SOUTHERN-FRIED ECONOMIC DEVELOPMENT
Economic development policy and strategies were formulated and implemented within this “southern context.” The outputs that resulted, not surprisingly, were uneven and often at cross-purposes. Planters wanted to preserve as much of the “Old South” as they could—and they did this through Jim Crow laws and a “Solid (one-party) South” that forged a reasonably closed set of sub-state policy systems. Post-Civil War economic growth/industrialization was trapped in a Sargasso Sea of a planter-dominated state and local policy systems. A meaningful shift to New South reformers did not happen until after 1900. That the southern economy industrialized through investment of northern/ foreign investment generated mixed feelings about the direction of change, and frustration as to how southern governance could “manage” that investment. What all this would end up producing was, by 1930, the poorest region in the nation. And then the Depression hit! Despite its urbanization, vastly improved transportation infrastructure and encouraging growth in industrial production, the South could not break free from its core agricultural-export economic base, with a semi-enslaved, low-wage, low-skilled workforce removed from the political process. It would take the Great Migration/Civil Rights Movement many decades to remove those burdens.
Unlike the North, with a mix of Progressive-leaning political cultures and an economics and politics of growth, the South countered with Privatist solutions that overall produced growth that could not achieve sufficient momentum to break the chains of the agricultural-export/low-wage/skill workforce nexus. Whatever growth it generated was tainted, largely controlled by external forces—and much of its profits went north. But, as we shall see, where that semi-feudal nexus was weakest, change was possible. Northern investment created new cities like Atlanta and Miami, and even Birmingham, which would become the foundations of a future New South. It was, however, on the region’s peripheries that the nexus was weakest: the new cities that developed in Texas were not Old South in culture or economics, but Privatist to their core. Their explosive growth, based on the serendipitous discovery of a transformative energy agglomeration, was a marked departure from the cities and the ED generated by our “southern-fried ED” that characterized most policy systems in the Old South.
Reconstruction
Whatever scars and changes the short-lived Reconstruction inflicted on the South, what is surprising is how much of the pre-Civil War South continued into the post-Civil War South. Gone with the Wind’s opening narrative—“Look for it only in books, for it is no more than a dream remembered, a civilization gone with the wind”—was vastly overstated. Politics, structures and cultures don’t turn on a dime. The North, having won the war, moved on; the South, having lost it, didn’t. Southerners often perceived themselves as a conquered nation and a colony of the North. There was sufficient reality to both to justify defensiveness and a determination to preserve their way of life. It didn’t help that the North was not especially forgiving. So the Civil War left an overlay on southern policy evolution that statistics cannot convey—a factor critical to an understanding of southern economic development.
At its max, Reconstruction lasted only a decade, and for most states less than that. In 1876, the year Reconstruction ended, only three states (of 13) had not already regained constitutional sovereignty and state/local political autonomy.4 Whatever else its deficiencies, Reconstruction was not as transformative as often thought 5—it was too short to change patterns developed over hundreds of years. The Southern planter, like Scarlett O’Hara, rebuilt the plantation system. Sharecroppers replaced slaves, cotton was still king, the rural agricultural-export economy came back to life—and the planter Redeemer returned to politics and municipal policy-making. Still, Reconstruction did leave a couple of legacies that affected post-Civil War economic development.
Physical destruction of southern railroads, cities and plantations was considerable. Incredible war casualties and the loss of two generations impacted the post-Civil War southern labor force in ways lost to us in the twenty-first century. Infrastructure and cities, never the South’s strong point, were ripped up and burned down. While several cities (Richmond, for example) did increase in population (black/white refugees), the South needed rebuilding. Reconstruction policy systems, carpetbaggers and former slaves/black voters created a hated but distinctive set of policy systems throughout the South. Traditional Jeffersonian planter antipathy to taxes and active government was replaced by Reconstruction-era policy systems that tackled urban/industry rebuilding— with decidedly mixed motives that included greed and corruption as well as economic development. Reconstruction policy systems did not share planter reluctance to industrialize; on the contrary, they assumed it to be a first order priority. As in the North, the issue was how—and who—should install critical transportation infrastructure necessary for an industrial economy. Resulting aggressive ED, tinged with corruption and colonization, compels us to revisit discussions concerning hybrid EDOs and the infamous constitutional gift and loan clauses.
