Manufacturing and Development in Rural Areas

1. Manufacturing and Development in Rural Areas Derrick Slocum Rural Planning Seminar Prof. John Keller • Sources: • William A. Galston and Karen J. Baehler • “Rural Development in the United States” • Dennis Roth • “Thinking About Manufacturing: A Brief History”

2. Introduction • Shift from farm to factories represents dramatic structural change in rural economy this century. -- Change generated wealth and boosted standards of living for millions of rural residents. • Improvements in agricultural productivity in 1950’s and 1960’s created large pool of cheap surplus labor which became the new source of comparative advantage from rural areas during 1970’s and 1980’s. • Factories moved from urban to rural areas to take advantage of the labor surplus. -- ”Rural Renaissance”

3. Introduction • Trends today show no promise on the continuing ability of the manufacturing sector to fuel rural economic growth on a large scale. BasicConclusions • Manufacturing no longer a steady source of job growth for rural areas. • If productivity growth stays high and keeping with demand, manufacturing will be important wealth generator and important market for goods and services produced by other sectors.

4. Introduction • Room for improvement in rural manufacturing. --Markets failed to generate adequate levels of investment in production technology in rural factories. --Failed to provide access to advanced services. -- Failed to develop collaborative networks.

5. Manufacturing Trends Some Facts about Growth • Gradual employment shrinkage over the past 30 years. • Industries employed 27% full-time workers in 1955, dropped steadily to 18% in 1985. • Between 1978 and 1986, 1 to 2 million manufacturing jobs eliminated from economy. • Recession of 1990-92 increased manufacturing unemployment. Only a small portion of that has been regained.

6. Manufacturing Trends • Some industries have been declining while others are growing or holding steady. --Absolute job loss during 1980-82 mainly from high-wage and low-wage manufacturing industries. --Medium-wage manufacturing increased its constant dollar share of GNP from 1972 to 1984, mostly due to performances in high-tech industries. --Low-wage grew in relative size. Yet, these high-growth sub- sectors were too small to offset the declines experienced in the larger industries within manufacturing. • The result is that manufacturing has been a net job loser.

7. Manufacturing Trends • Decline in employment likely due to increased efficiency. • Manufacturing’s productivity growth rates: --Between 1986 and 1991, 2.5% growth compared to 0.2% for the total non-farm business sector. --Between 1979 and 1986, 2.3% growth compared to 1.1% for the total non-farm business sector.

8. The Rural Picture • Rural economy has paralleled national economic pattern for the past 30 years. • 1940’s through 1970’s rural areas lost a lot of natural resource related jobs, replaced with jobs in services, government, and manufacturing.

9. The Rural Picture Good  and Bad  Times • 70’s Good  --Late 60’s into the 70’s, companies were looking for cheaper land and labor. Rural America gained an advantage. --Low land prices, taxes, and wage rate in the country enticed many manufactures to move their facilities and jobs from urban to rural areas. --Between 1969 and 1976, rural manufacturing increased at an average of 1.4%, while urban manufacturing declined 1.1% during that same time. --By 1979, 44% of all rural residents lived in counties dominated by manufacturing.

10. The Rural Picture • 80’s Bad  --Between 1976 and 1984, rural manufacturing employment rates remained the same while urban areas expanded their goods-producing jobs 0.7%. --The recessions of the 80’s, with trade deficits, hampered U.S. manufacturers, especially in rural areas. --Unemployment rates rose two percentage points more in rural areas than in urban areas between 1979 and 1982, all the while, the national employment rates remained the same. --During that period, employment in rural manufacturing dependent counties fell 5.6%.

11. The Rural Picture Some Exceptions to the Rule • Job loss did not occur everywhere though: --Crawford County Missouri experienced a 20% job growth between 1979-1984, mostly in manufacturing. --Hoke County North Carolina experienced a growth of more than 50% in manufacturing between 1977-1984. • Despite statistics showing manufacturing on the decrease, individual communities could still make a good living from manufacturing.

12. The Rural Picture • Reason for growth in these particular areas include: --’plain vanilla’ manufacturing – bending metal, consumer products, or contributing to the motor vehicle industry. --Regional characteristics – large minority population, concentration in more remote rural areas, jobs in food processing industries. --Continued advantage of low taxes, low-skill, and low-wage workforce. --Aggressive local leadership with pro-growth attitude.

13. Economic Development Strategies Linkages • U.S. economy is following a path of growing interconnectedness. • Rural communities have not been able to take full advantage of opportunities created by multiplier effects. --Lack of access to information and communications, high transaction costs, and historic dependence on urban economies are probably to blame.

14. Economic Development Strategies • Strategies to benefit the economic integration for rural America. --Build on their natural resource strength. --Localities and States can pursue “import substitution” --Strategies to facilitate natural processes by which new manufacturing enterprises are born from old enterprises.

15. Economic Development Strategies • Southern Growth Policies Board took a survey on rural automated plants about their practices. --Trouble finding large enough sample, even “partially automated”. • Tentative conclusion finds automation not yet made it’s way into mass production of discrete goods. • Survey showed awareness of the role of automation. • Productivity and quality improvements needed in traditional industries. --Likely path is adoption of new process technology.

