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The New Sustainable?

Manufacturing Continues its Deal Surge in the American South

By Mike Randle

Jim Albaugh, CEO of Boeing Commercial Airplanes at the 2009 announcement that Boeing will build the 787 Dreamliner in Charleston, S.C. Is the Great Recession "over, dead ... finito" as we wrote in the last edition of Southern Business & Development or are we headed for a double-dip? Even worse, are we in a depression as David Rosenberg, an economist with Gluskin Sheff, believes?

Who do you believe? Do you believe the permabears like Dr. Doom Nouriel Roubini and London's Albert Edwards, who maintain that the U.S. economy is sailing into a deep recession, one that will see a stock market collapse of 60 percent or more followed by years of 25 percent inflation?

Or do you believe other data presented to us by the optimists, like what you read from independent strategist Ed Yardeni? Yardeni points out that U.S.-based nonfinancial corporations are sitting on a record $2 trillion in cash as a result of strong corporate profits this year. That alone, he maintains, proves that the recession is finito and that it is absurd for anyone to maintain that the U.S. is in the midst of a depression. According to Bloomberg, 77 percent of S&P 500 companies beat first quarter 2010 profit estimates and almost that many topped estimates in the second quarter. But we are not in the first or second quarters anymore.

The constant debate on whether we are out of the recession or not -- we were just told it ended in June 2009 -- means one thing: that the U.S. economy isn't in good enough shape yet to end the debate. In other words, who knows?

But we do know this. There are simpler ways to judge whether or not the South's economy is improving outside of weighing opinions or tapping into data collected and provided by government agencies, economists, think tanks or the business media.

Southern Business & Development's offices are located about 75 yards from the Interstate 459 pavement in Birmingham, Ala. We've figured out over the years that a good barometer of the economy can be found by simply counting and recording the number of 18-wheelers that buzz by over one and five minute intervals.

Back in late 2008 and much of 2009 there were times during the day when two or three minutes would go by without the sound of a single truck moving a load of this or that on I-459. At night the silence could be stretched to five minutes or more. 

Yet, in the fall of last year you could hear the economy improving simply by standing in the office parking lot. It was obvious that more big trucks were crackalackin' up and down Interstate 459. But as I write this (September), it is also clear that truck traffic has slowed somewhat on I-459 and that slowdown started in August. The slowdown isn't dramatic. But after numerous daily samplings between August 23 and September 14, trucks drove by our office on an average of about eight per minute. That is down from an average of approximately 10 trucks per minute in June and July. A scientific study? Not hardly. Accurate? Considering that some economists are claiming we are in a depression and others are saying we are out of the recession, the truck tracking method might be the most accurate and least political way to judge the economy right now.

U.S. Manufacturing Sector Contributing to Improving Economy

You've got to dig much deeper than listening to increased truck traffic on Interstates to determine if the manufacturing sector in the South or the U.S. as a whole is improving. While those trucks are hauling goods manufactured somewhere, they could just as easily be transporting products made in Germany, China or Mexico than stuff made here in the U.S. or the South.

In July the nation's manufacturing sector celebrated its 12th straight month of growth. The Institute for Supply Management reported in August that its manufacturing index was at 55.5. A reading of above 50 indicates a growing manufacturing sector and the index has been above that each month since June of 2009. The last time the index grew 12 consecutive months was the entire calendar year of 2006.

Indeed, the manufacturing sector nationwide created 36,000 net new jobs in July, while total nonfarm payroll employment declined by 131,000 jobs in the same month. In the first six months of the year, manufacturing employment had expanded by 183,000 jobs, making it the No. 1 private industry sector in employment gains. Health care, generally perceived as the only job generating aspect of the economy during the recession, added only 27,000 jobs in July and 231,000 jobs in the last 12 months, a total almost matched by manufacturing in just six months. So, as far as the big picture goes, manufacturing was the bright spot of the fragile economy in the first half of the year and the second half of last year. 

