The key to economic prosperity is productivity. And the key to productivity is capital investment.

Nowhere is this more evident than in an examination of several key measures of U.S. manufacturing during the period preceding the current recession.

According to the Bureau of the Census, annual survey of manufacturers, from 2003 to 2006, the cost of labor for U.S. manufacturers increased 5 percent, the cost of the materials they purchased to make their products rose 10 percent and the value of their sales increased 26 percent.

Material costs fell from 52 cents per dollar of sales to 46 cents.

Conversely, value added — the cost of the machinery, human skills and organizational ingenuity used to turn those materials into valuable stuff — rose from 48 cents per dollar of sales to nearly 55 cents. As a result, even though the total number of jobs in manufacturing fell by 6 percent, the average pay for the jobs that remained rose by 12 percent, from about $41,000 per year to nearly $46,000 per year.

The central reason for this increase in earnings was capital investment.

Over this four-year period of general economic expansion, the value of new buildings, machinery and software available to each manufacturing employee rose more than 28 percent, from just under $8,200 per worker per year to nearly $10,500 per worker per year.

In short, the oft-cited saw that ”manufacturing in the U.S. is dead” is not true. At least it need not be true, as long as we maintain the constant flow of capital investment needed to make our manufacturing workers more productive.

Between 2003 and 2006, the value of sales per worker in U.S. manufacturers rose 35 percent, from $287,000 per worker to $386,000 per worker.

In Maine, our performance was not nearly as impressive. Our cost of labor fell by 9 percent, our cost of materials rose by 18 percent and the value of our manufacturing sales rose by only 9 percent. In contrast to the U.S. pattern, our cost of materials rose from 47 cents per dollar of sales to 51 cents, and our value added fell from 53 cents to 49 cents.

As a result, the average pay per manufacturing worker rose only 8 percent — about two-thirds of the U.S. increase of 12 percent — and our number of manufacturing employees fell by 16 percent — and this during the so-called recovery from the 2001 recession.

The reason for this lagging performance is clearly evident in our pattern of investment.

While capital investment per manufacturing worker rose 28 percent for the U.S. as a whole, it rose only 14 percent in Maine.

In 2003, Maine manufacturers invested $7,700 in new plant, equipment and software for every worker they employed. This was more than 93 percent of the U.S. average of $8,200 per worker. By 2006 — three more years into the expansion cycle and well before the onset of the recession — Maine’s capital investment per manufacturing worker had risen to only $8,700, less than 84 percent of the national average of $10,500.

Again, the message is clear — manufacturing is not dead, but it could be if we don’t pay close attention to and encourage the investment that is its lifeline.

As we struggle to keep the economic recovery whose difficult birth we hope we are now witnessing, we must put the question: ”How will this affect capital investment?” at the front of the line at every tax, budgetary, regulatory and educational issue facing our state and local legislative bodies.


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