Philadelphia Doesn’t Need a Manufacturing Renaissance, It Just Needs to Urbanize More

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There’s a joke that a modern factory contains two employees – a man and dog. The man is there to feed the dog, and the dog is there to keep the man away from the machines.

There’s really no employment future in manufacturing. You may have heard that more companies are “on-shoring” manufacturing operations in the US, and there has indeed been a trend there. But the reason they’re doing this is to save on transportation costs of goods to market, since labor costs are barely a thing anymore.

That is why it’s so frustrating to see Philadelphia and other cities falling over themselves to subsidize an activity that’s just not going to create many jobs, especially in the long run, or tax revenue for the city – especially if that subsidy takes the form of local tax breaks.

Insofar as this manufacturing task force plan involves voluntarily giving up some tax revenue by exempting manufacturing uses from the city’s Use and Occupancy Tax – implying increases of other taxes are in the offing to make up the difference – then this is a plan to make Philadelphia poorer.

The highest tax-yield land uses are office buildings and large mixed-use residential buildings:

The real “manufacturing” agenda needs to be about lowering barriers to manufacturing more of these high-yield land uses.

Current city policy does a bad job of that. Taxes on property (and especially land) are curiously low for a big city, but taxes on actually using office buildings (by employing people, or locating your business) are high.

And zoning restrictions on the construction of new large office and residential buildings are high, not so much in Center City proper, but definitely in the emerging secondary central business district in University City, as well as in appreciating neighborhoods to the South and in the river wards, where outdated industrial zoning classifications hamstring more mixed-use construction.

These are the key reasons why Philadelphia proper lags behind the SEPA suburbs as a location choice for new businesses.

It would be so perverse to subsidize low tax-yield uses like automated manufacturing facilities by raising taxes on high tax-yield uses like downtown offices and mixed-use residences. Like Tom Corbett’s “New Industrial Revolution” agenda, this is a plan to make us poorer. We do not need a new industrial revolution, we just need to urbanize more.

This entry was posted in Economic Development, Economy, Land Use.

13 Responses to Philadelphia Doesn’t Need a Manufacturing Renaissance, It Just Needs to Urbanize More

  1. tim brown says:

    The idea of taking industrial zoned sites that are empty and repurposing them is a good idea. As to subsidizing them after that it is a false economy to do. It follows in the failed KOZ zone program where we have no idea who has how much of a tax break for what tax types. Thus operating in the zone of darkness most likely to yield undesired results. As to manufacturing not yielding sufficient jobs your anlysis fails to consider the multiplication factor that manufacturing jobs yield. The service economy does not have much carryover on multiplier effect. Also all the financial engineering of the last two presidents to put money in the hands of the consumer only brought them to buy more chinese/indian offshore wallmart goods. Manufacturing provides jobs in the 15 to 20 dollar range with benefits as opposed to the cash off the books jobs so prevalent in Philadelphia and other urban centers. Students coming out of Penn technical College are starting at over $55000/ year and pick from several job offers. What is coming from all the Liberal Arts Majors who come without a job and lots of debt. Having a college education and working at Starbucks is not economic progress. Good luck with the industrial repurpose it will be interesting to see it happen..

    • Jon Geeting says:

      The reason there are a lot of unemployed liberal arts degree holders is that there are lots of unemployed people of all kinds. The Fed and US Congress are not providing enough demand to the economy so we face elevated unemployment. With a faster growth rate, BA holders would have higher rates of employment (as would other categories of workers) and the service economy would have even higher output than manufacturing than it already does.

    • I wonder how many of those industrial sites are brown sites that would require extensive, expensive remediation for other uses.

  2. Gdub says:

    This problem (more underemployment than unemployment) has existed a long longer than the current economic crisis. It stems from the high opportunity cost of a college education which has worsened with the steep increases in costs imposed by the higher education cartel over the last 15-20 years. Which means in the end we end up with an expensive and poorly designed credential for relatively low-paying entry level work, and a 4 year degree in which little of use is learned.

    Manufacturing shouldn’t go in the highest value land, nor should it be “lured” with expensive tax breaks. But a healthy manufacturing sector supports service industries and provides diversity to the tax base.

    • Jon Geeting says:

      Agreed, and to be clear, there are obviously areas of Philadelphia where manufacturing uses make sense. But few are within the areas between Temple to the north, Snyder to the South, the Delaware River to the east, or anywhere east of 52nd Street in West Philly. IMO, we should be trying to encourage high value residential and mixed uses near the Schuylkill, not reindustrializing that area as many people are proposing. Many areas of the core are still zoned industrial, particularly along Callowhill Street in the Eraserhood area, and the southern portion of American Street in Kensington that are still zoned for industrial uses, but “want” to be residential mixed-use. We should stop pretending that manufacturing will come back to these areas and give them a flexible zoning that allows the housing market to take over at a faster rate.

  3. tim brown says:

    Philadelphia with its high drop out rate for its very expensive educational system would not be ideal anywhere in the town for manufacturing .Also energy costs are somewhat non competitive. The high school dropout stereo type going to a manufacturing job is from a bygone era. A minimum of a good high school education with adequate math and critical thinking skills is what makes things in this day and age. I agree the labor percentage as a whole is less but those working are much better off than the service economy that was falsely sold to us as the wave of the future. As to colleges it is all about how much government money they can bring in. At PSU a tenured professor is expected to bring in a 100k of research money per year. For department advancement 250k is the number of choice. This is why you have a lot of Chinese and indian grad students teaching undergrad entry level courses where there is a large dropout ratio as well. The Pennsylvania students can not understand their foreign brethren. The law of supply and demand has not been repealed and last century college majors are not this centuries jobs. The colleges are just providing product no one wants. Good luck and the repurposement of the land. It shows the desire to live in urban areas like Philadelphia. Also, the river would make an excellent living backdrop. Those old brick monsters need to go and energy efficient and purposed communities to replace it. The young people get it since the Industrial Engineering population at PSU Main has basically doubled in the last ten years while the Law School appears in free fall.

