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From Boats to Tires: Global Manufacturing is Thriving in Charleston, South Carolina

November 2nd, 2017

During day two of my visit to the Charleston, South Carolina metro area, we visited Scout Boats in Summerville, S.C., which as a boat builder, is a more traditional type manufacturer you expect to find in a deep-water port community. A family-owned business, Scout builds luxury center console sort fishing and bay boats.

I had the pleasure of interviewing Steve Potts, who founded the company in 1989. Mr. Potts said, “I have been in the boat business since I was 14 years old, and my wife and I made a decision to start making 14-15 ft. fishing boats in a garage we rented after planning for years and saving $50,000.

We got off to a good start, and then Hurricane Hugo hit and leveled our building. We salvaged what we could and started over. The next winter, we got 11 inches of snow and the roof partially collapsed while we were developing a 17-ft. sized boat. This boat put us on the map, and we sold this model for years. We displayed this boat in the local boat show and came out of the show with a list of 31 dealers that we developed into a dealer network. We sell exclusively through dealers.

In 1990, I prepared my plan for 1991 and predicted that we would do $750,000 in sales, and we did. The only year we lost money was 2009. In 1992, we moved down the road to a 12,000-sq. ft. custom-built building. However, we couldn’t expand, so in in 1995, we bought 16 acres of land and built Plant A. We added another building (plant B) and then added Plant C. Plant A build boats in size from 17-25 ft. Plant B builds boats 27-35 ft. in size, and Plant C builds 38-42 ft. models. built. Plant D will be a 100,000-sq. ft. building to build boats up to 53 ft. in size. We also have a small plant for R & D. We are a debt-free company, so we build when we have the cash.

Today, we have 28-30 models, and our annual sales will be $100 million this year. For many years, we focused on 25-30 ft. boats, but we are expanding to build up 53 ft. sized boats. We export 17-18% of our boats. Canada and Mexico are our two top markets, but from 2003-2008, our largest dealer was in Athens, Greece.

We have 380 employees now, and our five-year plan is to grow to 680 employees by 2020. We strive to be as diverse as we can be. We sell yacht tenders for the large luxury yachts that are towed behind the large yachts. Our three adult children are part of our business and are very involved. Consequently, we have had an ongoing succession plan in place for more than ten years. I want Scout Boats to be a dynasty for years and years to come.”

Mr. Potts is the epitome of the exemplary American entrepreneurial spirit that once made our country the dominant manufacturing center of the world. To think that his company survived three recessions in his 28 years in business without going into debt is extraordinary.

Our next meeting was with Mark Fetten, president and CEO of Cooper River Partners, LLC that manages the Charleston International Manufacturing Center (CIMC) at Bushy Park in Goose Creek, S.C. CIMC is a wholly owned subsidiary of Pacolet Milliken Enterprises. CIMC is a 1,750-acre industrial complex in a heavy industrial zone, as well being a Foreign Trade Zone. It has deep-water access to the Atlantic Ocean via the Cooper River with barge slip access and rail access via a rail spur. CIMC is located less than 10 minutes from two major highways in the region (I-26 and I-526) for trucking products.

In addition to the existing tenants, it has 300 acres of developable land. The site is currently home to the following manufacturers:

AGFA Corporation – medical x-ray and technical imaging regional distribution center

Evonik – manufacturer of silica for tire production (under construction)

Kemira Chemicals – paper dyes, specialty chemicals for ink jet applications

Lanxess Rubber Chemicals – vulcanization for tires and peptizers used in rubber manufacturing

Nexans – high voltage underground and submarine cables

Philips Industrial Services – industrial and marine painting, fireproofing, hydroblasting, water jetting, epoxy floor systems, and industrial vacuuming

Sun Chemicals – organic pigments for paints, plastics, and cosmetics

Symrise – flavors and fragrances, menthol, sunscreens, and aroma esters (expansion project under construction)

Mr. Fetten discussed the biggest advantages CIMC offers are the utility services and other support functions that allow tenants to focus on their core business. “CIMC enables companies to get their products to the market faster with the existing infrastructure within CIMC, while minimizing CAPEX and risk,” he said.

Located only 1.5 miles from a major power station, CIMC has a one MW solar farm on the property that feeds back into the power grid. A second solar farm is in the final stages of planning. A wide variety of utility services are provided, including electrical, steam, compressed air, nitrogen, refrigeration, natural gas, and waste water treatment. Other services include on-site security, environmental management, and emergency responders.

CIMC was originally built up by Bayer Corporation over a period of 30 years, but in 1999, Bayer started divesting companies. In 2009, Bayer sold the park to a privately held company of which Marc Fetten was a partner with two other gentlemen. Marc previously worked in M&A for Bayer, so he saw the opportunity.

The driving tour around CIMC showcased the advanced manufacturing legacy of the southeast. In addition to the $250 million in CAPEX I saw under construction, I got to see a gem of heavy industrial manufacturing. The former General Dynamics and subsequent Jacobs Engineering plant was purchased by Cooper River Partners, LLC in the summer of 2016. This 94-acre facility located adjacent to CIMC, appropriately named CIMC North produced some amazing examples of advanced manufacturing, the nose cones to U.S. Navy Trident Class Submarines and later modular assembly and pipe fabrication.

CIMC North consists of 400,000 square feet of manufacturing and warehouse space, 800,000 square feet of open-air assembly, an array of welding, assembly, blasting, painting and handling equipment, as well as a barge slip and rail access. Also of note, are the ten bridge cranes, eight of which are rated for a 40-ton load. The two 20-ton bridge cranes have infrastructure in place to support transloading to and from railcars. According to Marc, “CIMC North expands our footprint and facilitates bringing prime industrial, warehouse and distribution space to the market immediately, which is in high demand in the Charleston region. Providing a dock, rail access, large capacity cranes and a 200-ton shuttle lift is a big cost saver for companies looking to minimize CAPEX. This model aligns perfectly with our sustainable approach of minimizing environmental impacts.”

Afterward, we met with Robert Brown, Communications Manager, and Arthur Dube, Business Director, Precipitated Silica & Rubber Silanes. of Evonik Corporation, the U.S subsidiary of Evonik Industries AG, which is a German company that is one of the world’s leading specialty chemicals company. Evonik Industries produces chemicals for a variety of applications, including adhesives, cleaning products, construction materials and employs more than 33,500 people worldwide in more than one hundred countries.

Mr. Brown said, “Evonik Corporation was formed in 2007 in Chester, PA and has 33 plants in the U.S., Canada, and Mexico. We have about 5,000 employees in the U. S. The new plant we are building in this Center will open in June 2018 and produce precipitated silica to supply the tire industry. We will hire about 50 people for this plant. This business park offers the existing infrastructure we need, and there is a high level of skilled workers in the region for the higher paying jobs we offer. There are also workers at other plants that may transfer to this plant. David Elliott will be the Manufacturing Director for the new plant.”

He explained, “Evonik helps improve consumer and industrial products, and this plant will make tires run better, longer, and be stronger. He said that South Carolina has become home to several major tire manufacturers, such as Michelin, Bridgestone, and Continental, so they are following their customers. Another reason for locating in South Carolina is that the Sumter area mines produce 99% pure silica sand that is used in producing our precipitated silica.

Wanli Tire Corporation, a Chinese tire manufacturer, is investing $1 billion to build a new plant in Orangeburg County, South Carolina. Also, Giti Tire, based in Singapore, announced a new plant last year that is being built just south of Rock Hill, SC.”

These two additional tire plants will further boost the state’s status as America’s tire-producing capital and create over 3,000 new jobs for the region when they are at full employment.

I was given a brief explanation of how they make precipitated silica by mixing silica sand with sodium carbonate and melting them. Then, they dissolve the mixture in water and precipitate it. The resulting white precipitate is filtered, washed and dried in a proprietary manufacturing process. Any further detail exceeds my technical expertise to explain. I was shown samples, which looked like pieces of fluffy popcorn that were a great deal lighter than you would expect from what started as a piece of silica. As an additive to tires, the precipitated silica produces fuel-efficient tires with wet grip properties, which can save up to eight percent in fuel consumption compared to conventional car tires.

This two-day visit to the Charleston region confirmed what Harry Moser of the Reshoring Initiative has been telling me about the increase of manufacturing jobs from Foreign Direct Investment. The favorable business climate, low state taxes, developable land, and skilled workforce has made South Carolina an attractive location for European companies from Germany, France, Belgium, the U.K, and Denmark to expand their U. S. manufacturing presence. If the U.S. would lower the national corporate tax rate, we would not only attract more Foreign Direct Investment, but would attract more American corporations to return manufacturing to America.

Tags: American manufacturing, innovation, Manufacturing jobs
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Charleston Manufacturers Focus on Training Current and Future Workers

October 31st, 2017

After visiting the Charleston Port terminal and the Mercedes-Benz Vans Training Center, I had the pleasure of visiting several manufacturers during my two-day trip to the Charleston metro area. We first visited Ingevity in North Charleston, where I met Michael Wilson, President and CEO, Dan Gallagher, V.P., Investor Relations, Eric Walmet, Charleston Plant Manager, Jack Maurer, Director, Communications and Brand Management, and Laura Woodcock, Manager, P.R.

Ingevity is a leading global manufacturer of specialty chemicals and high-performance carbon materials that are used in a variety of demanding applications, including asphalt paving, oil exploration and production, agrochemicals, adhesives, lubricants, publication inks, and automotive components that reduce gasoline vapor emissions. The company creates high value-added products from renewable raw materials. The name is “coined” from the meaning of four words: genuine, ingenuity, innovation, and longevity.

Ingevity was spun off in May 2016 from WestRock, which has a long history and many name changes going all the way back to 1846 when it was founded as Ellis, Chaffin & Company. Ingevity is headquartered in North Charleston, and has manufacturing plants in South Carolina, Georgia, Kentucky, Louisiana, and Virginia, as well as two in China. Ingevity has four sites in the Charleston region: its headquarters with 205 employees, the manufacturing plant with 214 employees, the Ashley Center with 109 employees, and the Innovation Center with six employees for a total of 534 employees.

Michael Wilson said, “We recently announced an agreement to acquire Georgia-Pacific’s pine chemicals business for $315 million. This will give us a stronger more competitive pine chemicals business. We also signed a supply agreement with Georgia-Pacific which in combination with our agreement with WestRock, will put 70 percent of our crude tall oil requirements under long-term contract. There is little customer overlap between the two companies. And, because we do business in 65 countries, we believe we can accelerate global growth for the Georgia-Pacific products.”

