The Role of Manufacturing in South Bend’s Decline

“We are all watching the Titanic steaming full speed ahead right before

that diamond-hard iceberg tears off all the steel rivets from her skin.

If you're not aghast, you're just not paying attention.”

 

James Lewis, American Thinker, April 5, 2009

South Bend was once an auto-making city.  At Studebaker, costs remained out of line, causing the company to collapse after a long and proud history dating back over a hundred years before its ultimate demise.   Much of the blame was placed on higher labor costs and, indirectly, on labor-management relations.  While Studebaker’s failure was a sad – and most devastating – end to a glorious chapter in South Bend history, the pride of a people who had front row seats to the development of the Automotive Industry in America should not be forgotten.  Thankfully, local visionaries knew that this history should be preserved in the form of the Studebaker Museum.  The past has much to teach us, even a half century later.

Those who tour the Auburn-Cord-Duesenberg Museum in Auburn, Indiana walk away with the knowledge that Indiana, not Detroit, was the cradle of the Automotive Industry in America.  And it was here, in South Bend, Indiana that the first large-scale, American automotive company would fail. Democrat President John F. Kennedy did not feel led to bail out a failing Studebaker in the early 1960s. U.S. Manufacturing in general, and the U.S. auto-makers in particular, are still based on WWII notions of how the world is ordered.  Domestic automakers never evolved.  They remain a relic of the post-WWII business model.  Our domestic automotive industry has been in forty years of progressive decline.   We aren't talking about a couple of bad business quarters – we are talking decades.

U.S. automakers die so quickly when trouble comes because labor unions have increased industry vulnerability.  Federal Express pays box bouncers 15 dollars an hour.  Ford paid the same workers 40 dollars an hour plus a pension, health care, and educational benefits.  Unions use work rules to make companies and industries less productive than they otherwise would be.   Union goals try to keep employments at least even, and if possible increase it, regardless of production levels.  But the way economic growth happens – the way we become a more prosperous society – is to produce more with the same number of people. 

Government refuses to take responsibility for its role in the decline of Manufacturing, when they are the primary architects of that erosion. High corporate tax structures plus legislation that was hostile to Manufacturing enterprise, forced manufacturers to seek more industry-friendly sites in Southwestern United States and in foreign countries.  South Bend and St. Joseph County claim no accountability for local attrition of the manufacturing heritage chronicled in Primer on the Perpetuation of Power (http://www.city-data.com/forum/indiana/96338-primer-perpetuation-power.html ).  Local government officials have worked to replace $15 per hour manufacturing jobs with $8 per hour retail jobs, forcing the South Bend population into a descent into the abyss.  Today, one out of every six people in South Bend live below the poverty limit.  The reason why Manufacturing is important to any economy is easily explained: Manufacturing ranks low among all business sectors in concentrating wealth.  By contrast, Retail ranks high in concentrating of wealth.  Lest anyone miss the point, South Bend citizens’ culpability lies totally in giving more attention to words rather than to actions.  Thus explains why local bureaucrats with records of failure keep getting re-elected to office.

Jobs 

“John’s last-minute economic plan does nothing to tackle the

number-one job facing the middle class, and it happens to be,

as Barack says, a three-letter word: jobs, j-o-b-s, jobs.”

 

Vice President Joseph Biden

To say that data on historical, local employment is difficult to find is an understatement – and that will be addressed later – but using the 100 Largest Employers’ Lists from five recent years is instructive.  Both the number of manufacturers in this upper-end group and the number of jobs these largest employers provide have seen steady decline.  Recent trajectory can provide clues on future manufacturing health.

The above chart clearly demonstrates that employment at South Bend’s largest manufacturers – the source of a large portion of higher-paying jobs – has been steadily decreasing.  Mishawaka, the other large city in St. Joseph County, has not fared significantly better as the following chart illustrates.

Notice that from the beginning of 2001, to the end of 2008, or about eight years, half a dozen manufacturers, representing about 1,400 jobs, closed their Mishawaka operations.

A truly great man came to South Bend and talked to us on May 17, 1981, but unfortunately few listened.  His message was prophetic with regard to South Bend, over two decades later.  He said, in part:

“The people have made it plain already. They want an end to excessive government intervention in their lives and in the economy, an end to the burdensome and unnecessary regulations and a punitive tax policy that does take “from the mouth of labor the bread it has earned.'' They want a government that cannot only continue to send men across the vast reaches of space and bring them safely home, but that can guarantee that you and I can walk in the park of our neighborhood after dark and get safely home.  And finally, they want to know that this Nation has the ability to defend itself against those who would seek to pull it down.”

