What happens when you manufacture products that the locals can’t afford to buy? You move to Georgia.
The announcement last Friday by Caterpillar to move to Georgia will create 1,400 jobs according to Caterpillar representatives and invest $200 million to build small tractors and excavators. Another 2,800 jobs will be created around the country as a result of the new plant.
Officials with Caterpillar say the area's close proximity to the Port of Savannah was a key element in the decision to build the plant in Georgia.
"Forty percent of everything made here will be exported. So there are great American products built by Georgia workers and exported around the world," said Caterpillar CEO Doug Oberhelman and reported by Fox News.
Georgia's Governor Nathan Deal called the plans to build the plant in the state a "great day for Georgia." You bet it is, and the story is bigger than just jobs in Georgia. We can learn much from a case study in business from a company like Caterpillar who faces the typical struggles of jobs creation, product life cycle management, demand fluctuations and the pressure of competing in the “right” economic environment. After all, a lot has changed since this company was founded in 1883.
Fast forward to 2012 and blink and you will miss the 129 years of growth, subsistence, struggle and creative compromise that a true entrepreneurial organization will shoulder to stay in business. As did many manufacturing companies, Caterpillar found survival in the downturn of the 1980’s by two methods. First they moved facilities overseas to take advantage of the stronger US dollar in foreign countries, and second it increased automation efficiencies which mean that it needed fewer workers to do the job.
In the early 1990s Caterpillar looked to the east and south for its future growth. The company strongly supported both the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT), concluding that the elimination of trade barriers could add sales. Sales growth in Mexico and outside North America led to ventures in Japan, Russia, China and Vietnam. Ongoing UAW contract battles led Caterpillar to shift manufacturing to right to work states and foreign countries.
The cycle of purchase power is now coming full circle it seems. With the continuing economic downturn, companies are realizing that if they manufacture overseas, then the people here at home who are unemployed because they lost their job to an overseas initiative, can’t afford to buy the product.
Several government initiatives may be needed to make the “purchase power” part of this picture whole though. Yes we need tax reform. Yes we need a pro-business environment. But what we really need is an educated worker to do the job.
As we have written here before, the manufacturing worker today is very different than that of 50 years ago. Often in a white coat and not just a hard hat, these workers need strong high school educations where graduation is expected. Caterpillar is not new to this dance and the company expects an educated worker.
In 1968, Caterpillar was early to enlist in a government-sponsored program to hire and train people considered to be unemployable. This program was directed to persons who had been out of work for extended periods. The hirees would work half of the day at entry-level positions and spend the other half of the day learning job skills for better-paying jobs. According to Fox News, Georgia was among a number of states competing for the new plant. Ground breaking is expected to take place in 2012. Production is slated to begin late in 2013. Officials say the state granted about $45 million in incentives to close the deal.
Companies like Caterpillar are looking for logistics, workforce, speed and efficiency. North Carolina was a hot contender for the Caterpillar deal according to Jim Bradshaw, the Executive Director of the Brunswick County Economic Development Commission, but they lost due to logistics. A 50 foot channel is needed for their shipping needs, and the current 42 feet channel at the Port of Wilmington is not adequate. Our own Mobile Bay can have a depth of 75 feet, but on average is 12 feet, according to the World Atlas.
Alabama was a contender for Caterpillar in 2010 as reported by Al.com, but we still had some work to do at that time to attract business. Work continues, and as late as last Thursday, the House of Representatives passed a key job-growth bill known as House Bill 159. House members passed a constitutional amendment that allows voters to give the Governor and the Alabama Development Office the authority to offer incentives like those used on the Mercedes project to recruit new industry to Alabama and prevent existing industry from leaving the state. According to Representative Barry Mask and reported by Stephen Crews in DothanFirst, “We're trying to give our state and local economic developers more tools to help grow existing businesses and land new industry, both of which result in more jobs for Alabamians." Mask continued, "I was pleased to work with colleagues from both parties to make this bill better so that voters can be confident in the plan we put before them." Opposition came from the Alabama Education Association and the Alabama Democratic Party.
Crews also reported that Speaker Hubbard said, "It's hard to believe anyone would be against bi-partisan efforts to boost job growth". "When the economy grows, our education budget grows, and we have more funds to put toward schools. More jobs and more money for education means everybody wins. Most importantly, the people win over the special interests."
This constitutional amendment and enabling legislation will now move to the Senate. A list of Alabama State Incentives for Business may be found at businessfacilities.com. Let’s just get it done.