"Manufacturing is gone," Mayor Daley blurted out last year as he plumped for his casino project. The abandoned factory hulks and weedy lots where tens of thousands of blue-collared men and women once worked for companies like U.S. Steel, Wisconsin Steel, Western Electric, Schwinn, and Stewart-Warner reinforce Daley's image of decline. So do the statistics: Chicago lost half its manufacturing employment from 1975 to 1992, about 190,000 jobs.
Yet the obituary is premature. There are hundreds of small-to-medium manufacturers who have survived, many of them expanding--even emerging--during these tumultuous years. They have been able to adapt while a rapidly changing world economy, unfavorable federal government policies (plus a legacy of longtime local neglect), and a good dose of corporate shortsightedness and greed devastated much of the Chicago and national industrial landscape.
Behind anonymous brick-walled storefronts, sequestered in old industrial zones, or out of sight on less-traveled streets, nearly a fifth of the workers in Chicago still toil at making things, from tiny computer parts to giant steel presses, from spareribs to harps. In the profiles that follow, selected with the help of the Chicago Association of Neighborhood Development Organizations (CANDO), city officials, and other observers, small and medium manufacturers tell why they're in Chicago, how they adapt to demanding times, and what they think the city could do to strengthen manufacturing. Their stories help some observers to think that the manufacturing slide in the midwest as a whole and maybe even within the city of Chicago could finally bottom out.
That would be good news. Manufacturing provides a range of semiskilled to skilled jobs, many of them to workers concentrated in the inner city who are unlikely to move easily into any of the better-paid service jobs. Besides, the popular vision of a postindustrial service society is a mirage. Much of the service economy's growth reflects work done for other businesses, including manufacturers, from design and advertising to billing, legal, and payroll services. And a business such as Craig Connally's Neotek (described in detail in an accompanying profile), which makes sophisticated sound-mixing control boards, is as much a customized service to clients as it is manufacturing.
The tendency of American businesses to shift manufacturing overseas, to act simply as marketers of foreign-made goods, or to play financial manipulators to the world is dangerously delusive. "If we don't develop and create new products, we lose the market--period," argues Tom Kaiser, president of P-K Tool, a small west-side fabricator of precision metal parts. "Anyone who is smart enough to build their own televisions and cars can provide their own insurance and beverage supplies." Think of the rapid progression of Japan from low-wage, low-quality manufacturer to efficient producer of sophisticated electronics and machine tools and then to world financier and owner of leading United States entertainment companies--MCA, Columbia--while retaining its industrial prowess.
The trend in all industrial countries is toward employing a smaller portion of the work force directly in manufacturing. But it has been far more pronounced in this country. It no longer makes sense, if it ever did, to blame high wages for manufacturing's decline. The United States has now slumped to 13th place in average manufacturing wages, now virtually equal to Japan. Our greater abandonment of manufacturing foretells greater economic weakness and more extreme inequalities in personal incomes.
Disparities in incomes have grown much more dramatically in the U.S. in recent years, especially in cities like Chicago, than they have in virtually any other industrialized country. One recent study attributes much of the difference to two basic government policies. Most other nations train workers more extensively (part of a strategy to remain competitive in manufacturing by increasing productivity). They also more rigorously support high wages (by increasing minimum wages and extending union contracts by law through an industry). In the United States unions have been undermined and income supports such as the minimum wage and the social safety net allowed to shrivel. Yet all these disadvantages to workers, which many economists argue should help employers, have not strengthened manufacturing significantly.
Declining living standards are also linked to the decline of manufacturing. Manufacturing wages, despite the beating they've taken from import competition, capital flight, and attacks on unions, are on average at least 15 percent higher than total service-sector wages (which range from very low for clerks, security guards, and janitors--common alternatives for displaced factory workers--to very high for advertising executives). The loss of manufacturing has meant the loss of good jobs.
More importantly, the average manufacturing job generates about four and a half times as many additional jobs as the average retail job and three times as many as the average service job, according to a recent study from the Economic Policy Institute, a Washington think tank. Partly that's because workers with higher wages buy more stuff, creating jobs in turn. More significantly, for each manufacturing job there are--compared to other economic sectors--more secondary jobs supplying raw materials, parts, transportation, tools, design, construction, marketing, and other goods and services. Each auto industry job, for example, creates nearly seven other jobs. There's also a compelling noneconomic argument for maintaining a strong manufacturing base. Military security requires it.
There's a slight swing back to recognizing the importance of manufacturing. The Clinton administration is expected to promote ideas such as "the high-performance workplace" (featured in a recent Chicago conference), technical assistance to manufacturing, and a more aggressive trade and industrial policy (although little of that is evident so far). Without stronger and more helpful federal action, there are limits to what Chicago or Illinois governments can do.
For example, as many of the manufacturers profiled below indicate, the pending North American Free Trade Agreement (NAFTA) may hasten the movement of industrial jobs from Chicago to Mexico. David Ranney of the University of Illinois at Chicago's Center for Urban Economic Development estimated that nearly 80,000 Chicago jobs were eliminated from 1980 to 1990 by companies whose overseas operations were expanding. Mayor Daley is formally neutral on NAFTA, but his brother William was the president's pick to lead the campaign for NAFTA in Congress.
Improving the city's infrastructure, rehabilitating usable old factory buildings, clearing and cleaning up contaminated abandoned industrial sites, strengthening Chicago's advantage as a rail, highway, and air transportation center--all this would help revive manufacturing here. Yet much of this requires federal money, to overcome the reluctance of private investors and to compensate for the disproportionate responsibilities and limited tax base of older cities.
Is there anything the city can do? While Daley's plunged after casinos and airports, his Department of Planning and Development has taken a lot of important but modest steps.
For example, the city has established three planned manufacturing districts (PMDs), all in a north-side area along the Chicago River, where there can be no changes in zoning to retail or residential uses. PMDs protect manufacturing from being crowded out by shopping centers and apartments, whose developers often are willing to pay more for the land, even though the net benefit to the city of retaining manufacturing may be greater. This strategy, originally developed in the Washington administration, has a pretty good track record, despite the carping of knee-jerk free marketers. In 1992 alone, 25 businesses in the PMDs moved in, expanded, or bought new equipment, often hiring new employees.
Limiting the effectiveness of the PMDs is the speculation of some developers that the city eventually will bend the rules. This speculation has kept land prices high. While Planning and Development officials have given mixed signals, commissioner Valerie Jarrett insists, "We have not wavered. We are more convinced than ever" that the PMDs make sense.
The Department of Planning and Development has also developed a north- and west-side "industrial corridor" plan (and is working on a south-side plan). In these two corridors zoning can be changed but must be consistent with continued manufacturing. Critics maintain that the city has much too readily made concessions to nonindustrial developers in these areas. Also, there are complaints that the city seems to be writing off the significant amount of manufacturing located outside these corridors and PMDs. But at least there's a focus for strategic planning.
Neither the corridors nor the PMDs will work without complementary strategies to improve the areas' physical foundations--streets, sewers, bridges, landscape, security--and to provide supportive training and technical services. Jarrett agrees; she says the city has directed $30 million in federal and city infrastructure dollars into streets and bridges in the PMDs. The city has approved tax-increment financing districts, which commit increased taxes within a district to pay off bonds that help local businesses relocate and finance local projects--such as repairing the wall along the river. "What companies are looking for from government is consistency and a long-term strategy," Jarrett says. "As a direct result [of city investment in infrastructure] we're seeing companies invest." Yet the Loop still is overwhelmingly favored.
The city has also succeeded, despite the fiasco with the flight of the Spiegel warehouse (which may have been disingenuous in its dealings with the city), in retaining several manufacturing firms, such as Tootsie Roll and Edsal. In most cases the city has helped companies reduce costs with low-interest loans, tax exemptions (for example, an enterprise zone offering state tax relief was expanded to accommodate Tootsie Roll), and infrastructure improvements. The city has also recruited several new businesses to Chicago, mainly in the distribution and warehousing industries (important even though they do not have the same multiplier effects on jobs that manufacturing does).
The city has continued to work on industrial parks, although on this front it is moving far more slowly and with less commitment of money than makes sense. In the late 70s, before the loss of half the city's manufacturing jobs, city economic development officials were talking about creating industrial parks. Pitifully little progress has occurred over the last 15 years. The city's Economic Development Commission concluded several years ago that an aggressive industrial-park strategy could generate as many as 150,000 new jobs. That's more than a dozen times the most generous estimates of the permanent jobs the casino-entertainment complex would have produced, and most of the industrial-park jobs would have been better than the low-wage, part-time casino work.
Ironically, given the empty land and vacant buildings around Chicago, CANDO business retention and development groups have long complained that the city loses many growing manufacturers because they can't find adequate intermediate-size factory space. "The city has done a really poor job of bringing companies to sites or marketing the industrial potential of sites in and outside the [industrial] corridors," says Michael Holzer, director of industrial retention at the New City YMCA/Local Economic & Employment Development Council near the Clybourn industrial corridor. "We've got companies along the Elston PMD that regularly get calls and personal visits from Kenosha, Racine, and other places with offers of packages to relocate. I'm not saying the city should try to steal other companies, but it should market sites it has."
Holzer's former boss, Donna Ducharme, recently took over responsibilities for industrial retention and development at the Department of Planning and Development and hopes to deal with this shortcoming. She is pressing to complete a city data base on manufacturing to better track the needs of business. She also hopes to improve the city's relations with the neighborhood development organizations, which have acted as nonprofit adjuncts of the city since the Washington administration but felt relatively neglected and ignored by the Daley administration until the past year. These groups not only provide early warnings of problems but act swiftly and imaginatively to deal with manufacturers' needs, often acting as their go-betweens in dealing with a sluggish bureaucracy. Jarrett hopes to improve matters with a new "business express hot line" and better relations with the local groups.
