WashACE Blog

Don't Blame Boeing

That's the headline on an editorial in today's Columbian. State political leaders should take those three words to heart as they begin a necessary assessment of the state business climate for manufacturing and other critical sectors. While focusing on labor-management issues, the editorial takes a broad view of the changed nature of global competition. This line intrigued me.

...as long as our state sanctions compulsory union membership, it will compete at a disadvantage against right-to-work states such as South Carolina.

Does anyone remember a major newspaper questioning the state "sanctioning" of compulsory unionism before?

The Walla Walla Union-Bulletin also uses the Boeing decision as an editorial springboard for a discussion of labor relations.

But the labor union refused to concede that this is a changing world and it can no longer be as demanding about pay and benefits. Folks in South Carolina and elsewhere are willing to do the work for far, far less. In addition, the union cannot continue to threaten a strike that would stop production of airplanes. Boeing can't be competitive if it can't deliver its product on time.

There's a lot at stake. In this story by Jerry Cornfield in the Herald of Everett I say that arguing over who lost Boeing is unproductive. We need to look ahead. Part of that, inevitably and profitably, will require an objective assessment of the state's strengths and weaknesses. There are some clear shortcoming, about which we had plenty of information months and years ago. Tom Captain summarized them in his op-ed in the Seattle Times:

Companies note the disadvantage of potential work stoppages — this is key. They note high aerospace wages, cost of living, real-estate prices, cost of unemployment and workers' compensation insurance. Of these, labor, business and government leaders can impact the risk of work stoppage, and unemployment and workers' compensation insurance.

If Washington wants a winning season, it needs to address these disadvantages with a sense of urgency.

Maybe now, it will.

Perspective on the "End of the Recession"

The positive Q3 GDP numbers added lift to the voices singing from the end-of-recession song sheet. (My Bing search turned of 4,100,000 results for "end of the recession," suggesting a very large choir.) There's no reason to gainsay the data, but there's merit in applying some context.

Dr. Jeff Cornwall at the Entrepreneurial Mind looks at this Reuters blog post by James Pethokoukis opining that the stimulus effect has had little enduring recovery effect. Cornwall's conclusion:

Artificially induced growth by massive government spending is not the road to recovery and certainly not the way to create a sustained economic expansion.

Adding to the concern is this report from AP, indicating that the stimulus jobs impact has been overstated

The government has overstated by thousands the number of jobs it has created or saved with federal contracts under the president's $787 billion recovery program, according to an Associated Press review of data released in the program's first progress report.

The discrepancy raises questions about the reliability of a key benchmark the administration uses to gauge the success of the stimulus. 

The BBC also carries a report that casts doubt on the "global recovery."

Unemployment levels across the 16 countries that use the euro rose to 9.7% in September, the highest rate since January 1999.

This brought the number of people unemployed across the eurozone region to 15.3 million.

The rate across all 27 members of the European Union rose to 9.2%, with 286,000 more people now jobless. This brings the total to 22.12 million.

To conclude this Friday downer, there's this from the Christian Science Monitor's "new economy blog."

Americans’ paychecks aren’t growing.

They actually shrank 0.2 percent from August to September, according to a Commerce Department report released Friday. Except for a couple months this summer, that was the lowest total since 2006. The fall was more acute in the private sector, but that was masked because government payrolls reached a new record(!) of $1.19 trillion in September.

With income down (because fewer people are working), the prospects for increased spending this holiday season are fading.

In the midst of this economic distress, Congress rushes headlong toward major climate change regulations and a government takeover of health care. Nothing is more important that a strong, private sector economic recovery.

State-Local Government Spending Priorities: Where's Washington Rank?

For folks who take "follow the money" literally ... and don't most of us? - this new Tax Foundation report may provide hours of entertainment and some illumination.

Based on recently released Census data, a new Tax Foundation report reveals state and local government spending priorities.

State and local government spending is broken down for nine specific functional categories and a miscellaneous catch-all: K-12 education, higher education, public welfare, hospitals and health, transportation, public safety, environment and housing, government administration, interest on debt and other. In each category, the percentage of total spending is shown so that state priorities can be compared whether combined state and local budgets are comparatively large or small.

Washington shows up in the top ten in three categories.

The states that concentrate spending on health and hospitals are, from 1 to 10, South Carolina (15.9%), Wyoming (15.2%), Alabama (14.7%), Mississippi (13.6%), North Carolina (12.9%), Tennessee (12.2%), Iowa (12.1%), Washington (11.6%), Georgia (10.6%) and Missouri (10.5%). The national average is 8.4%...

The states that spend the highest percentage on transportation are, from 1 to 10, South Dakota (15.8%), Alaska (15.6%), North Dakota (14.2%), Montana (12.2%), Nevada (12.2%), Georgia (11.5%), Wyoming (10.8%), Idaho (9.7%), Kentucky (9.6%) and Washington (9.5%). The national average is 7.6%...

