Blueprint for Innovation

Gov. Ed Rendell unveils multi-point plan to put more muscle in manufacturing

By Tim Hayes

Manufacturing remains one of the largest sources of jobs in our economy, accounting for one of every eight jobs in Pennsylvania – a statistic made all the more amazing when one learns the tough facts surrounding the state of manufacturing across this state.

However, Pennsylvania has lost 164,600 of those jobs – nearly one out of four jobs in the manufacturing base – since January 2001. With fewer than 700,000 manufacturing jobs, Pennsylvania has the lowest manufacturing job count since the U.S. Department of Labor began keeping detailed statistics in the 1930s. Pennsylvania lost nearly 40,000 jobs – or an average of 2,647 per month – between January 2003 and March 2005.

At that time, Governor Edward G. Rendell convened a statewide Manufacturing Summit. As a result of that summit, Rendell recently unveiled his blueprint to bolster the state’s position, called “Manufacturing Innovation.” The Governor also named Pennsylvania's first Manufacturing Ombudsman to help businesses cut through red tape, and the Executive Director of the newly formed Office of Fair Trade.

“While the rate of job losses has slowed since our Summit, there are 5,500 fewer manufacturing jobs in the state than when we convened just nine months ago. More staggering, though, is the extraordinary loss of nearly 165,000 manufacturing jobs in Pennsylvania since January 2001,” Rendell said. “This blueprint will help us begin embracing our new economy while outlining the key business finance, workforce and technical support tools that Pennsylvania manufacturers need to remake themselves.”

As part of his manufacturing strategy, Rendell created the Office of Trade Policy to ensure that Pennsylvania businesses can compete in the global marketplace on a level playing field. The office will function as an advisor to and advocate for Pennsylvania business – not a substitute for outside legal counsel, but a critical resource for Pennsylvania businesses that have been negatively impacted by unfair trade practices. In addition, the Office will form coalitions with other states and industry groups to ensure that the Commonwealth's positions receive full consideration.

Rendell named Paul Piquado as Executive Director of the Office, which will be run out of Harrisburg and Washington D.C. Piquado specializes in international trade and investment disputes and international trade policy.

“Manufacturers have consistently identified trade and the impact of unfair – and in some cases illegal – trading practices as one of the major business challenges they face,” Rendell said. “Paul and this office will serve as a resource for Pennsylvania businesses that have been injured by unfair trade practices that violate international trade rules. The office will also work toward our ultimate goal of leveling the playing field for Pennsylvania businesses competing in a global market.”

Tom Palisin also was named the state's first Manufacturing Ombudsman to help businesses cut through red tape and solve problems involving state agencies. The Ombudsman will also be able to assist employers with questions about business finance, workforce training programs, permits and other regulatory issues.

Palisin currently serves as a technology investment specialist in the Department of Community and Economic Development focusing on manufacturing extension, technology development and workforce issues.

“We were fortunate to be able to identify someone with a strong business track record and years of experience inside government to take on this important role,” Rendell said. “Tom knows how to solve problems and will be an excellent ‘insider’ for Pennsylvania manufacturers who need help doing business with the state.”

The Governor's Manufacturing Innovation strategy outlines additional steps the state will take to increase business capital for manufacturing, including:

• Working with the State Employees Retirement Systems (SERS) and the Public School Employees Retirement Systems (PSERS) to explore opportunities for new pension investment in manufacturing.
• Strengthening linkages between venture funds and manufacturers, especially for small firms and in rural areas of the state.
• Being more aggressive about going after federal grants for small business innovation research and technology transfer programs.

“There is broad agreement that Pennsylvania manufacturers need to embrace innovation in order to improve their competitive positions. This is especially true for firms competing in intense global markets,” according to Manufacturing Innovation: A Strategy to Enhance the Competitiveness of Pennsylvania Manufacturers, the
official strategy document issued by the Rendell Administration’s Manufact-uring Working Group.

The report cites a recent Global Manufacturing Benchmark Study where 89 percent of manufacturers across industries expect innovation to be a “primary driver of growth” over the next three years.

“Encouraging innovation is the central concept of this strategy,” states the report. “It is non-partisan, flexible and relevant to firms of all sizes from all segments of industry. The challenge is to develop a strategy that broadly encourages innovative practices.”

In addition to encouraging innovation, the Rendell plan outlines a number of steps to make Pennsylvania manufacturing more competitive:

• Creating an early warning network to identify distressed firms. This network will work with the Governor’s Action Team (GAT) on turnarounds.
• Helping small and rural firms with succession planning. Some 30-40 percent of owners of small and mid-sized manufacturers will retire with-in five years – toughest in rural areas where there are fewer professional services.
• Helping firms identify pollution planning and energy efficiency opportunities. DEP has a new Site Assessment Grant Program to help small firms identify savings.
• Studying Business Tax Reform Commission recommendations.

