2013: Year of the Snake

Over the past several weeks and months more and more news stories show the manufacturing sector continuing to grow in the United States. Much of the improvement has been the result of companies moving jobs back to this country from overseas, a trend which we have been writing about for more than three years now. Lately, we have begun to find more and more cases furthering this trend, which is due to four major factors.

First is the increasing problem of theft of intellectual property: US companies with overseas manufacturing plants find that their employees work for them during the day, and at night they walk across the street and make precisely the same parts for precisely the product to be sold at half the price as a knock-off.

Second is the problem of poor quality control. It seems plants in Mexico simply couldn’t turn out as many defect-free widgets as US plants.

A rising cost of shipping is a third reason. When the outsourcing wave started gaining momentum in the 1980s, the price of crude oil was under $20 per barrel; now it’s over $90.

The fourth and final (and probably most significant) factor spurring the re-shoring trend is the rising cost of labor in recently developed countries. These countries – Russia, China, India, Brazil, and Mexico among them – now have something that they didn’t have before the outsourcing wave began: middle classes, which have been largely built on US jobs.

Of course, the problem with middle classes, even in recently-developed countries, is that they want a decent wage so they can afford the same luxuries they’ve been manufacturing for their more developed trading partners for years.

All of these factors – and more, to be sure – are driving manufacturing back to the United States, and all the jobs associated with it are coming along.

Let’s not forget there are also big changes in the energy industry. Unemployment in North Dakota is lower than any other US state, thanks largely to the development of shale oil projects in recent years. Nebraska and South Dakota are 2nd and 3rd when it comes to employment, also due in large part to oil.

Here in Ohio we’ve been fortunate to see some benefits, as there has also been an oil boom in eastern Ohio. Chesapeake Energy alone has purchased mineral rights to land equaling about 5% of the total land area of our state in order to take advantage of the Utica shale.

Unfortunately, the progress in Ohio has been somewhat slower than other regions because of controversy surrounding fracking methods. However, already the oil boom has created almost 40,000 new jobs in Ohio, and is expected to create 140,000 jobs by the end of 2020.

Obviously all of this – the manufacturing, the energy, the JOBS – could all be great for Northwest Ohio; but it probably won’t. The real insight comes when we consider why not.

First it’s important to understand that Toledo is still a big union town, and that the recent development has been largely avoiding union towns whenever possible. Any nonbelievers can head north for a tour of Detroit.

Instead, manufacturing coming back from overseas is going to places like Tennessee and Alabama. Business owners are specifically seeking out right to work states with low costs of doing business (read: less regulation). Sadly for the working people of Northwest Ohio, we simply do not live in a business-friendly region.

Consider, for example, the run around than anyone might face if they tried to build a major industrial facility near Toledo Express Airport. They would likely be referred, in no particularly order, to:

City of Toledo

Toledo Lucas County Port Authority

Toledo Chamber of Commerce


Regional Growth Partnership

Lucas County Improvement Corporation

Lucas County Economic Development Corporation

University of Toledo

…just to name a few. Obviously this doesn’t include all the closed door sessions required to convince an infinitesimally small number of people with an infinitely large amount of influence that the development being sought would be beneficial.

The bottom line here is that 2013 could be an incredible year for Northwest Ohio. It could be a turning point, really; but first we need to change our attitude about business in this area. We need to realize that without business, nothing else matters. Having a city with a tremendous museum, ballpark, arena, riverfront, or library without a business friendly environment means absolutely nothing – it’s like having a masseuse in a funeral parlor.

Finally, once we learn to talk the talk, we need to walk the walk. In other words, when we finally start learning to say what business leaders want to hear, we need our actions to match our words.

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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