“You have to build something,” said State Senator Alan Lowenthal in an interview last week with lbpost.com Managing Editor Ryan ZumMallen.  Lowenthal preceded that comment by saying, “It’s important to have strong retail, but that’s not the way to build a strong economy.”  He is right, you have to build something with your job base to have a strong local economy.  So what are Sacramento’s legislature (and soon the Executive and Legislative branches of Washington) planning to do about it?  History shows us they will do nothing to encourage new manufacturing jobs in Long Beach, or anywhere else in the nation.  Rather, recent history shows us they will pass more legislation that will drive manufacturing jobs out of Long Beach, California and the United States.

 

According to a list from May 2007 on the City of Long Beach website, Boeing was the only manufacturing company in the top ten employers in the city — and with annual proposals to cut production of the C-17, that spot is constantly in jeopardy.  If you look at the list you will notice that three of the top four employers in Long Beach were all public entities: #1 Long Beach Unified School District, #2 The Boeing Company, #3 Cal State Long Beach and #4 the City of Long Beach.  Of the top employers in Long Beach, three of the top four are funded by tax dollars and only one manufactures anything; in the list of top twenty-five employers only five of those listed are in manufacturing the rest are either service companies or public payrolls.

 

Why does this matter what sector is providing payrolls as long as there are payrolls?  As long as members of the community are working, who cares if those jobs are teaching kids, writing parking tickets, providing real estate services or manufacturing airplanes?  In economics there is a term called the velocity of money, it is how many times money is exchanged in a given period.  How many times is the dollar you earn on January 1st spent throughout the year?  Your paycheck is automatically deposited on December 31st.  On January 1st you take $20 out of the ATM and go buy breakfast at Bake ‘N’ Broil.  Bake ‘N’ Broil takes your money and uses it to pay employees, pay rent, buy plates, buy blueberries for pancakes, etc. The waitress takes your tip and adds it to other tips to buy a CD that afternoon at Best Buy.  Best Buy uses the money to pay the CD distributor, rent, employees, etc. And so it goes throughout the economy, the dollar you spend is passed along through the economy for goods and services, or not spent on goods and services but used to pay down debt — previously used for purchases — or put into savings, at which point the velocity reaches zero.  With high velocity of money in an economy come high levels of employment, high economic growth, high investment and savings (not everyone consumes every dollar earned) and high income tax revenue. 

 

Manufacturing jobs create higher velocities of money than do service jobs; and both create higher velocities than government jobs.  Government jobs create negative velocity as they are dependent on the earnings of others to fund payroll, benefits, purchase supplies, etc.  While some government jobs are a necessity, all are a drain on the total economy since they require taking money out of the economy to put it back into the economy, an inefficient transaction.  Think about what would happen if public payrolls exceeded 50% of the total jobs in the economy — not enough taxes from new economic growth would be collected to fund the government. 

 

Service jobs have limited velocity compared to manufacturing jobs.  As a mortgage broker our company expenses are somewhat limited to payroll and benefits, rent and office supplies.  As business expands and contracts so do our supply expenses and depending on the size of the expansion or contraction our payroll.  As a company we do not generate a lot of velocity outside of wages and commissions.  Most service companies and industries are similar, the velocity of money they create is somewhat limited in scope to a relative few major categories.

 

A company manufacturing a product from raw materials, or assembling a product from materials manufactured by other companies, has a very high velocity of money and therefore are very healthy for the local economies where they operate.  Consider TABC in North Long Beach.  The company manufactures and assembles parts for various models of Toyota cars and trucks.  TABC has payroll, benefits and site costs as all businesses do, however the supply costs of TABC are much more varied than those of, say, a mortgage broker.  TABC needs raw materials, partially assembled components, plastics and chemicals, plus the supplies needed in our industry such as paper, copiers, pens and pencils.  Each of the manufacturing supplies purchased feed revenue into another company that purchases the components to make sheet metal, or aluminum ingots, or chemical solutions.  Manufacturing is a multi-step process involving several companies up and down stream from raw materials to finished product, all along the way are jobs, jobs and more jobs.  From extracting raw materials to transportation to finishing for the consumer each manufactured product involves numerous companies and jobs.  While TABC in Long Beach may employ six to seven hundred employees at its plant, because of the materials and supplies required for their finished product thousands of jobs are downstream from TABC supplying them with the products they need.

