The manufacturing myth

The governor wants to rebuild the economy by putting people back to work making things. But the numbers might not add up.

By Edward Martin


In the hills east of Asheville, Heywood Road wends alongside modest houses, through a stand of pine, oak and hemlock, and past a lake where mists rise on cold mornings. A few hundred yards before it ends, a building sprawls over almost 7 acres of what could pass for a suburban college campus. Built more than 30 years ago, Eaton Corp.’s plant in Arden is not new, though what’s taking place inside is: a subtle but striking change in the Tar Heel economy.

It’s second shift, and Daniel Kirl’s workplace is clean, bright and quiet. “I’m a tester,” he says. “I test electronic switch gear to make sure there’re no frayed wires or anything and that everything works properly.” The sophisticated equipment he and some 1,000 co-workers build controls motors and other devices used by companies throughout the world. Based in Ireland, Eaton’s U.S. headquarters is in Cleveland.

Kirl, 28, is a 2003 graduate of Charles D. Owen High School in Black Mountain. Strong in math, he made a decision that would have surprised many classmates. “When I graduated, honestly, if you mentioned going into manufacturing, you were looked down on.” He has three associate degrees in electronic- and computer-engineering fields from Asheville-Buncombe Technical Community College and plans to get a bachelor’s in electrical engineering from N.C. State University in Raleigh. Kirl and his co-workers, many of who have at least two-year degrees, have cast their lot with manufacturing.

So have Gov. Pat McCrory and his commerce secretary, Sharon Decker, who have just completed their first year of overhauling how North Carolina courts jobs. “Manufacturing is one of our real priority clusters,” Decker says. In an interview for the 2014 North Carolina Economic Development Guide, McCrory buttressed her point: “The manufacturing industry, some had given up on that and figured it is gone forever. We disagree.”

But they are not pinning their hopes on just any kind of manufacturing, certainly not the kind wrought in mills and factories in places like Enka, where Kirl worked for his grandfather selling and servicing fire extinguishers. For several years before that business was sold in 2011, it had lost customers in traditional industries as they boarded up plants and dumped workers. “That made me start thinking I needed more of an education.” While he has been investing in his future, elected officials are betting millions of dollars in incentives, including infrastructure, tax breaks and other inducements — not to mention their own political capital — that companies such as Eaton can add thousands more employees to the state’s 4.6 million workforce. A key plank in McCrory’s 2012 campaign platform was to reduce the state’s stubborn unemployment rate, among the nation’s highest.

Buried in workforce statistics, however, are questions about how much impact modern manufacturing can make on employment and whether the governor and his administration can meet the expectations they’re creating. In a blitz last fall that he called Manufacturing Day, McCrory announced five new or expanded factory operations, totaling some 380 jobs. One was in Greensboro, where Columbiana High Tech LLC makes nuclear-fuel containers and will add 40 to 50 welders, machinists and engineers to the 115 it employs there by the end of this year. “This area was built on manufacturing,” the governor said, repeating what became a mantra of his first year in office. “We can’t live off the service industry alone.” But he didn’t dwell on the larger context: Analysts say the Triad lost 37,000 jobs between the start of the recession in 2007 and the end of 2013, all but 7,000 in manufacturing.

Statewide as well, industry hunters heralded small gains but rarely mentioned setbacks. Between the beginning of McCrory’s administration in January 2013 and year-end, he announced more than 40 plant expansions and openings. He would often take the occasion to praise his plans to revamp the Department of Commerce by privatizing recruiting and the tax cuts he and Republican legislators pushed through. (He failed to mention that some of these relocations and expansions were in the pipeline before he took office.) The announcements totaled 5,200 jobs. But according to the N.C. Employment Security Division, the state had a net loss of 3,500 manufacturing jobs in McCrory’s first eight months as governor, based on a seasonally adjusted total of 447,500 in January compared with 444,000 in August. Decker made a splash by unveiling plans to name the state’s first assistant secretary of commerce for manufacturing. That’s on hold now, though she says a lesser post might still be created.

That’s just the tail end of a long-term trend. Between August 2003 and August 2013, the state shed 145,100 production jobs. That downtrend, however, obscures why the fight for manufacturing jobs is worth waging: The average annual manufacturing wage exceeds $53,000, nearly a third higher than nonmanufacturing jobs in private business, Decker says. Statistics such as that portray a factory landscape that Tar Heel manufacturing magnates of generations past, accustomed to massive plants and world dominance for their goods, would scarcely recognize. In the 1970s, Hickory-based Broyhill Furniture Industries Inc. had more than 7,500 employees in 20 factories. In Kannapolis, blocks of identical mill houses marked the paternal presence of Cannon Mills Inc., then the world’s largest towel-maker. It not only owned the cavernous factories, it owned the town. When it vanished into bankruptcy in 2003, by then owned by Pillowtex Corp., the company let go more than 7,600 workers, the state’s largest one-time job loss ever.