    • Jon Geeting says:

      Regarding the service economy, I would just point out that there’s no evidence of a skills mismatch with current BAs (or in high-skill manufacturing, really). We’ve had full employment with roughly this allocation of the labor force before, and we could have it again with sufficiently expansionary policy from the Fed and Congress. The ice cube tray isn’t broken, it just doesn’t have enough water in it.

      • Gdub says:

        I don’t deny that there are challenges associated with aggregate demand. However, it is also undeniable that that era was marked by 1) high capital gains earnings from a rather, er, “dynamic” stock market 2) decreasing overall annual deficits and 3) consumer spending fueled by rather easy home and personal credit.

        However, the longer-term problem is that our educational policy is based on a dubious reading of employment statistics that “you’ll earn X more dollars with a college degree versus a high school diploma”–which is easily skewed by relative high earners. This has promoted choices in which people spend an extra four or more years accumulating debt instead of working, and then starting later in the job market at a huge financial disadvantage.

        I find it hard to believe this is the right way (or the only way) to do things, but if you talk to higher education folks naturally it is.

  4. tim brown says:

    Jon, I respectfully disagree with you. The current regime has entrenched a non working core who like the extended unemployment benefits. Who would not like to sit home and get paid for a year or two if you do not have the financial commitments a lot of us do. We had full employment that was false as we are noe paying for the excesses of unneeded housing and wall street greed. The world is dynamic and the USA is losing its position because of the inability to afford its own government and its insistence on benefits it can not afford. At the same time it allows the money changers of NYC a 15% carried interest tax rate while other long term family owned businesses must pay 39.6% and Pa personal tax. This is of course they do not follow the time worn Philadelphia tradition of burying the income in A deleware Corporation. with a lot of intangibles that even the current law does not cover as taxable in Pa. However even the current law addition is better than the previous Deleware tax avoidance scheme. The world is changing and we change or fall behind. That is why at PSU approximately 75% of the engineering grad students are foreign. We are a country in decline and Starbucks, twitter, facebook, and other non productive entities are not the way out. The chinese continue to load up on gold while we sell it. We got it from financing WW1 and WW2 and now we give to the orient. Ask the question why does Germany have to wait five years to get their gold back fromm us???

    • Jon Geeting says:

      You need to mark your beliefs from 2009 to market. What we had was a *land price* bubble, not a housing construction bubble. People thought homes were worth more than they were, we didn’t overbuild housing in most markets.

      America in 2013 certainly does not have a housing glut, it has a large shortage of urban housing in safe neighborhoods. Is there some vacant exurban housing in Florida, Nevada and the inland empire in CA? Absolutely. But most of the country never had a housing shortage, but still endured a four year construction slump anyway because of an overcorrection toward risk aversion in credit markets.

      The full employment we had in the late 90s was not fake. The heightened period of unemployment we had in the late 2000s was, as the Federal Reserve treated 2% inflation as a hard ceiling, rather than a goal to be balanced against full employment concerns. The result is 7% unemployment five years into the crisis.

      What that means is that 7% of the population *have to* be unemployed. Have to. There is not enough demand in the economy for more of them to get jobs because the fiscal and monetary authorities are deliberately not creating it, in order to keep under the 2% CPI ceiling. Things have been getting a bit looser post-Evans rule and that’s why the economy has been improving lately.

      None of that is to say we have to like the current division of what America is producing (I don’t), just that full employment is absolutely compatible with whatever the underlying structure is. We could have an economy at full employment with a handful of oligarchs owning all the land and wealth and the rest of us producing luxury goods and services for them. That’s not desirable but the point is that we could have a range of full employment scenarios with sufficient demand.

    • The current regime has entrenched a non working core who like the extended unemployment benefits. Who would not like to sit home and get paid for a year or two if you do not have the financial commitments a lot of us do.

      Do you live in your parent’s basement? Otherwise, it’s not fun, or easy, living off unemployment. Do you know what is the maximum benefit you can get?

  5. When I last lived in Philadelphia 20 years ago, I was a freelancer taxed as a retailer and thus paying, in essence, a 15% city income tax. When I whined to the tax bureau, the competent, pleasant people there understood my problem, told me I was not alone, explained they had to enforce the law as is, and advised me to urge my city councilperson to change the law.

    Has the tax structure changed since then? If not, it’s a dreadful impediment to attracting the self-employed, start-ups, and small businesses.

  6. tim brown says:

    If you look at the states that have grown dramatically , like Texas, you see less government and more capitalism. This has lead to a shortage of people in the skilled and unskilled portions of the economy. Also, if you go back to the 1960 s Texas population has doubled and Pa and Philadelphia have been sideways or downward. Philadelphia is a nice town if you are willing to pay for its greed and corruption. The basic premise of the question on manufacturing in Philadelphia is in my mind a non event. The higher value purpose is new housing stock. As to manufacturing there are too many less expensive places with adequate and educated labor and lower costs of doing business. As to the brownfields a valid concern but I would rather have the property properly cleaned and repurposed. Brownfield reclamation does not have to be expensive if approached intelligently.