TICKING OF THE CLOCK: THE SECOND NEW ENGLAND TEXTILE WAR
I remember, as a young Salem Massachusetts resident, a city with a large but closed textile mill at which members of my family had once worked—but no longer. For the following decade after its closing I walked past the closed facilities, passing along the way a building a couple of blocks away. The building/facility, owned by the Digital Equipment Company (DEC), made a widget of no consequence to the young curmudgeon. And he continued on his way.
The mill was the Pequot Mills, originally named the Naumkeag Steam Cotton Company. It produced “Pequot cotton sheets.” Founded by a sea captain (Nathaniel Griffin) in 1839, the site allowed ships to unload southern cotton directly to the steam-powered plant. By 1847 the facility ran 30,000 spindles and 640 looms. Polish and French-Canadians were its workforce, the latter from its beginning. The facility grew to 20 buildings—only one of which survived a 1914 fire—and were completely rebuilt and electrified after 1916. At its WWII peak Pequot employed 2725 workers. In 1933 an eight-week wildcat strike over layoffs and Taylor-esque labor studies designed to increase efficiency garnered national attention. The company yielded to the workers’ demands of “no research, no layoffs” (Chomsky, 2008). The mill was Salem’s largest manufacturer. In 1949 Naumkeag purchased the Whitney Mill in Spartanburg South Carolina, operating both plants until 1953 when the Salem facility was closed and 800 workers hit the streets. Workers as late as 1952 had agreed to work loan increases. The firm merged in 1955 with Indian Head Mills, and in 1976 was purchased by a Dutch conglomerate.
Massachusetts and Rhode Island textile-related factories shut down over the decade following the war. They didn’t call it deindustrialization back then, any more than they did in the 1920s or the 1890s.
Employment in Massachusetts’ woolen and worsted sector plummeted from 49,000 in 1946 to 25,000 in 1953. In cotton goods, the number of jobs sank from 35,000 in 1946 to 19,000 in 1953. Due largely to declines in these industries total factory employment in the commonwealth fell from 582,000 in 1947 to 531,000 in 1955, a drop of 9 percent … . The economic difficulties of the region were known as “the New England problem.”6 (Koistinen, 2006, p. 326)
Massachusetts’ Reaction to Textile Deindustrialization
Maine was the first state to formally respond to postwar textile deindustrialization. Maine’s pioneering answer, devised to conform to restrictive state gift and loan clauses, was the Development Capital Corporation (DCC), approved in 1949. Vermont, Connecticut, Massachusetts, New Hampshire and Rhode Island copied Maine, approving their own versions during the 1950s. The DCC model was a quasi, mostly private hybrid EDO, legally outside state government. The Maine DCC borrowed private funds to make loans to firms, indirectly guaranteed by hedge-like state mortgage funds. With the DCC’s minimal state governmental support, Maine’s private sector was left to fend off interstate competitive pressures. The reader might remember the DCC as the “Maine IDB model,” discussed earlier.
Massachusetts, however, was the New England regional leader—and ground zero of textile deindustrialization. In 1946 its Democratic governor, Maurice Tobin, filed a bill to establish a new state economic development department to foster growth in manufacturing. The new department would replace the underfunded and ineffectual 1929 Massachusetts Development and Industrial Commission. Despite solid chamber support, the legislation failed.7 To compensate, budgetary and staff increases were provided to the ineffectual commission.
From the Massachusetts textile industry, the problem was defined as an unemployment insurance-related issue—not as a competitive business climate confrontation. The state unemployment fund required firms that laid workers off to pay more into the system (merit rating). Driven by union support, Massachusetts unemployment was generous by national standards, a serious business climate issue to be sure.8 Chronically underfunded, relying on annual subsidies and debt issuance to compensate for chronic deficits, bankruptcy was never out of the question. Throughout the 1950s, Republicans and business groups sought unemployment reform: bill after bill was introduced, going nowhere—on chamber approvals, competing counter bills, extreme partisanship and gubernatorial vetoes. Unable to secure reform, textile firms saw little advantage in discharging workers, and instead closed down.
