Franklin & Marshall College Franklin & Marshall College

David Nikoloff: Secretary/Treasurer, Economic Development Company of Lancaster County

Session: Views from the Street: Wall Street, Main Street, and Prince Street

 

Thank you Sean. Professor Callari stole some of my thunder today by giving you some raw statistics. My presentation will be fairly informal and anecdotal. Scott Sheely’s is going to be more analytical and formal with some data. But let me start with some information in an anecdotal story.

I came to Lancaster in 1991 with the Encyclopedia Britannica knowledge of the local area. I was born and raised in Harrisburg. I came to Lancaster to visit President Buchanan’s House, to go to Route 30 tourist traps--that kind of thing--so my basic knowledge of Lancaster County was, as I said, Encyclopedia Britannica: an agricultural valley located in central Pennsylvania with beautiful vistas centered on an agricultural tourism, with an economy productive in sectors in manufacturing including electronics and food products. When I got here in 1991, I started looking at data and I started to meet people and ask them questions. And one of the first people I met was John Schwartz, the late John Schwartz who passed away a couple years ago. He for more than twenty years was the agricultural extension agent serving the agricultural community here in Lancaster County. So I met with John and I was thinking: "Agriculture is huge. It’s the driving force in Lancaster. Isn’t it? So I get to meet the guy who knows the most about it." I sat down with John and I said" "John can you tell me what is the cash crop in Lancaster County agriculture, on those farms out there, those five thousand farms I see?" John thought for a moment and he said "Hmm ….Cash crop," he said: "gazebos."

Because even in 1991 we were going through a transformation, a very severe transformation. The number of farms was shrinking. The nature of farming was changing. And it was just a month ago when one study appeared in the local press on the dairy industry in Pennsylvania. And it was commissioned by the people in the dairy industry, no less, who were under siege with competition from the Midwest, from the Farwest, from places like New Mexico and Arizona--and you don’t tend to think of those places as being dairy hotbeds. But the local dairy industry has had severe problems, competitive problems. And they commissioned a study and the study showed that you have to have a dairy farm of at least 250 acres to justify the capital investment necessary to be competitive in the dairy industry and, also, to produce enough income to pay off those capital investments. 250 acres! The problem is that the typical farm in Lancaster County is about 85 or 90 acres, less than half the size needed to be competitive. So you don’t have to be a genius to prove that you’d better be producing gazebos or something out in the backyard in order to generate income for your family-farm, or your farm, if you are going to remain living on a farm, if it’s not going to be repossessed by some bank.

Recently, I was given another anecdote. I was with a major corporate executive who was in Harrisburg begging for money for his company. We were talking about the dairy industry, as he knows a little bit about it, and I referred to that study--that study that said you had to have these larger farms. And I said: "What this is really going to be is a shake-out in our dairy industry, isn’t it?" And he said "ya, but it’s already occurring David." He said: "I have to tell you that farms are specializing. Farmers know that they can’t operate on these small farms and produce an income. So they have to specialize in different areas, grazing for instance, feed crops for the cows, corn, doing monoculture and sending those products to larger operations, larger animal feeding operations, and maintenance operations in order to be successful."

There is a problem, though, with those large animal operations. When you condense a large herd of very large animals in a very small space; how do the neighbors feel about that? Have we done the land planning to allow for that? Have we made the political decisions necessary to support that kind of transformation? Well, again, we have only anecdotes, bits and pieces of information upon which to make public policy. Public policy either is not driven at all, or it is driven to the incorrect conclusions; and in the worst case, it may be driven to the worst conclusions, and the worst public policies may be put into place. And I think that in Lancaster to a large extent we have allowed public policy decisions over the years to be made in a vacuum of information, based upon a large amount of our preconceived ideas of the area is like as opposed to what it really is.

Back in 1991 when I came here with the Encyclopedia Britannica knowledge of Lancaster County and assumed that tourism and agriculture were the driving forces in our economy. I was wrong in that assumption. Professor Callari pointed out what some of the sources of income in Lancaster County are. We have 240,000 people approximately in our work force in Lancaster County. Of that 240,000 people approximately 62,000 or about 26% of our workforce is engaged in making things. They are engaged in the industrial employment sector. That’s down from about five years ago, when about 70,000 people were making things in Lancaster County. So in the industrial sector, where people make things, you’d say "Oh gosh it’s shrinking, it’s dying." Well it’s not. What we are seeing is (another) transformation.

We saw a transformation going on in agriculture, specialization, investments being made in capital equipment and large animal operations and the like going on. We are seeing that same transformation occurring in manufacturing. I will tell you that we probably produce twice the amount of manufactured goods in Lancaster County now than we did fifteen years ago. And we do it with fewer people. Productivity increases have been tremendous. We saw a huge investment during the 1990’s in capital equipment, industrial automation and computer technologies. And I think it’s only really beginning. Again, it’s only anecdotal on my part, but I think we’re now seeing businesses learning how to use those investments to become more productive, making things with fewer people.

