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The unthinkable has become less so

Rochester Business Journal
January 20, 2012

This column, which will appear in the Jan. 20 print edition, was written Wednesday, only hours before Kodak filed for bankruptcy.

What if Rochester lost Kodak?

That question, though still largely unspoken, no doubt is on the minds of many people these days. As bankruptcy rumors have swirled around Eastman Kodak Co., and bloggers and op-ed writers across the country have begun preparing obits for the iconic company, a sense of impending loss is understandable.


While I’m not ready to write off Kodak, even if the company winds up in Chapter 11, I do think the “what if” question is worth asking. In fact, we did ask it—more than eight years ago in an RBJ special section. Published in October 2003, “Kodak: What If?” was, as I described it at the time, an attempt to think the unthinkable. (You can read the section online at go.rbj.net/what-if.)

To make the question less abstract, we composed a fictional scenario: Up against increasingly rapid digital migration and intense price competition in its shrinking film business, Kodak comes under intense financial pressure; within six years, this leads to the sale of the company and the closing of its local operations.

When our reporters spoke with elected officials and community leaders, nearly all said they had not really thought about this possibility; some even refused to talk about it.

The scenario described a possible future; it definitely was not a prediction. But it was grounded in fact: For the previous two decades, Kodak had downsized on average by 2,000 employees a year. If it maintained that pace, its local workforce by 2013 would hit zero.

Kodak at that time had some 20,600 local workers, down from a peak of more than 60,000 in 1982. At the end of 2010, its local employment was 7,100. Thus, over seven years it shed 13,500 more workers—an average of 1,929 a year.

So let’s ask again: What if? Is Rochester any more prepared now for the loss of Kodak than it was then?

Two things often are said about Kodak’s downsizing and what it means for the community. One is that some of its jobs were spun off, not truly lost; the other is that Rochester’s economy has become much more diverse, mitigating the impact.

The first point is true, but its relevance is somewhat exaggerated. Take the two major divestitures since 2004: Carestream Health Inc. and ITT Exelis Geospatial Systems. When those jobs left Kodak, they totaled nearly 3,000 positions. But by 2010 that total had fallen to roughly 2,400, thus offsetting less than 20 percent of Kodak’s reductions.

The increasing diversity of the local economy also might be overstated. The significant growth in local jobs appears to be concentrated in a single sector: education/health services. And one institution—the University of Rochester/Strong Health—accounts for much of it. According to Bureau of Labor Statistics data, education/health services employment grew from 95,400 at the end of 2003 to 112,100 at year-end 2010—a 16,700 increase, or more than enough to offset Kodak’s downsizing.

But focusing solely on Kodak’s cuts obscures another important fact: the entire manufacturing sector locally has continued to shrink. In 2003, it totaled 82,600 jobs; by 2010, the number had fallen by 22,800 to 59,800.

This trend began long before 2003, of course. Using 1990 as a benchmark, education/services jobs have grown from 69,300 (16.4 percent of total private-sector jobs here) to slightly more than 112,000 (26.6 percent), while manufacturing employment has dropped from 124,100 (29.4 percent) to slightly less than 60,000 (14.2 percent).

Yes, the local economy is being reshaped, but it might be swapping dependence on a few manufacturing giants for reliance on a handful of academic and health care institutions.

Whatever the future holds for Kodak, I think local officials and business leaders must do even more to confront two paramount economic challenges. First, there is the need to foster the development of small firms, in particular those with high growth potential.

Second, Rochester’s urban/suburban income disparity cannot be ignored. In the latest census estimates, the city/suburbs divide widened again; Rochester’s poverty rate rose 4.5 percentage points to 33.8 percent, while Monroe County’s rate edged up 2.3 percentage points to 15.4 percent. Among small to midsize U.S. cities, Rochester is one of the poorest.

High poverty rates do not necessarily reveal the absence of economic assets; rather, as Michael Porter and others have shown, they typically suggest those assets are underdeveloped or wasted. That’s something we cannot afford.

So perhaps the better question today is not “What if?” It is “What now?”

1/20/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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