A Republican governor, Christian Herter, was elected in 1952 with a strong ED platform—and hope for reform increased. Herter’s inauguration address called attention to the unfavorable Massachusetts business climate: “There has been built up throughout the entire country the feeling that Massachusetts is an unfavorable place either for the development and expansion of its existing industries or for the attraction for industries from other parts of the country.” But reform expectations too were smashed when an extremely weak compromise reform bill was finally approved in 1954. The bill provided virtually no relief to the textile industry. To rub salt in the wounds of business climate reformers, “Herter took no action to revive the unheeded 1952 recommendations of legislative special commission that the state’s corporate taxes be eased” (Koistinen, 2006, p. 338). Business regulatory issues, real or imagined, elicited little response from the governor or Democratic-controlled legislature.
So Herter chose another path. In his 1953 inauguration speech, Herter had also decried “ineffective promotional and development programs.” Rectifying this shortcoming then became his principal economic revitalization strategy. So Herter revived the earlier Tobin initiative and secured approval for the first cabinet-level state economic development department in Massachusetts history, the Department of Commerce (approved in 1955 with a $551,000 budget and eight staff). The Department of Commerce was intended as the state’s counter to textile deindustrialization through intensified nationwide promotion, attraction and business retention. Democrats and unions lined up—in support! The American Federation of Labor (AFL) believed the new EDO would “attract new industries and encourage the expansion of one’s presently located here” (Koistinen, 2006, pp. 339, 341).
Herter also created a second state economic development agency, the Massachusetts Business Development Corporation (MBDC).9 The MBDC (copying Maine’s DCC) borrowed funds from banks and insurance companies to make loans to manufacturing firms unable to secure conventional bank financing. MBDC’s approach provided access to capital otherwise not available. Nearly all loans were fixed asset and working capital loans to manufacturers moving into the state. The MBDC issued several hundred loans targeting high unemployment geographies.
From this one can hypothesize that late-stage sectors/firms define their problem in terms of location factors responsible for high costs (taxes, fees, regulatory costs). The underlying cause, commoditization, lies outside industry, state or local control. Accordingly, state and sub-state policy systems can employ any number of ED strategies (tools, programs) to deal with their effects. That these strategies actually counter the root problem is less critical than being congruent with the prevailing ethos, culture and politics of the policy system—and they attempt a plausible solution to involve policy actors, including public opinion.
In any case, textile decline played out over the next two decades. New England lost a great deal of its textile sector to the Carolinas and foreign competition. One New Bedford textile mill serves as an interesting but ambiguous firm-level example. This particular mill, built in 1927, was the headquarters of the Hathaway Manufacturing Company—known for its expansive offices featuring oak and mahogany paneling and a marble fireplace. Confronting the 1950s’ textile decline, Hathaway bought out Berkshire Fine Spinning and became Berkshire Hathaway. By 1962, however, this textile behemoth was closing plants to cut costs, using the proceeds to buy back its stock. A 34-year-old investor, Warren Buffett, saw in Berkshire Hathaway an opportunity to buy cheap and sell dearly; so he acquired a majority stake in the company. After a brutal personal fight with Berkshire Hathaway’s owners, he tossed them out in 1965.
Buffett closed the plant completely in 1985, selling (in 2000) the 18-acre facility to an entrepreneur making military parachutes. The facility has been listed for sale since 2008, and at the time of writing is on the verge of being demolished as New Bedford’s mayor is concerned the present owner may lease part of the facility to process “medical marijuana.” To add to the merriment, preservationists may apply for landmark status. Buffett, in any case, retained control of the name. Today, sans textile mill, Berkshire Hathaway, headquartered in Omaha, is the ninth largest public company in the world.10 How one views or interprets this example can deliver an interesting discussion on deindustrialization, but New Bedford probably couldn’t care less—it’s stuck with a bombed-out eyesore.
Massachusetts’ Neighbors Respond to Textile Deindustrialization
Rhode Island possessed a substantial textile industry presence—second only to Massachusetts—and suffered similar deindustrialization simultaneous with Massachusetts. The Democrats had dominated state politics since the 1930s; in 1951 Democrat Dennis Robert was governor. The business community through the 1950s focused on business climate reform, also singling out unemployment taxes paid by businesses. Like Massachusetts, a strong union opposition blocked their initiatives in the state legislature. A compromise reached in 1958, similar to Massachusetts, yielded very little in terms of unemployment reform or business climate tax reductions. Governor Roberts in 1951, however, launched several ED initiatives to counter textile deindustrialization.
