Pratt & Whitney President Tells Connecticut The Hard Truth About Competitiveness

Last Autumn, General Electric was widely praised by New York politicians for deciding to create 500 new jobs at its power-generation unit in Schenectady. The mayor said it was a great day for his city. What the mayor didn’t mention was that even with the new jobs, GE will be employing less than a tenth of the 40,000 workers it had in Schenectady during World War Two. GE’s history in the Northeast since the war might well be titled “Exodus,” because it has continuously scaled back its industrial presence in the region for generations, even though corporate headquarters is still located in Connecticut. Company executives decided that it didn’t make sense to concentrate manufacturing facilities in such a high-tax, hyper-regulated region.

Now a senior executive from another big, Connecticut-based industrial conglomerate is warning regional leaders about the bleak future they face if there isn’t a change in the way local business is treated. David P. Hess, President of the Pratt & Whitney engine unit of United Technologies, spoke at a well-attended conference in the state capital of Hartford on January 7, detailing the many reasons why Connecticut is dead last among the 50 states in job creation. His remarks have a little more credibility than they might coming from GE, which is compounding Connecticut’s industrial problems by sharing advanced aerospace technology with China’s upstart commercial transport developers and seeking government subsidies to build an unneeded fighter engine that would compete with the locally built Pratt & Whitney engine.

Pratt has kept much of its manufacturing capacity in the state since it was founded 85 years ago. In fact, Hess has his office in one of those facilities. But even though his unit spent a billion dollars locally to develop its latest breakthrough in commercial propulsion — the geared turbofan — it clearly is getting harder for Hess to explain why he has so much of his workforce in a state that CNBC ranks as one of the five worst for doing business, and Forbes ranks 35th out of 50 in competitiveness. Economic globalization has compelled Pratt & Whitney to move many employees closer to overseas customers, but Hess told the conference the problem isn’t just that it’s easier to do business in Singapore — it’s easier in Georgia, and Virginia, and South Carolina. In fact, according to the rankings it’s easier almost anyplace in North America than in Connecticut.

Hess reeled off a litany of problems that makes you wonder why United Technologies didn’t join the GE diaspora sooner. Not only are taxes high in Connecticut, but on key business provisions like the R&D tax credit, they’re unpredictable. Regulatory burdens are onerous and unclear. Electricity costs are so high the company is considering building its own generating capacity. Healthcare premiums are among the highest in the nation. And young people are fleeing the state’s low-growth economy, leaving it with an aging workforce. Beyond those particulars, though, Hess suggested the real problem is one of attitude. The state government takes its industrial companies for granted, and they are voting with their feet by moving jobs to places where they feel more welcome. Hess managed to remain polite throughout his remarks, but it doesn’t take a genius to figure out where his frustration could lead: if he can make his product more efficiently and profitably elsewhere, eventually market forces will force him to go there.