Factory Towns: Can They Escape Death Spiral

Every week we run into people who try to pull their own teeth," grimly reports Laura Scudiere, executive director of the Bridge Clinic in Wausau, a central Wisconsin industrial city of 38,000 where unemployment hit over 14 percent earlier this year. "It's like a Third World country when it comes to dental health."

This account from one depressed industrial city serves as a grisly but fitting metaphor for both individual and public responses to the gravest economic crisis in 80 years, marked by double-digit unemployment (reaching 19.4 percent among males in their prime earning years of 25-55), pervasive wage-cutting, and daily foreclosures 10 times higher than during the Great Depression, according to It Takes a Pillage author Nomi Prins. "This is not your ordinary dip in the business cycle," explains Professor Carl Van Horn of Rutgers, who conducted a 2009 survey of 1,200 jobless workers. "Americans believe that this is the Katrina of recessions. Folks are on their rooftops without a boat."

Burdened with plummeting home values, a substantial portion of the working class remains trapped in factory towns as the U.S. has lost 32 percent—5.6 million—of its industrial jobs since 2000 alone, and less than 44 percent of jobless workers are covered by unemployment insurance. Three key factors characterize the current crisis afflicting America's factory towns.

First, corporate America's emerging economic strategy involves producing fewer and fewer U.S.-based jobs, especially those paying high wages and offering comprehensive medical and retirement benefits. For example, job growth in the U.S. since 1940 had been marked by increases in employment of 22 percent to 38 percent in each decade except for the last. Since 1999, job growth in the U.S. has been under 1 percent. Low-wage labor is available elsewhere for U.S. corporations to replace American workers. Jeff Faux, author of The Global Class War, notes that Mexico offers pay levels at about 10 percent of the average in U.S. manufacturing, while in China wages amount to about 3 percent of U.S. levels.

The stress levels resulting from long-term unemployment in the U.S. are more than many individuals and families can bear. Don Peck, writing in the Atlantic ("How a New Jobless Era Will Transform America," March 2010), warns that the long-term costs include "a slowly sinking generation; a remorseless assault on the identity of many men [males have absorbed three-fourths of the recession's layoffs]; the dissolution of families and the collapse of neighborhoods; a thinning veneer of national amity." Citing the studies of British economist Andrew Oswald, Peck writes, "No other circumstance produces a larger decline in mental health and well-being than being involuntarily out of work for six months or more. It is…equivalent to the death of a spouse."

The second factor is that corporations have transitioned away from increasing profits through domestic production for sales to U.S. consumers to maximizing profits through a massive shift of capital to the high-profit, high-risk financial sector. These shifts of capital have decimated America's productive base and largely halted corporations' creation of new jobs in the U.S.

While profits from the financial sector accounted for less than 2 percent of domestic corporate profits in the mid-1950s, they soared to 27.4 percent by 2008, according to Les Leopold, author of The Looting of America. The financial sector produced $313 billion in profits in 2003, compared with just $119 billion for manufacturing, as economist William Tabb has noted.

Only 11 percent of Goldman Sachs investments go into providing capital for the start-up or expansion of enterprises, financial writer Roger Lowenstein reports. Tabb aptly describes the seemingly "magical" process behind the expansion of the financial sector: "Money could be made solely out of money, without the intervention of actual production. The new secret was presumed to be leverage and risk management, which allowed the purchase of assets that promised higher returns even if they carried a higher risk."

As a result of this pattern, America has ceased to produce a number of vital products. It is home to only two of the ten largest solar photovoltaic producers, only one of the top ten advanced battery manufacturers, and only two of the top ten wind turbine producers. The U.S. has ceased to make most railroad and other mass-transit equipment, paper-making equipment, shoe-making equipment, large metal castings necessary for military equipment, and a host of other products, noted labor scholar Frank Emspak of the University of Wisconsin.

Third, wage cuts are "occurring more frequently than at any time since the Great Depression," according to economics writer Louis Uchitelle. Nearly 44 percent of all families have experienced a job loss, a reduction in hours, or a pay cut in the past year. The new round of pay cuts follows on the heels of a lengthy period of falling wages and sharply rising inequality. Inflation-adjusted wages in 2007 were 18 percent below those in 1973 (The Looting of America). The U.S.'s richest 1 percent collects 23.5 percent of all income and the even richer 1/10th of 1 percent earns more than the bottom 150 million Americans.