The states that concentrate spending on the environment and housing are, from 1 to 10, Louisiana (15.1%), Florida (11.1%), Washington (9.7%), Hawaii (9.6%), South Dakota (9.3%), California (9.3%), Oregon (9.1%), Arizona (9.1%), Colorado (9.0%) and Maryland (8.9%), compared to the national average of 7.7%.

Let the priorities of government debate begin afresh. The full report is here.

Contrasting Headlines on Boeing Decision

The Seattle Times: Charleston, S.C. wins: What went wrong

The Post and Courier (Charleston): BOEING: Aircraft giant lands here

The Charleston paper also invites readers to visit its Boeing page.

I think the "what went wrong" spin, while understandable, needs to be a short-lived period of introspection, leading to "what must we do to get it right," with it referring to creating jobs and attracting investment.

In the Bloomberg News, John Stanton takes that next step.

Washington will have to reduce taxes and reconsider labor- friendly rules to win future work, said John Stanton, a cellular-phone entrepreneur and chairman of the Washington Roundtable, a nonprofit policy group that lobbied to keep the second line in-state.

“This process has clearly gone on over months,” said Stanton, whose father worked on Boeing’s 727, 737 and 747 models as an engineer. “Maybe over years. Today was just the day for the big-font headline.”

Two big-font headlines. A wake-up call here and a celebration there.

Everyone Has An Opinion on Why Boeing Picked South Carolina

First reactions dominate the news in the first 24 hours following yesterday's announcement. The political responses follow predictable partisan plot lines.

Republicans point up competitiveness challenges - too many to link to, but see here, here, and here. Sen. Mike Hewitt makes a good point:

Washington must be leaner and meaner if we’re going to compete in this global economy. One of the ways we can do that is by taking a long, hard look at the Deloitte report released this past spring. It focuses specifically on what our state needs to do to be more competitive in the aerospace sector – an industry that accounts for more than 36 billion dollars in our state’s economy. One of the most important things we must do is reform workers’ compensation, which the Deloitte reports calls ‘one of the most expensive workers’ compensation systems in the country.’ I stand ready to work with my colleagues and the governor to enact those critical changes that will help us compete for jobs.

Sen. Lisa Brown takes a different tack:

I continue to believe Washington offers a far more skilled and experienced workforce, far more competitive infrastructure, and a far more committed Legislature and governor than does South Carolina. I continue to believe that Boeing and the 787 are positioned most competitively right here in Washington.

...Washington residents can be proud that their state remains a great place to do business according to almost every objective analysis, including those performed by national publications such as Forbes and U.S. News & World Report.

We've written about rankings before, so I won't rehash any of that here. We do have competitive strengths in Washington, Brown's right about that, but the state cannot afford to ignore the emerging challenges from states and nations that want our businesses.

Here's video from the governor's press conference yesterday, where she said:

We did all we could to demonstrate that Washington is the best place in America to build airplanes.

OK. The first reactions are about what you'd expect. And i still call them first reactions, although the decision has been pending long enough for everyone to have staked out turf. More important is that lawmakers come together to assure we win the next competition. And to do that, they'll have to acknowledge that there more to be done. That's the line taken by state business leaders.

The News Tribune editorial board understands the lesson:

Boeing’s decision to go to South Carolina is proof positive – if Washingtonians still needed convincing – that aerospace has become a highly competitive and mobile industry. Boeing is battling for first place, and it is making no allowances for sentimentality. An experienced workforce is preferable, but not at any cost – not when Boeing can find able and willing workers elsewhere who can be trained.

Washington can no longer afford to be smug. The state stands to lose much more than the second 787 line if it doesn’t heed Boeing’s message that it needs more to keep it here.

So does the Seattle Times:

We are a high-wage state, and that should not change. But there will be fights about workers' compensation, unemployment insurance, work-force training and taxes. There are things that need to be changed in order to remain a high-wage state.

The Times isn't explicit about what needs to be changed, but it's clear that the high cost of doing business here will have to come down - that means embracing the business-backed reforms for workers' comp and being smart and strategic with tax incentives.

The Everett Herald also looks to the future. 

Repairing a relationship is difficult, but the Machinists and Boeing have so many reasons to keep this long, fruitful partnership thriving, and flying.

True. It's also true that state lawmakers have many reasons to work past some of the acrimony that blocked progress on competitiveness issues last session and build a more "fruitful partnership" with the business community.

Boeing Takes Second 787 Line to Charleston

After a day in meetings, I'm late posting this. Most WashACE readers know that Boeing announced earlier today that it would locate the second 787 production line in Charleston, South Carolina.

We'll have more on this from a WashACE perspective later. For now, here's a brief roundup of reactions.

First, the governor. 

