Promoting manufacturing is key to state’s economic recovery

By Sen. Maralyn Chase

Washington state is unique, from our beautiful coastlines, breathtaking forests, arts and culture to the way in which we collect taxes. Washington is one of only six states without an income tax.  We are one of just two states with a business and occupation (B & O) tax, and our sales tax rate is the fourth highest in the country.

Our state revenue stream is in shambles because we are dependent on company income and consumer purchases.  State revenues depend upon some people selling goods and services, and other people buying products.  Almost 58% of all revenue our state collects comes via sales taxes. The second biggest chunk of revenue comes from the B & O tax which makes up nearly 19% of all taxes we collect.  Property tax and real estate taxes make up the remaining balance.

Employed people buy goods and services, buy homes and cars and pay sales taxes. Business owners generate sales and pay B & O taxes. But unemployed workers and workers worried about losing their jobs cut back on spending, causing less tax revenue to be collected which forces businesses and the state to lay off workers which causes the cycle to repeat in a downward spiral. We need to build an economic recovery strategy that is predicated upon people keeping their jobs, companies investing in new jobs, and building consumer confidence to purchase more goods and services.

State government is the second largest employer in the state, after Boeing, with more than 63,000 workers.  Higher education adds an additional 80,000 workers with cities and counties adding more. While some would like to scale back the size of government, the reality is that cutting jobs, rather than restructuring payroll and cash flow, has a significant negative effect on the overall state economy. Not only do laid off state workers file for unemployment, but reduced state services causes delays, runs up costs in the private sector, and adds to the downward spiral. Our tax system has left us dependent on Boeing, Microsoft, Providence, and other large employers to hire people in state.

Washington state’s economic recovery strategy is now primarily based upon the commercialization of “innovation” patents in a knowledge economy — and at this we have failed. Patents are intangible property that does not generate tax revenue. After 30 years of technology transfer and commercialization efforts, we ought to have factories with workers built from this base. We do not.

Our economic recovery strategies must be based upon creating an environment where companies can thrive and consumers can be confident their next paycheck is coming. We need a framework for innovative manufacturing initiatives and new jobs to stem the chronic practice of state layoffs that send shockwaves through our state’s economy.

Companies that have future orders for their products hire more workers. Such companies generally are firms that have grown past the start-up phase but not yet reached their full potential. Research shows that these businesses represent less than 10% of companies but account for about 36% of all jobs and about 25% of positive job growth. For example, Boeing’s expansion compels the 600 supplier firms in their pipeline to also expand their manufacturing activities and employee base.

Second-stage firms are driven by their growth orientation and have strategic needs — leadership development, management teams, strategic planning, new market opportunities and industry evolution. Impact Washington and WWU’s Center for Economic Vitality provide the strategic services needed by second-stage firms that are the job creating engines of economic recovery and prosperity. We know how to do this. These are the real “job creators,” the manufacturers who produce the products for new markets worldwide. They are the firms that need assistance in expanding their markets and generating future orders which increases workforce expansion in the shortest possible time.

An economic recovery strategy must expand to pay attention to the manufacturing firms that make us distinctive. A manufacturing strategy that focuses on producing products to export, by growing our existing manufacturing base that has survived the start-up phase and is ready for prime time is a winning strategy for economic recovery. Unless we manufacture — unless we make or grow or mine something — we will have nothing to export, nothing to sell, nothing to buy. An economic recovery strategy must be based upon manufacturing tangible products in the State of Washington.

Developing new ways to support our communities, our companies, and our workers, both in the private and public sector means the state should pick winners who provide a net benefit to the state through increases in jobs and tax revenue. For this we need a transparent and accountable manufacturing development and expansion policy that reverses the downward spiral, gets companies producing in Washington state for global markets and rewards them for investing in Washington workers.

Manufacturing firms across the state can become laboratories of advanced manufacturing. Techniques such as LEAN Manufacturing and Six Sigma are readily available for Washington manufacturing firms through Impact Washington. The state could set up a division of advanced marketing using the successful model of the Center for Economic Vitality at WWU. Such a move could supercharge the sales reach of Washington manufacturers, providing assistance in identifying and finding the best potential customers through computer-aided effective market research that would produce the competitive intelligence firms needed to grow and expand their workforce. Our community college system stands ready to train workers in advanced manufacturing. We simply need the will to do it.

Finally, the tourism is the fourth largest industry across our state, with more than 150,000 workers gainfully employed throughout the state. This is a rapid expansion export industry. We export our tourist attractions, entice customers to come here with their money to take delivery of their desired purchase, experience Washington, pay our taxes, and then head home.

Manufacturing, marketing, tourism:   These are job making strategies for economic recovery. Let’s get to work!

Sen. Maralyn Chase (D-Shoreline) represents the 32nd Legislative District, which includes north King and Snohomish counties. Contact her at maralyn.chase@leg.wa.gov.

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