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Date: November 11, 1992

Title: State of Emergency: New Jersey”s Industrial Decline

Author: Donald M. Scarry

Subject: How a mighty manufacturing state lost its preeminence in producing goods (Part One of a Series)

In the early 1930s, the city of Trenton hoisted a sign onto the Lower Morrisville toll bridge that proudly proclaimed: “Trenton Makes, The World Takes.” That was no understatement; no mere outburst of boosterism. Trenton was a major manufacturing hub. For example, the steel that holds up the Brooklyn Bridge was made at the Roebling works in the city.

During World War II, the U.S. was called the Arsenal of Democracy. New Jersey might well have been named its crucible, for in the state key manufactured products like ships and trucks were made.

Trenton is not the only part of the state”s manufacturing heritage. At the inspiration of Alexander Hamilton, Pierre Charles L”Enfant, the same man who designed the new nation”s capital on the Potomac, put together plans for the world”s first truly industrial city to be located at the Great Falls of the Passaic River. It was called Paterson. In Jersey City, Colgate-Palmolive, the industrial mainstay of the city, built a huge landmark clock, the largest in the world, that could be clearly seen across the Hudson in Manhattan. Newark was also famous for a variety of industries, in particular shoes, and one worker in seven made shoes there in the 1820s. Camden had its shipyards as well as being home to Campbell Soup. Now all that is becoming a distant memory.

Two recent studies have focused attention on New Jersey”s decaying manufacturing base. A report by Rutgers professors James W. Hughes and Joseph J. Seneca carefully documented the decline of an industrial giant. Their analytical work painted a dark picture: “The sputtering of the locomotives of economic growth of the 1980s–services, construction, trade and finance–made it abundantly clear: New Jersey”s manufacturing employing bases have been crumbling–and crumbling fast.” N.J. Economics, my firm, has done a more prescriptive piece that sets out the policy issues involved in restoring the state”s manufacturing.

The 1993 gubernatorial election will soon be upon us. No matter which candidates run, they should not be allowed to avoid the paramount issue facing the economy of this state: the decline of manufacturing. Unless something is done to stop this hemorrhaging, New Jersey will become a “hollowed-out” state, in the words of Hughes and Seneca. Without its manufacturing base, New Jersey will become a state where all we do is shine each other”s shoes.

Since 1943, when World War II production was at its height, manufacturing in New Jersey has steadily declined (see chart) in terms of jobs; as a source of value of manufacturing shipments; and, most important, as a source of value-added in the manufacturing process. It is this last measure that provides the wealth that manufacturing generates for the society.

For the state”s urban centers, the fall of manufacturing has meant a plunge into despair. Professors Hughes and Seneca note the impact of the loss of manufacturing. In the cities this has created a mismatch of skills and jobs that carries with it great social risk. People in the cities are not equipped to do the jobs required in the service sector that exists largely in suburbia. They write: “The replacement jobs in the new office tower–jobs related to producing and processing information–have educational and technical requirements at variance with the skills and training of many urban residents. A void of ”middle” opportunities has grown as the new economy produces jobs at the extremes–high and low paying. “

The manufacturing losses have included many capital-intensive industries like ship building and computer-chip manufacturing, which once generated great wealth and pay high wages. The composition of the manufacturing industries that remain today is not nearly as encouraging. The industries that are still here pay less well and are quick to move to another area of the country or the world, where wages may be lower or environmental and other government regulations less onerous. Industries like machinery, fabricated metals, printing and publishing can all move on to other locations–nationally, regionally or even globally. The state”s chemical products industry, for example, once the mainstay of modern manufacturing growth, is not faring well.

One of the more frightening aspects of manufacturing loss is the possibility of losing a significant portion of the state”s current service industries. The service sector is notoriously footloose, moving quickly to where living conditions are better and salaries lower. Some have already moved across the Delaware.

Successive governors and legislatures have done little about the problem other than provide occasional lip service. Politicians have ridiculed the business community”s perceptions that government is hostile to it, rather than try to address the problem by open communication. Some environmental groups have closed their minds to the fundamental need to have manufacturing. Labor groups have been more sensitive to this issue, but have become less active as their numbers and power have declined. Leadership has also not come from the business community. Egregious and unexplained plant closings as well as resistance to even minor laws to improve working conditions have added to manufacturing”s basic problem.

The history of New Jersey as an industrial power, as recounted by Hughes and Seneca, has been a half century”s tale of a slow, but inexorable, decline. In 1940, just before the U.S. entered the war, the proportion of total American employment in manufacturing stood just below 34%. As the U.S. geared up for the conflict, manufacturing grew dramatically, hitting a peak of 41.5% in 1943. The rapid growth of manufacturing employment during this short time reflects a massive commitment to increased production of war goods, produced in factories that already existed or ones that were hastily converted to the war effort. Firms went on multiple shifts and spewed forth the goods necessary to win the war.

New Jersey was even more involved than the nation as a whole in manufacturing. In 1940, the proportion of New Jersey”s total jobs in manufacturing was in excess of 47%; more than 13 percentage points higher than the nation. That sign over the Delaware was a statement of fact.

By 1943, at the height of the war, both New Jersey and the nation were fully involved in wartime production. More than one out of every two employed persons in New Jersey (55.4%) worked in the manufacturing sector–almost 14% more than for the nation as a whole.

In New Jersey in 1943, almost a million (961,200) workers were employed in manufacturing. All during the 1940s, the state maintained a 13% higher proportion of workers in manufacturing than the nation. By 1949-50, the proportion of the nation”s total employment in manufacturing was 33.7%; fairly close to what it was in 1940.

