The “New” Cause: The “Old” South Will Rise Again
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. There were a lot of moving parts (demographic shifts, cultural shifts (Old South-New South), industry sector shifts (especially rise of technology), deindustrialization and shift to service sector economy, impacts of global trade and investment (FDI), war and military spending). 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.
The Minimum Wage Struggle Revisited
As related in the previous chapter, Roosevelt had launched, using the new-found powers of the New Deal federal government, a strategy of southern economic development which directly attacked a key pillar of traditional southern-style Privatist economic development: a low wage labor force. By closing the gap between southern wage rates and those in the North, the minimum wage was perceived by many southerners as nothing more than another northern initiative designed to take away the one regional competitive advantage the South had.
Intended or not, federal minimum wage legislation was a direct assault on the southern strategy for reversing regional hegemony. Reaction and opposition from the traditional southern establishment was very much predictable–and powerful given the South’s critical position in the Democratic Party’s electoral coalition and in Congress through its disproportionate control over key committees controlled by Southern committee chairs, Majority Leaders and Speakers of the House. As Truman picked up FDR’s minimum wage initiative he quickly ran into a brick wall put in place not only by his partisan enemy the Republicans, but by members of his own party and electoral coalition.
To be sure the wage disparity between North and South had diminished considerably during the war years.[1] The arrival of Truman did little to change federal policy and the campaign against “substandard” wages continued at the NWLB. In addition the newly created National Wage Stabilization Board (NWSB) established southern regional Wage Stabilization Boards which over the next years prosecuted a great number of cases to reverse southern company wage practices and standards. Wages in the controversial textile and garment industries were raised to $.65 during this period.[2] The Republican victory in the 1946 Congressional elections, however, took away much of the early minimum wage momentum . The Republicans placed conservative leaders as committee chairs and southern democrats quickly joined with them to put the brakes on the Truman administration’s minimum wage policy and defeated any changes to it over the next two years. Yet, when the Democrats recaptured Congress in 1948, the minimum wage struggle resumed.
Times do change, however, and during the fifties sizeable blocks of southern manufacturers ceased their opposition to the national minimum wage–even the textile industry endorsed it by 1955. The newer manufacturing plants brought about by the war year industry relocations neither required cheap labor to achieve profitability, nor particularly wanted it because their production was based on machinery and equipment operated by skilled workers–“during the war decade, much new capital intensive industries with skilled labor requirements arrived in Dixie”[3]. By the end of the forties, the struggle between the regions over minimum wage was tapering off, in large measure because the war years injected high wage industrialization in many parts of the South–and industrial machinery/ productivity enhancements transformed the more traditional elements of southern manufacturing.
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.[4]
Right to Work: Business Climate Change
Right to work legislation originated as an offshoot of the minimum wage war and an expression of the Southern traditionalist, Privatist culture. The inspiration behind these laws, especially for some southern states more than others, was an amalgam of culture, anti-union, pro-business, anti-racial, anti-federal government with a dash of anti-communism tossed in for good measure. From the Curmudgeon’s perspective the motivation behind right to work laws is less economic than cultural, social and political. The roots of support for this legislation lie much deeper than simple micro economic cost efficiencies and business climate advantage. In many ways, the approval of right to work laws can be considered as not only compatible with, or an expression of a Privatist culture, but its personification.
Right to work laws, in their early years were certainly a characteristic expression of Privatist economic development. The coalition responsible for their passage was atypical from the usual coalitions which in this period promoted such economic development initiatives as the IDB, urban renewal, TIF and the like. However, even if they are not “pure” economic development initiatives, they have become an integral element of business development, attraction and recruitment, and business climate strategies that they cannot escape our history of economic development.
For those living under a rock for the last seventy years, right to work laws prohibit union security agreements. A union security agreement, originally recognized by the NLRB, which was created upon passage of the 1935 New Deal Wagner Act, is a collective bargaining agreement between employers and labor unions that require all workers covered by the contract to be a member of the union before being hired by the company. Such agreements usually require the employer to collect union dues from the worker through deduction from his/her paycheck. Right to work legislation prohibits these union security agreements and usually has the effect of seriously weakening the effectiveness of a union and willingness to join a union. The prohibition of a union security agreement obviously permits “free riders”, i.e. workers who effectively enjoy the benefits obtained by a union without being a member of a union.
