Siemens plant in Charlotte offers lessons as Obama,
Romney talk job creation
CHARLOTTE — As
President Obama and
Mitt Romney debate whether lower taxes or targeted
investment would do more to create jobs, they would benefit from a trip to a
brand-new manufacturing plant a few miles from the Charlotte arena where the
Democratic National Convention is underway.
The factory opened last year after German engineering giant
Siemens AG chose this North Carolina city as a hub for
making gigantic gas turbines needed to power new electric plants under
construction around the globe.
A few years ago, the factory and its 825 jobs might have gone to India,
China or another low-wage country. This time, American
workers won out. And that victory could be instructive as the candidates pledge
to energize an economy struggling through its fourth straight year above
8 percent unemployment.
Ask Siemens executives why they placed their bet on Charlotte and they talk
about public investments such as the state-funded rail spur that runs through
their facility and the city’s international airport, which recently added a
fourth runway using $132 million in federal funds.
They talk about the
Export-Import Bank, an independent federal agency that in
January approved a $638 million loan to finance the sale of turbines to Saudi
Arabia, helping Siemens beat bids from companies in Germany, South Korea and
Japan.
And they talk about the quality of the workforce in Charlotte, where local
leaders are retooling the public education system to churn out the engineers and
skilled technicians needed to operate one of the most efficient gas-turbine
plants in the world.
“A lot of things that were offshored in the past were offshored because of
lower-cost labor, but that’s no longer the most important factor,” said Eric
Spiegel, president and chief executive of Siemens’s U.S. subsidiary. “The
reasons you bring a plant like this to the United States are higher-skilled
labor, access to the world’s best research and development, and good, sound
infrastructure. All those things together make the U.S. a good place to
invest.”
A visit to one factory cannot fully illuminate the complex matter of job
creation, and one company’s choices cannot be extrapolated to every industry and
region in the country. But the story of the Charlotte plant highlights the
benefit of investing in essential services with long-term effects for a wide
range of industries — rather than primarily cutting taxes, as Republicans
propose, or showering benefits on certain industries, as the Obama
administration has done with the clean-energy sector.
While the public debate tends to be cast as a choice between propping up
favored industries and getting government off the backs of business, many
growing companies say they value policies that create a broadly fertile
environment for job growth. Their wish list is specific: Good highways and
modern seaports. High-level academic research. And, especially, education
programs tailored to turn out skilled workers.
“What we’re seeing globally is we have a real opportunity to bring a wide
range of jobs back to this country — including manufacturing jobs — because you
see an acceleration in labor costs in other markets,” said Dean Garfield,
president and chief executive of the Information Technology Industry Council,
which represents 50 of the world’s largest tech firms. “To the extent we get the
right policy mix, we can do a lot to encourage locating as many jobs as possible
here in the United States.”
Demand and development
Siemens is not unique. Michelin North America is adding 500 jobs at a new
South Carolina plant that produces 12
1 /
2-foot tires for giant construction and mining vehicles. Chairman
Pete Selleck said the firm’s French parent likes the state’s network of
technical schools and the proximity to seaports in Charleston and Savannah,
Ga.
Selleck said the most important thing Washington could do to improve the
economy is “get its fiscal house in order” by adopting a
debt-reduction plan that would cut spending and overhaul
the tax code to raise more money. But he said he would also like to see more
funds plowed into preparing ports for the super-ships expected to begin
traversing a
newly expanded Panama Canal in 2014.
Smaller firms are desperate for workforce development. Optimax, a company
just outside Rochester, N.Y., that made lenses for
the Mars rover Curiosity, has 25 open positions. President
Mike Mandina said Optimax’s growth has been “absolutely limited” by the number
of skilled workers emerging from local schools.
“Any region committed to developing a highly skilled workforce is going to
excel,” Mandina said, “whether they’re milking cows or making precision
optics.”
None of the executives interviewed cited the level of taxation as an
overriding issue, though they agreed that the United States should simplify its
code and bring the corporate rate — now the highest in the developed world, at
35 percent — in line with other countries. Both candidates have proposed to do
so, with
Obama calling for a corporate rate of 28 percent and
Romney proposing 25 percent.