First, Rhode Island upgraded its state promotion commission to full departmental status. And in 1952 Roberts secured creation of a Maine-style DCC agency tasked with building and leasing industrial facilities, thereby increasing “ready to lease” (i.e. shovel-ready) speculative sites. In 1957 he formed a commission to study whether providing state funds to localities for such facilities was helpful. The commission said yes, and the next year the legislature approved creation of the Rhode Island Industrial Building Authority—winning a referendum to do so. The 1957 constitutional amendment referendum permitted a Rhode Island version of the “New England model.” Finally, in 1958, Roberts created a state Science and Research Council to coordinate existing research efforts and seek new ones. This may be the first state technology EDO (Koistinen, 2006, pp. 348–9).
Edmund Muskie, Maine’s Democratic governor (the first since 1929), created its first state-level ED cabinet department in 1955: “Expanding Maine’s existing promotional commission into a more effective government department was the leading item on the reform agenda.” And, in 1957, at Muskie’s urging, Maine created its Industrial Building Authority (IBA) to provide state assistance to local industrial corporations (Koistinen, 2006, p. 349). The IBA, however, did not conform to state constitutional precedents, thereby requiring a subsequent constitutional amendment (14-A). Thus, Maine, along with Rhode Island, successfully approved a constitutional amendment to allow the IBA, and Maine then had an IDB in its quiver. In the mid-1950s both New Hampshire and Connecticut also approved legislation authorizing the creation of Maine-style DCCs. In the mid-1960s, under intense pressure from states with more aggressive forms of IDB, New England states took another bite from the IDB apple, passing a second round of legislation and constitutional referendums (New Hampshire followed the Oklahoma model, and Maine and Vermont that of Kentucky).
What’s Going On?
The reader might note that each state essentially followed the same path and employed similar (IDB, attraction and promotional) strategies. They encountered the same process issues and difficulties in approving strategies that did not directly address deindustrialization’s core problem. Partisanship was not a factor—every New England state, Republican and Democrat, followed a fairly identical approach. Muskie, like Roberts, Tobin and Herter (governors), led his state’s ED response to his state’s manufacturing decline. That raises a question: Where were county and municipal governments in this story?
Where is Lowell, New Bedford, Hartford or Providence? Deindustrialization’s effects were intensely felt at the municipal/town level, by their chambers in particular. Some responded, but did so haphazardly, episodically, and almost always ran afoul of state constitutions and judicial precedent. Nearly all state court decisions rejected reactive local government ED initiatives. In 1954 the state legislature authorized the voluntary formation of local Industrial Development Commissions (IDCs), which were supervised by the State Department of Commerce.11 Taxpayer funding was limited to 1/20th of 1 percent of the jurisdiction’s assessed valuation, and capped at $50,000. Appointments were made by the local legislature (town boards). The IDCs were authorized to research, advertise and manage prospects, but were cautioned not to provide “inducements” or “package deals”—but not prohibited. They were urged to work with other local EDOs (chambers), and direct financing could only be provided by the newly created state MBDC.
The problem became defined as countering promotion/incentives thought relevant to the flight of textile firms. That turned out to be the IDB. So each state attempted in their own fashion to forge an IDB, but each encountered state constitution gift and loan clauses—cemented into law by long-standing judicial interpretations and precedents. Combined with a hesitant policy process, creating EDOs able to bridge the gap between private firms and public monies, the best the region could do was to copy the Maine version of the IDB—which wasn’t an IDB at all. Later a second round of reforms devised a limited IDB program. Interestingly, at no point did it enter the discussion that the three states “stealing” their textile firms (the Carolinas and Georgia) never approved IDB authorizing legislation in this period. When finally created, New England state EDOs:
- favored business retention strategies that, through local EDOs, issued loans and developed speculative shovel-ready sites for existing and relocated firms;
- launched “defensive” promotional programs, ostensibly designed to get the word out that New England was a good place to do business—but, I suspect, intended mostly to reassure domestic firms that New England remained viable;
- flirted with startups (manufacturing/technological—gazelle-like firms), but taking few firm steps in that direction.