Decker knows that scene well. She grew up in Belmont in the state’s textile belt. Mills were a fact of her life, along with layoffs, industrial accidents, byssinosis — brown lung — and mill-town poverty. She’s undaunted by the scope of creating an advanced-manufacturing workforce distant from that. In her and McCrory’s dreams of North Carolina’s new workplace, there are already models to follow, such as Eaton in Arden. Another is not too far away.

                   
THE BIG GREEN-AND-WHITE tractor-trailers don’t stop here anymore. They haven’t since October, when the leaves were turning and tourists were jostling with the trucks on interstates 40 and 26. Thomasville-based Old Dominion Freight Line Inc.’s terminal has been demolished, but work goes on in a building next door in Buncombe County’s Sweeten Creek Industrial Park in Asheville. There, the muffled shriek of lathes biting into nickel, titanium and other exotic alloys rises from tightly enclosed computer-controlled machines, tended by the plant’s 300 or so employees.

GE Aviation, 3 miles from Biltmore Estate’s front gate, has been making rotating parts for its jet engines, which power nearly half of the world’s airplanes, here since 2008. The Evendale, Ohio-based subsidiary of Fairfield, Conn.-based General Electric Co. has three other North Carolina plants — in Durham, West Jefferson and near Wilmington. It’s expanding all four, investing $195 million and adding 240 jobs to the 1,300 it has in the state.

Precision at the Asheville plant is at a premium, with tolerances that make human hairs seem as large as fingers. But later this year, when the company completes its new factory on the former Old Dominion site, the existing one will become old technology. Replacing metal alloys will be ceramic matrix composite, coated silicon carbide fibers embedded in ceramic resin, molded and milled into parts. They can function almost wearlessly inside engines of such aircraft as new-generation Boeing 737s and Airbus A320s, where 2,700-degree heat would melt many metal alloys. The upshot: lighter, more-fuel-efficient, longer-lasting engines. “This is equivalent to the early years of flight, when we were moving from wood and fabric in airplanes to metal,” plant manager Michael Meguiar says. In planning this factory, he visited Kinston, where Topeka, Kan.-based Spirit AeroSystems Holdings Inc. has been making composite airliner fuselages since 2010.

The rotating-parts factory and the ceramic-matrix one that will supplant it are advanced manufacturing of the highest order. “The commitment we made to the state is to add 52 jobs here in the next four years, but our longer outlook is we believe the increase will be significantly more in 2018 and beyond,” Meguiar says. Kelly Walsh, a GE Aviation spokeswoman, says the wages it will pay are confidential but “will be competitive.” That’s heartening, but advanced manufacturing comes with a cost — smarter workers. Meguiar needs employees with skills in math and other subjects that out-of-work Tar Heel factory workers often lack. “Typically, our employees have some sort of machining experience and certification through community colleges or something,” Meguiar says. At Sweeten Creek, GE Aviation workers will undergo months of training in a program Asheville-Buncombe Technical Community College is developing.

Employees also have to bridge a workplace culture gap, says Debbie Cromwell. She’s the Asheville-based “success manager” of the North Carolina Advanced Manufacturing Alliance, a group of 10 community colleges and other organizations that is funded by an $18.8 million U.S. Department of Labor grant to help displaced workers acquire new skills. In advanced manufacturing, workers on the plant floor must make decisions and assume more responsibility for quality, innovation and productivity. “We’re not saying their grandfathers weren’t bright people. But this is a completely different world. A misplaced decimal point can destroy a $40,000 part.”

McCrory and his predecessors have been working to fill the skills gap. Decker’s staff cites partnerships between manufacturers and community colleges throughout the state. Among them: Siemens AG, a Munich-based manufacturer of steam and gas turbines, has Central Piedmont Community College train its Charlotte workers; Southport, Conn.-based gun-maker Sturm, Ruger & Co.’s plant in Mayodan allies with Rockingham Community College; and N.R. Spuntech Industries Ltd., an Israeli nonwoven-textile manufacturer that is investing $35 million to upgrade its Roxboro plant and add 60 jobs to the 94 it has there, pairs with Piedmont Community College. They’re examples of the customized training programs offered by North Carolina’s 58 community colleges, mainstays in its industrial recruitment. The state also is exploring novel approaches. One is within walking distance of McCrory’s office.

In downtown Raleigh, a former Coca-Cola bottling plant is undergoing a $24.5 million conversion into Vernon Malone College and Career Academy. Starting in August, sophomores who are accepted will, in effect, choose a major such as electrical systems or welding. In addition to core topics such as English, advanced math and science, they will attend classes taught by Wake Technical Community College instructors in the 11th and 12th grades. They’ll visit plants for job shadowing and apprenticeships, gain work experience and graduate with certifications that prepare them for high-tech manufacturing jobs or degree programs at Wake Tech or four-year universities. The school will eventually enroll 700.

