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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”. Introduction.

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manufacturing and development in rural areas

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”
introduction
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”

introduction1
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.

introduction2
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.

manufacturing trends
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.
manufacturing trends1
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.
manufacturing trends2
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.

the rural picture
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.
the rural picture1
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.

the rural picture2
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%.

the rural picture3
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.
the rural picture4
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.

economic development strategies
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.

economic development strategies1
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.

economic development strategies2
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.

economic development strategies3
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.
economic development strategies4
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.
economic development strategies5
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.

economic development strategies6
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%.

economic development strategies7
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.
economic development strategies8
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.
economic development strategies9
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.
economic development strategies10
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.
economic development strategies11
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.

economic development strategies12
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.

quality of development
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.
quality of development1
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.
quality of development2
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.
quality of development3
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.
quality of development4
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.
quality of development5
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.

quality of development6
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.

quality of development7
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.