Deindustrialization and Regional Economic Transformation: The Experience of the United States 9781138095908, 9781315103068, 9781138101845, 9781315103129, 0044455380

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ROUTLEDGE LIBRARY EDITIONS: URBAN AND REGIONAL ECONOMICS

Volume 19

DEINDUSTRIALIZATION AND REGIONAL ECONOMIC TRANSFORMATION

DEINDUSTRIALIZATION AND REGIONAL ECONOMIC TRANSFORMATION The Experience of the United States

Edited by LLOYD RODWIN AND HIDEHIKO SAZANAMI

I~~~o~:~!n~~~up LONDON AND NEW YORK

First published in 1989 by Allen & Unwin This edition first published in 2018 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 1989 United Nations Centre for Regional Development All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: ISBN: ISBN: ISBN:

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DEINDUSTRIALIZA TION AND REGIONAL ECONOMIC TRANSFORMATION The experience of the United States EDITED BY

Lloyd Rodwin

Hidehiko Sazanami

Boston UNWINHYMAN London

Sydn ey

Wellington

© United Nations, 1989 This book is copyright under the Berne Convention. No reproduction without permission. All rights reserved. Unwin Hyman, Inc., 8 Winchester Place, Winchester, Mass. 01890, USA

Published by the Academic Division of Unwin Hyman Ltd 15/17 Broadwick Street, London W1V 1FP, UK Allen & Unwin (Australia) Ltd, 8 Napier Street, North Sydney, NSW 2060, Australia Allen & Unwin (New Zealand) Ltd in association with the Port Nicholson Press Ltd, Compusales Building, 75 Ghuinee Street, · Wellington 1, New Zealand First published in 1989

Library of Congress Cataloging-in-Publication Data

Deindustrialization and regional economic transformation: the experience of the United States / edited by Lloyd Rodwin and Hidehiko Sazanami. p. cm. Bibliography: p. Includes index . ISBN 0-04-445538-0. - ISBN 0-04-445539 -9 (pbk.) 1. Plant shutdowns - United States. 2. United States Economic conditions - 1981 [-] Regional disparities. 3. Regional planning- United States. I. Rodwin, Lloyd. II. Sazanami, Hidehiko . HD5708 .55.U6D457 1989 89-14643 338.6'042 - dc20 CIP British Library Cataloguing in Publication data

Deindustrialization and regional economic transformation: the experience of the United States. 1. United States. Manufacturing industries I. Rodwin , Lloyd . II. Sazanami, Hidehiko 338.4'767'0973 ISBN 0-04-445538-0 ISBN 0-04-445 539-9 Pbk

Disk manipulation and typesetting in 10/12 pt Melior by Computape (Pickering) Ltd, North Yorkshire and printed in Great Britain at the University Press, Cambridge

Preface

THE TIME is ripe for a searching reappraisal of the regional implications of the vast changes now occurring in different areas and sectors of the world economy. This, in essence, is the rationale for the series of comparative international studies now being undertaken by the United Nations Centre for Regional Development (UNCRD). The main focus is on the implications of the recent industrial and regional economic transformations in developed countries, such as the United States, the EC nations, and Japan, for Third World countries. Particular attention will be paid to the developing and newly industrializing countries (NICs) of the Pacific Rim. Two facts dominate the changing international scene. First, in contrast to the past, we now live in a multipolar international economy with the emergence of Japan and the EC as major economic poles, in addition to the United States. Second, significant structural changes are now occurring in the organization of economic enterprises of these more advanced economies, and the impact of these changes are being felt across the globe, particularly in the newly industrializing economies. It is mainly for these reasons that studies of deindustrialization and regional economic transformations in the developed nations, such as the United States, the countries of Western Europe, and Japan have been commissioned, and it is in this context that the ASEAN countries in the Western Pacific region have been selected as one of the principal foci of this ,research enterprise . For one of the main concerns of the UNCRD is how - taking account of these transformations - it can help strengthen the capacity in developing countries and NICs for sustained growth and development in our globally interdependent economy. Central to these changes is the question of the extent to which the restructuring under way will give rise to a "hollowing" of the economies \ of the more developed countries, and whether and how the losses incurred by these industrial transformations will be offset by gains elsewhere in the international economy. Of equal importance is the

viii

Preface

impact of these changes on the less developed and newly industrializing economies of the world. The "hollowing" of the industrially developed economi es is particul arly worrisome in the manufacturing sector, whi ch has been a primary engine of growth, as well as a major sector of labor absorption in these countries. It now appears that a combination of high wages, changing occupational preferences, improved production technology, and the capacity to engage in a vastly expanded range of transactions have set into motion a process by which manufacturing industries have "moved up" or "moved out" to avert decline in profit abilit y and to expand th eir mark et share . "Moving up" on the technological scale has led to higher value-added performance and increased firm profitability. Similarly, the "moving out" of production functions to lower wage locations - increasingly transcending national boundaries in recent years - has undeniably enabled some firms or sectors to maintain industrial competiti veness. What is less cl ear in both of these inst an ces is wh ether th e d ecision to eith er "move up" or "move ou t " can continue to be carried out, while maintaining employment levels in the home country. In the initial euphoria over the " post-industrial society" in the 1960s and 1970s, the prevailing image was that of a "w hite-collar economy". One is far less confident about this today. All indications are that while R&D and managerial positions and oth er whit e-collar jobs in business , financ e, and real estat e are undoubtedly mor e attractive, th e sad truth is that there may not be enough of th em to compensate for the blue-collar workforce displaced through the industrial transformations of "moving up" and "moving out". The majority of jobs in the more labor-absorptive sectors of the "white-collar economy", such as the trade and service sectors, are not nec essaril y well paid. The problems are furth er compli cated by several other changes in the int erna tional econom y. Of particular importanc e is the ease wi th which cross-national flows of capital, technology and labor take place today. This is symptomatic of the increasingly interdependent nature of the world economy . It is no longer realistic, nor even feasible, to formulate industrial policies or chart national and regional development strategies by looking only within th e confin es of on e' s national boundari es . Toda y, capital exporting countries are no longer rest rict ed to th e OECD memb er stat es. NICs with stron g curr enci es are also becoming increasingly important in this respect. In the past capital generally flowed to less developed countries or regions. Many developing countries actively courted direct foreign inv estment (DFI) and channeled it to industri alize th eir economie s, p articularly to expand th eir export bas e. Th e growth performanc e of the Asian NICs and "near-NICs" (countries

Preface

ix

said to be approaching NIC status) is, in a sense, a tribute to the possibilities arising from the strategic use of DFI and the export-led growth strategy. We must, however, be more searching in our appraisal. While the less developed countries and NICs are active participants in the process of global restructuring, the fragility of their export-dependent economies would be painfully clear if they were to face protectionist markets in the developed countries. Their bargaining power at international tables of decision making continues to remain weak. Of necessity, the consolidation of Western European countries into a globally powerful economic bloc in 1992 will be a major consideration in charting the growth and development strategies for Asian NICs, ASEAN, and other developing countries in the Western Pacific region. So will be the future role of Japan in the global economy, as well as the preferential trading agreement between the US and Canada, which in effect will result in the formation of a North American economic bloc. A current significant trend relates to the increase in export substitution type investment flowing into the emerging bloc economies of Europe and North America from countries outside these blocs. Capital surplus countries with a high level of export dependence, such as Japan and some of the Asian NICs, are making increasing investments in these emerging blocs, to forestall any adverse impacts which may arise if import restricting legislation happens to be enacted. What we have to earnestly ask ourselves is whether such surplus capital will serve the global economy best by finding its way into the more developed regions of the world. Will it not strengthen the strong and further weaken those already weak? A look at emerging patterns in the cross-national flows of labor gives an indication of what might happen. There is an increasing pressure, worldwide, to open the labor markets of the developed countries. Even in countries where the immigration policies prevailing discourage the entry of foreign labor - the unskilled from the developing countries in particular - a combination of high wage levels and recent surges in currency values have led to a reappraisal of policies. However, against the tendency towards such relaxation of immigration laws and the provision of legal protection to foreign workers, one might ask if a more enlightened DFI strategy by the developed countries - creating jobs and embarking on human resource development programmes in developing countries - might not serve the global economy better. Human resource development, particularly of labor force skills, is closely related to technology transfer. In the past, the economic activities of First World transnational corporations (TNCs) were seen as a major vehicle for this. While the role of TNCs in the transfer of

X

Preface

technology and management skills has been subject to much debate, emerging discreetly is a new generation of cross-national joint venture enterprise. Firstly, the emergence of TNCs is no longer a First World phenomenon . The NICs, and even some developing countries, are also home to several emerging TNCs. Also making their appearance on the global industrial landscape is a new breed of small-scale cross-national joint ventures. These are mainly small- or medium-sized firms in their home country, where either the "moving up" or "moving out" phenomenon, or a combination of both, have led to the formation of investment links in NICs or developing countries. While it is still too early to tell, evidence from the ASEAN countries and the Asian NICs in the Western Pacific region suggests that this type of investor is indeed very conscientious about the transfer of both technology and management skills. Against such a background, regional (subnational) development strategies have to be charted for the developing and newly industrializing economies of the Third World. It is now clear that the interrelationships of growing regions with lagging regions within the confines of national space will have to be reckoned in tandem with the interrelationships between advanced and less advanced regions in crossnational space. Increasingly, there must be greater consultation and cooperation ,among nations in order to foster an environment where firms can compete fairly and which will lead to sustained regional growth while maintaining equity. UNCRD's current endeavors and future activities in the field of industrial and regional economic transformation are being redesigned with these challenges in mind. Hidehiko Sazanami

Contents

vii

Preface Hidehiko Sazanami

I OVERVIEW 1 Deindustrialization

and regional economic transformation

3

Lloyd Rodwin Aims and surprises The general approach: the regional studies and the perspective analyses The deindustrialization debate Values and findings

3 4

11 16

II REGIONAL STUDIES: SUBNATIONAL AND METROPOLITAN 2

3

Deindustrialization in the American Midwest: causes and responses Ann R. Markusen & Virginia Carlson

29

The industrial heartland Restructuring: trade, defense and macro policy State and local policy responses What c,an be learned from the midwestern experience?