Ducharme and Jarrett want to improve the city's marketing of industrial sites and are negotiating with private industrial brokers to act as agents. In some cases, buildings can be salvaged and divided up for smaller businesses. "We need to be more creative about linking companies with existing space," Ducharme said.
One of the trickiest problems is environmental contamination. Fear of the uncertain costs of cleaning up contaminated sites, and their legal liability if they don't, discourages businesses from locating or expanding in the city's older areas. Federal legislation in the works to provide financial assistance for restoring these industrial sites could help, especially a Senate bill sponsored by Michigan's Donald Riegle (a Daley-backed House bill introduced by freshman Mel Reynolds to offer tax credits for clean-up would also be useful).
The city needs to work more aggressively on several environmental fronts. To deal with liability, it can clearly define clean-up standards for industrial areas and provide a mechanism for certifying good-faith efforts to meet them. It can encourage innovative solutions to contamination, such as the partnership the west side's Bethel New Life organization has established with scientists at Argonne National Laboratory to clean up old industrial sites. It can set up quasi-public bodies to take the initiative in decontaminating large sections of the city, such as the Calumet region. The city can also encourage local public agencies like the Metropolitan Water Reclamation District to work with businesses to prevent pollution in the first place.
In a welcome break with the past, the city, the City Colleges, and the Illinois Institute of Technology in 1991 formed the Chicago Manufacturing Technology Consortium. Operating with state funds, the IIT manufacturing experts have made assessments of what about 50 companies need to improve their training, productivity, and product quality, to computerize, and to take other modernizing steps. The City Colleges have offered customized training and the city small loans to upgrade and expand. The consortium claims to have retained several hundred jobs at these small manufacturers and created 200 new ones.
Such activities will get a big boost if the city succeeds in its application for one of the 30 manufacturing technology centers that the federal government's National Institute for Standards and Technology will be setting up. If a center is established here, it should be linked to work already under way by community groups. One of these is the Jane Addams Resource Corporation, which organizes metalworking firms to train each other's workers and collectively develop new technologies.
The city should help turn labor unions into more active job trainers, such as the Amalgamated Clothing and Textile Workers Union and some others already are. Working with unions, a technology center could help give workers a voice in defining new high-skilled, worker-centered ways of organizing work to increase productivity and quality.
In many ways, Chicago is at a crossroads. Midwest manufacturing that survived the 80s is now much stronger than it was a decade ago. The city's small manufacturers, many of whom supply parts and production services to larger corporations that make autos, computers, appliances, and electronic equipment, have adapted to the disappearance of their big customers in the metropolitan area and now compete in national, even international markets.
The biggest industrial sectors in Chicago are still such traditional areas as metalworking, machinery, transportation equipment, printing and publishing, food products, and chemicals. Inevitably, these will be the foundation of any manufacturing revival. The city also has a high-tech manufacturing sector, but high-tech job growth here has trailed the nation. That's partly because high-tech military spending was skewed to the two coasts, a disadvantage to Chicago that is now declining.
As the profiles that follow suggest, one of the greatest strengths of the Chicago area is its diversity of manufacturing suppliers: virtually anything a factory needs in the way of parts and services can be found here. At a time when more and more companies are maintaining flexibility by doing as little work as possible in-house, Chicago's diversity is an especially marketable advantage. Small employers also like Chicago because of its central location and convenient transportation and communications.
They also like the huge labor supply, much as they grumble about the failings of the schools. Chicago can still supply some industries with skilled workers, but its chief selling point increasingly is an abundance of low-wage labor. This is a vulnerable foundation to rebuild manufacturing on, but it can be shored up with vigorous on-the-job training in both work-related skills and basic education. In this light, it is obvious that school reform must go beyond local governance issues to the heart of the matter: what makes teaching click and students learn. The schools need more state financing. Intellectual capital--knowledge--is as important as physical capital. Chicago needs a larger investment in both for manufacturing to thrive here.
Despite business's complaints about taxes, it would be a costly and counterproductive mistake to engage in a bidding war of tax cutting and financial giveaways to attract or retain business. Instead, the city should concentrate on using its resources to strengthen its positive aspects. One of the cheapest things to do is simply let manufacturers know they're welcome. One reason Granite & Marble World Trade moved here is that Mayor Washington made the company feel wanted. Companies that are already here need to feel the same. But they also need to know more about what help is available. As Neotek's Craig Connally complained, too often supportive programs exist that small businesses never even hear about, and too often programs are designed with big corporations or factories primarily in mind. Companies most need the basics--pothole repairs, police protection, litter removal--plus some assurance that they won't have to wait for years, as Blackstone Manufacturing has, simply to get control of a piece of abandoned city land.
Because it contains so many small manufacturers in related industries, Chicago could benefit far more than many metropolitan areas by the development of cooperative networks of manufacturers and suppliers, such as the Jane Addams Resource Corporation network of metalworking firms. (A few cities, such as Cleveland, have established programs to cooperatively purchase and share expensive equipment.) Through such networks, small manufacturers can cooperate in bidding and marketing, especially overseas. The business people profiled here make it clear that they need help and encouragement to export--not splashy junkets like former governor James Thompson used to make or even foreign trade offices, but simply training and technical assistance and help with the complicated financial negotiations.
Manufacturing has its troubles throughout metropolitan Chicago but most of all in the city proper, the oldest area and the one most plagued with social problems. Industrial employment has remained fairly stable over the last decade in suburban Cook County and has grown in most of the collar counties. Any manufacturing strategy for Chicago should link up with the rest of the metropolitan region. Yet until there is some sound basis for cooperating with suburbs that have thrived in part by draining Chicago of factories and jobs, the city also will have to act in its own parochial interests.
It won't do in any case simply to encourage reverse commuting to the suburbs for manufacturing jobs. Besides being difficult, time-consuming, and expensive, these daily commutes would lead to the most successful workers following the jobs to live closer to them (as many already have). This process would drain the city of more of its solid working class, increase inequality, and worsen the city's social problems. Besides, expanding manufacturing in the city would be more energy-efficient, permit the redevelopment and reuse of existing physical infrastructure, and reduce destructive suburban sprawl.
The tide continues to run against Chicago manufacturing, but the tide is not irreversible. The city can build on its advantages and create new ones. In a way, the failure of Daley's mega-projects may be a good thing. Finally, the mayor may be ready to turn to the nitty-gritty task of strengthening industry as a key part of Chicago economic strategy.
"Why did it take so long?" asks James Lemonides, executive director of the Greater North Pulaski Development Corporation. "Why all the time since he was elected until now? There's a reluctance to face up to the fact that jobs, crime, education, and economic development are all tied together and you need neighborhood action."
Small manufacturers like the ones described here may be the neglected building blocks of a much healthier city, but it will take some sophisticated masonry work to assemble them into a substantial new economic edifice. Chicago cannot simply count on its location and vast labor market. Now it must try much more consciously to create comparative advantages. It must be willing to make many little plans work toward one large vision.
Ace Plating Company
3433 W. 48th Place; Metal Plating
"We get caught up in romantic notions of a changing work force, but if we're going to maintain our standard of living we've got to make stuff."
Mike Holewinski, whose Harold Washington coffee mugs are a reminder of his days as a deputy mayor, was a political anomaly. He was a progressive Democrat from the northwest side, a respected Polish community leader who comfortably allied himself with blacks and liberals on many issues. Now Holewinski is a hard-working small businessman, running the company he inherited from his father, who left his job as foreman in another plating firm to found the Ace Plating Company in 1960.
Since then many local platers have disappeared. But there are still about 250 small plating and metal-finishing firms employing 5,000 people in Chicago. Illinois has the second largest metal-finishing industry in the country.
Ace's 40 employees work in an industry that is a crucial but dirty link in the metalworking and electronic production chains. In the dark, dusty industrial underworld they inhabit, metals are cleaned then coated by electrolysis with brass, copper, or nickel. Later the plated metal is rinsed and given a final finish, perhaps an antiquing by oxidation. It's a process that works against the industry--as environmental laws have stiffened, small plating businesses have found it increasingly costly to dispose of their residual sludges: the metals and metal salts, acids, cyanide compounds, and other chemicals critical to the electroplating process.
Holewinski has strengthened Ace by picking up pieces of related businesses in order to provide a wider range of services and products. The owners of some of these small businesses wanted to retire, and nobody in the family wanted to continue such difficult, marginal operations.
Some of Ace's handiwork is on display in the quiet little office Holewinski occupies above the factory, in a turn-of-the-century industrial district in the Back of the Yards neighborhood. There's a tuba mute, a gold pan, lighting reflectors, duct collars, commercial reflectors, lamps, pool table lights, hinges, casket parts and much more. Most of his work involves plating objects used by other manufacturers--about two-thirds of them in metropolitan Chicago, the rest as far afield as the west coast (where environmental regulations have greatly reduced the number of platers).
Unlike many businessmen, Holewinski does not complain about government regulation to limit or prevent pollution. He just wishes it could be done more efficiently, with fewer of the often overlapping reports to and inspections by the several different agencies. He has tried to clean up his operation. He brought in consultants from the Center for Neighborhood Technology, a not-for-profit group that wants local government to help the plating firms comply with environmental laws and still survive in Chicago. But he found there are limits to what one small company can afford to do on its own.
Holewinski maintains tanks for neutralizing cyanides, settling sludges, and evaporating water, and he also employs other "not terribly sophisticated" techniques to concentrate wastes. Holewinski probably could turn his waste into landfill, but he fears the waste site leaking one day and his children or grandchildren discovering they're liable. He acknowledges that "a lot of people probably dumped their stuff down the sewer, thinking, 'If I'm going to get in trouble in 20 years [over a landfill] I might as well take the risk.'"
Instead, every year he sends off about 25 drums of the final residue to recyclers, primarily two firms in Texas and New Jersey whom he pays $1,000 a drum. About 10 percent of his firm's waste is incinerated, but Holewinski is aiming for 100 percent recycling.