President Ronald Reagan, May 17, 1981

Like seasons that come and then pass to yield to subsequent seasons, hope for manufacturing jobs creation in St. Joseph County springs eternal.  Recent seasons of hope occasioned with the MANA announcement (March 29, 2008) and the dreams that “innovation” would lead to “ignition” of nanotechnology commercialization in Ignition Park (January 6, 2009).  South Bend’s 14-story “Field of Dreams” sits on the corner of Jefferson Street and Lafayette Blvd.  Local government reasoned that if it were built, they – employees – would come.   In a corollary to Parkinson’s Law (i.e., Work expands to fill the time available to complete it.), it made sense that government bureaucracy, as measured by headcount, would expand to fill the real estate provided for it.  And local government did expand from 1995 until about 2005 when the party came to an end:

But will Manufacturing develop similarly ?  If Ignition-Park-like facilities are built to accommodate manufacturing operations, will industries come in “Field of Dreams” fashion ?   Recall that the Football Hall of Fame was built “on the come”, and visitors did not materialize as expected.  It is important for everyone to recognize the barriers to manufacturing in South Bend – high-tech or otherwise – to preclude raising expectations beyond what can be achieved.  To provide direction, here are the barriers to manufacturers siting in South Bend:

High Crime.  South Bend cannot hide from its high crime statistics.  With the high costs of a new jail, court operations costs, attorney costs to prosecute and defend crime, costs to maintain the incarcerated, etc., crime has become a high-revenue industry in South Bend.  The City can either lose the crime, or forget about favorable siting considerations.

High Taxation.  Someone must pay for South Bend’s free spending ways.  If 17 percent of South Bend is living in poverty, tax revenues collected within the City are insufficient to operate municipal government.  Due to steadily declining South Bend population, in concert with declining corporate tax base, homeowners and businesses in Walkerton, Lakeville, North Liberty, Granger, and the remainder of the County help pay for the City’s largess.  South Bend can't expect the outlying county to fund city government forever.  Like Prime Minister Margaret Thatcher said, “The problem with Socialism is that you eventually run out of other people’s money.”  Newly arriving manufacturers would be expected to pay a large portion through direct and indirect taxation.

Low Quality of Life.  Blighted neighborhoods, high and rising taxation, low wages due to flight of jobs in the manufacturing sector, and high levels of crime contribute to low quality of life in South Bend.  Manufacturers seeking new sites do not favor declining neighborhoods.

Self-Serving Government.  The term, “public servant” has become an anachronism in South Bend.  Bureaucrats serve themselves, not the public.  Three of many examples:

·                    When the critical Economic Development Director position became vacant, instead of recruiting someone with a record of successful manufacturing development to grow living-wage jobs and reduce City poverty, a buddy of the Mayor was placed in this critical position. 

·                    When South Bend officials complained that new property tax caps would fail to fund the City’s spending, our own State Representative and Speaker of the Indiana House of Representatives, Patrick Bauer, made sure that homeowners and businesses in St. Joseph County would pay one half percent more than the folks in Elkhart, LaPorte, Marshall, and 87 other counties in Indiana.  One half percent on a $100,000 assessed valuation is much, much more than the $25 wheel tax that raised everyone’s ire.  Smoke-filled, backroom politicians like Pat Bauer favor the property tax because this form of taxation allows the most abuse.  If more tax revenue is wanted, just hire appraisers who promise the highest appraisals.  Are property values declining due to national recession, oversupply of housing, or increasing neighborhood blight ?  No problem -- just continue to tax based upon historical market prices that have no relevance to present valuations.  Why do you think that the Repeal Property Taxes movement inspired by Eric Miller ( http://www.advanceamerica.com/rpt/ ) received zero consideration by Speaker Bauer ?    

·                    Commissioner Mark Dobson stood alone in his advocacy of combining City and County governments in St. Joseph County, Indiana to increase government efficiency and control runaway City and County spending.  Following Mark Dobson's departure from County government, you can kiss more efficient and less costly government goodbye.  When commercial and industrial enterprises want to quickly reduce costs, they reduce their head counts.  Local government realizes that the flight of the middle class out of the City created a Gerrymandered district that guarantees victory of Democrat candidates.  Combining City and County governments would dilute the overwhelming Democrat majority within South Bend.  By keeping separate City and County governments, the Democrat administration can perpetuate their power, while forcing the Republican content of the County at large to maintain high spending through high property taxation. Local government bureaucrats don’t mind continuing financial support from county voters who are disenfranchised in voting for South Bend officials.  Once again, the personal agendas of South Bend and St. Joseph County officials take priority over the ultimate good of the electorate they supposedly serve.