When I asked him his impression of the manufacturing sector in the region, he responded, “The manufacturing base is very diversified. The business climate of South Carolina is world class. The mindset of the government has been beneficial. It is a right to work state and has low taxes.”

Eric Walmet gave us a tour of the Charleston plant and Innovation Center, where we saw some of the activated carbon end-products made by Ingevity. The products include carbon honeycombs, granular carbons, and shaped carbons used to reduce automotive gasoline emissions. The activated carbon is made by combining sawdust and acid through a proprietary process.

I could see that the plant was laid out on the basis of a Lean value stream mapping event, and there were the obvious signs of the application of Lean tools and principles on the shop floor.

Our next stop was IFA North America in nearby Ladson. We met with Mauro Amarante, President and CEO, and Ryan Loveless, Training Coordinator. IFA North America LLC, formerly known as MTU Drive Shafts LLC., was founded in 2002 and operates as a subsidiary of the German company IFA – Holding GmbH.

IFA is one of the world’s leading and largest suppliers of drive shafts and side shafts for the automotive industry. In North America, IFA produces more than two million drive shafts a year and employs more than 600 people.

Mr. Amarante said he has been in the U.S. 11 years, having previously lived in Germany, Brazil, and Verona, Italy where he was born and raised. IFA is currently building a new plant in Berkeley County (still in the Charleston metro area) that will be 234,000 sq. ft., where they will be manufacturing constant velocity joints. They plan to consolidate all their operations and expand to about 400,000 sq. ft. by 2023.

Mr. Amarante said, “South Carolina is very business oriented, and former Governor Nikki Haley was very business focused. We have all the business conditions we need here to secure our workforce. We were one of the partners with VTL and three other companies to start an apprenticeship program three years ago to teach basic manufacturing skills like math, statistics, gauging, and machine operations.”

Mr. Loveless gave us the plant tour where we watched their production team turn purchased metal tubes into several designs of drive shafts. Mr. Loveless said, “In addition to our full-time employees, we utilize about 120 temporary workers from a private agency. These people work for us for about three-six months, and then we select the best workers to add to our full-time employees base. We would like to reduce the number of temporary employees. This is why we are investing time and money into the apprenticeship program to grow our future employment pool.”

Again, I saw the application of Lean tools and principles throughout the shop floor. We even had to watch a safety video before we got to take the plant tour, and I was glad I was wearing my own Sears Die Hard steel-toed shoes instead of having to wear their guest shoes. Of course, as an automotive Tier 1 and Tier 2 supplier, they are ISO 9001:2008 and TS 16949 Certified.

Next, we visited the VTL Group, also in Ladson, where we met with Jeff Teague, General Manager, and Brian Glasshof, Account Manager. Mr. Teague said, “The company was started in 1919 and changed its name to Valeo Transmission Ltd. in 1997. The management team, Bruno Joan, Chris Elliott, and a third man who has since been bought out and retired, did a leveraged buyout in 2001. Chris started at the company as an apprentice when he was a young man.

He said, “I started in November 2011 when the company was in a turn-around mode after the recession. I came from the Greenville/Spartanburg area. We are now running in a very tight workforce market because of the low unemployment.

We specialize in the design, development, prototyping, and manufacture of high precision components and sub-assemblies for automotive powertrain applications. We have expanded by winning several new contracts. This plant makes variable geometry turbo parts for Cummins and make engine components for Borg Warner. Everything we do is built around CAFÉ standards for emissions. VTL Group employs 275 globally, and has 48 employees in this Charleston plant.”

He went on to tell me about the genesis of the region’s youth apprenticeship program. “We were one of the six companies that showed up at a meeting in 2013 to discuss starting an apprenticeship program, which launched in 2014. We had a signing day event for 11 students. Now, this fall we’ll have 100 in the program. Apprentices can start when they are 16 years old in high school. There are now nine industry sectors and 122 companies in the apprenticeship program. Industrial mechanics is the most requested training.”

Two of their new apprentices were brought in to meet me: John Cody Geiger and Ty’Celia Young. Both are high school students. Ty’Celia said, “My high school engineering teacher encouraged me to apply when I was a junior.” Cody said, “I got an email from my high school principal and applied as a senior, so I graduated before starting at VTL.”

They go to high school in the morning, and then take industry-specific college courses a couple afternoons, and go to work the other afternoons during the school year. In the summer, they work full-time. When they complete the apprenticeship program, they will be Certified as Journeymen by the Department of Labor. They will also have two years of paid work experience on their resume. VTL has hired two past apprentices as full-time employees.

There are 26 schools in the apprenticeship program, public high schools, as well as charter schools and private schools. The Charleston Metro Chamber of Commerce pays for the tuition, tools and supplies for all of the students, so the students are getting their training free of charge. The Charleston Metro Chamber focuses on in-demand occupations. Besides advanced manufacturing, Charleston is also becoming an IT hub.

When I asked about the curriculum, I was told that the community colleges already had curriculum, which the companies helped modify to meet their needs. The program has two main goals:

Fill the critical workforce needs.
Monitor the next generation of students to keep them in the region.

Apprenticeship training is not all the training provided at VTL. Every employee is allowed one hour a week for training, but it is up to them to take advantage of the opportunity. VTL uses ToolingU training modules for their in-house training program.

Mr. Teague gave us the plant tour, and I was amazed at how many robots they had doing various manufacturing processes and moving parts from one operation to another. No wonder that only 48 employees at this plant are able to maintain the work flow required of a Tier 1 and Tier 2 automotive supplier. The parts I saw in process were Variable Cam Timing engine components and turbo-charger components. Mr. Teague showed me their Lean scoreboard section where there are visual displays of all the metrics required for a Lean company. Naturally, VTL is also ISO 9001:2008 and TS 16949 Certified.

From these tours, I could see why world class companies are choosing to locate or expand in the Charleston, South Carolina region. A very favorable business climate, excellent transportation options by truck, rail, and ship for both national and international destinations, a highly skilled, trained workforce, and apprenticeship programs make the region a desirable location for many manufacturing sectors, especially those that export their products.

Tags: American manufacturing, innovation, Manufacturing jobs, training, workforce development
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High-Performing Port and Workforce Training Drive Global Manufacturing in South Carolina

October 17th, 2017

Last week I had the opportunity to spend two days visiting the Charleston, South Carolina metro area as the guest of the Charleston Regional Development Alliance (CRDA). Claire Gibbons, Director of Global Marketing & Communications, was my hostess, and told me that if you drew a line along the 32^nd parallel across the U. S. from San Diego, you would wind up at Charleston. Like San Diego, Charleston is a major port, being the deepest port along the south Atlantic coast, able to handle ships with up to 48 ft. draft, depending on tides. Charleston is about 50% lower in population than San Diego (761,000 vs. 1.407 million (2016), but is growing 3X faster than the U.S. average (14.5% vs. 4.7%).

Charleston is a military town like San Diego and is home to Joint Base Charleston, one of twelve joint facilities operated by the Department of Defense; the U.S. Space & Naval Warfare Systems Center Atlantic (SPAWAR), one of the Navy’s only two cyber mission engineering centers; and nearly all U.S. Dept. of Defense and Dept. of Homeland Security agencies. These facilities represent more than 23,000 active duty, civilian and contract civilian personnel.

Our first stop on my visit was the South Carolina Ports Authority (SCSPA), where we met with James Newsome, III, President and CEO. He said “Charleston meets the needs of today’s global shipping industry, particularly as large vessels are deployed to East Coast trade routes. Our South Atlantic location is a significant driver of the Port of Charleston’s above-market average cargo volume growth, offering proximity to the fastest growing population in the U.S., as well as a booming manufacturing economy.”

He said, “We just received approval to dredge to 52 ft. depth to be able to handle the new, larger container ships that are coming online. Two new taller cranes just came online (155 ft. vs. 115 ft.), and we have two more on order to install in 2018. We are also raising four existing cranes, for a total of eight cranes offering 155 ft. of lift height. We have three active cargo terminals now, and a new terminal is in development on the former Navy Base.

One of our terminals is a drive off terminal for automobiles, and the other two handle container ships. The new terminal will also handle container ships. The larger container ships are 13,000 TEUs in capacity. We also built a new rail connection from Charleston to the Inland Port in Greer to able to reduce truck congestion at the port and expedite rail shipments out of the region. “

As we drove around the terminal that has the new cranes, I was dismayed to see thousands of containers from Chinese and German shipping lines, but was encouraged when Mr. Newsome said that according to the latest report, Charleston is the port that is the most balanced in terms of imports and exports on the Atlantic coast. The port is also seeing good growth in exports of manufactured goods. The three terminals turn over the entire number of containers every 7-10 days.

Mr. Newsome said, “Charleston ships more tires than any other port in the United States. Michelin came in the 1970s and has invested $6-7 billion in their manufacturing facilities. BMW came in 1994 and has invested about $10 billion in their facilities. About 70% of BMWs are shipped out of the Charleston port from the entire line made in the U. S. Boeing built a plant in 2009. Mercedes-Benz Vans is building their new Sprinter vans here. Volvo will open a new $500 million facility near Ridgeville in 2018. Five companies represent about 70% of our shipping volume.”

After I returned home, I found this important data on the Port’s website: “A 2015 study by the University of South Carolina’s Darla Moore School of Business concluded that the Port’s statewide impacts include:

$53 billion in annual economic activity
187,600 jobs
$10.2 billion in labor income
10 percent of total annual gross state product
$912 million in tax revenue”

Besides cars, tires, and other manufactured goods, Mr. Newsome said that the major products shipped out of Charleston are: agricultural (soybeans, grains), forest products (including diaper pulp, poultry, and pork.