"We tried to decide what we could do in-house" rather than ship out sludge, Holewinski said, "but with a small business, it becomes a job almost bigger than the business. It got to be so big a task it wasn't efficient. It would make a tremendous amount of sense to have a centralized processing facility in Chicago."
He said, "I'm really big on partnerships. I think government with any level of industry can do more by putting resources together. I think government spends too much of its resources on enforcement and not enough on technical assistance and establishing a system for dealing with these things." The Center for Neighborhood Technology wants the Metropolitan Water Reclamation District, which is one of the agencies responsible for monitoring plating companies' effluents, to help companies like Ace finance pollution prevention. Better to spend the money upfront to stop pollution before it happens than pay later to regulate it and clean it up.
The work force at Ace has changed over the years from Eastern European to black to Mexican American. They work long overtime hours for modest wages and serve as an informal recruiting network for brothers and cousins who need work. "This is gritty, difficult work," Holewinski said. "It's like with any new immigrants: they're willing to take these jobs before they get something else."
In his own backyard Holewinski has to compete with employers who may pay cash for wages and no benefits while surreptitiously disposing of their wastes. On the international front he faces competition from Taiwan, Singapore, Korea, China, and other low-wage countries. Automation is too expensive. He's forced into specialized, short-run projects.
"There are automated spring lathes" for metal spinning, he noted, "but you have to run 25,000 pieces to be able to pay for a machine that costs $100,000. Also, for what I charge to do plating, someone can get the whole product overseas. How can I compete with people making 15 cents an hour?"
Yet Holewinski is upset at what Sony chairman Akio Morita called the "hollowing" of American business, the loss of its industrial innards. "That's a real telling and true comment," he said. "We get caught up in romantic notions of a changing work force, but if we're going to maintain our standard of living we've got to make stuff. I enjoy the artistry of it, seeing the pieces come out at the end. But it's not easy."
1154 W. Belmont; Custom Recording Consoles
"I'm always getting attractive offers to move to Wisconsin or Ohio, but i've never gotten in the mail an offer to keep me here."
Last spring Craig Connally was standing on the Great Wall of China, relaxing a bit after completing the sale of a $200,000 custom-made console to the Beijing Film Studio for mixing sound for movies. The studio's output is huge, ten times that of the United Kingdom, and Connally's competition in this rarefied high-technology niche is also giants--Sony, Matsushita, and divisions of two European conglomerates, Siemens and Carlton Communications. Connally is founder and president of the Neotek Corporation, a near-invisible presence on Belmont Avenue that employs about 35 people.
Connally's broker/partner in China--crucial for negotiating the official and unofficial mazes--was a former Red Guard whose father had fought with Mao, a former cultural revolutionary who has succumbed to the new line that "to get rich is glorious." Connally himself was something of a domestic "red guard" shortly before he founded Neotek in 1972 and decided to follow the entrepreneurial road.
The son of a U.S. Air Force officer, the tall, athletic Connally was drawn into left politics by his opposition to the Vietnam War. Studying physical chemistry at the University of Illinois at Chicago in 1970, he helped lead the occupation of the campus and invasion of the ROTC building after the invasion of Cambodia. He achieved some notoriety from a Tribune columnist's modest crusade against him. Connally has hardly abandoned those ideals, but running a small business creates a sobering reality. "One of the first shocks," he said, "was when I had an employee with kids, and I realized if I didn't make payroll she couldn't pay rent."
Losing interest in the PhD he'd almost earned, Connally left school and took a low-wage job as a contract electrical engineer. A rock and roll enthusiast, Connally was fascinated when someone in the music business showed him the innards of an amplifier. "I said, 'I can do that,'" Connally recalled, and he began making amplifiers for bands. Then a musician asked him to make a mixing board. "Somebody said, 'This sounds better than the board we're recording on. Could you add a few functions and make a recording board?'"
Connally's ear for music and technical aptitude well suited him for the business, but he attributes his success to "reverse consulting." "I go out and talk to people in the field, who tell me what I should build for them. We learn how expensive, talented people do their work in audio. Those people won't accept a generic audio console. Sophisticated customers demand a sophisticated dealer who develops sophisticated products." Connally's sensitivity to his customers' desires helps him compete against the industry behemoths. Orders are custom-made in two to three months--for $20,000 to $200,000 each--but it can take two or three times as long to work out the technical details with each customer. Last year Neotek sold about $1.5 million worth of equipment, 80 percent of it exported. Europe's state-financed arts agencies appreciate Neotek's quality, Connally said, but the depressed United States recording industry either is looking to cut costs above all else or at the upper end is attracted to prestige-name equipment.
Neotek's production starts with computer-generated designs that are faxed to customers and then back to Neotek engineers until there's final agreement. Then Neotek's rainbow work force--including Latinos, African Americans, Asians, and a half-dozen Rumanian immigrants--painstakingly hand-assembles the internal wiring and circuit boards and constructs the frame and control panel.
Connally has no problem finding skilled management, engineers, or production workers, but "in a small company, attitude is as important as skill," he said. "Workers need to be cooperative, amenable to flexible work schedules, and have a team spirit. It's not a production line process. The concept of 'direct labor'--in the sense of labor that fluctuates with the level of production--no longer applies in the most interesting manufacturing." Because workers learn specialized skills on the job, Neotek can't quickly expand or afford to lay off people when orders slow down. But it is possible to spread much of the production work out to other small manufacturers.
"Chicago is a great place to have a small manufacturing business," Connally said. "Every electronic vendor nationally has a large distributor here. There are hundreds of small subcontractors," including anodizers, metal fabricators, tool sharpeners, painters, circuit board manufacturers, label makers, and others on whom Neotek relies.
Recently the Illinois Department of Commerce and Community Affairs surveyed Connally on his needs, and he was surprised at the range of services DCCA claimed was available. "I'm always getting attractive offers to move to Wisconsin or Ohio, but I've never gotten in the mail an offer to keep me here," he said. "I'll bet there are ways to do it [keep businesses here] that don't cost much--maybe community college classes, job placement, even technical training programs. There are things I think are out there, but nobody brings them to me." He thinks many state programs for manufacturing are useful only to big companies, not smaller firms like Neotek that mix simple manual labor and sophisticated technology.
"What we need most help in is design of the manufacturing process for quality," Connally said. At the simplest level, many businesses would benefit from continuous monitoring of their production, something known as statistical process control. Increasingly, Connally said, they also need help in learning "other more complex aspects of quality manufacturing," such as how to meet new European-derived ISO 9000 standards.
"Among the most difficult things to learn is how to do business internationally," Connally went on, saying he'd be grateful for "an agency that would provide interim financing for small export sales." Smoothing the bumpy process of establishing the buyer's credit and getting money more quickly to the producer could boost the exports of local manufacturers.
"All small companies will have similar questions," Connally argued. "How to go from manual work to computerization, how to finance exports, how to establish quality. Those things could be done with community colleges and a lightly funded state agency." Much of this could also be accomplished if the city gave more support to existing business networks such as the community-development organizations, and to training-oriented institutions like Chicago Commons and the Jane Addams Resource Corporation. The city also could encourage industry to organize more networks.
Connally would prefer to live where he could easily ski, climb, and ride mountain bikes, but Chicago is a good place to do business. What keeps Neotek in Chicago rather than the suburbs is, as much as anything, Connally's own preference for the city. Making Chicago attractive for entrepreneurs like him--whether it's with cultural and entertainment opportunities or simply a congenial quality of life--can ironically be an important part of a strategy to strengthen manufacturing.
Kassel & Zoll Provisions
1455 W. Willow; Trimmed Pork Ribs for Restaurants
"When the time comes that we have to leave this building, we probably can't afford property in this area."
Hog butcher to the world? Maybe no longer, but how about "rib trimmer to the nation"? The stockyards and slaughterhouses that once employed tens of thousands of Chicagoans have vanished, and the largest remaining meat processor, Oscar Mayer, closed down last December, eliminating more than 700 jobs. But Kassel & Zoll Provisions, Inc. crammed into a small factory building off North Clybourn, is growing fast by exploiting a niche in the meat market--cutting and preparing high-quality pork ribs for restaurants.
The business was formed in 1970 from a merger of the Little Red Hen Egg Company (founded by Larry Zoll in 1944) and Kassel & Hutch (a supplier of chicken and meat to Chinese restaurants, founded in 1959). At first employing only a handful of workers, it progressively shifted from the thin-margin business of supplying Chinese restaurants to purveying ribs. That business took off in the 1980s. In 1986 Kassel & Zoll employed about 65 workers and moved from the Fulton Street area to its present location. Since then sales have nearly doubled to $55 million a year, and it now employs 150 people who make about $8 an hour (plus a good benefit package negotiated by their union, the United Food and Commercial Workers).
Kassel & Zoll still supplies many south- and west-side rib houses and local chains such as Carson's, but the rapid growth has come from supplying restaurant chains around the country--Bob Evans, TGI Friday's, Tony Roma's. It buys more than one million pounds of ribs a week from big pork slaughterhouses in Iowa and points west--"more ribs than anyone else," Steve Zoll claimed--and trims the ribs to produce choice quality, standard-size portions.
In the jam-packed meat-processing room, ribs flow on conveyors past trimmers and on to packers. The computerized scale, which required a couple of years of tinkering before it worked right, is one of the few examples of new technology. But while the rest of the equipment looks conventional, employees are continually modifying and customizing it to the company's needs. In the future the Zolls may invest in faster freezing technology and even in laser meat cutters.
The company gains an advantage by buying in large quantities and by being able to promise prompt delivery anywhere in the country. Because Chicago is such a trucking hub, with many small refrigerator-truck companies, it's easy for Kassel & Zoll to bring in large truckloads of ribs then ship out the finished product in less-than-truckload lots to anywhere. Some competitors underprice them, but they claim an edge in quality and service. They grew because "we did more for our customers," president Larry Zoll said.
