R.I. earns poor marks in report on manufacturing climate and potential

Rhode Island will likely never become a manufacturing mecca but should not feel the need to aspire to be one, says the author of a national report on manufacturing.
In an annual report, economics professor Michael Hicks from Ball State University in Indiana graded states in eight categories that “underline the success of manufacturing and logistics.” Rhode Island ranked poorly in almost every category, coming in as the 10th worst state with an overall grade of a D.
The “2010 Manufacturing & Logistics National Report” said Rhode Island lacked the infrastructure and proximity to major transit hubs for manufacturing to take root. The state also fared poorly because it lacks a work force trained in manufacturing and has high costs of doing business, including employee benefit costs and property taxes. The state has continually bounced around the bottom rankings of the states, though the 2010 report marked an improvement from 2009, when Rhode Island ranked dead last. This year Alaska took the bottom spot and Indiana the No. 1 spot.
Hicks said Rhode Island’s poor rankings come as little surprise. The urban state has comparatively little manufacturing, which can mean little focus on educational programs aimed at manufacturers, which leads to a dearth of skilled workers.
And the sprawl of urban development leaves little land for large manufacturing plants. Meanwhile the state’s high unemployment rate and overall poor economy has left state and local lawmakers looking for new revenue and often turning to businesses.
Hicks said that mix tends to scare off large manufacturers like automotive companies that build sprawling factories and employ thousands of workers. But smaller, specialized firms looking to tap into the region’s universities may find those barriers surmountable.
“If this were Kentucky with these scores I’d be terribly worried,” Hicks said. “But for Rhode Island … manufacturing isn’t necessarily the route to prosperity so ranking poorly on this scorecard … shouldn’t worry Rhode Island so much.” Rhode Island also has some things going for it, according to the report. The Ocean State received a B-minus in diversification of the manufacturing industry and a B, its strongest ranking, in venture capital opportunities. Hicks said a diverse manufacturing pool is important to avoid suffering the consequences of one sector crashing, as when the automotive sector tumbled and Detroit’s economy entered a tailspin.
For venture capital, Rhode Island ranked 11th in the nation based on per capita investments as measured by the State Science and Technology Institute, a national nonprofit organization that works to strengthen efforts to improve the economy. Hicks speculated that the concentration of the higher education institutions in and around Rhode Island encouraged research that leveraged investment.
Neighboring Massachusetts received an A and ranked first in the nation for venture capital. That worries John Grady, executive director of the Rhode Island Manufacturers Association.
“Massachusetts is doing very well with that, we need to catch up,” he said. “There’s a lot of things we can do that have yet to be done.”
Chief among them is the tax climate, for which the Ball State study awarded Rhode Island an F. But Hicks said that could climb a notch next year. The report is based on 2009 data, before the governor signed legislation reducing the number of state income tax brackets to three from five and lowering the top tax rate to 5.99 percent from 9.9 percent, one of the highest in the nation. Grady said the jury remains out on whether the change will deliver big help to the state’s manufacturers or not.
The state also may boost its labor rankings if it moves forward with recommendations from a commission that earlier this year called for changes at the Community College of Rhode Island. The panel of lawmakers, educators and labor officials said the school needs to better align its technical programs with the needs of local businesses. “I think we are all very cognizant of that and taking the steps to move that bar,” said Rhode Island Manufacturers Extension Service CEO Leslie Taito.
In June, the governor signed a law that directs $240,000 to CCRI to create “career pathways,” including in manufacturing sectors. And the New England Institute of Technology recently received accreditation for its manufacturing programs. The rise of a so-called “Knowledge District” in Providence could also help attract small, high-end manufacturers.
“What Rhode Island probably ought to aspire to, and not just on my report card, is to be better on the parts of the scorecards that are going to be more important to the state’s economy,” Hicks said.
Those are areas like lowering taxes and delivering quality public services that justify the state’s relatively high property taxes. Rhode Island also needs to focus on the small businesses that may not each bring hundreds of jobs but combined drive the economy.
“The tax climate for those folks matters an awful lot,” Hicks said.
Yet economic-development officials across the county often ignore small businesses, preferring instead to offer huge tax incentives to big businesses bringing hundreds of jobs, Hicks said.
But Taito said she sees the state work with many small manufacturers, which dot the state. In 2008, manufacturing comprised 9.3 percent of the state’s $46.9 billion gross domestic product, according to the U.S. Department of Commerce. And even though the state lost 20,000 manufacturing jobs between 2001 and 2008, the overall contribution from the manufacturing sector to the state’s GDP has risen 18 percent, the department said.
Grady said the average Rhode Island manufacturer today employs between 50 and 150 people and leverages technology to boost productivity. And despite the Ball State scorecard, Grady said manufacturing remains very much alive in Rhode Island.
“The perception is it’s dead or dying and that’s not the case at all,” Grady said. •

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