Study Reveals Striking Shifts in Global Manufacturing Costs in Past Decade

Many low-cost emerging markets are no longer cheaper than the U.S.

Manufacturing cost competitiveness around the world has changed dramatically over the past decade—so dramatically that many old perceptions of low-cost and high-cost nations no longer hold, according to new research by The Boston Consulting Group (BCG).

To shed light on the shifting cost dynamics of global production, BCG has developed the Global Manufacturing Cost-Competitiveness Index, which tracks changes in production costs over the past decade in the world’s 25 largest goods-exporting nations. The index covers four direct economic drivers of manufacturing competitiveness: wages, productivity growth, energy costs, and currency exchange rates. The 25 countries account for nearly 90% of global exports of manufactured goods.

The 10 countries with the lowest manufacturing costs, according to the index, are a mix of nations from around the world. Six of the 10 are in Asia, while several others are in North America and eastern Europe. A number of other countries have experienced extreme drops in cost-competitiveness: Australia has the highest manufacturing-cost structure of the 25—around 30% higher than the U.S.

“Many companies are making manufacturing investment decisions on the basis of a decades-old worldview that is sorely out of date,” says Harold L. Sirkin, a BCG senior partner and a coauthor of the analysis. “They still see North America and western Europe as high cost and Latin America, eastern Europe, and most of Asia—especially China—as low cost. In reality, there are now high- and low-cost countries in nearly every region of the world.”

Four Patterns of Change

The research identified four distinct patterns of change in manufacturing cost competitiveness over the past decade that involve most of the 25 economies studied.

1. Under pressure. Five economies traditionally regarded as low-cost manufacturing bases—China, Brazil, the Czech Republic, Poland, and Russia—have seen their cost advantages erode significantly since 2004. The erosion has been driven by a confluence of sharp wage increases, lagging productivity growth, unfavorable currency swings, and a dramatic rise in energy costs. China’s manufacturing-cost advantage over the U.S. has shrunk to less than 5%. Costs in eastern European nations are at parity or above costs in the U.S.

2. Losing ground. Several countries that were already relatively expensive a decade ago, primarily in western Europe, have fallen even further behind. Relative to the costs in the U.S., average manufacturing costs in Belgium rose by 6%; in Sweden, 7%; in France, 9%; and in Switzerland and Italy, 10%. Higher energy costs and low productivity growth—or productivity declines—are the chief reasons.

3. Holding steady. A handful of countries held their manufacturing costs constant relative to the U.S. from 2004 to 2014 and have significantly improved their competitiveness within their regions. Declining currencies, along with productivity growth that largely offset wage hikes, helped keep overall costs in check in Indonesia and India. The UK and the Netherlands, on the other hand, have kept pace thanks to steady productivity growth. As a result, the cost structures of Indonesia and India have improved relative to Asia’s other major exporters, while the UK and the Netherlands have boosted their cost competitiveness relative to other exporters in western and eastern Europe.

4. Rising stars. The overall manufacturing-cost structures of Mexico and the U.S. have significantly improved relative to nearly all other leading exporters across the globe. The key reasons were stable wage growth, sustained productivity gains, steady exchange rates, and a big energy-cost advantage that is largely driven by the 50% fall in natural-gas prices since large-scale production of U.S. shale gas began in 2005. Mexico now has lower average manufacturing costs than China. Overall costs in the U.S., meanwhile, are 10% to 25% lower than those of the world’s ten leading goods-exporting nations other than China.

Implications for Manufacturers

The findings have implications for both companies and governments as they consider their manufacturing options. Several countries that have lost ground since 2004 risk becoming even less cost competitive if current wage and productivity trends continue. In some nations with low direct-manufacturing costs, BCG found that competitiveness could be undermined by other factors, such as a difficult business environment or poor logistical infrastructure.

The study’s authors recommend that companies reassess their global production and sourcing footprints in light of today’s cost structures and trends. Manufacturers need to look beyond wages and take into account total costs, including differences in productivity and hidden costs.

To request a summary of the research, contact Eric Gregoire at 617.850.3783 or gregoire.eric@bcg.com.

Economist: State’s Fiscal Condition ‘Significant Weight on Economy’

Nationally, pent-up demand should spur growth

By Lesia Winiarskyj

Moody's Analytics senior economist Ryan Sweet speaking at CBIA's 2014 Connecticut Economic Update.