 

Manufacturing companies create a very high velocity of jobs compared to other sectors of employment.  Each manufactured product is dependent on suppliers, transporters, distributors and retailers, each step involving jobs.  Each job has its own velocity of money.  Create manufacturing jobs in your community and you create many satellite jobs radiating out from the manufacturer, creating more and more velocity of money in your community.  It is simple economics and mathematics.

 

Senator Lowenthal was right, “You have to build something.”  Yet our local, state and national mindset has shifted to be anti-manufacturing.  “We are losing jobs overseas” is rhetoric from most of those in power to do something about creating manufacturing jobs in the United States, California and Long Beach.  While publicly lamenting the lack of such jobs in our economy there has been a systematic and sustained effort to drive such jobs out of our community, state and nation — with the consent of the voting majority. 

 

California has lost hundreds of thousands of manufacturing jobs over the past two decades, not just to Mexico or Venezuela, but to Texas and Arizona as well.  A myriad of public policy decisions have slowly eroded the manufacturing sector in our state, and Long Beach as well.  From taxes on employers to workman’s compensation to higher minimum wage standards to licensing fees to environmental requirements the government imposed costs of doing business have gone higher and higher compared to other states and nations.  As companies involved in manufacturing move those who supply them also move; one company moves and three others follow.

 

Manufacturing is a very messy business.  It involves waste products — solid, liquid and gas — that must be disposed of or be absorbed into the local environment.  Technological advances have certainly reduced the negative by-products of manufacturing, with scrubbers for chimneys, processes to recycle and filter water and liquids, and reuse solid manufacturing waste and by-products; but still there is certain amount of pollution and waste that will remain.  Because of the by-product of manufacturing we are losing and will not regain manufacturing jobs in Long Beach, or California.  As a community and as a state we have collectively decided through our elected representatives that a “clean environment” is more important that a solid job base.  We have decided that while we want the results of manufacturing with cars, computers, lamps, tables, and sweaters, we do not want the mess that comes with them being manufactured locally. 

 

“Green jobs” is the new phrase that is thrown around, but do we really want them in Long Beach and in California?  Are we willing to accept the by-products that result from the manufacture of solar panels, or wings used to convert wind to electricity, or batteries to power cars?  Are we willing to reduce the government burdens put on businesses to entice them to work in our city and state?  Are we willing to trade some quality of life for more jobs, income and tax revenue in our city and state?  “Green jobs” are not much different than the jobs at TABC, they are messy and messy is something it seems the majority wants in someone else’s community, not ours.

 

Life is a series of decisions and consequences, causes and effects.  To this point our decisions and causes have had the consequences and effects of a busted state government tens of billions in the hole and a busted city government tens of millions in the hole and fewer and fewer jobs in manufacturing industries.  With growing state, county and city payrolls and shrinking payrolls that actually have a net positive effect on our economy we are in a dangerous cycle.  But as a community are we willing to make the decisions we need to make to reverse that trend? 

 

While our elected officials publicly proclaim we need jobs, their legislation and policies have resulted in quite the opposite.  Where is the line of reason between government intervention, control and taxes on our industry and a strong economic base?  Where is the line between a strong economic base and acceptable levels of waste and pollution needed to sustain the businesses needed for that strong economic base?  How much more funding are we willing to allow our politicians to add to public payrolls while creating policy detrimental to growing payrolls in the private sector?

 

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UPDATE:  I saw this after I wrote and posted on manufacturing jobs, run time is about 3:30 and it is very interesting. This concept would work very well in Long Beach area given our transportation services.