Sunday, May 8, 2011

Water Hub Hallucinations

It seems the Journal Sentinel is really doubling down on the "Milwaukee as water hub" agenda. John Schmid has written a glowing piece about Richard Meeusen, Badger Meter CEO, and his role in pushing this water hub idea.

The article repeats many of the same talking-points that have hovered around this water hub fantasy. The focal point being - Milwaukee has a stable of water-related companies that are prime for investment, jobs, and growth.

Any investment we can attract to Wisconsin companies is appreciated. But that effort should be proportional to the historical imprint and current market capitalization of the targeted industry. To simply decide water is the industry for us because a water company CEO and a few others are aggressively pushing such doesn't meet the usual criteria for such an investment and strategic economic decision.

And, the simple fact that certain companies are located here does not imply that we have a comparative advantage in those industries. Meeusen and others are making quite a logical leap to conclude their water hub strategy is a no-brainer and a can't miss catalyst for growth in the region. If it was, why isn't the private sector already pumping money into this endeavor?

Even the article notes that Badger Meter is 45th (of 50) on the Goldman Sachs list of biggest water technology companies. Badger Meter's market capitalization is dwarfed by Siemens (Germany), Suez (France), and numerous other U.S. companies.

For the definitive take-down of the water hub hallucination read The False Promise of the Entrepreneurial University. Excerpts:

"Employment trends in recent years at the two companies spearheading the Milwaukee water campaign – A.O. Smith and Badger Meter—hardly provide grounds for thinking that water companies will drive job growth in the Milwaukee region. A.O. Smith employs a mere 110 staff at its “world” headquarters in Milwaukee. Moreover, the headquarters of A.O. Smith water products are not even in the self-proclaimed Milwaukee water “hub;” they are in Ashland City, Tennessee, outside of Nashville, where approximately 1,600 are employed at the headquarters and in “the world’s largest water heater manufacturing plant” (A.O. Smith Corporation, 2003). "

"Similarly discouraging employment trends are evident at Badger Meter, a manufacturer of meters and other devices that measure and control the flow of liquids. Richard Meeusen, the CEO of Badger Meter, is co-chair of the M-7 Water Council and, by far, the most conspicuous corporate face of the Milwaukee water “hub” campaign. Employment at Badger Meter’s suburban Milwaukee headquarters rests at 500, including around 210 production workers; and total Milwaukee employment at Badger Meter has declined by around 10 percent since the mid-1990s. In the meantime, the company has expanded outside Milwaukee, beginning in the 1970s when it built a preNAFTA “maquiladora” plant in Nogales, Mexico, in search of cheap labor (Fauber and Norman, 1991; Fauber, 1991). In 2008, post-NAFTA Badger Meter opened a second, $8.5 million plant in Nogales; all told the company now employs about 600 in Mexico (Rovito, 2009a)."

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