Meanwhile, Spiegel and others criticized the recent push by both parties to
create
tax breaks explicitly tied to hiring.
“You don’t hire people just because there’s a tax credit there,” he said.
“You hire people if there is demand
. . . to produce more.”
Demand, of course, is the most fundamental factor in a company’s decision to
create jobs. For Michelin, Selleck said, the demand for giant tires is driven by
the demand for big vehicles to extract raw materials, which, in turn, is driven
by rising wealth in India, China and Brazil, where millions of people can
suddenly afford cars, air conditioners and other consumer goods. For Siemens,
Spiegel said, the demand for gas turbines is driven by a trend among electric
utilities away from coal and toward cheaper, cleaner natural gas.
Plans for economic growth
But demand is not easy for politicians to create, particularly when the
government is low on cash. Obama says he would spur growth by keeping tax rates
low for most Americans and making investments in education, infrastructure and
clean energy, paid for with higher taxes on the wealthy.
Spiegel, who attended a White House event in January on bringing jobs back to
the United States, praised the president’s focus on increasing exports and
recasting federal job-training programs. Obama has made manufacturing a
centerpiece of his campaign, and he cited Siemens worker Jackie Bray in his
State
of the Union address as an example of the power of investment in job
training.
But Obama is proposing few new ideas for increasing overall demand, and
analysts say manufacturing may not be the kind of job engine he sometimes
suggests.
“Twenty years ago, the Siemens plant probably would have had 5,000 workers.
Now what does it have? Fifteen hundred?” said Peter Coclanis, director of the
Global Research Institute at the University of North Carolina at Chapel Hill.
“Our manufacturing output is the highest it’s ever been, but we do it with fewer
workers.”
Coclanis said the 825 new Siemens jobs in Charlotte are dwarfed by 2,500
positions being created at two new poultry plants near Rocky Mount, N.C.
Sanderson Farms said it chose the location because of the area’s 13.4 percent
jobless rate, which guarantees it can find workers at $11 an hour. Siemens’s new
hires make twice that, on average.
“One could make a plausible case for either the classic Democratic vision for
investing in education and human capital or the Republican fix of cutting taxes
and regulation — creating a, quote unquote, good business environment,” Coclanis
said. “If you’re a poultry processing plant, you’re not going to want to move to
Charlotte. You’re going to want to move to the eastern part of the state, where
you can pay workers next to nothing.”
Romney’s plan for growth centers on slashing government spending while
cutting tax rates sharply for everyone. Romney claims his approach would create
12 million jobs over the next four years, a conclusion that relies heavily on
research by Alan Auerbach, an economist at the University of California at
Berkeley.
Auerbach, who has studied the economic effects of tax cuts, said lower taxes
on savings and investment do cause people to plow more money into new
investments, which “should lead to faster economic growth.” But “how much, how
fast” is harder to say, Auerbach said. And that approach is, in any case, less
likely to be effective in a sluggish economy, he said, when businesses are
holding back on new investments not because they do not have the cash but
because they are “looking first at whether they can sell stuff.”
“If the question is what would [Obama and Romney] do right now to spur
economic activity,” Auerbach said, “I’m not sure either platform is particularly
well designed for that.”
Meanwhile, the austerity budgets favored by the GOP would cut government
spending in the very areas that do seem to matter. In his most recent budget,
Romney’s vice-presidential running mate, House Budget Committee Chairman
Paul Ryan (R-Wis.), proposed spending 25 percent less on
transportation over the next decade than Obama and 31 percent less on education
and training.
As part of their campaign to shrink the size of government, House Republicans
also tried to kill the Export-Import Bank, which encourages exports by financing
the foreign purchase of U.S. goods and services, turning a profit for taxpayers.
Spiegel said the bank was a critical factor in Siemens’s decision to build
turbines for export in the United States.
The battle over job creation has come to define the 2012 presidential
campaign, as well as
politics in North Carolina. Obama narrowly won the state
in 2008; this year’s race is a tossup.
