Economic Development Matters…NOW More than Ever
By Alex Leath
There is no question in these times of economic uncertainty that declining home values and savings are causing pause and concern among near record numbers of American families. That said, the staggering loss of jobs occurring across the country is causing outright fear.
Currently, there is only one major Metropolitan Statistical Area (MSA) generating significant positive numbers in terms of job growth. That MSA is metro Washington, D.C., this of course also benefits suburbs in Maryland and Virginia, but I will leave it to you the reader to determine the overall benefit or cause for concern this may bring to the rest of us.
Job growth is the quickest and easiest way to turn around or jumpstart an economy. And the stated intent of President Obama’s Economic Stimulus and Recovery Act of 2009 is job creation and infrastructure investment.
Putting aside the debate of whether government spending can create lasting growth, it is very clear that economic development, the art and science of growing a city/county, state and our nation is perhaps more important now than any time since the days of the Great Depression.
There is no greater gift one can give an unemployed worker than worthwhile, steady income and employment. This makes virtually everything else possible for that individual and his or her family. Hand-outs and assistance are of course always appreciated, but teaching a family to fish has benefits which far outweigh giving them a heart-felt and well-prepared supper.
Economic development is largely in three ‘buckets’…let’s review those and consider some ways to enhance them over the next one to three years, to make sure that the South continues its robust role in the global economy, and potentially leads our nation out of this recession.
Growth of Existing Industry – Organic Growth
From the smallest Mom and Pop entrepreneur, to the longtime stable manufacturer in your community…their success and continued growth is the most important economic indicator of the health of your community. As with acquiring a new customer from scratch, losing an existing employer or having a local business fail, causes ripples and economic pain much larger than the literal size of that single enterprise.
Through 2011 or 2012, all Southern states would do well to consider job creation tax credits for every single new full-time position, which lasts six months or more in duration. These tax credits would be taken on the employer’s state income tax returns where applicable, or could be given as a credit in future quarters against the employer’s sales tax payments.
Those new employees will of course make purchases, buy or rent housing and contribute to that same regional economy to offset the loss of revenue to that state. Several states already have similar programs in place. However, the majority of existing initiatives are aimed at the two other areas of economic development -- domestic relocation and/or foreign direct investment -- and do not currently incent the local entrepreneur to put additional capital at risk, or expand their payroll at a time when they may be forced to forgo a paycheck or two themselves.
Domestic Relocation – Movement of Jobs from One U.S. Region to Another
For much of the last two generations, the South and Sunbelt have led the nation in job creation and in-migration…the movement of people and jobs particularly from the Northeast, Rust Belt and parts of the Midwest, to lower cost employment centers and cities across the South. As a result, the South (if considered apart from the United States) has one of the world’s largest and most vibrant economies. Slightly more than 40% of our nation’s population also resides here and our region also contains a majority of the country’s fastest growing MSAs.
As a result of the South’s lower costs of labor, land and facilities, newer and well-established infrastructure and access to other markets via rail, interstate, ports and airports, the South remains the region to beat when it comes to the relocation of a corporate headquarters, factory or major retail enterprise within the continental U.S. Metro Atlanta now perennially places fourth or fifth in the country in the number of Fortune 1000 headquarters. Undoubtedly, when a major global employer such as UPS, Newell-Rubbermaid or NCR relocates to another region of the U.S., the reverberations and benefits to that new host community continue for years.
Here again, such major benefits do not come without cost. To enter these stakes, states must be prepared to offer free land, tax abatements and incentives, bond-funded improvements to the site, etc. The costs of entry may appear high, but again thinking regionally, and playing off the significantly advantageous differences in the Southern climate, quality of life and very real Southern hospitality, all tend to help the South continue to win these horse races against our rivals to the north, west and northeast.
Foreign Direct Investment (FDI) – International Capital Deployed Within the U.S.
Perhaps the most visible aspect of economic development is also the most controversial. Our declining dollar in global markets, coupled with drastic drops in the prices of real estate across our country, have made us an extreme bargain during the past few years for many parts of the globe. Prior to the start of this recession, major global manufacturers realized the benefits of producing automobiles (as an example), built in America, by Americans, but still owned by an international concern. Benefiting from our lower costs of labor, trained work force, inexpensive or free land, etc., auto manufacturers from Asia and Europe have set up shop, producing billions in U.S. economic impact, and building cars that are continually out-selling their domestically-owned and domestically manufactured competitors.
It’s worth noting that Ford, GM and even Chrysler were among the first to realize these advantages. Henry Ford built plants in Atlanta and Richmond Hill, Georgia just after the turn of the century. General Motors built its first plant in the South on what was then the out-skirts of Atlanta in Doraville, Ga. in 1945. Unfortunately, that same plant now sits idle, in the shadow of Atlanta’s Spaghetti Junction interstate intersection.
Having been involved in the recent citing of Volkswagen’s planned manufacturing facility near Chattanooga in southeastern Tennessee, it is already clear that the Volkswagen facility will economically benefit northeast Alabama and northwest Georgia as well as eastern and central Tennessee.
I realize to some extent I am preaching to the choir. The readers of Southern Business & Development are among the most knowledgeable in our region as it relates to economic development. However, not all of the leadership of our respective states, cities and communities are as well versed and blessed. Explaining what we do can sometimes be a challenge. And in tough economic times, finding funding for what we do can be viewed as an extravagance, or at least a challenge, compared to the government imperatives of public safety, education and infrastructure.
That said, one need look no further than to our former industrial cities such as Detroit, where the only thing growing faster than the number of lost jobs is the number of foreclosure signs. Where there are entire neighborhoods where the number of vacant homes significantly out-number those occupied. America has demonstrated an ability to learn from its mistakes and, as a Southerner, I’d like to think that we catch on pretty quickly, without actually having to experience that pain.
Remember to think regionally, work with the state and local entities and organizations which have successfully done this before and try and help convert others in your community to the importance and worthiness of our cause. What we do is not particularly glamorous, often takes years and on occasion shows no result. But when we are successful most of the citizenry celebrate your work as if you are a magician pulling two rabbits out of the hat. Given the economic multiplier effects of a single new job, perhaps they aren’t really that far off of the mark after all.
Alex Leath is the Economic Development Practice Director, Balch & Bingham LLP
