Echoes Dispatches From Economic History
Cutthroat competition lured General Electric's computing division to Phoenix in the 1950s, far from the company's headquarters in Schenectady, NY. Source: Arizona State University
The Long War Between the States (for Business): Echoes
American firms have been on the move of late -- and not just to Mexico or China. Most major job relocations are from one U.S. state to another, according to the Department of Labor. And with unemployment remaining stubbornly high, and companies sitting on a lot of cash, states have been competing ever more fiercely to attract new businesses.
Ohio reportedly has offered incentives worth $400 million to Sears to entice the company and its 6,000 employees to move from Illinois. Pennsylvania, Ohio and West Virginia are vying intensely to be the home of a new "ethane cracker" Shell plans to build. The governors of Kansas and Missouri have intervened, personally, in a battle to host the headquarters of AMC Entertainment.
And when Boeing announced that it would move some production from Washington to South Carolina in 2009, workers protested, Democrats in Congress expressed outrage, and the National Labor Relations Board tried to block the decision.
But such competition is hardly new. In 1976, Business Week warned of a brutal "Second War Between the States." Policymakers and local business groups across the country battled for new industries, not with bayonets or bullets, but with tax concessions, anti-union laws and generous giveaways.
This war had been steadily building in scope and scale for decades. Before the Great Depression, skirmishes took the form of efforts to "buy payroll" for struggling towns in the American South and West. Small business associations, which often took on the duties of boosting for their hometowns, wooed executives with promises of low taxation and little oversight of the factories built to prepare local harvests and mineral loads for shipment.
Ad hoc campaigns gave way to systematic efforts to recruit industry during the 1930s and after. The wholesale collapse of the farming, ranching and mining sectors in the South and West during the Depression spurred boosters to buy any kind of payroll. But Mississippians went a step further: They entrusted the state government to "Balance Agriculture with Industry," a revolutionary 1936 program that created a whole new executive bureaucracy dedicated to harnessing state resources to entice investors with heavily subsidized factories, tax advantages and union-free factory floors.
This initiative provoked enormous controversy. A Tupelo Journal reporter discovered that workers in one facility earned just 75 percent of the federal minimum wage. Local residents often rejected the deals, and only seven ventures, mostly textile companies, had opened before 1940.
Yet Southern business groups, legislators and executive appointees continued similar campaigns in the postwar era. Mississippi legislators revived and enlarged the "Balance Agriculture" program by increasing the number of committees, organizing trips to the Northeast and expanding the full-time staff, which included "bird dogs," who spent their time promoting Mississippi outside the state. The program's overhaul inspired other Southern boosters. The Tennessee State Planning Commission hired scouts, took surveys of local "business friendly" policies and advised communities on how to use state laws to attract firms.
Southerners weren't alone on this postwar battlefield. State boosters across the country monitored their rivals and surveyed major manufacturers about their needs, desires and demands. Arizona Governor Paul Fannin hired an aide to oversee the state's systematic industrialization, an initiative that included trips around the country in search of new business and visits to the state's rapidly declining mining towns, where his aides oversaw negotiations between potential new investors and local officials.
Increasingly, jobs in Rust Belt states like Ohio moved south and west. But promoters fought to retain what factories remained by matching their rivals. Republican James Rhodes, governor of Ohio from 1963 to 1983, save for a brief interlude in the early 1970s, promised "Profit is not a dirty word in Ohio." Slashing high business taxes topped his agenda. Otherwise, he asserted, "We might as well hang signs at the state borders that say 'Industry Not Welcome Here.'"
Manufacturers didn’t seem to believe him. By the mid-1970s, the effect of this prolonged warfare was visceral. In 1954, employment in manufacturing in the South was just over half that in the Northeast; by 1970, it was almost three-quarters. Western states experienced even more dynamic rates of economic growth, as industries relocated to metropolitan California, Texas and Arizona.
Southerners and Westerners considered themselves the victors even before Business Week took note of this second sectional conflict. Fannin said as much in the early 1960s, when he celebrated the opening of a new high-tech electronics firm outside Phoenix. He cited "business-minded" Arizonans and moratoriums on "discriminatory state taxes" against industry as "assurances that industry in our state is welcome, wanted and needed" and proof that "this rapidly growing, pioneering frontier Western state is setting an example for other states and governments to follow."
Yet Arizonans and Tar Heels really just won the battle, not the war. Southern and Western metropolises struggled to hold on to and attract more investment during the 1980s and 1990s. Now, rivals come from the cash-starved Midwest and Global South, where executives can find a ready supply of workers, an advantageous tax code and little regulation. Unemployment is actually higher now in the once-dynamic South and West, a shock to the states that were once national leaders in population, recruitment and production.
(Elizabeth Tandy Shermer is a Paul Mellon Fellow of American History at the University of Cambridge. Her book, Creating the Sunbelt, will be published later this year. The opinions expressed are her own.)
To contact the writer of this post: Elizabeth Tandy Shermer at firstname.lastname@example.org.
To contact the editor responsible for this post: Timothy Lavin at email@example.com.
Bloomberg moderates all comments. Comments that are abusive or off-topic will not be posted to the site. Excessively long comments may be moderated as well. Bloomberg cannot facilitate requests to remove comments or explain individual moderation decisions.