I'm currently reading The Selling of the South: The Southern Crusade for Industrial Development by James C. Cobb. I'll be posting chapter notes like I have for other books, but I thought I would also post this section from a paper I wrote last semester. It reviews the early development of Southern industrial location policy and cites frequently from the first chapter of Cobb's book.
2. The Development of Southern Industrial Location Policy
Mississippi is widely credited as the first state to offer business location subsidies to attract industrial development (Roth, 2000) although subsidies for industrial location were common throughout the South before and during the depression years (Cobb, 1993). However, Mississippi’s Balance Agriculture with Industry (BAWI) program had the distinction of being the first subsidy program organized and operated at the state level. Before BAWI, industrial location subsidies were offered by individual communities – often in violation of statutory or constitutional prohibitions or restraints (Cobb). This section of the briefing paper will describe the development of Mississippi’s industrial location policies, its contribution to the spread of similar policies throughout the South and rural areas in the rest of the country, and the focus of those policies on attracting industry to the South with low-cost labor.
2.1 Local subsidies
Local industrial development subsidies took several different forms. Communities provided land and buildings, paid for training of new workers, and granted property tax exemptions. The costs of the subsidies were often financed with municipal bonds. However, in some cases employees were required to agree to a deduction of 5 to 7% of their wages as a condition of employment at the new facility; the employee assessments were used to help pay the subsidy costs (Cobb, 1993).
In 1929, Hugh Lawson White, a retired lumber mill operator, was elected mayor of Columbia, Mississippi, a city suffering from the collapse of the lumber industry even before the Depression hit.1 White advocated industrial attraction as a way to revitalize the local economy. White recruited Reliance Manufacturing Company, a shirt and pajama producer; Reliance executives agreed to build a factory in the community if they were provided $85,000 to construct a new plant building. In return the company promised to employ at least three hundred workers (mostly women) and to have a payroll over ten years of at least $1 million. If the company held up its end of the deal, it would assume ownership of the property at the end of the ten-year period (Cobb, 1993).
The Columbia-Marion County subsidy was judged successful. Although the women at the plant were paid only about $9 per week, the plant was credited with revitalizing the area economy, reducing out-migration of local residents, and increasing farm family incomes. After the Reliance plant opened, Columbia managed to attract two more factories. Hugh White ran for governor in 1931, promising to “Balance Agriculture with Industry.” White lost that first election but was elected governor in 1936 and began working with the legislature to develop an industrial development program that would meet constitutional muster (Cobb, 1993).
2.2 Mississippi’s BAWI program
White was successful in persuading the legislature to authorize his program. The BAWI program was administered by a three member industrial commission. Communities wishing to offer a location subsidy to an industrial firm had to secure a Certificate of Necessity and Convenience from the commission. The request had to meet several requirements. The commission required local support in the form of a petition signed by at least 20% of the registered voters of the local government applicant. The commission also required that the community have a supply of unemployed workers equal to at least one and a half times the number of jobs to be provided and that the enterprise have a “reasonable prospect of success.” If municipal bonds were to be used to finance the subsidy, approval by a two-thirds majority was required in a local referendum. Proceeds of the bond sale could be used to acquire land and buildings for the new enterprise, so long as the bonds issued didn’t exceed 10 per cent of the town or county assessed valuation. (Cobb, 1993).
The industrial commission took an active role in industrial recruitment beyond merely considering the local community’s certificate applications. Commissioners investigated firms that expressed interest in locating in the state and put company officials in contact with local officials of communities in which they had expressed an interest. In most cases, approval of the certificate was a mere formality since the commission was involved in the community-enterprise negotiations from the beginning; applications were usually not submitted if the commissioners had expressed disapproval. Between 1937 and the expiration of the BAWI program in 1940, Mississippi’s industrial commission approved 21 certificates of necessity and convenience; twelve of them ultimately resulted in construction of new industrial facilities (Cobb, 1993).
After the BAWI program expired in 1940, Mississippi communities relied on tax exemptions rather than municipal bond sales to subsidize incoming industrial facilities. In 1944, the state authorized a successor to the BAWI program. Procedures were similar to those of the original program, except that under the new program communities were required to collect rent from the new firms sufficient to retire the bonds used to pay for the facilities (Cobb, 1993).