Despite a soft patch, the U.S. economy is on the rise, uncertainty is easing, and fiscal policy is becoming less of a drag.

“Our optimism has been tested. The five-year recovery feels more like 30, but the U.S. economy is improving after a long, abnormal winter,” said Moody’s Analytics senior economist Ryan Sweet, addressing 230 business leaders at CBIA’s 2014 Connecticut Economic Update on May 9.

Forecasting U.S. GDP increases of 3% in 2014 and 4% in 2015, Sweet says private industry will do “fairly well” this year and “exceptionally well in 2015 and 2016.”

“The bad news is that [the long-term fiscal condition of] state government continues to be a significant weight on the pace of Connecticut’s economic recovery,” said Sweet, speaking two days after state lawmakers completed a 2014 legislative session marked by a lack of focus on economic competitiveness.

That was in contrast to the national outlook, where he expects U.S. fiscal policy should “be less of a drag” going forward.

Economic Uncertainty

“A lot of economic uncertainty remains, but pent-up demand should help drive growth,” Sweet noted.

Like much of the Northeast, Connecticut’s economy was impacted by weather-related disruptions in factory production and a pullback in consumer spending as utility bills skyrocketed and unemployment benefits expired.

The all-important housing market also saw recent weakening—particularly in new construction starts—driven by few buildable lots, limited inventory, and a shortage of skilled construction workers and licensed tradespeople.

Exports

In addition, Europe’s faltering economy has affected Connecticut exporters.

“With the exception of aerospace, Connecticut exports to the Euro zone have been flat,” said Sweet, but added that recent improvements in the global economy should boost manufacturing and exports in the Northeast.

Over the next two to three years, he said, Connecticut will benefit from:

  • Pent-up demand for equipment and capital investments
  • A pickup in business research and development
  • Banks opening up the credit spigot
  • Wage growth
  • A lift in consumer spending to support industries that have been stagnant, including retail and leisure/hospitality

Coupon Factor

Joseph Kelley, president of Stop & Shop New England, also touched on consumer spending patterns in his keynote address at the May 9 conference, noting that the weak economy has put coupon usage “through the roof”—at its highest level in 25 years.

Kelley too, however, is optimistic about the near future.

With 93 stores throughout the state, Stop & Shop—one of the state’s largest employers—generated over $39 million in sales and use taxes in Connecticut in 2013, paid over $24 million in real estate taxes and almost $5 million in personal property taxes in the state, and made nearly $1 billion in capital investments in Connecticut over the last decade.

Competitiveness

In order to keep businesses growing here, Bonnie Stewart told the audience, we need to reduce business costs, improve education and transportation infrastructure, and bring Connecticut “up that competitiveness ladder.” Stewart is CBIA’s vice president of government affairs.

Positive measures adopted this past legislative session, she said, included efforts to simplify the tax code; elimination of double taxation (estate and gift taxes); the apprenticeship tax credit; workers’ compensation reform that brings surging medical costs under control; the creation of a new port authority; and a five-year plan to improve the state’s transportation infrastructure.

“Nonetheless, we’ve got a huge problem when it comes to the state budget,” she said. “We’ve seen our revenues fall, and there’s a huge deficit projected for two years out.

“All the gubernatorial candidates are saying they won’t raise taxes if they get elected, but that means they have to get their spending under control.

“Traditionally, cutting spending is something the legislature, to put it nicely, has a great deal of trouble with.” ■

Lesia Winiarskyj is a writer on economic and workforce issues at CBIA. Contact her at lesia.winiarskyj@cbia.com.

Connecticut Fourth Highest in Congestion Costs Per Highway Mile

Nationwide, trucking industry sees $9 billion in congestion costs for 2013

Traffic on I-95 in Stamford at dusk.

Congestion on the nation’s interstate highways added over $9.2 billion in operational costs to the trucking industry in 2013, according to a report by the American Transportation Research Institute (ATRI) released on April 30.

ATRI used motor carrier financial data along with billions of anonymous truck GPS data points to calculate congestion delays and costs on each mile of interstate roadway. Delays totaled over 141 million hours of lost productivity, which equated to over 51,000 truck drivers sitting idle for a working year.

Noting that “congestion and related costs are typically concentrated in the states with the highest populations,” ATRI’s analysis reveals that California had the highest costs in 2013 (over $1.7 billion), followed by Texas (over $1 billion), and New York (nearly $846 million). Massachusetts was ninth, with $303 million in costs. Despite Connecticut having only the 29th-largest population of the 50 states (3,596,080) in 2013, the Nutmeg State, was number 17 in total congestion costs at $197 million, a 2.2% increase over 2012.

