rural development in the united states -connecting theory, practice, and possibilities by: william...

Rural Development in the United States-Connecting Theory, Practice, and Possibilities

By: William A. Galsten and Haren J. Baehler

Chapter 6: Manufacturing

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Introduction to Manufacturing

The shift to factories from farms represents the largest structural change in the rural economy in the twentieth century. This change allowed the rural communities to create tremendous wealth and boost the standars of living for millions of residents.

The literature on manufacturing-led development shows patterns which parallel that of “Natural Resources.”

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Introduction to Manufacturing (cont.)

After the mid 1980’s overall rural manufacturing jobs have had no growth and barely been able to regain the levels of the late 1970’s. Rural manufacturing jobs no longer represent a source of steady job growth.

As long as productivity growth keeps up with the demands of changing technologies it will become an important generator of wealth.

The area of rural manufacturing has overwhelming room for improvement. Currently market forces have failed to provide a means of access to technology, advanced services, and financing to rural manufacturers so that they can compete in what could be a strong area for rural growth.

Rural manufacturing must create a balance. Each rural community or region must find a mix of activities that reflect its geography especially in relation to existing metro areas.

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National & International Trends in Manufacturing

Some facts about growth: National growth in a particular industry seems to be parallel with rural growth

therefore brining up the questions of whether or not manufacturing is a potential source of U.S. growth.

Since WWII three conclusions have emerged with respect to manufacturing:

1. Employment within manufacturing is declining. a. Output in rising has remained remarkably steady in its

constant share of the GNP dollar since 1985 lingering around 21% to 22%.

2. Output in manufacturing is rising.a. Within 30 years manufacturing employment went from

27% in 1955 of full-time equivalent workers to only 18% in 1985.

b. This figure shows that even thought the prices and demand of American manufactured goods have fluctuated they have still been rising at the pace of aggregate GNP during the past 30 years. (1955-1965)

c. However, at the same time actual dollar transactions for manufactured goods have actually been shrinking as a proportion of total dollars. Lower prices explain some of this decline. Another factor is the product market.

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National & International Trends in Manufacturing (cont.)

3. In respect to the overall economy the overall role that manufacturing plays is declining.a. The short term prospects are uncertain for

manufacturing.b. A relatively cheap dollar should contribute to

expanded exports, but global demands could choke off growth.

c. Manufacturing’s unending quest for enhancements is likely to cause abandonment of certain low-wage, low-skilled industries. Manufacturer’s will continue to employ a decreasing share of the work force.

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The Big Debate: Does Manufacturing matter and if so how muchThere are two opposing pictures of a healthy modern market economy:

1. “Post Industrial” : This picture attributes the sharp decline in the manufacturing sector of the 1980’s to adverse business cycles and bad macroeconomic policy. This contributes the last markets of the 1980’s to larger economic forces beyond manufacturers control.

2. “Deindustrialization”: This picture attributes the loss of manufacturing jobs and GNP as a signal of structural weakness in the economy of the U.S. The shrinking of the manufacturing sector is not a natural stage, but a dangerous hollowing of the U.S.’s economic foundation.

a. These economists blame the deterioration of goods production on both the part of the government and corporate mOver focus on short term goals

Lack of unclear training and developmentNo development of new product innovationsReliance on old concepts and focus on volume not quality controlmanagement. These include:i. Over focus on short term goalsii. Lack of clear training and developmentiii. No development of new product innovationsiv. Reliance on old concepts and focus on volume

b. These problems resulted in the loss of market share to competitive producers in Japan, Germany, etc. according to the view of

Deindustrialization.”

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Charting Change: Attempts to solve the view of “deindustrialization” have created a new

question; the distinction between manufacturing and services. Robert Reich states that the distinctions between manufacturing and

services is a collection of international and intersectional webs of economic activity. This view places importance on horizontal instead of vertical connections within branch and the main headquarters of manufacturing.

In this view concepts of coherence and nationality are broken down. Reich’s insights offer valuable insights into the new global context for

manufacturing, but all of his evidence is anecdotal. However, some mainstream inquires can provide a statistical basis for the

concept of the enterprise web. Manufacturing proves to be a far stronger generator of growth economy

wide, than services. So, yes manufacturing matters, but is not the chief engine of the economy. Healthy manufacturing sector is just one of several key elements of a healthy economy.

