Disguised as an objective analysis of the regional economy, the Report on Economic Conditions of the South was a manifesto for the southern liberal program for regional development. It was also …’a part of the President’s program to liberalize the Democratic Party’. FDR’s so called purge, a general effort to unseat Congressional opponents of the New Deal in the 1938 midterm elections, concentrated on defeating the recalcitrant southerners in the President’s own party.[1]
FLSA became a lightning rod for debate on the southern economy–both for southern opponents of the New Deal and for the southern New Dealers themselves. Although it was a modest piece of legislation which covered only a minority of workers in the heavily agricultural South, the law stirred the hopes and fears of many. Southern manufacturers blamed it for economic pressures–such as changes in demand and the need to mechanize–that had been operating for two decades. Reformers, on the other hand, hoped to extend the purview of the act and thus widen their attack on the region’s conservative leadership. They also saw the wages and hours law as the foundation for a labor-liberal political coalition in the South.[2]
The end result, to a considerable extent unrecognized and not perceived by those outside the South at that time, was that the FDR-Truman minimum wage southern redevelopment had worked: the New South was beginning to appear and southern “advanced” manufacturing had established a niche in the southern economic base. The Rise of the Sunbelt had indeed begun.
By 1950, the federal government’s efforts to lift the South from its colonial status forced retrenchment on much of the traditional southern economy. But contrary to the predictions of southern doomsayers, federal policy did not leave the South in ruins. A new, mechanized industrial economy was displacing the old labor-intensive South, mitigating the dislocations of the attack on low wage employment by introducing more manufacturing to the region.[3]
Herman’s Freedom Forge offers several important observations pertinent to World War II war production and how it affected economic development, innovation, and the industry-sector profit cycle—not to mention the importance of sector dynamics on (economic base-related) planning.
(2) the vaunted American assembly-line of Henry Ford had not, by 1940, permeated through most of American manufacturing—the war production crisis compelled the introduction of part-standardization, modular construction, use of new materials, new machine tools, business formation, and labor relations—and accelerated industry concentration and plant dispersal to accommodate market/logistical demands.
Government bureaucratic decision-making is a poor substitute for knowledge of the industry sector processes and people. Progressives in Washington D.C. was not especially friendly to private production or industry leaders making what was regarded as public decisions.
[1] Bruce Schulman, From Cotton Belt to Sun Belt, op. cit. p. 52.
[2] Bruce Schulman, From Cotton Belt to Sun Belt, op. cit., p. 68.
[3] Schulman, op. cit. p. 87.
[4] An interesting observation one could make on the scope of Eastern urban wartime federal lobbying was possibly a reflection of their more Progressive culture which prioritized housing, labor issues rather than locating plants within their jurisdiction. In the Big Cities, housing and municipal budget relief, not plant relocation, dominated federal debate as we discussed in the previous chapter. Partly, these priorities reflected the reality that the existing industrial facilities in Big Cities had already been expanded greatly in the early war years and were operating at full tilt. Any further expansion would necessarily have been even more suburban than the initial expansion had been. Lotchin further argues that “In the name of defense, the South and West deconcentrated the country’s industries, supposedly to make them less vulnerable to Nazi attack. In truth, however, they were more interested in making themselves less susceptible to colonial control from eastern power centers”. Roger W. Lotchin, “The Origins of the Sunbelt-Frostbelt Struggle: Defense Spending and City-Building” in Raymond A. Mohr (ed), Searching for the Sun Belt: Historical Perspectives on a Region (Athens, Georgia, The University of Georgia Press, 1998), p. 49.
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The New South
Wrap Up and Segueway
The Southwest, rather than the Southeast, was the prime beneficiary of the federal war largesse[1]. This unevenness in effort to acquire federal contracts and facilities that was evident in these years suggests considerable variation among the southern states and the performance of their economic development agencies. If so, this may be further evidence of the discomfiture of the old South with industrialization. Military industrial contracts and new plant relocations, however, were not the only form of federal involvement; the establishment of military bases and facilities was apparently more compatible with the old South’s priorities.
