Transcript Rural Development in the United States

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

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”
Introduction
 Trends today show no promise on the continuing ability of
the manufacturing sector to fuel rural economic growth on
a large scale.
Basic Conclusions
 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.
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
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 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 subsectors 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 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
 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 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 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 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 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
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 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 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 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 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 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 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 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 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 Strategies
1.
2.
3.
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 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 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 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
 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 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 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 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 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 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 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 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.