Rewriting The Atlas Of U.S.Manufacturing

Dec. 21, 2004
In many communities growth collides with quality of life.

At 6:58 on a midwinter Monday morning, the sun's early rays burst through the smog painting the sky a shade of yellow. Bumpers almost touching, cars, delivery vans, and light trucks rush along State Route 114. An urban ballet unfolds between a midnight-blue BMW and a cinnamon-red Ford Explorer. The driver of the BMW wants to change lanes and push into the space in front of the Explorer, but the Explorer refuses to yield. An opportunity arises. The BMW speeds up; the driver jerks the wheel, and lurches into the left lane in front of the Explorer with all the grace of a Dallas Cowboy. New York? San Jose? Boston? The scene could be set in any of several U.S. metropolitan areas. But it is rush hour in Dallas. One of the country's fastest-growing regions, the Dallas metro area boasts a population of 3.2 million people, and growth shows no sign of slowing. In Dallas manufacturing accounts for 11% of the economy. The good old boys still talk about the price of oil and the way it's making Dallas boom. But the real growth industries during the last few years have been computer chips, medical instruments, and telecommunications. Alcatel USA Inc., AT&T Corp., L.M. Ericsson Telephone Co., Nortel Networks Corp., and Nokia Corp. all make equipment in the north Texas community that has unmistakably outgrown the term town. Boston, L.A., And Tulsa, Too Dallas is not unique. Page after page of the atlas of U.S. manufacturing reveals communities in the throes of change. Some of it is a product of natural economic evolution. In other locations, change is being forced upon communities as new companies arrive and try to create new wealth. Indeed, what's happening in communities across the U.S. is what's happening to the American economy as a whole. It's not old economy versus new economy. Rather, it is the U.S. economy being redefined, refocused, and rejuvenated with an intensity that stuns even manufacturing executives with a sure knowledge of U.S. business history. Michael C. Ruettgers personifies the Boston metro area's changes. Ruettgers spent his early business career working on Patriot missiles at Raytheon Co., a key Boston- based defense contractor. In 1992 he became CEO of a struggling company called EMC Corp. in Hopkinton, Mass., about 25 miles from downtown Boston. Like a well-aimed missile, he eliminated all the company's product lines -- except for data storage for mainframe computers. By 2000 Ruettgers had twisted and turned data storage into an array of new products. And he turned himself into an economic celebrity by growing revenues at EMC 50-fold to $8.8 billion. A continent away, the Los Angeles metro area has lost thousands of aerospace and defense-industry jobs. Apparel and furniture makers in the area are heading south of the U.S. border for lower labor costs. And yet America's movie capital remains a major manufacturing center. Los Angeles is replacing departing businesses with design firms and companies that help to create manufactured goods. General Motors Corp., for example, recently opened a studio in North Hollywood to begin advanced design work. Motion-picture production service firms, video-game makers, and software developers also are setting up shop in L.A. to be close to Hollywood customers -- and to capitalize on available funding. Venture capital is flowing into L.A. at one of the fastest-growing rates in the nation, says a recent report from the Los Angeles-based Milken Institute. Such investment increased by 800% between 1995 and 1999, and movie-related manufacturing was not the only beneficiary. Biotechnology firms -- there are more than 400, including Amgen Inc., in the metro area -- also cashed in. Large employers drive change in metro areas. Ford Motor Co. is one example. In the year 2000, when it began distributing free computers and offering inexpensive Web access to all employees, Ford quickly boosted computer usage in the Detroit metro area. And now more than half of all Detroit households claim at least one computer, compared with only 44% in New York, says AeA, a Santa Clara, Calif.-based electronics-industry association. Williams Cos Inc., however, had an even greater impact on its hometown of Tulsa. The city ebbed and flowed with energy prices, and so did Williams until it diversified. More than a decade ago the operator of gas pipelines came up with a way to generate revenue from defunct pipes. It shoved fiber-optic cables into them and turned itself into one of the nation's largest providers of data, voice, and video communications. With Williams' transformation came change in the Bible-belt town. Tulsa now is a fast-growing manufacturing and telecom center. It hosts major networking communications firms, including WorldCom Inc. Williams expects its telecommunications workforce to double to 4,000 by the end of 2002. Tales Of Big Blue More than once Dutchess County, N.Y., has been transformed by the same large employer. IBM Corp., whose operations dot the Hudson Valley, decimated this picturesque county halfway between Manhattan and Albany in the early 1990s when it laid off thousands of people. Real estate prices plummeted; shops and restaurants in the county seat of Poughkeepsie closed; and blue-collar workers who once ran Big Blue's production lines were forced to take lower-paying jobs in what was left of retail. But as IBM began returning to prominence and profits, Dutchess County saw its fortunes improve. Manufacturing employment in 1998, the most-recent year for which data are available, was up 126% from 1995's level. And manufacturing will become an even more important part of the region's economy if IBM's plans -- and the prices of semico nductors -- hold