Failed Entrepreneurial Solutions

In response to falling wages, rising poverty, and population losses in factory towns, the Obama administration, local public officials, business leaders, and economic development specialists in de-industrialized regions across the U.S. have been trying out a wide variety of approaches to revitalize their communities. But virtually all of these approaches passively accept the rules established by corporations and aim at locally-generated economic development in isolation from regional or national programs. Further, they confine the public sector to the role of a supplicant, seeking to offer enough subsidies to induce private corporations to invest in their community.

The Obama administration, through the Commerce Department's Economic Development Administration, is providing assistance aimed at revitalizing distressed communities. But their strategy, based on various media accounts, involves the promotion of approaches that have repeatedly failed over the last several decades. Central to the failure of these entrepreneurial strategies is the taboo against contesting or in any way applying government pressure to influence corporate location decisions. "The question of whether you should order private companies to locate in these communities; that is not a prescription for success," declared Edward B. Montgomery, a top official in the Economic Development Administration program for community revitalization. In the words of one prominent economic development expert, "The Obama administration is pursuing strategies that vary little from those under George W. Bush."

All the standard business-dependent strategies for local "recovery"—while highly touted—have turned out to be consistent failures. Political scientist Gordon Lafer of the University of Oregon and author of The Great Training Charade says, "I don't know of a single city in the industrial Midwest that successfully replaced lost manufacturing jobs with jobs of equal pay."

Failed Strategies

? Taxpayer Subsidies. Probably the most widespread of the entrepreneurial strategies is the provision of subsidies via tax breaks, free land, exemptions from tariffs, the creation of enterprise zones or tax incremental financing districts, and a host of other cost-reducing measures for corporations. According to Greg LeRoy, author of The Great American Job Scam: Corporate Tax Dodging and the Myth of Job Creation, these tax breaks and economic incentives embody the constrained public role that all the entrepreneurial strategies reflect. Public funding must always be used to "leverage" private investment and can never be employed for direct job creation.

The cost of the incentives they provide is about $50 billion annually. As both academic studies and state audits have shown, the return on this form of public investment is paltry at best and essentially a waste of tax dollars. These funds could better be applied directly to public job creation and to regional and national economic planning among businesses, governmental units, and unions.

Incentives are granted without regard to corporate need, thereby re-distributing income from moderate-income citizens and small businesses to large corporations with the leverage to demand major tax breaks and other benefits. A New York official who examined widespread tax concessions to major corporations remarked disgustedly, "Tax inducements...are as necessary as additional sand for the Sahara desert."

? Job Re-Training. On the surface, training and education programs for dislocated workers appear to be a solid strategy for updating the skills of workers for "jobs of the future." However, according to Bureau of Labor Statistics projections cited by Sherry Linkon of Youngstown State University, of the 30 jobs projected to produce the biggest job growth over the next decade, 23 do not require a college degree, and a number demand no special training. Fully 55 percent of the projected job growth will be in categories paying $32,380 or less.

Through re-training, displaced workers have, in effect, been given swimming lessons only to discover that the job market is an empty concrete pool. For example, "Out of a hundred laid-off workers, 27 are making their old salary again, or more, and 73 are making less, or not working at all," writes Uchitelle in his book The Disposable American: Layoffs and Their Consequences.

? Sports and Tourism. The building of publicly-funded new sports stadiums for privately-owned teams, the construction of marinas designed to attract wealthy boat-owners, creating convention centers to draw in conferences and trade shows, opening gambling casinos and subsidizing hotels that are part of prestigious and affluent national chains have all been justified in terms of building up tourism. Tourism is commonly sold as a means of attracting more outside money into the community and thus generating jobs in construction and at sports facilities, restaurants, bars, and hotels.

But this strategy overlooks that the quality of jobs generated by the sports/tourism strategy cannot compensate for the diminished pay and benefits that corresponded with the loss of manufacturing jobs. In both Baltimore and Milwaukee, as careful studies by UW-Milwaukee economist Marc Levine have shown, poverty grew despite huge public outlays ranging into the hundreds of millions for new baseball stadiums and other tourist attractions.

? Technology Centers. This strategy combines the glamor of high technology with the popular notion of "clustering" and building on local strengths. These technology centers are typically a concentration of medical and research facilities, based on the hope that breakthroughs will produce spin-offs of advanced medical or technological products which can be manufactured locally.

However, when Marc Levine studied 55 of these technology centers across the U.S., he found that none of them had produced the expected job growth. Even where university and hospital resources are most concentrated and well-endowed—as at Yale in New Haven—technology centers have been unable to dent the misery in the communities in which they are located. The level of unemployment and poverty in the city of New Haven remained unchanged.