30 37 49 56

The international economy and the American South Norman J.Glickman & Amy K. Glasmeier

60

Introduction The changing South Industries of the South

60 62 69

Contents

xii

The impact of international trade and investment on the Sunbelt Policy issues 4 Growth and turbulence

in the California economy

73 78

81

Michael B. Teitz & Philip Shapira Introduction The changing structure of the California economy Industrialization and deindustrialization in the California economy Economic performance and constraints in California Conclusion

5 Deindustrialization and regional restructuring Massachusetts Bennett Harrison & Jean Kluver

81 84 90 95 102

in

A brief economic history of the modern Massachusetts economy The sources of low state unemployment Worsening income and spatial inequality The slowdown in the pace of recent job growth State industrial policy and the future and business services in New York City: international linkages and domestic effects Saskia Sassen

104

108 111 114 119 128

6 Finance

Conditions for growth of finance and business services Place of business and finance in New York City and its region Components of growth of finance and business services in New York City New York and other major cities Distribution of benefits Conclusion 7 Industrial

growth and restructuring regions Edward M. Bergman

132

133 138 143 146 148 152

of metropolitan

Introduction Counterfactual growth: system and sectors Growth restructuring of metropolitan areas Overall trends and prospects Conclusion

155

155 156 164 173 175

Contents

xiii

III PERSPECTIVE STUDIES 8 Regional transformation and the service activities

179

Lester C. Thurow Growth in the services industries The importance of the cycle in international trade Regional impacts of macroeconomic policies Deliberate regional development policies Lessons from the case studies Conclusion 9 US regional transformation

180 187

190

191 192 197

in the context of international

economic competition Gordon L. Clark

199

Emerging perspectives on regional growth Forces of economic change Flexibility as an adjustment strategy Modes of community flexibility Logic of regional transformation Political economy of planning practice Conclusion

200 203 206 209 212 215 218

10 Deindustrialization

and regional policy

221

William Alonso The evolution of regional issues in the United States The triumph of markets and the changing style of regional planning Efficiency and equity in the market-syst em Entrepreneurship's new prominence Current programs and initiatives Conclusion Chapter appendices Chapter notes Notes on contributors Acknowledgements List of tables List of figures Index

222 227 231 232 233 235 241 269 304 308 309 311 313

I

Overview

1 Deindustrialization and regional economic transformation LLOYD RODWIN

Aims and surprises ARTHUR MILLER, the playwright, once said that he could tell if he were writing something fresh, and possibly provocative, if he found himself getting surprised and puzzled and not even sure of what would happen at the end of the play. That is true for most creative research, and it is how these studies of deindustrialization and regional economic transformation have proceeded over time. When we started we had some firm ideas of what we wanted to say and how we were going to go about doing the job, but as we got more involved there were genuine shifts and reorientations. The overall view of these studies calls attention to what we were initially asked to do, how these ideas evolved and some of the shifts and surprises in our approach and in the findings.

Origins The original task was to make a quick one-year evaluation of the experience of deindustrialization in a few subnational key regions of the United States. Deindustrialization was already considered a potentially serious problem in Chukyo, and possibly in other regions of Japan. Japanese officials and polic y makers were incr eas ingly int erested in the

4

Deindustrialization

and regeneration

experience of the United States on these matters. To our surprise, Chukyo and similar regions in Japan have unemployment rates of only 2 to 3 percent. These rates are far lower than those prevailing in the industrial heartland of the United States where the rates range from 7 to 9 percent and even more in different subregions of the Midwest. However, Japanese officials are more sensitive about the specter of rising unemployment, and in particular, the phenomenon of "hollowing" or outsourcing of manufacturing activities. This is one reason why Professor Hidehiko Sazanami, Director of the United Nations Center for Regional Development (UNCRD), in early 1987 started seekinglocal and provincial funds to finance research about selected regions in the US, with a particular focus on the problems of deindustrialization and the national and international factors shaping these changes. It was also clear, almost from the outset, that the restructuring of these economic activities had considerable implications for Third World countries, including those in the Pacific Basin, of special interest to UNCRD. So much for the concerns that prompted th e launching of these studies. This volume, the first in the series, focuses on the US experience. Subsequent studies will deal with comparable experiences in Europe and Japan, and with the effects and implications of these changes for Third World countries.

The general approach: the regional studies and the perspective analyses Because of limited time and funds, only six papers were initially planned and commissioned. 1 Four were to be regional studies and two perspective studies. The areas selected differed in several respects, notably in the types of problems, the size of the economic base , and deindustrialization experience. However, each was exp ected to shed light on different aspects of regional change and deindustrialization. The first stQdy- conducted by Professor Ann Markusen together with Virginia Carlson - deals with the industrial Midwest (Figs. 1.1 & 1.2).2 Encompassing the area between the Appalachian Mountain range in the East and the Rockies in the West, this region produces most of the nation's metals, machinery and consumer durables as well as the bulk of the agriculture output. The main focus, however, is on the industrial core. This comprises the East North Central states: Ohio, Michigan, Indiana, Illinois, and Wisconsin. The economies of these states are "quite similar , heavily interrelated, and distinct from the rest of the nation. " 3 The cities and subregions of this industrial heartland have sustained the greatest losses of all the regions of the c'ountry in

-0

400

I

,10

0

e,w,,, km

200

f)

~=~D

TEXA S

Figure 1.1 Census regions and geographic divisions of the US. Source: US Department of Commerce, Bureau of the Census.

km

ALASKA

C

Deindustrialization

6

-

and regeneration

East North Central (Heartland) Midwest

Figure 1.2 Regions in the central US .

manufacturing, jobs, and employment since the late 1970s; and the main concerns of the study are to probe the cause of the decline, whether it was cyclical or structural (secular), and the relative effectiveness of the efforts to reverse the trends. In contrast, the other regions selected are popularly regarded as successful examples of coping in the new situation - either through promoting industrialization or reindustrialization, or through developing new economic activities. These regions are the South (formerly the "Sunbelt" and then including California) examined by Professors Norman Glickman and Amy Glasmeier; 4 Massachusetts, (Fig. 1.1) studied by Professor Bennett Harrison and Jean Kluver; 5 and the New York Metropolitan region, (Figs. 1.3a & b), studied by Professor Saskia Sassen. 6 The South - essentially a low-wage region with some exceptional resources and a relatively mild or semi-tropical climate - has been the main beneficiary of the relocation of manufacturing from the Midwest and Northeast. Part of the Sunbelt, it comprises several subregions with diverse economic complexes including tourism (Florida); energy-based activities (Texas, Louisiana, and Oklahoma); low-wage mobile manufacturing activities (much of the Southeast) high-tech and defense activities (enclaves of Florida and Texas); and a variety of other less publicized, but not unimportant sectors (agriculture, timber, etc.), dispersed in sub-areas of the region. The focus of the study is on the

0 10 20 30 40 50 km

1: 1,584,000 .

Figure 1.3a The New York- New Jersey metropolitan region.

Figure 1.3b The New York- New Jersey metropolitan region .

8

Deindustrialization

and regeneration

unevenness and fragility of the "success," the choice of aims for future development, and the issues posed for public policies. Massachusetts, selected because of its mid-1980s economic boom (following several decades of economic stagnation), has been bruited as a model of economic restructuring. The plaudits, however, were exaggerated. We sought a more realistic assessment of the roles played in generating this economic transformation by high-tech development, the growth of finance and business services, state economic policy , the universities, and military procurement. Also of concern was the sustainability of the growth, and the incidence of costs and benefits, including the very uneven distribution of economic growth and the levels of unemployment throughout the state. The examination of the New York Metropolitan Region offered an opportunity to look at deindustrialization from another viewpoint, namely, the enhanced significance of financing, investment, and business services as basic export and import functions in the world economy. This study examines the factors behind the impressive growth of the economy despite the decline of manufacturing . It deals also with the unequal distribution of the benefits, and with other problems associated with the economic transformation. The first perspective analysis involved the nature and significance of the decline of manufacturing activities and the future of service activities. 7 Professor Lester Thurow summarizes his exploration of the composition and main characteristics and growth trends of service activities in the United States in relation to deindustrialization and regional transformation. He examines the impact of current macroeconomic policies on the regions, and how, in turn, the regional experiences might affect national policy. This overview comprises the second perspective study; t.e., an explanation of how these studies ·began, the main assumptions, constraints and aims, including how the studies related to each other and to the deindustrialization theme, the nature of the findings, and related matters. My evolving role in this enterprise was to organize the research group (with the assistance of Professor Harrison, subject to Professor Sazanami's approval); and then to coordinate and edit the studies and prepare the overview. 8 However , after the year's work, we decided to revise and extend these studies for publication following th e presentation in Japan of our findings at the UNCRD Symposium (7-14 July). In addition to some modification in ideas and substantial rewriting, we divided the analysis of the Sunbelt into an examination of the South and of California. The latter, in effect, became the fifth regional study. This change was made, ~s Professors Glickman and Glasmeier not e, because the so-called

L. Rodwin

9

Key

1 Nort h Coast 2 Mountai n 3 Sacrame nto Valley 4 Sac ramento 5 San Francisco Bay Area 6 San Jo aqu in Valley 7 Coastal 8 Los l\ng eles Basin 9 San Diego

Figure 1.4 Californi a economi c region s. Sour ce: California economi c growth , 1988 edn, Cent er for th e continuin g stud y of the Californi a eco nomy, Palo Alto , Cal. 1988 .

"Sunbelt" was much too diverse and unwieldy an area, and a separate regional examination of California was , therefore, more conducive to effective analysis and interpretation . Professor Michael Teitz and Philip Shapira who undertook the analysis ,9 observe that California (Fig. 1.4) is now the most populous state, and a principal center of technolo gical and entr epr eneurial innovation, w ith high levels of population growth and in-migration, low unemployment rates and a level of GNP ranking sixth or seventh in the world (if the state were compared to sovereign nations) . Partly because of these facts and partly in spite of them, officials must 'cope with consider able turbulen ce: severe international competition, instability of area and sectoral developm ent, extr emely bifurcated wage levels and

10

Deindustrialization

and regeneration

serious strains because of the changing levels of defense activity, offshore relocations of manufacturing, and mounting problems of transportation, education and inequitable development. In yet another change of plan , Professor Bergman examined the broad intra-metropolitan and spatial readjustments of industrial activities taking place in response to the diverse shifts of economic activity. His analysis is based on a sample of 17 states and 1,032 southern midwestern metropolitan region counties "which enjoyed exceptionally strong rural resurgence in the 1970s followed by an even stronger period of metropolitan growth and economic restructuring. " 10 In retrospect, Bergman's focus reveals a more pervasive shift in emphasis. Concern about the metropolitan effects of competition from European and Asian trading centers during the past decade has overshadowed much of the former concern about cities versus suburbs and about growth in the periphery of the metropolis, for at least two reasons. One is that entire metropolitan regions lost shares of economic activity; and the other is that much of the success of small towns and rural areas in capturing a good share of industrial growth and development during the 1970s appeared to wane in the 1980s with the recognition of the advantages of metropolitan services in the internationally competitive milieu. There is a renewed interest in the restructuring occurring within metropolitan regions in response to international and interregional competitive pressures. Finally, the chapters from Professors Gordon Clark and from William Alonso, in addition to Professor Thurow 's, attempt to do two things: to relate phenomena in different subnational regions to historical and sectoral changes in the United States and in the international economy; and to provide a context for thinking about some of the hypotheses on the responses and adjustments to the situation and about the relative effectiveness of these reactions. Any individual interpretation was bound to be somewhat Procrustean. Fortunately, however, the differences in values and angles of vision in these three perspective studies are sufficiently provocative to justify their juxtaposition. Thurow, the economist with a background in industrial policy and management, challenges current assumptions about growth prospects in the services and industry, and then examines feasible intervention strategies at different levels of government. Clark, the geographer with a specialization in urban political economy, focuses on ways in which the new multinodal international competitive pressures compel more flexible behavior in the private and public sectors; he examines in particular the responses of different kinds of communities and regions and their "more economic and deal oriented"11 planning advisors; and the ways in which these patterns in

L. Rodwin

11

turn refle ct a more pervasive strategy of flexible adjustments to intense competitive pressures with their accompanying changes in location and in technology, corporate behavior, institutions and international trading patterns. Finally, Alonso, the planner, ruminates on how little we really know as planners, judging from the changes in regional development theory and policies over the past generation. 12

The deindustrialization debate Before pond ering th e dir ection of the bias of the contributors and summing up the main findings, let us recall the key features of the deindustrialization controversy. For the record , our regional studies were not specifically selected or designed to examine these issues or to resolve the differences. The limited range of these studies precluded any decisive testing of the deindustrialization thesis. Instead, the focus was on the chara cter and processes of regional economi c change in relation to deindustrialization in the selected regions. Nonetheless, familiarity with the debate on deindustrialization can illuminate the sources and background of many of the subjects discussed in the regional studies and explain the concern over the outcomes.

