Thursday, March 20, 2008

NAFTA bashing does not jibe with Milwaukee's high-tech reality

NAFTA bashing is the new blood sport on the presidential campaign trail. As both major democratic candidates were quick to discover in the Wisconsin and Ohio primaries, their populist message of blaming the upper Midwest's economic woes on free-trade deals certainly made for catchy sound bites.

But, is NAFTA really to blame for the Midwest's slow job and income growth?

And, are things really that bad? To the contrary, some suggest that it could be (gasp!) the Rust-Belt which could lead us out of our country's recession based on the strength of its manufacturing exports. This week, the Federal Reserve Bank of Chicago threw additional cold water on the fiery NAFTA rhetoric. The Chicago Fed highlighted new data from the International Trade Administration which reported that the four-county Milwaukee region exported $6.8 billion worth of goods in 2006, up 14% from 2005. Fed contributor Bill Testa concluded that "the outlook for Midwest exports remains strong."

A double digit growth in exports is a good thing for Milwaukee. Well, actually, it's a very good thing for Milwaukee. The 14% increase in exported goods is a critical economic indicator that should intrigue those with even a passing interest in economic development policy. After all, sustainable economic development can only be realized if you sell more "stuff" outside of your region so as to bring new dollars into your region. Without new money coming in, your region's "secondary" economy (housing, retail, etc.) will slowly starve.

Thankfully, we are not starving in Milwaukee. In fact, with the weakening dollar and explosive growth in developing countries, the stars are aligned for continued manufacturing export growth in our region. Perhaps this is one reason why the Milwaukee region was recently highlighted in a Chicago Tribune article as one of only 4 US regions (in a survey of 25 large metro areas) where housing prices didn't fall in 2007. This could be an example of our region's foreign export growth propping up local housing demand. After all, Milwaukee's exports made up 37.3% of all the exports out of Wisconsin - this despite the region only comprising 27% of the state's population. In the midst of such export strength, it may be no wonder that Milwaukee is experiencing relative price stability in a treacherous housing market.

To the extent that NAFTA has accelerated Milwaukee's investment into the research and development of new "high-end" manufactured products, the trade deal may deserve a bit of praise. Milwaukee 7 representative Jim Paetsch recently stated, "Some places believe that manufacturing is dead or dying. We don't." The quote was pulled from an article at which highlighted new research that showed how Milwaukee's manufacturing base was acting as an important platform for high-tech innovation and patent generation. Perhaps this means that southeastern Wisconsin has finally figured out that competing on cost for low-end of manufacturing jobs is a fruitless "race to the bottom."

But while we pat ourselves on the back, let's not forget that NAFTA has contributed to the upheaval of thousands of households in Milwaukee which were, for decades, firmly rooted in family-supporting, high-wage manufacturing jobs. Many of these low-end production jobs have left Milwaukee for China, Mexico and other countries that are pulling in massive amounts of foreign capital investment based solely on their lower cost structure. With these jobs gone, the workers that remain need an effective and seamless workforce development system which trains capable workers for high-end manufacturing and service jobs in our region. This is going to take money - a cooperative effort with public, corporate and foundation financial support.

Corporate profits also need to be plugged back into research and development to ensure new patent and product development. To encourage such investment, there is a need to align local and state government economic development programs with our new economic reality. The Wisconsin Tech Council hits on several such changes to state policy in this 2003 report. The City of Milwaukee is also getting in on the innovation game with their recent investment into the development of a new line of lithium-ion batteries at C&D Technologies in the Riverwest neighborhood.

The 20th century's economic development paradigm was jobs. The 21st century economic development paradigm is innovation. Like it or not, NAFTA has played a role in ushering this new economic reality - which Milwaukee seems to be embracing.

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