Improving markets while more are left behind --- the challenge to come back in Danville, Virginia
Wednesday's post, "The Uncertain Case for Job Creation", had as a primary focus those areas that lose a significant number of jobs and are not big enough or well diversified enough to recover in any reasonable time frame. This does not mean that the overall economy or the financial markets will not recover over some period of time. Under the most likely scenario it appears that unemployment will peak in the area of 10%, a startling number, but then will begin to move back down over several years in the aggregate economy as it goes through the final cathartic shift from an industrial economy to a technology and information based service economy. The overall economy could do well but, as has often been the case, that does not mean that everyone will and now is no different.
For 30 years this transition from a manufacturing based economy has left certain areas around the country with a limited capacity to rebound, chronic recession towns and cities, and the number of these could now grow meaningfully. The challenges of rebounding are significant. Why is that. Why do they not in a reasonable period of time go through a cyclical renewal. It's not impossible, a few do or certainly will come back, but the odds are against recovery in any reasonable time frame. Reflecting on the experience of Danville, Virginia, often mentioned here, the following are a few of the issues that make a comeback challenging.
The first one is an issue that has always been around. As an industry or industries in an area go into decline there is a gradual impact over a period of years as the industries downsize, shed jobs, and decrease or eliminate investments. At the end of the process the industry shuts down. Gone. The jobs are gone as is a significant percentage of the tax base, charitable giving, and community depth in the middle and upper middle class. Just as the community has reached a point in time when social services and investments in health care and education are most needed, the capacity to address those needs is diminished. As this impact takes hold, the attractiveness of the community to outsiders, corporates, entrepreneurs, individuals seeking jobs, diminishes as well.
So why does some industry not sweep in and benefit from an area with eager job seekers, a ready labor supply. That's the past. The economic paradigm now is weighted toward that technology and information based society model, not the industrial one. That model is built around areas that have pools of talent that have been building for years around those skills. Raleigh/Durham/Chapel Hill flourishes seventy miles to the south while Danville, or Martinsville and South Boston for that matter, languish. A few fortunate communities around the country have had foreign car plants parachute in with decent jobs that are manufacturing based, but with the "new" car market more of that seems less likely. The new economic model jobs don't parachute in and create wealth, they go to places with the intellectual capital already in place.
The third issue is another one that wasn't around thirty years ago or so. In those days many of a communities needs were met by people that lived in the community. Restaurants, hardware stores, clothing stores, just about everything had a significant local component of entrepreneurs who made money in their business and reinvested the excess wealth created either in their business or in lifestyle enhancements in the community. That is largely not the case anymore. Almost all retail activity from clothing to hardware to drug stores to you name it is no longer locally owned. The jobs working at these stores are there, not especially high paying, but the excess wealth created goes to Atlanta, or Bentonville, or Minneapolis and countless other places, that's to be reinvested elsewhere for those national companies needs and to be distributed to shareholders and managers primarily elsewhere. The ability for a depressed area to pull itself up through local wealth accumulation and investment in new opportunities, however difficult that may be, is much less of a possibility.
So how does such a community attract whatever new jobs it can to get things moving in the right direction. These days they compete with other communities and states all over the country to grant tax abatements, subsidize initial costs, cut utilities rates, and offer ready made industrial parks and shell buildings to anyone willing to come in. While this does attract some businesses, as examples a call center, a highly automated(i.e. less people needed) manufacturer, or a small labor intensive low tech assembly plant, the price paid by invested state and local money plus the tax holidays that are given significantly dilutes the long term benefit to the area. As with the national chains that dominate retail, these arriving companies send the excess wealth created to other places while getting a pass go free card at the outset.
None of this is revelatory, but in summary form it is clear that these challenges put communities looking to revive themselves from an industrial past into a real bind. They are dealing with forces much bigger than the communities themselves, macroeconomic business trends that have been washing away their underpinnings for years. Real turnarounds may need to come from within communities as they somehow find the ability to build something of value that can create a new base of wealth to grow on. What a challenge.