The Administration continues to stem the decline of this important sector of the state’s economy. The Economic Stimulus Package has made millions of dollars of new capital available for manufacturing. More than half of all the projects the Governor's Action Team completed are with manufacturers with more on the way. Offers to manufacturers increased to 63 percent of all offers made in the first 11 months of 2004 from 45 percent for the same period in 2003.

Since January 2003, Pennsylvania has provided more than $251 million in financial assistance to 190 manufacturing companies, leveraging more than $3 billion in private investment. This investment will help retain 61,000 jobs and create an additional 15,078 jobs. According to the Governor's Action Team, chemical, computers and electronics, machinery and transportation equipment companies were the leading job producers in 2005.

The Citizens Job Bank – a public/private $100 million loan partnership between Citizens Bank of Pennsylvania and state government – has closed deals with manufacturers from electronics, rubber, metals and plastics industries across the state. These early projects account for $6.4 million of loan activity that support 255 new jobs. Citizens Bank is working with GAT on a number of applications.

“Too much of our federal workforce training money is available to workers only after people lose their jobs, which is a little like a doctor refusing to treat any patients until they get really sick,” Rendell said. “To counter this, we've launched a $5 million state and federal Manufacturing Incumbent Worker Training Program to help employers upgrade workers' skills and increase their competitiveness in the global economy.”

In cases where firms and jobs cannot be saved, we are making the most of Trade Assistance and Rapid Response resources to minimize the impacts. From January through October 2004, the Commonwealth provided re-employment services and/or re-training for nearly 8,900 people laid off from manufacturing jobs, including:

• Nearly 5,400 former manufacturing employees that accessed L&I services.
• Nearly 3,000 employees who received re-training through Workforce Investment Act (WIA) programs.
• Nearly 3,500 additional people laid off from manufacturing jobs who started training through Trade Adjustment Assistance (TAA)programs.

House Democratic Leader H. William DeWeese and Minority Whip Mike Veon welcomed Rendell’s announcement, particularly as it relates to creation of an Office of Fair Trade, an idea they suggested in late 2003.

“We are pleased to see to the state’s chief executive develop an innovative concept similar to the one House Democrats proposed as part of our Next Generation Manufacturing Jobs Initiative. Businesses should welcome the assistance offered by this new liaison as the companies deal with the complex processes of the nation’s federal government during unfair trade practice cases,” said DeWeese (D-Greene-Fayette-Washington).

In December 2003 and again in January 2004, House Democrats urged the governor to convene a summit to address the staggering loss of jobs affecting the state’s manufacturing sector. Responding to the Democrats’ appeal, Gov. Rendell welcomed 200 business and labor leaders to the Governor’s Manufacturing Summit on March 23 in Lancaster.

“We must be innovative in our approach to enhancing the competitiveness of manufacturing in the state,” said Mike Veon (D-Beaver). “Establishing a trade representative is just the first step in our efforts to help this sector of the economy. While it remains the biggest contributor to the overall economy, manufacturing remains under intense pressure from both national and international competition.

“We have been involved in a productive dialogue with labor, manufacturing, workforce and economic development organizations and our efforts will pay off for companies and working Pennsylvanians in the long run,” he said.

In addition to the trade representative concept offered today, the lawmakers said the governor’s strategic plan contains other parts of the House Democrats’ Next Generation Manufacturing Jobs strategy which will be introduced as legislation in 2005, including:

• Creating an effective Early Warning Network to identify distressed firms. Efforts currently are under way through the Department of Labor and Industry to enhance and improve the existing system run by the Steel Valley Authority in southwestern Pennsylvania.
• Developing a strategy to assist with succession planning. Some estimates show one-third of owners of small and mid-sized manufacturing firms will retire in the next five years and many of the firms are at risk of closing due to inadequate succession planning. Firms outside of major urban areas face greater challenges because they lack access to financial, legal and other professionals who specialize in legacy issues. A study should be conducted to quantify the problem across the state.

“With Governor Rendell joining our legislative effort to counter the flow of jobs out of Pennsylvania, he is putting the Commonwealth at the forefront nationally to keep living-wage, high-skill jobs in America. Outsourcing is a crisis that our nation must address, and I’m proud that Governor Rendell is showing the leadership that is essential to saving these good jobs that so many Pennsylvanians have dedicated many years to developing,” DeWeese said. Not entirely unexpected, lawmakers from the other side of the aisle see the issue and its solution from a different perspective.

“The best way to help manufacturers is to reduce taxes and to meaningfully reform the state’s worker’s compensation, unemployment compensation and civil litigation systems,” said Rep. Mike Turzai (R-Allegheny), who chaired a special House Majority Policy Committee task force on a stimulus package dubbed the Keystone Manufacturing Initiative, during hearings across the state last summer and winter.

“Across the state, manufacturers, large and small, made it clear what changes are needed: reduce taxes and reduce overhead costs by making the state’s worker’s compensation, unemployment compensation and civil justice systems more fair and less costly,” he added.