'Made in America' makes a comeback
By Mike Wereschagin
Published: Sunday, July 22, 2012, 12:19 a.m.
LOUISVILLE — Six rectangular buildings rise through the early morning haze, their brick exteriors and stained, translucent windows looking, from a distance, like so many of the hulking remnants of America's bygone industrial ascendancy.
This factory complex once employed a city-sized work force — 22,000 people, a larger population than Johnstown. It has its own ZIP code, once had its own fire department, and traffic lights line the mile-long employee parking lot.
When General Electric Co. opened Appliance Park in the 1950s, it persuaded lawmakers to bend the time zone boundary around Louisville so the factory would observe the same time as GE's headquarters in Fairfield, Conn.
For much of the past 30 years, the 900-acre campus followed the national script of industrial decline, as low-wage workers in Mexico and China replaced middle-class employees here. Manufacturing employment fell from more than 19 million in the late 1970s to less than 12 million in 2010, according to federal statistics. Jobs here that served GE workers — from barbers to bartenders — vanished.
Then something changed. More than a year ago, GE started bringing production lines back to Louisville, an $800 million project that's part of a nascent economic trend called reshoring (rather than offshoring). Two lines opened this year, including a refrigerator line that used to be in Mexico. They were the first new lines at the plant since 1957.
That offered Travis Saylor, 35, of Louisville, something he wasn't sure he'd ever have:
“A career,” he said.
A licensed plumber, Saylor hadn't been able to find work in his trade for nearly three years. He went to work this year on a water heater assembly line that GE relocated from China.
New manufacturing techniques, technological advances, rising wages abroad and higher transportation costs are offering new hope for domestic manufacturing, according to interviews with business owners, workers, economists and executives. City-sized factories won't be returning, they say, but thousands of jobs are. In the last quarter, the nation added an average of 10,000 manufacturing jobs a month; in the previous quarter, the sector grew by an average of 41,000 jobs a month, according to the federal Bureau of Labor Statistics.
“The cost advantage of manufacturing offshore is starting to be eaten away,” said Kurt Rankin, an economist at PNC Financial Services Group. Locating offshore “is no longer just a no-brainer.”
Obstacles remain. Mounting national debt, lawmakers' inability to tackle long-term problems and the so-called “fiscal cliff” — the year-end deadline when automatic tax increases and deep spending cuts in the federal budget take effect unless Congress acts — threaten a manufacturing resurgence.
“With these huge deficits, people have to believe that in the future, tax rates are going to rise. How much? No one knows. That's uncertain. Uncertainty is the enemy of investment and growth. People hold off on investing what they have, and wait and see what's going to happen,” said Allan Meltzer, professor of political economy at Carnegie Mellon University.
Federal Reserve policies designed to spur a recovery mostly involved injecting capital into the economy — such as the programs known as quantitative easing and its sequel, QE2. They've helped boost the stock market, but that might merely be masking economic weakness, said John Schlifske, CEO of Northwestern Mutual, the Milwaukee-based financial services company.
“I'm sure (Federal Reserve Chairman Ben) Bernanke, in his mind, thinks if he can support the stock market long enough, the economy can recover. But the stock market follows the economy; it doesn't lead the economy,” Schlifske said.
The advantages that countries such as China have over the United States — low wages in particular — have eroded as international trade boosted the emerging economies.
The Boston Consulting Group, a top consulting firm, identified in March seven industries it said were nearing a “tipping point” in reshoring from China. They make up as much as 30 percent of Chinese imports and include appliance, machine and furniture manufacturing, and metal fabrication.
The report found wages in China rose an average of 19 percent a year from 2005 to 2010, while those of U.S. workers increased 4 percent. International shipping costs and rising fuel prices dull China's edge even more.
As jobs fled Louisville, wages fell. In 2005, GE and its unions agreed to drop the entry-level hourly wage from as high as $22 an hour to about $13 an hour. Average Chinese wages are still about a fourth of that, but an educated U.S. work force offers other advantages, said GE spokeswoman Kim Freeman.
