Reshoring Regulatory Pros and Cons
The Carrot and the Stick: Government Regulations and Manufacturing
The subtitle of today's class is “Understanding Supportive Policies and Incentives,” and we will spend the majority of this class discussing that topic. But it's important to understand our starting point. Consider the axiom of the “carrot and the stick.” In this case the carrot would be supportive policies and incentives, and the stick would be burdensome taxation and regulations. If you look at it that way, the carrot will resemble baby carrots from the grocery store, and the stick would be an oak tree.
Figure 1 - Helpful Incentives (Tiny Carrots) versus Burdensome Regulations (Massive Stick)
In 2016, the number of government regulations that directly affected the ability to manufacture product in the United States was nearly 300,000 specific regulations that needed to be followed, creating an administrative nightmare that only added additional costs due to the need to hire experts to remain in compliance(1). The Trump Administration reduced the numbers significantly, and positive changes in the sector occurred. Unfortunately, the current administration has created new regulations at a pace and scale that is unmatched in the history of our country. The impact of that is reflected in the employment numbers.
Figure 2: The scale of Federal Regulations
According to the Bureau of Labor statistics, government has added an average of 45,000 jobs per month for the last year, while manufacturing has added none. In other words, there are no net new manufacturing jobs, but we have over half a million new bureaucrats to enforce new rules that only make creating jobs harder.
Employment in government continued its upward trend in September (+31,000). Government had an average monthly gain of 45,000 jobs over the prior 12 months. Over the month, employment continued to trend up in local government (+16,000) and state government (+13,000). - October 4th Report from BLS
“Manufacturing employment has shown little net change over the year.”
- September 5th Report from BLS
That hurts to talk about, but it’s time to get back to our mission: The Mission of HermitCrab is to reoccupy and revitalize the abandoned “shells” of shuttered manufacturing facilities closed during the offshoring wave of the late 20th Century, producing products, restoring communities, and providing jobs for Americans. We need the government to help, and there are ways that they are trying to support that.
It's the States, Stupid
The original reason for a federal government was to provide protection for citizens via a national defense and secure borders. Obviously, over time, the federal government has become an out-of-control leviathan, and is the largest single employer in the world. We are flooded with federal bureaucrats, but at least they have other things to think about than manufacturing. This leaves us with the states, and the growing competition amongst the states to attract either new manufacturing through reshoring, or foreign direct investment. Since state policy, not federal policy, will directly impact the economic future of a given state, we should turn to how they are working to draw new business.
According to an article by Area Development, states are pulling multiple levers to attract manufacturing across the following fourteen rankings:
Access to Qualified Labor: Attracting and retaining skilled labor is a cornerstone of any state’s economic success. In 2024, North Carolina leads the pack in this critical category, offering a rich talent pool and exceptional educational institutions.
Availability of Sites: Finding the right site can be a daunting task, but South Carolina makes it easier with its well-established LocateSC program. This initiative ensures that businesses can find ready-to-develop sites quickly, with all the necessary due diligence completed in advance.
Business Incentives Programs: Business incentives are crucial reducing startup and operational costs. Georgia tops this category, offering tax credits for job creation, research and development, and investment in economically distressed areas.
Cooperative & Responsive State/Local Government: A cooperative State government can make a significant difference in the ease of doing business. South Carolina leads in this category, known for its business-friendly policies and support for business initiatives.
Energy Availability & Costs: Reliable and affordable energy is a critical factor for many businesses, and Tennessee and Georgia lead the way in this category, both with abundant hydro and nuclear power resources contribute to lower energy costs.
Overall Cost of Doing Business: The overall cost of doing business is a critical factor for companies when choosing a location. States that offer a favorable cost environment, including low taxes, affordable labor, and competitive utility rates, are highly attractive to businesses.
Favorable Property Tax: A favorable property tax environment can significantly influence a state’s attractiveness to businesses. States that offer lower property taxes and beneficial policies provide substantial savings, making them more competitive and financially viable.
Logistics & Infrastructure: Efficient logistics and robust infrastructure are essential, and Georgia’s Port of Savannah and Hartsfield-Jackson Atlanta International Airport provide businesses with unparalleled access to domestic and international markets.