While much is made concerning the anti-racial inspiration for right to work legislation[5], the most consistent thread in its earliest years arguably was aggressive anti-unionism. The aforementioned wartime location of defense industries during the forties brought with it compulsory unionism as well as manufacturing jobs. The NLRB and NWSB required union contracts and membership in these firms and although less of an issue in the North, NLRB/NWSB compelled unionism became a major issue in some Southern states. Union activity spread in the South and union membership, especially in Texas, with a large defense industry, triggered an intense fear of unionism. At that time the minimum wage war was still in full blossom and so-called “right to work” legislation seemed to be another form of resistance on the part of the traditional Southern economy and firms to New Deal intrusions.
The first manifestation of right to work commenced in 1943 Florida. By 1944 both Florida and Arkansas had passed constitutional amendments prohibiting union security agreements and they accordingly had become the first two “right to work” states. The reality, however, was these two constitutional amendments conflicted with federal law and their legality was always in considerable doubt. Texas, apparently, was also an early right to work hotbed. There it became laced with anti-racial as well as anti union initiatives by Vance Muse and his Christian American Association. The Texas House of Representatives approved right to work legislation in 1945 but the legislation was subsequently defeated in the State Senate.
In the spring of 1947, however, the dam burst and eleven additional states (Arizona, Texas, Georgia, Iowa, Nebraska, New Hampshire, North Carolina, North Dakota, South Dakota, Tennessee, and Virginia) approved right to work legislation. The inspiration for this steroidal diffusion apparently was the expected passage of the Taft-Hartley law by the soon-to-be-seated 948 Republican-led Congress. There is some disagreement as to whether these early state approvals were the tail or the dog for the inclusion of section 14b into the Taft-Hartley law–the answer for us is of little importance. The 1948 Congress filed legislation, now known as the Taft-Hartley law and that was the critical action. Section 14b of the Taft-Hartley legislation permits a state to pass legislation eliminating the union shop and the union security agreements, thereby permitting states to become so-called right to work states.
By the end of 1947, thirteen states (in 2013 there are twenty-four) were right to work states. In 1953 and 1954, Alabama and Mississippi/South Carolina respectively became right to work thereby creating a “solid south” right to work region. In addition, Nevada (1951), Utah (1955) Kansas (1958), Wyoming (1963), Idaho (1986), Oklahoma (2001) and Indiana (2012), and Michigan (2013) have passed right to work legislation. No state has repealed its right to work legislation at the time of writing. Despite its southern and Taft-Hartley roots, right to work has become national in scope and has integrated itself into the fabric of contemporary economic development practice and strategy.
In his “The Selling of the South” Cobb comments that “Southern development officials lost no time in incorporating their right to work statutes into their promotional arsenals”. He is also quick to suggest that the actual effects of right to work on both southern industrialization and retarding union membership were minimal, or at least not measurable–despite the equally stubborn reality that southern economic developers really believed they did have a positive effect in their attraction efforts. That has been the fate of evaluative research ever since. It is not hard to find examples of definitive and well constructed studies which prove either side. As such, if wage rates and union membership levels are not hugely affected by right to work laws, it does suggest that to the extent these laws are a valuable plank in a business attraction program, they signify to mobile firms the presence of other factors desirable from the firm’s point of view. Cobb concludes, with some logic, that right to work “sent an unsubtle but at least not bluntly specific message to new industry that the state in question offered a climate in which unionization of a new plant, if not impossible, was unlikely.[6] If so, right to work was a simple but effective indicator to mobile firms of the state’s position on unionism.
Research into the effects of right to work on union membership, wage levels, job creation and the like is very controversial, often partisan and unfortunately tends to vary and be quite sensitive to methodologies of measurement. True believers abound, and if the reader is a true believer, he or she should be comfortable knowing the Curmudgeon is off on his couch having a bourbon. What is more obvious to the Curmudgeon, however, is that right to work legislation is a formidable plank in a state’s contemporary business climate–and this raises the issue as to whether right to work is the first post-war shot in the business climate wars.