Interest by students has been high, Principal Ashlie Thompson says, but the former English teacher faces a hurdle. As N.C. State University economist Michael Walden explains it, “Two generations ago, a young person — usually male, though in textile industries, many females — could come out of high school and move into the textile industry, cigarette factory or furniture industry and make a rather decent rate of pay.” Most of those jobs are gone, but one thing remains: the stigma attached to them. Mill hands were derisively called “lint heads;” furniture workers were made butts of jokes for their trademark missing fingers, sacrificed to saws. Factory work, conventional wisdom held, was for those not bright enough to go to college.

“We have to be realistic and understand that yes, that image does still exist to a certain extent,” says Scott Ralls, president of the N.C. Community College System. “When I was in college years ago, I worked on a production line, not using my brain, just stuffing things in a plastic cart. But the jobs we’ve lost and the jobs we’re growing now are very, very different.” He’s quick to correct anyone who makes a distinction between manufacturing and high-tech jobs. “Manufacturing is the highest high-tech,” he says. Thompson says the students she’s recruiting have fewer reservations about manufacturing careers than their parents and teachers do. “Partly, we’re having to educate the educators.”

It’s a new twist on an old problem for Decker. “My parents would say to us each night, ‘You can be anything you want, but for God’s sake, don’t come back and work in the mills.’”

       
BY THE EARLY 1900s, they were farmed out — the land and the tired men and women who tilled it. North Carolinians abandoned fields for factories. An odd thing happened. “Eighty years ago, about three jobs out of 10 in North Carolina were in agriculture,” Walden says. “Today, it’s one out of a hundred. But we’re producing five times more farm products.” How? “Farming has become much more technology-intensive and less labor-intensive. Manufacturing has gone that way and will continue.”

Therein lies a paradox that could prove troublesome for those attempting to cure unemployment with manufacturing jobs. The robotics, computers and general automation that are the hallmarks of advanced manufacturing are the same forces that, offshoring aside, have accounted for at least half of the last decade’s 145,000 lost production jobs in the state. They are the factory-floor equivalents of tractors and combines. “If you look back over several decades, the economic model of labor and capital has changed dramatically,” Walden says. “We’ve moved away from labor to more capital.”

In Asheville, the new GE Aviation plant, with its ultra-advanced ceramic parts for jet engines, reflects that. The company expects to invest $126 million but add only slightly more than 50 jobs. Most of the money will go for advanced machining equipment, computer-driven quality control and other technology. A comparable investment in a Tar Heel plant several decades ago would have likely produced hundreds, even thousands, of jobs. Decker, who says one North Carolina worker now produces as much as three did a generation ago, is undaunted. “I just see that we have to recruit a lot more businesses. We can’t do it with a handful of companies. We’ve got to do it with two handfuls. But the business model — that we’re not going to change.”

 “We’re kidding ourselves if we don’t think manufacturing of the future isn’t about productivity and technology that doesn’t require as much labor,” Ralls says. “Textiles are an example. It has declined overall, but certain areas — the higher end, geotextiles and nonwovens — are growing. They’re areas that are technology-driven.”

McCrory’s vaunted revamp of the Department of Commerce, along with new inducements for industries, may skirt other facts of life: North Carolina already was one the nation’s best states for business, and most gains, like those seen in his first year in office, likely will be incremental. While the governor criticizes his Democratic predecessors’ job recruiting as clumsy and characterizes the state as uncompetitive in attracting industry, outsiders picture it differently. Site Selection magazine ranked North Carolina’s business climate as the nation’s best nine times between 2000 and 2010. In 2013, it slipped to second, behind Georgia. In July 2012, before the new tax cuts took place, the international accounting firm Ernst & Young LLP concluded that North Carolina had the nation’s lowest local and state tax burden on business. A chain of business journals ranked the state as having the nation’s second-lowest production costs for manufacturing.

Having a reputation as an attractive business climate carries an ironic downside. A January 2013 study by St. Louis-based United Van Lines LLC found that the state has the highest in-migration in the Southeast. In a speech to a Charlotte real-estate group, Decker attributed the state’s high unemployment partly to the steady influx of job seekers.

Two things are certain. One is, despite its losses, manufacturing in North Carolina is still an economic powerhouse. Nearly $1 in $5 of the state’s gross domestic product comes from it. That amounted to $80 billion in 2012, behind only three other states. The other certainty is that the unemployment chasm is a big hole to fill by recruiting manufacturing jobs that are integrally fraught with complexities rarely enumerated in glittering announcements of new plants.

Even if portraying advanced manufacturing as a cure for unemployment is overblown political rhetoric, one twist could bring it back to earth. Unlike the 2,000-employee tobacco, textile and furniture factories of old, North Carolina’s new generation of smaller, high-tech manufacturers pumps out a variety of products, from car parts to computers and space-age foodstuffs. “The important thing for us,” Decker says, “is that this time around we’re diversified, so we’re not putting all our eggs in one basket. And the good news is, in many of these cases, you’re not looking for a thousand employees. You’re looking for a hundred, so they fit nicely in more-rural areas.” There is a certain poetic justice in that. Those are the same communities drained a hundred years ago when Tar Heels were lured from their farms to cities by smokestacks and assembly lines.

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