‘Lies, damned lies and statistics’: Parsing manufacturing data an exercise Twain would appreciate

By Tim Heaton | Jul 08, 2016

"There are three kinds of lies: lies, damned lies, and statistics."

Mark Twain's frequently used quote was my first thought when reading the Conexus Indiana 2016 Manufacturing & Logistics Report Card for the United States.

Covered in a recent column by CompanyWeek's Bart Taylor, the report gave Colorado manufacturing a D grade for overall manufacturing industry health. It looked at eight different categories when developing this grade: Logistics Health (C-), Human Capital (C+), Worker Benefit Costs (B), Tax Climate (C), Expected Fiscal Liability Gap (C), Global Reach (D), Sector Diversification (C), Productivity and Innovation (B).

Are these grades an accurate reflection of the Colorado manufacturing sector? Is the report an unbiased measurement?

Conexus Indiana, the group responsible for the report's development and publication, is a private sector led initiative similar by mission to the Colorado Advanced Manufacturing Alliance (CAMA). The first page of the report proudly states, "Conexus Indiana is focused on making Indiana a global manufacturing and logistics leader." The actual data collection and analysis was completed by Indiana's own Ball State University.

Did I mention Indiana got an A grade?

I will let you decide if I am guilty of an association fallacy, or if you agree that this report card is suspect because of its association with Conexus and Ball State.

For the sake of argument, let's assume there are no "Indiana biases," and the data is sound. After all, the report cites its sources which are generally from our own federal government. For example, when dispensing grades for Global Reach (the level of international trade in both imports and exports), the reports cites the U.S. Department of Commerce International Trade Administration. For the previous five years, Conexus has given Colorado the following grades for Global Reach: D+/2011; F/2012; D/2013; D/2014; D+/2015; and a D this year in 2016.

Ironically, I pulled from my files a March 2013 article by Bruce Goldberg, then with the Denver Business Journal. This article reported that Colorado was one of only 11 states to grow exports in double digit percentages from 2011 to 2012. What was the source for this positive report? The same U.S. Department of Commerce International Trade Administration data used by Conexus and Ball State. To refresh your memory, in 2012, Conexus gave Colorado an F.

Damned lies and statistics!

Does that mean I believe Colorado should have all As? Absolutely not. While I might cast reasonable doubt on the validity of this report, I am not willing to suggest Colorado isn't woefully lacking in many of these areas.

Conexus' category on Human Capital provides a nice example. According to the report, Human Capital measurements include rankings of educational attainment at the high school and collegiate level, the first-year retention rate of adults in community and technical colleges, the number of associate degrees awarded annually on a per capita basis, and the share of adults enrolled in adult basic education.

Conexus gave Colorado a C in this category. Probably a fair grade as workforce continues to be the number one issue facing Colorado manufacturers. But the report only looked at statistics. Statistics gathered by the government are always a lag measure. The Conexus report fails to report on the positive steps Colorado manufacturers are taking today to fundamentally change the way we build our future workforce.

Business and Schools in Collaboration, or BASIC, is designed to help manufacturers make their next generation of workers through internships and apprenticeships and put an end to the inflationary practice of buying our workers from neighboring companies. Using the Innovative Industries Internship Act, a program CAMA helped create with Representative Pete Lee from Colorado Springs, more than 162 Interns are currently involved in experiential learning with Colorado businesses. In light of this, I would certainly expect Colorado to have a higher grade in the near future.

Unfortunately, the same cannot be said in other categories. Ask any Colorado manufacturer if the state's Tax Climate is favorable for manufacturing. Don't be surprised if they give Colorado an F.

Another area where Colorado manufacturers might suggest a lower grade than that provided by Conexus is Logistics Health. Traffic congestion is a well-known fact in Colorado. What manufacturers understand better than most is that congestion costs drivers $1.35 billion annually in delays and fuel. When you have to ship product by truck, these costs are passed on to the shipper, adding to the cost of goods sold and reducing profitably. With a $25 billion transportation funding shortfall looming over the next 25 years, something must be done to improve Colorado's highway infrastructure, or you can expect to see lower Logistics Health grades in the years to come.

While the validity of the grades posted by the Conexus report may be suspect, the issues they identified are real. Over the next four weeks, CAMA will examine, with industry experts, four of the topics: Human Capital, Logistics Health, Tax Climate, and Global Reach. We will discuss the issues in more detail and outline specific action items manufacturers can take to improve the situation. In many cases, improvements will come only through legislative actions. In other areas, manufacturers can take unilateral actions to improve their own and the Colorado manufacturing industry's health.

Next week's column will take a closer look at what the World Trade Center has to say about Colorado's export/import climate, what they are doing to help the Colorado manufacturing sector, and how you as a manufacturer can take advantage of these opportunities. Stay tuned.

Tim Heaton is president of CAMA. Contact him at tim.heaton@co-cama.org.