Zoll and his son Steve, the executive vice president, complain about taxes, streets, and the difficulty of finding competent office workers, but they like being in Chicago. "That's where we live," Larry said. "We have the nucleus of our company here and a lot of sales in Chicago. We like the people we have. We wouldn't be anyplace else."
Yet they might soon be anyway. They need about double the space they have, but they're not sure they can afford it in the Clybourn industrial corridor, even though the city has designated the area a Planned Manufacturing District. By blocking conversions of property to retail and residential uses, PMDs are supposed to stabilize land prices and keep manufacturers like Kassel & Zoll from having to move. The Zolls supported the PMD idea, but now Steve calls it a "total failure. Developers have decided to wait out the city." One developer is pushing to convert the closed Procter & Gamble plant to retail, and the Chicago Milwaukee Corporation continues to sit on an undeveloped 30-acre portion of Goose Island. "No one wants to pressure them," Steve said. "They have clout. They want to build town houses. They'll wait it out." This kind of speculation "makes our situation very uncertain," Larry said. "When the time comes that we have to leave this building, we probably can't afford property in this area."
The commissioner of planning and economic development, Valerie Jarrett, claims that the PMDs are working: while industrial development expands in the PMD zone, some of the highly touted commercial ventures nearby, the kind that developers argued should displace the old factories, are now bankrupt or in financial trouble. The city and federal government have invested $30 million in streets and bridges in the industrial corridor along the North Branch of the Chicago River that includes all three PMDs, Jarrett said, and established two tax-increment financing districts on Goose Island to help businesses expand or consolidate their operations in that area.
Critics claim that lower-level city officials have not convinced developers that Chicago will not permit retail and residential development in the PMD. "We have not wavered. We are more convinced than ever," Jarrett insisted. "We will not consider anything that is not consistent with the PMD." She said that whatever potential developers of the Procter & Gamble site propose "has to be consistent with the PMD." Jarrett is concerned about the idle land, "but short of condemnation there are limits to what we can do. We've considered that, but we don't have a great deal of money available for condemnation. We'd do it if we had federal dollars."
One reason the Zolls are miffed at the real estate speculators is that it's their own family's money that's at risk in their company, but the speculators operate with "other people's money" borrowed from banks. "If the city would be sincere about keeping jobs here, they should do something" about the speculators, argued Larry. When businesses like theirs are forced out, Steve said, "that leaves all these people in Cabrini-Green without jobs, and then they complain people are criminals."
Steve said, "We're already thinking of moving to the suburbs or to Wisconsin--the big industrial park in Kenosha. "We have to do what we can afford to do," his father added. "If we could secure facilities in Chicago for not much more than moving, we'd stay here. If it comes to the place where we can't afford it, we have to keep our business going."
Granite & Marble World Trade
2434 W. Fulton; Architectural Stone
"We looked at New York and Atlanta. Chicago offered us the human warmth we needed when you don't know where to go."
There are few more ancient trades than cutting stone. A company in the old Fulton Street industrial corridor on Chicago's near west side survives in an economically depressed construction market by employing the most advanced technologies in this venerable business.
As the United States headquarters of a Swiss holding company--Groupe Marbres du Condado--whose central office is in France, whose main shareholder is Portuguese, and whose operations range from Spain to Saudi Arabia to India, Granite & Marble World Trade exemplifies the increasingly multinational structure of business. And it flies in the face of the trend that sees big American-owned multinationals shutting down their rust belt factories and moving south or overseas.
In the early 80s the European parent company decided it needed a North American division to serve the office-building boom. "Why are we in Chicago?" reflected Granite & Marble president Antonio Pedroso, a charming Portuguese whose family name incidentally means "stone." "It has to do with the warm reception we got from the city of Chicago and Mayor Washington. We had looked at New York and Atlanta. Chicago offered us the human warmth we needed when you don't know where to go." The city also helped with a start-up loan and some job-training funds.
Granite & Marble took over a cavernous 150,000-square-foot former metalworking shop. It invested $12 million, mainly in giant Italian rock-cutting machines. These saw into slabs the typical 5-by-5-by-11-foot quarried blocks of marble and granite that weigh 50,000 to 60,000 pounds each. Like a gargantuan bread slicer, the machines' multiple steel blades, aided by a slurry of water, lime, and steel shot, must operate around the clock for ten days just to cut up two blocks. Then, on heavily automated lines, the slabs are polished, sandblasted, water blasted, or thermally treated to achieve different finishes. There may also be a final specialized cutting of decorative pieces.
The European stonecutters who taught these difficult skills have now gone home, leaving operations in the hands of the 50 American employees, including nearly 30 in the warehouse and factory who make from $8 to $16 an hour. Some--like the plant manager, a sculptor--already had a fondness for stoneworking; the others apparently have come to enjoy their work. Few have quit or been laid off, despite recent hard times in the industry. Pedroso works to create a familial air in the shop.
"You don't need stone," Pedroso said, as he surveyed his vast "candy store" of exquisitely varied marble and granite slabs from around the world. "It's a love affair between mankind and stone." But with the collapse of office construction, the romance has chilled. Demand for stone dropped. But Granite & Marble, although forced into bankruptcy reorganization in 1986 by one bad contract, has continued to grow slowly and last year had sales of about $7 million. This year it may finally break even. It has had to seek out smaller jobs, like crafting marble fireplaces for the new vacation home of a rich Chicagoan at $15,000 apiece.
Increasingly, architects and builders are demanding granite rather than marble, much of it quarried in North America. To survive, said Pedroso, his company has had to offer a greater variety of stones (increasing inventory costs), sell more aggressively, computerize its operations, and constantly introduce new products and techniques.
Recently the company engaged in a joint project with Creative Edge, a small high-tech company in Fairfield, Iowa, owned and operated by some practitioners of transcendental meditation. Creative Edge uses extremely high-pressure water jets--developing a force of 55,000 pounds per square inch--to cut a variety of hard materials. Pedroso had earlier encountered the technology, which was developed in Canada, but could not afford its machinery.
The technology opens up vast new possibilities for cutting intricate patterns, including tight curves, and creating inlays of stones and metals. Right now Granite & Marble craftsmen are creating a huge tableau of the Chicago skyline, roughly 15 by 50 feet, inlaid with marble, granite, and other materials. It will decorate their showroom until some inspired builder decides to buy it.
Now Iowa is courting Granite & Marble, as so many cities and states have done for years with Chicago factories. "We received several invitations, "Why don't you move to Iowa?"' Pedroso said. "We constantly receive offers from states for tax exemption, training, energy. I don't know how much Illinois is investing in keeping Illinois business here."
Pedroso admits the company has considered relocating to Iowa, but the difficulty of moving its equipment discourages flight. He would rather invest $500,000 to $1 million and install high-pressure cutting machines here. Pedroso believes that inside a decade high-pressure water jets will become the technology of choice for cutting hard materials. Perhaps the city could ask itself if promoting this technology and providing training in it might not give a leg up to many Chicago companies, including the still-large metalworking industry.
For now Pedroso wishes the city could do something about illegal "fly-dumping" in nearby streets, crime (there are three or four break-ins at Granite & Marble every year), and the potholed streets that discourage customers and break down delivery trucks. There's a railroad spur in the Fulton corridor that could greatly facilitate moving Granite & Marble's heavy merchandise in and out, but it's no longer in service. After years of requests the city has promised some street repairs, but as Pedroso observed, "You shouldn't have to battle to have a street repaired."
Pedroso is delighted to be part of the local development group, the Industrial Council of the Northwest. He works with the council and other community groups to help unemployed youth, discourage gangs, and provide training in carpentry. These collaborations help make him aware of local suppliers and new business ideas. "You'd be surprised at how much I learn talking with people who make paint or export harps," he said. He argues that the city should do much more to encourage discussions and collaborations among local businesses and to nurture a sense of civic pride that will make business owners as well as workers want to be in Chicago. "We're chauvinistic about our Bulls," Pedroso said. "We should be about our economy."
Lyon & Healy, Inc.
168 N Ogden; Harps
In competition with Swiss and Italian workers, Chicagoans won.
In a global contest of public perceptions, "precision craftsmanship" is far more often associated with Switzerland or Germany than with the United States or Chicago. Yet Chicago workers won out over Swiss and Italian workers to manufacture concert-quality harps.
In 1864 Patrick Healy and George Washburn Lyon opened a retail and wholesale musical instrument store in raw, youthful Chicago. Disappointed with the fragility of European harps, Lyon & Healy in 1889 designed and built its own. It was a rugged but pleasing instrument that came to dominate the United States market and sell well in East Asia and modestly in Europe. CBS bought the company in 1977 when it was establishing a musical instrument division and shut down Lyon & Healy's famous Chicago retail stores. CBS sold off the division in 1985, and two years later Salvi Harps of Italy bought the Chicago company.
Craftsmen in Italy make the wood frames of Salvi harps and install the complex metal mechanisms that had been assembled in Switzerland. After the merger the company decided that the mechanisms should incorporate the best of both Lyon & Healy and Salvi traditions and all be made in one location.
Lyon & Healy's president, Janet Harrell, an accountant whose musical talents go no farther than "playing the calculator," said Chicago won out because of better management, lower overhead, a good network of local suppliers and manufacturers, a central location excellently served by transportation networks, and a "more attractive labor rate." Although Colombia, where some simple Salvi harps are made, has even lower wages, the company decided workers there could not handle the production of sophisticated concert harps and lacked adequate supply networks.
In the end, despite a generous tax offer from the Swiss government, Chicago offered a 10 percent advantage in costs. City Hall and Springfield, through the state treasurer's linked deposit program, firmed up the deal by helping Lyon & Healy put together a $1.5 million, five-year loan package to help modernize and expand its facilities.
