Policy Cuts
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Lester Thurow’s Zero-Sum Economy accepts this and argued that America had to disinvest in declining “sunset” sectors more rapidly if it were to compete effectively internationally.
To have labor and capital to move into new areas we must be able to withdraw labor
and capital from old, low-productivity areas. But … disinvestment is what our economy
does worst. Instead of adopting public policies to speed up the process of disinvestment,
we act to slow it down with protection and subsidies for the inefficient.[1]
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The displacement caused by disinvestment is different from cyclical unemployment and is less about the individual worker or business cycle than about an economic system or an industry in transition. The jobs associated with disinvestment dislocated workers are lost jobs–and the economic development task is to find and refit the workers to new jobs, probably in new occupations and often in new communities. Displaced workers tend to be unemployed for considerable periods of time, suffer serious wage reduction upon any re-entry to the workforce, and often incur measurable psychological, health and fiscal consequences from their persistent unemployment[2]. In other words, B&H suggest that unemployment created by deindustrialization is not “your father’s unemployment”, but a new and even more complex and terrible form of unemployment, demanding special action and specifically crafted solutions.
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The actions and the decisions of a firm engaging in “disinvestment” are logical and applaudable, certainly natural, if viewed from mainstream classical economic models or from the need to shift from sunset to sunrise sectors as creative destruction and economic growth moves into new industries and locations. There is no “runaway shop” in an approach to capitalism which is built around comparative advantage of nations. Foreign direct investment, at least to the extent it disadvantages home nations and communities is disinvestment. Thus we are introduced to the defining result of deindustrialization–the plant closing, the runaway shops and the forsaken community and its workers[3].
B&H’s conception of deindustrialization corresponds remarkably well with the AnnaLee Saxenian’s cultural value system outlined in her comparison of Route 128 (which when B&H wrote was at its height) and Silicon Valley which we discussed earlier. GE which was negatively cited in B&H for overseas investment to the detriment of its Lynn Massachusetts aircraft engine plant[4] was also simultaneously investing in Route 128 (Billerica, Massachusetts) five miles away–a reality not mentioned or probably appreciated by B&H.
In fact, Route 128 is a significant part of his chapter “Boomtown and Bust-town”. Exceedingly uncomfortable with a reindustrialization which relied “exclusively on the private sector (which) has brought increasing inequality in the distribution of earnings” ….”This type of reindustrialization does not compensate for the losses suffered as a result of prolonged disinvestment”–all in all he lists and discusses five problems associated with sunrise reindustrialization. He compares it with the boomtowns of the Sunbelt with which he is also unsatisfied[5]. To avoid disinvestment B&H’s treatment of sunrise industries injects a very strong government involvement, in their words “public-private partnership” in which applied research and government contracts in these new industries reduces or even destroys the “private” nature of recipient corporations. “Partial public ownership of subsidized private corporations is a minimum requirement” and “planning agreements” with claw backs if public goals are not achieved.[6]
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And in Chapter 2, “Closed Plants: Lost Jobs, they produced from David Birch’s database[7], Table 2-1 which, seemingly irrefutably, outlined the employment change by census regions and divisions for the years 1969-76 for all sectors. Only one region lost firms: the Northeast. On Table 2-2, however, which detailed manufacturing firms, they demonstrated that nationally 30% of manufacturing firms existing in 1969 had closed by 1976. Ironically, the region with the largest percentage of manufacturing firm loss was the South, but the gap between the South and the Northeast and West was not particularly wide. The Midwest shed the fewest percentage of manufacturing firms during this period. The case that the U.S. was in crisis and had an explosion of manufacturing firm closings throughout the 1970’s was accepted as proven. A surprising, but important aspect of B&H’s research was that in the midst of the Second War Between the States, they discover that, if anything, the South is losing more manufacturing jobs than any other region.
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Elements (treatment of sunrise, moral concept of corporations/decision-making, bond/link to the community, strong use of government–as partner, the role of planning and a non economic definition of efficiency, key beneficiaries=unions, workers, minorities, people-based versus place-based, rejection of creative destruction and exit theory, living wage and social contract
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Between 1979-1982 there were several articles from academia that for one reason or another struck a chord in the media, with fellow academics, Think Tanks and to some extent (although this would take some time to unfold) active economic developers[8]. In particular, David Birch[9], Lester Thurow[10], Michael Porter[11], Bluestone and Harrison, and Paul Peterson[12] each published works which were very well accepted and which, together, marked a bit of a turn in the direction of how academics viewed economic development. In addition, we would also add the impact of the cumulative works of Peter Drucker[13], a prolific and also very impactful commentator who had been writing for decades but with particular effect throughout the seventies, George Gilder[14] and Stuart Butler[15].
Many of these authors made the New York Times Best Seller list and, to be sure, they were not focused by any means exclusively on deindustrialization per se. But the very rare window in which academic authors win a widespread non-academic awareness certainly opened up during these three years or so. The reality that each in their own way entered into economic development at this time, and generated numerous subsequent academic, professional and media commentary and followers throughout much of the next decade did have serious implications for both theory and practice in our profession. In later sections and chapters, we will pick up in more detail many of these authors. Suffice it to say here, that each work developed adherents at both ends of the economic development spectrum and the thought of each filtered into the definition of either the cause of deindustrialization or proposed solutions to it. The constant stream of well-publicized and acclaimed academic works created a momentum and facilitated an awareness of deindustrialization that few other economic development concepts have subsequently achieved.