The only people local officials "represent" are themselves.  In business lexicon, they “trade for their own accounts”.  And Manufacturers considering siting here are justifiably concerned that their interests will be trumped by the self-interests of local bureaucrats as the City’s track record has so eloquently demonstrated. 

Union-Government Partnership.  Manufacturers have a chance of establishing successful relations with labor unions.  But when unions and government partner, manufacturers are faced with overwhelming force.  Here is this partnership: Unions force their members to fund Democratic party elections.  In a quid pro quo, the elected officials then enact ordinances that favor the unions.  Primer on the Perpetuation of Power describes how South Bend engages in an endless building program, funded by all county residents through state and local taxes, to repay the unions for their election support.  Thus, union memberships are captive constituencies.

Government Interference in Setting Wages.  Language in the recently passed Tax Abatement Ordinance is one more example of government mistakenly believing that Manufacturers relish the idea of government suggesting wage levels.  Manufacturers want to operate their businesses, free of unnecessary government intervention and attempts at micromanagement.  South Bend and St. Joseph County bureaucrats want to take the “free” out of “free enterprise”.

Government Largess.  U.S. Bureau of Labor Statistics (http://www.bls.gov/eag/eag.in_southbend_msa.htm) show the South Bend – Mishawaka metropolitan area had 139,000 nonfarm employees in January 2009, the latest month for which figures are available.  The same data shows 17,300 government employees for the same period.  12.4% of nonfarm employees – or nearly 1 out of every 8 – in our metropolitan area are employed by government.  Large government often translates to intrusive government, and government hostile to Capitalism.  Bloated governments don’t understand lean manufacturing.  And large governments translate to high “carrying costs” in the form of taxation.

Decline in Workforce Quality.  According to local news reports, South Bend high school drop-out rates are at an eye-popping 48%.  High-tech manufacturers as well as traditional industries are going to think twice before committing resources to a community that doesn’t reciprocate with basic preparation.

Over-Reliance on Legacy.  Legacy can be used to subtly suggest direction.  South Bend officials are quick to invoke local manufacturing legacy (http://www.innovationparknd.com/news/10809-south-bend-s-legacy-of-innovation-sparks-ignition-park).  However, Manufacturers seeking to site are more interested in what trajectory the last several years imply than in dwelling upon our storied past.  And Manufacturers in the process of siting may not see much to give them optimism about our direction.

Manufacturing Friendliness. Local government officials fail to differentiate between business categories and are just as satisfied to create retail jobs as to create manufacturing jobs.  Many see no particular urgency to preserve the manufacturing jobs the City has, much less, attracting new manufacturing jobs.  With an indifference to the need for manufacturing, it is difficult to imagine its reception.  And in the absence of affirmative attention, is not difficult to understand why manufacturers don’t feel welcomed.

St. Joseph County Chamber of Commerce Leadership

South Bend government has failed to maintain and grow the capitalization of its citizen and business tax bases, choosing instead to “game” these bases with innovative ways to claim increasing portions of their wealth.  And this strategy has been an unmitigated failure as officials have resorted to complaining, later replaced by threatening to cut services.  The City has all of the appearances of a campaign in full retreat, and clueless on how to reverse its declining fortunes. 

A primary principle in any turnaround is “You cannot control that which you do not measure.”  If direction is unknown, then how can anyone know where to head from present position ?  The stark reality is that South Bend is flying blind.  The City is not unlike a flock without a shepherd.  The logical choice for business development leadership is the St. Joseph Chamber of Commerce since, as an organization independent from local government, it is not subject to influence or politization by City or County.  Here are five suggestions to restore business tracking to its rightful place in informing Economic Development 1) mission, 2) goals, 3) strategies, and 4) tactics:

Restore the high priority for business metrics.  If the Chamber of Commerce does not fulfill the function of collecting, recording, and reporting business metrics, then no other entity will, and South Bend will likely meet with disaster.  Remember that an overarching principle indicates that economic well-being cannot be controlled unless it is measured.

Acquire better quality data.  Data the Chamber has been reporting in their Top 100 Employers Listing is suspect under elementary scrutiny.  Two examples: 2400 employees were reported for AM General in mid-2007.  Eighteen months later, the number of employees was again reported as 2400.  What is the probability that a very large enterprise would not change its employment over 18 months ?  Consider that gas hit $4 per gallon in early 2008 and sales of low-gas-mileage vehicles such as AM General’s slowed to a trickle during the last half of 2008.  Is it reasonable that headcounts at AM General were not reduced from their mid-2007 levels ?  Secondly, Honeywell’s employment was reported as 777 in mid-2007, and also again in December 2008.  No employees retired in 18 months ?  No new employees we added to the payroll ?  How probable is no change in employment of a large enterprise over an 18-month period ?  The data that the Chamber reports needs to be reliable.  Presently, their information does not appear to pass a reasonable degree of scrutiny.

