Interview with Gerry Najarian
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio video between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and Gerry Najarian, President and Founding Principal at The Remington Group.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
The State of Manufacturing in the U.S. and New Jersey
Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I’m joined today by Gerry Najarian, Principal of the Remington Group. Mr. Najarian has a background in manufacturing as a CEO, CFO, and as an operations consultant. Gerry is here today to talk to us about the state of manufacturing in the U.S. and in the state of New Jersey. Gerry, it’s great to have you here on CFO Studio. Thanks for joining us.
Najarian: Thanks for having me. It’s great to be here.
Zezas: Gerry, manufacturing is a hot topic especially across the country and you’ve actually got some pretty interesting views on the topic. Specifically, you’ve shared with me your opinion that manufacturing has never really left the United States. There’s a lot of people who would disagree with you on that. So, what do you mean?
Najarian: Well, I wrote this in a recent article as well. Manufacturing is measured by the Federal Reserve Index of Industrial Production, which is the measure of manufacturing activity in this country and it continues to rise every year. It goes like this, but if you draw a least squares line, it’s always up. The only question is, how high the slope is.
Zezas: Ok, the rate of increase or decrease is what you’re talking about.
Najarian: But largely, the problem is more about perception. We see many things coming from foreign countries and what’s made here. The suit I’m wearing is likely made in the Far East. I know this shirt was and many parts of my car were, but the fact is what happens is while those have gone away, they have been replaced, that kind of production has been replaced by high-tech biochemicals, advanced specialty chemicals, medical devices, and defense electronics.
Zezas: And, you’re saying replaced here in the U.S.
Najarian: Yes. We still manufacture many things here and lots of stuff here. It just doesn’t seem that way.
Zezas: And, it’s shifted toward what we manufacture.
Najarian: Yes, a lot of it has shifted in terms of what, but it’s also the visual. The visual is we no longer see the large factory with thousands and thousands of people still cued up for the shift change with the factory belching smoke out of it. In fact, right here in New Jersey, just over the river from Trenton in Fairless, Pennsylvania, 25 years ago there was a steel mill, the U.S. steel mill that employed 12,000 people. If you watch the shift change, you’d see 4,000 people lined up to change shifts. We no longer see that and people think that manufacturing is gone. It’s not, it’s a perception thing.
Zezas: It’s changed.
Najarian: It’s changed and the visual has changed and the types of products we make have changed.
Zezas: So, perceptions that we live in a service economy not withstanding, your convinced that manufacturing is here, it’s always been here and it’ll continue to be here.
Najarian: Yes, as a percentage of gross domestic product, manufacturing is smaller, but it’s still in absolute numbers. It’s still significant and it’s still growing.
Zezas: It’s still strong.
Najarian: It’s still strong.
Zezas: Why is manufacturing so important to the U.S. economy?
Najarian: Well, there’s a couple of reasons: 1. manufacturing companies are able to pay higher wages, while manufacturing employment is decreasing – we’ll talk about that in a moment or two. Manufacturing wages are typically higher than any other production type wages whether its in a paper type workshop or any other shop. So, hire wages is a good thing, but equally importantly, manufacturing activity has a ripple effect in other tangential service industries. For example, in your world of real estate, if there is more manufacturing, there is going to be more factory buildings, there’s going to be more warehouse buildings, there’s going to be more depots, and all that.
Zezas: More offices to supply services.
Najarian: That’s right. There’s a company down the street that will need more buildings to insure more product. We insure things more than we insure circumstances. So, there’s a lot of other things that happen when manufacturing builds up.
Zezas: So, do you think manufacturing could ever continue to grow at the pace that this country once did?
Najarian: I think it could. I think if we go back to the numbers, manufacturing grew at its highest pace in the period between 1970 and 1990, at which point it grew 4% per year which is an enormous percent. It’s now growing at 1.5-1.8%.
Zezas: So, from 4 to less than 2. Ok.
Najarian: Yeah, and the challenge is to get it growing like it was growing between 1970 and 1900 again. I believe that it can be done, but I don’t believe it can be done by simply waiting around and hoping that circumstances will change, which appears to be what we’re doing. It needs to have directional policy focus by the national government. State governments are doing something because they have to compete with one another to get the local factory or warehouse located somewhere in their state. But, the national government needs to be adopting policies that direct the economic conditions that make manufacturing successful.