Second Phase Gift and Loans
As argued in Chapter 3, the 1840s’ gift and loan clauses involved canals and railroads in the North, and the chartering of state banks and farm and plantation lending rather than transportation charters.6 Railroad corporate charters continued through the war. Reconstruction policy systems enacted new constitutions that included public support for railroads (Summers, 1998).
Every Reconstruction constitution permitted direct subsidies to railroads and other private entities; most authorized the loan of state credits for corporate stockholders … [while permitting general aid to railroads, some like] Arkansas banned special acts of aid and incorporation … Alabama required two-thirds vote … and North Carolina required that new debts be covered by taxes or state bonds. (Tarr, 1998, p. 113)
A burst of railroad infrastructure development financed with state credit lending and loans followed. This proved unfortunate in that: (1) the Panic of 1873 prompted bankruptcies; and (2) Reconstruction’s demise brought Redeemer majorities to state legislatures, and a “shift in constitutional direction in the South. If the economic keynote of Reconstruction constitutions was economic revival, the aim of post-Reconstruction constitutions was … ‘to govern as little as possible’” (Tarr, 1998, p. 113). New constitutions “curtailed state promotional efforts,” “forbade use of public credit for the benefit of individual or corporation” (Florida), and “made loans of credit conditional on referendum support by two-thirds of all voters (South Carolina). The 1875 Alabama constitution “eliminated the post of commissioner of industrial resources, and imposed an absolute ban on state, county, and local aid to corporations for internal improvements.” Louisiana and Georgia repudiated railroad bonds: “Those who championed these constitutional changes assumed either that frugal government would attract investment to their states or that agriculture, rather than industry, was basic to their state’s economic revival” (Tarr, 1998, p. 114). Post-Reconstruction state constitutions seemingly moved counter to contemporary conceptions of southern state economic development/business climate promotion and corporate subsidies. Instead they supported Genovese’s position against Woodward. What gives?
During the 1850s railroads and manufacturing firms increasingly adopted modern forms of corporation (Chandler Jr., 1977); and, in that environment, states across the nation enacted tax abatement laws favoring manufacturing to compensate, thus maintaining their favorable manufacturing business climate. Many states in the South did so also. Post-Reconstruction southern state pushback from Reconstruction-era policy systems’ uncommonly close partnerships with railroads/business—accompanied by manufacturing tax differential legislation—therefore, were not as radical as would appear. The Redeemer low-tax/low services nexus and low-wage subsistence workforce set the southern business climate apart from the North, not its tax abatement climate—especially considering that several more southern states applied business taxes (personal/property income) than in the North.
What did happen nationally in the 1870s was not that state and local financial relationships with railroads, port facilities (transportation infrastructure) and private corporations were reduced, but that structural forms and ED tools shifted. During this era, state legislatures increasingly empowered private firms (in the transportation and extractive industries especially) to exercise eminent domain. This translated into use of the modern private corporation as a hybrid EDO. The Big City streetcar franchise demonstrates how a modern private corporation was provided public powers and financing, but “regulated” to accommodate public purposes in key transportation/harbor infrastructure. Interstate and continental railroads were another example. Because government financial/public power relationships with private corporations continued through the nineteenth century, however, structural refinements and new ED tools were required.
The US Supreme Court Citizens’ Saving and Loan Association v. Topeka decision led to significant innovation (and change) in a key economic development tool: government bond issuance for infrastructure and private corporations.7 That decision started American state courts down a long road toward defining “public purposes” for which government debt and appropriation could be linked to private corporations and private activities. This little-known decision repudiated a Topeka municipal bond issuance for an ironworks company by ruling that public funds could only be spent for a “public purpose.” Acknowledging that jobs and revenues created by the ironworks did favorably impact the municipality, the Court said that was counterbalanced by the reality “that no line can be drawn in favor of the manufacturer that would not open the coffers of the public treasury to the importunities of two-thirds of the businessmen of the city or town.” Further, the Court held that public funds could only be used “for purposes which taxes can be levied.” If legislatures lacked authority to raise taxes for a purpose, then bonds could not be issued for that purpose. State courts across the land applied this principle in the following decades.
