RI's STAGNANT EXPORTS ARE TRULY TROUBLING
The Providence Journal Money & Business Page, June, 1998
Until recently, I had presumed that manufacturing in Rhode Island was nowhere near as weak as the employment numbers seem to indicate. In response to questions about manufacturing employment here, I have always mentioned how, during times of rising productivity, a focus on employment is likely to be highly misleading, since it is output we are really interested in, and for many firms, output will be rising as fewer workers are employed. I felt that our major problem was with firms leaving Rhode Island; that this was a more critical concern than our problems with a concentration of low-value added firms and companies that have failed to modernize either production or management methods. Then I studied the recent data on exports for Rhode Island and the other New England states.
Did this alter my opinion on the health of Rhode Islands manufacturing sector? With regards to what I had been stating before, permit me to quote Rosanne Roseanna Danna, late of Saturday Night Live fame: "Never mind!" The export performance of the Rhode Island economy through all but the last year of this recovery has truly been exceptional. Not in terms of how well it has performed, but how little exports have grown compared to our neighboring states. It is a testimonial to how non-competitive Rhode Islands manufacturing firms had apparently become.
The table below gives manufacturing exports for the US, Rhode Island and its
neighboring states. Clearly, the US has done quite well, with exports growing at
double-digit rates for 1994, 1995, and 1997. Massachusetts got off to a slow start in 1993
then picked up momentum, exceeding the national growth rate for both 1995 and 1997.
Connecticut got off to a great start in 1993, with a 10.8 percent growth rate, faded from
1994 through 1996, then came on strong in 1997, registering a healthy 14 percent rate of
growth. For both Massachusetts and Connecticut, 1997 exports were well above 1992 levels.
Maybe were not doing so well in terms of overall exports, but what about the countries we export to? Is there a fairly long list of healthy economies whose economic fortunes promise us future increases in exports? Do we have a relatively small exposure to Asian countries, so that our rather unique export performance will not be hurt by the "Asian crisis," so that we can only improve?
In response to the first question, Canada is by far the largest purchaser of Rhode Island exports, with a 30.4 percent share in 1997. All of our other trading partners pale by comparison. Only five countries accounted for 56.2 percent of exports in 1997. The next five countries account for only 16.1 percent. So, ten countries accounted for about 70 percent of all manufacturing exports from Rhode Island in 1997. Thats not a terribly long list.
What about the second question concerning exports to Asian countries and our risks from the "Asian crisis"? The geographical pattern of the top ten countries reveals that North America is by far our largest export market, followed by Europe, then Asia. When all of the Asian countries are considered, the total exports share for Rhode Island is less than 20 percent. Judged from this information alone, it appears that Rhode Island should be far more concerned with "the Euro" than with the Asian tigers when it comes to exports. But, while the export share of the Asian countries is not terribly large, the growth in exports to Asian countries has been substantial, so expect some Rhode Island firms to be far more adversely affected than the export share numbers indicate.
Did 1997 mark the elimination of the non-competitive portion of Rhode Island manufacturing? I truly hope this is the case, but I seriously doubt it. If a non-competitive portion remains, rest assured that when the next recession comes, Rhode Islands manufacturing sector will experience a major shakeup. Firms that have failed to modernize production or management methods will quickly succumb to a slowdown in national economic activity. I will infer that Rhode Islands rather "unique" export performance prior to 1997 was a manifestation of the lack competitiveness of its manufacturing sector and partly the result of an incorrect "industry mix." The relatively high cost of doing business here also played a part, in spite of the relatively low manufacturing wages here. So, if our manufacturing sector is not yet competitive, expect it to be so within the next few years, ready or not!
by Leonard Lardaro