I’ll give you an example of two companies that, in the last six months, have come into my office and said "we have to transform the way we do things." Both of these companies are world class manufacturers. Together, in eleven facilities in Lancaster County, they employ approximately 1,000 people. If they are successful in their transformation, if they are able to consolidate operations from eleven facilities into two, if they are able to buy the most modern and productive production equipment available, if they are able to train their work force in new technologies and in new ways of doing things, they will be successful. They will be able to beat the competition in North Carolina and in the Midwest--and not competition in China or Europe by the way but in North Carolina and in the Midwest. They will be able to fend them off, keep their market share, maybe even grow their market share and produce more product with 500 people. Not 1,000 people, but 500 people! So we at the Economic Development Company are going to have to change the way we do things ourselves. Typically we have allocated our resources to those businesses that were saying "We’re going to create more jobs." We have not typically asked the question: "are you going to create more wealth? Are you going to maintain the standard of living, or the wealth, in Lancaster County? We have got to start changing the way we think, from focusing on raw numbers of people to focusing on successful businesses and business ventures that pay wages and a mix of benefits that continue the standard of living in our community.

And these transformations are only accelerating. I’ll give you another bit of information I found very interesting. Driving around Lancaster County, it’s not unusual for you to see those McMansions, as people call them, the homes of 3,000 plus square feet with three car garages. I was talking to a banker the other day while we were playing golf --being influential members of the business community, we could afford to play golf in the middle of the afternoon (audience laughter). We were looking at the vista of wealthy homes around us and I said: "God who can afford those?" He said "David I can’t tell you how many people who are self-employed right now that I know have incomes of $2 million or more, and wonderful balance sheets--in fact that guy over there and that person over there and that woman who owns that house." And I brought home something that I had read in a poll, believe it or not I read polls (audience laughter)--well I don’t read polls, sorry just joking around; I am just tired of them, tired to death of them--so I was reading a poll the other day, and I was looking at statistics about the voters themselves--and neither party, I don’t think, recognizes this statistic. And that statistic is this: that there are more self-employed people in the United States than there are members of labor unions. Let that sink in! More self-employed voters than there are members of labor unions. And the gap is growing. So now, talking about the standard measurements that we use on our economy--and we had some debate earlier about the income measurement. Another measurement that you always hear about is the number of employees. However, as I already told you, in order to keep themselves competitive and survive in Lancaster County, a couple of companies have to shrink down the number of workers from 1,000 to 500. In order to keep farming a viable business in Lancaster County we have to see a consolidation and specialization, a change in the way we do farming.

These are painful transitions that communities have to go through. They can be extreme, and they can be disconcerting because there are going to be winners and losers: people losing jobs and having to be retrained to do something else. But there are encouraging things going on there too. Whereas government always seems to make policies for things that occurred eighteen months ago, what we are seeing is that people--the common person, the common working person, the common laborer, the common person working in any kind of business in Lancaster County—people already acknowledge what is going on. Again, the polls show that most people understand that they will have five jobs during the course of their lifetime. The kids going to this school (F&M College) and those attending the Harrisburg Area Community College, they understand it. They come from different backgrounds but they understand it. We don’t have to convince them. They know it. Those of us from the older generation have to take some convincing: "Can that be true? That’s a pretty painful thing." When I got out of college, I was going to work for a major law firm and be there for 35 years until I retired. But the kids of today understand that that model doesn’t work anymore; they understand that they will probably have five careers over the course of their life. And what’s interesting is that they don’t feel helpless. The majority, 65% of the young people surveyed said that they plan to work for only five years at their place of current employment. And again they plan to make the decision on when they leave. So they have come to the conclusion that they’re not going to have that lifetime job, not even have that decade-long job: "I’ll have it for about five years and I’ll leave when I want to, on the terms that I (will have) established". So these people in the workforce, and especially the young, are already mobile. Then there are those people on the other end of the workforce, those one thousand people working for those traditional industries that have to shrink their workforce down to five hundred. But then, those are the people who aren’t the most mobile. That’s where we have our biggest difficulty in this transition, and where it’s going to be a painful one.

Now let’s go back again to those people who are attending colleges and other institutions now. I think it’s very interesting to see how the common person understands these things that people in government, and maybe in academia, are only now discovering. Let’s look at Harrisburg Area Community College. They came to EDC about eight years ago with their plans to expand the college. And at that time they had approximately, as I recall 1,200 full and part time students. And the Dean of that college at the time said to me: "Dave in five years we are going to have 2,000 in Lancaster County." And what is interesting about that student base: the average student at that college is 28 years of age and is employed, not unemployed; 28 years of age, not 20, not 19 not 18; 28 years of age and employed! And they either have already, or soon will have, a family. That’s that most vital cohort that we want right? And as the Dean said, they were expecting growth in that student base. And who’s the average student at Harrisburg area Community College? It’s not somebody getting a subsidy from a government entity, because our community college locally here isn’t supported from by sponsoring school districts. The people who attend that college pay full freight. They reach in their pocket and pay. The state doesn’t pay 1/3. The local school district doesn’t pay 1/3. The students pay it all.