When congestion costs are measured on a per-mile basis, which, according to ATRI, “illustrates the intensity of congestion relative to the size of the transportation network,” Connecticut ranked fourth in the nation, with $272,729 in costs per interstate highway mile.

Most Jammed-Up Metro Areas

The Los Angeles metropolitan area saw the highest cost at nearly $1.1 billion, with New York City close behind at $984 million. Third highest was Chicago at $467 million, followed by Dallas-Ft. Worth ($406 million), and Washington, D.C. ($379 million).

The cost-per-mile data tell a slightly different story. Although Los Angeles and New York still led the way at $1.4 million and $801,121 respectively, the third spot was taken by the Bridgeport-Stamford-Norwalk metro area, with $717,041 in congestion costs per mile—higher than San Francisco-Oakland (fourth at $679,614, and Washington, D.C. (fifth at $627,246).

Congestion tended to be most severe in urban areas, with 89% of the congestion costs concentrated on only 12% of the interstate mileage. This concentration of congestion has been well-documented in previous work by ATRI, which identified the worst truck bottlenecks in the U.S. In 2013, Connecticut accounted for six of the worst 100 bottlenecks in the country:

  • 18th most congested—Hartford (I-84 at I-91)
  • 40—New Haven (I-95 at I-91)
  • 65—Stamford (I-95)
  • 66—Norwalk (I-95)
  • 80—Bridgeport (I-95 at Rt. 8)
  • 92—Waterbury (I-84 at Rt. 8)

ATRI’s findings corroborate those of CBIA’s 2013 Connecticut Transportation Survey, which received responses from 651 business leaders from across the state. The survey identified road congestion as the single most pressing transportation concern for businesses.

State Rankings

Transportation infrastructure is often a factor in independent rankings of states’ business climates and, as the above data suggests, Connecticut has not fared well. For example, the state ranked 49th in that category in CNBC’s Top States for Business 2013 index.

CBIA and dozens of other business groups and professional organizations aim to move Connecticut into the top 20 states in national business climate rankings by 2017 through the CT20×17 campaign. The campaign is built on a framework of commonsense solutions in key public policy areas, including transportation. Click here to learn how you and your employees can play a role. ■

Feds Place Indefinite Hold on Issuance of Licenses for Export or Reexport to Russia

By Suzan M. Lehmann

On March 25, 2014, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced that it had placed a hold on the issuance of licenses authorizing the export or reexport of items destined for Russia. These include military items, “dual-use” items (goods, software, and technology that have capability of both a civilian and a military or proliferation-related use), and commercial items with an obvious military use.

The BIS is responsible for implementing and enforcing export controls on items and activities subject to the Export Administration Regulations (EAR). The EAR identify “exports” not only as the shipping or transmitting of items out of the U.S., but also the release of technology or source code subject to the EAR to a foreign national in the U.S. or in a foreign country.

Reexports include items subject to the EAR that originate in the U.S., foreign-made items that contain more than a de minimus level of content having U.S. origin, or foreign-made items that are a direct product of technology or software of U.S. origin.

The licensing hold took effect March 1, 2014, and remains in effect until further notice. The hold affects only new export applications and not licenses granted before the hold took effect or exports or reexports of items that do not require a license or that fall under a licensing exemption.

In a similar move, the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC) announced on March 27, 2014, that it had also indefinitely halted the issuance of licenses for defense articles and defense services destined for Russia. The DDTC is responsible for controlling the export and import of defense articles and defense services covered by the International Traffic in Arms Regulations’ United States Munitions List (USML).

These measures are in addition to Congress’ passage of a bill last month authorizing loan guarantees and aid to Ukraine, and freezing assets and imposing visa bans on those found to be threatening peace, security, stability, or democratic processes in Ukraine. The bill supplements recent sanctions by the Obama administration that froze assets and banned travel to the U.S. by Russian leadership and others.

Violation of U.S. export controls and sanctions can result in severe civil and criminal penalties. U.S. companies that deal in items covered by the EAR or USML or that transact business with targeted individuals or entities should carefully consider the impact of the above developments on their contractual and other business obligations. ■

Suzan M. Lehmann is of counsel at the law firm of Hinckley Allen. For more information, contact her at 603.545.6144 or slehmann@hinckleyallen.com.