Other industries have been DOA in job generation so far in the recovery; if that is what you believe we are currently in – a recovery. In fact, more than anything, the lack of growth in the service sector is the biggest problem we are facing whether we are still in a recession or not. Financial services, which ruled the roost for years in the South in employment gains, remains in a funk with a decline of 17,000 jobs nationwide in July. Financials averaged monthly job losses of 29,000 for all of 2009. Construction employment continues to suffer as well, with 11,000 lost jobs in July. Professional and business services also lost ground with 13,000 jobs lost.

The only sector other than manufacturing and health care showing a positive net total in increased jobs in July was -- you guessed it -- transportation and warehousing with 12,000 new net hires. Those trucks I was writing about earlier are part of a surge in transportation employment that has added 56,000 jobs nationwide between March and July. It should be noted that in July unemployment remained at 9.5 percent in the U.S. and 8.6 percent in the 17-state American South. 

And in 2009, the manufacturing sector once again -- for the fourth consecutive year -- topped the service sector in the total number of job and investment generating projects of 200 jobs or more and/or $30 million or more in investment in the South according to the 2010 SB&D 100 (go to www.SB-D.com). To give you an idea of how rare that is, between calendar years' 1996 and 2005, the service sector won out over manufacturing in projects of 200 jobs and/or $30 million or more in investment every year in the South with some years seeing non-manufacturing double the number of large manufacturing projects (see Chart No. 1).

Not only did the manufacturing sector in the South turn more big deals than did the non-manufacturing sector last year, the total of 228 exactly matched the 10-year average of 228 in the region. Considering how dismal the economy was in 2009, what other sum of any aspect of the economy matched or exceeded any 10-year average? We can only think of one and that's the number of large manufacturing projects that were announced in the South in calendar year 2009. 

Chart No. 1

Total Deals - Manufacturing vs. Non-Manufacturing - SB&D 100 1994-2010

YEAR MFG. NON-MFG. *TOTAL DEALS
       
2010 228 140 368
2009 291 138 429
2008 301 209 510
2007 257 225 482
2006 219 370 589
2005 292 297 585
2004 189 277 466
2003 164 245 409
2002 165 282 447
2001 209 312 521
2000 194 346 540
1999 228 344 572
1998 229 407 636
1997 212 361 573
1996 310 243 553
1995 281 189 470
1994 303 182 485

*Total announced projects from 1994-2010 with 200 Jobs or more and/or $30 Million in investment. Project totals come from the previous calendar year. Source: SB&D

Gross Domestic/Regional Product Statistics: The South and China are in a Dead Heat

According to the International Monetary Fund (IMF), there will be a historic change near the top of the list of countries with the largest gross domestic product totals. The IMF predicts that by the end of this year, the People's Republic of China, based on projected GDP, will surpass Japan as the world’s second largest economy. The IMF predicts that China will have a GDP of $5.364 trillion, with Japan coming in at $5.273 trillion in 2010. If accurate, that would mean China would become the second largest economy in the world for the first time in history (behind the $14.8 trillion U.S. GDP).

In an article published in China Reform magazine in the summer quarter, Yi Gang, China's chief currency regulator, said that "China, in fact, is now already the world's second largest economy," noting that its economy expanded over 11 percent in the first half of 2010 compared to the same period in 2009.

But hold on there Mr. Gang. The American South topped Japan and China last year with a gross regional product total of $5.13 trillion to Japan's $5.09 trillion and China's $4.91 trillion, making the region the second largest economy in the world. It is going to be interesting to see if China can hold off the South based on IMF predictions for this year.

While we can't find gross state product projections anywhere in an effort to estimate the South’s gross regional product at the end of this year, we can certainly give it a shot ourselves with the historical data that is available. Using that historical data from the U.S. Bureau of Economic Analysis, the South (all Southern states) has averaged about 4.4 percent growth in gross regional product over the last 10 years and that counts the little or no growth years of 2008 and 2009.

So, if in 2010 the South's gross regional product (GRP) grows by 4.4 percent – the 10-year average -- the region's GRP will be $5.36 trillion, essentially matching dollar-for-dollar what China is expected to produce this year, according to the International Monetary Fund. If it grows at a rate near 6 percent like the post recession years of 2003 and 2004, the South's GRP will surpass that of China's GDP this year. But then again, if the South performs this year like it did in 2008 and 2009, China will overtake the South as the second largest economy in the world and this magazine will have to change the cut line under the logo of its cover and on its Web sites to “Corporate and Industrial Sites in the World’s Third-Largest Economy.”   