Deindustrialization

and the post-industrial thesis

The issues in the controvers y ranged from the "fact" and the causes of deindustrialization to the effects on the economy, including the location, level, and kinds of jobs, and the best ways of coping with these changes. Take, for example, "the fact" of deindustrialization. Intra- regional and int erregional shifts of firms and investments are not new phenomen a. Th ey occurr ed in th e first half of th e 20th century and throughout the 19th century and perhaps even earlier. What distinguishes the present trends are the nature and pace of the changes. Not onl y are more of the component functions of manufacturing activities being reorganized , but also , jobs are being shifted increasingly from th e workplac e to design, mark eting , finan ce and oth er specialized services. Many production activities and som e servi ces are shiftin g to offshor e locations in different regions of the world. In Japan, as alre ady note d, this process of moving factories, parts suppliers , and subcontractors to foreign countries, and of subcontracting abroad production acti vities formerly locat ~d at home is often referred to as "hollowin g" and trans-nationalization. 13 These facts are not di sputed, but inferen ces vary . Criti cs of the

12

Deindustrialization

and regeneration

deindustriaHzation thesis, such as Robert Z. Lawrence and Charles L. Schultze, object to the characterization. 14 They say it assumes what needs to be proved. They suggest that in a dynamic economy some industries and regions grow and others decline, for many reasons. These include changes in technology and infrastructure; shifts in spending patterns, levels of income and markets; movements of population and of economic activities. Admittedly, these patterns of contraction are extremely painful and demoralizing for the declining regions and communities and for those who lose assets and jobs. But we are reminded that, in open economies, firms, communities and regions are under constant pressure to find better ways to produce goods and services profitably, and to drop those activities or services for which there is no longer any demand, or which can be provided more cheaply or better by other firms and other communities. For this view, the traumas of structural changes are a necessary evil. The post-industrial thesis 1 5 is that in a more advanced economy - as technology improves and per capita gross domestic product and income incr ease - one can expect an increase in services and in high-tech activities and a drop in the sectoral share of manufacturing in total national jobs, perhaps even of output. Analysts taking this view are not alarmed that the manufacturing share of total metropolitan employment is declining across most of the nation. Two factors presumably shape these trends: the greater rates of growth of capital investm ents and of productivity in manufacturing in relation to services (as well as to agriculture); and the greater income elasticity of demand for services in comparison with manufacturing. 16 Many of these analysts think the manufacturing sector is "doing rather well." The drop in the number of jobs lost during the recession of 1980 through 1982 was what one might have expected judging from previous recessions. 17 So the chang es are attributed mainly to cyclical factors, and not to changes in the structure of the economy . From these perspectives, the emergence of depressed or stagnating regions or of declining jobs and output in manufacturing do not necessarily reflect national deindustrialization. Other criteria, therefore, have been suggested: for example, wh ether the output of other activities, such as those in th e so-call ed information and kno w ledge sectors or of oth er services, are repl acing the output of th e more traditional manufacturing activities; or whether there are p ersistent exchange imbalances reflecting an inability to pay for the full employment level of imports .18

L. Rodwin

The deindustrialization

13

thesis

The arguments on the other side (sometimes tangential rather than head on) are no less cogent. Proponents of this position argue that the critical "fact" about deindustrialization is not the total amount of deindustrialization, as measured in manufacturing output, but the relationship between the speed of deindustrialization in different industries and regions and the ability of the economy to transfer the capital displaced from heavy manufacturing production jobs into new jobs that promise a decent standard of living for the workers. 19 Moreover, there are doubts about future industrialization prospects. One tell-tale sign is the decline in productivity. The growth rate of output per hour dropped from 3.3 percent per year from 1947 to 1965, to 2.4 percent from 1965 to 1972, to 1.6 percent per year from 1972 to 1977 and to 0.2 percent per year from 1977 to 1982. Although the US experienced a cyclical recovery in productivity following the 1981-82 recession, the recovery has not as yet reversed the "downward productivity trend ... [nor] the productivity gap with ... international competitors. " 20 Still another omen is the growing sophistication of international production know-how and increased market shares resulting from the export drives of competitors which appeared to presage the loss of economic preeminence ... [The older product cycle] view that what used to be high-tech products[steel and autos]had become low-tech products and, as low technology products , were moving abroad to low wage foreign competitors, ... But in the 1980s the US appeared to be losing its competitive advantage in high-tech products (consumer electronics, semi-conductor chips, machine tools, robotics) and not to Third World countries but to high-wage rivals in the industrial world of Europe and Japan. 21 Mirroring these trends was "the jump in the value of manufactured imports in the US relative to domestic production from less than 14 percent in 1969 to ... 38 percent only ten years later .. . By 1986 for every $100 spent on American-produced goods , families and businesses were buying $45 worth of imports." 22 This, among other factors, led to plants operating well below full capacity , thus further reducing productivity and raising unit production costs. Finally, new studies by the Congressional Office of Technology Assessment, by the Economic Policy Institute, and by the Brookings Institution conclude that when official census bureau data are corrected, the manufacturing share of Gross Development Product (GDP) has

14

Deindustrialization

and regeneration

actually been falling at least since 1979. 23 For as long as manufacturing output as a share of GDP was constant over time, the secular decline in the manufacturing share in employment implied rising productivity. Therefore, it was not something analysts were apt to be overly concerned about. But this new evidence of declining manufacturing share of GDP in addition to unemployment may spur reconsideration of the deindustrialization thesis by some researchers who formerly had rejected it.

Policy issues Not surprisingly, the assessments of the effects of deindustrialization and what the government should do about it are polarized. Critics of the thesis are loath to substitute government for market decisions to slow the process of change. From their perspective, despite market inadequacies, it is futile and often counterproductive to try to stop or retard powerful, secular economic trends. They strongly oppose policies, particularly national public policies, intended to change the market allocation of investment whether by industry or by regions. They don't want the government to stop firms moving plants to less expensive or more satisfactory locations, or to provide protective barriers against competition, or to decide which industries to support and which to abandon, or to be the arbiter of what unprofitable goods and services are useful. Such measures, they fear, "would result in the triumph of entrenched economic interests over the common good." 24 The industrial policy advocates disagree with most of these premises. They question whether services can be counted on to replace manufacturing, since many services are extended aspects of manufacturing and depend on it : if manufacturing declines, so may the institutions that serve it. Moreover, "whatever the structural weaknesses of American manufacturing (short tim e horizons, poor labor management relations, a lack of coordination, under-investment in research and development), these same weaknesses [may] plague service firms just as much as they do manufacturing firms." 25 Wholesale replacement of manufacturing jobs by service employment may be objectionable on other grounds. For example, Professor Harrison estimates that between 1970 and 1980, more than 30 millon jobs were lost to shutdowns, relocations, or outsourcing in American industry. Though there was even more job growth, he argues that the displaced workers seldom obtained employment in the new industrial growth areas . Few unionized workers who had be en employed in the huge integrated steel mills of Pennsylvania, Ohio and Illinois found jobs in

L. Rodwin

15

the electric-arc furnace-powered "mini-mills " that sprouted up in Colorado, Utah, or New Mexico. More typicall y, the displaced , previously high-paid workers found themselves "skidding downward" into catch-as-catch can employment in machine repair or gasoline service stations, and the like. In fact, since 1973 practically 100 percent of all the net new job growth in the US has taken place in the service sector, where wages, benefits, and the opportunity for year-round, full-time employment are all far lower than in manufacturing .2 6 Because the new jobs are located in different sections of the country, communities must wrestle with the problem of closed plants , declining tax revenues, negl ected public servic es and "rising structural unemployment - with seven and eight percent of American workers unemployed - compared with less than five percent during periods of similar growth in the 1960s." 2 7 While intervention strategies have their inadequacies, so does the market: it is naive to assume the government is not [already] intervening with implicit industrial policies negotiating new non-market, non-price based contracts with foreign firms and foreign governments and with one another - governments themselves are playing an increasingly significant role in determining the terms of trade in world markets. We're in a new world. We didn 't make it neomercantile; it is neom ercantile . .. We hav e industrial polici es ... but th ey are unacknowledged, disorganized and often unwise. Why don't we admit it, and devise intelligent ones instead of carrying on ,this charade about the magic of the free market. 2 8 One succ essful example , often cited, is the way the Japanese government decid ed to anchor its economy on ch eap steel, and then establish on that basis a strong automobile industry, shipbuilding, and a very strong consumer durable industry. There are success stories in the United States, as well: the rehabilitation of Chr ysler, for example; or the development of agriculture and aircraft. Through direct purchases and procurement, through rese arch and developm ent subsidi es, and even through direct investment , the government has ensured that these two sectors remained America's premier examples of internationally competitive industries . What has work ed here could conceivably work in other sectors. That is why som e w ell-d esign ed industrial polic y exp erim ents are w orth a try.zg

16

Deindustrialization

and regeneration

Values and findings The contributors invited to participate in this volume share some basic views. They question the adequacy of market price alone as an adequate arbiter of resource allocations. They believe the economic system is neither equilibrated unerringly by price, nor headed necessarily toward a benign equilibrium. They believe relatively free markets are indispensable but that intervention is often necessary to help the markets function or to correct malfunctions. They are skeptical, too, of the optimistic assumptions of the post-industrial thesis; how eve r, they anticipate limitations as well as opportunities in resorting to intervention strategies for encouraging desirable development. Do these predispositions slant the conclusions? The answer must be yes and no : yes, because they necessarily affect the analyses and interpretations of the experiences of the different regions; and no, because the analyses of the evidence and the handling of the inferences remain unstintingly tough-minded and rigorous. On this score , we share the conviction of William James that Pretend what we may, the whole man within us is at work when we form our philosophical opinions. Intellect, will, taste, and passion co-operate just as they do in practical affairs; and lucky it is if the passion be not something as pretty as love of personal conquest over th e philosopher across the way. The absurd abstraction of intellect verbally formulating all its evidence, and carefully estimating the probability thereof by a vulgar fraction, by the size of whose denominator and numerator alone it is swayed, is ideally as inept as it is actually impossible. It is almost incredible that men who are themselves working philosophers should pretend that any philosoph y can be, or even has been, constructed without the help of personal preference, belief, or divination. How have they succeeded in so stultifying their sense for the living facts of human nature as not to perceive that every philosopher, or man of science either, whose initiative counts for anything in the evolution of thought, has taken his stand on a sort of dumb conviction that the truth must lie in one direction rather than anoth er, and a sort of preliminar y assuranc e that his notion can be mad e to work; and has borne his best fruit in trying to m ake it work? 30 In all of the studies, there are several foci which are of special interest to planning and development specialists . Deindustrialization is one. Long term regional structural transformation is another; the mechanisms and processes through which the changes occur are still others.