Southern governors and development agencies pushed hard for their ‘fair share’ of war contracts and industrial facilities, training camps and airfields. In substantial measure they succeeded, obtaining for the region as a whole, a portion of new industrial facilities that was 50 percent higher than the South’s prewar share of manufacturing plants. To be sure, the incidence of this spending was highly uneven (the southeastern textile states [in particular] receiving far less than their share…[2]
Regional change was jump-started by FLSA and World War II. Not that the South appreciated the jump start, or was any way thankful for it–why? Because change was so painful, disruptive and imposed on the South by its semi-hated conqueror. A past began to die, and like Ireland, the region hemorrhaged gobs of its sons and daughters to more distant lands. Why so unthankful? Because it was forced upon her; for the most part, by outsiders in alliance with a self-brewed concoction of Progressive liberals–such as LBJ and Florida’s Claude Pepper. Also, the transformation of the South was a very uneven economic development process. Some winning states would evolve; but other states would not be as fortunate. In winning states, such as Georgia, rural counties often were as poor and economically backward as they ever were. Rural would give way to urban, but where rural was dominant, change was minimized and often violent. And almost two generations had to pass before light was seen at the end of a long, dark, and harrowing tunnel[3].
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Led originally by Southern business Progressives in the twenties, promotion of municipal industrial expansion possibilities to external firms had become commonplace throughout the South–and as we described in Chapter 2, were also prevalent in the North as well. Public subsidies were not infrequent and were also part of the package available to manufacturing firms willing to relocate. But in the Depression-era south, moderation in the pursuit of industrial firms was no virtue. Cobb cites a 1937 survey of forty-one communities which revealed that fifty-six plants built in the preceding ten years had received some form of subsidy. Others were financed by municipal bonds, authorized by state legislatures in violation of state constitutional (gift) provisions. Four southern states permitted the use of public funds for industrial advertising and training programs as well as for hiring location brokers (such as Fantas) and collecting assessments[4] from the workers.[5] Arkansas municipalities liberally interpreted a 1939 state statute “allowing them to purchase sites and make other grants” as authorization for municipal construction of industrial buildings” and several counties in South Carolina provided free sites for textiles mills. Municipalities in still other states provided land and buildings”.[6]
… created a system whereby counties and cities could issue bonds to build factories. Because the bonds were government-sponsored (private activity bonds), the interest was exempt from federal income taxes in the same way a school or sewer bond would be, so the interest rates were lower than if the bond were a private issue (by the firm itself). Once constructed, a facility would be leased to a company, with the lease covering the bond repayment. Since the facility was publically owned, it would not owe any property taxes. When the bond was paid off, typically in ten years, the building would be deeded to the company.[7]
The first (1930’s), state-supported IDBs were restricted to Mississippi and Tennessee. They attracted low-wage and labor-intensive industries (textiles disproportionately) that could tap the largely unemployed unskilled workforce. As Cobb describes BAWI (and Tennessee), he asserts that the state/municipality were “buying a payroll”. Using BAWI’s total incentive package almost all of the company’s costs associated by the relocation were borne by the IDB or auxiliary community subsidies. The only company outputs left unsubsidized were payroll and locally bought supplies.
Prior to BAWI, however, (the granting of subsidies for economic expansion) … had been issued by individual communities acting without, or sometimes in defiance of legal constraint (Tennessee). By introducing a system wherein the state sanctioned and supervised the use of municipal bonds to finance plant construction, the BAWI program lifted the curtain on an era of more competitive subsidization and broader state and local government involvement in industrial development efforts.[8]
Today BAWI could easily be associated with an emerging nation’s economic development program. But, needless to say, that was not how the municipalities and states which lost firms to BAWI perceived this innovation-abuse in 1930’s America. BAWI, despite its very limited scope and existence, became the cornerstone example of Southern aggression in economic development, and it remains so to this day. As to the IDB, its golden age lies ahead in the 1950’s and 1960’s. Subsequent “reforms” in the late 1960’s and 1970’s (and later) have shaped this tool into a much used incentive in most state and many local economic development programs, although somewhat less so than in its golden years.