As pressure mounted, Maine and Rhode Island approved constitutional amendments that widened the permissible range of state government activity for assisting private corporations. Massachusetts, the regional leader, remained the most hesitant. Perhaps sensing a business climate confrontation strategy led only to “a race to the bottom,” a strategy that could not be adopted due to power balances and priorities of actors within its policy system, mostly New England states adopted defensive retention strategies that didn’t stand a chance of retaining textile firms, but offered some hope at economic stabilization. These fledgling efforts will bloom into a comprehensive state-level community development–private business strategy a generation later in a Dukakis administration.
New England’s Struggle against Textile Deindustrialization Shifts to Congress
New England turned to the federal government for help during the 1950s. Deindustrialization or an adverse business climate, whichever one prefers, had been redefined to a problem caused by unfair southern incentives and business climate advantages. New England congressional–Senate elected officials assumed aggressive positions limiting federal “incentives” which, in their view, unfairly subsidized regional competition. Senator Kennedy was especially aggressive. He argued:
The southward migration of industry from New England has too frequently taken place for causes other than normal competition and natural advantages. Since 1946, in Massachusetts alone, seventy textile mills have been liquidated, generally for migration or disposition of their assets to plants in the South or other sections of the country. Besides textiles, there have been moves in the machinery, hosiery, apparel, electrical, paper, chemical and other important industries. Every month of the year some New England manufacturer is approached by public or private southern interests offering various inducements for migration southward. … In 1925 New England had 80 percent of the (cotton textile) industry, now (1954) it has 20 percent.12
Kennedy criticized the federal $0.75 minimum wage that compared to Massachusetts’s $1.64. He attacked “federal tax amortization benefits” (IDB-related federal tax abatement) that disproportionately granted benefits to southern plants and federally regulated shipping rates that he alleged “discriminate unfairly against New England.”
Apparently, “Muskie was no Jack Kennedy.” Muskie continued his economic development focus after his Senate election. In June 1963, as a member of ACIR, he participated in its report A-18 which investigated IDBs. That report outlined criticisms and proposed reforms to restrict usage of the federal tax abatement and urge states to curb abuses. The conclusions of this report were rejected by Muskie, who dissented formally—which I cite as a commentary on Maine/Muskie’s different approach to economic development. Maine, it turns out, did not define economic development like Massachusetts:
I do not concur in the negative conclusions about industrial development bond financing expressed above. (1) States and their local governments should be encouraged—not discouraged—to attack problems of economic stagnation and underemployment; (2) abuses (of the IDB) have not been prevalent and … do not constitute a basis for condemning the self-help efforts of State and local governments; and (3) providing opportunity and incentive for industry and employment, through a free enterprise economy is a proper and legitimate concern of local government.13
New England’s cohesive (except for Muskie) federal delegation, however, continued its advocacy in fits and spasms for over three decades—climaxing in the middle 1970s—to advocate federal action to ameliorate “southward migration” of New England firms. The southern business climate advantage was believed unfair, if not immoral, for its inability to properly sustain individuals and families. New England’s solution was not a race to the bottom, but rather required the federal government to compel the South to “climb to the top.” Textile deindustrialization had escalated into a federal as well as state/sub-state economic development issue. New England’s textile war with the South, like the Spanish Civil War, served as a shadow struggle masking a deepening divide between regions.
Judicial Decisions as Embedded Political Culture
Incentives, public funding of private firms and aggressive local action seemingly violated New England’s collective sense of how economic development should be handled. The South followed a different approach: that New England’s policy systems included actors, notably unions, that limited business influence—and redefined economic development away from Privatist growth through business corporations. These are key Progressive values. New England states had approved/amended state constitutions, Massachusetts as early as 1780, to reflect these values. More than a hundred years later these statutes were interpreted by state courts reacting to 1950s’ economic development legislation, programs, tools and strategies. It was not very pretty. Using Maine and Massachusetts as examples, New England judicial IDB interpretations rendered difficult 1950s’ efforts to combat perceived southern IDB incentive competition.