L. Rodwin

17

Then there are the aims and policy responses, and, of course, the outcomes, particularly those which were unanticipated. Not least are the puzzles and unresolved questions, some of which we may clarify with further research. Let us review the main findings from these perspectives. (1) Deindustrialization Growing regions, not just the industrialized Midwest, have been losing manufacturing jobs. For example, in Massachusetts manufacturing plants have eliminated nearly 90,000 jobs and shut more than 250 plants since 1984. 31 The New York Metropolitan area "lost 159,800 manufacturing jobs in ten years that ended ... December [1987], a 30 percent decline that was much worse than that experienced in the so-called Rustbelt states of the Middle West or in the rest of the nation." 32 In California from 1979 to 1984, "two fifths of all displaced workers, some 394,000, were in manufacturing industry, which [was] twice their proportion of total employment." 33 Even the Sunbelt (the South and California) lost 92,000 of its low-wage jobs (about 4.2 percent) to foreign low-wage countries in the period from 1969 to 1986. 34 Yet manufacturing employment growth has been consistently faster in this region, in this period, than for the nation as a whole: it added 17 million jobs to the payroll between 1960 and 1985. In shbrt, at least two different kinds of regions are experiencing a substantial decline of manufacturing employment and output: those like California, the South, Massachusetts and New York with other growth sectors, particularly the services; and those with far less growth activity, like the Midwest. For the first group, the prospects are mixed: promising as well as worrying. However severe the redundancy problems - declining investment, higher levels of unemployment, declining income, increased migration, and severe strains for those directly affected- they are in the main limited to particular areas and groups. However, when deindustrialization occurs in low-growth, stable, or, worse still, declining regions, then the situation is extremely serious and in some respects economically and socially disastrous. Unemployment and migration rates are far higher , and the entire complex of manufacturing industries is apt to disappear , not just decline. These differences provide the principal ground for distinguishing on a regional basis between the transformation of post-industrial society and the transformation of deindustrialization which produces old fashioned regional or structural decline.

18

Deindustrialization

and regeneration

(2) Related structural transformations During the past two decades, the mounting US defense programs and the increasing linkages between the US and the international economy have significantly influenced regional industrial development. So, too, has global production and trade, which is now much more a " multilateral game involving trade within industries between countries" 35 compared to the past trading of manufactured commodities for raw materials between industrialized and non-industrialized countries. One critical consequence is that some of the distinctive patterns of sectoral growth are reshaping the intra-metropolitan division of labor. 3 6 Another, perhaps even more important effect, is the ability of foreign firms - from Europe and the Third World as Well as Japan - to borrow and exploit technology and to take advantage of converging trends and circumstances in the US (e.g., stages of the product cycle, declining productivity, wage, anti-trust, banking, and other institutional constraints): in brief, to seek and achieve comparative advantage and significantly to penetrate US markets. Still a third cons equence is that regions have become increasingly dependent on decisions and forces outside the country as well as outside the region. This, in turn, has led to a considerable loss of influence and control over industrial and other development by national as well as by regional and local authorities. The scale and rapidity of these changes, including "the surpluses and fierce price and quality competition in industries which have been virtually protected, or not subject to pressure, for a half century," 37 is another of the surprises encountered by most of the contributors to these studies. During this period, too, most of the growth in the United States has been taking place in strategic core areas around the perimeter of the country, particularly along the Atlantic, Pacific and Gulf coasts. The new growth sectors in these areas involve international trade, high-tech and weapons dependent on high-tech, and new as well as traditional specialized services ranging from international finance and business services to the arts, TV, movies, and other forms of mass culture. 38 Concurrently , there has been, as noted, a "hollowing" of the interior; since the 1970s the cities and subregions of the Midwest have experienced the greatest losses of all the regions of the country in manufacturing and employment. In addition to the usual intr a-metropolitan shifts of firms, the job loss in the Midwest occurred in most major cities. As a result economic dislocation in the United States, formerly identified with New England and Appalachia in the 1950s and early 1960s, and with the Middle Atlantic states in the 1970s, is now drastically affecting the industrial Midwest. 39 (The South is another special case.) Indeed,

L. Rodwin

19

the present prospect for the Midwest is the downgrading, if not loss, of its position as the leading .heavy industrial complex of the United States. In the more prosperous regions, growth has been concentrated in a few core areas: small segments of the southern Sunbelt - i.e., the west coast of California (Los Angeles, and the Bay area and, to a lesser extent, Sacramento and San Diego); parts of Texas, Florida, North Carolina and the Virginia and Maryland portions of the metropolitan areas of the Washington, DC region - and the Boston - Lawrence - Worcester triangle in Massachusetts. Even in the New York/New Jersey metropolitan region, the growth has been mainly in Manhattan and adjoining areas including northern New Jersey. Finally, since 1970 non-metropolitan ring counties which surround standard metropolitan areas have become peripheral rings of a larger metropolitan region. 40 The evidence (at least for the South Atlantic and West South Central regions) suggests that in the largest metropolitan regions - unlike the central city surburban experience of the 1960s and 1970s - the standard metropolitan areas performed even better than the fast growing rings. 41 This has occurred largely because in addition to headquarter, research and development, and some high-tech activities, the agglomerative producer and consumer services needed by many sectors now flourish throughout a large metropolitan area. Other technical, and particularly more routine manufacturing activities grow best in those lower-production-cost ring counties where firms enjoy ready access to metropolitan markets and producer services. 42 This suggests a spatial aspect to policies that would allow the nation's most vulnerable trade sectors to survive and prosper. (3) Mechanisms and processes The nature of employment growth in services is of special interest. Two thirds of the new service jobs occurred in three categories: trade, hotels and restaurants; real estate and business services; and financial and insurance. The first two reflect the increase in full-time working women and round-the-clock and weekend shopping. The point is approaching at which the slowdown is likely in the growth of these services. Similarly, financial services are unlikely to grow faster than GNP in the next decade. Previous growth was due to deregulation, the development of world capital markets, and volatility. The first two factors were probably one-time phenomena, and the degree of volatility is at a level so high that governments are likely to curb any increases. 43 Pressures mounted to increase productivity by lowering labor and other costs (for example, eliminating labor or reducing skill requirements by means of standardization and automation). Consequently,

20

Deindustrialization

and regeneration

there has been a shift of production and ancillary activities to low-wage areas - e.g., areas of the South or of the southern Midwest, or of California, or overseas - with a more tractable supply of non-union unskilled, semi-skilled, and immigrant labor and a more favorable business and physical climate. Information, communication, and transportation changes have increased.the mobility of capital and labor and the access of firms to national and international markets. These innovations have contributed to increasingly flexible organizations (changes of scale, diversification, subcontracting and outsourcing). It is much easier now for firms to tap global resources and an international workforce, and therefore to separate particular production functions within the firm and to relocate them elsewhere. The pace of these changes has been intensified by the traditionally open US economy, the overvalued dollar, high interest rates, the concentration of US technical skills in defense activities, and austerity policies in debt-ridden Third World countries. As yet, it is too early to gauge to what extent lower interest rates in the 1980s, the modest increase of productivity during that period, the devaluation of the dollar and the official and unofficial restrictions on trade will ease, if not solve, these problems. (4) Policy responses and goals In both the public and private sectors, these competitive pressures call for flexible responses. The responses from industry hav e been particularly wide-ranging. They have included experiments in work organization and labor - management relations, wage freezes or cuts, plant reductions or relocations to areas of lower costs and /or more receptive attitudes to innovation, corporate restructuring, and the shifts of capital out of the less productive sectors of the economy. As in Japan, companies engaged in hollowing, so that production activities which formerly took place inside the company were " outsourced to ostensibly independent firms located both inside the US and abroad, either to further cheapen labor costs or to get access to specialized parts and equipment, the production of which the parent firm has decided is not worth undertaking ... because of the profit squeeze." 44 At both local and state level, new public development programs burgeoned, reflecting the need for jobs, the relative influenc e of firms, the diverse interests of the community and the spectrum of views as to the most appropriate courses of action. Policies ranged from the upgrading of existing heavy industries to encouraging new enterprises in growth areas, and some variation on these th eme s. Most prominent among the measures employed were

L. Rodwin

21

Smokestack chasing, job retention, industrial targeting, location incentives, small business initiatives, research parks, venture capital funds, export promotion and human capital strategies. Some have proved to be better than others but as a group, they have not been successful against the tide of restructuring forces. 45 In retrospect, the policy issues for declining regions boiled down to the traditional choice: whether to bring jobs to people or people to jobs. The prescriptions in these studies are variations on the first alternative: adaptation and innovation are ways of bringing jobs to people. However, questions may be raised about the kinds of jobs and the kinds of training or transformation required. These options vary depending on whether the emphasis is on the export of people, and if so, where, and with what assistance; or the import of jobs, and if so, what kind of jobs and where, given the region's resource endowment, scale, and uneven development prospects. Most of these possibilities will also vary depending on which levels of government are involved. The range of options is easier to formulate than the right choices. This is especially evident in one of the policy dilemmas facing the US South: whether to take advantage of a low-wage , lenient business image or whether to upgrade the skills of the labor force in order to attract higher-wag e, more reliable growth activities. 46 A similar challenge faces the Midwest, i.e., whether, or how much, to target and upgrade basic industri es, strengthen the existing econo my , and enhan ce existing resources and seedbed possibilities, or whether to attract new growing "sunrise" industries and encourage innovation. Understandably , adaptation and upgrading tends to be especially favored by the unions and management , public and private, but migration, for want of a bette r alternative , has been the pragmatic expedient of a large segment of the labor force. There is little consensus, either, about encouraging development outside of boom areas, such as Manhattan and northern New Jersey, Maryland and Virginia, the Lawrence-Worcester-Boston triangle and so on. Some minimum measures may be helpful. These range from improved infr astructur e, education, skill upgrading, health programs and recreational as well as other amenities, to cooperative planning and action on the part of labor , industry , and government. Almost needless to say, countering int ractab le political pressures will be anything but easy. On the other hand, it is "unreasonable to believe that every region or area can have the same average income or that economic activity can be spread evenly across the country." 47 On this score, the disagreement is about ho w much more can and should be done to reduce the disparities.