Najarian: Nation-wide. And, those are things like logistics, infrastructure, location infrastructure, labor force, and an industrial policy. People don’t like to hear about industrial policies in which industries are targeted for growth and protection. It’s one thing to let sneakers be made in Indonesia. That couldn’t be stopped, but environmental things like solar panels and alike can be targeted. I’m not sure that’s the right thing necessarily. It can be targeted, invested in by the governments, and protected by the governments so we can get that manufacturing base back in the country.
Zezas: Isn’t this just about government incentives and taxes?
Najarian: Well, I will tell you that tax incentives, while popular among political leaders and people who are associated with government, tend to be popular, they are not the answer. Business people, manufacturing people certainly don’t make decision about taxes. They make them based on economic conditions and markets for their products. So, a manufacturing company will invest in factory, people, and inventory when they see demand, regardless of ex consequences are. Those things are usually taken. Tax incentives are usually taken advantage of after the action has been taken.
Zezas: After the decision has been made.
Najarian: And, their accountant figures out they can get out a nifty deduction or tax credit for something they’ve done or something they were going to do anyway.
Zezas: So, those are the sprinkles on the ice cream cone. You’ve already decided you wanted chocolate ice cream.
Najarian: That’s right.
Zezas: Now, let me take you back on one thing you said earlier. You said to me in the past that you recognize that there’s a department of agriculture in this country and there should be other departments that should be focused on manufacturing.
Najarian: Well, I guess that the pipe dream is that there would be a department of manufacturing like there is a department of agriculture. Agriculture and manufacturing have similar characteristics. Agriculture produces more with less people every year and we’re experiencing that with manufacturing as well. But, in order to get the policy focus that agriculture gets, it would be nice to have a department of manufacturing. I’m not sure if we’re going to see that anytime soon. That activity is embedded in the commerce department. It kind of gets lost in the maze of the commerce department. It would be nice to see that.
Zezas: And, having that kind of focus would give a real push to the manufacturing guys.
Najarian: Yeah, once you start putting people in resource, things start to happen.
Zezas: Gerry, we’ve got time for one more question. You mentioned how states compete with each other for businesses within the country and I know you’ve recently written your opinions about New Jersey as to whether it’s a good solid manufacturing base and why it gets a raw deal and a bad rap. What’s your perspective on that?
Najarian: Well, I wrote the article in response to CEO Magazine’s ranking of New Jersey as #47 in the states most friendly to do business. What I discovered when I started to pick the data apart and to include some other data from state taxation, what I found was in fact that New Jersey’s competitive position as a manufacturing and business base is rather strong and competes well with even the one that’s ranked highest, Texas, in terms of quality of the labor force. You realize that New Jersey has many more people with high school diplomas, advanced degrees, patents per 100,000 people. As a business state, from the perspective of people who run your business, it almost can’t be beat in terms of quality of life and people who live her. While we’ve been around the state for a long time, we tend to look at the congestion on the parkway.
Zezas: No, there’s no traffic in New Jersey.
Najarian: That’s right. There’s no traffic in New Jersey except certain times of the day, which is most of the day. But, the fact is that the quality of life here is strong.
Zezas: Well, being positioned between Boston, New York, Philadelphia, and Washington, D.C.
Najarian: Well, that’s a big part of it. The magazine article, CEO Magazine didn’t address that. The location advantages between the ports, access to the capital markets, access to major business markets. The Northeast is still approximately the biggest market in the country. California is probably close, but incidentally, California always get to be #50. And, that’s largely driven by regulations and the perceptions of regulations as is New Jersey. One of the questions CEO Magazine asks about is regulations. Well, if you compare Texas with New Jersey, Texas is going to seem more desirable as fewer regulations. New Jersey, a densely populated state has got to have environmental rules, otherwise, the impact on people’s health would be enormous. A state the size of Texas, perhaps could lose that.
Zezas: So, you’re convinced that New Jersey is a great place for manufacturing.
Najarian: Absolutely. It’s a very good place for manufacturing.
Zezas: A lot of people would agree with you Gerry. Gerry, listen, this has been great. Thank you for visiting us on CFO Studio. I hope you’ll come back and see us again.
Najarian: Thank you. It’s a pleasure to be here.
Zezas: This is Andrew Zezas, your host at CFO Studio, with Gerry Najarian of the Remington Group, saying thank you very much for watching, we’ll see you again.
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