Siemens plant in Charlotte offers lessons as Obama, Romney talk job creation
By Lori Montgomery,
CHARLOTTE — As President Obama and Mitt Romney debate whether lower taxes or targeted investment would do more to create jobs, they would benefit from a trip to a brand-new manufacturing plant a few miles from the Charlotte arena where the Democratic National Convention is underway.
The factory opened last year after German engineering giant Siemens AG chose this North Carolina city as a hub for making gigantic gas turbines needed to power new electric plants under construction around the globe.
A few years ago, the factory and its 825 jobs might have gone to India, China or another low-wage country. This time, American workers won out. And that victory could be instructive as the candidates pledge to energize an economy struggling through its fourth straight year above 8 percent unemployment.
Ask Siemens executives why they placed their bet on Charlotte and they talk about public investments such as the state-funded rail spur that runs through their facility and the city’s international airport, which recently added a fourth runway using $132 million in federal funds.
They talk about the Export-Import Bank, an independent federal agency that in January approved a $638 million loan to finance the sale of turbines to Saudi Arabia, helping Siemens beat bids from companies in Germany, South Korea and Japan.
And they talk about the quality of the workforce in Charlotte, where local leaders are retooling the public education system to churn out the engineers and skilled technicians needed to operate one of the most efficient gas-turbine plants in the world.
“A lot of things that were offshored in the past were offshored because of lower-cost labor, but that’s no longer the most important factor,” said Eric Spiegel, president and chief executive of Siemens’s U.S. subsidiary. “The reasons you bring a plant like this to the United States are higher-skilled labor, access to the world’s best research and development, and good, sound infrastructure. All those things together make the U.S. a good place to invest.”
A visit to one factory cannot fully illuminate the complex matter of job creation, and one company’s choices cannot be extrapolated to every industry and region in the country. But the story of the Charlotte plant highlights the benefit of investing in essential services with long-term effects for a wide range of industries — rather than primarily cutting taxes, as Republicans propose, or showering benefits on certain industries, as the Obama administration has done with the clean-energy sector.
While the public debate tends to be cast as a choice between propping up favored industries and getting government off the backs of business, many growing companies say they value policies that create a broadly fertile environment for job growth. Their wish list is specific: Good highways and modern seaports. High-level academic research. And, especially, education programs tailored to turn out skilled workers.
“What we’re seeing globally is we have a real opportunity to bring a wide range of jobs back to this country — including manufacturing jobs — because you see an acceleration in labor costs in other markets,” said Dean Garfield, president and chief executive of the Information Technology Industry Council, which represents 50 of the world’s largest tech firms. “To the extent we get the right policy mix, we can do a lot to encourage locating as many jobs as possible here in the United States.”
Demand and development
Siemens is not unique. Michelin North America is adding 500 jobs at a new South Carolina plant that produces 121 / 2-foot tires for giant construction and mining vehicles. Chairman Pete Selleck said the firm’s French parent likes the state’s network of technical schools and the proximity to seaports in Charleston and Savannah, Ga.
Selleck said the most important thing Washington could do to improve the economy is “get its fiscal house in order” by adopting a debt-reduction plan that would cut spending and overhaul the tax code to raise more money. But he said he would also like to see more funds plowed into preparing ports for the super-ships expected to begin traversing a newly expanded Panama Canal in 2014.
Smaller firms are desperate for workforce development. Optimax, a company just outside Rochester, N.Y., that made lenses for the Mars rover Curiosity, has 25 open positions. President Mike Mandina said Optimax’s growth has been “absolutely limited” by the number of skilled workers emerging from local schools.
“Any region committed to developing a highly skilled workforce is going to excel,” Mandina said, “whether they’re milking cows or making precision optics.”
None of the executives interviewed cited the level of taxation as an overriding issue, though they agreed that the United States should simplify its code and bring the corporate rate — now the highest in the developed world, at 35 percent — in line with other countries. Both candidates have proposed to do so, with Obama calling for a corporate rate of 28 percent and Romney proposing 25 percent.