22

Deindustrialization

and regeneration

As for national action, the United States, to be sure, does not have an explicit industrial policy, but it does have an implicit one. There is ample evidence that both the deindustrialization trends and the growth along the coastal regions of the United States are being reinforced by defense procurement, trade, and spending policies. The impact of that implicit policy is another of the surprises of this study; and it is especially resented by an aware public and by policy makers in the Midwest heartland, a region where people have been seriously disadvantaged as a consequence . How much the situation may have been eased by the devaluation of the dollar and a more vigorous, defensive trade policy is not clear. However, it appears unlikely that the federal government will recast policies favoring high-tech, trade, and arms procurement in coastal perimeter areas. In the future, given high deficits, defense spending levels are likely to decrease, and those regions dependent on defense spending are likely to experience serious strain. (5) Effects - mostly unintended Most of the new jobs in manufacturing over the past decade have been for managers, salaried professionals, technicians, and secretaries, while the number of production workers has declined. There appear to be fewer job opportunities for the traditional blue-collar groups and increasing opportunities for the more highly skilled and educated . The majority of the new jobs in many services, particularly in wholesale and retail trade, have involved lower wages and lower fringe benefits. This is one reason why income inequality is increasing nationally. 48 What is almost paradoxical, however, is that there appears to have been a significant reduction of interregional inequalities. 49 A little reflection suggests that this is not so surprising. One reason is the significant turnaround in the state of the New England economy. A depressed region since the 1930s, it suffered from deindustrialization in leather , textiles, apparel, and furniture. 50 The situation has changed radically in the past decade. The region's remarkable resurgence has been dominated by a complex of positive converging forces, including the burgeoning of high-tech industry, together with business and financial services, and insurance and construction, and has been reinforced by the research innovations of the universities, plus defense contracts during World War II and the subsequent period. Still another turnaround has occurred in the South. 51 For one thing, there has been the relocation of industries shifting from other regions. This increase in the South's economic activities, employment, and income has enabled it to catch up economically and in other ways with other regions of the nation. This transformation has occurred even though only a few of the South's subregions are in the forefront of the

L. Rodwin

23

main high-tech developments; nor are they benefitting as much as anticipated from direct foreign investments, particularly job-creating plant expansions and new plants, rather than acquisitions. In short, the decline of a more prosperous region, the industrial Midwest, coupled with the limited but very real economic progress of two regions formerly less prosperous, contributed to this decrease of interregional income inequality: Even more of a surprise are the inferences about the actual prospects for service industries and manufacturing. Consider, for example, the presuppositions of both the post-industrial and deindustrialization theses. The former, it will be recalled, anticipates that the manufacturing share of metropolitan employment will decline because of the greater rates of growth of capital investments and of productivity in manufacturing in relation to services (as well as to agriculture) and because of the greater income elasticity of demand for services in comparison with manufacturing. Similarly, the latter (the deindustrialization thesis) also anticipates a decline of manufacturing activities because of the emergence of global workshops and international competition and the exacerbation of these trends by a variety of other factors. However, Lester Thurow's evaluation of the actual growth prospects of the services and industry , if substantiated, would weaken, if not imperil, both of these. 52 More specifically, analysis of important segments of the service sector (trade, hotels and restaurants; real estate, business services; and finance and insurance) indicates that the specific factors responsible for the previous growth of these services will most likely not operate in the future. Second, there will be inexorable pressures for growth in some activities, sustainable by long-term demand, to help provide a surplus for the nation to reduce its debts and pay for imports. What can provide the future growth necessary to balance trade accounts and pay the service charges on debt? Not agriculture, it appears, because the green revolution will make potential customers self-sufficient. Not loans, for savings are inadequate. And not the financial service industries for at least two reasons: first, international deposits are not likely to be held in depreciating currencies; and second, when foreign lending drops, as it will when accounts are balanced, the capital market is likely to be smaller than at present. Because only manufacturing is left, Thurow predicts that manufacturing must and will once again be the leading growth sector. 53 However, these manufacturing activities will not necessarily be under domestic rather than foreign ownership. That prospect, in addition to the prospect of higher wages, will depend on whether the improvements in productivity over the past two or three yea rs continue.

24

Deindustrialization

and regeneration

(6) Some unanswered questions Like most studies, these raise some new questions and leave some existing ones unanswered. There is a question concerning the nature of future manufacturing activities if Thurow's predictions are fulfilled. Would they be revitalized versions of US manufacturing "know-how", or foreign branch establishments operating as offshore production programs at an intermediate level, more like the Canadian patterns : not high-wage, but not low-wage, either. 54 Also, would they be moderately stable or perhaps even more subject to the pressures of deindustrialization? What are the implications for the arms-based regions with a transformed US development strategy? Will policy driven less by military procurement programs and more by the upgrading of public infrastructure, education, environment, health and social services , reinforce or significantly change existing national patterns of development? Also, how much attention should be paid to the ideas and premonitions of those like Professors Fiore and Sabel, who suggest that the deterioration of economic performance in US manufacturing today results essentially from the "limits of the model of industrial development founded on mass production, the use of special purpose (product specific) machines and of semi-skilled workers to produce standardized goods. " 55 May the solution, or at least part of the solution, to the problems of declining regions lie in the development of more flexible forms of specialization, of management, and, ultimately, perhaps of collaborative action at several levels? Harrison believes some US regions (such as the state of Massachusetts) are already implementing economic development strategies modelled explicitly on th~ PioreSabel thesis. 56 Another provocative issue involv es the development of human capital. Is it a cost to be minimized or a precious re sour ce to be developed? Also, many regions, Professor Markusen notes, have drawn in "significant amounts of labor pre-educated by taxpayers in other areas while those with better school systems and many with good universities have lost their investments to other regions." 57 We need a reassessment of the pros and cons of a region getting free human capital in this way. Then, too, how should one appraise "low-wage labor availability for American national and regional development ... Would [the US] have lost far more of [its] industrial jobs had the South not offered an alternative to overseas sites? (Or, perhaps, the national indifference to capital flight might not have persisted so long if the South hadn 't performed this function?)" 5 8 A quite different puzzle is why finance and busin ess services are not

L. Hadwin

25

more dispersed since current capabilities in telecommunication should enable the bulk of such employment to be located almost anywhere. Apparently face-to-face encounters are more important than suspected, but why? Professor Sass en suggests that there is an even greater need for centralization in a few places to cope with the growing decentralization and deconcentration that is occurring elsewhere. 59 But this is a surmise; there are still grounds for wondering why the clerical and lower echelon administrative staff need to work in these great centers. (Possibly a good study would be to follow some "information" around to see how many p eopl e physically manipulate its form .) In any case, what are the likely consequences if this need for centralization should weak en? Finally, both the South and Massachusetts provide evidence that regions may take three to five decades to break the shackles of economic decline . The effects of the defense program show that unintended effects of general or other sectoral policies, rather than direct industrial policies, were more influential in producing many of these changes. Both, in turn, raise the question of the ext ent to which deliberate design can be applied more effectively in the future . There are many persons who are profoundly dubious about this option; but there are others - and most of us count ourselves in this company - who feel that one of the limitations of that view is that its essential philosophy "is based on regrets ,:ather than hopes. " 6 0

II

Regional studies: Subnational and metropolitan

2 Deindustrialization in the American Midwest: causes and responses ANN R. MARKUSEN & VIRGINIA CARLSON

Introduction REMARKABLE regional growth disparities have characterized the American economy in the first half of the 1980s. While New England, the South and the West hosted net new job growth in excess of 7 percent, the industrial Midwest suffered net job shrinkage of 4.5 percent. The nature of these disparities is poorly understood, resulting in rather ineffectual policy responses. The industrial heartland has lost ground to a "trade and defense" perimeter in the United States. The perimeter, east of the Appalachians and west of the Rockies, has benefitted disproportionately from emerging US specialities in international trade - arms, finance, business services, culture - plus, more recently, activities associated with the distribution of an increased volume of imports. Neither national economic policy nor habitual business practices have been positive factors in the region's ability to respond. Some of this job loss has been the result of automation and outsourcing, but a good share was due to plant closings and disinvestment. Despite a national recovery since 1983, and national job growth in excess of 10 percent in the 1980s, the industrial core states had fewer jobs in 1986 than in 1979. Initiativ es at the state and local leve l have failed to reverse the disintegration process. As a result , the stemming of

30

Deindustrialization

in the Midwest

losses in the industrial heartland will be much more contingent upon a change in national economic and foreign polic y than on actions by state and local governments, even those concentrating on manufacturing revitalization. However, among the latter , there is wide variation in cost and effectiveness.

The industrial heartland The industrial heartland versus the rest At the regional level, disparities in growth rates have been severe in the first half of the 1980s. While divergence was already notable in the 1970s, the pace appears to have quickened , and new regions have moved into the outlying positions. This is particularly true of the industrial heartland, which toward the end of the 1970s overto ok the New England and Middle Atlantic regions as the loss leader in em ployment, manufacturing, and population out-migration. Thes e losses were spread quite evenly across the industrial heartland states, affecting large cities and small towns, as well as rural and urban areas. In contrast fast-growing regions harbored great internal diversity. Indeed , the deindustrialization of the Midwest was shared by many communities in the rapid growth states of California, Florida, and Texa s .

The industrial heartland defined The nation 's industrial heartland is a vast region producing most of the nation's metals, machinery , and consumer durables, as well as a large share of its agricultural output. A region ti ed together by such wat erways as th e Great Lakes, and th e Ohio, Missis sippi , and Missouri River syst ems, its origin al cohesiveness develop ed during th e water transportation era. In the mid-19th century, as water transportation gave way to rail, the interrelationships were cemented through a vast internal trading pattern in which the more easterly areas supplied steel, machiner y, farm implem ents , and household goods for the more westerly ar eas. The latter paid for these manufactured goods with abundant agricultural produce and oth er resour ce-bas ed commoditi es such as timb er and iron ore. At its broadest, the mid-continental economy includes the states between the Rockies and the Appalachians. But the brunt of the deindustrializ ation process has fallen on a core of five states whos e economies are quite similar, h eavily interrelat ed , and distinct from th e rest of th e nation. Th ey are Ohio, Michigan , Indi ana, Illinois and

A. R. Markusen and V. Carlson

--

31

East North Central (Heartland)

j-.(t;~'. jMidwest Figure 2.1 Regions in the central US.

Wisconsin. These states are co-terminant with the US Census Bureau definition of East North Central (see Fig. 2.1). As a group, their boundaries are formed more or less by the Great Lakes to the north, the Appalachians to the east, the Ohio River to the south, and the Mississippi River to the west. This region, for the better part of a century, formed the dynamic core of the US industrial economy. The marriage of labor-scarce agriculture with the booming machinery industry, and the relatively high wages and incomes associated with these dynamic sectors, created a robust, diversified producer and consumer durables sector. Well into the 1970s, the breadth and vigor of these industries insulated the Midwest from the severity of the booms and recessions endured by other regions. This midwestern region was also the home of the great combines - steel, auto, rubber, farm machinery, dominated their domestic market for a century. Until the postwar era, when the mechanical age began to give way to the aerospace and electronic era, this midwestern region enjoyed sustained prosperity.

Jobs, joblessness, and out-migration Dislocation was disproportionately centered on New England and Appalachia in the 1950s and early 1960s, and in the Middle Atlantic states in the 1970s. By the mid-1980s, the center of gravity of plant closures had moved to the industrial Midwest. Furthermore, they had wreaked havoc on local and regional economies in a manner that was

Deindustrialization

32 Table 2.1

Regional change in non-agricultural employment, 1979-86 1979

Region

&

in the Midwest

State

NORTHEAST Middle Atlantic New England MIDWEST West N Central East N Central SOUTH West S Central East S Central South Atlantic WEST Pacific Mountain US TOTAL

20406.5 15012.7 5393.5 24171.8 6973.4 17198.4 285 71.1 8956.5 5222.8 14391.8 17276.3 12862.8 4413.5 90425.7

Change , 1979-86

1986

% of No. US total 22.6 16 .6 6.0 26.7 7.7 19.0 31.6 9.9 5.8 15.9 19.1 14.2 4.9 100.0

% of No. US total 22410.9 16187.0 6223.9 24370.8 7237 .0 17133.8 32957 .2 10058.1 5516.1 17383.0 19941.7 14757.6 5184.1 99680.6

(in thou san ds)

%

No.