At this point our discussion transitions away from right to work into a conversation concerning state business climate. It seems to the Curmudgeon that thus far in our history, without any conscious intention, we have discovered that (1) the various economic development tools discussed thus far (eminent domain, attraction-promotion, bond-financing and loans) have tended to affect the margins[7] while (2) business climate elements (tax abatement, permissive regulation, perhaps arguably boosterism, now right to work) seem to exhibit more impact on growth and decline of our communities. The South’s low wage advantage over the North and its low tax advantage as well[8], were much less a conscious economic development policy or program, than the actual reflection of underdevelopment and a Privatist culture and government. Perhaps it can be said that business climate is composed of at least two elements: (1) a conscious policy initiative to affect private and demographic activity resulting in some form of economic development, and (2) a largely unplanned reflection of the economic, demographic-social and cultural realities of the jurisdiction.
That “unplanned” business climate lemons were converted into economic development lemonade by economic development promotional programs confused the reality that the active and passive elements of a state (or region’s) composite business climate created opportunities and disadvantages for both private industry and existing or potential residents. The absence of Jim Crow laws/lynching and the possibility of jobs in growing economic sectors, after all, motivated much of the Great Migrations people-movement. The textile wars and the federal minimum wage, one could argue, are primarily business climate-related. The underlying silent, but powerful and compelling, business climate reality, however, became obscured as attention focused on the relatively marginal, but in-your-face economic development programs and strategies. Right to work laws were clearly active and conscious initiatives with serious economic development implications—but, in our opinion, their real strength is they reflected the underlying realities of a state’s social and political culture and its Privatist, limited government bent. That right to work laws affect, or do not affect, profitability of a firm directly misses much of how business climate affects economic development.
That Progressive and Privatist business climates do not “like” each other and compete with each other is natural. In a very real sense, this is what Federalism is all about—choice, experimentation, lifestyle and living with folks that share one’s values. That each of our two ships will attach moral and economic superiority to their business climate is also probably natural, but can easily become very dysfunctional, needlessly polarizing, and very, very political. It may well be that the unappreciated effect of divergent and competing business climates is a major factor in the politicalization of economic development.
Tax Abatement: How an Unplanned Business Climate Reality Becomes Conscious Policy
Initially, the reader should understand that neither the South nor any state in the South invented tax abatement as a tool of economic development. The Curmudgeon firmly “believes” that somewhere in each and every state tax code is a loophole-exemption which firms can derive profit and from which could to some degree influence firm-population location. Northern states and cities in the nineteenth and twentieth century offered tax abatement to private firms. Tax abatement may be the oldest trick (excuse me tool) in economic development. Low taxes, it should be understood, is not tax abatement, however. The South previous to the Second World War was a low tax business climate—that reflected its agricultural economy and Privatist culture. Southern jurisdictions like their Northern counterparts offered and used specific tax abatements and certainly by the 1920’s advertised them to encourage firm relocation. But after the Second World War, tax abatement became an advertised, pervasive cornerstone of southern business climate promotion initiatives.
While no doubt as innocent as a wolf in sheep’s clothing, the non-southern states were, however, taken aback by the systematic packaging of tax abatements, cost reductions, and promotional materials shoved in front of their resident firm’s by many a state in the South. Cobb states that “By the mid-1960’s five of the seven most active exemptors of taxes were in the South”. Interestingly, the other two states were Vermont and Rhode Island.[9] Alabama, Mississippi and Louisiana led the way by offering ten-year exemptions on both state and local taxes. South Carolina and Kentucky followed with five-year moratoriums.”[10] Cobb also adds (as a kind of benchmark) that a 1960 study of locations in four states (Kentucky, Indiana, Ohio and Tennessee) reveal almost microscopic variance in the effects of taxes on a firm’s location decision[11].