Since its Ogden Avenue location west of the Loop is part of a state enterprise zone, Lyon & Healy also found it easier to get funds for job training. The company has hired several skilled woodworkers trained through a project of the Industrial Council of Northwest Chicago and Greater West Town Community Development Project, two local nonprofit groups, or through the Chicago Board of Education's Washburne Trade School. Yet about one-fourth of the work force consists of Eastern European immigrants who brought their skills with them (the traditional way in which America acquired a trained work force).
Now about 90 workers build the harps in an old five-story building across the street from a pickle factory in a neighborhood that according to Harrell is still rough but improving. The transfer of work from Europe has already created 20 new jobs, with perhaps 15 more to come. Last March the first mechanisms were shipped to Italy for use in Salvi harps, but the link with Salvi had already boosted Lyon & Healy's sales of its own brand of harps in Europe. Now it's promoting a new electronic harp for jazz, pop, and rock bands.
The mainstay of the company remains its large wood concert harps. Construction involves ancient and modern techniques: gold leaf placed on gessoed wood with horsehair brushes; metal plates drilled by computer-controlled machine tools; ornate upright columns fashioned for two weeks on an automated eight-spindle carving machine and then by hand, for another 80 hours.
After such time-consuming work (wages range from $6 an hour to $18 for the master harp builders), Lyon & Healy harps aren't cheap. Standard pedal harps range from $10,400 to $27,550 each, and one especially elaborate harp took two years to build and recently sold for $100,000.
Lyon & Healy faces problems. It's running out of space in its old, somewhat inconvenient multistory building. There's no parking available for customers. There are repeated problems with graffiti and stolen hubcaps. There's no loading dock for big trucks, which in any case can't get over a divider in the street, so they park on the street and forklifts do the rest. The clearance of a nearby viaduct was reduced by street repairs, and Harrell observed that "every week a truck gets stuck under Lake and Ogden."
These nuisances may not drive Lyon & Healy out, but when businesses aren't sure they want to be in Chicago for other reasons, irritants can tip the scales. If the battle were simply over congeniality of location, a village in the Alps would have the edge over the near west side of Chicago any day.
P-K Tool & Manufacturing Company
4700 W. LeMoyne; Metal Parts
"Networking has been Chicago's strength. With a group, we come to our customers with more diversity, more ability than if we come alone."
In a small redbrick building on a far west side dead-end street, the Kaiser family operates what seems to be the classic Chicago rust belt factory. With 90 employees in a business started 50 years ago by their grandfather, a tool and die maker, they stamp, cut, machine, and assemble small pieces of metal that go into larger, more recognizable products.
Yet P-K Tool & Manufacturing Company, named after founder Paul Kaiser, is a thriving firm in a cutthroat market. It builds on old skills and traditions yet is plugged into high technology. Initially a supplier mainly to the auto industry, then to the home appliance industry, P-K Tool now gets 40 percent of its business from computer and office-equipment sales. Even the auto-component manufacturing (another 40 percent of its sales) requires increasing precision and constantly lower costs. For example, using robotic devices to transfer parts, one person on a press can now do the work of four in stamping out containers for air bag controls. There's very low tolerance for error on such critical safety devices.
The pressures on a small manufacturer like P-K Tool are intense. Many of their traditional customers--like their huge former neighbor, Western Electric's Hawthorne Works--have moved, and other industries have experienced upheavals. More and more big companies try to force suppliers like P-K Tool to increase quality, assume the costs of maintaining inventories, and do more of the design work--all while getting paid less.
In the past, P-K Tool might have turned out the same part for a given customer for 20 years, but now few parts remain unchanged for more than a couple of years, and changes can come so fast that tools are built on verbal instructions even before blueprints can be sent. Although some big companies form long-term cooperative relationships with suppliers like P-K Tool, others are known to capriciously switch suppliers to save a few pennies.
In addition, foreign competition and now NAFTA pose ominous threats. Automation is essential but extremely costly. And many of the workers who apply for jobs need basic education as well as technical training.
"When my grandfather started in the business, there were many craftsmen coming from Europe," P-K Tool president Tom Kaiser said. "If people didn't have formal schooling, they had trade and informal training. Today we're doing a lot more training, because there's a bigger void in basic academic skills. Our very best workers are better than yesterday's best, but there are so few of them."
Most of that training has been at the company's expense, although last year P-K Tool did receive a state grant under the Prairie 2000 training program. P-K Tool brings in trainers, works with trade schools and trade associations, shares tuition costs for classes many workers need, and teaches English as a second language (about one-third of the workers are Latinos, some of whom speak mainly Spanish). It also participates in the Jane Addams Resource Corporation (JARC) network of metalworking companies, which work cooperatively to provide training in basic skills such as math and blueprint reading as well as in advanced computer-aided design and manufacturing.
"They're doing great things," Kaiser said of JARC. "They network, and introduce me to customers and suppliers." The companies often help each other out, giving training classes as well as getting them, sharing in contracts and information, even providing some mutual short-term financial support in rough times.
Customers--90 percent of whom are outside the Chicago area--are often surprised at the breadth of services a small firm like P-K Tool can offer, Kaiser said. "Well, this is Chicago. If I need something I can go to other suppliers and designers. Networking has been Chicago's strength. With a group, we come to our customers with more diversity, more ability than if we come alone."
P-K Tool intends to keep its home plant here. But recently the firm opened a new factory in Kentucky that could grow to be as big as its Chicago operation. It's in Kentucky in part to service the growing auto industry in that area, but the state offered training as an incentive to move.
"It's a constant wrestling match whether we can hold on to these jobs in the United States or have to go to low-wage Mexico or the Pacific rim," Kaiser said. Like many small manufacturers, Kaiser feels torn between his sense of national loyalty and fear that the winds of international economic change will blow him over if he doesn't drift with them.
Growing integration of the United States and Mexican economies creates great uncertainties. "As free trade opens up so that we can do some of our work a day's drive away for about one-fifth of our cost," Kaiser reflected, in terms similar to those of many manufacturing colleagues, "the pressure will be on for us to move there. We have to prepare for the day when our lesser-skilled staff is sucked out and goes to Mexico." Many of those workers, ironically, are Mexican Americans. But Kaiser hopes to resist and overcome those pressures.
Today's P-K Tool workers make modest annual salaries starting under $20,000 a year, plus profit sharing, health insurance, and overtime. It's a nonunion plant, but Kaiser describes his outlook as "prolabor" and cites numerous in-plant committees covering safety and other matters. P-K Tool relies on its shop's floor workers for ideas and innovations. "I could show you a dozen things employees have made better and kept us in a market where we wouldn't be otherwise," Kaiser said.
Out on the shop floor, many of the older machines have been renovated with computerized controls that sometimes cost nearly as much as the original machines. But amid the clanging cutting and stamping presses there are tables where workers do finishing work by hand--work that because of a lack of volume P-K can't feasibly perform by machine. Like many of the smaller manufacturers, P-K probably most needs outside technical assistance to meet ever-increasing quality standards.
With the help of a consultant from the Illinois Institute of Technology, provided through a city-funded program of technical assistance that ought to be bigger, P-K Tool has been rearranging the flow of production to cut costs and increase quality. High quality helped P-K Tool win the full contract for a part it once split with a competitor; but high quality--plus P-K's own contribution of significant design work--could not stop another client from shifting to a Taiwanese supplier.
The city and state could help more with training (as well as with better public schools), and with technical assistance and support for networks like JARC and CANDO. Like many small manufacturers, Kaiser most wants the industrial infrastructure improved. He wants his street widened so semis can more easily service the factory; he wants curbs and sidewalks. "Some things the city could do for us they should do for the population as a whole," said Kaiser, who now lives in Northbrook. "We need a safer, cleaner city with better educational opportunities. We need better infrastructure."
Running a company like P-K is rewarding, but Tom Kaiser didn't see it that way when he was growing up. "We [kids] saw how hard Dad worked--putting in 12-hour days--and we said, "Not for me."' So Tom studied English literature in college and went on to a teaching career. Other siblings studied law, psychology, and history. But now 6 of the 12 children are involved with the business in one way or another. Mary Lee is office manager; Phil Jr. is vice president of engineering; John assists with legal matters; Joe works on quality control; and Jim is a salesman.
"It was a pragmatic issue," Kaiser said. "Dad wasn't sure of the continuity of the business. He asked me to come in to help. He told me, "You could still teach here."' As Tom Kaiser discovered, his father was right. To keep the presses running at his grandfather's factory, shaping workers through continued education was as important as shaping metal.
1046 W. Willow; Medical Infusion Pumps
"Everyone is always biching about the inner city going to shit, and why doesn't the government step in. I think a little interest has to be taken by business."
Metropolitan Chicago is a national center for health care technology, but giant Baxter International, Inc. and Abbott Laboratories are in the leafy northern suburbs. Sabratek, on the other hand, is in the gritty North Clybourn industrial corridor of Chicago.
"When we meet hospital representatives, they're used to visiting suburban industrial parks," says chief executive officer Shan Padda. "Here barbed wire is across the street and Commonwealth Edison has this big pile of dirt. We do get a bit of reaction. We have to explain why we're located here."
So why isn't he in some industrial park, whose overbuilt developers would have customized a new building for him?
"The primary reason why is also why we give preference to American products," explains Padda, a self-confident 30-year-old entrepreneur. "Everyone is always bitching about the inner city going to shit, and why doesn't the government step in. I think a little interest has to be taken by business. There has to be a model held up. Some of the people in back"--the production area--"come from tough areas and go through hassles to get to work every day. They wouldn't be able to get to a job in Glencoe. Let's create images to counter the cocaine pusher."
Sabratek is a rapidly growing company that makes an infusion pump for the home health-care market. The machine injects precise flows of medically prescribed fluids, nutrients or medicines, into patients who are usually under some long-term medical regimen. The pump commands a price with a healthy profit margin.