Connecticut Best for 401(k) Plans

Not so much for taxes

According to benefit plans analysts Judy Diamond Associates, Connecticut is the best state in which to have a 401(k) plan. The number-one designation stems from the state having the highest concentration of “strong plans.”

“Those states with the highest concentration of top plans have higher participation rates and more employer generosity than other states,” says Eric Ryles, managing director of Judy Diamond Associates.

Rankings are based on the percent of 401(k) plans receiving top plan scores among all 401(k) plans in each state. Plan scores are calculated with an algorithm that considers key measures of the strength of a plan’s design, management, and performance, as well as how each of those metrics compares to nationwide benchmarks.

Plans receive scores up to 100 based on information they report to the U.S. Department of Labor annually. A top score is anything above 80. In Connecticut, 6.86% of 401(k) plans are top-score plans, followed by Wyoming (6.79%), Alaska (6.78%), Delaware (6.70%), and Massachusetts (6.57%).

Hang On to That 401(k)

It’s a good thing Connecticut is the best state for 401(k) plans, because you’ll need the tax advantages they offer if you live here.

In March, financial site WalletHub released its 2014 Best & Worst States to Be a Taxpayer report, which put Connecticut at 48th, the fourth worst state among all others and the District of Columbia. When Connecticut’s tax burden was adjusted for cost of living, the state dropped to 49th.

Connecticut residents annually pay an average $9,099 in state and local taxes, or 31% more than the national average according to the report.

Improving Competitiveness

There’s no doubt that Connecticut has many impressive competitive advantages. Being a top state for 401(k) plans is just one. Unfortunately, we rank poorly in most national business climate surveys, which rely on factors such as states’ tax burdens to determine the best and worst places for business.

The WalletHub report underscores the need for Connecticut to focus on improving the state’s economic competitiveness—the main goal of CT20×17. With the support of more than 50 leading business and professional organizations from across the state, CT20×17 is a broad-based, multiyear campaign specifically aimed at driving Connecticut into the top 20 states for business by 2017. Click here to learn how you and your employees can play a role. ■

For more information about the 401(k) study, contact Judy Diamond Associates here or follow them on Twitter @401kFacts.

Economic Forecast 2014: Warming Up?

Policy decisions could impact whether state is part of national upturn

By Lesia Winiarskyj and Dave Conrad

Nick Perna, economic advisor to Webster Bank, discusses his expectations for Connecticut’s economy over the next few years.

It’s been a long time coming, says Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston, but he’s now “reasonably upbeat” about the U.S. economy and the forecast for 2014.

Speaking at the 2014 Economic Summit & Outlook in Hartford last month, Rosengren said he expects the economy to grow at a rate of about 3% in 2014—a nice step up from the average 2% growth in 2013.

Driving the uptick is greater consumer confidence, a housing market on the rebound, and the waning impact of fiscal austerity measures such as the sequester.

The recovery “still has a long way to go,” Rosengren cautioned, noting that the Fed would like to see a return to full employment (an unemployment rate of 5.25%, as compared to the current 7.3%) and an inflation rate of about 2%.

Upward Trajectory

Nick Perna, economic advisor to Webster Bank, is cautiously optimistic too.

Though interest rates will likely remain at or near zero for the short term, Perna predicts a potentially significant increase by 2016–2017. He also expects 15,000–25,000 new jobs in Connecticut over the next year (about the same as last year), 25,000–35,000 new jobs in 2015, and greater increases later—in 2017. Income, he estimates, will rise about 6% per year over the next two years, outpacing the cost-of-living increase, at 2%.

Personal bankruptcies should also fall to half the level they were at the lowest point after the Great Recession.

But, Perna notes, Connecticut’s comeback has been tepid compared to that of neighboring states New York and Massachusetts, whose recoveries have been more robust. He blames Connecticut’s lagging recovery on its severe budget deficits: $3 billion in 2011 and over $1 billion a year for the next biennium.

“I agree that the U.S. economy is on an upward trajectory, that we are on an upward trajectory. But [Connecticut’s legislature] has the capacity to change that trajectory for the worse or better.”

“It’s important to help Connecticut legislators understand the impact of their policy decisions on jobs in Connecticut,” says Jason Howey, president of OKAY Industries.