The Topeka ruling set up a firewall of sorts between government financial assistance and private corporations. But by making a link of public funds to taxing authority, an opening was created that had an enormous impact on economic development financing: “The nexus between borrowing [public] money and taxation is the payment of interest” (Gold, 1987); interest payments are ultimately paid by taxing. If, however, interest payments would not be paid by taxes, then public indebtedness could be possible. Into this breach, project revenue bonds (distinct from general obligation bonds) would emerge. In this manner (as Briffault, 2013 has argued), government commenced a longstanding “bypass” of much of the Court’s ruling (and G&L clauses), preserving in a different form government and private corporation financing linkages.
Goal Complexity in Redeemer Policy Systems
Southern policy systems (politics) after Reconstruction bear little resemblance to northern Big Cities. Redeemers sought “redemption”—initially defined as ending Reconstruction, ousting carpetbaggers, removing military districts and preventing upward political/economic mobility for blacks. Redeemers wanted to preserve as much as possible the pre-Civil War way of life. Post-Reconstruction, Redeemers set up (and dominated) a one-party (Democratic) political system (the famous Solid South), approved Jim Crow laws and maximized power in Congress. The one-party South lasted for nearly one hundred years. For all practical purposes, there was little effective opposition party in southern states/communities for five generations.
Pre-1910 municipal and county southern government was home-bred Jeffersonian/ Jacksonian weak mayor/executive. Participation in policy-making was limited to the planter/service sector and a few New South business elites. With little bureaucratic capacity or professionalism, this form of government fit an elite-dominated agricultural economic system. Low taxes were its chief policy goal—that meant few services. By no means were low taxes/low services purely an economic development strategy; they reflected the natural proclivities of those involved in policy-making as well. Certainly, planter Redeemer elites resisted industrialization as a threat to their agricultural/export economy. Generally dominant in state and community policy systems, planter Redeemers were a substantial barrier to urban/industrial economic development. While they never totally denied the South’s need to industrialize and establish a modern transportation system, the debate over the level/intensity of industrialization created a serious split within Redeemer elites. The debate was whether industry/rail infrastructure should serve an agricultural-export economy, or whether the South should industrialize to integrate into the Northern economy.
Redeemers bifurcated into two policy types: planter (agricultural oriented) and New South (industrial oriented). This split persisted through the 1930s. Mississippi’s Depression-era “Balance Agriculture with Industry” (BAWI) economic development initiative testifies to the persistence of bifurcated Redeemer elites. Redeemer elites were (as Woodward argues) of “divided mind” in regard to industrialization, urbanization and economic development. New South Redeemers, rarely dominant in state governments until the early twentieth century, were the well-spring for Southern economic development. New South Redeemers, epitomized by Atlanta’s Henry O’Grady, were determined to overturn the South’s perceived colonialist-like Northern hegemonic domination. In time they developed a shared culture which Brownell (1975) characterized as a southern “urban ethos.”8
New South Redeemers have been described as:
thousands of young people … who left the countryside in a calculated risk to seek their main chance in the cities, to pursue new jobs and new urban ways of living [entering into] a broad middle class of merchants, financiers, manufacturers and professionals … a few emerged to build great fortunes and take their places as leaders of business and civic affairs. (Doyle, 1990, p. 87)
New South Redeemers gathered momentum during the 1880s, found support from city newspapers and contested for leadership of chambers. If successful, they pursued manufacturing, retail and business services growth for their cities. They were a generational cohort that, in the last years of the nineteenth century, superseded the older, traditional planter Redeemer class. Acquiring power in the late 1890s, they dominated larger municipalities into the 1920s. New South Redeemers mirrored in many ways the Silas Laphams of post-Civil War Big City business a quarter-century earlier.
Woodward asserts that post-1870 New South Redeemers pushed “a constant theme … cheap resources, business opportunities, railroad developments, and commercial enterprise” (1981, p. 6). Cobb explains why:
investment capital was relatively scarce in Dixie, but the South was rich in natural resources and blessed with an abundant supply of workers. Consequently New South promoters aimed their sales pitches at labor-intensive industries that would prepare agricultural products and raw materials for final processing elsewhere. The manufacturing operations they courted employed few skilled workers. Wages were minimal, and many owners preferred rural plant locations where they could draw on a surplus of agricultural labor. (Cobb, 1993a, p. 2)
From the new Redeemer perspective ED wasn’t so much stealing as drawing on the region’s few strengths. In the end, this ED strategy never generated sufficient momentum to break away from its agricultural chains.
Ron W. Coan 