BAWI-type programs operated in various southern states throughout this period. Certainly controversial, and also certainly based upon a low-wage “branch” company strategy, these BAWI programs[9] did land a small number of manufacturing firms previous to, and during, the war years. As we mentioned previously, in Mississippi by the end of the war many of these firms were quite successful and generated, from an abysmally low base, high rates of growth in manufacturing employment. BAWI, again controversial, was more successful, from a local perspective, than its detractors would care to admit. The key context behind BAWI was always the massive poverty which characterized the most rural southern states like Mississippi.
Mississippi had a number of areas so impoverished that the worst industry they might have attracted would have seemed terrific. Tunica, with its infamous Sugar Ditch Alley, the nation’s best-known small town slum … claimed to be the poorest in the nation rested on a 45% poverty rate and a per capita income that was barely two-thirds of the average in Mississippi, the nation’s poorest state.[10]
But BAWI’s fundamental critique remained valid: that by 1946 “average wages in the South stood at 86% of the northeast average, roughly where they had been 40 years earlier”[11].
The post-war reaction to the BAWI IDB, the shadow war, calls attention to regional change which in the 1950’s and 1960’s chiefly meant the North and South. By this time, age-old Northern hegemony over the South was clearly under strain—and the tension was felt by both regions. One is very much tempted to over-think what was going on between these two regions. But let’s start off with something horribly simplistic and downright nasty: the North and South did not like each other very much, You know, the Civil War, Reconstruction and Jim Crow Plantation Revival and all that! We won’t even mention the power inversions, such as Southern committee chairs and defense spending happening in Washington D.C. That the two regions didn’t like each other set the tone, defined the atmosphere of the next two decades and even longer. Economic development danced to that music.
What’s more there was a cultural-demographic zero-sum relationship between the two regions at least as regards to an industrial age economic base: the North had such a base and the South, despite World War II, for the most part did not. The South was still the poorest region in the nation—by far. If the South wanted a manufacturing based economic system (and it did, by this time desperately), it had to over the long haul grow one organically—or steal, excuse me, borrow one from the North. In that the first strategy would certainly take decades to play out—and was uncertain to say the least—the beg, steal and borrow approach seemed more promising to Southern economic developers, politicians, and media. Call it “branch manufacturing, buying a payroll or simple piracy, the South went after Northern industry for as simple a reason as Willie Sutton robbed banks: “that where the money (manufacturing firms) were!”
And the North, in general, felt as invaded as it had when Lee marched on Gettysburg. What’s more the North couldn’t return the favor. What did the South have to steal? Low wage labor? The North already had taken that in the Great Migrations. There was too little manufacturing in the South to wage a war for; so the North was left to defend what it had—not realizing that much of what it was trying to retain was entering into a new era, a Markusen-Stage 4 and 5 era. In the pre-1970 period, the North for the most part did not as yet appreciate its new gazelles, the technology firms along Route 128. This was, after all, the age of the automobile and manufacturing. Economic development came to mean Southern piracy (oops attraction) and Northern retention during this period. Economic development strategies and tools were but weapons in what was becoming an undeclared war between the regions; an economic development arms race characterized the era with each side/state/community grasping as many arrows to put in its respective jurisdictional quiver. This was the era of economic development tool diffusion in which the IDB was merely the most visible and controversial. In the background, too subtle to be fully noticed: economic development was becoming increasingly politicized.
Enough of our simplistic, anti-intellectual blather! The turmoil in the North was largely hidden and not yet perceived. The change and tumult in the South was just the opposite. By the end of this period, the middle fifties onward, the Civil Rights Movement drove a stake into the heart of the Old South. In the process, a new South and a more “modern” Privatism would emerge along with a “rise of the Sunbelt”. But those topics will be dealt with in another chapter. Suffice it to say is that during the pre-1960 period future cultural change and regional shift had not reached center stage. The “fat lady” singing on the center stage was still the older Privatist South which had emerged in the post-war period—the World War I post-war period.