Intensive state and local (property) tax abatement appears to have been an integral aspect of the Mississippi-IBD model although over the years Alabama emphasized it more than Mississippi[12]. As Cobb discusses in plenty of detail, property tax abatement was controversial at the time and its “efficiency”, more precisely its effectiveness, were seriously questioned. It had to be conceded that a state and municipality, if successful in attracting a firm to their community, were surrendering a major benefit of having the firm located in the community. Abated tax dollars, after all, could have been used to provide expanded services for both the general public and for industry as well. It is equally clear that the chief, perhaps exclusive, beneficiary of tax abatement is the firm itself and the case that the firm either “needs” the abatement to compete or to make the decision to locate one place versus another has always been difficult to prove at best. Tax abatement, however “effective-necessary to attraction it may or may not be, is messy, illogical, clumsy and divisive by nature—as is eminent domain.
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”[13] 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[14]. 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?
Several aspects of industrial tax abatement during this period deserve some mention. First, is South Carolina. South Carolina (and North Carolina as well) is a notable exception to the Mississippi-IDB model. South Carolina did not even authorize IDBs until 1983 and did so in the form of a state-level Oklahoma-type Jobs Development Authority. It did abate taxes aggressively and as we shall see in the next section, lead in an aggressive industrial promotion program. This is simply further support that states vary in their use of economic development tools and strategies as they pursue their own approach to economic development presumably congruent with their culture and stories. Some of these variations can be traced to economics and demography, some to history and culture. This example of the Carolinas exposes the reality that as early as these years, we need to be careful in painting states and regions with a very broad brush. The BAWI label was attached to the entire South. The problem is that much understanding of the roots and the distinctions among communities is lost in the process. Each state develops its own “style”, creating in the process its own individual state-sub-state system (SSS).
The States React: Industrial Promotion and Tool Diffusion—an Arrow for Every Quiver
An old and familiar economic development tool, taken to a new level by southern states during this period, was economic development promotion. Like tax abatement, promotional activities had been around for a very long time in American economic development. Indeed, an entire period of American urban history has been saddled with the label “boosterism”. Boosterism includes a variety of activities, but promotion is certainly one of them. Also, Chambers of commerce have been stereotyped (accurately) for over a century as purveyors of unabashed community wonderfulness—the be all and end all for non-resident firms and industries. That’s got to mean promotion as well. But economic development promotion was raised to new levels in the postwar South.
One aspect about studying municipal promotion is that if it existed at all, and if promotion had any success, it probably left some sort of a record in the historical record. This being the case, it may be no surprise that the best example of municipal level economic development promotion is Atlanta Georgia. Advertising and promotion seems to have been in Atlanta’s DNA. As early as the 1880’s “a spate of advertising brochures poured from Atlanta, and many other (southern) towns and cities followed suit (Richmond, VA for example)”.[15] Atlanta in 1880 possessed only 37,000+ residents and had just for the first time surpassed Savannah (32,000) as Georgia’s largest city. But attracting the outside world to Atlanta just came naturally in sharp contrast to most municipalities.
By 1886 Atlanta was being described by a Massachusetts newspaper as ‘one of the best advertised cities in the United States. In 1890 another newspaper in its old rival, Richmond, directly equated Atlanta’s growth with its ‘determination to leave no opportunity underutilized to advertise the advantages which it has to offer’.[16]
Apparently, this tradition continued over the next thirty years as a southern commentator in the 1920’s proclaimed “There is no God but Advertising and Atlanta is his prophet”[17]. So it would be no surprise that in 1924 the Atlanta Chamber of Commerce established an industrial bureau whose purpose was to work to bring new industry to Atlanta. Fearing competition from Florida, Atlanta within a year redoubled its commitment to advertising and attraction and in 1928 they established “the most aggressive city marketing machine ever created up to that time, the Forward Atlanta Commission”.[18]
Yet this bold initiative was fully supported locally with a major fund-raising drive. The biggest subscribers were the City itself and Georgia Power … next came the banks … Fulton County … Locally based Coca-Cola (and over 10,000 smaller subscribers as well) … By the end of 1929 over $500,000 had been spent on advertising on a wide range of magazines and trade papers, together with newspapers in New York, Chicago, Detroit, Cleveland, Boston, Miami and Greenville, South Carolina.[19]
Atlanta became the benchmark and the model for southern communities to launch their municipal promotion campaigns. But in the postwar South, Atlanta would also serve as the model for yet another entrant into the southern industrial promotion game: state government.