This is obviously a very disappointing day for all Washingtonians, particularly the more than 73,000 Boeing workers in our state.

From AWB president Don Brunell:

Boeing's decision underscores the changing landscape of today's worldwide business climate. We are fortunate to have such strong aerospace and manufacturing sectors in our state, but that base is always at risk in this fluid global economy.

From Washington Roundtable president Steve Mullin:

Washington state faces an important challenge.  We need to work even harder to make the changes necessary to make our state more competitive, or we will lose more family wage jobs in today’s highly competitive global economy.

Here's the IAM perspective:

"Boeing's goal was not an agreement that would keep the work in Washington state," said IAM Vice President Rich Michalski. "Their goal was to run out the clock on a charade that included blaming their own workers for a decision to establish operations in yet another distant and high risk environment.

Bloomberg News has comments from both governors, labor and aerospace analysts.

SeattlePI.com offers a good roundup of reactions, including a forward-looking perspective from Snohomish County executive Aaron Reardon.

Reardon said: "We have to move forward ... there are still thousands of men and women who work for the company in this community."

Not just Boeing jobs are at stake in the future ... we have work to do.

Taxes Hurt the Economy, So Why is the Governor Talking About Them?

TVW's Inside Olympia host, Austin Jenkins, writes in Crosscut that Jay Manning, the governor's chief of staff, reinforced the governor's "new willingness" to raise taxes.  Manning made the comments in an Inside Olympia interview last week. The remarks are as familiar as they are unwelcome.

“I guess I would be surprised if this $1.7 billion hole in the budget was closed exclusively with cuts,” Manning concluded during the TVW interview.

We hear some form of the refrain during every shortfall. Note the $1.7 billion figure - that's up from early reports. From the taxers' perspective, the larger the projected deficit, the more urgent the need for new revenues -- which is not to say that the budget gap is trivial. And, with today's report of declining consumer confidence, it's less likely that robust holiday sales will be pouring into the state treasury. The shortfall may grow.

Last month governor told AWB members that she understood that tax increases were not the answer.

Gregoire largely dismissed the prospect for any tax increase to help close the gap.

... "Tell me a tax that you're going to increase that will give you $1 billion that doesn't hurt business, hurt individuals, hurt our recovery."

As she clearly implied, there isn't one. Not for a $1 billion problem, not for a $1.7 billion problem. She's since changed her tune, but the facts haven't changed.

Tax hikes hurt business, hurt individuals, and hurt our recovery. So they should be off the table.

Brunell Sees High Tech Growth

Don Brunell, president of the Association of Washington Business, cites a recent technology report as a bright spot in a bleak economy. In his column in today's Columbian, Brunell writes that Washington's strong tech sector gives the state an edge in the tech recovery.

The IDC study found that IT spending in the United States will reach $488 billion in 2009 and will increase over the next several years at a rate almost five times faster than our national GDP.

Washington's strength is clear.

...The Washington Technology Industry Association represents more than 1,000 member companies with more than 100,000 employees in the state — most of them in the IT sector. According to state employment figures, the IT sector pays out $10.5 billion a year in salaries to more than 86,000 employees. These are well-paying jobs in careers fed by strong higher education programs.

... if we are careful, we in Washington have the tools to emerge from this recession ahead of other states. But to maintain that advantage, we must ensure that our regulatory and tax policies support our existing IT sector and encourage its growth.

Read the whole column. Then, maybe re-read it. Good news is hard to find.

Consumer Confidence Plunges - Adding to Recovery Worries

The Conference Board's Consumer Confidence Index dropped to 47.7 in October, down from 53.4 in September.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: "Consumers' assessment of present-day conditions has grown less favorable, with labor market conditions playing a major role in this grimmer assessment. In fact, the Present Situation Index is now at its lowest reading in 26 years (Index 17.5, Feb. 1983). The short-term outlook has also grown more negative, as a greater proportion of consumers anticipate business and labor market conditions will worsen in the months ahead. Consumers also remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays."

The New York Times notes that economists were surprised by the decline and interprets the numbers for us.

Wall Street analysts predicted a reading of 53.1.

A reading above 90 means the economy is on solid footing. Above 100 signals strong growth.

And a reading of 47.7 signals ... well, you know.

Opinion | Washington is 0 for 5 in recent aerospace industry competitions | Seattle Times Newspaper

In the question of whether Boeing will place a second 787 assembly line out of Washington, the governor recently pointed to the state's No. 2 "best for business" ranking by Forbes magazine. But aerospace-industry expert Tom Captain notes the state has been a loser in the last five aerospace competitions. He offers advice for improvement.

via seattletimes.nwsource.com

At WashACE, we've cited Captain's analysis before in our efforts to promote public policies to boost our state's economic competitiveness. This is a useful and sobering summary of where we stand and what we need to do.