Manufacturing and Development in Rural Areas

1
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

2
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
  1950s and
• 1960s created large pool of cheap surplus
  labor which
• became the new source of comparative
  advantage from
• rural areas during 1970s and 1980s.
• Factories moved from urban to rural areas to
  take
• advantage of the labor surplus.
• -- Rural Renaissance

3
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.

4
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.

5
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.

6
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.

7
Manufacturing Trends

• Decline in employment likely due to increased
  efficiency.
• Manufacturings 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.

8
The Rural Picture

• Rural economy has paralleled national economic
  pattern for the past 30 years.
• 1940s through 1970s rural areas lost a lot of
  natural resource related jobs, replaced with jobs
  in services, government, and manufacturing.

9
The Rural Picture

• Good ? and Bad ? Times
• 70s Good ?
• --Late 60s into the 70s, 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.

10
The Rural Picture

• 80s 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 80s, 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.

11
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.

12
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.

13
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.

14
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.

15
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 its 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.

16
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.

17
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.

18
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.

19
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.

20
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 countrys largest
  manufacturing firms.

21
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.

22
Economic Development Strategies

1. 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.
2. Technical assistance in areas such as market
   research, licensing, joint ventures, trade fairs
   and trade missions, referrals to shippers and
   distributors, and the like.
3. Financing, including help with applications to
   banks as well as direct financial assistance
   through underwriting of loans and other financial
   instruments.

23
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.

24
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.

25
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.

26
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.

27
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 80s were found in the high and
  low wage manufacturing jobs, while medium-wage
  production jobs grew.

28
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.

29
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.

30
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.

31
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.

32
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.

33
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.