up. Last October IBM announced it would build a $2.5 billion advanced chip-making plant in East Fishkill. Prospective employment: 1,000 people when full production comes online in 2003. Dallas, the scene of vehicular ballet during morning rush hour, also has been shaped by local companies. A dozen miles from downtown along U.S. 75, Texas Instruments Inc. established its headquarters. Then in the late 1980s and the 1990s telecommunications firms flocked to the purlieu. Now more than 500 of them are crammed into high-rises that cover but a few square miles. I-35, also known as the NAFTA highway, skirts the Dallas metro area on its way from Laredo to Canada. Lined with industrial parks and storage centers designed to hold goods going to and from Mexico, the NAFTA highway is testament to profound change and economic growth. But it also points to trouble. Urban planners in Texas grapple with tough questions about maintaining a decent quality of life in the midst of vibrant growth. "Sprawl is a problem for us," admits Jay Small, an analyst in Dallas' Dept. of Economic Development. Sprawl is overwhelming San Jose, the heart of California's Silicon Valley, as well. Manufacturing accounts for 22% of the metropolitan area's economy, and employees here are almost twice as productive as workers in other parts of the U.S. In 1998, according to the most-recent data available, they added $124,055 in value to manufactured goods, nearly 70% more than the $73,217 average for manufacturing workers nationwide. Cisco Systems Inc., the San Jose metro area's largest employer, is embroiled in a controversy that symbolizes the challenge of balancing growth and quality of life. Cisco, a maker of Internet equipment, is planning a giant corporate complex in CoyoteValley, a semirural area of fields and forests that borders San Jose. When built, the campus will house as many as 20,000 of the employees Cisco expects to hire over the next 10 years. The complex, however, also could damage water supplies and endanger several species, warn local environmentalists who oppose the $1.3 billion project. The matter is tied up in the courts, but Cisco insists the project can go on. Cisco's project is being complicated by California's power crisis. More than 60 members of the Silicon Valley Manufacturers Group have experienced power outages, and the trade association fears the situation could worsen. Calpine Corp. wants to build a powerplant near Cisco's proposed campus to bring more electricity to the area. Cisco opposes it. And that leaves planners wondering where power will come from, says Ross C. DeVol, the Milken Institute's director of regional and demographic studies. "[The Cisco campus] probably still will get built, but it's going to take longer for it to happen." Change is endemic to Silicon Valley, believes Koichi Nichimura, chairman and CEO of Solectron Corp., who has lived in the region for 60 years. He compares the valley and its residents to a virus. "We're constantly learning, mutating. People in the valley are always being subjected to a more hostile environment -- and trying to outsmart it," explains the chief executive of the world's largest contract-manufacturing firm. The inescapable reality is that San Jose is no longer the fields and farmlands that once were Silicon Valley. And those residents who want more development will have to adjust their lifestyles, contends DeVol. "They're going to have to accept higher-density living . . . and offices of more than three floors." Issues Of Land Use The development debate also is occurring about 550 miles north of San Jose in Portland, Oreg. With 157,125 workers holding production jobs, Portland employs more people in manufacturing than traditional industrial strongholds such as Pittsburgh. Like the people in San Jose, Portlanders are some of the nation's most-productive workers, adding an average $107,059 in value to the goods they manufactured in 1998. Until recently, Portland had staved off the worst of traffic and sprawl. The community's "growth boundaries," cited as models by opponents of haphazard development, for example, have kept such companies as Intel Corp. from building semiconductor plants on farmland, some of the region's richest real estate. But that may change. Measure 7, a voter initiative approved last November, would force local governments to compensate landowners when regulations lower the value of their property, and could prompt officials to waive the antidevelopment laws rather than to shell out sums they can't afford. The measure now is tied up in the courts. A more immediate development question confronts the 1.8 million people living in the metro area. Portland grew into a thriving center thanks to agriculture and a healthy forest-products industry. It still does a solid trade in Christmas trees. And lumber and building-products company Louisiana-Pacific Corp. is just one of several stalwarts based in Portland. But Portland's fastest-growing economic sector is high technology, led by Intel, Hewlett-Packard Co., and Fujitsu Ltd. And not far from Intel's operations lies an 8,000-acre state forest. During the Great Depression most of it burned down. School children and other volunteers replanted the forest, assuming that some day it would be harvested. These days, Intel employees run through the forest for exercise. Others depend on the trees for solitude. And these recreational users are coming up against companies that want to log the forest. "What does it mean to have this fundamental transition in our economy?" wonders Ethan P. Selzer, director of the Institute of Portland Metropolitan Studies at Portland State University. The answer to his question could determine the future of manufacturing in the region.

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