? The Creative Class. This theory of attracting well-educated, creative people to an area and counting on remarkable economic impacts, popularized by management guru Richard Florida, has become widespread. Public officials, business CEOs, and other influential local leaders find his approach quite harmonious with their own inclinations, because it urges public spending on relatively affluent people and avoids challenging policies that prioritize corporate demands over public needs.

But the emergence of a small creative class cannot possibly compensate for massive losses of industrial jobs that provided family-supporting incomes and benefits. For example, the New York Time's Steven Lohr in 2006 hailed Racine, Wisconsin—a victim of devastating levels of de-industrialization—for following this strategy. But Lohr's article had an implausible premise: that the museum and 12 art galleries in the new district could fill in the economic crater left by the destruction of about 14,000 family-supporting factory jobs.

Economic Rights

Revitalization of America's failing factory towns must be premised on a fundamentally different set of concepts that assert economic rights for all Americans. This begins with a recognition, as put by Stanley Aronowitz, sociologist and former labor organizer, that, "Economic and political democracy are indissoluble. When people are struggling to make ends meet, they can't be part of the PTA or improve the community or follow the news, they're mostly concerned with survival." Among the most crucial of these economic rights would be the acceptance of a governmental responsibility to provide decent work opportunities or income maintenance for all citizens. With this obligation comes the responsibility for the government to take all appropriate steps to retain and expand "high-road" employment, including direct involvement in job creation.

Crucial for understanding the global economic system is the insight that the system largely involves interactions within corporations. This recognition undercuts arguments against the creation of global standards for decent living standards and environmental protections. The establishment of a global floor of humane wages and living conditions is essentially directed toward imposing standards of pay, working conditions, and taxation on a set of transnational corporations rather than diverse nation states.

Obscured by the clouds of rhetoric about "free trade," a huge proportion of U.S. trade consists merely of "intra-firm" transfers between U.S.-based and foreign subsidiaries of large corporate entities. As early as 1979, a congressional report concluded that "close to three-quarters of exports and upwards of one-half of all imports were transactions between the domestic and foreign subsidiaries of the same multinational conglomerate corporations," as noted by Bluestone and Harrison in their classic work The Deindustrialization of America. A deeply-entrenched belief among U.S. elites in the centrality of maintaining a "free trade" regime and thus avoiding "trade wars" is premised on assumptions that bear almost no resemblance to the real world of international commerce.

In the case of Mexico, as a New York Times news article revealed, U.S.-owned assembly plants produced $78 billion in exports in 2002, but nearly two-thirds of that sum came from American parts assembled in Mexico and then re-exported to the United States. Looking at China, fully 60 percent of "Chinese" imports originate from U.S. and other foreign-owned firms taking advantage of China's extremely low wages and repression of labor rights. Undeniably, there are international tensions over trade-related issues, but with tariffs generally a fraction of what they were previously, trade conflicts are no longer shaped around the export of U.S.-made tractors. The most central issues have been around questions like the penetration of U.S.-subsidized agribusiness products into markets in Brazil, India, and China; "intellectual property rights" dealing with, for example, extended patent rights for Northern-based drug firms that permit them to deny Southern nations the right to manufacture generic versions that would save countless lives; or prohibitions against private U.S. and European corporations entering into competition with public services offered in the South.

To promote a version of globalization that insures the global economic system is no longer a formula for plundering low-wage nations with weak environmental protections, advocates of global justice have long argued on the need for universal standards that would guarantee livable wages, decent working conditions, environmental safeguards, and democratic governance as a pre-condition for investment by transnational corporations.

The U.S. federal government, as well as state and local governments, are in a position to ensure that all government contracts include provisions for decent levels of income, benefits, training, the acceptance of union organizing rights without interference, and sensible policies for environmental protections.

Not only can the public sector enact the high-road model within its own ranks and enforce it among government contractors, but it can also use targeted investments to promote the high-road approach within the manufacturing sector. For example, as economist Marc Levine points out, the city of Montreal wanted to create a subway system and the locally-based Bombardier corporation decided to expand into that line of work. "Bombardier has worked on the New York subway system, the Mexico City system, and is now number one in the field because of government money," said Levine. Public spending developed manufacturing. "In contrast, when you look at the U.S., in the 1990s we didn't have a single provider of mass transit equipment. We now have a preposterously high percentage of green technology going to foreign firms. Because of such gross neglect of industrial policy, it's no accident that transportation-equipment firms are based in foreign lands."

