Greenville, South Carolina -- Jeff Immelt is the CEO of General Electric and one of the nation's largest exporters and employers. He's also the head of President Obama's jobs council. So it seems like he'd be the guy to talk to about how and when large companies can directly create the massive numbers of jobs needed to put Americans back to work.
Earlier this week, I had a chance to spend some time with Immelt, who took the reins of GE from Jack Welch in the summer of 2001. (Along with several other journalists, I visited three GE facilities in three states). And what I saw and heard suggests a seeming paradox. The U.S. should — and must -- rely on GE and its fellow gigantic global enterprises for growth, for new business and products, and for innovation. By almost any measure (save its stock price over the past decade) GE is succeeding. The company founded by Thomas Edison now derives about 60 percent of total revenues from overseas, and many of its industrial units sport impressive growth rates. But we shouldn't expect this success to translate directly into large-scale hiring on GE's factory floors. And it's not simply because GE is employing more people overseas to keep up with growing foreign demand.
By selling off a big stake in NBC and shrinking the footprint of financial services unit GE Capital, Immelt is taking GE back to its roots as a manufacturer and innovator. That was the message pounded home repeatedly as we visited several sites dealing with advanced manufacturing — complicated, big, materials- and technology-intensive things like jet engines and turbines. We started in Niskayuna, New York (outside Albany) at GE's research facility, which claims to be the first such corporate R&D lab in the U.S. and the largest in the world. "I find out what the world needs, then I proceed to invent it," reads a jaunty quote from company founder Thomas Edison plastered on a wall.
Here, hundreds of engineers and scientists spend their days figuring out how to help GE's factory do more with less: less time, less metal and, less labor. In the "additive manufacturing" lab, we saw how printing out metal and alloy components in 3-D rather than cutting them out of shapes can save time and expensive materials. Another technician demonstrated hybrid laser-arc welding, in which a fierce beam fuses pieces of metal together quickly and efficiently. "We do not sell product here, we sell innovation," said Christine Furstoss, technical director for manufacturing and material technologies. In recent years, GE has boosted R&D spending from three percent of sales to about six percent. "With all the criticism we got through the crisis, we never flinched on R&D. We doubled down," CEO Jeff Immelt told us on Wednesday. "We came out of the crisis with more products in our pipeline."
CEO Jeff Immelt at GE's gas turbine plant in Greenville, SC.
GE's long-term focus on Six Sigma, quality management, continuous improvement (and other management jargonese) means the company is able to make a lot more stuff without having to add a lot more people. The vast jet engine plant outside Durham, North Carolina, is one of the anchors of the huge GE Aviation unit (2010 revenues: $17.6 billion). Orders for the division, which fell off a cliff in 2009, are rebounding, and the plant is expected to produce 377 engines this year. The plant's 300-odd employees are kept busy assembling and shipping off the GEnx and CF34-10 engines to Boeing and Airbus, and providing services to hundreds of airlines. The plant is also a showcase for GE's "teaming" concept, a flat management style in which workers make decisions by consensus and are largely responsible for their own work. (Imagine a highly efficient, precisely run commune.)
"We've been able to steadily grow the workforce, but haven't had to ramp it up to a great degree, because it's been offset by the productivity that we've been able to generate," said plant manager Mike Wagner, who, like every employee here, wears the unofficial uniform of jeans and a GE polo shirt. Workers here have repeatedly developed time- and material-saving innovations: a more efficient method of organizing parts, or turning platforms on which nearly-completed engines sit into mini- hovercrafts that levitate on compressed air, so the massive machinery can be manipulated with the ease of an air-hockey puck. As we drove past the solar array that generates a chunk of the plant's electricity, Wagner noted that a dozen sheep will be brought in to munch the grass. More labor savings provided by a coalition of the wooling.