Meanwhile, Spiegel and others criticized the recent push by both parties to create tax breaks explicitly tied to hiring.
“You don’t hire people just because there’s a tax credit there,” he said. “You hire people if there is demand . . . to produce more.”
Demand, of course, is the most fundamental factor in a company’s decision to create jobs. For Michelin, Selleck said, the demand for giant tires is driven by the demand for big vehicles to extract raw materials, which, in turn, is driven by rising wealth in India, China and Brazil, where millions of people can suddenly afford cars, air conditioners and other consumer goods. For Siemens, Spiegel said, the demand for gas turbines is driven by a trend among electric utilities away from coal and toward cheaper, cleaner natural gas.
Plans for economic growth
But demand is not easy for politicians to create, particularly when the government is low on cash. Obama says he would spur growth by keeping tax rates low for most Americans and making investments in education, infrastructure and clean energy, paid for with higher taxes on the wealthy.
Spiegel, who attended a White House event in January on bringing jobs back to the United States, praised the president’s focus on increasing exports and recasting federal job-training programs. Obama has made manufacturing a centerpiece of his campaign, and he cited Siemens worker Jackie Bray in his State of the Union address as an example of the power of investment in job training.
But Obama is proposing few new ideas for increasing overall demand, and analysts say manufacturing may not be the kind of job engine he sometimes suggests.
“Twenty years ago, the Siemens plant probably would have had 5,000 workers. Now what does it have? Fifteen hundred?” said Peter Coclanis, director of the Global Research Institute at the University of North Carolina at Chapel Hill. “Our manufacturing output is the highest it’s ever been, but we do it with fewer workers.”
Coclanis said the 825 new Siemens jobs in Charlotte are dwarfed by 2,500 positions being created at two new poultry plants near Rocky Mount, N.C. Sanderson Farms said it chose the location because of the area’s 13.4 percent jobless rate, which guarantees it can find workers at $11 an hour. Siemens’s new hires make twice that, on average.
“One could make a plausible case for either the classic Democratic vision for investing in education and human capital or the Republican fix of cutting taxes and regulation — creating a, quote unquote, good business environment,” Coclanis said. “If you’re a poultry processing plant, you’re not going to want to move to Charlotte. You’re going to want to move to the eastern part of the state, where you can pay workers next to nothing.”
Romney’s plan for growth centers on slashing government spending while cutting tax rates sharply for everyone. Romney claims his approach would create 12 million jobs over the next four years, a conclusion that relies heavily on research by Alan Auerbach, an economist at the University of California at Berkeley.
Auerbach, who has studied the economic effects of tax cuts, said lower taxes on savings and investment do cause people to plow more money into new investments, which “should lead to faster economic growth.” But “how much, how fast” is harder to say, Auerbach said. And that approach is, in any case, less likely to be effective in a sluggish economy, he said, when businesses are holding back on new investments not because they do not have the cash but because they are “looking first at whether they can sell stuff.”
“If the question is what would [Obama and Romney] do right now to spur economic activity,” Auerbach said, “I’m not sure either platform is particularly well designed for that.”
Meanwhile, the austerity budgets favored by the GOP would cut government spending in the very areas that do seem to matter. In his most recent budget, Romney’s vice-presidential running mate, House Budget Committee Chairman Paul Ryan (R-Wis.), proposed spending 25 percent less on transportation over the next decade than Obama and 31 percent less on education and training.
As part of their campaign to shrink the size of government, House Republicans also tried to kill the Export-Import Bank, which encourages exports by financing the foreign purchase of U.S. goods and services, turning a profit for taxpayers. Spiegel said the bank was a critical factor in Siemens’s decision to build turbines for export in the United States.
The battle over job creation has come to define the 2012 presidential campaign, as well as politics in North Carolina. Obama narrowly won the state in 2008; this year’s race is a tossup.