According to the SCSPA website, the five fast-growing business sectors for the Port are:

Automotive manufacturing
•Consumer goods distribution
•Refrigerated/frozen exports
•Transloading resin & grain
•Tire manufacturing & distribution

Charleston shares some of the same industry clusters that San Diego has: Aerospace, Information Technology, and Life Sciences. Their other two largest industry clusters are automotive and logistics. The following chart derived from data on the CRDA website shows the top ten manufacturers ranked by number of employees:

Company

Products

Employees

Nationality

The Boeing Company

Aircraft manufacturing

7,400

American

Robert Bosch LLC

Antilock brake systems, fuel injectors

1,800

German

SAIC

Electronic security and communications systems

1,500

American

BlackBaud Inc

Specialty computer software

1,300

American

Kapstone Charleston Kraft LLC

Specialty paper & packaging

1,000

American

Nucor Steel

Carbon & alloy steel

1,000

American

IFA North America LLC

Automobile drive shafts

600

German

Mahle Behr

Engine cooling systems

375

German

BAE Systems

Electronic security and communications systems

350

British

V. T. Milcon

Fabrication & assembly of communications systems

275

British

On our drive to our next appointment, I asked Claire to fill me in on the South Carolina business climate, so I could understand why so many foreign companies have established plants in the state. She said, “South Carolina offers a strategic location, particularly for companies based in Europe, and a business-friendly climate. We are a “right to work” state with one of the lowest corporate income tax rates in the south.” There are other benefits shown on the CRDA website: “no state property tax, no local income tax, no inventory tax, no sales tax on manufacturing machinery, industrial power or materials for finished products, no wholesale tax, and no unitary tax on worldwide profits.”

Claire added that another big advantage is that when a company relocates or expands to South Carolina, they can get training at little to no cost for their employees through readySC™, a division of the South Carolina Technical College System. ReadySC’s mission is to “To promote the economic and workforce development of the state of SC. We provide customized training for new and expanding business and industry in the state of SC…”

Later in the day, I had the opportunity to visit the Mercedes-Benz Vans Training Center, where I met with Terrance Rivers, Area Director of readySC™, Susan Pretulak, V. P. Economic Development of the SC Technical College System., and Alyssa Bean, responsible for communications at Mercedes-Benz Vans manufacturing plant.

Ms. Pretulak said, “The Division of Economic Development works to not only attract new and expanding companies to the state but also provide the workforce development tools necessary to make certain they grow and prosper in South Carolina over the long term. The division is touted as providing a comprehensive solution for companies looking to grow their workforce in South Carolina. Housed within the division are the System’s nationally renowned statewide programs — readySC™ and Apprenticeship Carolina™.”

She explained, “Training is state-funded and is open to companies who will hire 10+ new, permanent, full-time employees with benefits. There is a simple two-page agreement to participate in the program. We have 16 technical colleges in our system, and each college has a readySC™ group. We are working with 89 companies at present. We have two programs: (1) Pre-hiring Training, which is an unpaid training experience to provide potential employees for a company client and (2) Post-hiring Training, which is job specific training, such as welding, machining, assembly, etc.”

I asked if they have developed their own curriculum or do they use the SME ToolingU curriculum, and she said, “Some of both.” Mr. Rivers said. “We have a three-phase program: Design, Discovery, and Delivery to customize the training to meet a company’s needs. Daimler was one of our first clients before they switched their name to Mercedes-Benz Vans. They make the Sprinter van at their plant.”

The readySC website expands on the requirements to participate in the program, specifying: To qualify, we require that:

Jobs projected must be permanent.
Pay represents a competitive wage for the area.
Benefit package must include health insurance.
Number of jobs created must be sufficient enough to allow readySC™ to provide training in a cost-effective manner.

Ms. Pretulak informed me that the SC Technical College System is also responsible for the Apprenticeship Carolina™ program, which “works to ensure all employers in South Carolina have access to the information and technical assistance they need to create demand-driven registered apprenticeship programs. At no cost to the employer, apprenticeship consultants are available to guide companies through the registered apprenticeship development process from initial information to full recognition in the national Registered Apprenticeship System.

The program started with 90 apprenticeship programs in 2007, and now has 918 programs today, representing 14,475 apprentices. One in three participating employers offer programs in more than one occupation. The target industries are: advanced manufacturing, construction technologies, energy, health care, information technology, and tourism and service industries. The total number of apprentices trained to date is 26,864, and the program is averaging more than 120 new apprentices per month.

At dinner that evening, I met Robin Willis, Associate Vice President, Talent Pipeline Strategies for the Charleston Metro Chamber of Commerce. She said, “We are very proud of the growing number of Youth Apprenticeship students and their hosts in our region. We feel strongly that this program provides life changing experience for students and helps companies fill their critical Talent needs, so much so we have funded the program in its entirety. There are 105 Youth Apprentices currently in the workforce – 66 new ones that started in August 2017 and 39 who started their 2^nd year in August 2017 and will complete the program in June 2018.

I told everyone that I haven’t visited any other state that has such comprehensive training and apprenticeship programs, and I am very impressed by what South Carolina has to offer to existing and relocating companies. It is no surprise that so many foreign companies are choosing South Carolina to establish or expand their U.S. presence. Other states (particularly California) would be smart to emulate the business incentives and training programs offered by South Carolina.

Tags: auto industry, Charleston, Port Authority, trade, traning
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Threat to the American Patent System and Inventors’ Rights

October 10th, 2017

On August 11, 2017, a group of inventors went to the United States Patent Office to make a statement and give testimony against new patent laws that promote the theft of our intellectual property instead of protecting it. Afterward, the inventors demonstrated in front of the Patent Office, and several burned their patents. Michael Caputo, Managing Director of Zeppelin Communications, stated, “Patents have become worthless.” The C-Span video of the protest can be viewed here.

Why is the American patent system and inventors’ rights being threatened? In September 2011, Congress passed and the president signed the Leahy-Smith America Invents Act (AIA) that changed the U.S. patent system to the party “first to file” instead of the “first to invent to bring the U.S. in line with other countries who adopted first to file patent systems years ago, supposedly to simplify the patent process for companies that file applications in multiple countries. Its central provisions went into effect on September 16, 2012 and on March 16, 2013.

At the time, supporters said it would improve patent quality by creating a new process for reviewing patents after they have been issued and allow third parties to provide information on other parties’ applications.

Opponents argued that there was no reason to change the U.S. system, and inventors and small businesses complained that switching to a “first to file” system would give large companies an advantage and hurt individual inventors.

To find out what has happened to the American Patent System and Inventors’ Rights since 2011, I requested information from Randy Landreneau, Founder Independent Inventors of America, Paul Morinville, Founder US Inventor, and Adrian Pelkus, President of San Diego Inventors Forum.

Randy Landreneau: “America has been the most innovative country on earth from the start. A key reason for this is the revolutionary patent system created by our Founders that provided intellectual property rights to any man or woman, rich or poor. The rest of the world had systems that were for the aristocracy and those favored by the powerful…America maintained a superior system in protecting the intellectual property rights of inventors until …the passage of The America Invents Act in 2011…While it is hard to quantify the effect of changing to First-to-File, this change does place a disadvantage on the independent inventor relative to the large corporation. But another change has had very measurable negative effects.

The America Invents Act created new and easier ways to invalidate an existing patent. Prior to this, to invalidate a patent required going to a judicial court with its various protections offered to the holder of a property right. The America Invents Act created procedures for an administrative court, the PTAB (Patent Trial and Appeals Board), that does not have the same protections. Approximately 70% of the patents that companies try to invalidate using the PTAB get invalidated.

There are efforts underway to get the PTAB procedures ruled unconstitutional or at least reigned in and similar to the procedures of a Judicial court. Certainly, the PTAB procedures are doing great harm to American innovation.”

A more recent bill was even worse – The Innovation Act (H.R. 9), which passed the House in December of 2013. But, the Senate version (PATENT Act, S.1137) was fought effectively and did not pass the Senate. However, these bills were reintroduced in subsequent sessions of Congress until the summer of 2016, when it became clear these bills were not moving forward.

Hundreds of millions of dollars have been spent pushing a false narrative that nefarious entities called “patent trolls” are using frivolous litigation to make companies pay them unfairly. More often, in actuality, an inventor has a patent that is being infringed by large corporation that he cannot afford to fight in court. So, he sells his patent to a company that does have the wherewithal to fight in court (a non-practicing entity or NPE), and the infringer loses because he is guilty.

One element of the Innovation Act was ‘Loser Pays.’ If an inventor sues a corporation for patent infringement and does not win, he could be liable for the infringer’s legal costs. This could be more than $5,000,000. This liability would also be a personal liability to an investor with an interest in the patent (piercing the corporate veil and placing personal assets at risk).

There are still efforts underway by multinational corporations to get a similar bill passed in the future. Currently, there is the threat that something similar to the Innovation Act will come back.

But, the more current threat is how the courts have been moving toward not considering a patent as the property right that it has been for 200 years. A three-judge panel actually ruled that a patent is a public right. If the courts start to widely regard patents as not being property rights, as some feel they are already doing, this will greatly harm American innovation. If a court does not respect the rights of an inventor, court procedures end up being applied in ways that work against him. Recently, there have been numerous cases where judges ruled that a patent was too abstract, and the inventor was not given the normal due process of providing witnesses, testimony, or otherwise fighting to retain his intellectual property.

There is an effort underway to get the U. S. Supreme Court to take up this issue and rule in the favor of patents being property rights. If this effort succeeds, we will have, at least temporarily, stopped the erosion of inventor rights that are so important to this great nation. I and others are involved in fighting to maintain the rights of inventors, and to expand them where they have been reduced in recent years.”

Paul Morinville wrote his opinion in a paper titled, “We’ve Been Googled,” when H.R. 9 looked like it would pass in which he stated that “H.R.9 creates a Patent System without Inventors. Over the last decade, Google and others have spent hundreds of millions of dollars to lobby Congress and produce an ingenious ‘patent troll’ narrative, which distorts the reality of invention in America. In this decade long war on inventors, H.R.9 is the Google lobby’s latest accomplishment. Not surprisingly, H.R.9 is not directed to fixing the fictional problem of ‘patent trolls.’ Instead, H.R.9 mounts its considerable damage on the patent system in general, specifically harming inventors and small patent-based businesses.”

Morinville explained, “If this bill becomes law, inventors will not be able to enforce their patent rights against moneyed corporations like Google. However, moneyed corporations like Google will still be able to enforce their patents against small businesses with even more devastating consequences to those small businesses. Patent litigation is about risk and cost versus reward. If risk or cost is too high in relation to reward, a patent cannot be enforced.”

Adrian Pelkus: “I’m an inventor named on 14 issued patents and have made my life as a serial entrepreneur doing new product development for over 30 years. Along the way I have created many startups and raised millions of dollars on the back of IP. I have coached inventors and startups every Thursday since 1985 and have run one of the larger inventor clubs in the U. S. since 2005, the San Diego Inventors Forum (www.sdinventors.org.)

He said, “What is most absurd about the America Invents Act to American inventors is the fact that with PTABs we can lose our ISSUED PATENTS… A company challenging a patent wins 90% of the time. The cost to defend is so expensive that inventors give up and are unable to afford achieving their dreams.”