The critical interpretation by a Massachusetts state court set the stage. Lowell v. City of Boston, 111 Mass. 454 (1873), narrowly defined, and severely limited, the “public purpose” required if public funds were to be used to benefit private entities or projects:
The application of the rule has grown in vigor through the years, so that it continues today as a controlling force in dealing with the expenditure of public funds … In it lies the key to understanding the position of the commonwealth toward business inducements.
The original Lowell decision involved eminent domain. The decision established a precedent that affected Massachusetts economic development over the next 100 years (Tilden, 1966, p. 15).
The 1873 Lowell decision (and several subsequent decisions) were restated in a 1958 judicial opinion relevant to the IDB initiative:
It is a fundamental principle of constitutional law frequently declared that money raised by taxation can be used only for public purposes and not for the advantage of private individuals … The paramount test should be whether the expenditure confers a direct public benefit of a reasonably general character … to a significant part of the public, as distinguished from a remote and theoretical benefit. (Tilden, 1966, p. 16)
That narrow public purpose extended to town and city governments as well—thereby inhibiting public sector business assistance programs at the local level.
Compared to other states, this was a very restrictive definition of public purpose, and the restricted definition extended to eminent domain and the benefit of public credit to private enterprise. The 1953 legislation creating the Massachusetts Business Development Corporation was mindful of this limitation, compelling a “Massachusetts-style” New England IDB that involved only an indirect state guarantee of private financing. The funds used by the MBDC for direct lending were acquired through pooled loans from private banks and insurance firms—not public dollars. In effect, Massachusetts gift and loan statutes and judicial interpretation of them prevented the state from devising public tools to assist Stage 4 businesses in decline.
Maine’s counterpart to Lowell v. City of Boston was Jordan v. Woodward (1885), which ruled that:
Strictly speaking, private property can only be said to have taken for public uses when it has been so appropriated that the public have certain and well defined rights to that use secured, as the right to use the public highway, the turnpike, the public ferry, the railroad, and the like. But when it is so appropriated that the public have no rights to its use secured, it is difficult to perceive how such an appropriate can be denominated a public use. (Beck, 1966, p. 25)
In 1871 the Jordan decision was the basis to deny Maine’s sub-state jurisdictions the authority “to pass laws enabling towns, by gifts of money or loans of bonds, to assist individuals or corporations to establish or carry on manufacturing of various kinds.” A year later, in Allen v. Inhabitants of Jay, the court took a restrictive step further in denying assistance to a manufacturing firm, saying that once a loan with public funds has been made: “The bonds and money raised from their sale become the bonds and money of the person borrowing, and subject to his control. The town has lost all power over the use and disposition of their loan” (Beck, 1966, p. 32).
While the prohibition of public funds in financing private firms remained intact, Maine found a way to bypass that restrictive interpretation when it confronted City Beautiful-era urban renewal and 1930s’ slum clearance and public housing eminent domain. A 1914 City of Portland bond to obtain land for and build city auditoriums (a City Beautiful initiative) was sustained as a legal use of tax dollars. In 1954 a Maine court supported eminent domain for removal of slums, yet declared in 1957 that a Bangor industrial development act which permitted a taking of land for the purpose of industrial development was unconstitutional.
The thread that underlies these decisions is that: public benefit or interest are not synonymous with public use, and that in a broad sense it is the right in the public to an actual use, and not to an incidental benefit [and so the public] … cannot use a plot of land leased to “x” Manufacturing Company. (Beck, 1966, p. 32)
Eminent domain for slum removal was separated from the narrow public purpose definition by linking eminent domain’s (urban renewal) public purpose to public safety and health:
The clearance of the “blighted area” in our view is the use of property for purposes of public health, morals, safety and welfare. The “public use” within the meaning of our constitution lies in the removal of breeding grounds of disease, juvenile delinquency, and other social evils. (Beck, 1966, p. 32)
Maine could do what it took to eliminate slums, but not to provide business and cost minimization programs to private enterprise.
As Richard Briffault later observed, the trend during the last half of the twentieth century was to devise ways to bypass narrow definitions and statute prohibitions against aid to business; but, clearly, some states were more willing and able than others—and the path taken by each state mattered in economic development. While the direction of change was shared, the timing and the bypass precedents retained much of the spirit contained in the original state constitutions.
Ron W. Coan 