2.3 The spread of industrial development subsidies
The success of the BAWI program and its successor is debatable at best. Public officials and other program supporters were willing to claim credit for every worker employed at a facility subsidized under the BAWI program 2, but program critics contended that many of the facilities would have located in Mississippi even without the public subsidy (Cobb, 1993). As the number of industrial facilities and workers increased, southern industry became more diversified. Prior to World War II, most southern industry was concentrated in the timber and textile sectors; by 1947 many facilities were producing chemicals, farm equipment, tires, automobiles, electrical equipment, aluminum, shoes, and food products. However, industrial diversification may have resulted more from the wartime movement of industry from coastal areas inland than from southern industrial development policy (Roth, 2000).
The major contribution (for lack of a better term) of the BAWI program to public policy was that it helped to institutionalize the practice of industrial recruitment and subsidization at the state level. The principles embodied in the BAWI program spread to other states in the South. By the 1960s every Southern state, except North Carolina, was using an industrial development bond program similar to that in Mississippi’s original BAWI program. Tax abatements, formation of local industrial development commissions, and the construction of industrial parks also spread through the South as methods of subsidizing industrial development. Eventually, the use of industrial development bonds, tax exemptions, and other industrial development subsidies spread throughout the country as non-southern states adopted them as defensive measures against what they viewed as southern raiding of their factories (Cobb, 1993).
2.4 The focus on low-cost labor
The South has traditionally had a reputation of using low-cost labor as its primary feature for attracting manufacturers (McGranahan, 2001). In their post-war survey of southern manufacturers, McLaughlin and Robock (cited in Roth, 2000) found that, especially in small towns, low-cost labor was the primary attraction for firms relocating to the South. Roth (2000) points out that labor costs in the South had always been lower than in the North, but in the post-war period the growing influence of labor unions and more frequent labor strikes in the North made low-cost, non-unionized southern labor even more attractive to northern manufacturers. Companies moving south expected state and local officials to maintain a nonunion environment in their community.
The way in which the BAWI and its successor programs were operated not only capitalized on the existence of cheap labor, but also made its continued availability a central objective. In the original BAWI program, the existence of surplus labor was an explicit requirement for allowing a community to use industrial development bonds to subsidize a new industrial facility. While this requirement can be justified as necessary for avoiding the offer of subsidies in areas without high unemployment, it had the effect of making sure that manufacturers wouldn’t suffer from a run-up in labor costs stimulated by the opening of their own facility (Cobb, 1993).
Roth (2000) points out that companies also found small towns and rural areas attractive because they preferred to locate in areas in which they could be the only major employer. Cobb (1993) recounts that companies relocating to the southern communities often obtained commitments from local officials not to recruit additional industrial facilities for at least five years. These practices not only limited the competition for workers that new firms faced from other employers, but also allowed the firms to acquire a great deal of political influence in the community (Cobb, 1993; Roth, 2000).
The focus on low-cost labor in industrial recruitment affected the types of industries and employers that were attracted to the South. Cobb (1993) points out that these policies attracted primarily low-wage, labor-intensive, and extremely cost-conscious companies within competitive industries. Consequently, the subsidies offered to attract the company to the community in the first place were only the beginning. Once, the company chose a location and the community came to rely on the jobs it provided, the community often had to grant additional concessions to prevent the company from moving the facility elsewhere.
Roth (2000) and McGranahan (1998, 2001) point out that these industrial recruitment policies also tended to attract manufacturers producing mature products for which production processes had become routine and standardized. These products require little in the way of skilled labor and sophisticated support services. As a result, southern and other rural areas have lagged behind the rest of the country in developing a highly-skilled and highly-educated work force (Green, 2003). While they have been successful in reducing the most severe poverty (McGranahan, 2001), policies focused on low-wage, low-skill labor are being rendered obsolete as a successful strategy for attracting and retaining major employers due to changes in the manufacturing environment, not only in the US, but worldwide.
1. According to Cobb (1993) the collapse of the local timber industry was caused by the failure of the timber companies to replant enough trees; by the 1920s timber reserves were exhausted as was the local timber industry.
2. The ability to take credit for highly-visible factories and the jobs they create is still a major factor that drives local economic development policy (Wolman & Spitzley, 1996).
Cobb, J.C. (1993). The Selling of the South: The Southern Crusade for Industrial Development, 1936-1990. (2nd Ed.). Urbana: University of Illinois Press.
Roth, D. (2000). Thinking About Rural Manufacturing: A Brief History. Rural America, 15(1), 12-19. Retrieved from: http://www.ers.usda.gov/publications/ruralamerica/ra151c.pdf
Posted by Chip on June 18, 2004 at 07:47 PM | TrackBack