If most Americans were asked to imagine a manufacturer—especially one from the Great Lakes basin—they would probably conjure a worker melting metal for castings in hot furnaces, stamping out parts on large, noisy metal presses, welding frames with sparks flying everywhere and/or soldering components onto circuit boards.
Ask them where the manufacturers are located: The Rust Belt. The factories are mostly shut down and the jobs outsourced offshore, they might say.
Most of those images were caricatures to begin with. Today, they are misperceptions. In the midst of the pandemic, the Rust Belt – especially in Ohio, where I live — is starting to gleam again. We still have a long way to go to rebuild. But we are recovering faster than the rest of the country. Ohio’s unemployment rate was 8.9 percent in July 2020, compared to 10.2 percent nationwide.
I think we’re poised now to add good jobs, faster.
The story of outsourcing
Outsourcing did happen in spades in the last two decades of the 20th century, when China was emerging as an open economy in the wake of leader Deng Xiaoping’s reforms. The expert consensus is that NAFTA benefitted the U.S. economy as a whole. But where there was damage, it was centered here. NAFTA in the mid-90s sent trade flying south to Mexico. Labor-intensive goods like steel deemed vital to manufacturing were among the first to get outsourced.
Take telecoms pioneer Bell Labs as a case study. For decades, Bell Labs and its various successors—AT&T, Lucent Technologies, and Nokia among them—had a presence in the Columbus area, complete with a 1 million-square-foot manufacturing space and thousands of employees. Somewhere along the way, the company was approached by Canadian electronics manufacturer Celestica. Celestica came in and said: We’ll buy the manufacturing operations and move everything, which meant that manufacturing got stripped out and relocated to Canada, Mexico, and China. The downsizing began.
Meanwhile, elsewhere in the region, innovate or die became the modus operandi. Some regional manufacturers shuttered; while others settled into a niche, whether that was localization or landing contracts that supported federal initiatives like with the Department of Defense (DOD).
Herein lies the rub: What might be among the few things out there that can’t get outsourced? The answer: US citizens.
Many innovations and inventions originated as part of government research, of which the military counts for a not-insignificant chunk. Whether military or civilian, at least at the outset, many of these projects are classified. For reasons that should be apparent, it’s easier to get a security clearance when you’re a citizen of the nation in question. And even if the invention in question didn’t start out as being stamped “top secret,” there are economic concerns to take into account; chief among them that intellectual property tends to be more valuable when it’s executed on home turf.
Medical manufacturers, software development, digital X-ray scanners and printers…the Columbus area was home to all of this high-tech IP that the Feds didn’t want leaving the country. If it was American-made, in America it stayed.
The virtuous circle of onshoring
The stage was set for the onshoring era of Midwest manufacturing; and with an image decidedly a bit less gritty than the image of the sweaty, dirt-streaked ironworker.
With the engineering knowledge economy already in place, the Great Lakes, Columbus and southern Ohio regions are an ideal backdrop for the technology transfer that’s come with the latest influx of onshoring. Having major research universities in the region means plenty of talent. But much of the manufacturing work started heading abroad, there wasn’t much of an impetus to educate young workers about the field. This is about to change.
More than one quarter of manufacturing workers in the US are over the age of 55 and compared to other sectors, manufacturers have the longest tenure in their jobs, according to Bureau of Labor Statistics cited in this Industry Week article.
In many other lines of work, this might not mean a glut of new job openings. For various reasons, baby boomers aren’t fleeing their day jobs the day they turn 65, meaning there’s less room for younger generations to start making their way up the corporate ladder. When it comes to manufacturing in the Midwest, this is not the case. Onshoring means new jobs; and educating a new workforce on related processes.
Nearly a generation has gone by without a significant number of people getting trained in manufacturing and manufacturing entrepreneurship. This means that in the years since, there are new tools and new processes to learn.
Especially after the US government instituted 25 percent tariffs on foreign steel and other products earlier this year, manufacturing has come back to the Great Lakes area with a good-spirited vengeance. We don’t know what the long-term effects of those tariffs will be. But one thing I’ve seen firsthand is trucking companies returning to fill out their fleets. Rather than having to pay that surplus for steel—not to mention a bevy of other production and trade-related expenses—companies are finding it easier to bring the manufacturing step of the supply chain back to the States.
More production means the need to develop more advanced tech such as robots to sustain output. This means the need for more engineers and more research dollars flowing into the economy, creating a virtuous circle of manufacturing, technology, human intellectual capital, and grants.
Beyond heavy industry, manufacturers in the Ohio region are creating those often-forgotten products vital to other industries. Anyone who’s had to buy a last-minute gift is familiar with the lotion and body wash selections at Bath & Body Works and Victoria’s Secret. Parent company L Brands, headquartered in Columbus, needs bottles for all of that Sun-Ripened Raspberry. Where are those getting produced? Nearby, in Ohio manufacturing plants.
Next signs of life
Hardly a day goes by in the tech and startup industry press about venture capital funding drying up amid COVID-19. While the economic reality of late is unfortunate, we are luckier than most: The sectors that Ohio region-area manufacturers support are the ones that are showing resilience—if not growth—during the pandemic.
About 70 to 75 percent of Ohio’s manufacturers were deemed essential businesses and remained open during the pandemic, with some pivoting to produce key items to the medical industry’s fight against the virus, including ventilators and personal protective equipment. Moreover, given the local manufacturing sector’s longstanding ties to the government and military, many local businesses are eligible for non-dilutive capital, a source of funding that is generally immune to economic winds.
Should we still be called the Rust Belt? Some in my region have embraced the name, turning a pejorative into an ironic badge of honor. Terms die hard. Suffice it to say, the Midwest’s manufacturing sector is getting a new look, one as driven by technology and innovation as by true grit. A young population and a resurgence in demand for the products that will get our economy into the recovery cycle are signs that the economic energy is sustainable. U.S. manufacturing is coming back home.
This story and others on New Builders Dispatch are made possible by a sponsorship from the Ewing Marion Kauffman Foundation. The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that provides access to opportunities that help people achieve financial stability, upward mobility, and economic prosperity – regardless of race, gender, or geography. The Kansas City, Mo.-based foundation uses its grantmaking, research, programs, and initiatives to support the start and growth of new businesses, a more prepared workforce, and stronger communities. For more information, visit www.kauffman.org and connect with www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.