Manufacturing's Role in the U.S. and the Southern Economy

I am sure many of you have read that manufacturing in the USA is toast. "Made in America," politicians and talking heads on cable television news channels keep telling us, is an ever evaporating endeavor. They are partly right. Manufacturing employment has been falling for at least 50 years in the U.S. In 1950, the share of manufacturing employment was about 35 percent of total employment in the U.S. Today, that figure, counting the lost jobs in the recession, has dropped to about 9 percent.

More specifically, in the last decade manufacturing employment in the U.S. has dropped from 18.9 million in 2000 to 11.5 million today. One year ago, or about the time when the recession began to ease and the Institute for Supply Management reported its manufacturing index finally rose above 50.0 for the first time in 18 months – yes, 18 straight months of manufacturing output decline in the U.S. going back to the first month of 2007, or almost a year before the start of the recession --  a press release published by the Bureau of Labor Statistics showed the U.S. had lost approximately two million manufacturing jobs since the recession officially began in December of 2007.

Sure, the lost jobs are a concern, but factory jobs are disappearing everywhere including in China, Japan, India, Brazil and all of Europe, or virtually on every continent. The recession is partly to blame, but the biggest culprit is technology. Today there are manufacturing plants where robots on the assembly line outnumber workers 500 to 2.

Chart No. 2

Total Employment vs. Manufacturing Employment in Southern States

  Total Employment Manufacturing Employment
         
  May 2009 May 2010 May 2009 May 2010
         
Alabama 1,900,500 1,883,800 248,600 239,300
Arkansas 1,171,200 1,165,900 164,300 164,200
Florida 7,313,400 7,248,300 326,200 310,100
Georgia 3,911,400 3,843,400 361,700 339,700
Kansas 1,360,900 1,346,600 167,000 160,100
Kentucky 1,779,000 1,788,800 212,900 211,600
Louisiana 1,913,800 1,903,900 143,600 136,100
Maryland 2,544,100 2,541,700 118,500 114,500
Mississippi 1,104,500 1,095,000 141,200 137,300
Missouri 2,714,500 2,699,700 254,500 249,600
North Carolina 3,942,800 3,944,500 448,100 429,100
Oklahoma 1,551,600 1,537,300 130,600 122,800
South Carolina 1,837,900 1,847,000 213,800 208,100
Tennessee 2,629,900 2,630,100 308,600 303,600
Texas 10,352,300 10,408,300 841,300 826,400
Virginia 3,665,700 3,662,400 238,700 228,400
West Virginia 751,100 747,300 51,000 49,900

Source: Bureau of Labor Statistics

The days of millions of blue collar workers assembling or forging goods are over, replaced by a handful of people sitting in front of computer screens operating robots. After all, robots are not in need of health insurance, pension plans and other legacy costs, much less a paycheck. Even warfare has joined the joystick age, as seen by computer operators directing drones on the battlefields of Afghanistan. Most of those operators live and work in northern Virginia.

In an article published last year by Forbes and written by Robert B. Reich, the former Harvard professor, U.S. Secretary of Labor (1993-1997), and currently the Chancellor's Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley, Reich wrote, "What happened to manufacturing? In two words, higher productivity. As productivity rises, employment falls because fewer people are needed. In this, manufacturing is following the same trend as agriculture. A century ago, almost 30 percent of adult Americans worked on a farm. Nowadays, fewer than five percent do. That doesn't mean the U.S. failed at agriculture. Quite the opposite. American agriculture is a huge success story. America can generate far larger crops than a century ago with far fewer people. New technologies, more efficient machines, new methods of fertilizing, better systems of crop rotation, and efficiencies of large scale have all made farming much more productive."