In the state’s gubernatorial campaign, GOP candidate Pat McCrory, former mayor of Charlotte, is leading in the polls. With the nation’s fifth-highest jobless rate, North Carolina is “being diminished by high taxes, excessive regulation and broken state government,” McCrory says on his Web site.
His Democratic opponent, Lt. Gov. Walter Dalton, contends that the GOP’s prescription for smaller government would erode some of the state’s most important weapons in the battle for new jobs.
“I think we are losing our competitive edge,” Dalton recently told the Raleigh News & Observer. “But I think it’s because of the cuts we have seen this General Assembly make to economic development and to education.”
Local economic-development officials are reluctant to take sides.
“Sometimes you may rely more on [government] incentives and worker training and things like that,” said Jeff Edge, who helped negotiate the Siemens deal for the Charlotte Chamber of Commerce. “But if an administration gets in with a philosophy to cut a lot of taxes, people might flock here because the tax rate is lowest.”
“We’re kind of on the receiving end of whatever policy is implemented,” Edge said, “so we have to make it work as best we can.”
Project Cardinal’s a go
As the nation’s second-largest financial center, Charlotte was hit hard by the 2008 banking crisis. The metro region’s jobless rate peaked at 12.8 percent in early 2010. Through the gloom came an e-mail from a lawyer in Detroit: Siemens was considering shutting down a union plant in Hamilton, Ontario, and building a $350 million factory in right-to-work North Carolina.
Project Cardinal — code-named after the state bird — was the biggest expansion of manufacturing in Charlotte since the late 1970s, Edge said, “a once-in-a-quarter-century opportunity.”
It was a dramatic turnaround. Siemens first came to Charlotte in 1997, taking over an aging factory as part of its purchase of Westinghouse Electric’s power generation unit. Siemens laid off 350 people, slashed benefits and considered closing the plant and moving the remaining work to India.
Instead, it brought in a new manager, Mark Pringle, an old hand from Westinghouse. By introducing “lean manufacturing” techniques and asking workers to identify unnecessary steps, Pringle said that he cut the cost of building a generator by more than 30 percent without eliminating jobs or squeezing compensation.
In the meantime, Siemens came to see the United States as a promising market for the gas turbines it was making in Germany and China. A third of the nation’s coal-fired power plants are more than 50 years old, and many are being replaced by natural gas. North Carolina’s Duke Energy would be a big customer.
Charlotte had other advantages. The state-funded Central Piedmont Community College added a mechatronics program aimed at producing a stream of technical workers. Duke Energy helped finance an energy program within the engineering school at the University of North Carolina at Charlotte, to which Siemens contributed $4 million.
State and local officials kicked in millions of dollars in tax rebates to land Project Cardinal. The state also offered $3 million to provide customized training to workers at the new plant.
More than 9,000 people applied for the jobs; 4,700 were evaluated at state expense, starting with a career readiness test that measured math and reading skills. Those who needed extra help were offered free classes at the community college.
Crane operator Harley Alwran, 35, was among the hires. After working on contract most of his career, Alwran was grateful to settle into a steady job with full benefits, including a Christmas bonus.
“I’ve never had paid vacations, holidays off or a company willing to put my whole family on health insurance in my life,” he said during a recent break.
With the plant fully staffed, Siemens is taking advantage of Charlotte’s revamped education system to build a pipeline of workers for the future. Estevan Torres, 18, once had plans to become a dentist. But a high school counselor steered him toward a three-year apprenticeship at Siemens, which is paying him $9 an hour and financing his two-year degree at Central Piedmont.
For Spiegel, the Siemens chief executive, job creation is not as complicated as rocket science but it does require a public commitment.
“If you read all the studies about what it’s going to take for the U.S. to grow, it’s really about two things,” he said. “Modernizing the infrastructure and retooling the education system. Those are the two big keys to creating more-productive, higher-paying jobs.”