Howey was part of the 2014 Economic Summit and Outlook panel discussion on advanced manufacturing that also included Chris DiPentima, president and CEO of Pegasus Manufacturing; Sean Crowley, vice president of global manufacturing for Covidien; and Elliot Ginsberg, president and CEO of the Connecticut Center for Advanced Technology.

Connecticut doesn’t necessarily have to be “the cheapest place to do business,” said DiPentima, “but we need to be cost-competitive.” While 2014 looks like a relatively flat year, he adds, his customers—companies like Boeing, Airbus, UTC, General Electric, and Rolls Royce—see steep growth starting in 2015, as a result of private research and development investment. “They’re looking to go from zero to 60 in a two-year period,” he said, and they expect a quick return on their R&D investment.

Ginsberg and Crowley also forecast a significant ramp-up in manufacturing and the need to expand capacity. Without a pipeline of qualified workers, they say, the industry’s workforce shortage threatens to undermine its potential for growth. (CBIA is conducting a survey on manufacturing workforce issues early this year; we will present our findings at Made in Connecticut: 2014 Manufacturing Strategy Summit in Cromwell this spring.) ■

Sponsored by Webster Bank, the 2014 Economic Summit & Outlook was presented by CBIA and the MetroHartford Alliance.

Lesia Winiarskyj, a writer and editor at CBIA, can be reached at lesia.winiarskyj@cbia.com. Dave Conrad is a senior writer at CBIA. He can be reached at dave.conrad@cbia.com.

One Year Into State’s Comprehensive Energy Strategy: What’s the Deal?

David Koons (standing), director of the Office of Planning and Economic Development for the city of Bridgeport, discusses trends in the competitive energy marketplace.

Conference provides updates on natural gas expansion, renewables, security issues

For Brad Kane, managing editor at the Hartford Business Journal and editor of its Connecticut Green Guide, Connecticut’s natural gas expansion—a ten-year, $7 billion project aimed at converting 280,000 Connecticut customers to natural gas—has been one of the year’s biggest stories.

Kane shared the region’s top energy headlines—and what goes into reporting them—in his morning keynote address at the 14th annual What’s the Deal: 21st Century Business Energy Conference, hosted by CBIA and the Connecticut Power and Energy Society on Oct. 10.

Natural gas expansion, he noted, is a key component of Connecticut’s Comprehensive Energy Strategy, which Gov. Dannel Malloy unveiled at last year’s What’s the Deal conference. The governor’s plan serves as a roadmap to cheaper, cleaner, more reliable energy in a state that consistently ranks anywhere from second to fifth in the nation, said Kane, for highest energy costs.

Natural Gas: A Game-Changer

Michael Dirrane, director of Northeast marketing for Spectra Energy and a panelist at the event, characterized natural gas as “a tremendous game-changer” for the region.

“We now have production of natural gas in our backyard, in Pennsylvania and Ohio. The supply is there; it’s getting the infrastructure set up to bring it in.”

Robert Young, a regional manager at Burns & McDonnell Engineering Company’s New England office, agreed.

“We have this source of energy independence in the U.S., where we’re not only talking about not having to import energy but actually being able to export it,” said Young. “But there’s still the issue in the Northeast of getting the gas to the customers, of improving distribution.”

Connecticut’s expansion project starts with roughly 40,000 low-use customers (those who have access to natural gas but aren’t using it to heat their homes) and another 150,000 who are “on-main” (meaning that they are within 150 feet of a main but are not hooked up). Another segment the state hopes to reach, said Roddy Diotalevi of UIL Holdings Corp., includes neighborhood clusters, municipal buildings, schools, and healthcare and manufacturing facilities.

Complicated Plan, Moving Pieces

When it comes to natural gas, infrastructure is only part of the problem. Penetration in Connecticut’s residential markets is decidedly low, Diotalevi explained, because much of the cost of expansion will be borne by new customers—which in turn determines whether and to what extent expansion can occur.

Camilo Serna, vice president of corporate strategy at Northeast Utilities, added that aggressive gas expansion requires coordinating a lot of moving pieces in a complicated plan, getting customers to commit in adequate numbers, and determining how to fund the expansion.

Serna and fellow panelists proposed a number of possibilities for encouraging faster and wider adoption of natural gas throughout Connecticut, among them:

  • Residential conversion credits
  • Maximizing manufacturers’ rebates and energy efficiency rebates
  • Reducing customer hookup costs—for example, waiving the charge for customers 150 feet from the main
  • Launching and publicizing new financing options
  • Developing an adequate contractor network and HVAC participation to meet demand

Renewables and Energy Efficiency

Business leaders consult with vendors in the trade show area.

