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of Meeting with Fred Zimmerman
Civic Caucus, 8301
Creekside Circle, Bloomington, MN 55437
Friday, March 20,
professor emeritus, engineering and management, University of St. Thomas
Johnson, chair; David Broden, Paul Gilje, Jim Hetland, Wayne Popham (by
phone), and Clarence Shallbetter
Context of the meeting--Responding
to a Civic Caucus question earlier this year, today's speaker, Fred
Zimmerman, offered to discuss in greater detail his contention that an
imbalance in the economy between production and other activities is
unsustainable and will lead to chronic deficits.
Welcome and introduction--Verne
and Paul welcomed and introduced Fred Zimmerman, professor
emeritus, engineering and management, University of St. Thomas. Before
his retirement in 2005 Zimmerman spent 25 years at St. Thomas, including
10 years as head of the School of Engineering, which he helped found in
1985. Previously he had worked with IBM, Control Data and National
Computer Systems. He has served on the boards of directors of 14
corporations. He has a Ph.D. in strategic management and organizational
studies from the University of Minnesota.
Comments and discussion--During
Zimmerman's comments and in discussion with the Civic Caucus the following
points were raised:
1. Lower proportion of jobs in production
relative to service--Zimmerman, who in 2002 co-authored with
Dave Beal Manufacturing Works: The Vital Link Between Production and
Prosperity, said that the USA, compared with other countries, has
comparably fewer people in mining, construction, manufacturing and
agriculture than in finance, insurance, real estate, services and
government. Between 1979 and 1999 the USA added 39 million people to its
service economy and lost 1.2 million in its production economy. We now
have about 28 million workers in tangible production and 105 million in
everything else, he said.
illustrate an impact of these changes, Zimmerman recalled an article he
wrote for the Star Tribune, April 9, 2001, titled "Hardly
Working". In the article he related two experiences he had in buying
clothes. When working for IBM in the 1950s, he was unable buy a suit at a
Penney's store because, the clerk told him, of lack of demand for
service-job clothes. Forty years later he went to another Penney's store
seeking clothes for working around the yard but received the answer: “We
don't sell work clothes in the store anymore. Not much demand for them.”
to contemplate how much affluence we can afford and still be competitive
in world markets," He wrote. 'The disregard of this precious relationship
between production and consumption permeates today's society."
2. Failure of some production-related firms to
become more efficient--We have some good examples of production
firms that are doing well, including, Steel Dynamics, Inc., Fort Wayne,
IN, which produces steel with the equivalent of .37 person-hours per
ton. Until it went bankrupt, some plants of LTV Steel required the
equivalent of 3.4 person-hours per ton. Too many production companies
are poorly-run, which contributes to the decrease in production in the
USA, he believes.
3. Production firms contribute proportionately more to the
Minnesota, as late as the mid-1990s, manufacturing constituted 18 percent
of the jobs in the state, but 23 percent of the payroll, and an estimated
27 percent of the taxes. he said.
in the service sector including lawyers, accountants and other business
services make money off the production sector. He cited information from
the University of California that indicated 40 percent to 60 percent of
all jobs are dependent upon manufacturing.
biggest drop off in productive capacity has occurred in the geographically
middle states of the nation, he said. Minnesota had been somewhat
insulated but that has changed.
to achieve an employment profile similar to our major competitors, the
United States would need to shift about 20 million of its workers back
into the production sector, Zimmerman said. He doesn't see public
office-holders focusing on this issue.
4. Public pension obligations arithmetically unsustainable--Within
the service sector, government employment has been growing very rapidly,
he said. Today there are 12 million more government employees in the USA
than there are in manufacturing. Within the government sector two aspects
of concern are (a) early retirement and (b) defined benefits.
Arithmetically, with the number of employees in the government sector, the
promised pension benefits can't be paid. The average teacher spends 27.4
years in retirement in Minnesota. Since 1960 the life expectancy of
Americans has increased by eight years, but there's been no adjustment in
retirement benefits. In fact, they've been expanded. During good times
legislative bodies have increased benefits.
Zimmerman said he's
not passing judgment on whether retirement benefits are appropriate; it's
just the he can't figure out how there'll ever be enough money to pay
them. He finds it hard to imagine that 30-year-olds will tolerate tax
increase to pay for keeping existing pension commitments.
