Patrick J. Schillinger: Globalization, State Business Climate Will Dictate Paper Industry’s Future in Wisconsin

Paper is a key industry in Wisconsin, but lately it has been shrinking as layoffs and mill closings add to the manufacturing pullback that has cost the state thousands of jobs over the past three years.

But despite the loss of 7,000 jobs, the industry is still strong, according to Patrick J. Schillinger, president of the Wisconsin Paper Council, and will continue to be an economic force in the state if problems the council says are plaguing the state’s business climate – taxes, energy policy and regulations – can be reformed.

The paper industry has become a global business and Schillinger says Wisconsin must act now to improve the business climate or lose out to states where tax and training incentives are better in the eyes of bottom-line decision makers.

WisBusiness Editor Brian Leaf spoke by phone Oct. 1 with Schillinger.

Leaf: What is the state of the paper industry in Wisconsin?

Schillinger: The industry is still strong. We’re still the number one papermaking state in the country, but we are facing some significant challenges. You’re starting to see major mill reductions and employment reduction.

Leaf: What’s the dynamic behind that?

Schillinger: There are several factors. One, there is overcapacity in the industry. During the 1990s when the economy was strong, the industry built a lot of capacity. Much of that capacity came on line as the economy began its major downturn. The second issue is there is fierce foreign competition. That is due to the strength of the dollar, and because other countries support and focus on the forest products industry – Canada and some of the Scandinavian countries. Finally, Wisconsin’s business climate is just not conducive to supporting and enhancing the paper industry.

Leaf: That’s been something you been out front with in terms of lobbying the governor’s office and the Legislature.

Schillinger: Right. We’ve focused on three main issues that need to be addressed by Wisconsin in order for the manufacturing sector — the paper industry in particular — to thrive: tax reform, a strong energy policy and reform of the environmental/regulatory process.

Leaf: So far with the Doyle administration you’ve seen progress with those issues?

Schillinger: There has definitely been some movement. We have for the most part been very pleased with the Doyle administration and the Legislature reacting to our concerns. A lot of that, up to this point, has been talk. We need to start seeing some real action. We’re working on some major reforms that if they are enacted, we think will change the perception of Wisconsin’s business climate. There have been several bills dealing with regulatory reform in the legislature. That’s certainly positive. The governor’s Grow Wisconsin plan had some very positive components in it for our industry. We currently have a tax reform bill in the Joint Finance Committee. If enacted that would be a major step forward in reforming Wisconsin’s business climate.

Leaf: When people see environmental/regulatory reform they immediately think, ‘Oh, they’re going to be able to pollute more.’ Is that what we’re talking about here, relaxed standards on discharge into water and air?

Schillinger: Absolutely not. We are not asking to release more in terms or air, water or solid waste discharges. What we are talking about is streamlining the permitting process. Anything a paper mill wants to do requires permitting from the DNR and right now the process is too slow and too cumbersome in relation to other states. We need some predictability and some flexibility built into the process. That is completely different than the current system. And we need to change the culture at the DNR from one of being adversarial to one of being more cooperative.

There are several initiatives that are being taken by the DNR that are positive and in the right direction. But cooperation and flexibility do not mean that there will be a relaxation of the environmental standards. Our industry has a strong commitment to stewardship and environmental protection. We have undertaken three programs, certified by the DNR, that take our industry beyond compliance. In the last nine years we can document that while we have increased paper production we have decreased solid waste, air and water discharges.

Leaf: The paper industry has taken some hits. How many jobs have you lost during this recession?

Schillinger: Three years ago there were nearly 52,000 people employed in the paper industry. Today there are about 45,000.

Leaf: Are those jobs coming back?

Schillinger: That remains to be seen. Some of the losses are due to efficiency — cost-cutting measures that our mills need to take to survive right now. If the economy turns around and if we can change Wisconsin’s business climate and start getting investments back in our mills, you could see some of those jobs coming back.

But the industry has changed dramatically in the past 5 years. There are fewer paper mills in Wisconsin today than there were.

Leaf: What are the numbers?

Schillinger: We had 35 paper companies in Wisconsin. Now we’re down to 28. The majority used to be owned either locally or by corporations headquartered here. Today the majority of our paper mills are owned by companies outside of Wisconsin. Five years ago there were no paper mills owned by foreign corporations; today, six of our mills are owned by foreign companies.

Corporate decisions on our paper mills are being made for the most part outside of this state. That is not necessarily a bad development. Most of these corporate owners are strong world leaders in the paper industry, but Wisconsin’s policymakers need to understand is that there is a new dynamic in the paper industry. Decisions about our paper mills are not being made, for the most part, by corporate decision makers inside of Wisconsin; they’re being made by corporate decision makers outside of Wisconsin and in some cases outside of this country.

Leaf: Do you expect this globalization to continue?

Schillinger: Yes I do.

Leaf: So what will the paper industry look like five years from now?

Schillinger: If the economy turns around, there could be further consolidation in the industry. Companies will be looking for mergers and acquisitions to gain market share. At some point in the future I think there will be a handful of paper players and the smaller mills will fill in the niche market. A lot of our smaller mills already are moving into the niche market.

Leaf: Would you expect to see new paper mills in the state?

Schillinger: I can’t foresee a new mill coming into the state, but I can see new machines coming into existing mills. That’s what we need – investment in existing facilities so they can compete on a worldwide basis.

A real sticking point with Wisconsin’s business climate is that a lot of our mills are not only competing against competitors within their market; they’re also competing with sister mills in their corporate structures for limited capital resources. Today’s corporate decision makers have several states and/or countries they can choose to send their resources. Wisconsin is losing out on those investments. We need to change that trend.

New machines are being built in this country. Georgia Pacific, International Paper, Proctor and Gamble, all built new machines in the past two years. Wisconsin did not see any of those investments. There is no incentive for corporate leaders to send their money here. There’s a fear it will get tied up in regulatory red tape. There’s not the same tax and training incentives that other states have.

But again with some of the developments in the Grow Wisconsin plan and the Legislature, we can reverse that trend. But it has to happen soon so we can convince those corporate leaders that Wisconsin’s business climate truly has changed and that this is a place they should send their investment money.

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