Now, issued patents guaranteed as a Property Right in the constitution are being challenged. A business that infringes would just pay a royalty to the inventor if found guilty hence ‘efficient infringement.’ The biggest incentives to create new ideas and businesses are weakened because the guarantee that an issued patent will protect your IP interests and investments is gone. Patents can now become liabilities. The proposed bills to penalize an inventor with loser pays and threatens to make their investors pay was beyond absurd; it would be economic and intellectual suicide. The end of our rights and hopes as inventors is in plain sight.”

Adrian became connected to Randy Landreneau and Paul Morinville when they reached out to other inventor groups, and he was invited to join the fly-in to Washington, D.C. to fight H.R.9 in April 2015. After that fly-in to Washington, D.C. he became focused on fighting against bills that would destroy our patent system and joined the board of US Inventor in August 2016. He was already on the board of the United Inventors Association and had been working to unite the inventor clubs and groups nationwide.

In January, 2017, the Policy Panel of US Inventors authored a USI Policy Section 101 paper and in February, it was determined that they had to “get as many inventors as possible calling Congress and writing about the threat of a new bill.”

Adrian said, “I sent out my first call to action to all the clubs and sent a second one the next week and every week since. I discussed the plan to unite the groups and clubs with Stephen Key of Invent Right and Louis Foreman of Edison Nation, who asked how they could help. With their help, we have united 24 inventor groups nationwide to fight the threat to our American patent system and protect inventors’ rights.

I established a bimonthly phone conference with the heads of the biggest organizations in the inventor community, inventor clubs, and individual inventors in an effort to create a coalition that would support a petition that reflects our concerns about and suggestions to change the America Invents Act. This coalition is a historic cooperation that will unite the inventor community and bring a voice to Washington, D.C. they need to hear!

We now have a petition that we believe will help make America great again by making it a great place for American Inventors again. This petition represents concerned citizens, inventors, entrepreneurs, and businesses from coast to coast. I’m proud to contribute my efforts to help America by restoring its patent system.”

I agree with Landreneau, Morinville, and Pelkus that the America Invents Act is gradually destroying the American Patent System. If a bill similar to H. R. 9 passes Congress, it would the final nail in its coffin.

Why is this important? Because most new technologies, especially break-through or disruptive technologies, come from individual inventors who either start a company or license their technology to companies that are more able to take them to the market.

As a mentor for San Diego’s CONNECT Springboard accelerator program and fellow director on the board of the San Diego Inventors Forum with Adrian Pelkus, I work with inventors designing new products or break-through technologies. Local inventors have the opportunity to compete in the San Diego Inventors Forum annual invention contest for best new consumer product or best new technology. All contestants must have applied for at least a Provisional patent before they can participate. The future success of their product or technology is contingent upon their having a patent they can protect from infringement. Their ability to raise the financial investment they need to bring their product to the marketplace depends upon their being able to protect their patent. No investor will take the risk of investing in a product or technology that cannot be protected.

Please join the American inventors coalition formed by Adrian Pelkus, Randy Landreneau, Paul Morinville, and others to save American inventors by signing the petition at http://www.usinventor.org/petition.

Tags: America Invents Act, Intellectual Property, patent reform
Posted in Inellectual Property, Innovation, Patent Reform | No Comments »

How Tax Reform Could Grow our Economy and Create Jobs

September 19th, 2017

Over 150 countries in the world have shifted a significant portion of their tax mix to border adjustable consumption taxes – value added taxes (VATs) or goods and services taxes (GSTs). Consumption taxes are “border adjustable taxes” and allowed under World Trade Organization rules. Consumption taxes are a tax on consumption – as opposed to income, wealth, property, or wages. Consumption taxes are called goods and services taxes in Canada, Australia, New Zealand or value added taxes in other countries. They are usually a tax only on the incremental value that is added at each level of the supply chain to a product, material or service. Most countries VATs or GSTs are tariff and subsidy replacements, mimicking a currency devaluation if a country raises the VAT or GST and uses proceeds to lower purely domestic taxes and costs.

After 40 years of multilateral tariff reduction, other countries replaced tariffs with VATs but the U.S. did not. American exporters face nearly the same border taxes (tariffs + consumption tax) as they did in the early 1970s. Foreign VATs are export subsidies as they are rebated to companies that export their goods. For example:

Mexico established a 15% VAT after NAFTA
Central American countries established a 12% VAT after CAFTA
Germany raised its VAT to 19% in 2007 to fund business tax reduction for trade competitiveness

The rates range from 12% to 24% and average 17% globally. This means that virtually all foreign countries tax our exports at 17% on top of tariffs. They subsidize domestic shipments abroad with the average 17% tax rebate. The figure below illustrates how it works.

U.S. Local Price = $100

China Local Price = $100

U.S. Price PLUS 17% VAT = $117.00

Chinese Price MINUS 17% VAT rebate = $85.47

The map below shows which nations have consumption taxes (red) and which do not (blue).

Because foreign consumption taxes are border adjustable, companies that export are double taxed. They pay U. S. taxes and the foreign border tax. Importers can sell cheaper products because they receive a consumption tax rebate from their home country and do not pay U. S. VAT.

Eliminate Payroll Tax Burden with the most efficient VAT in world

In written testimony to the House Ways and Means Committee of the U. S. House of Representatives on May 18, 2017, the Coalition for a Prosperous America (CPA) recommended “a new border adjustable consumption tax (Goods and Services Tax) that funds a full credit against all payroll taxes.”

Highlights from the testimony paraphrased or quoted include: “A new U.S. goods and services tax (GST) of approximately 12% should be enacted to shift taxation to consumption using the credit/invoice method. The proceeds should be credited against payroll taxes paid by all workers and businesses. GST proceeds should be applied as a full credit against the 15.3% rate of payroll taxes to reduce the cost of labor in the US while increasing after tax wages.

Exported goods and services would receive a full rebate. Imports would pay the GST. Small business with less than, for example, one million dollars could be exempted without sacrificing significant tax revenue.”

CPA’s written testimony explained, “Domestic prices vs. wages would not worsen because the payroll tax is embedded in the cost of all goods and services. Thus, eliminating the payroll tax lowers the prices for goods and services or increases wages depending upon the particular competitive forces in each product sector. A GST raises goods and services prices, but the GST/payroll tax combination would largely cancel each other out thereby holding the domestic economy harmless.

The more modern GSTs implemented by free market economies are in Canada, Australia and New Zealand. The compliance and administration burdens are relatively low in comparison to other taxation methods. The U. S. can learn from those and other countries’ experiences to implement the most modern, streamlined GST in the world.”

In summary, the proposed GST would

Reduce the cost of labor in the U. S.
Give every worker a raise
Lower price of U/ S. exports
Levy a tax on imports

The following are some of the benefits of a payroll tax credit for manufacturers, ranchers, and farmers:

Regressiveness of VAT offset by elimination of regressive payroll tax
VAT costs on all domestic producers are offset
No impact on prices of domestic goods/services
Imported goods/services prices increase
Cost of production for exports reduced

Change to a Sales Factor Apportionment (SFA) Border Adjustable Profit Tax

Last year, I wrote an article about corporate tax reform at the federal level based on the Sales Factor Apportionment Framework proposed by one of the members of the Coalition for a Prosperous America, Bill Parks. Mr. Parks is a retired finance professor and founder of NRS Inc., an Idaho-based paddle sports accessory maker. He asserted that “Tax reform proposals won’t fix our broken corporate system… [because] they fail to fix the unfairness of domestic companies paying more tax than multinational enterprises in identical circumstances.”

He explained that multinational enterprises (MNEs) can use cost accounting practices to transfer costs and profits within the company to achieve different goals. “Currently MNEs manipulate loopholes in our tax system to avoid paying U. S. taxes… MNEs can legitimately choose a cost that reduces or increases the profits of its subsidiaries in different countries. Because the United States is a relatively high-tax country, MNEs will choose the costs that minimize profits in the United States and maximize them in what are usually lower-tax countries.”

The way his plan would work is that the amount of corporate taxes that a multinational company would pay “would be determined solely on the percent of that company’s world-wide sales made to U. S. customers. Foreign MNEs would also be taxed the same way on their U. S. income leveling the playing field between domestic firms and foreign and domestic MNEs.”.

The Board of the Directors of the Coalition for a Prosperous America chose to support Sales Factor Tax Apportionment and included the following in their testimony to the House Ways and Means Committee:

“The US corporate tax system harms America’s trade competitiveness, overtaxes income from wages, under taxes consumption, and is bad at actually collecting what is owed. It also enables rampant base erosion through transferring profits to tax havens or countries with lower corporate tax rates. Full reform centered around destination based, border adjustment principles can result in an efficient, trade competitive, and largely tamper-proof tax system.

SFA is a destination based profit tax. Pretax income is allocated to the US in proportion to the percentage of a company’s total sales in the U. S. Pre-tax income earned outside the US is not taxed. Tax rates can be lowered substantially while still meeting revenue targets.”

The Coalition for a Prosperous America favors “a border adjustable business tax (for all entity types) which allocates pre-tax income based upon the destination of sales. Formulary apportionment based upon a single sales factor (sales factor apportionment or SFA) is well established at the state level. It solves most of the base erosion/profit shifting and tax haven abuse problems facing tax writing committees. SFA eliminates the disparate tax treatment between domestic companies (who pay the full income tax burden on worldwide income), multinationals (many of which shift profits to tax havens), and foreign companies (which pay a territorial income tax).

A broad based 12% GST could raise $1.4 trillion in new revenue. Payroll tax revenue in 2015 was 33% of total tax revenue at $1.056 trillion.”

CPA asserts that U. S. “trade competitiveness would be substantially improved because exports are freed from both the GST and payroll tax burden. Imports never include the cost of the U. S. payroll tax, but would pay the GST. This effect has been called Fiscal Devaluation because it mimics a currency devaluation for trade purposes. It only works if you combine a new GST with a ubiquitous domestic tax or cost reduction. The optimal domestic tax reduction is the payroll tax burden.”

The reason for CPA’s support is that “SFA taxes pre-tax income allocated to the U. S. but not profits allocated to foreign sales. Domestic firms can legitimately ‘avoid’ taxation by exporting more. Profits from imports are subject to tax. Domestic, multinational and foreign firms are on an equal tax footing.

The current corporate tax system cannot be fixed because it allows the fiction of intra-firm transactions to erode the tax base. Multinational companies use them to self-deal, strictly for tax purposes, shifting income to tax haven jurisdictions. Companies sell products or services to themselves, governed only by an ‘arm’s length’ principle which allows them to create their own pricing terms subject to a nearly unenforceable ‘fair market value’ constraint.

