Manufacturing Growth Strategy Study for the City of Philadelphia Public and Private Partnerships Presented to the AUBER Conference Orlando, FL Presented by Phil Hopkins, Senior Consultant, Economics and Country Risk phil.hopkins@ihs.com October 13, 2015
Project Context Philadelphia has been a manufacturing center for > 250 years Specialized in complex, high value-added goods requiring skilled workers, specialization, flexibility, high quality and craftsmanship Multi-modal transportation In 1950 - manufacturing was 45% of private sector jobs in City. Now 4.2% in City, 7.5% in GPR Current Advantages: Crude oil, natural gas and NGLs from unconventional energy resources; R&D assets, competitive energy costs; infrastructure; innovation resources, higher education, multi-modal transportation, relative cost advantage in NE US Mayor appointed a 33- member Task Force and 53-member advisory committee Objective: an assessment and comparative benchmark of the region s competitive advantages and disadvantages for manufacturing 2
Greater Philadelphia Region 3
Manufacturing is not a declining sector US Employment in Manufacturing versus GDP in Manufacturing 18.0% $2,000.0 16.0% $1,800.0 Mfg. Employment as % Popualation 20 years and Older 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% $1,600.0 $1,400.0 $1,200.0 $1,000.0 $800.0 $600.0 $400.0 $200.0 $0.0 Manufacturing GDP (billions of current $) Mfg. Employ. As % of Pop. 20 yrs and above Manufacturing GDP (billions of current $) 4
Fewer Workers Needed in Mfg. US manufacturing productivity $450 Thousand 2009$ /Employee $400 $350 $300 $250 $200 Source: IHS 2015 IHS 5
Three Tasks Task One: Define and characterize the mfg. sector City compared to suburbs 4-digit NAICS level Shift-share and cluster analyses Task Two: Perform foundational analyses Human Capital Innovation Fiscal and Regulatory Context Transportation Energy Task Three: Develop strategies What can be implemented at the regional and local levels Look at national best practices Collaborative exercise Mayor s advisory group, steering committee, City, IHS and other members of consulting team 6
Energy Intensity by Durable and Non-durable Sector Energy Intensity: Units used per $ billion of output in 2010 Total Electricity Natural Gas (trillion Btu) Rank (million kwh) Rank (billion cu ft) Rank 311 Food 1.92 8 124.74 8 0.94 7 312 Beverage and Tobacco 0.48 14 48.06 19 0.21 15 313 Textile Mills 3.30 7 459.99 1 1.08 6 314 Textile Product Mills 0.93 11 114.15 10 0.42 10 315 Apparel 0.47 15 83.44 14 0.16 18 316 Leather 0.22 21 26.14 21 0.11 19 321 Wood Products 6.49 5 210.26 5 0.47 9 322 Paper 12.97 2 372.13 3 2.40 3 323 Printing and Related Support 0.94 10 154.02 7 0.37 11 324 Petroleum and Coal 13.28 1 101.70 11 1.93 5 325 Chemicals 7.78 3 205.52 6 3.41 1 325 Plastics and Rubber 0.43 17 71.34 15 0.16 17 327 Nonmetallic Mineral 7.14 4 324.68 4 2.65 2 331 Primary Metals 5.81 6 423.51 2 1.99 4 332 Fabricated Metal 0.99 9 121.61 9 0.52 8 333 Machinery 0.45 16 61.34 17 0.21 14 334 Computer and Electronics 0.32 19 66.00 16 0.09 21 335 Electrical Equip., Appliances 0.87 12 99.17 12 0.32 12 336 Transportation Equipment 0.36 18 50.52 18 0.16 16 337 Furniture and Related 0.66 13 88.89 13 0.23 13 339 Miscellaneous 0.27 20 47.01 20 0.10 20 Non-durables 6.23 166.31 1.77 Durables 1.43 117.26 0.49 Total 3.70 140.45 1.09 7
Strategy Types from US Literature Review Physical transformation of land and zoning, brownfields Identify and support regional clusters Encourage and support innovation R&D tax credits, partnership between universities and businesses, incubators Workforce training and development Economic incentives financing and tax reductions Facilitate the movement of goods, promote export sectors Efficient, transparent and productive government regulations Reduce manufacturers energy costs 8
Results of Cluster Analysis City Clusters Pharmaceuticals and chemicals Food & Beverage Trans. Equip. Machinery and metals Non-metallic minerals Natural resources products Petroleum Refining Electronics Metalworks 9 Suburban Clusters Pharmaceuticals & Chemicals Machinery & Trans. Equip. Food & Beverage Electronic Equip. Printing & Furniture Petroleum Minerals and Wood Metals Products Information Technology Textiles and Clothing Iron and Steel
Talent, Innovation and Access to Capital Strategies Priority Strategy #1: Expand technical training programs offered by the community colleges aligned to the needs of the manufacturing sector. Priority Strategy #2: Focus high school CTE programs on STEM subjects to support manufacturers. Priority Strategy #3: Expand linkages between university product design programs at area universities and manufacturers. Priority Strategy #4: Create new loan and/or equity funds targeted specifically at small to mid-size manufacturers investing in product development and administration. Priority Strategy #5: Expand access to flexible business loans for small equipment purchases and working capital in addition to the traditional economic development loans for building acquisition, renovations, and heavy machinery.. 10
Advocacy, Networks, Business Development and Energy Strategies Priority Strategy #6: Conduct an image campaign to educate students, parents, teachers, and guidance counselors about employment opportunities in manufacturing. Priority Strategy #7: Implement a focused business attraction campaign to publicize the City and Region s competitive advantages for manufacturing. Priority Strategy #8: Increase the supply of natural gas and natural gas liquids (NGLs) available to manufacturers in the City andd Region by increasing pipeline capacity.. Priority Strategy #9: Promote the use of energy efficient technology, distributed energy systems, and smart grid technology to improve the energy efficiency of manufacturing operations.. 11
Government and Regulation Strategies Priority Strategy #10: Decrease the tax burden on manufacturing companies and identify targeted incentives to decrease operating costs. Priority Strategy #11: Continue to preserve by-right zoning in industrial corridors. Priority Strategy #12: Enhance communications between government and manufacturers while providing services to the industry. 12
Final Thoughts Output and employment both matter when considering economic contribution of Mfg. Developing realistic, feasible policies requires in-depth local knowledge - and an outsiders perspective Public-private partnerships take many forms How can public institutions reinforce and guide market forces Supply efforts like education need to be market focused Encouraging niche, innovative sectors is fine but will they eventually scale? Who will they employ, how much will they contribute? Attract activities in addition to production R&D, final assembly, product development, HQ functions, support services Marcellus shale energy will benefit energy intensive sectors, especially those needing feed stock - petrochemicals 13
Importance of Public Institutions As the world becomes more and more loosely integrated, the feature that will increasingly differentiate one geographic area from another will the quality of public institutions. The most successful areas will be the ones with the most competent and effective mechanisms for supporting collective interests, especially in the production of new ideas. Paul Romer, 1994, Stanford.