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Don Cunningham: New Economy Requires New Understanding

By Colin McEvoy on September 26, 2016

This column, written by LVEDC President and CEO Don Cunningham, originally appeared in Lehigh Valley Business on September 26, 2016. (Click here to read Cunningham’s previous columns.)

Don Cunningham

Don Cunningham

It often takes perspective to understand what is happening at the moment.

Reading the business and economic news today, you sense the anger and irritation of those writing, reporting, and interpreting it as each new report or indicator creates a twist or turn in a linear storyline.

Jobs up. Jobs down. GDP grows, but not like before. Feds raise interest rates. Feds freeze interest rates. And the one I really love: jobs increase, or GDP increases pick your topic – but not at the rate analysts projected. Since when did the analysts become part of the story? That’s a bit like a headline that reads, “Eagles win, but not by the margin analysts projected.”

The anger is in the subtext. No one can figure out if the economy is good or bad. It doesn’t fit into a box. And those who write the news of the moment like a clear storyline, as do most politicians.

That’s where perspective comes in. Tomorrow’s historians won’t have the same trouble. We are in a new paradigm, living through the beginning of a new economic era. The Technological Revolution. No different than those who were there for start of the Industrial Revolution. The old rules and measure don’t apply.

That’s what a revolution means: things have changed in a big way and the old way isn’t coming back. Trying to use the measures of one era to understand a new era is a bit like trying to design an iPhone with a protractor and a T-square.

Just as fossil fuels launched the industrial revolution, technological development has forever changed the economy, how we live, how we make products and move goods. We need fewer people today to make things. That doesn’t mean we don’t make things.

In fact, manufacturing is alive and well in the Lehigh Valley. By every measure jobs and output  there’s more manufacturing here than logistics, e-commerce, and warehouse and distribution. There are 680 manufacturers in Lehigh and Northampton counties. They employ about 32,000 people. The annual manufacturing GDP is $5.56 billion, our single largest sector. Warehouse and distribution is a distant sixth in economic output, albeit our fastest growing.

But today, machines and technology make more of the product than people do. Output is up, jobs remain fairly level. The typical manufacturer today employs somewhere between 10 and 100 people. Mega-employers are not the norm. Machines and technology do what people used to do. Soon cars and trucks will drive themselves, too.

It’s a new paradigm. Wishing for the old is not an economic strategy.

Technology also creates new economies. In the Lehigh Valley, we are at the fulcrum of one. Online retail created a new back economy that goes to work every time you click a button on Amazon or elsewhere. In fact, it’s become the rare large employer today of those with limited formal education and training.

E-commerce logistics centers and warehouse operations are now employing about 25,000 people in the Lehigh Valley, many of them with only a high school diploma or less. The employment options for that skill set – about 40 percent of the workforce in the Lehigh Valley – is limited.  While fewer people work in logistics than manufacturing, it is growing quickly right now and will continue to until the region runs out of developable land and people to staff the facilities.

Unfortunately, however, people often don’t realize that many of the trucks they see contain products made right here and the majority of the buildings in our industrial parks are not warehouses but manufacturing facilities and offices.

We are in a period of change that is sometimes hard to understand but to develop a future we want it starts with understanding what is going on today and applying an accurate set of measures.

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