Foundational economy industries: A new manufacturing perspective
By Paul Hogendoorn
It’s time to take a new approach to how we portray the manufacturing industry. As many of the regular readers of this column probably know, the importance of manufacturing to our society’s economic well-being is a favourite topic of mine, and one that I talk about often. Our government’s apparent lack of appreciation or understanding of this really concerns me, but so does our industry’s overall apathetic response and pessimistic attitude. It really irks me that there are so many self-proclaimed socio-economic prophets foretelling our manufacturing sector’s demise – many of whom are suggesting that it’s an evolutionary step forward. (Remember, it was former Prime Minister Jean Chretien’s “vision” that Canada’s economy would soon become based on the service sector.)
Although our country owes much of its wealth and prosperity to our abundant natural resources, much of the individual personal wealth of a significant portion of its citizens has been created by the manufacturing sector. The service sector might add value, but the manufacturing sector creates value. Manufacturing an automobile creates an incredible amount of value and wealth; from the forming of parts from raw materials, to the assembly of the parts into sub-assemblies, and then assembling the sub-assemblies into the final product. At every stage along the way, wealth is being created that ends up in the pockets and bank accounts of the people employed in the process. The dealership then adds some value by selling the car and servicing it afterward. Wealth was created by building the car. Value was added by selling it.
What bothers me the most, though, is the regularly perpetuated popular belief that manufacturing is “blue collar,” and somehow starting to slip beneath our society’s rising standard for what constitutes a meaningful career. The prophets declare that we shouldn’t worry about the challenges faced by our manufacturing sector, but instead we should be pursuing and developing “knowledge-based” industries, like information technology, health care and biosciences. Manufacturing companies today employ programmers, researchers, process engineers, design engineers, IT professionals, plus numerous highly skilled certified trade specialists. Seventy per cent of all R&D activity in Canada’s private sector is done by manufacturing companies. There are many manufacturing companies today that employ two to three times as many people in these types of positions for every person they employ in a pure production role. These are high paying, challenging and personally satisfying positions – all of them in the sector that still creates most of the wealth for our communities. We, the manufacturing sector, shouldn’t be so quick to let others believe that our sector is losing its relevance to our society.
As the old “if you can’t beat them, join them” adage suggests, it’s time to change our tune a bit and make our critical sector more politically and socially appealing. For instance, the term “knowledge-based manufacturing” borrows heavily from the popular new buzz word “KBI” (short for knowledge-based industries), and legitimately applies to many of the manufacturing companies in our communities. Any manufacturing company that produces an advanced product, or requires special skill or knowledge to produce its products, could be classified this way. In many cases, the inherent knowledge contained in many of the KBI companies considered as lucrative attraction targets has now also become a commodity item, making these companies as vulnerable to competition from low-cost regions as any manufacturing company.
Manufacturers have two distinct advantages in this regard though; the first is that it is far more costly to move or open a manufacturing facility than it is to move an IT facility; and the second is that the cost of shipping physical goods still encourages manufacturing companies to locate their facilities near their markets. Both of these facts mean that IT companies have much more freedom to roam and relocate than manufacturing companies. Consider Toyota, for instance. When the automaker builds new production facilities, it considers it to be a minimum 50-year commitment. And even though Ford is undergoing some significant challenges and has laid off many workers, they too have a track record of having made long-term commitments to the communities in which they are located. The Ford Talbotville (St. Thomas, Ont.) plant is a good example. It has not been immune to layoffs, but it has already been a significant contributor to its region’s economy since 1967. Perhaps we should refer to these “old economy” companies as “foundational economy industries,” referring to their physical foundations as well as paying tribute to their economic contributions. The wealth they have created, and continue to create, for the communities in which they operate will be near impossible to replace. It will be interesting to see if the new economy companies make anything close to a 50-year commitment to their communities.
Perhaps we should start doing a better job marketing our sector by creating and using new terms that cast us in a better light in the eyes of policy makers and economic development strategists. Enlightened economic development strategists might start suggesting well-rounded strategies like “strengthening and sustaining our foundational economy industries and encouraging and supporting the growth of our exciting knowledge-based manufacturers, while continuing to try to build a critical mass in a new knowledge-based industry.”
It might sound like a simple case of semantics, or even worse, like “marketing,” but if that’s what it takes to start changing these dangerously naÃ”ve opinions, then that’s what we should start doing. Remember, you are now either a “knowledge-based manufacturer” or a “foundational economic industry.” Spread the word!
Paul Hogendoorn is president of OES, Inc. and chair of the London Region Manufacturing Council. He can be reached at firstname.lastname@example.org. For more information about the LRMC, visit www.manufacturinglondon.com.