Enlarge database scope.  The 1995 Chamber employment publication was entitled Firms Employing 50 or more in St. Joseph County and ran some 7 pages, including about 350 employers.  The 2001 listing was similar, but included both “firms and organizations”.  By 2005, the monitoring of employment in the County was no longer considered an important function and was abridged to only the 100 top employers. With little or no priority on monitoring employment, no one in a position to administer South Bend or the County really know what is happening in job development, with any reasonable detail.  We are flying blind from an unknown past, into an unknown future.  More – not less – needs to be known about the dynamics of employment over time, therefore the Chamber must return to the 1995/2001 scope of data.

Improve category tracking.  A minimal amount of analysis needs to be done so as to highlight employment levels by category to allow tracking the progress of primary business sectors.  Monitored sectors should include, at minimum:        

Manufacturing

Retail (Department Stores, Grocery, Restaurants, Specialty)

Medical (Hospitals, Health Care Services, Physician Group Practices)

Education (Public Schools, Private Schools, Colleges & Universities)

Financial (Banks, Credit Unions, Insurance Companies)

Warehousing & Distribution

Government

Contractors

Media / Publishing

Transportation (Trucking, Freight, Parcel Services)

Mental Health, Social Services, and Counseling

Senior Housing / Assisted Living / Nursing / Disabled

Utilities

Professional Services (Accounting, Marketing, Legal)

Business Services (Uniforms, Foodservice, Printing, Employment)

Hotels

Get the public involved.  Local government officials may believe that the public cannot be trusted with this information.  However, we have this backwards.  When citizens trusted local government, their complacency emboldened local bureaucrats to sell them down the river.  It is the Government that has demonstrated it cannot be trusted.  And citizens need to know more details about job creation to help them vote effectively.  If the Chamber of Commerce really is independent of City and County government as they claim, then job development data should be politics-neutral and the Chamber should have no compulsion to hide this important information from the public.

Prosperity to Poverty

Manufacturing is not our enemy; it is our friend.  Manufacturing is not a target to be subjugated into submission.  Manufacturing was pivotal in establishing the prosperity of South Bend as discussed in Primer on the Perpetuation of Power, but it also is pivotal in moving a once-proud city closer to life support as reviewed in this report.  Government must understand its role in fostering replacement of enterprises that naturally fail in a capitalistic economy.  For example, the Obama Administration is trying to kill the F-22 Raptor, Advanced Fighter program – vital for 21^st century U.S. air superiority against upgraded Russian air combat capabilities – that supports much of the employment of South Bend’s largest manufacturer, Honeywell Aircraft Landing Systems.  What has South Bend done to strongly and proactively affirm Manufacturing ?  A meaningful down payment to encourage new manufacturers to site here would be to increase manufacturing representation on the Chamber of Commerce Board of Directors from its present 5 out of 36, to at least 9 out of 36.

Time is running out for Pat Bauer, Stephen Luecke, and Butch Morgan, public and political figures who control the direction of St. Joseph County and South Bend.  St. Joseph County, Indiana is home to well over 250,000 people.  It is just a matter of time until someone recognizes that these Emperors have no Clothes.  And once this discovery is made, our triumvirate may find itself dethroned.  South Bend has been incompetently managed, resulting in devastating loss in tax base from a confluence of 1) the ongoing extinction of high-paying manufacturing jobs, 2) decreasing number of taxpayers as the City moves from its peak population of 132,000, ever closer to a population below 100,000, and 3) growing poverty.  South Bend is on public welfare, with citizens outside of South Bend being forced to subsidize the City.  Without an Extreme Makeover, soon, South Bend is vulnerable to one out of every four of its residents falling below the poverty limit.  South Bend is a City worth saving from the affliction of poverty.  But without a fundamental change in direction, the City’s future can be the joining the fellowship of growing poverty in American cities: 

Top Ten Cities (250,000 or less population) with Highest Rate of Poverty 

U.S. Census Bureau, 2006 American Community Survey 2007 

Top Ten Cities (250,000 or more population) with the Highest Poverty Rate

U.S. Census Bureau, 2006 American Community Survey, August 2007

Source: United States Conference of Catholic Bishops

http://www.usccb.org/cchd/povertyusa/povfact6.shtml

Stephen Paul Leykauf

April 6, 2009

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