Arbuckle]

According to some of the comments on the Upside Agriculture blog, that VT's best crop are rocks, we should try to revive the "pet rock" phenom!

[AM]

I like it, because it matches my opinion. :)

More seriously, it isn't enough to say that VT is a bad place to do business and think lowering taxes will solve all those problems.

I've harped on it a little too much I think in the comments but realistically the government has not been willing to invest in the road, utility, and infrastructure development that would make overall costs lower for business to be here. What's sad is that other than these occasional articles, that point doesn't seem to be much on anyone's radar screen.