Reflecting on Danville, a city with many good and willing people helping each other out and looking for an opportunity to do more, it's easy to see this as a national issue that will only grow in size. Danville is just the example that I know, and care about.
For 30 years this transition from a manufacturing based economy has left certain areas around the country with a limited capacity to rebound, chronic recession towns and cities, and the number of these could now grow meaningfully. The challenges of rebounding are significant. Why is that. Why do they not in a reasonable period of time go through a cyclical renewal. It's not impossible, a few do or certainly will come back, but the odds are against recovery in any reasonable time frame. Reflecting on the experience of Danville, Virginia, often mentioned here, the following are a few of the issues that make a comeback challenging.
The first one is an issue that has always been around. As an industry or industries in an area go into decline there is a gradual impact over a period of years as the industries downsize, shed jobs, and decrease or eliminate investments. At the end of the process the industry shuts down. Gone. The jobs are gone as is a significant percentage of the tax base, charitable giving, and community depth in the middle and upper middle class. Just as the community has reached a point in time when social services and investments in health care and education are most needed, the capacity to address those needs is diminished. As this impact takes hold, the attractiveness of the community to outsiders, corporates, entrepreneurs, individuals seeking jobs, diminishes as well.
So why does some industry not sweep in and benefit from an area with eager job seekers, a ready labor supply. That's the past. The economic paradigm now is weighted toward that technology and information based society model, not the industrial one. That model is built around areas that have pools of talent that have been building for years around those skills. Raleigh/Durham/Chapel Hill flourishes seventy miles to the south while Danville, or Martinsville and South Boston for that matter, languish. A few fortunate communities around the country have had foreign car plants parachute in with decent jobs that are manufacturing based, but with the "new" car market more of that seems less likely. The new economic model jobs don't parachute in and create wealth, they go to places with the intellectual capital already in place.
The third issue is another one that wasn't around thirty years ago or so. In those days many of a communities needs were met by people that lived in the community. Restaurants, hardware stores, clothing stores, just about everything had a significant local component of entrepreneurs who made money in their business and reinvested the excess wealth created either in their business or in lifestyle enhancements in the community. That is largely not the case anymore. Almost all retail activity from clothing to hardware to drug stores to you name it is no longer locally owned. The jobs working at these stores are there, not especially high paying, but the excess wealth created goes to Atlanta, or Bentonville, or Minneapolis and countless other places, that's to be reinvested elsewhere for those national companies needs and to be distributed to shareholders and managers primarily elsewhere. The ability for a depressed area to pull itself up through local wealth accumulation and investment in new opportunities, however difficult that may be, is much less of a possibility.
So how does such a community attract whatever new jobs it can to get things moving in the right direction. These days they compete with other communities and states all over the country to grant tax abatements, subsidize initial costs, cut utilities rates, and offer ready made industrial parks and shell buildings to anyone willing to come in. While this does attract some businesses, as examples a call center, a highly automated(i.e. less people needed) manufacturer, or a small labor intensive low tech assembly plant, the price paid by invested state and local money plus the tax holidays that are given significantly dilutes the long term benefit to the area. As with the national chains that dominate retail, these arriving companies send the excess wealth created to other places while getting a pass go free card at the outset.
None of this is revelatory, but in summary form it is clear that these challenges put communities looking to revive themselves from an industrial past into a real bind. They are dealing with forces much bigger than the communities themselves, macroeconomic business trends that have been washing away their underpinnings for years. Real turnarounds may need to come from within communities as they somehow find the ability to build something of value that can create a new base of wealth to grow on. What a challenge.
Reflecting on Danville, a city with many good and willing people helping each other out and looking for an opportunity to do more, it's easy to see this as a national issue that will only grow in size. Danville is just the example that I know, and care about.
posted by John Borden at 10:09 AM
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