Vermont’s policies, leadership, and the future of IBM

by Jack McMullen

IBM’s plant in Essex Junction is vital to the economy of Vermont. As the state’s largest private employer, the plant accounts for about 5% of Vermont’s 2010 GDP of $26.4 billion.

In 1996 IBM was considering where to make the next round of capital investment in its semiconductor manufacturing business. Senator Leahy, then-Congressman Sanders, and Governor Dean had an opportunity to make IBM-Burlington the place for such investments.

According to a former colleague who, until very recently, was one of the most senior IBM corporate executives, Vermont was the company’s first choice for the expansion because of the Vermont plant’s excellent manufacturing performance and its fine record of innovation. IBM didn’t even ask for or expect the kind of outlandish incentives the company got from New York State to entice it to invest in Fishkill. Our state’s senior elected officials 15 years ago had little comprehension of how major U. S. corporations make important capital investment decisions. They failed to put together an effective plan to address IBM’s concerns.

So far as it is publicly known, no approach was made to IBM’s most senior executives at company headquarters in Armonk, New York, who have the ultimate say about where such investments are made. The company’s major requests were four-fold:

  • Completion of the circ highway
  • Lower power rates commensurate with its high industrial usage
  • Relief from excesses of the Act 250 process and from harassment by the Towns of Essex and especially Williston, holding the company up for fees and approvals whenever it needed to make changes at the site
  • Some assistance in training insufficiently prepared new workers.

None of these requests were fulfilled. Not surprisingly, IBM has made no new capital investment of any size at. the Essex Jct site in the years since.

According to Moody’s review of a City of Burlington bond issue, IBM employed 5,400 at the IBM-Burlington site in 2009, down from a peak of 8,500 in the mid 1990s. More ominously, IBM downsized its engineering staff at the site and has been allowing the plant to obsolesce. It now produces mainly lower cost commodity chips instead of the high value custom chips it made in its heyday.

Meanwhile, PC World reports that since 2000 IBM has invested more than $10 BILLION in New York state where IBM chose to make its future. New York State investments, capped by IBM’s recent $3.6 billion commitment to a new nanoscale process facility there, are the largest IBM has made anywhere in the world.

With the initial $2.5 billion dollar investment in Fishkill NY more than a decade ago, knowledgeable observers predicted the fate of IBM-Burlington was sealed. The only question is how rapidly the Essex Jct. facility will phase down.

Its eventual extinction will have been caused in large part by the failure of political leaders to respond to clear signals from the largest private, taxpaying employer our state is ever likely to have.

In the 1990s, then-Congressman Sanders launched a very public campaign criticizing IBM for changing its 1960s-era pension plan to remain competitive with nimbler, newer entrants into the semiconductor business. I am told by the same source that IBM’s then-CEO, Louis Gerstner, reacted to Sanders demagoguery with a statement something like: “Don’t the politicians in Vermont realize there are more than a dozen other states vying for our business?”

This display of pique at the apex of IBM was kept hidden from the political and business establishments in Vermont. IBM’s spokesman here continued to reassure anyone who asked that IBM had no plans to close its local plant and, while always assessing its options, was in Vermont for the long haul.

Behind this soothing picture presented to Vermont, the company has been designing and implementing its alternative future – and Vermont is not likely to have much part in it.

Jack McMullen of Burlington is Managing Principal of the Cambridge Meridian Group, Inc., a strategy consulting firm serving Fortune 500 and technology-oriented companies, and a director of the Ethan Allen Institute.

One thought on “Vermont’s policies, leadership, and the future of IBM

  1. Jack mcMullens recounting of how Vermont treated IBM in the mid-90s likely has substantial truth. IBM clearly chose not to make major investments for upgraded technology in Vermont.
    Surely, much of the fallout from that decision rests with Vermont politicians. However, consider that IBM may not have desired to become an ever-larger scale employer in a location that offers a limited work force. Certainly, Vermont’s regulatory paradigm and the price of power in Vermont were also important to the decision.

    The massive research investment in nanotechnology in the Albany area that began several years ago and now the construction of the massive Malta Global Foundries fab makes that area the new U.S. center for advanced microchips.

    The IBM glory days in this state are long gone. Vermont should be thankful they have managed their workforce thoughtfully so as not to create a massive shock to northern Vermont.

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