Early economic development promotion was the prodigy of our municipalities and their leading businessmen. This began to change in the South of the 1920’s. The change was that states assumed a role, which after the Second World War transformed into a leadership role in economic development promotion. In so doing, states entered in a very serious way the world of economic development. States previously had played a leadership role in economic development but contemporary economic developers can’t see it today—because it is hidden in plain sight. States had been active in dealing with agriculture for as much as a half a century previous to 1945. Agriculture in a predominately agricultural economy is economic development. But agriculture is not urban (except in 2013 when bankrupt Detroit is urged to promote “urban” farming). So agriculture was never really included into economic development[20]. Still, in some states the earliest economic development-related staff and activities (usually promotional) were located in state departments of agriculture or in the West, departments of mining.
Also often located in departments of agriculture, but usually set apart in a division of its own was tourism. Tourism most was promotional by nature and therefore suggests the states had already accumulated more experience in promotion than is commonly given credited to them. States, however, until the 1920’s had not, for the most part, established department level agencies devoted substantially to activities of an “urban” economic development nature. Cobb traces the first state-level EDO to Alabama in 1923 (Alabama’s Department of Commerce and Industries).[21] The real life reality is that most of these early EDO prototypes were embryonic, sometimes single industry dominated (agriculture, mining, tourism), and creatures of dominant interest groups such as the railroads[22]. Economic development at the state level previous to World War II, with a couple of exceptions, was a fairly spotty, usually backwater bureaucracy often built into, and dominated by, other functional and industry-related departments and bureaus. We saw in an earlier chapter that Massachusetts in 1928 created its first state-level EDO in response to early textile industry deindustrialization. Its principal activities were promotional—although promotion in Massachusetts’ case was as much aimed at domestic than external audiences. Also, promotion assumed more of a raising awareness “we’re over here, look at us—you’ll like us” message than a hard-sell recruitment theme. States across the nation, in short, had previous to World War II and even World War I put their toe into economic development.
Still, the South in the 1920’s seemed to have empowered more than its far share of state EDOs. Southern state-level EDOs unlike other state EDOs at the time were typically aggressive promoters of industrial recruitment–not tangentially, engaged in promotion of the state to outsiders (such as Massachusetts). Moreover, Southern state-level EDOs were often key instruments of gubernatorial policy agendas. After Alabama, Florida (1925-Bureau of Immigration) next entered the fray; its state EDO was charged with attracting both tourists and industry; South Carolina and Virginia followed suit in the same year and North Carolina (Department of Conservation and Development) was organized in 1927. In 1927, Alabama reorganized its state program, creating a single purpose Industrial Development Board charged with attraction of industry. All this, we remind the reader, is a decade previous to Mississippi’s BAWI (and thirty years previous to IDB diffusion). The South, as a region, had embarked on a policy to build a manufacturing base and to close the gap with the industrial North. State-level promotion was a key component of the region’s industrial policy. We suspect that these promotion-recruitment programs were the inspiration for the formation of the U.S. Chamber-led American Industrial Development Council in 1925.
During the New Deal period state EDOs became linked into a nation-wide network of state planning entities inspired by Ickes (FDR’s Secretary of the Interior). The planning network, however, had mostly dissipated by 1945, but left in its residue a number of state EDOs which post 1945 could be identified today as economic development agencies. Almost all these entities had ‘Development” in their formal title. Cobb asserts that most postwar southern development boards were quasi-EDO type structures whose boards of ex officio and private sector members were appointed by the governor. These were the southern state EDOs which assumed leadership in the promotion of the state to firms in other states in the postwar era.
The immediate post-World War II economic and business environment was characterized by a great deal of both flux and delayed modernization. The transition from a war-time to peace-time economy alone would have been sufficient to set in motion what today we would call right-sizing, innovation, productivity enhancements and cost adjustments. Market demand, rationed for four years and pent up for a decade by the Great Depression, was volatile. The logistics-transportation industries, in particular, had been especially transformed during the past decade; manufacturing was not far behind. Old facilities and equipment were just plain obsolete; old market-demands had shifted, and a raft of new ones created. There had been a revolution in transportation technologies. The offshoot of all this flux and modernization was that decisions involving firm location became commonplace and existing community infrastructure could not accommodate new transportation modes; perhaps surprisingly, water and air pollution made many American cities very similar to our present day image of Chinese cities. This was the economic background surrounding southern economic development promotional initiatives. The timing could not have been better.