Caucus member said that civil service hiring and retention practices also
Caucus member noted that differences in public sector retirement plans can
be understood in light of precedents made long ago. Early retirement from
the military has always been present. In the 1960s and 1970s public
employees traded higher salaries for better pension plans.
for early retirement need to be removed along with moving from defined
benefit to defined contribution retirement plans, Zimmerman said. You
can't afford to have a public employee retire at 58 and pay guaranteed
benefits to that employee for another 25 to 30 years, he said.
Caucus member observed that early retirement incentives have been
deliberately utilized in schools to make it possible to hire younger,
lower-paid teachers. So if early retirement is discouraged, local
governments will be paying higher salaries to more veteran employees.
5. Higher standards of affluence--Another
element to remember, Zimmerman said, is that Americans have put up more
retail space . We have twice the square feet of retail space per unit of
buying power as our Western European counterparts.
6. Myths about overseas "sweat shops"--We
tend to think that all our manufacturing has been taken over by long-hour,
low-pay Asian "sweat shops". But the facts don't bear that out, he said.
Many are very well-equipped, and wages, while lower, are increasing.
7. Need for better trained workers--Too
many Americans think that simply a BA degree means someone is trained for
a job. Some Western European countries have proportionately fewer
individuals attending universities but proportionately more trained in
8. Nurture the better companies--Rather
than bailing out losers, Zimmerman said the nation might better nurture
the better production companies like John Deere.
9. Ways to encourage more production-oriented
companies--Asked what strategies might be undertaken to
encourage more production-oriented companies, Zimmerman suggested we might
try to learn more about how a state like Indiana has functioned. He said
Indiana has proportionately fewer government employees. Its economic
development programs are more streamlined and effective. Some 200 foreign
companies have been stimulated to locate plants in Indiana. He recalled
that when serving on the board of Winnebago, the company was seeking
offers from various states as to where Winnebago might place its next
plant. According to the Winnebago CEO, the weakest and least professional
offer among nine states was Minnesota's, he said.
Caucus member observed that Minnesota doesn't seem to be doing too poorly,
when you take into consideration the number of medically-oriented firms
that have headquarters here.
about Minnesota's current economic development environment, Zimmerman said
he believes Governor Pawlenty is very interested in the quality of
technical education. He thinks that Dan McElroy is one of the most
effective commissioners of employment and economic development that
Minnesota has had for awhile.
must look at how it promotes--not subsidizes--economic development, he
10. Every proposal for transportation cites
potential impact on economic development--Whenever
any owner of private land or city, county or other unit of government in
Minnesota is seeking an improvement in roads or rail, it is inevitable
that economic development will be cited as a principal objective, a member
said. Thus, it is a challenge to determine which among a host of
proposals are most realistic in their economic development claims.
11. Industries seeking plant locations naturally seek
going to be extremely unlikely that any sensible manufacturing company
will seek a new location in larger cities like Minneapolis, Pittsburgh or
Cleveland because of anticipated higher costs, plus more uncertain quality
of some public services in areas like law enforcement, education, and
health, Zimmerman said. It's more likely that such companies will go to
smaller urban areas like Fargo or St. Cloud or to counties on the fringe
of the metro area.
12. Lack of practical experience on business
school faculties--A Civic Caucus member asked Zimmerman about
colleges and university business schools serving as incubators for new
technology. Such institutions are handicapped, he replied,
because their faculties have too few professors with personal practical
experience in manufacturing firms. It was the private experience of its
faculty that built the engineering school at St. Thomas, he said.
related matter Zimmerman is critical of how college faculty members spend
their time. He distributed an option piece he wrote for the Star
Tribune, June 16, 2002, in which he commented as follows: "Professors
at teaching institutions usually teach classes for about 330 hours per
year; at research institutions, about 165. An ordinary work year in
industry is around 1,925 hours...In reality, many of us neither teach nor
do research - very much. Instead, we meet. We have search committees and
curriculum meetings and policy meetings and innumerable other meetings but
very few decisions."
13. Thanks--On behalf of the Civic
Caucus, Verne thanked Zimmerman for meeting with us today.