Many Rhode Island manufacturers have argued that operating in the United States puts them at a disadvantage when competing against foreign trade partners.
A recent National Association of Manufacturers study shows they are right. The study, published last month, suggests that structural, non-production costs add 31.7 percent to U.S. manufacturers’ total production costs, relative to the trade-weighted average costs of production for nine major U.S. trading partners.
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This puts U.S. manufacturers at a disadvantage when competing in the global marketplace.
“We have 32 percent more costs because we are in the U.S.,” said Al Lubrano, president of Technical Materials Inc. in Lincoln. “And that’s just in structural costs.”
The NAM study analyzed employee benefits (including health care), corporate tax rates, natural gas costs, tort costs and pollution abatement.
It estimated that costs for those five components have nearly doubled since 2003, when they created a cost disadvantage that, at 22.4 percent, was less than half of today’s.
The increase in structural costs means Rhode Island manufacturers have less money to spend on research and development, Lubrano said. It means they have less money to spend on equipment and less money for employee benefits. And it makes them less attractive to possible investors.
“It drives you to invest in productivity instead of people,” said John Hazen White Jr., president of Taco Inc. in Cranston.
Companies have to invest in automated processes instead of hiring more people because the cost of benefits, such as health care, has increased dramatically in the past few years, White said. About a year ago, he said, evaluated his company’s overhead costs – and found they had increased by about $1.2 million as a result of increases in health care and other insurance.
Not only do local manufacturers face higher structural costs, added Jonathan Fain, president of Teknor Apex Co. in Pawtucket, but also, “most of our raw materials are more expensive than what China manufacturers can get their hands on.”
Teknor Apex makes raw plastic materials used by other U.S. manufacturers to produce a finished product – in the construction, wire cable, medical and automotive industries.
The burden of increased structural costs has caused Teknor Apex to direct its marketing and sales to industries that need to make products in the United States, Fain said.
“If a manufacturer talks to us about consumer goods, we know its life here is short,” he said. “It will eventually go offshore, so we direct our marketing and sales to more specialty items.”
Fain added: “Being a manufacturer in North America, and in New England, is putting us at an extreme disadvantage.”
Asked at a campaign appearance Oct. 20 how Rhode Island is trying to curb the impact of increasing structural costs on manufacturers, Gov. Donald L. Carcieri used the state’s exposure of mismanagement at The Beacon Mutual Insurance Co. as an example.
He said state involvement – along with an internal review – had resulted in Beacon returning about $20 million in dividends to policyholders and reducing premiums by about 16 percent.
He also mentioned the state’s goal of reducing energy costs by drawing 20 percent of the state’s energy from wind and other renewable energy sources.
As for health care, Carcieri said, it is something “we’re working on.”
The governor said he put in the state’s budget a $20 million revenue bond that would create a health care information network. That network would allow medical records to be entered and accessed electronically by doctors, thus reducing costly errors and eliminating paper costs for health care providers, he said. The hope is, it will lead to reduced costs for employers who purchase health care.
Carcieri also mentioned the state’s proposed WellCare health care plan, which would reduce health care costs by about 30 percent for employers with 50 or fewer employees.
The plan wouldn’t affect companies such as Taco, which employs 500 people, or Teknor Apex, which employs 650. But it would help smaller manufacturers in the state, he said.
“We have to make is easier for manufacturers to do business here,” he said, while accepting the Rhode Island Manufacturers Association’s endorsement for a second term.