"We're spending a little more by being in this location," Padda says, "but we feel socially important. This is a for-profit business but we're carrying our responsibility. But if we want to maintain this largesse, we have to work hard also to maintain our intellectual property advantage over the Baxters and Abbotts."
Padda breaks with the American managerial norm in other ways. He dresses for work casually and sits in the big reception room in front, not in a secluded office. He wants to encourage team spirit. All workers receive stock after six months with the company, are extensively trained in different tasks, and are given considerable responsibility in their jobs.
"We try to promote cross-training and empowerment," says Padda, hitting the buzzwords of progressive management. "Those guys [in production] figure out the best ways to assemble the pumps, and they constantly find ways to improve it. They also set reasonable production figures. [Actually production goals are negotiated, but Padda says workers can reject management suggestions.] For the most part they run their own show. For me to tell someone day in and day out how to do their job is ludicrous."
Padda, the son of Indian educators in the Virgin Islands, studied biology at Harvard, where he started his business career with a successful venture selling painters' caps. His next business was importing surgical supplies he had made in China. Nearly five years ago he figured that the pressures to contain health care costs would spur home care. When someone showed him an infusion pump and asked if it could be supplied from overseas, Padda began to do research in how to make a better one here.
Sabratek was launched in 1989 with Padda's savings and investments from venture capitalists. Demand is strong for Sabratek's $3,000 pumps. Padda thinks the rate of production may triple this year (to an annual sales rate of $12 million), and he projects sales of $20 million by '94. Then he wants to take the company public and sell shares. He claims his pumps are competitive in price and quality with other producers', more durable, handier, and as much as $25 a day cheaper to use.
About 35 people work in the spotless, officelike "factory" where Intel chips and Swiss motors are among the components carefully checked for quality as they arrive. (Sabratek favors American suppliers, especially from the Chicago area, when their products are of top quality, Padda says.) The pumps are assembled at workbenches and tested for three days before they're shipped. Four regular salespeople and 13 other distributors peddle Sabratek, and a crew of five emigre Russians living in Israel does some of the engineering work. If growth continues as he hopes, with sales also expanding overseas, Padda thinks the company can create 200 to 300 more jobs within three years.
What would it take to nurture--and keep--more firms like Sabratek? Padda argues that city and state programs are too exclusively oriented toward reducing the cost of physical capital, such as land and machinery, to be useful to a firm like his that relies more on intellectual capital. And compared to Minneapolis, Boston, or southern California, he says, Chicago does not cultivate a "start-up atmosphere." He thinks new companies should enjoy better access to universities and to networks of firms, especially growing, smaller businesses in different industries.
Padda encourages the city to proceed with a projected small business investment corporation, which would invest money, such as federal small-business funds, in start-up companies. The city could share in the ownership of these businesses. If so, Padda suggests, the entrepreneur could buy out the city's stake at some fixed rate, presumably giving the city a solid return (doubling or tripling investment) but less than what a private venture capitalist would demand.
The city would need independent experts to run such a fund and keep it clear of political influence. Its own stake in any one venture would be relatively small, but its financial commitment could encourage private investors. And if the city shares in the risk but takes less than its full share of profits it deserves something else--such as a promise to expand and grow within the city.
So far Padda has been able to get skilled and motivated workers, but compared with the suburbs, he estimates, "you have to go through more of a sorting process. Employers without patience say they can't get good workers in the city. You can, but you do have to work harder. Because of such difficulties people have had in getting jobs, what you do get is an extremely motivated work force--diamonds in the rough."
Padda figures Sabratek could expand where it is if the Planned Manufacturing District designation succeeds in keeping down real estate costs. "If this area continues as a PMD, we might be able to stay," he says. "If we have to compete with a shopping center, I'm not sure." He'd like to invite suppliers into the area and see the city develop a small high-tech corridor along the Chicago River, perhaps with some landscape amenities instead of the piles of dirt and barbed wire that now grace the horizon.
Blackstone Manufacturing Company
4630 W. Harrison; Fuel Pumps for the Auto Aftermarket
"We fill our own potholes. If we had to wait, we couldn't drive down the street."
It's a wonder that Blackstone Manufacturing survives where it does, in a tough west-side neighborhood of burned-out buildings, bars and liquor stores, storefront churches with hand-painted signs, and decaying housing. Last year two workers on break just outside the plant were shot and robbed by "neighbors." So plant manager Claude "Nick" Bird set up an indoor basketball court in an unused section of the old factory for his employees. Three armed guards are stationed in front and back of the hundred-year-old complex of brick buildings. Even so, another neighbor recently seized one guard's gun and robbed him. The night shift is locked inside the plant behind high fences topped with razor wire.
To combat the mayhem, the company has been desperately trying for six years to take ownership of some abandoned land that the city of Chicago owns behind the factory. Management wants to build a secure parking lot for workers' cars. After a voluminous exchange of letters and meetings, finally Bird thinks the city may act. The delay is hard to comprehend: the competing use for the lot is not condos and boutiques but illegal dumping.
But as in all too many real-estate transactions in the older industrial sections of the city, there is troubling uncertainty about future legal liability for any environmental contamination left behind by an earlier, now leveled factory. "We would have to get assurance that it won't be our responsibility," division manager Richard Youmans said. "But without the use of that lot, we'd be in one giant mess."
"The west side is neglected," moaned Bird, as he roamed the plant in his blue shop coat. "Look at the holes in the street. We fill our own potholes. If we had to wait, we couldn't drive down the street." The nearby streets are constantly littered with the burned-out hulks of stolen or abandoned cars and with massive piles of "fly-dumped" waste materials from other businesses, including large, compacted blocks of rubbish that evidently are dumped illegally by commercial haulers. Since it costs about $300 a load to dump the garbage legally and the rarely enforced penalty for fly-dumping is $500, Bird argues, these west-side streets have been turned into commercial landfill.
These conditions make Blackstone's parent company want to pick up and leave. Twelve years ago, Connecticut-based Echlin Inc., a $1.8 billion, Fortune 500 auto parts conglomerate, bought the 60-year-old Blackstone, a manufacturer of fuel pumps for the older-car repair market, and immediately the new owners began contemplating moves that would put hundreds of west-siders out of work.
"They wanted to move it out," Bird said. "They don't like the city neighborhood and the old building. They don't like to come down here. They don't like the city inspectors. They wanted to move it to Puerto Rico the first time, then to Kansas, to save money. In Puerto Rico they get big tax advantages. Kansas is a nonunion, right-to-work state where worker compensation is lower and you don't have to worry about 3,000 inspectors coming in. But we're very stable, very clean. Inspectors can come in all the time. And we make money."
Blackstone's local managers have fought back against the distant corporate owners, an insensitive city government, and the criminals in their own neighborhood because they want to keep the company's 310 workers employed. They've doubled their employment over the last decade, and if Echlin gives them approval they could expand again by 150 jobs, Bird argues. These are not glorious jobs: workers start at $4.50 an hour and typically make about $7 an hour after two years. A few skilled tradespeople make $9 to $16 an hour. The plant is unionized by the tiny Allied Novelty & Production Workers Union, which has a reputation among other unionists as weak, ineffective, and worse, but at least there's some health insurance and an occasional pay raise.
Blackstone holds about 24 percent of the aftermarket for fuel pumps, slightly ahead of each of its two main competitors, which are located in Tennessee and southern Illinois. It's an extremely competitive market: Blackstone hasn't raised its prices in eight years, despite rising materials costs and limited opportunities to automate. Adding to the pressure to keep wages low is Blackstone's successful export business to cheap-labor countries such as Mexico and Brazil that also produce auto parts.
Blackstone works hard to provide fast, comprehensive service and to seek out new opportunities. Recently it added to its line a new fuel pump that can pump either liquefied petroleum gas or regular gasoline. But 85 percent of the business comes from churning out nearly 14,000 fuel pumps a day for more than 650 vehicle models, some dating back to the 1940s. The pumps are mostly mechanical, but increasingly they'll be electronic, following the auto industry's changes.
Components are assembled largely by hand and sent through a 1,750-degree oven that melts copper rings in place. Little of the work at Blackstone is automated because Bird needs flexibility. "I can switch the line four or five times a day," even a couple dozen times a day on some older-model lines. "With automation you have to run a minimum of three 24-hour shifts [for it to make sense economically]. If you ask us for 100 pumps, we'll give you that and go on to another." Although auto companies often supply blueprints and even equipment for older parts that they no longer want to make, Blackstone maintains an engineering staff and claims that its engine pumps often improve on the originals. The company is profitable but only because of constant economizing; for example, it buys only used production machinery and uses its own maintenance workers to rebuild old machinery.
Over the years the Blackstone work force has mirrored migration patterns into Chicago. The first workers were Jewish, German, and Italian, Bird said. By the 60s there were many South Asian workers, in the 70s African Americans, and now most are Latinos, even though the factory is in a black neighborhood. Most jobs require little skill.
"We get a lot of people who are not capable because of work ethics," Bird said. "Anybody can do the work, but will you be here on time? Will you come back from break? I try to hire blacks. I have a lot of black foremen. But we start 'em off at $4.50 an hour, and a lot don't want to work for $4.50 an hour. The Spanish will work for anything. A few whites come in. I normally keep them two or three months. A lot of blacks come in with good work ethics, but I know they're going to leave me. They say, 'Nick, I found another job.'"
But Bird, a frank but upbeat man in a difficult job, doesn't mind. He rationalizes Blackstone's low wages this way: "The whole idea was getting people used to working, taking orders, learning your English and skill--and then you leave, you go get a regular job. I tell the kids in here for summer jobs, "These people are working hard. Do you want to do this the rest of your life? Then finish your education. At the end of the summer, you're fired. Go back to school.'"
Some workers do stay on, and the management ranks include many who started on the shop floor. Bird, who seems to have a remarkably good rapport with the workers, came to Blackstone as a foreman six years ago after his former employer shut down. Even though Blackstone's wages are too low to lift a worker out of poverty, this kind of factory work gives low-skill workers desperately needed access to the economy. A concerted effort to raise workers' skills--possibly through the City Colleges--might boost productivity and permit higher wages, or at least better equip workers when they move on.