During the Korean War, almost the same employment spurt occurred as during World War II. From 1950 through 1953, the proportion of the nation”s jobs in manufacturing grew, and the number of workers in this state in manufacturing also increased. In 1953, at the conflict”s end, the proportion of the nation”s employment in the manufacturing sector stood at 35%.

As in the 1940s, New Jersey during the Korean War was more involved in manufacturing than the rest of the nation. At the height of the conflict, 46.4% of New Jersey workers were employed in manufacturing. All through the 1950s, New Jersey maintained its advantage in manufacturing, employing 10% more of its work force in manufacturing than the nation as a whole.

During the 1960s, the proportion of workers in manufacturing began to decline, both nationally and in New Jersey. Nationally, manufacturing slipped from more than 31% of the work force to just over 27%. In New Jersey, the decline was more precipitous–from 40% to just 33%.

Through the 1970s, the same pattern of decline occurred. In the nation, the proportion of total employment in manufacturing fell from 23% in 1970 to 22% by the end of the decade. New Jersey entered the 1970s with one-third of its workers in manufacturing. But by the end of the decade, only one-quarter were employed in manufacturing.

In the 1980s, New Jersey”s so-called advantage in manufacturing was wiped out. Both the nation and New Jersey continued to see the drop of the manufacturing sector, as more and more unskilled and semi-skilled work was shipped abroad to lower-cost countries. Nationally, in 1980, manufacturing accounted for just over 22% of jobs; by 1991, it had declined to just under 17%.

Again, the same pattern applied to New Jersey, which entered the 1980s with more than one-quarter of its jobs in manufacturing. By the beginning of 1992, this had fallen to less than 15%.

Some argue that New Jersey in the 1940s simply had enjoyed an over-concentration of the nation”s manufacturing in that earlier era. They assert that the situation was inherently unstable and that the decline was inevitable. The opening of the nation by rail, air and especially the interstate highway system removed New Jersey”s geographic advantage, when the bulk of the nation”s business was located along the East Coast.

They buttress their argument by noting the general dispersal of population away from the industrial northeast since the time of the Civil War. Over the long pull, the American population has continued to move away from the coasts and settled inland. As this occurs, businesses that service and manufacture goods for local populations tend to move along with them. Some of these market-sensitive businesses are manufacturing industries.

Others argue that there has been a decades-long competition among states for business, and New Jersey either did not even know a battle was being fought or did not deign to enter the conflict. Recently, this has taken on the form of aggressive economic development advertising campaigns that promise good living conditions, good workers and low taxes. Of course, businesses have long tended to move to locations where costs of production are lower–lower land prices, cheaper and more docile labor, friendlier governments and lower environmental compliance costs. For a long time, these were the secret, subtle weapons of interstate economic development wars. But New Jersey has sat that war out for decades, content to see the service sector grow and bid farewell to sometimes dirty manufacturing plants.

One of the more important issues, however, is the general decline of U.S. manufacturing preeminence in the world. The facts of this decline and its causes have been the subject of literally hundreds of studies. The reasons suggested for the American decline as a manufacturing superpower are legion: ineffective federal tax policy; failure to maintain research and development rates; failure to maintain new investment rates; poor monetary and fiscal policies; and the general absence of any coherent industrial development policy.

Whether one agrees or disagrees with any set of conclusions, the fact remains clear that the U.S. has fallen from global preeminence as a manufacturing center. Could New Jersey ever have fared any better than the nation in resisting national and global change?

Surely New Jersey has been effected by national and global trends; part of the state”s manufacturing losses have been a result of things that state government simply could never do anything about–a defense procurement policy that has clearly favored the south and west; a global oil embargo; or foolish federal tax cuts or increases. Some of the spinoff in the creation of service jobs that occurred nationally has also taken place in New Jersey. To some degree, whatever technological changes occur globally or nationally also took place here at a time when there is only one world technologically.

If the New Jersey proportion of workers in manufacturing declined at the national rate, we could assume that whatever was effecting the state”s manufacturing was national in scope. But New Jersey has declined faster than the country as a whole.

Both New Jersey and the nation have suffered declines in manufacturing employment. This pattern of decline has been more or less constant since World War II. Something more has happened, however, in New Jersey; it has been losing manufacturing at a greater rate than the nation. Its advantage in manufacturing, averaging almost 13% percentage points in the 1940s, has now disappeared and New Jersey employs fewer people in manufacturing than the nation as a whole.

In the last half century New Jersey has become a service-economy state. Until the current economic slowdown, many people praised that trend, maintaining that it was the road to the future. Who wanted a steel mill next to your house, when you could have a research lab there? In more recent months, though, the shortcomings of being a service economy have become apparent. It is clear now that we cannot prosper just by shining each other”s shoes. u

Donald M. Scarry, author of the Trenton Watch column, is a principal in N.J. Economics, a Mt. Laurel consulting firm.

Relic of an Industrial Past

The RCA semiconductor plant in Bridgewater, which was built in the 1950s, once employed 1,200 people. After GE bought RCA, it ran the plant for three years as GE Solid State, b ut then sold it in 1988 to Harris, a semiconductor company in Melbourne, Fla. Semiconductor production at the facility was stopped in the late 1980s. Though it is listed for sale with a Philadelphia broker, the plant is considered unsaleable because of ECRA. In the days before anyone knew there was a danger, chemicals were dumped in the ground under what is now the parking lot.