By Dean Barber, Principal, Barber Business Advisors, LLC
Most freight in this country continues to be moved by truck, so not surprisingly, proximity to an interstate highway is often a key component for companies that have product to ship. Welcome to Site Selection 101. But if you look at a map, you will notice there is no interstate highway connecting Memphis to Birmingham, two major industrial cities of the Southeast. That lack of good road certainly did not help the growth prospects in Northwest Alabama, which historically based its economy on natural resources—coal and pulpwood—and smaller cottage industries. This isolated nature of the region will be changing with the completion of the future Interstate 22. Following the U.S. 78 corridor, a once truly hellish road to drive on in Alabama as it was slow, winding, and laden with coal trucks, the soon-to-be-interstate highway is essentially done already. Only a small sliver needs to be completed on Birmingham’s doorstep connecting into Interstate 65. That should happen by early next year. Interstate 22 will open up Northwest Alabama. Thousands of undeveloped acres now skirting this limited access highway may now become viewed in a different light. I visited the region in January and spoke at the annual meeting of C3 of Northwest Alabama Economic Development Alliance, a two-year-old regional economic development organization working on behalf of Lamar, Fayette and Marion counties. C3 President David Thornell, an old friend and a talented economic developer, asked that I share my views on where we have come from and where we are going in terms of our national economy and how that relates to economic development. Deviating from my norm, I went the speech route and not a PowerPoint. One big revelation resulted during my preparatory efforts—writing and delivering a good speech is a lot harder. The remainder of this blog will be dedicated to excerpts from my speech that I gave in Winfield, AL. I won’t reprint the whole thing because you don’t deserve to be inflicted with such harsh treatment. Of course, I could say the same for my listening audience in Winfield but they got both barrels. On Economic Development and Citizenship “That notion that we are inextricably tied together as community is foundational to economic development. Not only are we thinking of how economic development effects our own lives, but that of others as well. Economic development is designed to touch lives with the creation of wealth and jobs, an increasingly difficult goal in reaching because of certain dynamics and realities at work. “The practice of this imprecise art and science is a gaze into the future—how things could be, how things should be—with a goal that we may have and sustain a good and productive life in our community, but also that our children might be afforded the same or even greater opportunities if that is their choice. “There is a link between building wealth, which really should be the bottom line goal of economic development, and citizenship. That is not to say that those with the most marbles necessarily make for the best happiest or best citizens among us. Nor does it mean or imply that those with the least cannot contribute in their own right. Being a good citizen of a community has more to do with what is in your heart and your head than what is in your bank account. “In the end, being a citizen is about caring and acting upon the well-being of home, family and neighbors. It may sound a bit odd, but citizenship is a form of love and economic development only helps to spread that love if you can only imagine that. I try to imagine that.” On Job Creation “Despite what some may believe, economic developers do not create jobs. The very best they can do, really the only thing they can do, is to help create and foster a better business environment in which capital investment, job creation, wealth creation, economic development, takes place. “Economic developers then are not the great chefs but rather the careful place setters, hoping that their efforts and leadership might somehow prompt and influence the actions of others. I can tell you from good experience that you have some excellent place setters in this room—dedicated men and women who work tirelessly to create a better business climate that can lead to better economic opportunities in their communities. “But in the end, the economic developers can only wait and hope that their actions, no matter how proactive they may be, should take root. For it is business and industry—the private sector—that is the great job generator for our economy and in most places. If you elected officials think that recruiting a company to your community should be a rather simple and straightforward affair, please understand that it does not work that way. This is not room service.” The Disadvantages for US Manufacturers “Self-imposed obstacles to growth will remain. This may sound a bit disjointed or obvious, but it is our decline that keeps us down. The structural costs—corporate tax liability, tort litigation and regulatory compliance—taken together, were 20 percent higher in 2011 than for our nine largest trading partners, up from 17.6 percent in 2008, according the Manufacturing Institute. And get this, that cost differential does not include the cost of labor. “This erosion of our competitiveness is the primary reason why we lost 5.5 million manufacturing jobs from 2000 to 2010. More than 60,000 manufacturing plants were closed, averaging more than 15 per day. Consider for a moment the following: “The United States has the highest statutory and effective corporate tax rate in the industrialized world. “The regulatory burden on manufacturers is equivalent to an 11 percent tax on their businesses. Manufacturers spend an estimated $180.5 billion complying with regulations annually. “US students lag behind their global counterparts in science and math. “In a nutshell, what this means is that it is not principally what other countries are doing to overtake us. Rather, it is what we have been doing to ourselves.” On Re-shoring and Productivity “It is now apparent that many U.S. corporations did not accurately ascertain their total costs when they picked up and moved operations to China. For some, their actions were almost lemming like. They soon discovered the savings were not always substantial if at all because of long and vulnerable supply lines and the associated fuel costs for transport. Also, some U.S. companies did not take into account the just-in-time requirements of their customers or concerns about quality control. Add to this mix rising wages in China and management soon realized that they had to rethink this competitive scenario. “Still, it is clear that competitive pressure from offshore has had a depressing effect on wages in the U.S. New technologies have raised productivity and profits, but have also enabled companies to do more with less people. Robots have pushed aside many factory workers and that trend will only continue. “Clearly, there is no law that says that when productivity goes up that everyone must benefit. The truth is that from 1973 to 2011, worker productivity grew by 80 percent, while median hourly wages grew by just one-eighth of that amount.” How to Respond “Certain types of jobs, particularly those of a lowered skilled nature, will never return as manufacturing continues to shift toward automation and robotics. While technology creates some jobs, it surely destroys others. So how do we respond to this digital world? “Historically, Alabama has depended on lower cost mass production manufacturing as the answer, especially when in comparison to industrialized northern states. The competitive model has been to offer lower taxes and lower wages. Developing innovative capacity, essentially new technologies, to gain a competitive advantage has not been the Alabama game plan or for much of rural America, although it is clear that is the German mindset. “Ultimately, for the United States, for Alabama, for Northwest Alabama, to be competitive in the long run, more resources and emphasis should be placed on innovation and entrepreneurship and less on cost, because there will always be a China, an India and a Mexico. So it would stand to reason that we should strive to make things that they are unable to make or would have a difficult time to make. We should incentivize high growth startups and even mature industries that embrace technological innovation, knowing full well that jobs are at stake if we do or we don’t. “It means building a workforce with higher skills, but I am not the first person to tell you that. But it’s absolutely true. In this end this is a choice about investing in yourself and betting on a future. It’s not so wild a dream that this can happen here.” About half-way through my speech, I got this gnawing feeling of dread that I was sounding like some pointy-headed professor from the big city. Afterward, some audience members said that my remarks were “real interesting,” which made me feel better, as I wondered if I had delivered a dud. Of course, they may have just been saying that to be nice. And that’s why I love the South.