This post is about the competitive advantage Dayton may or may not enjoy as an Aerospace Innovation Hub. This month’s Aerospace America has an interesting article titled “Changing aerospace cluster dynamics”, by Philip Butterworth-Hayes. A cluster is a group of similar or competitive businesses that locate in the same region, also known (in Ohio) as an innovation hub. The reasons given in the article for the increase of attractiveness of aerospace clusters are
- development of research institutions
- local and national government subsidies
- specialized work-force availability
- just-in-time production techniques
For these reasons, locating in a cluster gives a business a competitive advantage (see the Cluster Meta-study for more details). Like everything else in the world economy, the dynamics of clusters is changing and businesses in clusters are developing links with clusters around the world. Butterworth-Hayes claims that aerospace clusters in “North America and Europe will do less manufacturing and concentrate more on developing high-end integration and high-technology skills, outsourcing the labor-intensive manufacturing work to clusters in low-wage economies.” A familiar refrain to the folks of Dayton who have been struggling with the effects of the off-shoring (or down-southing) of manufacturing for decades. He continues, “This is exactly what seems to be happening. The key to transforming manufacturing clusters in North America and Europe to centers of aerospace excellence is access to innovation skills – corporate and academic. There is a new imperative for traditional manufacturing clusters to attract companies skilled in design and engineering, rapid prototyping, software development, part manufacturing, testing and research capabilities.”
Ohio’s governor has been in the news lately after designating Dayton an Aerospace Innovation Hub. The main focus of the Governor’s plan seems to follow the “transformation formula” described by Butterworth-Hayes. Grants to local research institutions and trade deals with foreign countries where the manufacturing will take place. So how good an idea is the Governor’s strategy? First it’s a good idea to find out what we’re starting with. Figures 1 through 5 come from the Cluster Mapping Project. They illustrate the relative size / employment / wages in traded clusters in the state of Ohio.
Figure 1 shows that Ohio has a significant and growing share of the turbine engine manufacturing employment in the US. The other good news from Figure 1 is the “Production Technology” cluster, relatively large and growing. The bad news shouldn’t be any surprise, “Automotive” and “Metal Manufacturing” are both large and shrinking.
Figure 2 shows the part of the reason Ohio (and Dayton) is feeling some pain. The 2nd and 3rd largest employers are the shrinking ones. Production Technology is 9th on the list and Aerospace Engines is 24th.
Figure 4 shows that our Ohio workers in Aerospace Engines are well-paid compared to the national average. Our Aerospace Vehicles and Defense folks (2nd on the list) are a paid a little less than the national average.
The key political graph is Figure 5. Which sectors are creating the most jobs? The surprising (at least to me) big winner is “Transportation and Logistics”. Aerospace Engines added a tiny number of jobs over the time-period. Production Technology lost jobs over this period (Figure 1 showed the relative nationwide change).
For the Dayton region, the contribution to the Aerospace Engines cluster is basically GE in Cincinnati, that’s close enough to Dayton to be part of a virtual cluster (though their immediate outlook probably depends significantly on the fate of the F-136). The Aerospace Vehicles and Defense is basically WPAFB. So the cluster map seems to indicate that designating Dayton an ’aerospace innovation hub’ is at least somewhat reasonable. There’s a significant number of people in the region already doing the job. What about the rest of the “cluster checklist”?
- development of research institutions: DAGSI, AFRL
- local and national government subsidies: well $250k is a start…
- specialized work-force availability: GE’s big facility in Cinci, various small local shops in Dayton
- just-in-time production techniques: this isn’t really a characteristic of the region, just what efficient manufacturers are doing these days
This actually looks pretty good for Dayton. According to the formula, the well-educated, white-color professionals at the “top” of the value chain will be “innovating” and inking international trade deals while coordinating production at low-wage manufacturing clusters in Mexico and Asia. So what’s the problem? The problem for Dayton is Figure 5. Tiny growth in aero-manufacturing and defense / research jobs is a poor dressing for the sucking chest wound of automotive and metal manufacturing job losses. If we want Dayton to succeed, if we want all of Dayton to succeed, then Dayton needs a different approach than the commonly accepted “transformation formula” for aerospace clusters.
Why not coordinate manufacturing in a (relatively) low-wage cluster in Dayton’s hollow core? Wages couldn’t be as low as developing nations, but there is significant value in locating the engineers and the assembly lines in close proximity (see Gulfstream in Savanah or Cessna in Wichita), and coordinating the far-flung manufacturing is not without it’s significant costs/risks (see Boeing’s 787 experience). Don’t get me wrong, this won’t be a return to the glory days of gold-plated labor contracts. Labor in Dayton has to understand their competitive position and the value proposition that they bring. The availability of inexpensive foreign alternatives must temper their demands, but it doesn’t have to be a race to the bottom. The value of having design and manufacturing collocated means that wages can be higher than in the foreign low-wage alternatives, while still offering a competitive return on capital.
Dayton is different, generic transformation recipes don’t fit. Real innovation is finding a way to go after the top of the value chain (research / innovation / design) and provide opportunities for people in the middle and the bottom of the value chain at the same time. Not everyone can be a Chief, we need ways for Indians to contribute constructively too, or as Esrati put it: What do elevator attendants do in the information age?