Business relocations were not prompted by the Southern state attraction programs (or by suburban marketing). Once again, however, the underlying dynamics became lost in media coverage, popular reaction and political platforms. Southern states competed aggressively and innovatively, and, given the IDB, tax abatement and industrial park/relocation assistance programs to which non-southern states imperfectly countered. Southern states probably won more (or were perceived to have won more) than their fair share of business location decisions–at least in certain low wage industries, but also in manufacturing (automobiles noticeably) and basic materials. The 1950’s interregional competition got up close and personal, and a bit nasty, with states downplaying by name the so-called advantages of other states. Increasingly through direct mail, hired agents, and “trade missions” southern states invaded the North physically–competing in an “in your face”, “on your turf” manner. This was new stuff and the reaction of Northern communities was predictable. The IDB, we repeat, captured the anxiety generated from watching business relocate from its customary central city location in search of new facilities and new geographies to accommodate consumer market demands.
By the 1960’s Cobb suggests that the initial recruitment/promotion programs had crystallized into professional, multi-faceted, hard hitting attraction initiatives and had morphed into a full-fledged state economic development strategy. We would offer that northern states responded by developing their own professional attraction programs, but also by commencing a counter-attraction, business retention program as well. This business attraction-business retention (attack-defend) mentality evolved and institutionalized itself to the point that for most community economic developers today these programs are the rock solid cornerstone of a typical community economic development strategy. Essentially, the reader should instinctively recognize that as we describe the southern promotional invasion of the North, that there was a meaningful, largely simultaneous, counter-reaction and a significant prod to the development and institutionalization of Northern economic development. Economic development was moving up the policy agenda ladder. The higher a policy goes up that ladder, the more media and political attention it attracts.
An interesting observation is that many economic development tools in use at that time (i.e. lending, tax abatement, industrial parks, and bond issuance.) could be used for both strategies (attraction-retention). In this atmosphere, resident firms felt that too much was being offered to outsiders, a tension became evident (often reflected in discussion within Chambers). The tension could be partially mitigated by countering with an aggressive business retention program. At this point in time, EDOs did not have to specialize; combining attraction and retention programs into one EDO seemed natural and acceptable. The increased focus on economic development, the use of economic development tools that required monetary and legal resources (financing and infrastructure stand out), stressed what had been the primary community-level EDO: the Chamber of Commerce. Government involvement in economic development was needed to meet the new demands of the postwar era. It is at this time we see an incremental transition from Chambers to governmental EDOs. The quasi-EDO, combining as it does private governance and public powers was at the vortex of this transition.
Operating pretty much on a parallel track with their state EDOs, southern municipalities launched their own recruitment-attraction efforts with their development corporations and ironically chambers of commerce (committees of one hundred-a less formal alternative to a chamber were also used) in the lead. Communities of all sizes, especially small and rural communities were participants in these economic development initiatives. One study of the thirteen states of the South identified nearly 1900 communities with at least ONE economic development organization. Chambers were far and away the most common (and prominent), but 450 communities were identified with local governmental development corporations in existence. Cobb states that “Not surprisingly, larger cities and metropolitan areas did most of the corporate advertising for specific locations for industries within a state.[23]
It is worth noting that meaningful variations among the southern states were evident in this study of southern EDOs. The data, admittedly not normalized, suggest that (1) Virginia, Louisiana and Mississippi had fewer municipal level corporations evident (i.e. state government was the preferred governmental EDO); (2) Alabama, Texas, Oklahoma, Florida, Louisiana. Mississippi, South Carolina and Kentucky relied almost entirely on chambers of commerce not local development corporations; (3) and that Arkansas, North Carolina and Virginia exhibited the highest rates of local development corporation use.[24] Once again broad-brush descriptions can obscure interesting variations in state intensity and SSS configurations. We can also observe the South, a Privatist bastion, was adjusting and responding to the postwar environment in a differential fashion—not a uniform, lock-stepped, knee-jerk adjustment, but a flexible and variable manner suggesting that there is no such thing as a “southern SSS” and that economic development change was being filtered through individual state (and local) political cultures, processes, and politics. We might add that a similar set of comments can be made concerning the simultaneous northern reaction to the changing economic development environment.