In the sections that follow we shall explore what proved to be the last days of the Old South. To be sure we will see a few tinges marking the emergence of a “new South”, but they will be few and far between in these years. First, we will see a continued resistance to FDR’s, now Truman’s federal government southern redevelopment program: the minimum wage. The resistance to this program will very quickly bleed into our second topic, the enactment of right to work laws. Then we shall consider a complex, state government-led series of economic development initiatives and programs designed to modernize the southern economic base. These include promotion and tax abatement, workforce development, and infrastructure such as roads, highways and education. we shall remind the reader of topics already considered, such as port authorities, and hint at topics to be considered in the next chapter: urban renewal, TIF, and the rise of technology sectors (and research parks like the Research Triangle). The South is far from being the backwater of American economic development during the pre-1960 period—in fact, we argue that, for better or worse, it was the cutting edge of many future economic development trends.
Cobb’s bottom line argument, we suggest, is that to understand both the Mississippi-IDB model and its tax exemption component, one had to accept that BAWI economic developers were “buying a payroll”–with all that entails. In our view, to better understand this mentality, it would be wise not to think of buying a payroll as equivalent to a multiplier effect. The multiplier effect considers only monetary costs/benefits, but buying a payroll in depressed, hope-starved communities, perceiving themselves to be struggling against a mighty Northern industrial colossus who had conquered them in a war, also entails an emotional, almost “romantic”, crusade against economic and political aggressors. Buying a payroll becomes a means, arguably mistaken, of saving a community and its heritage of history, family and values, from perceived “ghost town” status. Tax abatement becomes a tool which potentially might preserve a lifestyle and protect the future of one’s home. All of these factors (and others such as creating jobs for one’s children) are left off to the margins in a traditional cost-benefit study or economic modeling. If the reader can accept this line of reasoning, then tax abatement / exemption as a tool contains much more than an economic calculation as to its efficiency or effectiveness. In short, we have injected a cultural, non-economic component into a tax abatement tool.
While the cultural “story”[12] supporting tax abatement may vary over time and from community to community, we are suggesting that whether or not tax abatement affects location decisions of firms (it likely seldom does—at least in terms of census regions), the meaning and justification behind tax abatement as a jurisdictional economic development tool has deep roots in the jurisdiction’s culture, social and economic base, and politics. That “embeddedness” is why tax abatement survives impervious to the assaults of innumerable academics and cost-benefit analyses. Indeed, there are no really new arguments against tax abatement today that were not known and understood sixty years ago[13]. And still the tool continues and has undergone persistent expansion for more than half a century! Are we all nuts? Are we really prisoners of all-powerful mobile capital? Or is there more to tax abatement than meets the rational eye?
[1] Carl Abbott, The Metropolitan Frontier, op. cit. p. 10, Table 4
[2] Gavin Wright, Old South, New South: Revolutions in the Southern Economy Since the Civil War, (Baton Rouge, Louisiana State University Press, 1986), p. 261.
[3]NRPB and World War II federal planning intended to move people from depressed to more prosperous areas; it was a relocation/mobility solution, and a people-based strategy —the irony is of course, in hindsight we now know that many people moved into several of these regions during this time period. Also Henry Wallace simultaneously promoted a contradictory strategy toward depressed areas; see EDA Legislative History, op. cit. p. 2.
[4] Assessments required hired workers to pay 5-7% of their salary to pay in part or total the loans required to build the facility-equipment. Cobb relates a town, Lewisburg Tennessee, which built a town hall, held one meeting in it, and then turned it over to a mega corporation, General Shoe, and then through assessments the workers paid the outstanding loans for the city-hall-facility. The use of these and other subsidies seems to have increased through the war years as well. See James C. Cobb, The Selling of the South op. cit., pp. 6-7.
[5] Cobb op, cit. p. 6 cites Robert E. Lowry, “Municipal Subsidies to Industries in Tennessee,” Southern Economic Journal, Volume VII, January, 1941, pp. 317-29.
[6] IBID. p 6.
[7] Greg LeRoy, The Great American Jobs Scam, op. cit. p.73.
[8] James C. Cobb, the Selling of the South, op. cit., p. 5.