The intra-company transactions are not free market, ‘arm’s length’ or true third-party transactions. The only economically meaningful ‘sale’ is one to a true third party outside the company. As much of 30% of tax revenue may be lost from profit shifting to tax haven jurisdictions which have effective tax rates of 0-4%. These include Bermuda, Netherlands, UK Caribbean Islands, Ireland, Luxembourg, Singapore, and Switzerland.”

The CPA testimony provides the following example: “Assume a multinational corporation has worldwide sales of $100 billion, $50 billion sales in the U. S. and company-wide pretax income of $10 billion. Fifty percent of the profits, under SFA, are apportioned to the US. So, the profits to be taxed in the USA in this case are $5 Billion. Using a 20% corporate tax rate yields a SFA tax of $1 billion. Intra-company transactions with a Bermuda subsidiary would be irrelevant.

Merely lowering the U. S. corporate tax rate for example to 15% without further reform would not eliminate the tax competition with tax haven jurisdictions. SFA would make tax havens irrelevant because true sales to any foreign country would be ignored. IRS litigation centered around the proper fair market value of intra-firm transactions would disappear. Only profits allocated to the US in proportion to true third-party sales would be taxable.”

CPA asserts that “SFA would allow a significant reduction in the business tax rate while collecting similar revenue because base erosion is largely fixed. By one estimate, a 13% corporate tax rate under SFA would collect the same revenue as the current system…”

In conclusion, CPA recommends, “The U. S. tax system should shift to more border adjustability through destination based taxation. If the House GOP Blueprint does not gain Senate or White House support, the Ways and Means Committee has solid alternatives to meet their goals. CPA supports enacting (1) a new GST to fund a full credit against payroll taxes, plus (2) a shift to sales factor apportionment of global profits as an alternative to our current corporate income tax system.”

We need to take bold action if we want to rebuild our manufacturing industry to create jobs and prosperity. As I visit district offices of our California Congressional delegation as chair of the California chapter of CPA, I am encouraged by the interest these recommendations for tax reform are generating on a bi-partisan basis.

Tags: Payroll Taxes, Sales Factor Tax Apportionment
Posted in Economy, General, Taxes/Regulations | No Comments »

How to Fix the Dollar’s Overvaluation & Exchange Rate Misalignment

September 9th, 2017

On July 11, 2017, the Coalition for a Prosperous America released a paper titled, “The Threat of U.S. Dollar Overvaluation: How to Calculate True Exchange Rate Misalignment & How to Fix It” by Michael Stumo (CEO), Jeff Ferry (Research Director) and Dr. John R. Hansen, a 30-year veteran of the World Bank and Advisory Board member.

The purpose of the paper is to explain the problem of the dollar overvaluation, to show how to accurately calculate the dollar’s misalignment against trading partner currencies, and to propose a solution this serious threat to America’s future.

The authors point out that “In past centuries, the only reason that people would choose to hold a foreign currency would be to trade with it… But in the last few decades, and especially since the early 1990s, international speculators and traders have invested in dollars, including stocks, bonds, and cash, at the rate of hundreds of billions of dollars a year. The dollar investments of private investors now far outweigh the investments of government investors.”

These private investments shrunk from $1 trillion in 2007 down to $200 billion in 2010 during the recession and have grown back up to about $400 billion.

The authors explain that private investors buy dollars for many reasons: to purchase goods that are priced in dollars (like oil), “as a hedge against depreciation of their own local currencies,” to invest in the U.S. economy, to make a speculative investment, and “in many cases simply because in an uncertain world, the U.S. dollar is viewed as a rock of reliability and stability.”

In economic terms, the authors explain that the current account deficit is “the trade deficit with overseas remittances and other small items added in.” In the past when currency markets still maintained a link between exchange rates and balanced trade, the value of the dollar and the account deficit affect each other; i.e., “When the dollar rises, the current account worsens (larger negative figure as a percent of GDP), and when the dollar falls, the current account improves.”

However, the authors point out this hasn’t been happening for years. For example, “The current account deficit has been strongly negative throughout the last ten years, yet the dollar has not fallen to bring trade back into balance. On the contrary, in mid-2014, despite a trade balance close to -3% of GDP, the dollar suddenly rose more than 15%, and stabilized in 2016, only to rise yet again after the November election.”

They add, “These exchange rate increases are likely to worsen the trade deficit in the next two to four years. The ability of the U.S. dollar to defy gravity despite huge and persistent trade deficits has played an important role in the persistence of those deficits.”

The consequences are: “A dollar that is too high keeps our exports too expensive and makes imports too cheap, prompting Americans to consume more imports and to export less. The impact of an overvalued dollar is hard to overstate.”

Why this is critical is that, “According to Fred Bergsten and William Cline, both of the Peterson Institute, “every 10 percent rise in the dollar adds about $350 billion to the trade deficit and reduces the level of U.S. economic activity by about 1.65%, with a corresponding loss of about 1.5 million jobs.” Since the U.S. has had a more than $500 billion trade deficit since 2003, except for 2009, this helps explain why we lost 5.8 million manufacturing jobs between 2000 – 2010.

Calculating the Currency Misalignment

In 2008, Fred Bergsten and his Peterson Institute for International Economics colleagues developed a methodology to calculate a Fundamental Equilibrium Exchange Rate (FEER) of a currency that will enable a country’s trade to balance (i.e. exports and imports equal) in a reasonably short timeframe. The authors state, “The traditional FEER methodology generally targets getting a nation’s current account to within plus or minus 3 percent of balance…In 2015, Peterson suggested targeting absolute, true-zero trade balances and recalculated FEER levels based on targets of balanced trade. Moving from a target of +/-3% of GDP to a true-zero balance is very important for the United States. Our present current account deficits equal to 3% of GDP cost us the needless unemployment of about three million American workers, according to most estimates of the job cost of imports.”

After “the Peterson Institute issued new global FEER estimates in May using the traditional +/- 3% balance target methodology,” Dr. John Hansen “converted these FEER estimates into true-zero FEER estimates using a methodology agreed with Peterson.”

According to his calculations, “The U.S. dollar is currently 25.5% overvalued compared to its FEER,” which makes it “more seriously misaligned than the currency of any other major trading partner country. “

In contrast, “Germany and Japan – are misaligned in the opposite direction. They are undervalued while the U.S. dollar is overvalued.” Japan’s currency is undervalued by 25% and Germany’s by 23.6%.

What was surprising to me was that according to Dr. Hansen’s FEER calculations, China only had a 4.7% undervaluation. For the last ten years, I have read article after article about China’s undervaluation of their currency, estimated to be anywhere from 25% – 40%. I didn’t realize this had changed until I searched and found an article from November 18, 2016 by Fred Bergsten of the Peterson Institute, in which he wrote, “China was the champion currency manipulator of all time from 2003 through 2014. During this “decade of manipulation,” China bought more than $300 billion annually to resist upward movement of its currency by artificially keeping the exchange rate of the dollar strong and the renminbi’s exchange rate weak. China’s competitive position was thus strengthened by as much as 30 to 40 percent at the peak of the intervention. Currency manipulation explained most of China’s large trade surpluses, which reached a staggering 10 percent of its entire GDP in 2007.”

According to Bergstrom, China is no longer undervaluing their currency because they have “experienced large outflows of private capital that have driven its exchange rate down and indeed sparked market fears of disorderly renminbi devaluations. To their credit, the Chinese have intervened heavily on the opposite side of the market: Instead of buying dollars to keep the renminbi weak, they have sold large amounts of dollars to prevent it from sliding further.”

As a consequence of the misalignment of the dollar against the currency of two of our major trading partners and to a lesser degree with other countries, “The dollar’s gross overvaluation imposes a tax on the selling price of all U.S. products that can be traded internationally – even if they are not actually traded. It is a tax on U.S. producers trying to export. On U.S. producers competing with imported goods. And it is even a tax on U.S. producers who face the threat of imports. For example, the threat of imported shirts from China can force a New England shirt manufacturer to sell his shirt for 25 percent less than he would otherwise be able to charge if the dollar were not so overvalued.”

Because this tax is a tax on the selling price and not on profits like the income tax, “…the dollar’s overvaluation is such a serious threat to the survival of manufacturing and farming in the United States. The dollar’s overvaluation threatens not only the existence of these two critical sectors. It also threatens the entire economy because these two sectors are by far the most important sources of the exports we need to pay for our imports.”

Contrary to popular opinion, the overvaluation of the dollar is not caused by government currency manipulation The authors assert that “The dollar’s misalignment is primarily caused by the buying and selling decisions of private traders…the dollar is overvalued because private investor decisions are unrelated to the fundamental performance of trade or production in the U.S. or any other economy, and the global monetary system no longer has a mechanism to bring exchange rates back to levels consistent with balanced trade.”

What is the solution?

Dr. John Hansen has developed a Market Access Charge (MAC) “as a system to discourage overseas private investors and return-sensitive official investors such as sovereign wealth fund managers from excessive speculation and trading in U.S. dollar assets.” (For further details, go to his website.)

He believes that “By reducing the incentive for foreigners to invest in dollars, we can gradually and safely reduce its overvaluation, benefiting the U.S. economy and restoring control over our own currency.”

His proposal is to initiate the MAC with a 0.5% charge “on any purchase of U.S. dollar financial assets by a foreign entity or individual…As a one-time charge, the MAC will discourage would-be short-term investors, many of whom hold dollars or dollar-denominated securities overnight or even for minutes for the sake of a tiny profit.

The MAC rate would operate on a sliding scale, geared to the value of the trade deficit as a percentage of GDP. The MAC tax would rise if the trade deficit rose, and fall as the trade deficit falls… Most importantly, the MAC would have a substantial impact on the dollar’s value, moving it gradually and safely to a trade-balancing exchange rate and keeping it there, regardless of what other countries do. If the trade deficit goes to zero, so would the MAC.”

Dr. Hansen and the Coalition for a Prosperous America believe that this small charge “would be sufficient to discourage foreign inflows of hot money, with no material impact on foreign direct investment in factories and other directly productive activities.”

They agree that, “if properly implemented, the MAC could eliminate the full 25% overvaluation of the dollar, and this could lead to the complete elimination of the trade deficit over the subsequent three to four years.”

How could it be implemented?

