Blues for a Company Town

R.J. Reynolds' latest layoffs will leave a gaping hole in Winston-Salem's economy

Ever since Richard Joshua Reynolds began selling chewing tobacco in 1875, Winston-Salem, N.C., has been the quintessential company town. As recently as the 1960s, one in every five workers was an employee of R.J. Reynolds (RJR ) Tobacco Co., with many pulling double shifts in the squat brick factories that dot the leafy community. The Reynolds name and influence was stamped on everything from schools to roads to a medical school.

Reynolds could be like a stern father -- for years it banned long hair and frowned on divorce -- but that didn't bother locals who earned as much as $60,000 a year at the company's factory in nearby Tobaccoville. "I've gotten a lot of checks over the years from customers that they'd stamped with the words 'Tobacco Pays My Bills,"' says Penny Terry, who runs a furniture store near the plant.

Now, the Reynolds era is coming to an end in Winston-Salem. On Sept. 17, the company announced that it is laying off 40% of its workforce -- some 2,600 people -- in response to rising competition from discount cigarette makers using cheaper foreign tobacco. "There's great pain and some shock, too," says David M. Hughes, senior pastor at the First Baptist Church on Fifth. "The area has depended on Reynolds for generations and thought it would always be there."

The announcement rocked a town that already has suffered a steady loss of manufacturing jobs to low-wage nations such as China and Mexico. The Reynolds layoffs are particularly onerous. While city officials predict that new service jobs, especially in health care, will help, these positions will pay nowhere near what a production worker made at Reynolds. Similarly, many Reynolds managers and white-collar workers will have a hard time finding comparable jobs locally and are likely to move to other cities. As a result, say economists, Winston-Salem is in for a tough adjustment. "Even if we get these new health-care jobs, we're probably going to lose all of our growth for the next five years," says Don Jud, an economist at the University of North Carolina at Greensboro.

What concerns economists such as Jud most is the cascade effect as the Reynolds layoffs ripple through the area. Because tobacco workers made double or triple the local average manufacturing wage of $13.50 an hour, they were able to support a thriving service industry -- restaurants, dry cleaners, day care. As laid-off Reynolds workers and managers curb their spending, local businesses will be forced to lay off as many as 3,000 more people. That could push local unemployment above its current rate of 5.5%.

The Reynolds layoffs will take place over six months, but Winston-Salem is already bracing for the worst. Mortgage defaults are on the rise, and real estate agent Sharon Collins predicts that foreclosures will double in the next year. At Town and Country Restaurant, owner George Moutos says he gets 40% of his business from the Reynolds plant, including "a couple hundred steak dinners" for RJR Christmas parties.

"SLAP IN THE FACE". The pain is also spreading to the fields. Growers, already hurting from a 55% plunge in production since 1999, are bracing for further losses to cheaper foreign crops next year. Many are hoping for salvation from a quota-buyout bill now before Congress that would require manufacturers to pay growers as much as $18 billion over the next six years to ease the switch to other crops. Reynolds is fighting the bill -- a deeply unpopular position. "That's another slap in the face of farmers," says McRay Greene Jr., who grows 14 acres of tobacco in nearby Walnut Cove.

Farmers aren't the only ones facing change. Retraining will be key for many workers, but a cigarette maker won't easily segue into a career as a lab assistant. "I'm 50 years old and worked there 30 years," says a Reynolds worker who was laid off on Sept. 22. "What am I supposed to do next?" Making matters worse, local community colleges lack the resources to handle the growing ranks of unemployed. "We've had a couple hundred workers we've had to turn away," says Larry Keen, who oversees worker retraining at N.C. Community College System.

In a simpler time, tobacco was a money tree for growers and cigarette makers alike. But these days, economic pain runs deep along Tobacco Road.

By Dean Foust in Winston-Salem, N.C., with Brian Grow in Chicago

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