The numerical predominance of chambers suggests that in this period in the South, chambers were the dominant players in municipal-level economic development.[25] Just how the sub-state EDOs interrelated with the state EDO would no doubt vary by the state/municipality and with each particular recruitment prospect. Cobb does not suggest that conflict and non cooperation between the parties was a significant issue. On the contrary his descriptions seem to indicate that while each level pursued its own initiatives more or less independently, when a prospect came into town cooperation was the norm. Turf and level of government issues do not seem to have been especially characteristic of this period–although we suspect that beneath the surface tension, jealousy and rivalry on occasion manifested itself. The northern chamber-governmental environment, being less Privatist, was more complicated, especially in that many large northern cities were, if not dominated, heavily impacted by ethnic machines. The South with massively fewer ethnics and immigrants—and smaller second and third tier cities—appears more cohesive and possessed a more “solid” consensus regarding economic development policy than found in most northern (large city especially) jurisdictions.
So, as supported by Cobb throughout the sixties southern attraction budgets increased and recruitment techniques moved from the amateurish to the sophisticated, professional level (rifled targeting often based on sector analysis, case management, customized marketing and incentive offers, and direct business to business recruitment). Media placements were an important attraction tool of these southern states. In 1964, a report of corporate advertising by thirty-one states found that southern states advertising expenditures were 170% of the national average, and that six southern states were in the top ten (Florida, Mississippi, Arkansas, North Carolina, Kentucky, and Tennessee) and all southern states that reported were in the top thirteen.[26] The use of entities similar to today’s site selectors, for instance Fantas, was also very common.
We cannot ignore that a very important innovation used by many southern states was to bring in the state governor directly into the attraction campaign. This seemingly was not difficult to accomplish–because it appears many southern governors saw business attraction as a quite useful, even necessary, plank in their election platform and seem very sensitive to the popularity a successful firm relocation (i.e. “industrial prospecting” it was called at the time) could achieve. Also, working together in the newly-formed Southern Governor’s Conference, southern governors coordinated joint activities to remove “impediments” to manufacturing relocation into the South. The South, minus General Lee and Stonewall Jackson, was indeed invading the North.
The South Forms its own economic development identity.
In 1946, what claims to be the “oldest and largest regional economic development association in North America”[27] was born. The Southern Economic Development Council (today with members in seventeen states) started more or less informally, led by W. Porter Grace of the Industrial Department of the Memphis Chamber of Commerce, as the Southern Industrial Development Council. Meeting each year subsequently, the organization grew in size and ambition, and, at Fort Worth in 1951, an invitation to attend was “extended to all practitioners of industrial development in the southern region and the Council were officially incorporated and W. Porter Grace become is first elected president. By 1958 the Council had nearly 200 members.
In 1961, the University of Oklahoma at Norman was approved as the site of its “Institute” and a three week course of “instruction in industrial development” commenced. That Institute was taken over by the AEDC (at that time the American Industrial Development Council. In 1981 the Southern Economic Development Council assumed independent operation headquartered in Atlanta (where it remains today–with a short digression to Austin, Texas). SEDC in 2013 claims over 1000 members from 30 states and territories. In that the SEDC now includes members from thirty states we must assume either the South is sending undercover agents to other non-Southern states for what purposes we can only guess, or the SEDC has evolved into a more non-Northern motif.
[1] “Southern per capita income improved from a pitiful 59% of the national average in 1940 to 69% at the close of hostilities….Federal policy all but eradicated the geographic differentials in the traditional southern industries that had previously relied on abundant cheap labor.” Schulman, op. cit. p. 85.
[2] Schulman, op. cit. p. 86.
[3] Schulman, op. cit. p. 87.
[4] Schulman, op. cit. p. 87.
[5] See for instance, Marc Dixon, “Limiting Labor: Business Political Mobilization and Union Setback in the States”, The Journal of Policy History, Volume 19, Number 3, 2007 and Chris Kromm, Institute for Southern Studies, “The racist roots of ‘right to work’ laws”, 12/31/2012
[6] Cobb, op. cit. pp. 101-102.