The authors believe the MAC could be implemented unilaterally by the U.S. federal government. because “it does not violate IMF rules, which explicitly allow member nations to implement policies needed to rectify international financial imbalances [and] It does not violate WTO rules either.”

However, they “recommend a period of international consultation with G20 members to reduce the risk of misunderstandings and, hopefully, to get them to implement their own versions of the MAC…[which] would benefit the U.S. and the world by restoring a stable foundation for balanced, sustainable global growth.”

They envision that, “The MAC would be a self-financing system since it would generate revenue. We expect the MAC would generate at least $1 billion in annual revenues, and probably more, depending largely upon how much foreign exchange trading in the dollar declines due to increased transaction costs from the MAC.

Because the goal of the MAC is “to reduce and ultimately eliminate the trade deficit,” the revenue would be temporary and would go to zero when the goal is achieved. They propose that at “MAC revenue be earmarked for a “U.S. Competitiveness Fund” supporting short-term spending projects such as infrastructure investment.”

They also clarify that “no Americans would pay the MAC charge. Only foreign-based individuals and entities are liable to pay the MAC.” Until the MAC achieves its goal, the Government will enjoy increased tax revenue because the MAC will greatly stimulate U.S. competitiveness and thus overall output, profits, wages – and thus the tax base.”

They “believe the MAC could eliminate the trade deficit entirely over a period of several years,” but emphasize that “there is still a clear need for other U.S. trade policies focused on eliminating unfair trade practices and non-tariff barriers. The MAC should be seen as complementary to, not competitive with, such trade policies. Though in remission now, currency intervention and manipulation by governments is likely to resume, and the U.S. government should not hesitate to act to stop or counteract such activities.”

The Coalition for a Prosperous America “favors actions to strengthen the monitoring, definition, and enforcement of remedies to counteract currency manipulation, dumping, and other unfair trading practices.” I strongly agree with their recommendation to implement a Market Access Charge to reduce dollar overvaluation, discourage unwanted investment in the dollar, bring down the dollar’s value, significantly reduce America’s trade deficit and stimulate economic growth, employment and personal income.

Tags: account deficit, currency manipulaton, trade deficit
Posted in Currency Misalignment/Munipulation, Economy | No Comments »

Do Low American Savings Rate Cause Trade Deficits?

September 2nd, 2017

Mainstream trade news continues to assert that trade deficits don’t matter. Economists help reporters write these fake news stories by claiming that America’s failure to save money is the problems, not foreign trade cheating. On June 20, 2017, the Coalition for a Prosperous America released a research paper titled “Do Savings Rates Cause Trade Deficits? by Michael Stumo (CEO) and Jeff Ferry (Research Director) that shows why globalist economists are wrong about what causes trade deficits, offshoring and job losses.

They write, “A popular, but misleading, claim is that low US savings, relative to investment, causes our trade deficit. For example, Harvard professor and former Reagan administration advisor Martin Feldstein.has said that the US fiscal deficit, which indeed reduces national savings, is the cause of the trade deficit. ‘If a country consumes more than it produces [thus saving little], it must import more than it exports.’”

These macroeconomists “claim that Americans spend too much, save too little, produce too little, and thus must import to support their gluttony.” They are incorrect.

White House economists use the “savings rate causes trade deficits” claim to create the false illusion that nothing can be done. But the real problem is that a few foreign countries – like China, Japan, Germany and South Korea – have economic strategies to overproduce, under consume and ship their overcapacity to the US. Their growth strategy is their full employment program. They export their unemployment to the US.

DISTINGUISHING CAUSES FROM MATHEMATICAL INTERRELATIONSHIPS

To macroeconomists, the ”National savings, investment and net trade are variables within equations or formulas known as ‘national income identities’. Because the variables are within the identity, they are called “endogenous’ and are explained by the equation.” But they do not explain what causes the changes.

“The basic Gross Domestic Product equation is referred to as a national income identity, expressed in the following equation:

GDP = C + I + G + NE

C = Consumption; I = Investment, G = Government and NE = Net Exports. Net Exports are also expressed as X – M in another version of this equation. When the Net Exports is a negative figure as it has been since 1979, this reduces the GDP. According to previous research by the Coalition for a Prosperous America, “the annual trade deficit has reduced each year’s GDP by some 3% to 5.5% each year, and those reductions compound over time.”

The purpose of the paper is to explain “how to distinguish (a) causation from (b) mathematical interrelationships in the national income identity or equation that underlies this debate. For reasons explained below, real world changes (exogenous factors) outside the identity are the true causes. These real-world changes directly impact one or more variables within the identity, transmitting through the equation by mathematical necessity. In short, national savings is related to the trade deficit in an accounting sense but does not cause it.”

Government policies often affect each one of the variables of the above equation. For example, the income tax rate may affect Consumption. If rates are high, then American consumers have less money to devote to consumption. If Government consumption and expenditures through procurement is down as it was under Sequestration, then companies that sell to the government make less money and have less money to buy products as business and corporate consumers.

To clarify the relationship between savings and trade deficits, the authors cite Robert Scott of the Economic Policy Institute: “Accounting identities do not, and cannot, explain the causal relationships between savings, investment, and trade flows. Do low savings rates cause trade deficits, or does causation run in the other direction? A trade deficit reduces the incomes of domestic workers, pushing many into lower income brackets. Families with lower incomes generally find it much harder to save. Therefore, increasing trade deficits can and do reduce national savings.”

DEBUNKING THE MORALITY VS SAVINGS RATE HYPOTHESIS

International economists in important positions “implicitly argue that no policy action is necessary or effective because US citizens simply do not save enough. We have caused our own problem. Our immoral, gotta-spend-it-now culture must become more austere.”

However, the authors explain that “National savings, in the context of the national income identity, is the aggregate of household, business and government savings. It is the extent to which national income exceeds private and public spending.

Household savings can, for example, go down if family earnings fall but they spend the same as before on necessities. Taxes or interest rates could go up causing consumers to spend less. Neither cause has anything to do with financial morality.”

Instead, government policies can and do affect savings rates. The authors state, “Surplus countries such as Germany and China have been deficit countries in the past… with low savings rates and trade deficits. Their cultural propensity to spend or save did not miraculously change…policy changes in the 1990’s and 2000’s caused transfers of wealth from households to industry forcing less consumption and more production at increased scale and with very competitive prices. The result was more national savings and trade surpluses.”

HOW OVERSUPPLY IS TRANSFERRED TO DEFICIT COUNTRIES

The authors show how the oversupply (overproduction) of some countries is transferred to other countries causing them to become deficit countries. They write; “All countries cannot run trade surpluses. Offsetting deficits must exist elsewhere. The primary reason for a country to engineer persistent surpluses is to spur domestic employment by excessive reliance upon foreign consumers. The deficit country, however, experiences devaluation of its formerly well employed labor.”

They point out that in 2005, “then-Federal Reserve Board chairman Ben Bernanke argued that the large and growing U.S. current account deficit is caused not by anything happening in the U.S., but by decisions taken by emerging economy nations to run very high savings rates, pursue export-led growth, and lend money to other countries, especially the U.S. He called the situation a ‘global savings glut.’ These excessive inflows of foreign savings raise the U.S. dollar exchange rate, drive down our interest rates, and force our economy into a trade deficit.”

The method by which this transfer takes place is described by Professor Michael Pettis, quoted in the paper:

“If any country takes steps to change the gap between its total domestic savings and its total domestic investment, then those steps must also affect its trade balance. Because a change in one country’s trade balance must be matched with an opposite change in the trade balance of all other countries, there must also be an opposite and equal change in the gap between the total domestic savings of the rest of the world and the total domestic investment of the rest of the world.”

Other factors affecting this transfer are “wage suppression (intentionally as in Germany) or because high volumes of new workers are entering the labor market (as in Asia) and redirect household resources to investment. The result is that productivity increases faster than wages. Increased production outstrips the ability of domestic households to consume. Domestic supply exceeds demand and the country must rely upon foreign consumers to soak up the excess.”

What Tactics Do Surplus Countries Use?

The authors explain that “Export-oriented or investment-oriented countries can utilize policies to reduce consumption, increase production and export at very competitive prices.”

China:

Wage growth is constrained to well below the growth in worker productivity
Undervalued exchange rate…for much of the past two decades
Government subsidizes Chinese manufacturing exporters
Financial repression of Chinese households
Vast amounts of surplus labor that produces more than it consumes.

In essence, the authors state “They export oversupply, deflation and unemployment. The result is excessive reliance on demand from consumers in deficit countries.”

Germany

Holds down domestic wages
German banks provide direct loans and vendor financing to foreign countries to buy German products
Impose a 19% consumption tax (VAT) that is rebated to exporters

As a result, “The economic distress caused by the German-policy-induced crisis in other eurozone countries perversely holds down the value of the euro” making Germany’s exports more price competitive in the global marketplace.

SOLUTIONS TO REBALANCE TRADE AND CAPITAL FLOWS

The authors present the following recommended solutions to reduce trade deficits:

Fix currency misalignment, especially the overvalued dollar.
Implement a US consumption tax, such as a goods and services tax (GST), in a revenue neutral and distribution neutral way by completely offsetting the payroll tax burden.
Adopt a territorial business income tax called sales factor apportionment (SFA)
Consider broadly applied tariffs to counter the unearned advantages of trade surplus countries
Apply selective tariffs to high value or strategic products that the US wants to produce

In conclusion, the authors state: “…the level of US savings and investment cannot and do not ‘cause’ our trade deficit. The true causes are surplus country policies, misaligned exchange rates and global labor oversupply. Persistent trade surplus countries export their oversupply and unemployment to deficit countries characterized by open economies and open financial markets. Policy leaders must become adept at determining the actual causes, how they are transmitted through national income identities and how they result in imbalances. Effective policy responses can then be designed to rebalance trade and capital flows, increase US employment and restore our economic growth.”

The paper shows why America’s economy grew when the majority of manufactured goods were Made in America and consumed by US consumers. The wages paid to the manufacturing workers who produced these products allowed them to save more because they earned more. When the U. S. lost 5.8 million higher paying manufacturing jobs from the 2000 – 2010 because American production was offshored to China and other Asian countries, American workers no longer had any money to save. The overproduction of trade surplus countries resulted in a glut of cheap imported products that further depressed or destroyed some American manufacturing industry sectors. The cheap imported goods that consumers bought became a curse rather than a blessing.

Therefore, the preposterous premise of many macroeconomists that low savings create trade deficits was proven false. It is incomprehensible to me why macroeconomists don’t understand that you can’t save if you don’t have a job or your non-manufacturing job is paying way less than your manufacturing job did. This is why I strongly support the recommended policies of the Coalition for a Prosperous America and urge you to do so also.