Reich went on to write, "Manufacturing is analogous" (to agribusiness). "In America and elsewhere around the world, it's a success. Since 1995, even as manufacturing employment has dropped around the world, global industrial output has risen more than 30 percent. Want to blame something? Blame new knowledge. This goes well beyond the factory floor. America also used to have lots of elevator operators, telephone operators, bank tellers and service station attendants. Remember? Most have been replaced by technology. The Internet has taken over the routine tasks of travel agents, real estate brokers, stock brokers and even accountants."

Reich was right about manufacturing productivity in the U.S. The United States is by far the world’s largest manufacturer. Since 1990, the total value of manufactured goods in the U.S. has increased from about $1 trillion to $1.54 trillion in 2000, and rising to almost $2 trillion today. 

Manufacturing productivity is rising as well. According to the Bureau of Labor Statistics, manufacturing productivity (output per hour) rose in the U.S. at an average of 2.8 percent annually between 1950 and 1973, 2.6 percent between 1973 and 1995, 4.0 percent between 1995 and 2000, 4.8 percent between 2000 and 2003 and an astounding 6.8 percent between 2003 and 2007. According to the U.S. Bureau of Labor Statistics, the U.S. and The Republic of Korea had the largest manufacturing productivity increases in the recession year of 2008, both at 1.2 percent.

This increased productivity is evident in total manufacturing output in the U.S. over the last 30 years. According to the Industrial Production Index (IP) published by the Federal Reserve System, which includes manufacturing, mining and utilities, real manufacturing output more than doubled between 1978 and 2007, rising 124 percent. The figure was about in line with the growth rate of nation’s Gross Domestic Product, or the total value of all goods and services produced in the U.S. Between 1978 and 2007, GDP increased by 130 percent.

Chart No. 3

Top 10 Manufacturing Countries in 2008

Country

1. USA
2. China
3. Japan
4. Germany
5. Italy
6. United Kingdom
7. France
8. Russian Federation
9. Brazil
10. Korea

*Output

$1,831
$1,399
$1,045
$767
$381
$323
$306
$256
$237
$231

*In billions of 2008 U.S. dollars. Source: UN Data

The State of Manufacturing in the South

There should be no argument today about the role of manufacturing in the U.S. and in the American South. It is a critical component to both economies, even though improved technology will continue to add value to manufacturing output in the South while the total number of workers in the sector will most likely continue to contract.

Even in the recession that experts and the like carry on about whether it is over or not, continuing or reemerging, there were many new and expanded manufacturing projects in the American South. Some of those you can read about in our 2010 Excellence in Manufacturing Recruitment Awards that follows this article.

Considering the fact that for the fourth consecutive year there were many more large manufacturing deals announced in the South than nonmanufacturing projects, we would like to pose this question: During one of the toughest economic development periods ever, where would the South be without the manufacturing sector?

Just when things started to go sour in 2007, the South's service sector, long the economic driver of the region, saw a collapse in total projects, dropping from 370 deals in 2005 to 225 deals of 200 jobs or more in 2006. Curiously, that's when manufacturing in the South began its climb up the ranks of projects with $30 million in investment and/or 200 jobs or more.

For example, in calendar year 2005, the South turned 219 manufacturing deals meeting or exceeding the 200 job and/or $30 million in investment thresholds. That figure rose to 257 in 2006, 301 in 2007 (only the second time since 1994 that there were over 300 manufacturing projects of 200 jobs and/or $30 million in investment or more in the South), dropping slightly to 291 in 2008 and there were 228 in 2009.

As written, one may presume that the drop in 2009 was significant, but the figure exactly matches the South's annual average of 228 large manufacturing projects since the 1993 calendar year. That being the case, during this entire recession it has been the manufacturing sector more so than any other that has held steady or increased its total of large projects in the South.

The Service Sector Blow Out in the South

Clearly, the sector that has taken it on the chin in terms of job generation during this recession is services. From 1997 to 2006, our data show the services sector averaged 324 projects per year that averaged 511 jobs per project for a total of 165,564 new jobs created on average each year over those 10 years. Considering the 165,564 per year job total came from just the plum projects of 200 jobs or more and did not account for thousands of smaller projects or any retail deals (SB&D does not track retail job generating projects), the job numbers from the service sector in the South from 1997 to 2006 were simply mind boggling. 

