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)."

Watering Down Corporate Accountability

Lately, there's been a big push for making Milwaukee a water research hub. Richard Meeusen, CEO of Badger Meter Inc. and board member of WMC, has been one of the number one cheerleaders behind such efforts.

In 2003, Badger Meter paid $125, 728 in corporate income taxes. In 2004, they paid $418,391. 2009 net earnings of Badger Meter were $14.35 million; alongside $60.8 million in sales. The IRS recently allowed Badger Meter "a tax break on operations in France the company discontinued in 2006." Badger Meter has also outsourced some research and development as another cost-savings measure. Next year, the company will move one-third of it's factory jobs to Mexico. Even though Badger Meter's sales were down 11.6 percent from 2008 ($68.83 million) to 2009 ($60.81), their net income was up 146 percent ($5.83 million to $14.36 million).

In 2007 Richard Meeusen was compensated $842,331 (1.2 percent of earnings; 14.4 percent of net income). In 2008 he made $1,082,133 (1.8 percent of earnings; 8 percent of net income).

Are these the types of companies we want to lead our community forward? Public-private partnerships (taxpayers partially fund the costs, private entities get the profits) are the norm. But knowing this, why would we continue to push this inverse Robin Hood scheme of having general taxpayers finance private sector speculation? In this case, pumping private dollars into facilities and research and allowing the transfer of this knowledge to private entities for their profit. Why must the knowledge and discoveries of our universities and public sector be spun off to private entities? Why would we allow such efforts to be outsourced to Mexico? In the long-run it seems such efforts would be better kept in public hands under local control. Especially in the case of water, which is now recognized as our most valuable resource.

Badger Meter benefits heavily, already from the tax code. Now they are positioning themselves for yet another subsidy, by piggybacking the frenzied environment of "water research" in the City.

The same companies that benefit from such public investment are usually the ones barking in the media about a "government takeover," "socialist policies," and the unfairness of social programs and policies that support the neediest. (Even those these programs are only 1 percent of the State budget.) Contrarily, they never fail to have their hand out.

If these companies would also be promoting living wages, secure retirements, universal health care, unionization, and other social goods, I'd have no problem with a portion of public dollars investing in such responsible, community-oriented companies. Sadly, this is rarely the case. Therefore, it's time to turn off the subsidy/tax-break spigot and allow these companies to operate in the "free" market they so adore.

Update:

The Journal Sentinel gave an editorial platform to Richard Meeusen and Paul Jones, CEO of AO Smith, to disparage the University of Wisconsin investigating whether or not to implement water programs at 13 of the university's campuses. They feel it would dilute the efforts and spread the initiative too thin.

[If this water research initiative is the end-all, be-all, why hasn't their been any discussion and debate about it? The only opposition to putting all our eggs in one basket, came from UWM professor Marc Levine. The reaction to his research, which completely debunked the idea of an entrepreneurial university and Milwaukee as water research hub, was derision and unresponsiveness. UWM's water program deserves investment. (So do many other university programs.) But this isn't about whether or not they are deserving, it is precisely about placing all our bets on one roll of the dice. Being such astute businessmen, I'm sure Meeusen and Smith can appreciate portfolio diversification.]

I don't completely disagree with Meeusen and Smith's reaction. Although their view may have more to do with concentrating the efforts and investment near their businesses in Milwaukee, than with a truly altruistic dedication to water research. Campuses such as Green Bay, Superior, and Parkside, which are also on/near Lakes Superior and Michigan, could be valuable partners in water research.