Business

US manufacturing: How did Indiana power a revival?

Bethlehem Steel works, "Watercolour in sepia brown, white and gray, on buff paper. Signed May '81." Image copyright library of congress
Image caption Mills - like those run by steel giant Bethlehem - were concentrated in cities like Gary, Indiana and Pittsburgh, Pennsylvania

For many Americans, there are two places that serve as symbols of the decline of US manufacturing: Detroit's hollowed out car plants, and vacant steel mills in Gary, Indiana.

For decades now, these two cities - and the surrounding states that collectively make up the "rust belt" - have been aching reminders of industry's decline, and of the devastating impact that outsourcing and globalisation wreaked on those living and working in manufacturing in the heart of the US.

Yet over the past five years, a curious thing has been happening in one of those rusty states: Indiana.

Look away from the abandoned mills in Gary, and draw your eye a little further south down the map of the state and you'll notice that there are factories in almost every industry imaginable, spread across Indiana's vast cornfields.

It's not Michigan or Illinois or Ohio, but this relatively unassuming flyover state that has become the nation's leader in manufacturing.

Image copyright Getty Images
Image caption The ruins of car factories in places like Detroit (above) and steel mills in Gary, Indiana tell of industry's decline

"When we moved, I couldn't believe that there was that much manufacturing activity going on here," says Ball State University economics professor Michael Hicks.

"It is shocking."

Diversity

The reality is that beyond Gary, manufacturing never really left Indiana - which first saw its fortunes rise during the turn of the 20th century, when the state's young men who had previously been subsistence farmers suddenly found themselves on hard times as agriculture became more mechanised.

Image copyright Getty Images
Image caption Manufacturing never really left areas like Indianapolis, which is home to drug giant Eli Lilly and Cummins Engines

Manufacturers recognised that Indiana had an able and willing workforce and set up across the state, building mostly small and medium factories that primarily served US car manufacturers.

"We didn't have a single concentration of factories - we didn't have a Detroit or a single-industry town," explains Professor Hicks.

"That means that Indiana has been able to maintain its manufacturing presence - primarily because it wasn't as susceptible to the downward shocks that the steel industry was to Pittsburgh, or that the car industry was for Detroit."

Image caption Brian Burton says that Indiana has been able to attract manufacturers because of its regulatory climate

Now, manufacturing makes up an astounding 30% of the state's economic output - compared to 12% of overall US gross domestic product (GDP) - and produces almost everything from cars and motor homes to pharmaceuticals and biomedical devices.

When indirect and induced jobs (that is, the retailers that choose to open up in a town to cater for manufacturing workers) are factored in, nearly two-thirds of the state's economic activity is due to manufacturing.

Midwestern values

Cummins is a nearly 100-year-old maker of engines and power systems that first started in Columbus, Indiana when - along with 100 other companies - Clessie Cummins imported a license to make diesel engines.

Since then, the Cummins firm has focused relentlessly on improving engine performance and innovation, growing to a global business with over $20bn (£13bn) in sales and 50,000 employees. It is typical of manufacturers in the state, employing around 7,000 workers at various sites.

Image caption About 90-95% of the engines produced at the Columbus plant go into Chrysler RAM trucks
Image caption The Cummins Columbus plant makes around 600 engines a day, with two shifts of nine hours
Image caption The Cummins plant employs over 700 people in the Columbus area

At the firm's engine plant in Columbus - about a 45 minute drive south of Indianapolis - nearly 700 employees work six days a week assembling 600 engines a day that primarily go into Chrysler's RAM trucks.

Dana Sims - whose mother, brother, and cousin all work at the plant - says that she was attracted to the facility because it was a good job, and then fell in love with the engineering.

As she wanders around the plant, she points out machines nicknamed Big Igor and Mega Torque, and then stops in front of the company's latest robotic arm.

Image caption Dana Sims has worked at Cummins for decades - her mother, brother and cousin also work there

"That machine takes 51 seconds to do what we used to do in five minutes," she says. When asked if she was worried it would one day take her job, she laughs and says it simply makes her job easier, relieving workers like her of repetitive tasks that can cause injuries.

It is this combination of advanced manufacturing as well as educated, knowledgeable workers that has kept Cummins profitable - and in Indiana.

Chief executive Tom Linebarger, who is only the sixth leader the company has ever had, says that these factors, in addition to the changing nature of supply chains, were one reason the firm chose to invest $200m (£130m) in another plant further south, in Seymour.

"We did a global study of manufacturing - costs of efficiency and for global supply - we looked at plants in India, China, even the UK, and Seymour came out the best from a total point of view," says Mr Linebarger.

Image caption Tom Linebarger says he was attracted to Cummins because of the firm's values

He chalks up the firm's success not only to its relentless pursuit of global opportunities, but also to its roots.

"There is no question that the company's culture is a Midwest culture - it's modest and it's one that wants to support communities," he says.

'Island of reasonability'

It's not just Cummins that is expanding: General Motors has promised to invest $1.2bn (£670m) in a plant in Fort Wayne, and the state has managed to lure businesses such as steelmaker T&B Tube and shelving firm Edsal Manufacturing away from Illinois over the border to Gary.

This growth is even more surprising because during the recession, economic forecasters had been predicting that the state's unemployment rate would rise as a result of the susceptibility of manufacturing to economic downturns (most consumers first cut back on big purchases like home appliances and cars, which often disproportionately affect manufacturers).

This didn't happen mostly due to a series of prescient actions by Indiana's state government.

"Indiana is seen as an island of reasonability," says Brian Burton, the incoming head of the Indiana Manufacturers Association.

Image caption Cummins controls more than a third of the market for truck engines in the US
Image caption Like other manufacturers, Cummins has invested in robotics to increase productivity on the assembly line

"We have made major regulatory and tax structure changes over the last 10 years which have helped our competitive advantage."

In a move that some have credited to Midwestern prudence, Indiana funded its pension plan for state workers - unlike many other states like Illinois - allowing it to enact a series of tax cuts prior to the recession that made the state attractive to businesses.

Furthermore, the state passed "right to work" legislation in 2012, which meant that unions could not force everyone in a unionised plant to pay dues - a move that is potentially crippling to organised labour, but that is viewed favourably by firms.

Although some academics - including Professor Hicks - have questioned whether or not right to work legislation truly drives manufacturing growth, a study by the Indiana Economic Development corporation found that after the law was changed, 12,000 jobs and more than $1.2bn (£670m) in investment were added to the state by companies said they chose Indiana because it was a right-to-work state.

Industry participants express concern that a coming wave of retirements could impact the workforce, as nearly 40% of the state's current manufacturing employees are expected to retire in the next few years.

That's why politicians, companies like Cummins, and local schools are investing in educating yet another wave of potential employees - to ensure that an industry that has powered the state since those agricultural days continues to provide an economic engine.

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