Blackstone Manufacturing Company will not--and couldn't--pull a Sears-style blackmail: give us huge tax credits or we'll leave the state (credits former governor James Thompson dutifully delivered, to help Sears move out of the city). It simply wants streets repaired and cleaned up, a stronger police presence, and more aggressive action against illegal dumpers. "There's a lot of future here," Bird argued. "We're not asking anything [of the city] except do what you're supposed to do--and help us with the parking lot."
4455 W. Fullerton; Electrical Connecting Cords
"If you can't make a go of it here, you can't anywhere. There are vendors, raw materials, services, customers, even just down the street."
Factories have been fleeing Chicago to the suburbs for several decades. Mold-Tech, an electronic-components manufacturer born in a Wheaton garage in 1980, reversed the commute. In 1988 it moved into some anonymous buff brick buildings on West Fullerton in a block dotted with boarded-up storefronts and graffiti. Since then it has grown from about $1 million in annual sales to $11 million last year and from 30 to nearly 300 employees. As manufacturer of a connecting cable used by Motorola and other big makers of portable phones and electronic equipment, Mold-Tech has cashed in on the cellular phone boom.
"We couldn't get people [in Wheaton] to work for $4.50 to $5 an hour," explained vice president Richard M. "Bud" Kinzalow, son of Richard "Dick" Kinzalow, the sole owner since a 1986 buyout. "Second, the real estate was much cheaper in the city," more than balancing higher city taxes. The local community development organization, Greater North Pulaski Development Corporation, helped Mold-Tech obtain below-market-rate loans totaling $250,000 from the city and state for equipment and an initial inventory of supplies. Chicago's northwest side was also closer than Wheaton to the Kinzalows' home in Park Ridge. "One of the biggest reasons for a small business owner [choosing a factory location] is how close it is to his house," Bud Kinzalow said. "A lot of times the reason is not that magical."
Mold-Tech started out by making what are called wire harnesses, the mazes of wires that go inside autos, medical equipment, electrical appliances, and much more. Increasingly it specializes in cord sets. These are simple electrical cords with connectors at either end (in some cases designed to fit into a car's cigarette lighter). They connect cellular phones, computers, and other portable devices to a power source, often with a voltage converter built in. The company buys the cable (from a Vermont supplier) and now even the molded plastic parts (from a suburban vendor).
Sitting around simple tables, the women workers--most of them Latino--solder connecting pins (from a big suburban electronics company) to the wires, then heat-shrink plastic tubes around the plugs. The technology runs from hand-held soldering guns and heat guns used for stripping paint to an ultrasonic welder and $42,000 molding machines. Mold-Tech's lean management staff of 20 includes engineers who can design both products and processes, giving the company a competitive edge.
Yet despite the important niche its products fill in a high-tech industry, the work at Mold-Tech is low-skill and labor-intensive. Partly for that reason, Motorola and companies like it are happy to subcontract the work. "For large companies, it's a relief," Kinzalow said. "We produce what's a nuisance product for them. Their forte is high-tech, chips, cellular phones. But they need a quality product, and we can produce it."
Kinzalow is enthusiastic about his workers, who are largely recruited by word of mouth from current employees and mostly from nearby neighborhoods. Their need for on-the-job training ranges from an hour to a couple of weeks, but Kinzalow finds "one of the biggest problems we have is basic communication and entry-level math skills." So he teaches employees math (in Spanish) and may start offering English. He has no problem recruiting managerial staff but says it's "hard to find someone in the middle--a high school graduate with adequate communications, math, and reading skills."
"Chicago is a fantastic place to do business," Kinzalow said, "one of the easiest. If you can't make a go of it here, you can't anywhere. There are vendors, raw materials, services, customers, even just down the street. It's an amazingly diverse manufacturing center." Mold-Tech could buy and sell simply within metropolitan Chicago and succeed, he said, although only half its components are made locally.
Taiwanese companies are Mold-Tech's toughest competition, but Kinzalow thinks Mold-Tech has an edge with flexibility and speed. "There are times when we've gotten calls in the morning and shipped in the afternoon," he said. "Offshore companies can't do that." Schaumburg-based Motorola, whose plant in Libertyville makes cellular phones, not only pressures Mold-Tech toward ever higher quality but also works with the little company to help it grow--something not always true of relations between giant manufacturers and their suppliers.
Mold-Tech hopes to add 80 employees over the coming year. It pays low wages--$4.50 to $6.50 an hour to most factory workers, $10 to a few, with no one receiving health insurance. Even so, the proposed free-trade pact with Mexico worries Kinzalow. "It will have a serious impact on our business," he said. "You have the threat of 'offshore' labor costs onshore, but there is also the opportunity for a whole new market. I can't say no, we won't move. We have a base here--vendors, personnel, and we live here--and there's a sense of pride in doing business in America. But things could financially force us to move."
A Perot partisan, Kinzalow wishes government would develop an industrial strategy to support manufacturing, as the Japanese have done.
Like most businessmen, Kinzalow, an exuberant, youthful character with a small blond mustache, has mainly criticism for government (despite the helpful loan Mold-Tech received). He's frustrated at the constant rounds of inspections and certifications--boiler, ventilation, entrance, driveway. "Rather than this many different entities looking at this many different aspects, they could have a single company inspector," he suggests. That would be especially helpful for small manufacturers who typically have very lean office and managerial staffs.
Yet Kinzalow is enthusiastic about groups like the Greater North Pulaski Development Corporation, which have thrived since Harold Washington greatly increased their roles as delegate agencies for city programs (a relationship many of the organizations see continuing more tenuously under Daley). Through Greater North Pulaski, "I get a lot of experience through the exposure to other companies, plus the satisfaction of helping other companies," Kinzalow said. "It can only help our company if other companies come into Chicago. That's the key to revitalizing the city. If you don't produce things, you're nowhere."
1355 E. 93rd Street; Automobile Stamping Presses
"We're continually slugging it out with German and Japanese producers in North America, but if we compete in Europe, the European divisions of U.S. firms favor Europe."
Here on the southeast side workers make some of the largest machines in the world--giant $50 million presses that can weigh more than 1,000 tons, stand more than 70 feet high, and exert 5,000 tons of pressure to form steel into automobile bodies. These machines are so big that a bolt used to put one of them together is about a foot and a half in diameter and about 30 feet long. Yet Verson, which was established in 1929 as the heir to a small machine company, has had a problem at least since the late 1960s. The plant is surrounded by viaducts in every direction that severely limit the size of parts that can be shipped.
"This causes us to design and build large machines so they can be subdivided into smaller components," explains Richard Metzger, director of marketing and sales. "Our shipping restrictions are all within 50 yards of the plant. That increases design time and manufacturing costs, and there are quality considerations, as what could be made in one unit is made in two to four parts."
Finally the city has promised to enlarge one viaduct. But so far it has not pledged to fix a road around the plant that is slanted so that water runs into the factory. During the south-side flooding early this summer, water inundated the rear of one building, damaging machinery, shutting down production, and ultimately delaying delivery of a repaired press to an auto plant in Detroit, leading to a shutdown of production there.
Problems with an aging, inappropriate infrastructure--from faulty sewers to crumbling streets and low underpasses--plague manufacturers throughout the city. Despite a slight shift during the Washington administration and some promises from Daley, the Loop hogs the money. As long as the federal government refuses to increase its support to cities and the city focuses on downtown, inadequate infrastructure will repel manufacturers from Chicago.
Verson barely made it through the tumultuous 80s. It had grown with the auto industry, although it also made metal presses for appliance makers and other industries. It was a leader in the manufacture of "transfer presses," a collection of up to 14 linked presses that move metal through the stamping process and are all operated by one person.
When the auto industry went on the skids and competition from Japan's machine-tool industry accelerated, family-held Verson was in trouble. Allied Products Corporation, a Chicago manufacturing conglomerate, bought Verson in 1987 for $385 million and saved it from collapse. Several competitors folded, and two other big Chicago-area press manufacturers--the Danly Corporation (now Danly-Komatsu LP) and Clearing International, Inc.--were bought by Japanese firms. (Clearing was later resold to a British company.) That leaves Verson claiming to be the only wholly American-owned press manufacturer.
Verson managers have developed a strong sense of nationalism during these trade wars. They've filed charges of unfair dumping by Japanese producers and won. They're convinced they've been boycotted by the Japanese auto plants recently built in this country (although Toyota is now doing a little business with Verson). Usually, Metzger said, "we are not only not invited to bid but discover a transaction has occurred as a transfer press is coming through the port into the United States." Metzger laments that foreign corporations--especially Japan, Inc.--are much more nationalistic, that is supportive of their national suppliers, than United States corporations.
"When it comes to capital goods, there definitely is a nationalism," Metzger said. "Unfortunately domestic U.S. producers did not have the same nationalism. We're continually slugging it out with German and Japanese producers in North America, but if we compete in Europe the European division of U.S. firms favors Europe."
One of the biggest state economic-development subsidies during the Thompson administration was $86 million to the then Chrysler-Mitsubishi Diamond Star joint venture. Despite the massive tax breaks, nearly all the heavy machinery in the factory came from Japan.
"A 575-man company sitting in Chicago can only apply so much pressure to open markets," Metzger said,"and worse if those markets are in the United States and the state of Illinois. It's in the city and state's best interest to retain its job base by making the purchase of capital goods occur in Illinois and Chicago. We've done a dismal job in coordinating our efforts in our best interests as city, state, and nation. We are competing against a highly organized, systematized collection of industries and governments, and we in turn have allowed that to go unanswered." For its part, Verson hasn't bought a Japanese machine tool in a decade.