The goal of environmental sustainability could be coupled with the provision of quality jobs by encouraging the development of mass transit and alternative energy equipment production in existing, vacant factories, rebuilding America's crumbling economic base.

The revival of U.S. manufacturing is a critical part of this high-road strategy. While avoiding the argument that manufacturing is intrinsically more worthwhile than all other forms of economic activity, UW professors Joel Rogers and Dan Luria assert: "It would be unwise for the U.S. to let its advanced manufacturing base disappear. We should strive to keep at least enough manufacturing jobs to meet our basic domestic and security needs and to service our trade with the rest of the world. We can do that while adequately compensating the workers who help satisfy these needs, and providing a return to the capital that invests in meeting them."

National Manufacturing Strategy

Since the late 1970s when the notion of industrial policy was introduced as a means of planning to insure the vitality of the U.S. productive base, the idea was greeted with an overwhelmingly hostile response from corporate leaders and publications, with Business Week a notable exception. Moreover, the increasingly dominant influence of Wall Street-based Democrats in the Clinton and Obama administrations has combined to keep industrial policy off the table—even during Democratic administrations

But the deterioration of the U.S. productive base has reached the point where one can imagine the idea forcing itself back into policy discourse among elites from both parties who previously marginalized the idea. Existing trade agreements, like NAFTA and CAFTA, and the World Trade Organization, one-sidedly protect investor rights but restrict the enactment or enforcement of laws designed to protect worker rights, the environment, product safety, and endangered species. A thoughtful and progressive industrial policy would reverse the elevation of markets above human needs in the U.S. economy. Rather than humans re-shaping their lives around the demands of capital, the market should be structured to meet human needs.

Thus far, the Obama administration has reacted passively to corporations exerting their prerogatives in the most outrageous ways (e.g., bank bailout money channeled to executive bonuses and auto bailout funding used by Chrysler to shift work from Wisconsin to Mexico). Such an approach repudiates the hopes of those dependent on governmental action for jobs, decent incomes, and staying in their homes. It also forfeits the enormous power that can be exercised through direct allocation of funds to government job programs to rebuild the nation's infrastructure and the strategic use of government procurement spending.

For example, Milwaukee County has in recent decades neglected a magnificent parks system initiated by its socialist mayors, who drew on the talents of visionaries like Frederick Law Olmstead to design them. As Milwaukee's factories were emptied out by de-industrialization its jails filled up and drained funding away from other county needs. Employment in the parks has been radically slashed, and a backlog of some $400 million in needed renovations and repairs has built up. Clearly, the use of federal stimulus money to upgrade the parks to their former level would not only provide employment, income, and skills to thousands of young people, but it would also enhance the city's value as a place to conduct business.

Surely, the approach outlined above will encounter a powerful set of barriers. Polling indicates that the pro-corporate direction of both parties reflects a vast gulf with majority public opinion on such vital questions as stopping corporate "off-shoring" of jobs. Many elite Democrats reject the notion of government intervention to protect and promote U.S. manufacturing as excessive interference in the private market.

Even the overwhelming majority of Tea Party members—widely viewed as uniformly reactionary and anti-government—favor precisely such a policy. As progressive journalist Mike Elk noted, "Seventy-four percent of self-described Tea Party supporters would support a "national manufacturing strategy to make sure that economic, tax, labor, and trade policies in this country work together to help support manufacturing in the United States," according to a poll put out by the Mellman Group and the Alliance for American Manufacturing.

If any environment would be conducive to a re-examination of Americans' attitudes toward corporate and banking institutions and their domination of government, the continuing persistence of high long-term unemployment could certainly stimulate it. Meanwhile, the U.S. trade deficit continues to remain at astronomical levels, which may provide labor and progressives with an opening to insist on a national economic policy, including an end to "free-trade" agreements, says Jeff Faux. These trade deficits will be unsustainable without either a profound revitalization of U.S. manufacturing or a further reduction in U.S. living standards.

"Any economic argument that leads from foreign debt winds up with the need for an industrial policy," says Faux. "Everyone says that it's a good idea, but it's left to the mayors to lure in venture capital for mass transit. It's an uphill battle to persuade the elites in both parties, but if you're looking around for toeholds, force them to admit what they don't want to admit"—the virtual abandonment of U.S. manufacturing and more sharp declines in earnings for average Americans, Faux insists. "Either admit it or work toward restoring industry."

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Roger Bybee is a freelance writer and progressive publicity consultant whose work has appeared in numerous national publications.