So here’s a local school with people 28 years of age, employed, who are seeking more education, a credential, some flexibility produced by knowledge so that they can sell themselves in this changing environment, so they can get one of those 500 jobs which are going to be left in those two manufacturing plants, where people are going to have to understand not just how to press a button on a piece of equipment, but the entire manufacturing process from beginning to end. Their job description is going to be so wide as to be non-comparable to what the current job description is (I’m a machine operator and that’s what I do). That old system is gone; the employment free-agency is in. So the common people, they have understood this. The world of academia and government is just beginning to understand this. And neither political party really acknowledges it right now.

Let me tell you another anecdote. We are very fortunate at the EDC to have a very strong board of directors, and some of them are here today: 21 leaders from across the community. We also have a large number of supporters, people who sit on working committees and do a variety of things. and one of those people came into my office the other day. His job, what he does, is to consult with businesses--he had a career change; he decided he no longer wanted to be a dentist, and what really got his juices flowing was business. So now he’s an author and a nationally recognized person. He came into my office and said: "Dave let me tell you a story."-- I love stories as you can tell. He said "Let me tell you a story. I was just out with an Amish man. This guy started a business a few years ago and he has projected that, in the next three years, he’s going to get close to somewhere in between $7,500,000 on the low end and $10,000,000 in annual sales. You know what he was asking me? ‘Where can I take the production of my product overseas to a low cost area?’ And I asked him ‘why do you have to do that?’ He said well ‘If I am going to be successful I have to do it! I have to do it!’" But, now, is that a problem? No! Having a successful business in my mind is no longer a problem. Now, we can take the old attitude and say: "we got to keep those jobs here". But if we try to set barriers in order to keep those jobs here, what would happen to that man‘s business? Well I can tell you that we wouldn’t be competitive anymore. He would probably lose that business and the ten jobs that he currently has, which are growing in number, in the areas management, research and development—in an Amish farm (it must be fascinating!), and distribution and sales. Those ten, which are soon to be twenty, high paying jobs would probably be lost.

So that’s the vision this Amish man has. That he can start a business, that he could be that self-employed person, that he can surround himself with good talented people to whom he can pay a high wage and who will help him do the research and development, the marketing, the distribution in sales of that product, and that he can outsource that production someplace else. It’s a different mindset. Now we can take the old mindset and try to set up walls to what is occurring. Or we could do what the Amish man understands. We have to be competitive. The world has changed. Markets are global. Labor is global. Capital can move in the blink of an eye. The Amish man knows that.

As for Lancaster, I think that a lot of the numbers you see in Lancaster County’s sort of stagnant economy go to a couple key factors. One is that, although we have a wonderful economy or business space in Lancaster County for a twentieth century economy, we are now in the twenty-first century. We have very traditional industries: food processing, metal working, wood working, being standard ones. We have to give up our perceptions that agriculture and tourism are driving our economy. Agriculture and tourism combined produce about $250,000,000 of disposable income in Lancaster County. $250,000,000! The printing sector alone in, according to my knowledge, probably produces well in excess of $250,000,000. Just one segment of our industrial community produces more income than tourism and agriculture combined. In fact the last number that I saw was that the manufacturing sector in the County right now produces about $3.5 billions of income. Whereas tourism and agriculture are about $250,000,000. Tell me what the drivers are. Is it the Encyclopedia Britannica vision of Lancaster where the source of our wealth and prosperity is, or is it in industry? And it is industry.

Now, the last thing that I am going to leave you with! As this transition occurs, as our traditional economy turns into something new--and Eric Pages will talk a little about this later today, about the knowledge-based economy and entrepreneurship, and how to foster that economy; so I encourage you to listen to Eric, because he has convinced me with his spiel. We need to understand that the transition that we are going through is not all a negative thing. When I came to Lancaster County, one of our industrial sectors, construction, employed 9,000 people. Today that sector employs close to 15,000 people, delivering products throughout the Midatlantic states, from Connecticut down to the Carolinas. So construction alone has grown by more than 40% in the number of people employed, and the cash value of those businesses and their sales is far in excess of a 40% increase. And it’s not just the people who hammer together homes, pour concrete or erect steel. It’s also the jobs that maintain those operations, the administrative, the sales, the managerial jobs, what some people call back office jobs, those have exploded also. It is not just secretarial staff inputting data, it’s people employed in those businesses managing the construction projects from a Lancaster County location and using the current technology computers, the internet and the like to do that.

So this is my anecdotal report to you. The traditional economy is changing, and our ways have to change accordingly. We are going to have some painful moves, but I think that the common persons understand that. What we have to do is to provide them with a set of public policies that allow that transition to occur in a rational way. And that’s why I really want to encourage the development of this institute. We think that there’s a need for a study on the local economy, so we can put our perceptions aside and look at the data.

Thank you.