That same integration of incentives, targeted financing opportunities, and increased contractor participation has been instrumental in the success of other statewide energy initiatives, such as C-PACE (Connecticut Property Assessed Clean Energy), which allows commercial, industrial, and multi-family property owners the ability to make qualifying investments with no upfront costs and a guaranteed positive cash flow from energy savings; CEFIA (Clean Energy Finance and Investment Authority), which provides homeowners, businesses, and municipalities with incentives and low-cost financing for renewable energy and energy efficiency; and Connecticut’s Energy Efficiency Board (EEB), which conducts independent, comprehensive evaluations of residential and commercial and industrial energy efficiency programs funded by Connecticut’s Energy Efficiency Fund.

“Layering all these benefits—incentives, investment tax credits folded into cash flow, guaranteed payment for renewable energy credits, deferred payment until a project is completed, monitoring to ensure investments are secure and savings are achievable—this creates a package that’s a very attractive investment for a building owner,” said David Ford of Trane U.S. Inc.

Coordinated efforts such as these have also helped renewable and alternative energy providers, said Michael Silvestrini, president of Greenskies Renewable Energy.

“They’ve incubated industries such as solar power to the point where subsidies are no longer crucial. Over the next six years, solar energy is expected to achieve retail grid parity that attracts national players.”

“Here in the Northeast it’s been consistent, predictable state policies like long-term contracting and Connecticut’s lead-by-example program that have been driving renewables and bringing them to our region,” said Lisa Ward, manager of government relations for ClearEdge Power, which produces stationary fuel cell systems.

“Public Act 11-80 [Connecticut’s Comprehensive Energy Strategy] has been very progressive and supportive of these industries,” she added, pointing specifically to an expanded property tax exemption that includes fuel cell technologies.

Fuel cells, biomass, and wind, however, have not yet achieved economies of scale that allow them to operate without subsidies, Ward and fellow panelists acknowledged.

Other obstacles for her industry, Ward noted, are inconsistencies from municipality to municipality in terms of permitting and fees, which could range from zero to tens of thousands of dollars.

In addition, siting challenges—such as a ban on wind energy projects—continue to hinder progress for other types of energy providers in Connecticut. (Best practices from other states include using farmland for wind energy, allowing the renewable energy industry to ‘cohabitate’ with agriculture.)

Energy Security

Securicon’s Ernie Hayden says electric grid cybersecurity “needs to be part of the day-to-day conversation” for policymakers, regulators, and industry executives. Hayden was a keynote speaker at the CBIA/CPES 14th annual What’s the Deal: 21st Century Business Energy Conference

Ernest Hayden, certified ethical hacker and executive consultant for the information security firm Securicon, suggested that tax breaks and incentives could also improve electric grid security.

Hayden delivered the afternoon keynote address at What’s the Deal.

Historically, he said, the emphasis for utilities has been on physical security to protect assets—for example, preventing copper theft or substation break-ins. Focus on cybersecurity has only recently percolated into the smart grid space.

“The job is getting bigger and bigger and harder to do because of a ubiquity of data that has to be protected,” said Hayden, citing the expansion of bring-your-own-device policies (where employees attach their personal devices to their employers’ network) and “an Internet not designed for security, where not every hole in the sieve is covered.”

Hayden cautioned that these are concerns that should be top of mind for all utility executives, board members, and government officials.

“It’s right up there with profit and loss.” ■

Lesia Winiarskyj is a writer and editor at CBIA. Contact her at lesia.winiarskyj@cbia.com.

Culture Change in Government

Bureaucracy getting leaner, but continued progress necessary

By Dave Conrad

Quietly but steadily state government in Connecticut is getting leaner, greener, and user-friendlier. It’s a culture change that’s making Connecticut more responsive to businesses and more responsible to taxpayers, says Gov. Malloy.

In October, the governor released the latest report on what state agencies are doing to streamline their operations and make more efficient use of taxpayer dollars.

Called Continuous Improvement in Connecticut State Government, the 84-page report from the Office of Policy and Management is a catalog of streamlining efforts and the results anticipated or already in the books.

“We have continued to modernize state government,” said Gov. Malloy. “From energy retrofits to reducing permit processing time from months to days, this report offers a broad look at quantifiable savings over last year—demonstrating that we’re doing a better job of serving taxpayers.”