[7] The exception to this is infrastructure (and arguably eminent domain) which has clearly impacted growth and decline although there can be considerable time lags in realizing its impact. The City Efficient and the City Beautiful movements at their core are infrastructure, broadly defined, dominated. City Building and Neighborhood-Recreation also have large doses of infrastructure—and in their own style, boosterism as core elements.
[8]The most likely competitor to right to work as the first major element of business climate is taxes. The Tax Foundation is certainly the most respected entity engaged in the measurement of taxes and their effect on state business climate. It began its reporting in 1937 and its current database measures taxes and business climate from 1977 to the present. There can be little doubt, however, that right to work quickly in the 1940’s and 50’s worked itself into state and local business attraction calculus (and collateral materials) and has been a cornerstone of that strategy for over sixty years.
[9] William E. Morgan and Merlin M. Hackbart, “An Analysis of State and Local Industrial Tax Exemption Programs,” Southern Economic Journal, XLI (October, 1974), pp. 200-205
[10] Cobb, op. cit., p. 48.
[11] As late as 1974, a study by Morgan and Hackbart based on the seven states which at the time pursued intensive state and local property tax abatement as a strategy of industrial recruitment, reconfirmed that five of the seven states were those identified earlier by Cobb–(Alabama, Mississippi, Louisiana, Kentucky, and South Carolina) still embraced tax abatement as a core economic tool.
[12] Cobb, op. cit., pp 49-50
[13] 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.
[14] 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.
[15] Stephen V. Ward, Selling Places: The Marketing and Promotion of Towns and Cities 1850-2000 (New York, Routledge, 1998) p. 157.
[16] IBID, p. 157.
[17]G. B. Tindall, “Business Progressivism: Southern politics in the twenties”, The Southern Atlantic Quarterly, LXII, No. 1, pp. 92-106.
[18] Stephen V. Ward, Selling Places, op. cit. p.158.
[19] IBID. op. cit. p. 158
[20] Today agriculture still has a very tenuous place in economic development. Mostly it is “relegated” to a sub-area such as rural economic development. Amazingly, America’s number one export has been agricultural produce and export and export promotion has been an important economic development strategy. Economic developers, however ignore agricultural products and concentrate almost exclusively on manufacturing, technology and sometimes services. Maybe the rise of urban farming in legacy cities may allow us to integrate agriculture into economic development?
[21] Cobb, op. cit., p.64.
[22] The Curmudgeon has tried to trace with uneven success the trail which led to the formation of clearly identified and empowered state EDOs. The internet is not especially helpful and the few histories that include bureaucracies provide insufficient detail . State bureaucracy at a time and age of limited government when such bureaucracies were small and largely operated behind the scenes. The path backward to today’s state EDOs becomes clear only in the post-World War II period. Most state EDOs started as single programs in divisions scattered throughout the state bureaucratic system. Normally as a program or tool was authorized, it was entrusted to some existing department and by 1960 many states had a number of divisional and office-level EDOs in different departments. Consolidation would occur in this period and throughout the 20th century–to the present day.
[23] Cobb, op. cit., p. 94-95.
[24] H. McKinley Conway, Area Development Organizations (Atlanta, Conway Research, 1966) cited in Cobb, op, cit., and p. 83. Cobb believes that the data demonstrated that Arkansas may have had the most “plant hungry” communities than any other southern state (p. 82).
[25] We are unable to differentiate between municipal or county level development corporations and so this data may be best described as sub-state rather than municipal. Cobb, in any case, labels it municipal.
[26] “Corporate Advertising Picture of the 50 States Development Programs” Public Relations Journal, XX, (October, 1964), p.28 as cited in Cobb, op. cit, p. 91.
[27] www.sedc.org/. We have earlier related the tale of the New England Council formed in the late twenties. The two do exhibit some similarities but each has traveled down its own road. No doubt, the close relationship between SEDC and AEDC provide considerable extra economic development professional content that its New England counterpart has not. SEDC’s activity seem more visible. Still, we wonder if SEDC’s claim to be the oldest regional EDO is valid. Frankly, we think not.
Ron W. Coan 