Bringing manufacturing back ‘inshore’

VANCOUVER — Mitt Romney said it during the last U.S. presidential election campaign. Politicians, union leaders and ordinary citizens in both Canada and the United States have been saying it for years. We need to bring back those good, manufacturing jobs.

Until 20 or 30 years ago, most significant manufacturing took place in the developed world and provided lots of usually unionized, well-paying jobs for those at the lower or mid-range skill levels. Then the global economy took over and manufacturing moved from places like Ontario and New York State to places like China. The primary reason was lower labour costs.

Canadians and others benefitted from having a very wide range of manufactured goods available at very affordable prices, but the real cost was the loss of those good manufacturing jobs. Laid-off workers faced extensive retraining, a geographical move, a low-paid service job or extended unemployment.

But no tree grows to the sky and now we are seeing the start of a movement of manufacturing from China back to North America. Apple is making computers on this continent again. General Electric will be producing refrigerators and water boilers in the States and this is just the tip of the iceberg. A recent issue of the Economist had a major feature article on "inshoring," that is, manufacturing activity coming to North America from Asia instead of the former "offshoring." And it is not just U.S. businesses coming home. Even Chinese companies like the computer maker Lenova are setting up plants in the States.

Among the reasons for this flow back are rising labour costs and growing skills and capacity shortages in China, increasing costs and time in transporting goods to markets and moderating wage costs in North America. For example, more flexible union contracts have led to increased car making here by Ford and others.

More moderate base wages will not be the only difference between the returning 21st century manufacturing and the old 20th century patterns. To survive in our global economy, today’s factories must use ever-increasing levels of computerization, automation and technology. This means fewer workers overall and most of those needing a high level of technical and other skills. It also means good wages for those with the skills.

Those of us outside of Ontario and Quebec would like to see another difference between former and current patterns in manufacturing: its more even dispersion across the country. So what do we need to get more manufacturing in British Columbia, for example?

To answer this question, I spoke to Steve Rooney who is president of Westcoast Cylinders Inc., one of those rare companies that is actually doing manufacturing in British Columbia now.

According to Rooney, some factors that might have been expected to be problems were not. He had no problems with paying his fair share of corporate and income taxes, but was concerned about local property taxes, especially given the already very high cost of land in Metro Vancouver. He would still happily take any tax incentive offered especially if it would help him acquire capital equipment.

The high Canadian dollar is not all negative. It does make it harder to compete for export markets, but it also means that importing technology, capital equipment and materials and supplies is now less expensive.

The really big constraint on manufacturing is the lack of suitably trained and skilled labour. Basic operating labour, Rooney says, can be trained on the job; but at the next level up in technology or management potential employees must bring appropriate training and ideally some experience to the job — and such people just aren’t there. The British Columbia Institute of Technology is the only institution in the lower mainland offering the kind of training needed for such areas as computer and numerically controlled manufacturing and it produces only a few dozen graduates a year – far fewer than even the existing manufacturers need.

This lack of a technical workforce limits the expansion of manufacturing in B.C. It is a problem that must be solved if we are to see goods production here grow and if we are even to retain the manufacturing we currently have.

And lack of skilled workers for manufacturing is not just a local problem. Mitt Romney should have checked his numbers. Even with an unemployment rate of 7.8 per cent, there are about 600,000 vacant manufacturing jobs going begging in the United States because yesterday’s workers do not have the skills to fill today’s jobs.

B.C. business columnist Roslyn Kunin is a consulting economist and speaker. www.rkunin.com.

—Troy Media