Among the many improvements businesses will be interested in seeing—or may already be realizing—are these from the report:

  • Using a lean process, the Department of Energy and Environmental Protection (DEEP) broke a logjam in industrial stormwater general permits.
  • DEEP is saving $1.84 million per year through reduced state energy bills as a result of energy retrofits via the Lead by Example program.
  • The Department of Labor (DOL), in partnership with the Chief State’s Attorney’s Office, created the Unemployment Compensation Fraud Unit, recovering over $400,000 in unemployment insurance overpayments and preventing about $100,000 weekly in fraudulent payments. The program also has led to 18 arrests.
  • DOL also leaned its unemployment insurance tax notices to get them to employers before the start of the new year—much earlier than before.
  • The Department of Administrative Services (DAS) has reviewed, renegotiated, or rebid statewide contracts for goods and services to the tune of more than $18 million savings in Fiscal Year 2013 alone.
  • DECD is implementing an online CTNEXT Contact Relationship Management System to improve Connecticut Innovations and DECD data projects and share information across their platforms. DECD said that “entrepreneurs often talk about receiving help that is significantly more energetic, respectful, and capable, with a sense of urgency in other states. To compete, we must change our culture of customer service for businesses seeking help.”

CBIA has been encouraging state government to achieve that culture change—to find ways to produce and deliver services better and more cost-effectively. In our Turning the Tide report, released earlier this year, we discussed big-ticket budget items in need of streamlining and the potential for adopting best practices from other states.

Learning from Others

Several states have embraced the lean culture in every aspect of their state government. They have the results to show for it and sophisticated ways of reporting their accomplishments.

Take Minnesota, for example. The Gopher State’s “Enterprise Lean” is a government-wide way of life that’s reflected in a robust website and reporting mechanism.

Then there’s “Lean Ohio”—and another user-friendly website detailing how that state is making their government “simpler, faster, better, and less costly.”

Washington state recently held its second annual Washington State Government Lean Transformation Conference. More than 2,000 people, mostly state workers, attended the two-day event.

Another impressive idea resides in Virginia, where the Virginia Performs program is constantly measuring state government, or “Measuring what matters to Virginians,” as its slogan says. Virginia Performs is not just reflective of lean practices but a dynamic catalog of every part of state government—including action plans and actual performance.

What all of these states have in common is that change, often through lean, is part of their culture. And it’s practiced constantly and reflected in very organized, systematic public reporting mechanisms. That’s what Connecticut should be looking to adopt, embrace, and improve upon. ■

Dave Conrad is a senior writer at CBIA. Contact him at dave.conrad@cbia.com.

Drone Technology and Business Monitoring-

Regulatory, business, academic communities discuss risks, benefits

By Lesia Winiarskyj

Dr. Massimiliano Lega demonstrates the StillFly drone at the fall meeting of CBIA's Environmental Policies Council.

The Federal Aviation Administration projects as many as 30,000 unmanned aerial vehicles in domestic airspace by the year 2020, thanks in part to a new FAA permitting process for civilian drone operations starting in 2015. It’s a move that’s raising questions—and concerns—about the use and deployment of drones.

“This trend—combined with recent incidents involving drones—brings up serious policy issues about privacy and surveillance by government agencies, private citizens, activist groups, and commercial entities,” says Eric Brown, CBIA’s director of energy and environmental policy.

Dr. Massimiliano Lega, an aerospace engineer and environmental engineering professor at the University of Naples, Parthenope, touched on some of these issues at the fall meeting of CBIA’s Environmental Policies Council.

Eye in the Sky

The event, held at the Saybrook Point Inn in September, featured live drone demonstrations, Q&A sessions, and discussions with national and regional officers of the U.S. Environmental Protection Agency about plans for using remote devices for business monitoring and compliance.

Sharing actual images captured by a three-foot drone—including several taken during the event—Lega noted that unmanned aircraft can be outfitted with multispectral cameras, thermal and radiometric sensors, and other sophisticated instruments that detect everything from breaches in a building’s thermal insulation to subsurface contamination of soil or water.