22.5 16 .2 6 .2 24.4 7.3 17.2 33.1 10 .1 5.5 17.4 20.0 14. 8 5.2 100.0

2004.4 1174.3 830.1 199.0 263.6 -64.6 4386.1 1101.6 293.3 2991.2 2665.4 1894.8 770.6 9254.9

9.8 7.8 15 .4 0.8 3.8 -0.4 15.4 12.3 5.6 20.8 15.4 14.7 17.5 10.2

Sour ce: US Department of Labor , Bureau of Labor Statistics, unpublish ed data. Table 2.2

Regional change in manufacturing employment , 1979-86 1979

Region

&

State

NORTHEAST Middle Atlantic New England MIDWEST West N Central East N Central SOUTH West S Central East S Central South Atlantic WEST Pacific Mountain US TOTAL

5202.6 3678.8 1523.8 6587.1 1448.5 5138.6 6140.4 1637.7 1432 .0 3070.7 3148.4 2587.3 561.1 21078.5

Change ,

1986

% of No . US total 24. 7 1 7.5 7.2 31.3 6.9 24.4 29.1 7.8 6 .8 14.6 14.9 12.3 2.7 100.0

% of No. US total 439 7.5 2992.4 1405.1 5445.5 1297.4 4148.1 5909.5 1501.9 1325.4 3082.2 3201.9 2599.3 602.6 18954.4

(in thousands)

23 .2 15 .8 7.4 28 .7 6.8 21.9 31.2 7.9 7.0 16.3 16.9 13.7 3.2 100.0

19 79-86

No .

%

- 805.1 -686 .4 -118 .7 -1141 .6 -151 .1 -990 .5 -23 0 .9 -135 .8 - 106 .6 11.5 53 .5 12 .0 41 .5 -2124 .1

-15.5 -18.7 -7.8 -17.3 -10.4 -19. 3 - 3.8 -8.3 - 7.4 0.4 1.7 0.5 7 .4 -10.2

Source: US Department of Labor, Bur eau of Labor Statistics, unpublished data.

much more severe than were the restructurings to the east. Primarily, the pace of change had accelerated, making adjustment more difficult and exacerbating social costs. The industrial core was the only region to experience a net job loss in th e period from 1979 to 1986 (Table 2.1). The East North Central region lost 0.4 percent of its nonagricultural emplo yment during this period,

A. R. Markusen and V. Carlson

33

while five of the eight remaining regions grew in excess of the national rate of 10.2 percent. Diverging regional job growth rates were principally driven by striking differentials in manufacturing job loss . The nation as a whole suffered a decline of more than 10 percent in manufacturing jobs in the period (Table 2.2). However, the midwestern rate was nearly double that, while the South held losses to less than 4 percent and the West actually gained jobs. Together , the five states in the industrial heartland lost 990,000 jobs, nearly half of the total national net job loss. These stunningly low job growth rates were more or less uniformly experienced across the industrial heartland. Job loss rates are similar, especially across the five Great Lakes states. While a few medium-sized cities (Minneapolis, Columbus, Cedar Rapids) were insulated from the region-wide trend, most major cities of the region suffered severe setbacks. In 1987, the outlying states of Minnesota, Wisconsin, and Iowa grew by more than the national manufacturing growth rate, perhaps reflecting the export stimulus caused by the falling dollar. But Illinois, Michigan, and Ohio still lagged behind the national rate. 1 This negative employment picture is reflected in much higher joblessness rates in the industrial heartland than in most of the rest of the nation . Only Wisconsin has had a rate lower than the national average. As explained in the next section, these differential unemployment rates are primarily structural rather than cyclical in nature. As of early 1986, the joblessness in these states had not apprecia bly abated, even with substantial out-migration. Despite a mod est recovery since 1983, states like Illinois have recently found their unemployment rates as high as 9.5 Table 2.3 Regional re-employ ment rates of di sp laced workers No. who lost jobs

New England Middle Atlanti c East North Central (Heartland] West North Central South Atlantic East South Central West Sout h Centr al Mountain Pacific US Total

1981 - 85

Emplo yed as of 1986

Unemp loyed as of 1986

Not in the labor force

(000s)

(%)

(%)

(%)

226 733 1149

74.3 60.3 65.2

9.7 22.1 20 .3

15 .5 17.6 14.5

384 744 397 610 240 648 5130

68.5 71.9 62 .5 66.1 72.5 69.4 66 .9

16.1 14 .0 21.2 16 .9 14.2 16.7 17.8

15 .4 14.1 16.4 16.9 13.3 13.9 15.3 ·

Source : Horvath, Francis W. Uune 1987) . "The Pulse of Econom ic Change: Displ aced Workers of 1981 - 19 85 ." Monthly Labor Review (June 198 7): 3- 12 .

Deindustria]ization

34 Table 2.4

Region New England East North Central West North Central Middle Atlantic South Atlantic East South Central West South Central Mountain Pacifi c

in the Midwest

Components of population growth rates by region, 1980-85 Total growth

Natural increase

Net migration

2.5 -0.1 2.2 1.1 8.8 3.1 11.6 12.5 10.2

2.3 3.5 3.7 2.1 3.2 3.4 5.8 6.9 5.3

0.2 -3.6 -1.6 - 1.0 5.7 --0.3 5.8 5.6 4.9

Source: Current Population Reports, Series P-25, No. 998, p . 13.

percent, more than two percentage points above the national average of 7.3 percent. The rate differentials are explained by the low rates of re-employment of displaced workers in this region (Table 2.3). The industrial heartland was home to 1.2 million workers displaced from 1981 through 1985, the highest number of any of the nine US Census Bureau's subregions. As of 1985, according to the special BLS study of displaced workers, only 65 percent of this group had found new jobs, far below the re-employment rates of 74 percent in New England and 70 percent in the Mountain and South Atlantic regions. Thus, displaced workers in the heartland suffered higher unemployment rates than did their peers in other regions except for their Middle Atlantic and East South Central neighbors. 2 The evidence of severe net job loss, a product both of heavy industrial losses and of the absence of compensating gains in either manufacturing or other employment sectors, explains the phenomenon of rising outmigration from the states of the industrial core. All the industrial heartland regions of the United States experienced out-migration in the early 1980s (Table 2.4). Of these, East North Central states exhibited the highest rate. These five states lost almost 4 percent of their 1980 population through out-migration in five years . In contrast, the Sunbelt regions gained about 5 percent each in net immigration. A large part of the differential is accounted for by direct migration streams out of the industrial core to the Sunbelt. 3 While no hard data are available, it is reasonable to expect that disproportionate shares of recent college graduates and skilled blue-collar workers are found among mid western emigres. This rather remarkable interregional migration has complemented differentials in rates of natural increase to produce widely divergent

A. R. Markusen and V. Carlson

35

population growth rates by region. Despite a close-to-average rate of natural increase, the industrial core states actually suffered a net population decline in the period from 1980 through 1985, estimated to be about 40,000 people . Michigan and Ohio together lost more than 125,000 in population while Indiana, Illinois, and Wisconsin posted modest gains .

Structural versus cyclical causes At the national level, a heated debate has taken place among macroeconomists over whether the apparent divergence of manufacturing employment from overall growth since the late 1970s has assumed a primarily cyclical or structural character. Some economists have argued that displacement has been primarily cyclical, and by implication that it will disappear with recovery. 4 The empirical evidence for their position rests chiefly upon the finding that manufacturing growth and Gross National Product (GNP) growth are very clos ely related and that extraordinary events can be explained by abnormalities like the overvalued dollar. Other scholars argue that severe and identifiable structural changes unrelated to the business cycle have occurred in the past decade. 5 As evidence, they offer regression results which show that a sharp break occurs in the manufacturing-GNP relationship beginning in the late they cite 1960s. 6 To explain the emergence of deindustrialization, several causes: a corporate profit squeeze; greater outsourcing and offshore production by American multinationals; a financial explosion heavily favored by monetary, tax, and deregulation policies ; and a changing international economic environment. Furthermore, · they contend that national aggregate figures obs cure deeper pockets of displacement and deindustrialization in specific industries and regions. 7 The latter contention is borne out by the few up-to-date empirical accounts that we have to rely upon. The Congressional Research Service found widely disparate recovery rates by industry and by region through April 1985. Others have shown that metropolitan growth differentials are more eas ily interpret ed as structural rather than cycl ical in nature. 8 Midwestern studies have confirmed in greater detail the existen ce of a structural effect. In an analysis of the Great Lakes states, one group of authors concluded that they had identified regional deindustrialization throughout the 1970s and acceleration since 1979. Their definition cif deindustrialization en compassed the following conditions: regional manufacturing decline unsynchronized with the business cycle,

36

Deindustrialization

in the Midwest

regional loss in share of national industrial job growth, and absence of intra-regionally compensating job growth in other sectors. They found the principal sectoral losers to be the set of metalworking industries (SICs 33-37) .9 Taking the deindustrialization debate as their target, three economists at Indiana University concluded that factors other than cyclical effects account for poor performance in regional manufacturing output. Indeed, they found structural effects to be of greater magnitude for the Great Lakes than for the United States as a whole, regardless of time period (1947-80), but becoming increasingly important in the period 1973-79. Thereafter, Great Lakes output was not only much lower than their forecasting equation predicted, but the magnitude of the shortfall increased for the years 1977 through 1980 . They illustrate the inadequacy of the cyclical model by showing that if the magnification effect had worked for Michigan, it would have had an 11 percent increase in manufacturing output in 1980 instead of experiencing a 33 percent decline. 10 The evidence, then, appears to support the structural interpretation. A number of different factors have been advanced to explain deindustrialization and its regional patterns. Prominent among them are the demand side argument that in post-industrial society, certain commodities become relatively obsolete as tastes change and new substitutes become available, and the supply side argument that high costs of doing business are forcing firms and plants out of regions like the old manufacturing belt. For instance, both these arguments have been highlighted in discussions of the American steel industry. 1 1 Such arguments buttress state and local government strategies which attempt to shift resources toward "sunrise" high-tech industries and to improve the business climate. However, an alternative interpretation is that American deindustrialization is more a function of certain institutional and dis cretionary forces at work: changing international markets, preoccupations and poor performance of American management, changing composition of federal government demand, and federal economic policies detrimental to heartland manufacturing. These arguments and evidence for them are presented below. If correct, this interpretation suggests much can be done to reverse th e decline of American manufacturing; that it is not an inevitable consequence of aging plants, changing tastes, or bad business climate.

