Industrial engine idling
TheStar.com – Opinion – Industrial engine idling: Ontario’s economy cannot prosper without a vigorous manufacturing sector
October 11, 2009. David Crane
Without a revitalized manufacturing base, Ontario has little chance of a healthy economic recovery that delivers the good jobs and high productivity we need for sustainable prosperity.
So a key question as we face a federal election some time in the next 12 months is which party, Conservative or Liberal, can deliver the most effective manufacturing strategy for the province.
Liberal Leader Michael Ignatieff did say in a recent Toronto speech that a Liberal government would “make a priority of manufacturing research and commercialization, to help our businesses bring new products and new technologies to market.” But he did not explain how or, more important, demonstrate that the Liberals have an overall strategy to restore Ontario as a manufacturing hot spot in North America.
Action is needed. Ontario’s unemployment rate is 9.2 per cent, with nearly 657,000 people officially unemployed. Over the past year alone, about 125,000 manufacturing jobs have disappeared, and job-shedding is not over yet.
In many of Ontario’s manufacturing communities, the unemployment rate is even higher: 14.3 per cent in Windsor, 11.2 per cent in London, 9.3 per cent in Kitchener. In the Toronto region, it is 9.8 per cent.
Restoring manufacturing in Ontario will not be easy. The auto and auto-parts industry – Ontario’s most important manufacturing sector – has been downsized permanently. And other sectors are facing major challenges, from a high exchange rate and weak U.S. demand to increased import competition here and major innovation initiatives in other countries.
There is a temptation to dismiss manufacturing as “old economy.” This would be a huge mistake. Manufacturing is still vital for the economy, but it is a different kind of manufacturing, increasingly knowledge-based, dependent for success on research and development; adoption of new production technologies; skills upgrading; investment in design; and dependent on skilled marketing and customer service.
For all the talk of the creative class of artists, architects and press release writers, high-value manufacturing remains central to our future. It leads in productivity growth and exports. Moreover, a healthy manufacturing industry supports many other jobs in services, from finance, marketing and engineering to transport, software and construction.
In its latest production forecast, PwC Automotive Institute projects vehicle production in Canada at 1.9 million vehicles in 2013, compared with just over 2 million in 2008 and an estimated 1.3 million this year. In 1999, we produced nearly 3 million vehicles. Meanwhile, Mexico will grow from 2.1 million vehicles in 2008 to 2.5 million vehicles in 2013, and the U.S. will grow from 8.5 million vehicles in 2008 to 9.8 million vehicles in 2013. We represent a shrinking share of the North American auto industry.
There are two questions. First, can we change this picture so that Ontario is a key player in designing, engineering and building next-generation vehicles? Second, if not, what will replace those lost manufacturing jobs in the auto sector?
While we ponder these questions, the Obama administration, in alliance with manufacturers and state governments, is embarking on a bold “Strategy for American Innovation.” It is investing billions of dollars to help manufacturers develop clean energy and advanced vehicle technologies, health-care technology and biotechnology for what it calls the “grand challenges” of the 21st century.
Companies in neighbouring Michigan, for example, have been awarded $1.36 billion (U.S.) in federal grants to help make that state the North American centre for innovation in advanced battery technologies and electric cars. The companies are putting up an equivalent amount, for a total immediate investment of $2.72 billion, which is expected to generate nearly 7,000 jobs right away and up to 40,000 jobs by 2020.
This is part of a $2.4 billion program to restore the competitiveness of U.S. auto and auto-parts companies for next-generation vehicles. Canadian companies can take advantage by investing in the United States. A Magna International subsidiary, Magna E-Car Systems of America, has received a $40 million grant for a plant in Indiana.
At the same time, another U.S. program, the Advanced Vehicle Technology Act, is making its way through Congress. It would provide $2.85 billion in funding over five years for medium and heavy-duty truck and bus research.
U.S. corporate executives such as Jeffrey Immelt of General Electric are pushing to make manufacturing a much bigger part of the economy, arguing that America cannot succeed by giving up on manufacturing and focusing just on financial and other services. Immelt wants to see manufacturing account for 20 per cent of U.S. jobs, or nearly double the current level. Manufacturing currently accounts for 11.8 per cent of Ontario jobs.
GE is opening new factories or adding new products to existing plants. In Michigan, it is investing $100 million in a major new R&D centre that will employ 1,200 scientists and engineers, joining R&D labs in upstate New York, Shanghai, Munich and Bangalore as a key link in the company’s global R&D network. It is not alone. Intel Corp., a leading U.S. chip manufacturer, has announced plans to invest $7 billion in upgrading three U.S. semiconductor plants.
This focus on manufacturing is part of a worldwide trend. China is busy upgrading its manufacturing industries for higher value products and we can expect to see Chinese vehicles sold in North America in the not-too-distant future. India has significant potential, barely tapped so far, in manufacturing.
This is the kind of challenge Ontario is up against. We will need a targeted and proactive manufacturing strategy that will bring the federal and Ontario governments together in a strong partnership, not just for autos and auto parts but for other manufacturing industries as well. We must develop new products and processes, create new growth companies and reinvigorate existing companies in a low-carbon world.
If the Liberals or Conservatives hope to attract Ontario votes, 21st century manufacturing has to be a key part of their program.
David Crane is a commentator on economic affairs. email@example.com.
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