Revenge of the Rust Belt

27 May

So now that US Industries have woken up – and finally started realizing that producing many products is cheaper in America…

Where are the new factories going?

Turns out, a majority of them are moving right back where they came from…

The Rust Belt.

During the 80’s and 90’s a lot of American business followed the cattle herd mentality in migrating manufacturing to China – or the next “best” onshore location – the American South. Now I don’t know if it was because at the time, Wall Street was sucking up all the smart MBAs with promises of making millions – or a failure in groupthink…

But a whole bunch of somebodies forgot to put the ancillary costs of offshoring into the equation. From lead laced toys damaging babies, to diaphanous intellectual property protections, to drywall which killed people because of the use of cheaper – poisonous chemicals… The real cost of manufacturing in China is much higher than the wage level would indicate. Thank goodness some folks finally got a clue.

The issue in the South is productivity. American productivity far surpasses that of any other country – and is significantly higher than Chinas. So while the payroll part of manufacturing in China is cheaper – the cost per completed piece is actually higher. Same issue in the South. When you start looking at where your educated workforce is…

It isn’t by and large …There. Meaning productivity is again higher in those old tried and true rust belt states. Further is the cost of conservatives. That is – as long as southern conservatives are dedicated to fighting the Civil War – the number of discrimination lawsuits, and level of employee friction is going to be through the roof, hampering full productivity. Lastly – as recent laws introduced and passed by conservative red state legislatures – such as the anti-immigrant legislation in Georgia where the state’s agricultural workforce was decimated…

You don’t know what stupid, business killing thing they are going to come up with next. Like declaring war on your largest foreign customer.

It’s early – but the “Rust Belt” right about now is looking pretty damn good.

The Revenge of the Rust Belt: How the Midwest Got Its Groove Back

We’re not used to thinking of the old industrial Midwest as a beacon of good news. Just the opposite. It’s Exhibit A in the story of America’s economic decline — a land of hollowed-out factory towns and shrinking cities. There’s an entire genre of photography dedicated to Detroit’s decaying cityscape alone.

Yet, it may be time to rethink that view. Because there are signs that the heart of the rust belt may be finally shaking off its rust.

For the past thirty years or so, there have been two great running narratives about American manufacturing, both of which have been disastrous for the Midwest’s economy. The first has been about the disappearing factory worker — how by shipping some jobs abroad and replacing others with machines, companies have figured out ways to produce more goods with millions of fewer employees on their assembly lines. The second narrative has been about migration — the decision by companies to move production away from once-booming industrial centers of the north, to southern states with weaker unions and lower wages.

Both of those trends, it appears, may have drawn to an end. 

The first sign of hope is the bounce-back the country has seen in manufacturing employment since the end of the recession. The graph below, courtesy of a recent Brookings Institute report, shows the great plunge of U.S. factory jobs over the last three decades, from more than 19.4 million in 1979 to a little more than 11.5 million in 2010. Recently, manufacturing has staged a small comeback. Between January 2010 and December 2011, we added 350,000 jobs in the sector. It’s a modest increase, but at least it’s a movement in the right direction.

It’s certainly possible that manufacturing is experiencing its own version of a dead cat bounce — that employment fell so low in the wake of the recession, it simply had to recover a bit, even though the sector is still effectively moribund. But there are reasons to believe that we’re seeing bona fide signs of life. The auto industry has gotten healthy. Exports are increasing. And some large manufacturers, including General Electric, Whirlpool, and Ford have started bringing jobs back to the U.S. from overseas — a trend often referred to as “onshoring.” These companies have discovered that with rising costs in China, it can be just as cost effective to make products here at home as overseas.

The biggest beneficiary of these trends has been the Midwest — which is something of a shock. For years, many observers have believed that if America ever experienced a manufacturing renaissance, it would happen in Dixie. States like Alabama, South Carolina, and Tennessee made themselves attractive to foreign manufacturers as well as companies up north, by using right-to-work laws to weaken unions and keep wages at cut-throat-competitive levels. They also offered up incentives in the form of sweet tax deals. All of this was supposed to make them the center of the future manufacturing economy.

That hasn’t been the case. The graph below is from the same Brookings report I cited earlier, which contains an extensive mapping of America’s industrial base, and the way its geography has shifted for the last several decades. What it shows is that, contrary to popular belief, the great flight of manufacturers to the South effectively ended at the turn of the millennium. From 2000 to 2010, manufacturing employment fell in the Midwest and South at roughly same the pace. Since 2010, the Midwestern factory employment has recovered faster than the rest of the nation’s, growing by 5 percent compared to 2.2 percent in the South. It’s not simply that industries clustered in the region, such as cars and heavy machinery, have come back faster than others. If the Midwest had simply regained jobs at the same rate as its dominant industries, factory employment would have only grown by 2 percent. …


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Posted by on May 27, 2012 in News


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