Finding the Middle Ground in Government-sponsored Economic Development

March 16, 2016
The government’s role in economic development should be to develop and facilitate adoption of practical world-class manufacturing strategies.

Well, that was interesting! Not only did I get online feedback to my last column (“Why Government Needs to be Engaged in Economic Development”) but also received multiple e-mail responses. The e-mails ranged from criticism of my thinking/writing to congratulations for having the courage to publicize something that everyone knows is happening but nobody seems to want to talk about.

I don’t mind the criticism. After all, I worked in corporate America and am used to receiving pot shots from all sorts, including people with “bigger lunch buckets” than those taking shots at me here. There was, however, one point I want to clarify before getting into the content of this column. Namely, the quote I cited from my kindergarten teacher. One reader questioned whether it was real or not and commented along the lines of “what kind of guy are you anyway, focusing on events pulled from your elementary school years?”

Of course I don‘t usually live in the past. The story behind this quote is that my mother died in 2013 and in going through her things I found that she had kept every one of my elementary school report cards! My curiosity got the better of me and I did look through them, seeing that quote in fact for the first time. People my age will remember that in those days teachers actually wrote out student performance descriptions in longhand. So, if anyone really doubts that the quote was “legit” just send me a request through e-mail and I’ll send you a scanned copy of the “blurb” I referenced from that report card!

As I have written, I believe there is usually middle ground on issues if (and only if) both sides are interested in finding it. Over the years this approach has served me well, both professionally and in my personal life. I’ve found that a consensus solution yields for most stakeholders acceptable solutions. Consensus, however, requires compromise—a concept not so much in vogue these days—at least in politics. One point to remember is that consensus doesn’t imply buy-in from all stakeholders, so if you are not willing to compromise don’t be surprised to be left out of agreements. Consequently, I’ve found that except in rare situations it really does make sense for everyone to be open to creating that middle ground.

If you accept the validity of the example I cited in the last column, then the idea of middle ground really needs to be applied to the subject of government involvement in economic development since digging heels into extreme positions will only contribute to the continuing erosion of the U.S. manufacturing base. Before talking about what I think a middle ground might look like, I’ll first address two issues that have been posed in response to previous columns relative to governmental economic development.

The first is that such government involvement is unconstitutional. I am not a Constitutional scholar but I have read it in its entirety. It was also a primary focus of Mr. Seline’s 11th grade Government class (although after receiving the feedback I related above I acknowledge I’m a bit hesitant to mention anything from my El-Hi years!). I have looked and cannot find anywhere in the U.S. Constitution where it excludes the government from being involved in regulating commerce. And if assuring our manufacturers of a level playing field is not related to “regulating” I don’t know what is. I’m sure that people will argue this position. That’s why we have the Supreme Court. And until that “highest court in the land” takes the position that government involvement in economic development is unconstitutional, I will continue to preach its need as a practical necessity for the ongoing economic health of our country.

Another reader made the comment that the U.S. should not “lower itself to the behavior of other countries” where government has been involved in manufacturing economic development. The argument here, I guess, is, “Don’t do something just because someone else is doing it.” I think that’s a good suggestion to make if the person making it is your mother and she is suggesting you not “jump off a cliff” just because someone else is doing so. But here the subject is more critical. The U.S. has lost a lot of manufacturers—and wealth—over the last 25 years with one principle factor being other governments’ active involvement in assisting their manufacturers. The playing field is no longer level and our manufacturers have to compete not only against foreign firms but also in many cases against foreign governments. Our government not addressing this situation is both “like an ostrich burying its head in the sand in an attempt to save itself from a predator” and is “a kind of dereliction of duty,” at least in my opinion.

That same reader felt that any government involvement against unfair trade practices should be limited to tariffs. My response to this is twofold. First, it’s very difficult to document the type of activity I reported on in my last column. And since a tariff is reactive, too often by the time you enact one the damage is already done. I do find it interesting that now that China is exporting and selling its steel below its cost that last week the U.S. did (finally) impose a tariff on it. But that’s a completely different (and more visible) situation to what I reported on.