Yet, in the last two years the average has dropped to 139 projects coming out of the service sector of 200 jobs or more in the South, or less than half of what was seen each year on average between 1997 and 2006. Those 139 service industry projects averaged just 327 jobs, or an average of 45,453 jobs created each year in 2008 and 2009.

Compared to the averages seen from 1997 to 2006, that is a loss of 120,111 new jobs generated each year from the service sector from deals that have 200 or more announced jobs, making it obvious which industry sector is responsible for the most lost jobs in the region. Yes, the South has lost about 400,000 manufacturing jobs since the recession began, but lost service sector jobs in the region total about four times that number since 2007 according to the Bureau of Labor Statistics. All told, the nation has lost about 8 million jobs since 2007.  

While services continue to struggle, new manufacturing projects in the South are holding their own and in 2009 they got bigger. For example, in 2008 there were only six manufacturing projects announced in the region with 1,000 or more jobs. In 2009, that figure rose to 13 projects with 1,000 or more jobs. But so far in 2010, there have only been three manufacturing projects of 1,000 jobs or more. That is not the only negative coming from data to date this year regarding the South's manufacturing sector.

In 2009, total capital expenditures of the South's 100 largest projects (the 2010 SB&D 100) dropped to a mere $28.9 billion from a record $53.7 billion in 2008. Of those totals, approximately 90 percent came from the South's manufacturing sector.

But the large decline in total investment is misleading. In 2009 there was only one large electric power plant announced in the South. In 2008 there were 13 coal, gas-fired or nuclear power plants that made the top 100 project list with a combined investment total of over $23 billion. So really, if you take out the power plant expenditures, manufacturing investments made in the region last year are right at the annual averages over the last four years.

Chart No. 4

Total Capital Investment Created by the SB&D 100 1994-2009

Year

2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994

*Total Investment

$27.4 Billion
$53.7 Billion
$45.1 Billion
$44.2 Billion
$26.7 Billion
$22.2 Billion
$22.1 Billion
$18.3 Billion
$25.0 Billion
$25.8 Billion
$24.6 Billion
$22.6 Billion
$19.8 Billion
$23.8 Billion
$22.6 Billion
$18.8 Billion
$17.4 Billion

*Annual investment totals are derived from the top 100 capital investment projects announced in the South the previous calendar year. Source: SB&D

A Competitor Rising from the Dead

What's more troubling to us concerning the South's ability to maintain its four-year run in manufacturing is this: in the first six months of this year, there were only six U.S. states that increased their manufacturing jobs. Three of those are irrelevant to the South’s economic development leaders and politicos (Alaska, Hawaii and New Mexico). But the other three, Indiana, Ohio and Michigan, are keen competitors to states in the South.

For years the Rust Belt had lost manufacturing jobs at a rapid pace as the Big 3 automakers contracted. GM alone has cut over 107,000 jobs since the recession began with more than 60 percent of those cuts occurring in the Midwest. During that time, the South gained all kinds of relocating manufacturers from the Midwest.

If the first six months of this year are any indication, then the Rust Belt may be rising from the dead as GM, Ford and Chrysler among other Midwest-based manufacturers stem the tide of factory closures and gain some legs. While the increase in manufacturing jobs in Michigan, Indiana and Ohio totals only 16,700, an amount that a resurgent GM, Ford and Chrysler and its suppliers could be 100 percent responsible for, it is a positive no other states in the South can claim.

As for the entire region, the Midwest lost only 14,400 manufacturing jobs from May of 2009 to May of 2010. That's about a half of a percent of the Rust Belt's 3.13 million factory jobs. In that same six month period, the West lost 88,300 manufacturing jobs (4 percent), the Northeast lost 62,200 (3.3 percent) and the South lost 139,800 blue collar jobs, or a loss of 3.3 percent, same as the Northeast.