[9] We use “BAWI” in this section as a label for the various financing and tax abatement programs prevalent in the South and for the increased role of the state in economic development, particularly attraction and promotion. Therefore, included in this label would be Louisiana’s statewide tax exemption program intended as a business climate initiative to lure industrial investment. In varying degrees, many southern states imitated this program.
[10] James C. Cobb, “The Sunbelt South: Industrialization in Regional, National and International Perspective” in Raymond A. Mohl (Ed), Searching for the Sunbelt: Historical Perspective on a Region (Athens, Georgia, University of Georgia Press, 1993), p. 32.
[11] James C. Cobb, “The Sunbelt South: Industrialization in Regional, National and International Perspective” in Raymond A. Mohl (Ed), Searching for the Sunbelt: Historical Perspective on a Region (Athens, Georgia, University of Georgia Press, 1993), p. 30.
[12] The term-concept “story” is drawn from Deborah Stone, The Policy Paradox: The Art of Political Decision-making (3rd Ed) (New York, W.W. Norton, 2001). We will be developing and enlarging upon this concept incrementally in the following chapters. At present, we introduce “story” into how economic development public policy is in fact infused with substantial non-economic inputs, motivations and justifications—any of which may or may not be “rational” but are more correctly emotional. Meredith Ramsay, Community, Culture and Economic Development (2nd Ed) (Albany, New York, State University of New York Press, 2013) refers to this as “the social embeddedness argument” in which policy preferences of individuals “were powerfully shaped by local history, culture and social structure” (p. 93). We have tried to prepare the ground for this infusion with our previous section discussion on right to work and state business climate.
[13] See for instance, “State and Local Taxation and Industrial Location” A Commission Report by the Advisory Commission for Intergovernmental Relations (ACIR), April 1967, A-30. In addition, we might argue that exemptions for industrial firms are only one form of “tax abatement” prevalent at the time. Taxes on business inventories and taxes on personal property varied considerably and states which did not tax personal property or business inventories were not considered to be “abating” taxes to industry–but in fact they were. Secondly, the presence of an income tax in a state was at that time considered as important as right to work is today. States without income taxes are not considered, usually, has using tax abatement as a location factor. Sales tax, of course, will become an issue in later years, but as far as sales tax rates are only one factor as is which goods and services are subject to a sales or excise tax. The debate of manufacturing tax exemption, it can be argued, singles out one form of tax abatement and holds it to a higher standard than the other forms of tax abatement current at any particular time.
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[1] The term-concept “story” is drawn from Deborah Stone, The Policy Paradox: The Art of Political Decision-making (3rd Ed) (New York, W.W. Norton, 2001). We will be developing and enlarging upon this concept incrementally in the following chapters. At present, we introduce “story” into how economic development public policy is in fact infused with substantial non-economic inputs, motivations and justifications—any of which may or may not be “rational” but are more correctly emotional. Meredith Ramsay, Community, Culture and Economic Development (2nd Ed) (Albany, New York, State University of New York Press, 2013) refers to this as “the social embeddedness argument” in which policy preferences of individuals “were powerfully shaped by local history, culture and social structure” (p. 93). We have tried to prepare the ground for this infusion with our previous section discussion on right to work and state business climate.
[1] See for instance, “State and Local Taxation and Industrial Location” A Commission Report by the Advisory Commission for Intergovernmental Relations (ACIR), April 1967, A-30. In addition, we might argue that exemptions for industrial firms are only one form of “tax abatement” prevalent at the time. Taxes on business inventories and taxes on personal property varied considerably and states which did not tax personal property or business inventories were not considered to be “abating” taxes to industry–but in fact they were. Secondly, the presence of an income tax in a state was at that time considered as important as right to work is today. States without income taxes are not considered, usually, has using tax abatement as a location factor. Sales tax, of course, will become an issue in later years, but as far as sales tax rates are only one factor as is which goods and services are subject to a sales or excise tax. The debate of manufacturing tax exemption, it can be argued, singles out one form of tax abatement and holds it to a higher standard than the other forms of tax abatement current at any particular time.
Ron W. Coan 