Second, tariffs introduce conflict to international commerce which often escalates into trade wars. More subtle ongoing proactive actions (like other countries are doing) usually aren’t as visible and don’t have such negative consequences. I believe that through thoughtful economic development efforts the U.S. can address most of the level playing field issues that are currently undercutting our manufacturing competitiveness without risking trade wars, which usually hurt both sides.

I will make one exception to this point and this is in cases of currency manipulation. Currency manipulation—like China has been conducting for over two decades—is anything but subtle. I believe tariffs are pretty much the only way to effectively cope with countries that don’t float their currencies and should be resorted to in such instances.

So what does middle ground look like in government economic development? I’ve given my position on the roles I believe that both the Export-Import Bank (“The Hastert Rule Makes Congressional Collaboration Almost Impossible”) and the MEP System (“Implementing Supply Chain-based Economic Development”) should play in previous columns so I won’t repeat myself here. Instead I’ll lay down what I consider to be three basic middle ground principles:

The government’s role in economic development should be to develop and facilitate adoption of practical world-class manufacturing strategies.

I’m sorry to have to point this out but manufacturing practices at 80% to 90% of U.S. manufacturers are not considered world-class. This has happened for a lot of reasons but the biggest, I believe, is that over the last 25 years—a period when industry practices have improved significantly—many companies have taken extreme cost-cutting measures in an attempt to try to compete with emerging foreign competition. Cost-cutting is good, right, so what can be wrong about cutting costs?

Many small- to medium-sized manufacturers have cut engineering support staff to the point where they no longer have the internal wherewithal to effectively adopt updates in manufacturing strategies. In short they have become anorexic rather than Lean, keeping only the resources and skills needed to “get today’s order out of the door.” They are good companies run by good people but they need help in understanding and implementing modern manufacturing practices.

Promoting world-class practices should involve shop floor implementation/teaching engagements.

The point here is to teach the participating companies “to fish.” The engagements should not be “free”—rather, they should be subsidized, such that company’s seriously wanting to improve can afford to try them out. In my opinion, if people aren’t willing to pay for such assistance then they really aren’t serious about competing. After seeing how updated strategies impact parts of their shop, they can then elect to proceed with a more comprehensive implementation effort or not—that would be their decision.

The argument against the above point often is that private consultants are available for such interventions, so why should the government need to get involved? The answer is that most top-notch consultancies I’ve seen aren’t really interested in working with the small- or medium-sized clients, i.e., they don’t want single-year/five-figure contracts, they want multiple-year/six- or seven-figure contracts. The “small guy” can’t afford this level of financial commitment even if they are committed to improvement. Regarding those consultancies that small- and medium-sized firms might be able to afford, all too often I’ve seen clients end up not getting real impact on their overall financial competitiveness from such engagements.

The bottom line here is that “we are where we are at” and all of this time the consultant option has been around, not having really addressed our national manufacturing efficiency problem in a wide enough way.

Oversight of government manufacturing economic development should be by manufacturers.

This can be done. I’ve had membership on rotating boards for things like regional supplier development and supplier training efforts and have seen this type of oversight keeps the program honest. To get this, though, you need companies (big and small) willing to commit resources to provide such oversight without any immediate and/or direct bottom-line impact. In other words, you need good corporate citizens to support these boards. Hopefully, that type of involvement is still available in today’s business world.

I don’t think there is a lot that can be argued with from a practical point of view and that government involvement in economic development can align with our culture given the right boundaries. What should those boundaries be? I have my opinion but I think the best answer is to get a lot of smart people in a room and develop a consensus that aligns what is needed to keep U.S manufacturing strong. I agree that ongoing subsidies of specific companies and/or industries don’t fit into U.S. culture but there is middle ground, if everyone wants to find it.

My next article will include personal observations of how corporations have changed over the last generation and how this has influenced the procurement profession.

About the Author

Paul Ericksen | Executive Level Consultant; IndustryWeek Supply Chain Advisor

Paul D. Ericksen has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers. At the second he was chief procurement officer. He then went on to head up a large multi-year supply chain flexibility initiative funded by the U.S. Department of Defense. He presently is an executive level consultant in both manufacturing and supply chain, counting Fortune 100 companies among his clientele. His articles on supply management issues have been published in Industrial Engineering, APICS, Purchasing Today, Target and other periodicals. 

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