Chart No. 5

Manufacturing Jobs per U.S. Region

Region

South
Midwest
West
Northeast

*2009

4,370,600
3,151,600
2,302,300
1,972,700

*2010

4,230,800
3,137,200
2,214,00
1,910,500

Few companies have ever announced three large manufacturing projects in a region in a single quarter. Illinois-based Caterpillar announced more than $600 million worth of projects in Winston-Salem, N.C., Victoria, Tex. and Lee County, N.C. in the summer of 2010. The deals will generate over 1,000 new manufacturing jobs at the minimum. *May 2009 and May 2010. Source: Bureau of Labor Statistics

Who would have predicted just a year ago that Michigan, Ohio and Indiana, traditionally three of the nation's most active manufacturing states but of late the poster children of the nation’s industrial beat down of 2008-2009, would be the only three states of any consequence adding manufacturing jobs in the first six months of 2010? No one.

After all, this time last year we wrote in this same annual issue titled "Made in the South" that "With the last three years of statistics showing that major manufacturing projects are increasing in the South, but nowhere else in the U.S., it would be pragmatic to surmise that a beachhead of sorts is being constructed in the region for those who manufacture products for U.S. consumers and for buyers offshore. That's probably old news now. After all, manufacturing migration from the Midwest, Northeast and the West to the low cost South in recent years and over the last 40 years is indeed old news. Yet, the migration tends to have a much larger sense of urgency when economic environments get tight, or in the case of the last two years, on life support." 

And it is not just the stemming of factory job losses in the Midwest that concerns economic developers in the South when it comes to competing with the nation's second largest manufacturing region, which is the Rust Belt. Right to Work states, of which 13 of the U.S.'s 22 are in the South, have a distinct advantage over those that do not have Right to Work laws on the books when it comes to recruiting industry. Non-Right to Work states are littered with companies that have moved factories to the American South in recent years seeking relief from union-based work stoppages, most notably Chicago-based Boeing and Peoria-based Caterpillar. That movement has been going on for years. The only difference is today the companies just flat-out admit publicly that they are moving plants to the South in order to seek refuge from the unions. Those admissions used to never be made public.

Chart No. 6

Top 25 Manufacturing States May 2010

Rank

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.

State

California
Texas
Ohio
Pennsylvania
Illinois
Michigan
New York
Indiana
North Carolina
Wisconsin
Georgia
Florida
Tennessee
Minnesota
Washington
New Jersey
Massachusetts
Missouri
Alabama
Virginia
Kentucky
South Carolina
Iowa
Connecticut
Arkansas

Manufacturing Jobs

1,247,300
835,800
627,500
563,800
563,600
471,000
463,600
445,400
434,200
432,500
336,400
311,400
304,700
299,700
259,200
258,700
254,800
252,000
239,800
232,000
215,600
208,700
205,100
169,600
166,000





*






*

*
*
*




*
*
*
*
*


*

*Southern States. Source: Bureau of Labor Statistics

But there is something very interesting going on in the Midwest right now with GM and Ford. Both are trimmed down and are making money --gobs of it for now. And one of the reasons they are making money is incredibly ironic. As GM recovers and tools up, some of its reinvigorated factories are not represented by the United Auto Workers union despite the fact that the union itself owns a big chunk of the domestic automaker.

For example, GM's new automotive battery pack assembly plant in Brownstown Township, Mich., where batteries for the new Chevy Volt will be manufactured, is a non-union plant. Say what? Yep, it is non-union and the plant is part of a new wholly-owned subsidiary called GM Subsystems Manufacturing LLC and even GM officials admit that it is non-union and that is the primary reason the facility will maintain a competitive cost advantage the company says. Wow, talking about the tail wagging the dog in the reverse sense. The UAW takes ownership of GM and the automaker decides it might not need the union after all.

Delphi, GM's largest supplier is also going the non-union route in the Midwest, post the domestic automotive industry meltdown of last year. Its electric vehicle components plant in Kokomo, Ind., which will produce electric drivetrains for trucks and buses, is currently non-union and five plants that the company transferred to GM after Delphi went bankrupt are being pressured into breaking their master agreements with the UAW.