Posted in Economic Development, Economy | No Comments »

Denver’s Project DIY Increases Knowledge of Advanced Manufacturing Careers

September 2nd, 2017

During the first week of summer, June 5 – 9, 2017, the Community College of Denver (CCD) Advanced Manufacturing Center (AMC) hosted their second week-long camp for high school girls, giving them the opportunity to learn hands on about advanced manufacturing, to include machining, welding, architecture, and engineering graphics/3D printing. The camp was sponsored by The Women’s Foundation of Colorado, Denver Public School’s CareerConnect, and the Soeurs de Coeur Fund.

CCD’s Advanced Manufacturing Center is a state-of-the-art 33,280-square-foot facility offering degree and certificate programs in machining and welding. CCD also offers continuing education courses for CNC machinists, welding certifications, and wire EDM training allowing for workforce advancement.

When I interviewed Janet Colvin, Manufacturing Pathways Campus Coordinator at the Advanced Manufacturing Center at CCD, she said that they had two one-week summer camps in 2016 for nine girls each week, but this year, they had 28 girls in a one-week camp. This format change allowed girls to participate in paid six-week post camp internships with local companies that are involved with the Denver Public School (DPS) CareerConnect program.

With regard to the selection process, Janet explained that the AMC staff worked with DPS staff Denver Public School to select girls who were interested in the engineering, manufacturing and “Maker” career pathways.

She described how each morning began with the students doing team building activities, campus tours, and other role playing exercises. The following is a summary of the week’s activities as Janet described them:

On Monday, the girls visited an architectural company, RNL Design, where two female architects spoke to the girls about careers in that field and gave them a tour of their design center. The girls completed an architectural drawing using SketchUp, origami building project, and participated in an architecture photo scavenger hunt in downtown Denver.

Tuesday was devoted to engineering, graphic and mechanical design at the CCD Mechanical Engineering Graphics lab. Each girl was able to design and 3D print her own fidget spinner using SolidWorks. Debra Wilcox, the owner of a local 3D printing store, also came to speak to the students.

The girls toured two Advanced Manufacturing companies on Wednesday. At Sundyne, they met mechanical engineers and saw a part being made on a 5-axis CNC machine. The tour also provided lessons in the importance of safety from a female member of the local chapter of the American Society for Safety Engineers. At Eldon James, a women-owned plastic injection molding company, they watched plastic parts being molded. A member of the Colorado chapter of Women in Manufacturing (WIM) of which Janet is also a member, spoke to the girls about careers in manufacturing.

Thursday was spent at CCD’s Advanced Manufacturing Center doing manual machining using mills and lathes to drill a hole in a CNC-machined medallion. Stacey Bibik, president of Focused on Machining, spoke to the girls about careers. For welding, the girls used both simulators and actual welding equipment under faculty supervision. They had the opportunity to meet and interact with manufacturing college students at the AMC. In the afternoon, they toured a glass recycling company, Clear Intentions.

In the morning of the camp’s last day on Friday, the girls worked with faculty to finish their projects and learned how to create a plasma-cut DIY sign in welding. In the afternoon, there was a graduation ceremony in which the girls had the opportunity to share their experiences. Guests included family members, CCD staff, women from the manufacturing community, and the Denver Public School CareerConnect program.

“The camp was a success because more than 25 professional women who are employed in advanced manufacturing companies participated in CCD’s camp, and 16 Community College of Denver staff, students, and faculty in architecture, machining, fabrication welding and engineering graphics helped design projects, presented, and coached girls,” said Janet Colvin, who coordinated the camp. “I can’t say enough about the companies who participated. One of the key goals of the camp was to provide opportunities where girls could visualize themselves in manufacturing careers, and these business partners helped us achieve that goal.”

Janet stressed that one outcome of the camp was the change in the understanding of manufacturing skills and the potential future employment prospects in the Denver region.

The Project DIY team administered a test before and after the camp, which showed what the girls learned. Here are some of the results of the camp:

Pre/post test showed increased knowledge of manufacturing careers and educational pathways; 74% of the participants agreed that the camp increased their motivation to pursue a career in Advanced Manufacturing; 78% of the girls indicated that they could explain the basics of how to make metal parts with a machine, compared to 29% pretest.
100% of the campers indicated that they learned new skills; 91% stated that the camp helped them learn more about their career interests; 100% recommended the camp to others.
Machining, welding, and the tours were listed among their favorite activities.
The post-test results showed that none of the girls thought Advanced Manufacturing was dirty work (compared to 39% in the pre-test).”
Two Project DIY attendees started paid internships in manufacturing with Denver Public Schools CareerConnect after the camp.

“As a result of the camp last summer, one girl changed schools to attend a school that taught welding,” said Janet. “Nine girls came back to complete the camp for the second time this summer. We follow up with all of the girls during the school year. We provide opportunities for the girls to participate in our large MFG DAY event and an international Maker Faire conference.”

CCD’s manufacturing programs offer the ability to earn an Associate of Applied Science degree in fabrication welding, machining or engineering graphics, and mechanical design. The college also offers a variety of basic and advanced certificate programs that are stackable —meaning students can earn a certificate and start working right away while continuing on towards more advanced certificates or associate’s degrees in their field.

Janet explained how CCD grew their Advanced Manufacturing Center programs and how they were funded. “We opened the center on July 21, 2015 after receiving a $3.5 million grant from the Department of Labor. Nine community colleges received this grant, called CHAMP. The grant enabled us to set up the center, buy the equipment, and develop the curriculum with the help of the local manufacturing industry. It was a four-year grant, so we have another half year of funding. We are researching other opportunities for continued funding for the center. We are a corporate training center, so we offer training for a fee to local manufacturers.” Janet said that if anyone wanted more information on ProjectDIY, they could contact her at janet.colvin@ccd.edu.

I shared with Janet that I have written numerous articles about solving the skills gap and attracting the next generation of manufacturing workers and am familiar with the Manufacturing Institute prediction that “Over the next decade, nearly 3.5 million manufacturing jobs will likely need to be filled and the skills gap is expected to result in 2 million of those jobs going unfilled.” I told her that I certainly hope that CCD will be able to obtain follow up funding for the Advanced Manufacturing Center and be able to continue their summer camps. I believe these types of summer camps are vital for attracting the next generation of manufacturing workers.

I told her that I believe that the manufacturing industry is the foundation of our middle class, and that our country’s national security and prosperity depend in large part on a strong manufacturing industry. This is why I wrote my book, Can American Manufacturing be Saved? Why We Should and How We Can, and am now working on a sequel titled Rebuild Manufacturing — the Key to American Prosperity, which I hope to have published by the fall.

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Mira Costa College’s Technology Career Institute Fills Manufacturers’ Training Needs

September 2nd, 2017

For nearly twenty years, the only place to get the training through the community college system to become a machinist was San Diego City College. Now, however, there is a second location for civilians to get training as a machinist in San Diego County at the Technology Career Institute (TCI) of MiraCosta Community College. MiraCosta College is a public California community college serving coastal North San Diego County. The main campus is located in Oceanside, and there is a second campus in Cardiff-by-the-Sea.

The reason I mention training for civilians is that from 1923 – 1993, the Navy had a machinist school at the Naval Training Center, San Diego. NTC ceased providing training at the end of 1993 as a result of the Base Realignment and Closure (BRAC) commission of 1993. The machining training was transferred to the Great Lakes Naval Training Center in Illinois. There is still a machine shop at the North Island Naval Air Station on Coronado Island that offers training for entry-level Navy machinists to become journeymen. There is also the Workshops for Warriors, about which I have written previously, that has been training Veterans in machining and other manufacturing skills since 2011.

Last October, I visited the Technology Career Institute (TCI) during San Diego’s Manufacturing Week (associated with the national MFG Day on October 5^th). I met Linda Kurokawa, Director of Community Education & Workforce Development, and finally had the opportunity to interview her in depth last week.

My first question was: When did TCI start and whose idea was it? Linda said, “The Technology Career Institute officially opened in its current location in Carlsbad in March 2015, and it was actually my idea.” She explained, “I started it because I felt that San Diego North County needed a technical training center to provide low cost and accelerated training. We wanted to get young people and Veterans trained for good paying jobs. For about five years, I had been asked by local manufacturers and the local chapter of the National Tooling & Manufacturing Association (NTMA) to start a machinist program. But, I had no money, no instructors, and no equipment.

I decided to see if there was a way it could be done. I worked with the City of Oceanside and asked if they had an empty building. They did since it was during the long-lasting recession. I talked to leaders in the local industry to see if we could raise the funds to get the equipment. The MiraCosta Foundation helped us get donations to buy some of the equipment. One donor even gave $50,000. I worked with Haas Automation®, Inc., and we got some automated machining centers through an ‘Entrustment’ arrangement.”

Continuing, she said, “When we were in the planning stage for TCI, I was advised to make sure the course met the needs of the manufacturers, so we had manufacturers review our curriculum. We also visited training centers all over the country to learn about best practices. We started our machining program in the spring of 2013 at the Oceanside location. The program was very accelerated ? the students went every day, five days a week, for eight hours a day. The NTMA helped me find our first instructor, a woman who was retiring from the Navy and had taught machining skills on board ship to sailors.”

When I asked how they wound up at the current facility in Carlsbad, she responded, “I realized that with the small facility we had, we could only train a few students at a time. I heard about a grant available through the Department of Labor, and I hired a grant writer. We submitted our proposal and won a $2.75 million grant, which allowed us the funds to buy the equipment we needed to double the size of our machining program and also establish an engineering technician program.

We looked for a larger empty building and found one in the city of Carlsbad. We worked with city officials to get a low rent, as we are entirely funded by student fees. It was a mutually beneficial arrangement. Carlsbad is helping to fill the talent pipeline and helping residents in North County find technical training, and we provide the training in a low cost building.

We moved into our 23,000 sq. ft. building in early 2015 and had the time and space to start night and weekend classes using modules from our daytime accelerated program. We are GI bill approved and funded through Workforce Innovation and Opportunity Act funds and state funds, which are only available about five months of the year before the funds are exhausted. Our fees are high per student (about $6,000), so I wanted to find another grant. The Girard Foundation did help out by funding one semester last year.”

I told Linda that I had seen the press release about the MiraCosta College being one of the recipients of the more than $111 million America’s Promise grants that were awarded on November 17, 2016 by the U.S. Department of Labor “to 23 regional workforce partnerships in 28 states to connect more than 21,000 Americans to education and in-demand jobs.”