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Earlier we referenced the concept of “dual revolution”. Dual revolution is drawn from the Hobsbawm’s (Marxian) sense that profound political reaction follows from serious economic change. We think we see evidence of this in the poorly defined and understood nature of systemic change which, at that time (1965-1976), generated political reactions and no real economic counter-reaction. In essence many believed that the disruptions caused by poorly understood deep systemic and global economic change, actually were caused by political forces which had crystallized in the new-found power of rising regions: the Sunbelt, the suburbs and the New Conservative Republican Party. A second political reaction led to the rise of Black Mayors and a third, the rise of the post-civil rights New South. Each of these political reactions had consequences on the theory and practice of American economic development.
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For example, not all jobs are equally valued. High wage jobs, for some reason, are more desired than lower wage jobs. The simultaneous rise of the service sectors (in many cases lower wage) which accompanied the seventies sector shift created plenty of jobs-Rodney Dangerfield-type jobs which got no respect. These no-respect jobs never have really entered into the economic developer calculus and that meant that unless you were lucky enough to work in a geography with plenty of high wage growing sectors, your job as an economic developer would be a troubled one indeed. Since most of the firms in the durable industry in particular were in the Northeast and Midwest, aka the Snowbelt, deindustrialization had serious regional overtones–especially when newly created service sector jobs followed both population and financing and poured into the New South, Southwest and West, aka the Sunbelt. As we have consistently alluded to in this chapter, the overlap between the Second War Between the States and Deindustrialization is also considerable indeed.
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Coping solutions presented the second, perhaps less obvious problem: how to cope with an industrial age that was losing its industrial base? And what were we to make of the rise in the service sector which also became evident in the last half of the decade?
[1] Thurow, op. cit. p. 77.
[2] See Terry Buss and F. Redburn, Mass Unemployment: Plant Closings and Community Mental Health (Beverly Hills, California, Sage Publications, 1983)
[3] Consider pp 6-8 and pp. 15-16 regarding the unarticulated “negative” nature of moving investment away from existing, home facilities, workers and communities. See pp. 25-26 and pp. 169-170 for B&H treatment of the “runaway shop” as similarly negative. B&H do not explicitly state the existence of any “bond” or responsibility to existing workers and communities–it is simply built into their argument and perspective. This bond and implied responsibility is not in itself incorrect or improper or illegitimate. Our point is that B&H are arguing from a different conception of capitalism than mainstream liberal-classical capitalism which is the basis of our privatist first stream. The difficulty in our profession has become our blending of these two streams into an incoherent whole, lacking consistency and no doubt, effectiveness. Today’s reality is that we see economic developers decry a firm’s decision to close a plant in their home town while the same economic developer is recruiting a firm or FDI from somebody else’s home town.
[4]Bluestone and Harrison, op. cit., p. 178.
[5] Bluestone and Harrison, op. cit. Chapter 4, especially pp. 94-97.
[6] Bluestone and Harrison, op. cit. pp. 245-247.
[7] David Birch’s database in subsequent years came under rather severe attack and Birch, himself, abandoned it in favor of other databases and firm definitions. Indeed, the was to eventually abandon his early 1979 finding that small firms create the most new jobs in favor of a position that the “youngest” firms create new jobs. The difference was attributed to a more refined database and more sophisticated definitions and categorization.
[8] In no way do we wish to slight innumerable fine works which appeared and which were important both to the development and evolution of critical literature and which may well have pioneered significant conceptual advances as well as prompted notable subsequent contributions to their fields. The works we have selected are, in our opinion, those which captured a larger media audience and whose impact on a larger non academic audience was most pronounced. That our selected authors’ contributions rest on the shoulders of other is both obvious and noted here.
[9] David L. Birch, The Job Generation Process (Cambridge Mass, MIT Program on Neighborhood and Regional Change, 1979).
[10] Lester Thurow, The Zero-Sum Society (New York, Basic Books, 1980)
[11] Michael Porter, “How Competitive Forces Shape Strategy” Harvard Business Review, March-April 1979 and Competitive Strategy (New York, Free Press, 1980) voted as the ninth most influential management book of the twentieth century by Academy of Management.
[12] Paul Peterson, City Limits (Chicago, University of Chicago Press, 1981). Peterson applies Bluestone and Harrison to urban politics in a path-breaking departure from previous urban political tomes and which would spawn new literatures throughout the eighties.
[13] Peter Drucker, who, as a child, knew Schumpeter personally, wrote innumerable books over a sixty-nine year publishing career. He was equally noted as a consultant to many Fortune 500 corporations. He coined the expression “the knowledge worker” in a 1959 book, was a pioneer in the concept of “outsourcing”, the originator of management by objectives, and a major advocate of the non-profit sector and pioneer in non-profit management.
[14] George Gilder, Wealth and Poverty (New York, Basic Books, 1981)
[15] Stuart Butler, Enterprise Zones: Pioneering in the Inner City (Washington DC, the Heritage Foundation, 1980)
[16] For those who would taste the differences unleashed by perspectives and methodologies characteristic of the two sets of disciplines we urge a back to back reading of John McDonald, Urban America: Growth, Crisis, and Rebirth (Armonk, New York, M.E. Sharpe, 2008), and Jon C. Teaford, The Rough Road to Renaissance: Urban Revitalization in America, 1940-1984 (Baltimore, Johns Hopkins University Press, 1990). One is not at all sure one is reading about the same period of time. The disciplinal approach to economic development certainly has its strengths, but also considerable limitations. Cross disciplinal research does add depth and contrasting perspective to one’s understanding.
Ron W. Coan 