16. Economic Development Strategies • Survey shows importance in modernizing rural manufacturing base. • Small firms falling behind in new technologies. • Lack of capacity in small firms to monitor technical developments, let alone implement them. • Technology need for small firms differ from large firms.

17. Economic Development Strategies Capital • Funding the modernization of rural manufacturing. -- Foreign investment • Between 1984 and 1987, foreign investment nearly doubled. $50.7 billion to $91 billion, from only $8.2 billion in 1973. • During this time, U.S. investors established large holdings in other regions of the world.

18. Economic Development Strategies • Location of the investment, type of investment, and likelihood of foreign owners investing in production technology offer chances for opportunities in employment gains and production improvement. • Most foreign investment is concentrated industry with ties to rural America. • Through 1987, rural counties garnered about 10% of all foreign investment in the U.S. --Almost half of it concentrated in the South.

19. Economic Development Strategies • Rural areas received significantly more employment creating foreign capital (38%) than do urban areas (17%). • Foreign investment dimmed by the fact that only a fraction of this investment create new facilities and jobs. --Mostly in the form of acquisitions of existing business • Employment in foreign manufacturing in the US increased only 1.3% between 1984 and 1986. --A period when foreign investment in U.S. manufacturing increased 42%.

20. Economic Development Strategies Exports • Largest untapped potential for U.S. manufacturers, especially in small and medium sized firms. • Estimate of 75% of manufacturers that produce items with oversea sales potential. Yet only 10% are active in exporting. • 80% of all U.S. manufactured exports are attributable to just 1% of the country’s largest manufacturing firms.

21. Economic Development Strategies • Small business exporting problems: --Lack of information --Regulations at home and abroad --Tariffs --Shipping --Marketing --Processing --Financing • Federal and State governments devised three programs to assist business in response to the problems.

22. Economic Development Strategies • Information about markets and education services, including conferences, seminars, and publications, that help answer basic questions and expose business people to additional resources available through trade associations, universities, and government. • Technical assistance in areas such as market research, licensing, joint ventures, trade fairs and trade missions, referrals to shippers and distributors, and the like. • Financing, including help with applications to banks as well as direct financial assistance through underwriting of loans and other financial instruments.

23. Economic Development Strategies Labor Force • Rural communities want to pursue both higher-wage industries and higher-wage establishments of firms. • Programs to improve educational experience of young residents, and programs targeted at upgrading skills of existing personnel.

24. Economic Development Strategies • Study concludes that education and training by themselves are unlikely to be effective in generating economic growth. • Better educated people are more mobile, therefore more susceptible to move out of the rural counties. • With them goes the investments made by local schools and employers in their skills and knowledge. --Critical form of “leakage” suffered by rural areas.

25. Economic Development Strategies • Rural communities should increase opportunities available for better-educated workers, while also improving the quality of education. • Two levels of skill upgrade: --Quality of local school systems must be maintained and improved. --Localities be responsive to the training needs of employers already in operation, especially those firms interested in retooling, including small firms.

26. Quality of Development • Economists focus on manufacturing because this sector can be seen as an important, or irreplaceable, source of “good jobs”. --This reputation is in regard to one particular subgroup – individuals with a high school diploma or less. • Manufacturing offers stable jobs at relatively good wages to individuals with low education levels, giving a boost to people at the lower end of the job ladder.

27. Quality of Development • Most manufacturing jobs fall in the medium-wage category (roughly 9% of total employment). • Followed by high-wage (5%) and low-wage (4%), • Job losses in the 80’s were found in the high and low wage manufacturing jobs, while medium-wage production jobs grew.

28. Quality of Development • Most significant characteristic of manufacturing employment is the premium it pays to workers with less education. • Between 1973 and 1987, wages of young, less educated workers grew less than the earnings of all other groups. • Manufacturing jobs are valued by young workers with no college education. • Manufacturing jobs on average provide higher starting wages for high school graduate than do service jobs.

29. Quality of Development • In rural areas, where large proportions of labor force is in goods-producing industries, fewer people go on to college. • A larger share of young adults graduate from high school expecting to find good jobs with good wages in the manufacturing sector.

30. Quality of Development • One important job quality issue for rural America is the effects of modernization. • Distribution of job opportunities and wages is likely to change do to automation in rural factories. • While some think automation will lead to loss of jobs, some experts feel that automated rural factories could increase employment. • In a survey, 39% of manufactures had employment increases due to new technologies accompanied with expansion of the plant or construction of a new facility.

31. Quality of Development Self-sufficiency • Older model of industrial recruitment focused on attracting branch plants with low wages, cheap land, and financial incentives. --Economy built on branch plants embrace a culture of absentee ownership, power concentrated in the hands of a few outsiders creating a dependency between local workers, managers, and chiefs at headquarters.

32. Quality of Development • Newer models stress interdependence rather than dependence. --Ties between producers and ties between an industry and its community. --Successful, small-scale, flexible manufacturing depends on the larger community to establish basic rules about job distribution, training new workers, and preventing firms from exploiting their workforce. --Goal: a system that can innovate and adapt to market changes without sacrificing the quality and stability of jobs.

33. Quality of Development • Strategists should not lose sight of the potential risks of home grown growth. • Economic strategies based on growth from within may: --Perpetuate existing inequities in industrial relations and fall short of the qualitative goals of development, like relieving poverty, generating attractive occupational opportunities for young people, and building community self-sufficiency.