In the state’s gubernatorial campaign, GOP candidate Pat McCrory, former
mayor of Charlotte, is leading in the polls. With the nation’s fifth-highest
jobless rate, North Carolina is “being diminished by high taxes, excessive
regulation and broken state government,” McCrory says on his Web site.
His Democratic opponent, Lt. Gov. Walter Dalton, contends that the GOP’s
prescription for smaller government would erode some of the state’s most
important weapons in the battle for new jobs.
“I think we are losing our competitive edge,” Dalton recently told the
Raleigh News & Observer. “But I think it’s because of the cuts we have seen
this General Assembly make to economic development and to education.”
Local economic-development officials are reluctant to take sides.
“Sometimes you may rely more on [government] incentives and worker training
and things like that,” said Jeff Edge, who helped negotiate the Siemens deal for
the Charlotte Chamber of Commerce. “But if an administration gets in with a
philosophy to cut a lot of taxes, people might flock here because the tax rate
is lowest.”
“We’re kind of on the receiving end of whatever policy is implemented,” Edge
said, “so we have to make it work as best we can.”
Project Cardinal’s a go
As the nation’s second-largest financial center, Charlotte was hit hard by
the 2008 banking crisis. The metro region’s jobless rate peaked at 12.8 percent
in early 2010. Through the gloom came an e-mail from a lawyer in Detroit:
Siemens was considering shutting down a union plant in Hamilton, Ontario, and
building a $350 million factory in right-to-work North Carolina.
Project Cardinal — code-named after the state bird — was the biggest
expansion of manufacturing in Charlotte since the late 1970s, Edge said, “a
once-in-a-quarter-century opportunity.”
It was a dramatic turnaround. Siemens first came to Charlotte in 1997, taking
over an aging factory as part of its purchase of Westinghouse Electric’s power
generation unit. Siemens laid off 350 people, slashed benefits and considered
closing the plant and moving the remaining work to India.
Instead, it brought in a new manager, Mark Pringle, an old hand from
Westinghouse. By introducing “lean manufacturing” techniques and asking workers
to identify unnecessary steps, Pringle said that he cut the cost of building a
generator by more than 30 percent without eliminating jobs or squeezing
compensation.
In the meantime, Siemens came to see the United States as a promising market
for the gas turbines it was making in Germany and China. A third of the nation’s
coal-fired power plants are more than 50 years old, and many are being replaced
by natural gas. North Carolina’s
Duke Energy would be a big customer.
Charlotte had other advantages. The state-funded Central Piedmont Community
College added a mechatronics program aimed at producing a stream of technical
workers. Duke Energy helped finance an energy program within the engineering
school at the University of North Carolina at Charlotte, to which Siemens
contributed $4 million.
State and local officials kicked in millions of dollars in tax rebates to
land Project Cardinal. The state also offered $3 million to provide customized
training to workers at the new plant.
More than 9,000 people applied for the jobs; 4,700 were evaluated at state
expense, starting with a career readiness test that measured math and reading
skills. Those who needed extra help were offered free classes at the community
college.
Crane operator Harley Alwran, 35, was among the hires. After working on
contract most of his career, Alwran was grateful to settle into a steady job
with full benefits, including a Christmas bonus.
“I’ve never had paid vacations, holidays off or a company willing to put my
whole family on health insurance in my life,” he said during a recent break.
With the plant fully staffed, Siemens is taking advantage of Charlotte’s
revamped education system to build a pipeline of workers for the future. Estevan
Torres, 18, once had plans to become a dentist. But a high school counselor
steered him toward a three-year apprenticeship at Siemens, which is paying him
$9 an hour and financing his two-year degree at Central Piedmont.
For Spiegel, the Siemens chief executive, job creation is not as complicated
as rocket science but it does require a public commitment.
“If you read all the studies about what it’s going to take for the U.S. to
grow, it’s really about two things,” he said. “Modernizing the infrastructure
and retooling the education system. Those are the two big keys to creating
more-productive, higher-paying jobs.”
Jenny is the Education Editor at TakePart. She has been writing for TakePart since 2009 and previously worked in film and television development. She has taught English in Vietnam and tutors homeless children in Los Angeles.
