How states can keep factories open

From remarks by the chancellor of the University of Massachusetts at Amherst delivered at the National Governors' Conference. The economy of Massachusetts has fared relatively well during the recent recession. I believe there are several reasons for this. We have an attractive New England climate. We have a tradition of good schools, strong public and private higher education with major research centers, and sturdy, hardworking citizens. We have substantially improved our attractiveness to industry and investment capital in recent years, applying greater restraint in public spending and taxation.

A major reason for the strong performance of our state's economy is the presence of knowledge-intensive, high-tech industries which have a history in the commonwealth going back several decades in a fertile interplay of science and engineering, research and entrepreneurialism. This segment of our manufacturing and commerce has surely been a reason for the relative stability of the Massachusetts economy during a time of rising unemployment.

Over 100 years ago one of my predecessors at the University of Massachusetts traveled to Japan to establish an agricultural college on the island of Soporo. He wrote back to his colleagues in Amherst a description of the Japanese as the ''Yankees of the East.'' We have today come full cycle - for last summer, the New York Times described Massachusetts as ''The Japan of America.''

But those of us who travel the state see a different picture. High-tech is important. We will continue to nurture it. But it is just one segment of an economy that has always found its real strength in diversity. Even today after decades of decline in traditional industries and explosive growth in technology-based manufacturing, only 38 percent of all manufacturing jobs are found in industries classified as high-tech. Most of our manufacturing jobs still come from traditional sources such as shoes, apparel, machine tools, paper , and other basic goods.

We know today that if we want to maintain a strong economy we cannot accept federal policies that allow these mature industries to wither and disappear.

I can offer some observations about the positive and significant steps our state is already taking in response to these issues. And I can offer some personal observations from early inquiries into what it is possible for states to do.

The challenges these industries face today are tougher than ever. But they are not new. Nor are they insurmountable. These problems include declining productivity, migration or production to other sections of the nation and overseas, and increasing pressure from imports. Throughout the postwar era we have experienced in Massachusetts a major shakeout eliminating companies that could not compete. Thousands of jobs were lost as factories closed and companies relocated. This process caused pain and tragedy for many of our older workers, even if the impact was buffered by the growth of new industries.

Looking back on these developments, we can glean some important lessons for the companies that remain. The most important lesson is that while many companies failed, few if any industries vanished completely, and many companies continued to grow and prosper even while their competitors were in steep decline.

To us, this represents a sure sign of hope that with the right strategy and the right kind of support and assistance, we can maintain our traditional manufacturing base.

To be sure, state governments operate in this area with restraints which must be clearly understood. There are several macroeconomic aggregates that states cannot control. The Federal Reserve is going to control interest rates. State governments can do little to control either international trade policy or the value of the dollar. And states cannot control the level of demand in the economy, especially if there is active contra-actionary fiscal and/or monetary policy. These economic variables are beyond influence by individual states or local governments. What is left for the states is a more limited role. Nonetheless there are very significant actions that can be taken.

So, what can states do?

The first step is understanding on the part of both executive and legislative branches that a healthy economy requires the proper environment for growth. Businesses - and the people who work in them - are attracted to places with excellent public services and competitive levels of taxation. Educational assets hold particular prominence, as do investments for infrastructure.

States should also recognize the advantages of balanced growth. Overspecialization in any one industrial grouping - like high-tech - leaves an economy vulnerable to business cycles, manpower shortages, and an uneven distribution of job opportunities. That is why states must aggressively pursue involvement by business, labor, and community in their economic strategies to build upon the diversity of natural and human resources in a region.

It would be a mistake to assume that traditional manufacturing firms - which today seem relatively healthy and competitive - can be ignored. Basic problems of infrastructure will determine how well these companies can operate compared to competitors in other regions.

When plant closings or layoffs can't be stopped, states should think about doing more than administering short-term benefits to the unemployed. How can we ease transitions to new jobs, new technologies? In Canada, a government-supported manpower consultative service shows what can be done. MCS helps management, labor, and local representatives establish an employee assistance center at the plant several months prior to the layoff under the supervision of an independent mediator. A full-time staff coordinates counseling , referral, and support services to find appropriate job openings for all workers. Over 90 percent of the participants are placed, and at very reasonable cost.

States should also reexamine the restrictions they put on people receiving unemployment insurance. Delaware is experimenting with a training voucher program linked to unemployment benefits. In the past, benefits have often been denied a person in training on the grounds that they were not actively seeking and available for work. Such counterproductive measures must be replaced by creative use of training resources before disillusion robs workers of their self-worth.

In undertaking this process of review and recommendation, our commission believes that states can serve as a laboratory, whether it be a measure to combat corporate pirating, or incentives for small companies to pool R&D funds or share in technology-transfer efforts, we have much to learn from each other; and states can also join together in regional agreements to promote exports, analyze demographic and labor trends, and concentrate on other common goals.