What's even more interesting, this year the UAW agreed to cut starting wages at many of the plants it represents in the Midwest from around $29 an hour to $15.50 an hour. Yes, the union that convinced GM and the other two major domestic automakers to raise wages and benefits that were not even close to sustainable for decades is now pushing hard to cut wages to remain competitive. Say what? It is a smart move. That $15.50 an hour is about what Volkswagen, Hyundai, Kia, Toyota, Nissan, Mercedes-Benz and other automotive OEMs that operate plants in the Southern Automotive Corridor pay for starting wages at their plants (go to www.SouthernAutoCorridor.com). But it is more than a smart move. As "owners" of GM, it is a necessary move by the UAW if it wants to survive. 

A Different Strategy by the Midwest to Level the Playing Field with the South?      

For years Southern Business & Development wrote editorials in response to the various pleas from politicians and economic development folks in the Midwest and others who would prefer to ban incentives for new and expanding companies (and also for those who want to implement "Card Check" provisions nationwide to "level the economic development playing field" between the Midwest and the South) that basically read "Instead of demanding the application of your failed labor policies on us, why don't you apply our (the South's) labor policies on yourself?"

In short that means no forced unionization on Southern states in order to "level the playing field." If the exact opposite occurred, such as changing the Midwest's non-Right to Work laws to Right to Work, then the South would have a really tough time competing with such a tradition-rich manufacturing region that has a massive cluster of engineering talent. Going from non-Right to Work is not unprecedented. Oklahoma did it in the 1990s and that state has had the lowest unemployment rate of any state in the South during this recession.

As for the incentives issues, many in the Midwest accuse the South of “subsidizing” foreign automakers to locate plants in the Southern Automotive Corridor even though there are almost as many domestic automotive assembly plants in the South as there are foreign plants.

But there is a big difference between a subsidy and an incentive. A subsidy is paid to save a company, such as what the federal government did with GM. So far, that subsidy looks to have worked. On the other hand, an incentive is a payment or an abatement of taxes and other fees that is doled out in return for thousands of new jobs and hundreds of millions in capital investment. 

It is unlikely that Midwestern states would pass Right to Work laws any time soon or ever. However, if the larger Rust Belt-based manufacturers such as GM, Ford and Caterpillar were to find a way to eliminate much of their labor union employment base, which is actually happening, watch out. The Midwest would suddenly become much more competitive with the South in recruiting new and expanding manufacturers. And with labor unions at their weakest position possibly in history, the shoe looks like it is on the other foot. As owners of GM, UAW executives have actually asked union members at some plants in the Midwest to accept nearly 50 percent wage cuts.  

Conclusion

If the International Monetary Fund and Southern Business & Development’s projections are correct, China’s Gross Domestic Product and the American South’s Gross Regional Product will be the same at the end of 2010, right at $5.36 trillion each. Whichever beats the other when 2010 is tallied up, will be the second-largest economy in the world. Based on year-end 2009 totals, the American South is the second-largest economy in the world. Pictured is a photo taken by SB&D editor Mike Randle on a street in Shanghai in 2009. The U.S. remains the largest economy in the world and will be the No. 1 economy in the world during my lifetime and my children’s lifetime. Who knows after that? The U.S. is also the largest manufacturing nation in the world with the South the largest manufacturing region in the U.S. Manufacturing in the U.S. remains strong when it comes to productivity and output, even though employment has fallen sharply in the past decade.

The U.S. and the South have survived a competitive onslaught with China in recent years as manufacturers rethink whether it makes sense to produce something on the other side of the world and then incur the logistics costs to bring product to the United States. Therefore, manufacturing prospects in the U.S. and the South may be brighter than they've been in a decade or more.

A 2010 Grant Thornton survey of U.S. manufacturing executives found that 20 percent of respondents indicated that they had brought production back to the United States and other parts of the Americas in 2009. The same Grant Thornton survey showed that 49 percent of respondents felt off shoring improved return on investment, but 44 percent said it had no effect. In other words, the mad rush to China for U.S. manufacturers is over. And like GM and others, manufacturers in the U.S. will emerge from this recession much leaner than ever before, which means productivity and profits will soar. That alone should keep the trucks crackalackin' out on Interstate 459 for many years to come.

mike@sb-d.com


    
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