The press release stated, “Each four-year grant will support tuition-free education and training that prepares participants for jobs in industries that currently utilize the H-1B temporary visa program to meet industry workforce needs. Grantees will use individual assessments to determine the best strategies to successfully move participants into middle- to high-skilled jobs including accelerated training, longer-term intensive training and up skilling current employees to meet the demands of higher skilled jobs.

Grantees will focus their activities on four key priorities:

Increasing opportunities for all Americans through tuition-free training for middle-to high-skilled occupations and industries.
Expanding employer involvement in the design and delivery of education and training programs.
Utilizing evidence-based sector strategies to increase college completion, employability, employment earnings and outcomes of job seekers.
Leveraging additional public, private and foundation resources to scale and sustain proven strategies.

Funded through fees paid by employers to bring foreign workers into the U.S. under the H-1B temporary visa program, America’s Promise grants are intended to raise the technical skill levels of American workers and, over time, help businesses reduce their reliance on temporary visa programs.”

Linda said, “I wrote my own grant this time, and we were the only college in California to receive the grant of 6 million over a period of four years. We are six months into the grant, so we still have 3 1/2 years left. We are sharing some monies with Grossmont Cuyamaca College in east San Diego County and Chaffey College in Riverside. The grant funds have allowed us to eliminate tuition fees and reduce administrative fees down to a modest $375. However, the America’s Promise grant is not a long-term solution. ”

She explained, “Our local manufacturing industry is composed of such small companies that there isn’t enough extra money from these companies to be a sponsor for a machining school. However, we do get small donations of money and donations of metal materials used by the students, as well as donations of some equipment.”

I told her I understood because this is the type of company I represent as a manufacturers’ sales rep – companies that are typically under 25 employees, and I even represent two San Diego North County companies that have less than 15 employees. I mentioned that I had read the sector report on Advanced Manufacturing released in November 2015 by the San Diego Workforce Partnership (SDWP). It stated that” 97 percent of all Advanced Manufacturing businesses are businesses with fewer than 50 employees. Small businesses in this sector also account for 36% of all employees and for a third of all generated annual revenue.”

When I asked what is coming up, she said, “We are excited about launching our apprenticeship program for Machining Technician, CNC machine operators, engineering technicians, electronic assembly, and solar PV in the next few months that have been approved by the State of California Apprenticeship Standards. We will do the pre-training at our facility and monitor the students On the Job Training. We will have an Advisory Board, and already have a couple of companies lined up for the apprenticeships. We are also partnering with Able-Disabled Advocacy for a small portion of their $3.2 million grant for apprenticeships from the Department of Labor that they were awarded in November 2015.

As we concluded our discussion, Linda commented, “One of the benefits of having a big training center is that we will be able to make changes amongst our local manufacturers. Our students are being directed to the companies where they will be able to have a decent paying job. When companies come to us asking why they can’t get our graduates to go to work for them, we have to explain to them it is because they are not paying a living wage. We are helping them realize that they need to pay higher wages to get and keep better employees.”

I responded that I had heard that San Diego ranks in the top 10 (9^th) of most expensive places to live according to Inc. magazine, so it is tough to make it when the wages in San Diego are so much lower than cities that are higher up on the list like New York, Boston, and San Francisco. That is why it is important to get the training and/or education needed to be able to get a higher paying job here, and why it is so important for companies to pay competitive wages. The SDWP report identified advanced manufacturing as one of the priority sectors for job growth, so the Technical Career Institute is an important addition to San Diego County’s training infrastructure.

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North Dakota’s Northern Plains UAS Test Site

July 12th, 2017

When I was first invited to North Dakota, the plan was for me to visit the Northern Plains UAS Test Site in Grand Forks, but it was about 80 miles away from Fargo, and the Site’s Director was going to be out of town the week of my trip.

My first thought was questioning why North Dakota was selected as one of the six UAS test sites compared to San Diego, which is home to Northrop Grumman’s Global Hawk and General Atomics’ Predator unmanned vehicles. I had given a presentation at the San Diego Lindbergh Chapter of the Association for Unmanned Vehicle Systems International in the spring of 2013 while they were collaborating to prepare a proposal for being selected as a test site and was surprised when San Diego was not selected.

I posed this question to my host, Paul Lucy, the first evening we met during my trip, and he supplied part of the answer. It turns out that the University of North Dakota in Grand Forks had a long history of training airline pilots starting in the late 1960s and more recently expanded into training pilots for unmanned vehicles.

In December 2013, the Federal Aviation Administration selected North Dakota to be one of the six test sites, officially known as the Northern Plains UAS Test Site. According to the website, the mission is: “Collaborate with FAA and industry partners to develop equipment, systems, rules, and procedures to safely integrate unmanned aircraft into the NAS without negatively impacting existing general or commercial aviation.”

After I had written my other articles about North Dakota, I set up a phone interview with Nick Flom, Executive Director of the Northern Plains UAS Test Site. He took over the position in 2016 after the founding Executive Director, Robert Becklund, was promoted to Brigadier General and Deputy Adjunct General for the State of North Dakota. However, Nick is not new to the center since he was Becklund’s first hire when the site was established.

Nick provided me the rest of the answer as to why North Dakota was selected. He said, “When they were preparing for the selection process, the entire state went into what we called the “one voice” effort by the Governor, the North Dakota Department of Commerce, and the Office of the Adjunct General of the National Guard, the University of North Dakota, and other organizations in the state. Over $20 million was committed to establishing the UAS Test Site because the FAA test site designation did not include any Federal funding.”

As a point of reference, he told me that whole population of North Dakota is about 775,000, and there are only three Congressional Representatives. The population of the City of San Diego, California where I live is nearly double at 1.4 million.

He explained that “the wide open space of North Dakota was a big consideration, and there is no restricted air space because of population density. The FAA also wanted to diversify the test sites to reflect extremes of temperatures, and North Dakota has some of the highest and lowest temperatures of the U. S.”

The UAS Test Site website sums up the reasons why North Dakota was chosen as follows:

“Unequalled history, legacy, and culture of UAS.
Immediate access to uncongested airspace statewide and custom tailored to support your research.
Diverse climate and open terrain.
Unified commitment from North Dakota and congressional leadership, local industry, and key business decision makers.
State grant program to match funds from industry-academia research.
Strong relationship with Grand Sky, a UAS Business and Aviation Park at Grand Forks Air Force Base.”

When I asked what are his responsibilities, he answered, “We have a couple of different missions to integrate unmanned vehicles into the national air space: supporting industry as rules are being developed, providing the test environment for application-based processes in agriculture, building inspection, insurance claims, etc., and as an economic driver for agriculture and energy. We look at unmanned vehicles as an opportunity to diversify the state’s economy. Grand Forks has an Air Force Base that has underutilized space, and there was 217 acres in Grand Forks available to establish a UAS business park. The first two tenants in the park are General Atomics and Northrop Grumman. General Atomics has a flight training facility for their sales of vehicles to foreign countries. They were training their pilots to fly in civilian air space. Northrop Grumman flies Global Hawks out of the Grand Forks Air Force Base to support some of their military customers. We help support these capabilities and have the goal of flying beyond the line of sight using the radar system at the Grand Forks Air Force Base. Right now, when General Atomics is doing flight training, they have a chase airplane following along. When they can fly beyond line of sight, they won’t have to have a chase aircraft follow along and will be able to execute their mission at a lower cost.”

Nick Flom provided me with more detail about UND’s history of pilot training. He said, “UND started with two airplanes in the 1960s, and then added a helicopter program in 1980. Now, they have 150 airplanes for commercial aviation pilot training. They were the first university to add unmanned vehicle pilot training in 2010, and are now filling the increasing demand for unmanned vehicle pilots. They are the first university to offer a four-year UAS Operations Bachelor of Science degree in the U. S. We have a close relationship with UND, and we can leverage a lot of their research. The President of UND established the Research Institute for Autonomous Systems on the campus. The top leaders understand the importance of unmanned aircraft.”

Nick explained, “UND offers specialized training and curriculum development for UAS crew training and certification that includes human factors, safety management systems. It has an indoor UAS flight laboratory, a Predator Reaper Integrated Networked Computer Environment (PRINCE) simulator, a Predator Mission Aircrew Training System (PMATS) simulator, as well as a UAS Scan Eagle aircraft and simulators.”

From the University of North Dakota Aerospace home page, I learned that UND specializes in Unmanned Aircraft Systems (UAS) research, education and training for private industry, government, UAS researchers and UND graduates. The UAS research collaboration includes:

“UND Institute for Unmanned and Autonomous Research (IUAR)
John D. Odegard School of Aerospace Sciences
- Aviation, Atmospheric Sciences, Computer Sciences, Space Studies, Earth Systems Science & Policy
UND Aerospace Foundation
Northern Plains UAS Test Site (NP UAS TS)
UND School of Engineering
- Unmanned Aircraft Systems Engineering Lab
- Robotics and Intelligence Systems Lab
UND Department of Psychology
- Northern Plains Center for Behavioral Research”

From all of this information, I could see that it was entirely appropriate for the UAS Test Site to be established in North Dakota near University of North Dakota.

I asked Nick about funding for the UAS Test, and he responded, “The state of North Dakota has appropriated dollars to support the test center. We also contract with government agencies such as NASA and the FAA as well as private companies to do services for which we are paid.”

Before ending our discussion, I asked Nick what were the future plans. He answered, “It depends on the needs of industry. The ability to fly aircraft beyond line of sight is very important, along with the ability to safely perform operations over populated cities. Right now, it is one pilot per aircraft, but it may be possible to have one pilot flying more than one unmanned vehicle.”

In retrospect, I realize that San Diego County would not have been a good choice for a FAA test site as we have too much restricted air restricted air space due to three military airports, San Diego’s Lindberg Field international airport, several small airports spread throughout the county, and the Tijuana, Mexico international airport right across the border. In addition, the population of San Diego County is 3.3 million, and there is only a small variation in temperature from winter to summer. There is no doubt in my mind now that North Dakota was a good choice for being selected as one of the six designated test sites.

Tags: career technical training, test site, unmanned vehicles
Posted in Economic Development, Innovation, Technology, Training | No Comments »

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Denver’s Project DIY Increases Knowledge of Advanced Manufacturing Careers

Mira Costa College’s Technology Career Institute Fills Manufacturers’ Training Needs

North Dakota’s Northern Plains UAS Test Site

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