A. R. Markusen and V. Carlson

37

Restructuring: trade, defense and macro policy

Trade-induced restructuring Increasing integration of the world economy has been an important factor in domestic economic change in the postwar United States, and it appears to have accelerated since 1980. The share of US output exported rose from about 6 percent in 1965 to 8 percent in 1985, while the import share of domestic markets climbed from 10 per cent to 21 percent. Since 1980, 51 percent of the growth in domestic demand has been met by imports . To meet this challenge of borde rs more easily pen etrat ed by goods and services produced outside the United States, a tremendous reshuffling has taken place in American industry, just as international trade theory would predict. Trade theories variously prescribe that trading partners will specialize in commodities in which they have a comparative advantage, or, dep ending on factor mobilities, in whi ch they have relativel y abundant factor endowments. It is fairly easy to demonstrate that if two economies which have previously not traded much are integrated into a common market by virtue of improved transportation, communication, and distribution mechanisms, quite dramatic restructuring is possible. One economy's raw material output may be produced more efficientl y and/or cheapl y than anoth er's, and with market int egration, the form er may enjoy rapid growth in exports while th e oth ers' resour ce sectors become depressed in the face of an onslaught of imports. This has clearly happened in the case of sectors such as agriculture, mining , and labor-intensive consumer goods, and more recently in metals, machinery and electronics, across both more developed and less developed country borders and among industrializ ed countri es. The pr essures of international market inte gration force both national and loc al economi es to specialize even more than before. Greater access to American markets means that more domestic consumers will buy foreign goods and services. Every city, then, will be importing more than it did before . How will it pay for the toys, clothing, and cars sold at K-Mart, Toys-R-Us, and Toyota deal erships? It must inc rease its exports of goods and services in whi ch it has a comparative advantag e. Import substitution ("bu y local") and hint erland - urban dyn amism are weak forces for growth comp ared to export-led stimuli. The trend is clearl y in favor of those cities and regions which can increase exports and /or benefit from the increased activity that higher absolute levels of trade requires (accounting, ports, wholesaling, etc. ). Ironically, this means that export-bas ed promotion is now more import ant than ever. Whether man aged consciously or not , th e Unit ed Stat es and its

Deindustrialization

38

in the Midwest

constituent regions are deeply involved in a fundamental shift in posture toward the international market place. A dramatic recomposition of US production is taking place, the product of both import competition and new export specializations. Briefly, it consists of the following. The major beneficiaries in the United States are those sectors which have a "comparative advantage" - in commodities such as arms, electronics and pharmaceuticals, and in services such as mass culture (TV, movies), and business services. The advantages to services come from the centrality of US banks, financial exchanges, law firms, accountants, and so on, to the process of internationalization, including the mobilization of capital and the activities of international agencies based in the United States (United Nations, World Bank, IMF, etc.). The losers are those sectors hard hit by vigorous competition from both developed and developing countries: consumer goods, consumer durables, and non-military capital goods. We can hypothesize that the regional impacts of heightened international trade activity are as follows. The industrial heartland, which specialized heavily in the non-military capital goods - consumer durables complex - will suffer disproportionately from the restructuring associated with growing imports in this area. Indeed, this has been the case in the five Great Lakes States since the late 1970s. Illinois , whose experience is typical for the region, lost 325,000 jobs in these sectors since 1978, losse s which ran between 24 percent and 44 percent of the total for these sectors. The other main export-oriented sector in the Midwest, agriculture, has also shown declines in net exports. However , both machinery and agricultural industries are still large exporters in absolute terms. As a result, some of the large central business districts lik e Chicago and Minneapolis hav e benefitted from the enhanced role of institutions of finance and distribution, such as grain flow management, commodities Table 2.5

Growth rates in Midwest population and employment, 1979-86 United States

Population° Emp loy ment, Employment Employment Employment Employment

nonagricultural in manufacturing in service in wholesale and retail trade in finan ce, real estate , in surance

Midwest

%

%

5.4 10.2

0.6 0.8 - 17.3 24.9 7.4 15.1

- 10.1

35.6 17.1 26.9

Source: CPR Series P-25 #998 . Bureau of Labor Statistics. Employment, Earnings. Note 0 : Population figures are for 1980- 85 . All others are for 1979- 1986.

Hours and

A. R. Markusen and V. Carlson

39

100 -

w 0. QJ

Ol C:

ro

_c:

0 ..0

Q, Q) C:

ci. X

QJ

127

10000 8000 6000 4000 2000 0 -2000 -4000 -6000 - 8000

~ - 10000 C:

E -12000 ~ -14000

,'.i -16000 -18000

HTMFG WTR OMFG

RTR

CON

TCU MNG

BLSV FIRE

GOVT OSV

Figure 5.6 Massachusetts em ployment shifts, by sector: 1984- 1987. Source: Appendix Table 5A.5 .

comparison of the change in employment over time by major sector in Massachusetts with the changes that would have occurred had each industry grown at its national average , after accounting for the overall rate of US job growth. 41 During th e period of the turnabout in the fortunes of the state economy, 1973-79, the sectors for .which local conditions seem to have produced the greatest regional advantage vis-a-vis the US were high-tech manufacturing (especially the computer industry), consumer services, and government (including federal as well as state and local public sector activities). Between 1979 and 1984, high-tech industry became the single most important contributor to the competitive advantage of Massachusetts. But it was by no means alone. On the contrary, greater-than-expected employment growth occurred almost across the board. Only traditional manufacturing, continuing its fifty-year secular downward trend, and government - forced to cut back on staffing by such statewide policies as Proposition 2 1/2, the property tax cap - showed negative competitive shifts during this period. But this balance in the locally-driven component of overall employment growth was not to last. Since 1984, in spite of the cont inuin g national economic recovery, and as more and more of the state government's economic development programs were being enacted, paradoxically Massachusetts' competitive advantage was becoming concentrated in fewer and fewer sectors. The state has lost competitive advan tage in every part of its manufacturing economy, including high

128

Deindustrialization in Massachusetts

tech. As Figure 5.6 shows so dramatically, nearly all of the differential job growth since 1984 - the growth associated with local advantage has been concentrated in wholesale trade, business and legal services, finance, insurance, real estate, and especially construction . This is certainly consistent with the "Manhattanization" hypothesis.

State industrial policy and the future At least by the criterion of relative employment growth, it may be that the Massachusetts miracle is already over, in th e sense of the achievement of a new wave of balanced intersectoral economic growth, equitably shared among the cities and towns of the Commonwealth. An inflated real estate market and continuing low unemployment rates caused less by economic growth than by low rates of labor force expansion may be masking an underlying atrophying of the competitive advantage of the state economy. The dramatic $600+ billion state revenue shortfall announced in late 1988, which is prompting serious public-sector layoffs and program cutbacks, is consistent with (although by itself does not prove) such an interpretation. At the very least, growth appears to have settled into a somewhat precarious middle-age. What can we expect for the near future? What happens will depend largely on the sensitive question of employers' wage offers. Higher wages ought to relieve labor supply bottlenecks to some extent, especially if housing costs stop rising, as seemed to be the case by early 1988. On the other hand, in an era of heightened international competition, to raise local wages might (at least for some industries) reduce their international competitiveness even further. The fear expressed by government officials and business executives is that a combination of rising wages and continued extremely high housing costs (themselves exacerbated by the fact that economic growth has been so highly concentrated in and around Boston) might deter out-of-state companies from investing in Massachusetts, or instate firms from expanding here. Of particular concern is the prospect of increased differential branching: the practice whereby firms do not necessarily shut down plants (or offices, or stores) in older regions, but build their newest facilities somewhere else. Even conventional product cycle theory predicts such a development path for a "mature" region such as Massachusetts. 42 In addition, the restructuring theorists argue that the US is undergoing a secular increase in "outsourcing" - the subcontracting by large firms of production (an d service) activity previously performed in-house. 43 Higher costs of labor and housing in Massachusetts might be expected to

B. Harrison and J.Kluver

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induce even further subcontracting to suppliers located outside of the state. The only viable long-run solution to rising labor costs is to find ways to increase productivity, in order to keep the ratio of the two (unit labor costs) within a competitive range. Massachusetts manufacturing firms already display high and accelerating rates of productivity growth. But how much farther can they go? What happens will also depend in part on future federal budgetary decisions. Since serious deficit reduction will entail cuts in military spending, even a modest link between high-tech and the Pentagon is bound to dislocate at least some Massachusetts engineers, scientists, and even production workers, unless effective industrial policies are formed to break that link. By convincing mature industries in the state to retool, and by encouraging national and state governments to promote the development of such useful systems as mobile health clinics, modular housing, modern waste treatment facilities, and light-rail vehicles, policy makers could stimulate the demand for what the high-tech companies have to sell. A large, federally-funded public works project to reconstruct sections of the Boston highway and tunnel system, just now getting underway, will create large numbers of new jobs in the state. So will the ten-year project to clean up Boston Harbor. A well-funded and sustained national health care program would also favor Massachusetts , with its rich complex of medical services. But the sorts of federal (or federally subsidized) programs that might be expected to offset employment losses resulting from any serious military cutback would concentrate any direct job creation impact on the Boston area: the part of the state experiencing serious inflation in housing prices and the most severe labor shortages. 44 A stern challenge for state policy makers, therefore, will be to find new or more effective ways to diffuse new economic growth to the central and western (and, to some extent, the southeastern) areas of the state. In what might such diffusion (or "targeting") consist? State agencies charged with planning and implementing economic development programs are attempting to promote general skill training, from machining to computer literacy, and to tie the training closely to the needs (and locations) of employers facing present and anticipated skill shortages. At the same time - and it is the simultaneity which is encouraging - the planners are experimenting with new ways to wean the state's many small manufacturing firms off their historic dependence on the large national and multinational corporations that appear to be continuing the long-term rationalization of their Massachusetts operations .4 5 Much influenced by Charles Sabel and Michael Piore's theory of "flexible specialization", these planners are attempting to

130

Deindustrialization

in Massachusetts

resurrect (or, in some cases, to create anew) "dis tricts" consisting of closely-linked, mutually-supportive networks of small manufacturing and producers' service companies, often in conjunction with (and in spatial proximity to) a technical college or university within the state system of higher education. 46 In some cases, new forms of labormanagement cooperation in the design of jobs, selection of machinery, and even involvement in marketing are being built into these projects. And for the most part, these "Industrial Action Projects" (including the Machine Trades Action Program) and the so-called " Centers of Excellence" (each focusing on a particular applied field, including photovoltaics, marine sciences, microel ectronics, biotechnology, polymers, and machine tools) are unquestionably being targeted to the areas of Massachusetts away from overcrowded Boston. It is too early to be able to say how much impact these programs, and others like them, will have on restructuring the older, slowergrowing areas of the state in ways that create new jobs and skills. There is some fear among the planners themselves that nothing they can (or are being allowed to) do can possibly offset the loss of additional essential production facilities in such companies as United Technologies, General Dynamics and General Electric, especially if there is a significant reduction in federal military procurement. Only time will tell. Any forecast of the future growth potential for the Commonwealth depends on international competitive conditions. One example is whether and to what degree Massachusetts-based plants and offices are benefiting (and will continue to benefit) from the substantial depreciation in the exchange value of the dollar since the beginning of 1987. Another is whether multir egional and multinational firms located in Massachusetts which want to take advantage of the currently enhanced opportunities for exporting, choose to export from their facilities here. Rather than raise wages to relieve their labor bottlenecks and permit increased output, they are in a position to reallocate manufacturing activity to plants situated elsewhere, where wage pressure is less stringent (perhaps retaining their service, h eadq uarters or branch office activities in Massachusetts). However, while the labor shortag e brings the same pressure to bear on local (especially smaller) firms to raise wages, these are generally the companies with the thinnest profit margins to begin with. By definition, they do not have the option of reallocating production to another out-of-state location (unless th ey literally move away- often an equally expensive alternative). Thus there is reason to expect a growing div ergence of power and immediate interest in the years ahead within the Massachusetts business community, as different segments respond