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From Macro to Micro: Before looking to European examples of enterprise web

manufacturing two additional questions must be addressed1. Do the models help us to understand industrial relationships at

the local, national, and global levels?2. Will government and non-market institutions be able to have a

role in the process of network creations and development? The models do not represent the geography of todays global and

interdependent manufacturing services economy. However, “in theory, even remote rural areas could form flexible specialized networks based on either a concentration of local craft skills or a small, existing cluster of related firms with the potential for growing into a larger, regional conglomeration.”

The second question of government involvement can be provided by inspecting some of the European Models. The models show that the government has learned to play a constructive role. The government can provide “real services” that can leverage changes in the enterprise web.

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Manufacturing: The Rural Picture

The rural economy has basically paralleled the national economic patterns for the past 30 years. (1955-185)

There are two exceptions to these parallel trends:1. The very good times of the 1970’s in rural America.2. The very hard times of the 1980’s in rural America.

Between 1964 and 1976 the increase of rural manufacturing increased at the annual rate of 1.4% compared to a decline of 1.1% in urban areas annually.

However, in the late 70’s and early 80’s the tables turned. The overall unemployment rates rose two percentage points in the rural areas than in the urban areas. During the same period employment in rural manufacturing dependent countries fell 5.6%.

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Manufacturing: The Rural Picture

The rural south also experienced similar trends to those of other rural counties.

Trends seem to show that the rural manufacturing will survive, but never back to the levels of the 1970’s.

Long term manufacturing trends imply somewhat pessimistic predictions for the future health of rural America as a whole.

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Manufacturing: Economic Development StrategiesLinkages : The first stage The U.S. economy is following a path of growing

interconnectedness. However, difficulties in the rural economy in the past ten years indicate that multiplier effects have not reached the rural market.

Future strategies can help to capture the benefits of economic interconnectedness in rural America in three ways:

1. Promote the establishment of manufacturing enterprises that are linked to natural resource industries, I.E. forestry, agriculture, fishing, lumber, and wood products, food production and processing. Areas with no existing base of value-added manufacturing are not likely to be able to create one from scratch, the areas that have existing footholds should do what they can to improve these through efficiency and competitiveness.

2. There is also the two-step process of “import substitution” which encourages firms to buy inputs locally, and encourages development of local businesses that can supply the needs of the existing plants. This process can help local economies reduce the leakage of dollars.

3. Development strategies can facilitate the natural processes by which new manufacturing enterprise are born from old. Nearly all new manufacturing firms had roots in another company. This emphasizes the importance of local production networks.

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Manufacturing: Economic Development Strategies (cont.)

Linkages: The Next Step Rural economic developers can help to ensure that local rural

manufacturers take full advantage of larger interdependencies, that Reich’s describes in his web theory. The web theory also recognizes that a community may have to “leak” some dollars to create local competitiveness.

The enterprise web and specialization models tend to move economic developers toward activities that involve cooperation between jurisdictions rather than competition. This type of strategy depends on a high level of sophistication about existing industry networks and penetrating them. Researchers can help build the knowledge base for these activities by:

1. Mapping the natural supply, production, distribution, and marketing networks.

2. Identifying the barriers that prevent these networks from reaching capacity.

3. Determining whether rural farms suffer disadvantages in gaining access to these networks.

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Applied Technology Rural manufacturing is lacking behind in the drive to automatic. The SGPB (Southern Growth Policies Board) had a hard time even

locating enough “partially automated” rural plants to conduct a survey. However, the survey also uncovered the growing awareness of the need to automate.

The SGPB stated that, “The south clearly needs new rural industrial development resource and strategies. Dramatic improvements in both productivity and quality within existing traditional industries are needed, and the likely path is the adoption of new process technologies.”

Small rural firms are especially falling behind in the adoption of view technologies. This new technology is also hard for small farms to obtain because their needs are so much different than the large farms.

During the 1980’s many efforts were created to help close the gaps in manufacturing technology.

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The efforts turned into two main models among the state governments.

1. The first employs the concept of “manufacturing extension services.” The model, modeled after the Dept. of Agriculture’s cooperative extension service of outreach to formers, a program where state employed exports visit small producers one by one to give them advice.

2. The other main model involves information networks. These networks link small firms with technological sources with rural expertise such as colleges.

What is needed most of all for rural manufacturers to catch up is the ability to take “well-known, scientifically uninteresting knowledge and assure that all firms in an industry can make use of it.” Which means it must become accessible to them.

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Capital Capital supply in rural areas is a matter of some controversy, but

new investments in production technology would clearly seriously strain the rural communities existing capital resources.

There are three factors in deciding whether or not free-moving foreign capital offers significant employment gains and production improvements in rural areas.

1. The location of the investment2. The types of investments3. The likelihood of foreign owners investing in production

technology Rural areas received significantly more employment-creating

foreign capital(38%) than do urban areas(17%). However, when this data is viewed through the national perspective, the economic potential of foreign investment appears to be belittled by the fact that only a small fraction 4%) of these dollars created new facilities and jobs.

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Capital Some acquisitions secured jobs, but many eliminated jobs

to increase productivity or because many of the production facilities were relocated to the home countries.

This information is however offering a brighter picture for rural investment stating that there is the potential that a foreign investment is more likely to support a new facility in America.

The Dept. of Commerce reported that in 1988 foreign affiliates spent $12,200 per worker in manufacturing opposed to the U.S.’s average of $8,400. Their findings for the first half of 1990 compared to 1989 revealed some shocking trends.

1. Direct foreign purchases of U.S. plants and companies in new facilities here fell 70%.

2. Indirect foreign investments in U.S. company stocks fell 50%.

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From those statistics it shows that the competition for capital will grow more fierce in coming years.

However, these models tend to make rural communities want to woo foreign investors to their areas. But rural areas often miscalculate the dangers of wooing foreign investors including selling out their resources and settling for a short-term layover in a multinational corporations quest for the lowest-cost of production.

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Exports Exports are another area of “slack” in the U.S. rural economy as they

are not fully exploited opportunities. They represent the largest area of untapped potentially for U.S. manufacturers of all sizes.

75% of the nations manufacturing produces items which could be potentially sold overseas, but only 10% of those are actually exported.

Small manufacturers currently face three main problems with regards to exporting which many state governments have created programs to help combat:

1. Information markets along with education services are needed to help answer basic questions and expose the owners and business men of firms to additional resources which are available.

2. Technical assistance in industry related areas and markets such as research.

3. Financing through direct assistance of loans. Suggested reforms in the promotions of exports lead to two main

problems:1. Better coordination to avoid redundancy.2. Evaluation of existing promotions and assistance programs.

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Labor force The labor force in rural communities is a key element in

helping those communities to alter their industrial mix and pursue higher wage industries.

Programs are needed to upgrade the skills of existing personnel and to improve the educational experience of the young.

Gains in education must be accompanied by greater opportunities for a higher educated community. When these better jobs are not provided within the communities individuals tend to move from the rural community in search of them creating a critical form of “leakages.”

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Manufacturing: Quality of Development

Jobs and Equity Manufacturing offers stable jobs at relatively good wages to

members of rural communities with low education levels. Rural communities tend to attract the lower wage end of

the manufacturing spectrum and generally employ the bottom tier of workers within the industry. In 1980, 22% of manufacturing jobs were located in rural communities, but only 10% were management positions.

These low wages have brought the manufacturing plants to rural communities, but because of this they have also brought many of these communities higher poverty votes.

Gaining more income and greater wages in rural areas with manufacturing will probably depend on:

1. Attracting higher-wage industries2. Improving productivity

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Manufacturing: Quality of Development (cont.)

Jobs and Equity (cont.) One of the drawbacks to attracting higher wage

manufacturing is that over the past 30 years it has been the greatest job loser in the industry, which would not insure the rural communities job stability.

Stability seems to come with diversity in rural economies. The highest stability tends to be found in job markets that have strong government sectors and diversified labor market areas.

Productivity offers the greatest possible hope for a risking standard of rural living in communities which are dependent on the manufacturing industries.

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Manufacturing: Quality of Development (cont.)

Self Sufficiency Models of self-sufficiency stress the need for independence

rather than dependence. Arguing that successful, small-scale, flexible manufacturing depends on adapting to market changes without sacrificing jobs by having the larger community establish basic rules about how jobs will be distributed, new workers will be trained, and how firms will prevent exploitment of their workforce.

Efforts to not lose sight of the potential risks of homegrown growth and efforts to broaden the ranks of local leadership may eventually overcome the traditional domination of manufacturers on rural communities.

rural development in the united states -connecting theory, practice, and possibilities by: william...

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