Download Rural Development in the United States

Rural Development in the United
States
-Connecting Theory, Practice, and Possibilities
By: William A. Galsten and Haren J. Baehler
Chapter 6: Manufacturing
Introduction to Manufacturing
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
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.)
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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1970’s. Rural manufacturing jobs no longer represent a source of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.
b.
c.
Within 30 years manufacturing employment went
from 27% in 1955 of full-time equivalent workers to
only 18% in 1985.
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. (19551965)
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
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factor is the product market.
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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National & International Trends in
Manufacturing (cont.)
The Big Debate: Does Manufacturing matter and if so how much
There 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 development
No development of new product innovations
Reliance on old concepts and focus on volume not quality control
management. These include:
i.
Over focus on short term goals
ii.
Lack of clear training and development
iii.
No development of new product innovations
iv.
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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National & International Trends in
Manufacturing (cont.)
Charting Change:
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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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National & International Trends in
Manufacturing (cont.)
From Macro to Micro:

Before looking to European examples of enterprise web
manufacturing two additional questions must be addressed
1.
2.

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Do the models help us to understand industrial
relationships at the local, national, and global levels?
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. 8
Manufacturing: The Rural Picture
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
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.
2.


The very good times of the 1970’s in rural America.
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
Strategies
Linkages : 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.
2.
3.
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.
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.
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
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production networks.
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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Manufacturing: Economic Development
Strategies (cont.)
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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Manufacturing: Economic Development
Strategies (cont.)
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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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Manufacturing: Economic Development
Strategies (cont.)
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 investment
2.
The types of investments
3.
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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Manufacturing: Economic Development
Strategies (cont.)
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.
2.
Direct foreign purchases of U.S. plants and companies
in new facilities here fell 70%.
Indirect foreign investments in U.S. company stocks fell
50%.
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Manufacturing: Economic Development
Strategies (cont.)
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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 lowestcost of production.
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Manufacturing: Economic Development
Strategies (cont.)
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
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programs.
Manufacturing: Economic Development
Strategies (cont.)
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.
2.
Attracting higher-wage industries
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.
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