Favorable Regulatory Environment: South Carolina leads the way with a regulatory environment that is both business-friendly and efficient, significantly contributing to its top ranking. The state has implemented streamlined processes designed to minimize bureaucratic hurdles and expedite business operations.
Water Availability: Access to reliable water resources is critical for many the manufacturing sector. All HermitCrab states border the Atlantic Ocean and possess thousands of miles of freshwater rivers and hundreds of lakes to supply the water needs of manufacturers.
Climate Risk and Resilience: Managing climate risks and ensuring resilience is becoming increasingly important for businesses. All HermitCrab states maintain aggressive ESG incentives.
Corporate Tax Structure: A favorable corporate tax structure can significantly impact a state’s attractiveness to businesses. North Carolina’s low corporate tax rate (2.5% - the lowest) and tax incentives for job creation and investment make it an attractive destination for businesses.
Site Readiness Programs: Site readiness programs are essential for reducing the time and cost associated with site selection and development. South Carolina’s LocateSC program offers a vast inventory of ready-to-develop sites.
Workforce Training Programs: Effective workforce training programs are crucial for access to skilled labor, which significantly impacts productivity and competitiveness. Georgia’s Quick Start program offers free, customized programs to meet the specific needs of companies.
Based on the rankings from Area Development Magazine, the HermitCrab States (North and South Carolina, plus Georgia) dominate, with three of the top four rankings, and HermitCrab border states (Alabama, Tennessee, Virginia) are also in the top 10. Why? Because these states adopted regulatory policies, public-private partnerships, and tax incentives to create a favorable climate for reshoring and FDI. Plus, they maintain a pro-business outlook on the future, meaning companies that move here should not expect a regulatory “bait-and-switch” anytime soon.
Figure 3: Top States to Locate a Business
Specific Ways Our States Incent Reshoring
Like so many topics we've already discussed in our “30 Days of HermitCrab”, I could write a book on the many ways HermitCrab states are leading the country in helping attract manufacturing. Because of the constraints of space and time, I will provide 3 highlights for each state.
Examples of Proactive Regulatory Measures
North Carolina
Lowest Corporate Tax Rate: North Carolina charges a flat 2.5% tax rate, half of South Carolina’s rate (5.0%) or Georgia’s (5.39%). All three rank in the top 15 for state corporate tax rates, although five states charge no corporate income tax.
Tax Exemptions on Manufacturing Equipment: North Carolina does not levy a sales and use tax on the purchase of or the repairs to industrial machinery or for long-term service contracts for mill machinery.
Job Development Investment Grant (JDIG): The JDIG award is North Carolina's signature economic development incentive, used in situations where the state is competing with other attractive business locations.
South Carolina
Rapid Response: Prioritizes permit approvals for high-impact projects, ensuring that businesses can get up and running quickly. South Carolina offers an online portal that simplifies regulatory compliance and application processes
LocateSC Program: This initiative ensures that businesses can find ready-to-develop sites quickly, with all the necessary due diligence completed in advance. https://locatesc.sccommerce.com/index.html
Abandoned Buildings Tax Credit: South Carolina provides tax credits specifically aimed at companies that reoccupy abandoned factories. This is the ultimate HermitCrab regulatory incentive!
Georgia
Georgia Quick Start Program: Free, customized training for new and expanding businesses, tailoring programs to meet the specific needs of the companies, with over a million employees given skills required for manufacturing.
Southeast Crescent Regional Commission: This program exists in several states, but Georgia is a leader in using this program to support infrastructure, business development, and workforce/labor development across 122 counties.
Georgia Center of Innovation: Works with Georgia manufacturers of all sizes to address business challenges and opportunities and to innovate products, processes, and workforce.
Conclusion: The advantages of the HermitCrab states with respect to Regulatory Environment is well documented and observed by the pundits. The goal for HermitCrab is to use this valuable information to convince large retailers, buying groups, global manufacturers and new product startups to allow us to partner with these states to locate reshored manufacturing where it belongs.
Thank you for Reading! Come back tomorrow for Day 13: TCO: Cost-Benefit Analysis: Weighing the long-term benefits versus initial costs. This is where the rubber meets the road!
Thanks for reading,
The HermitCrab Team
Footnotes
(1) https://www.gray.com/insights/how-regulation-is-affecting-the-u-s-manufacturing-industry/