In Greenville, South Carolina, GE runs the world's largest single heavy duty gas turbine manufacturing facility. While it employs 3,300 people, the cavernous plant is so mechanized and automated that it often seems as if everybody must be on break. U.S. exports in the first five months of 2011 were up 16.3 percent from the first five months of 2010, and the Greenville plant is doing its part. "Every unit that gets manufactured in this site this year is going to be exported," Immelt (navy suit, no tie) told a sea of blue-shirted employees. Brazil, India, China, and Saudi Arabia have serious power deficits, while Japan and Germany are moving away from nuclear power. The upshot: Demand for the 375,000-pound turbines, which can cost as much as $25 million, is booming. This quarter, 22 turbines will be put on specially loaded rail cars that will emerge from the plant and chug along at a snail's pace for three days to reach the port at Charleston.
GE is adding jobs at this plant and is adding thousands of new U.S.-based jobs throughout the company. But at GE, and in the industrial economy generally, jobs haven't necessarily been rising in direct proportion to rising industrial production and economic activity generally.
The reason is two-fold. First, across the economy, companies large and small have proven very adept at doing more with the same amount, or with less. The private sector has continued to rack up impressive productivity gains during this expansion, which started two years ago. (Typically, productivity rises sharply during recessions but tails off once the economy begins to grow again.) The bigger and more sophisticated the company, the more resources is has to invest in productivity-enhancing hardware, software, processes, and. . . grass-cutting sheep. Because of the continuous stream of worker suggestions, innovations, and tweaks, GE can handle a 20 or 30 percent increase in orders without increasing its employee base by 20 or 30 percent.
Second, GE, and most other manufacturers, practice lean manufacturing, which means they rely heavily on outside suppliers. The Greenville, South Carolina, turbine plant spends $1 billion annually on supplies, with $700 million of that spent in the U.S. The plant relies on 16 so-called U.S. Tier 1 suppliers, from Corry Manufacturing in Erie, Pennsylvania to Precision Castparts in Eugene, Oregon. "For every person that is in the facility, there are 8 jobs in the supply chain," Immelt told me, as we stood in front of a turbine bound for Iraq. "As we grow, our supply chain grows with us." In fact, it's likely the jobs in the supply chain will grow more rapidly than they will at GE, since smaller companies lack the scale and resources to ram through the continuous productivity enhancements that GE can. If orders for GE's gas turbines double, it won't hire twice as many people to make them. But that will translate into twice as much work for the machine-tool manufacturers, for the railroads, and for their suppliers — who will likely hire more quickly. The upshot: The real action in job creation will take place in the lengthy supply chains of GE and other large industrial firms.
Other forces are working against direct U.S. job growth at big multinationals. About 60 percent of GE's sales now come from outside the U.S. I asked Immelt whether there would be more pressure from customers abroad to have GE assemble and manufacture its turbines aboard. "There will be, and we do some now," he said. But it's a lot harder to offshore a turbine plant than it is to send a textile plant, or a shoe factory to China.
Still, it's tough to kick the feeling that the obsessive focus on productivity works at cross-purposes with the desire to create jobs, at least in the short term. Twenty or thirty years ago, the link between rising sales and job creation in basic manufacturing was simple: make more stuff, hire more people. In advanced manufacturing, the type at which the U.S. still excels and can compete, the process is a little more convoluted. One chart we saw at the jet engine plant put it: "Culture-driven efficiencies + new product introduction = more high-tech American jobs." Well, maybe. Immelt explains it a little differently as a somewhat indirect process. Productivity and innovation mean a competitive cost, which means market share and new business, which translate into more output, which translates into more jobs.
"The U.S. has to take market share to add jobs," Immelt said. "As night follows day, if we're going to double exports, we'll create manufacturing jobs." But companies can't and shouldn't be expected to sacrifice productivity for the sake of the immediate creation of jobs. Said Immelt: "It's not like I'm going to stand up and run GE and say, 'lets run Greenville to have as slow productivity as we can, so we have as many employees as we can have.'"
Daniel Gross is economics editor at Yahoo! Finance
Email him at email@example.com ; follow him on Twitter @grossdm
His most recent book is Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation.