The story of California’s economic success nearly always comes with a asterisk. Push past the United Kingdom as the fifth largest economy in the world? Suffer the editorial writers at the Orange County Register, who opined, “High-flying California economy faces a hard fall“:
“Despite ushering in revolutionary global change, California’s leading tech companies have concentrated wealth and power in a tiny circle — pushing more and more out of cities and into traffic, and doing little to stop stagnation and social rot below the upper tiers of the economic pyramid.”
Stagnation and social rot?
I get the point, but at the same time, a quiet revolution is shaping the state’s economic fortunes, in a sector that promises growth and progress below the “upper tiers.” California manufacturing is the change agent. Consider:
- In its annual ranking of largest public manufacturing companies released last week, the IW500, IndustryWeek ranked the top 10 manufacturing states, states with the highest number of companies in the top 100. California ranked second to Texas.
- Texas and California are America’s top exporting states as well, no surprise in that manufacturers make exports possible. California exports increased to $171.9 billion in 2018, up 7.3 percent year-over-year and 11.5 percent of the U.S. total in 2018.
- It’s not only the size of the manufacturing sector that sets California apart, it’s the makeup. California’s list of top 10 exports is arguably the most industry-diverse in the lead group, thus more resilient to slowdowns than any state in the top five, led by:
- Aircraft including engines, parts: $6.5 billion (3.9% of California’s exports)
- Modems, similar reception/transmission devices: $6.3 billion (3.8%)
- Diamonds (unmounted): $4.6 billion (2.8%)
- Shelled almonds: $3.7 billion (2.3%)
- Machinery for making semiconductors: $3.3 billion (2%)
- Miscellaneous petroleum oils: $3.1 billion (1.9%)
- Blood fractions (including antisera): $2.8 billion (1.7%)
- Cell phones: $2.5 billion (1.5%)
- Computer parts and accessories: $2.1 billion (1.3%)
- Spacecraft, satellites, launch vehicles: $2 billion (1.2%)
- California is also riding a wave of reshoring from Asia. The reason is straightforward: Increasingly, it makes economic sense for American companies and consumer brands to bring production back home. And with its nation-leading manufacturing and supply-chain ecosystem, California will be a popular destination. Harry Moser, founder and CEO of Reshoring Initiative, is a leader in measuring and comparing the cost of manufacturing offshore and in the U.S., and the numbers continue to trend in the favor of domestic production. “20 to 25 percent of the roughly $2.2 trillion in goods imported to the U.S. have a higher U.S. FOB price, but a lower total cost of ownership (price plus all logistics, risks and opportunity costs),” Moser says. “Just getting companies to do the total cost of ownership math correctly would result in a 20 percent increase in domestic manufacturing. Call it $400 billion in new goods produced here and two to three million new manufacturing jobs.” It’s a business development bonanza.
- Much of this reshoring will be in industries that favor California manufacturing. But reshoring aside, California’s enjoying organic growth in manufacturing’s high-flying U.S. industries like food and beverage, outdoor industry, aerospace, bioscience, and ag-tech, where high-tech fabricating and advanced manufacturing inform operations. California’s R&D ecosystem is a catalyst.
- SF Made and others are working with early-stage manufacturers to reshape urban areas and incubate and accelerate promising makers and small manufacturing businesses. As with other high-growth regions in the U.S., the seeds of a long-term manufacturing comeback are being planted in California, seeds taking root as we write.
Escaping the negative press seems a challenge for California’s otherwise well-intentioned business leaders. Those charged with managing the Golden State’s economic narrative would do well to rally around manufacturing to redirect the dialogue.
Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek.com.