Metzger claims that Verson is the technological leader of its industry. Coming out of the 1982 recession, Verson developed an electronic mechanism to feed parts into the stamping press; it replaced the traditional mechanical device and increased press accuracy. "Verson took computer technology and put it with electronic servo-control technology to make what's without doubt the smoothest and most accurate transfer," Metzger said. "The company position is to secure and maintain technological leadership and to refine and make obsolete our own technological lead rather than have the competition do it. We are now equal and in many cases superior in price and performance" to the international competition.
The best companies have to innovate aggressively in a tough global economy. Companies like Verson in other countries can count on substantial government research-and-development assistance and, most likely, links with academic researchers. Verson would like--but hasn't been able to establish--some relationship with local universities or researchers to strengthen its work.
Although employment is down from around 1,000 in the late 70s to 575 today, including about 375 skilled production workers represented by the United Auto Workers, Verson's producing at a record pace. It's running two ten-hour shifts of workers who cut and weld the six-inch-thick sheets of steel that make up the main framework of the presses. Despite these gargantuan proportions, tolerances are tight, even when it comes to cutting a gear that is about eight feet in diameter. Much of the equipment in the shop is computer-controlled, and computerized electronic controls are essential components.
Chicago provides a "good available pool of skilled labor," Metzger said. "In addition, the general work ethic of Chicago and the midwest is quite good." Verson tries to hire people who already have skills in welding, machining, and machine assembly, but it still must train them extensively. The local Southeast Chicago Development Commission (another of the nonprofit community-development groups) and the City Colleges have set up a training program in the skilled trades that's supported by the city. If Chicago had a German-style apprentice program mixing classroom and on-the-job training for a year or more, companies like Verson would benefit more. President Clinton supports greater federal support for such training, though no program has been proposed. But the city, the Board of Education, and especially the City Colleges could greatly expand on their modest beginnings in job-related training.
For too long Chicago, like the country as a whole, has regarded a laissez-faire free-market strategy on manufacturing as economic holy writ. At the very least Chicago must work to provide better infrastructure, training, and access to research. Better yet, it should try to knit businesses, community and labor groups, schools and universities, and government agencies into closer collaboration. The Verson case demonstrates that progress is being made but that this progress is still too little and too slow in coming.
Hudson Screw Machine Products Company
4500 W. Augusta; Precision Metal Parts
"People say, 'Isn't it a risk to give people more training? Then they'll leave.' That's only true if you rule by fear."
Hudson is an old company whose roots in Chicago's northwest side date back to 1906. It has succeeded in the highly competitive business of fabricating small precision metal parts because it relied on what are now regarded as cutting-edge managerial techniques--extensive training, job security, flexible work arrangements, continuous investment in new technology, focus on quality, and various types of profit-sharing and employee ownership.
It has stayed in Chicago, despite the departure of such onetime neighbors as Motorola (still a customer) and Playskool (which fled Chicago in the early 80s despite receiving financial assistance from the city). It has stayed on despite Latin Kings graffiti and frustrations with local government. It has stayed largely because of the tenacious commitment of its family owners to the workers and the city, and because of repeated decisions that profits should go into machinery and training rather than into a nice new building). But the pressures to sell out or move--to the suburbs, the south, even Mexico--are persistent.
Joan S. Wrenn, vice president and coowner, has degrees in education, psychology, and business, worked in the hospital supply industry, and swore she'd never enter her father's business. But nearly six years ago she changed her mind. Her 78-year-old father was still working full-time but wanted to slow down, and her husband Peter, now president and coowner after 35 years at the firm, wanted to sell.
"He didn't feel as I did that this is a family legacy to hold onto," Wrenn explained. "We get a letter every week saying, 'We want to buy a company like yours,' and I throw them in the garbage. My real mission is the continuity of the business. It shouldn't die because somebody says, 'I'm fed up and frustrated.'"
Yet many smaller, family-owned Chicago businesses do die (or are bought up and moved out) because the younger generation doesn't want to continue. As Wrenn recounts her tale, tax laws and other legal difficulties compound the problems of generational transition. In a growing number of instances around the country, owners are transferring ownership to their employees as they retire. The nonprofit Midwest Center for Labor Research has set up a for-profit subsidiary to help with such transitions. But Chicago and Illinois government agencies have done nothing to encourage such moves, which could stabilize much manufacturing.
The original owner, Edward Hudson, "was a genius engineer, wealthy and poor several times in his life," Wrenn said. "He was brilliant, but he couldn't manage money." From early on, however, the firm has been characterized by a familylike paternalism (in the best sense). To save the company in 1932, Wrenn's father urged employees to take part of their pay in stock. The company was one of the first to offer health insurance to employees, and it has since added profit sharing. During the last five years only two employees have been laid off--for a total of three weeks.
"We just find a way," Wrenn explained. When there's no other work, "we decide why don't we do some maintenance. We just want to take care of the people who work for us. They have to pay their bills."
Not every worker fits their needs. "We're really fluid," Wrenn explained. "We're a job shop. There are 200 parts out there [that Hudson makes]. If you need to know what you're going to do when you come to work in the morning then you probably won't fit. Are you enthused with new knowledge or problem solving? Then you'll work out."
Despite limited space, Hudson has set aside a room once occupied by a huge, early Burroughs computer for "cross-training" workers in many skills. Grants from the state's Prairie 2000 program have supported technical training, and the secretary of state's office has underwritten some basic literacy and English courses. "People aren't literate," Wrenn said. "They don't know what they're doing. It's one of the reasons it's hard to find skilled machinists. Also, we can't meet ISO 9000 [the European quality standard] if our workers cannot all speak the same language all day." Having exhausted state grants for training on the job, Hudson now pays workers to attend community colleges on their own time.
"People say, 'Isn't it a risk to give people more training? Then they'll leave.' That's only true if you rule by fear." Wrenn objects to business strategists who "talk about training without acknowledging that it's the employers' responsibility to prepare employees. They talk about it just to benefit the company. We do it for both sides. We don't look at the bottom line first. We say, 'We've got a job to do. If we all chip in, we'll make it--as long as we've got enough to buy the new technology we need.'"
Although company sales are only about $7 million a year, Hudson has invested an average of $200,000 to $300,000 a year in new technology--and a total of $900,000 in the last two years. These investments largely come out of earnings, not debt, although the Washington administration in 1984 did authorize an industrial-revenue bond that allowed Hudson to double the size of the factory. "If we hadn't gotten that help," Wrenn said, "we'd have had a hard call on staying in Chicago."
One reason Hudson is driven to invest is its customers' growing demands for precision and for a defect rate of no more than one part per million. "The quality of work we do is far superior to what we did 15 years ago," Peter Wrenn noted, "and it's with mainly minority workers," about one-third of them women. Some of the new computer-controlled machining centers have reduced the number of operations and thereby improved quality: 2 operations are now needed to fashion a microphone part instead of 12 on the older machines. But there are still screw machines from the 1920s in the shop that are just right for many jobs.
One of the advantages Hudson has over competitors is technological. Customers design the part they want, then Hudson redesigns it using recently acquired computers and software to be more readily machinable. But many of Hudson's customers are increasingly fickle. Wrenn said Hudson often pays for design work, then finds a customer shifting to a cheaper supplier before Hudson can fully recoup costs. Customers are also pushing for yearly price reductions. In addition, their strategies of "just-in-time" production--reducing parts inventories by having suppliers ship only what's needed for a few days' production--often mean that the costs of maintaining inventory are simply shifted to Hudson.
The squeeze on prices and profits exacted by such customers makes it harder for Hudson to find money to buy equipment. Although Hudson prefers to buy American technology and materials, often paying more as a consequence, it must turn to Japan and Europe for many machine tools simply because they're no longer made in this country.
Hudson's packers make as little as $5.25 an hour, machine operators around $10, and computer programmers and skilled machinists as much as $20. Wrenn claims Hudson can beat competition from low-wage East Asian suppliers because it offers higher quality and can deliver faster. But the specter of NAFTA looms ahead. Already some of their Chicago-area peers have moved some manufacturing to Mexico. "No question about it, we'll be affected," Wrenn said. "My husband tells my son to learn Spanish and expect to spend part of the year south of the border. If we could divide the skilled and semiskilled work it would be to our advantage to move the semiskilled part. We have to stay open to the possibility."
Aside from the education of the work force, Wrenn's main gripes about manufacturing in Chicago focus on inadequate city services--from potholes to crime--and on environmental costs in an old industrial area.
Gangbangers repeatedly spray graffiti on the walls and the company repeatedly cleans it up. Thefts and break-ins are constant problems. Police tell local businesspeople they just don't have enough officers to patrol the area, but Wrenn says, "It's a question of attitude, things as simple as when you drive back to the district headquarters drive through the industrial districts, not just the main streets. In seven different instances cops sat in this office and told us it's our fault for being here. They said anybody foolish enough to have a business on the west side of the city should expect this."
Before installing some new underground tanks for solvents and oils in 1980, Wrenn had the old ones removed and crushed. Although she says she had no idea there was a problem, now she has had to dig out much of the dirt into which solvents leaked from the crushed tanks and build retaining walls. The original estimate was $50,000, but it has ballooned to $170,000 and climbing. They decided to "bite the bullet" because they would have to comply eventually if they ever wanted to sell the property. Also, they wanted to move the tanks indoors and change to noncarcinogenic solvents. But Wrenn complains that the Illinois and United States environmental protection agencies were unable or unwilling to say in advance just what had to be done. "There's no one a company like ours can safely consult with," she complains. "You can't talk with the EPA."
The city and state have played a role in keeping Hudson Screw in Chicago with their assistance in training and raising money to expand. Companies like Hudson could use more of this help, and also better public education, crime control, infrastructure maintenance, and technical assistance on a wide range of matters including cleaning up the environment. The public money spent at Hudson has been well repaid in jobs, wages, and workers' skills.
Art accompanying story in printed newspaper (not available in this archive): photos/Marc PoKempner.