“In China, it might take about 12 hours to make a refrigerator. In Mexico, it's maybe 6 hours. Here, we can make it in about two or so,” Freeman said.
Much of the efficiency is a result of GE's adoption of a manufacturing philosophy pioneered by Japanese companies. Called “lean manufacturing,” the idea is to strip away as many steps as possible, distilling each assembly line to its simplest form. Workers on lean lines help design the products they build, and reorganize assembly lines — parts of which sit on wheels so they can be moved around — based on their experience.
The old and new manufacturing methods worked side-by-side in the building where GE makes dishwashers.
On the old line, which shut down on July 6, hundreds of dishwashers in various states of completion hung from bulky orange clamps. They were attached at their top to a long, revolving oval, like a beefed-up version of a motorized dry-cleaning rack. The line stuttered forward, stopping for 17.6 seconds in front of each worker, with five or six machines hanging idle between them.
Nearby, the lean line moved at a slow, steady pace. The same number of people — about 30 — worked on the lean line, leaving only one or two machines between workers. Instead of huge pallets holding a day's worth of parts, the workers stood beside small, easily replaceable bins. The lean line can make as many as 16 dishwasher models in one shift.
The traditional line held 200 dishwashers at a time and stretched 2,500 feet; the nimbler lean line holds 32 dishwashers on 345 feet, achieving higher output in about 14 percent of the space.
LCD screens allow workers to monitor their progress and display graphs showing the most frequent mistakes that were made that day. Workers correct themselves on the fly, resulting in fewer product defects and fewer refunds to customers, said Christy Mudd, a continuous improvement coach hired by GE to help transition to lean manufacturing.
Federal, state and local governments gave GE about $100 million in incentives to move jobs back to Kentucky, Freeman said. The incentives weren't enough to compel GE to reshore assembly lines, but it helped the company make the final decision to pump $800 million into Appliance Park, Freeman said.
Enticing companies with tax breaks and government grants is a common, controversial practice. Gov. Tom Corbett met stiff resistance in his push this year for a $1.7 billion tax break to lure a petrochemical plant to Western Pennsylvania.
“Every time a large company announces plans for a new facility, counties and states start bidding to attract them,” said Enrico Moretti, a University of California at Berkeley economist and author of “The New Geography of Jobs.”
Moretti co-authored a 2010 study that found the subsidies have a mixed record.
“In some cases, they end up bidding away most of the benefit” that the jobs bring to the local economy, Moretti said. The chemical plant tax credit, for instance, could cost more than $200,000 per job if, as a Corbett cabinet secretary estimated, the plant creates 8,000 jobs.
Incentives such as these create “a zero-sum game” between states, Moretti said. Royal Dutch Shell might create jobs in Pennsylvania rather than Ohio because of the tax credit, but the company won't create more jobs overall, he said.
“There is no aggregate job creation. The only thing you're doing is bidding away the benefit to the company. The main industrial policy of this country — (costing) more than $20 billion a year — is having a mixed effect,” Moretti said.
The new normal
Lean manufacturing won't bring back a manufacturing base of the same scale that powered America's economic expansion after World War II. It's unlikely that making small, low-tech items such as microwaves will ever again be more profitable here than overseas, Freeman said. The benefits of domestic manufacturing emerge in large, complex items. And though GE believes Appliance Park will eventually turn a profit, the plant lost $57 million last year because of a sluggish housing market and weak overall recovery. Before the recession, GE predicted the park would turn a profit in 2011.
Still, 1,000 jobs starting at $13 an hour with benefits is better than no jobs at $22 an hour, Freeman said. Those jobs include 500 highly skilled positions in engineering, design and advanced manufacturing.
Employment at Appliance Park once fell as low as 3,400 people; it now tops 5,000.
Before GE hired him, Travis Saylor took a job making T-shirts to support his four children.
“I loved my old job,” Saylor said. But this, he said, is something that's been missing from places like Louisville for a generation: “The idea of being here, lifelong, and having my children follow in my footsteps, maybe. Hopefully.”
Mike Wereschagin is a staff writer for Trib Total Media. He can be reached at 412-320-7900 or email@example.com.
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