In spite of negative press about drone deployment, Lega focused on some of the technology’s positive potential, including:

- Higher crop yields through soil monitoring and early pest detection

- Reduced negative environmental impacts and risks to human health

- Solid waste landfill monitoring through aerial infrared thermography

- Increased energy efficiency and the detection of problems with a building’s envelope

- Development and safe placement of power lines and monitoring of suspension joints

- Improved traceability of pollutants, including calculations of individual source contribution to contamination when there are multiple potential sources, and determining emissivity for different materials

- Reconstruction of contaminated sites, through 3D imaging, based on data collected and forensic environmental engineering

- Automatic continuous sampling and measurement of heavy metals

- Real-time process monitoring of wastewater that detects pollutants not visible to the naked eye

“Many investigations begin with evidence of this type of damage,” said Lega, “rather than evidence of an illegal polluting act.”

Better Data Collection

The EPA's Timothy Watkins discusses his agency's air pollution monitoring strategy.

Timothy Watkins, deputy national program director for Air, Climate and Energy Research for EPA, described his agency’s Geospatial Measurement of Air Pollution (GMAP) program, which uses GPS and high-resolution, rapid-response mobile instruments to map air pollution patterns and measure source emissions of VOCs (volatile organic compounds), particulate matter, nitrogen dioxide, and other precursor pollutants of ozone.

The agency’s draft roadmap to next-generation air pollution monitoring, said Watkins, focuses on reliable, lower-cost technology, such as miniaturized sensors that require a smaller platform than traditional monitoring equipment. He said new monitoring strategies could help businesses cut compliance costs, reduce product loss, and improve worker safety.

Robert Judge, EPA Region I air monitoring coordinator, and Ric Pirolli, director of the Connecticut Department of Energy and Environmental Protection’s Air Planning & Standards Division, joined Watkins in answering business leaders’ questions about the quality of data, spatial and temporal gaps in data collection, and how to interpret findings—including isolated and instantaneous readings, rather than periodic readings that capture data over a significant period of time, or networked monitoring that captures many more data points and provides a clearer overall picture of air quality and pollution.

These issues, Brown observed, have significant implications for addressing cross-state air pollution, also known as regional transport, where high air pollution levels in downwind states, such as Connecticut, are caused by activities in upwind states.

“Ninety percent of Connecticut’s air quality problems are traced to transport issues,” Pirolli agreed, “so our state has a great interest in developing the technologies to measure that.”

While Connecticut has strict laws controlling sources of air pollution emissions, the same cannot be said of other states. The EPA has determined that pollution sources in 27 upwind states, including power plants producing much cheaper electricity, contribute significantly to Connecticut’s inability to meet or maintain compliance with federal air quality standards.

DEEP Commissioner Dan Esty has pointed out that regional air pollution transport puts Connecticut—already a high-cost energy state—at an even greater economic disadvantage.

New Frontiers, New Questions

The StillFly drown hovers over the Saybrook Point Marina

While drone technology holds promise, legislation and regulation of drones lag the technical advances made possible by unmanned aircraft.

Issues that have yet to be resolved are what constitutes a drone, who may operate one and how, and what protections businesses and individuals have against invasions of privacy, harassment, and industrial espionage.

Brian Hearing, founder of DroneShield, cautions businesses to become familiar with laws governing the use of and appropriate response to drones. (Local ordinances vary widely, he says.) He also recommends that businesses develop incident response plans.

DroneShield manufactures a small device that detects unmanned aircraft, captures digital and acoustic evidence that “fingerprints” them, and alerts property owners to their presence. ■

Lesia Winiarskyj is a writer and editor at CBIA. Contact her at lesia.winiarskyj@cbia.com.

Celebrate Manufacturing in October

October is Manufacturing Month, part of the “Connecticut. Dream It. Do It.” initiative and aligned with a nationwide effort to promote educational and career pathways in manufacturing.

Everything officially kicks off with National Manufacturing Day, Friday, Oct. 4, and two regional “Manufacturing Mania” events—a showcase for students, their families, and teachers to learn how Connecticut-made products impact and improve their lives every day.

The first Manufacturing Mania event will be held Oct. 4 from 10 am to 1 pm at Toyota Presents Oakdale Theater in Wallingford. The second is scheduled for Oct. 18 from 10:30 am to 1:30 pm at Three Rivers Community College in Norwich.

Among other events being planned are open houses at technical high schools and manufacturing facilities across the state.

CBIA is participating as a Manufacturing Month partner. For more information, contact Karen Jarmon, Connecticut Center for Advanced Technology Inc., at 860.282.4211 or kjarmon@ccat.us.