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J.Kluver

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differently to the various ways in which heightened competition impinges on their operations . Finally, what are the prospects for the future development of collaborative industrial policy at the state level? Governor Michael Dukakis and his staff pride themselves on their vigorous efforts since 1975 to manage state industrial policy through the deliberate promotion of businesslabor-government collaboration: so-called "tripartitism" or "corporatism". The record in this regard has been quite mixed. This may be because , in contrast to other states such as California and Michigan, the business community in Massachusetts has always been highly fragmented, with sharply differing positions even on the very legitimacy of public policy involvement in economic affairs. 47 Analyses of the efficacy of industrial policy tend to focus on the willingness of government and the labor unions to participate in corporatist arrangements. But this kind of economic planning only seems to work when business itself is reasonably united (or well-disciplined by a clearly dominant group). 48 Moreover, in response to a series of political setbacks to the agenda of the left of the labor movement and its political allies in the state during the Dukakis years, a new coalition of progressive policy makers has recently been formed. The Massachusetts Industrial Policy Group now meets regularly to debate state development strategy and to plan new legislative action. The group includes a number of elected officials and staff members from a wide variety of legislative commi teees and executive agencies. The Massachusetts business community appears to be more unified and willing to participate in state politics (as opposed to making unilateral demands). But there may also be storm clouds on the horizon: in the country as a whole, as well as Massachusetts in particular. Heightened international competition, combined with the uneven pattern of domestic economic development, may create new divisions within as well as betwe en the various sectors and classes. And th is when the achievement of future growth and a more equitable distribution of income require greater unity than at any time in recent American experience.

6 Finance and business services in New York City: international linkages and domestic effects SASKIA SASSEN

NEW YORK CITY experienced rapid growth in finance and business services beginning in the late 1970s. This expansion is all the more impressive considering the devastating declines in the midwestern industrial region during this period and the severe losses in manufacturing, consumer services and government jobs in New York City during the previous decade. The question may be asked whether the forms of growth evident in New York City today are unique or whether they represent a model of economic renewal which other urban areas can adopt: a post-industrial alternative to revita lizing manufacturing. Also, how effective and desirable is this type of growth? The main manufacturing areas in the Midwest produced a critical mass of well-paid jobs during their period of growth, and with significant multiplier effects. What about a city with finance and business services as its principal growth sector, one that accounts for almost a third of employment in the case of New York City? To answer such questions, this chapter examines the conditions for the growth of finance and business serv ices; the components of this growth; the durability of this mode of growth; and the associated distribution of benefits and burd ens for different sectors of the city's economy and workforce . New York City is also compar ed with its metropolitan region and with other major cities, notably Los Angeles and Chicago.

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133

Conditions for growth of finance and business services Of interest to this analysis are three sets of interrelated processes technical developments in electronics and telecommunications, the spatial dispersion of production, and the expansion and reorganization of the international financial industry - which have contributed to economic restructuring in major cities. In this discussion, the central hypothesis is that the spatial dispersion of production and the reorganization of the financial industry have created new forms of centralization for its management and regulation of a global network of production sites and financial markets. 1 Spatial dispersion of production, in some cases internationally, has stimulated the growth of centralized service nodes for its management and regulation and telecommunications advances have facilitated both dispersal and centralized servicing. Cities like New York have become key locations for top level management and coordination and for a reorganized financial industry. The recent expanded volume of financial transactions has magnified the impact of these trends. Let us consider each of these developments briefly, particularly the increases in the spatial dispersion of production and finance, the specific forms this dispersion has assumed, and the links between this dispersion and the specialized service sector and financial industry that are the main growth sectors in cities such as New York, London, and Tokyo.

Dispersion and new forms of concentration The spatial and technical transformation of economic activity includes the geographic dispersion of plants, offices, and service outlets and the sharp rise in the use of highly specialized services, frequently associated with the development of microelectronics. These two processes, dispersal and service specialization, interact and overlap. The global dispersion of plants and offices requires centralized top level management and control. Firms operating many plants, offices and service outlets must coordinate planning, internal administration and distribution, marketing and other central headquarters activities. As large corporations move into the production and sale of final consumer services, a wide range of activities, previously performed by free-standing consumer service firms, are shifted to the central headquarters of the new corporate owners. A parallel pattern of expansion of central high-level planning and control operations takes place in governments, brought about partly by the technical developments that make this possible and partly by the growing complexity of regulatory and administrative tasks. Finally, the

134

New York City: world financial center

reconcentration of a considerable component of foreign investment activity and financial transactions in cities like New York has further fed this economic core of high-level control and servicing functions . In brief, alongside well-documented decentralization tendencies there are new, less well-documented centralization tendencies. Centralized control and management over a geographically dispersed array of plants, offices, and service outlets does not come about inevitably as part of a "world system." It requires the development of a vast range of highly specialized services and of top level management and control functions . These constitute the components for " global control capability" (Sassen 1988). The use of this term redirects the focus from the familiar issue of the power of large corporations and invites an examination of the practice of global control: the specialized activities involved in producing and reproducing the organization and management of the global production system and the global labor force. With the potential for global control capability, certain cities are becoming nodal points in a vast communications and market system. What is more, a focus on production rather than on power, introduces the category of labor into the analysis enabling it to show how production translates into jobs. Emphasis on power issues alone casts financial factors in terms of highly specialized financial know-how and institutions . However , to produce financial outputs, a wide range of jobs is necessary, including the jobs of those who, for example, maintain the buildings in which the financial outputs are produced or who unload and stock needed supplies from software to light bulbs . The growth of the financial industry expands the range of jobs well beyond those requiring highly specialized financial knowledge . From this perspective, the unit of analysis is not the powerful actor, whether a multi-national corporation or a government, but the site of production: in this case, a major city. As a basic mechanism allowing large corporations to operate a widely dispersed domestic and global production system, global control capability is not limited to the production of services inside the corporation, but is often handled by a rapidly expanding range of autonomous specialized service firms. This is an important growth sector in New York City, which an exclusive analytic focus on the power of large firms would omit.

Reorganization

of the financial

industry

Several changes over the past decade have affected the growth of the financial industry in New York City, as well as in London and Tokyo. Instrumental to such changes are the 1982 debt crisis, the increased

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135

importance of non-bank financial institutions, the shift to securities and away from bank lending, and the massive expansion in the volume of financial transactions. From 1974 to 1981 there was an abundance of capital owing to the reinjection of petro-dollars into the international financial system. The large commercial banks were the dominant institutions then in the international financial markets. The 1982 debt crisis brought important changes to the financial industry, particularly the decline of bank lending and the rapid growth of the securities market. Significant financial innovations led to rapid securitization, transforming what had been non-marketable credit and capital assets into marketable instruments . By 1984, securities and various other marketable instruments surpassed lending as the largest component of the global financial market. Bank lending fell from US. $124 billion in 1981 to US $19 billion in 1985, the lowest level since 1972. And in 1986, the amount of money raised through investment banks and securities increased by 33 percent above the 1985 level and was more than five times the level of bank related borrowing. After the October 198 7 stock market "crisis", bank loans grew again. Worldwide capitalization went from US $892 billion in 1974, to $5.2 trillion in 1986, 80 percent of which was concentrated in New York, London and Tokyo. Finally, there was a shift away from regional centers and towards reconcentration in leading financial centers. The impact of th e growth of financial markets in these cities can be detected from the appreciation of the equity market in their countries. Of the $5.2 trillion in worldwide capitalization , 44 percent was concentred in New York City . According to data from Morgan Stanley, during 1985 alone the US equity market appreciated by 27.2 percent , the Japanese by 13.4 percent and the British by 17.6 percent. This suggests that the loss of market share by the commercia l banks and the increased importanc e of non-bank financial institutions, with the associated securitization (i.e., the transformation of various kinds of debt into marketable-lnstruments), and financial innovation result in a greater need for financial centers which will concentrate all these activities. 2 In brief, in the 1960s and 1970s , the tendenc y was towards development of regional centers and offshore locations with large transna tio nal banks in command. By the early 1980s there was a new pattern: growing importance of non -bank banks which acc ount for a recon centration of management of the industry and the production of financial innovations in fewer locations . The reorganization of the financial industry followed the exhaustion of the growth possibilities associated with bank lending and the recycling of petro-dollars through the sale of loans, largel y to Third World countri es.

136

New York City: world financial center

Central to this expansion and transformation was the deregulation and internationalization of the financial system in developed countries which took place despite differences in their regulatory frameworks, histories and economies. In fact, financial centers are being incorporated into the world financial system in specialized ways. For example, Japan is today the largest exporter of capital in the world, with Tokyo as its foremost financial center, while the US is the leading recipient of foreign capital, with New York City as its leading financial center. London is the main location for the Etuomarket and has the largest international banking network in the world. These economic developments, in a context of telecommunications advances, put pressure on governments in the highly developed countries to reexamine their financial regulatory frameworks. By the early 1980s these countries had lifted various kinds of restrictions to increase competition and diversification in the financial system. The success of the Euromarket, a highly competitive and unregulated financial market, further facilitated the internationalization of various national financial systems. These changes are part of a worldwide trend that is transforming the basic functions of financial institutions. There is now a world financial system that interacts with the domestic financial systems. The United States has relatively few controls and restrictions on international capital flows and international banking regarding both foreign financial institutions in the US an d the activities of US institutions abroad. This relatively open system helped make the US the leading recipient of financial investments worldwide. There has been a rapid increase in foreign banking operations in the US over the past decade as foreign banks have largely followed the movement of their countries' firms into the world market. Foreign bank assets in the US rose from $7 billion in 1965 to almost $600 billion in 1987. Foreign banks maintain over 1,000 offices in the US, including representative offices, agencies, investment companies and subsidiary and branch banks. These operations are concentrated in New York, Los Angeles, San Francisco, Chicago, and Houston. New York City has 65 percent of these assets and 435 of the offices. As of 1981, International Banking Facilities were developed to bring a share of the huge and rapidly growing overseas financial market back to th e US. Such facilities allow US banks or the US offices of foreign banks to carry out int ernational banking business without being subjected to US regulations and reserve requirements. A US bank may use IBFs as a base to compete in the international market for deposits and loans even if it has no overs eas branches. 3 By 1985 the 160 IBFs in the US held total assets of $261 billion; the 100 IBFs in New York City held total assets of $201 billion.

S. Sassen

137

The 1978 International Banking Act implemented a framework for Federal Reserve supervision and regulation of foreign banking and subjected foreign banks, formerly regulated by the states in which they were chartered, to the same restrictions as domestic banks. 4 As a result, domestic banks became more competitive with foreign banks, which until then had been free of federal examination and supervision, and exempt from the prohibition of interstate banking and investment banking. The Act also contributed to the reduction of geographic restrictions on all banks in the US. 5

Technology Advances in electronics and telecommunication have transformed geographically distant cities into centers for global communication and long-distance management. Several related but less well-documented issues, particularly the shift of a number of activities that were once a part of manufacturing into the domain of services, are discussed below. Most significantly, the transfer of assembly line skills from workers to machines in a previous era has a present-day parallel in the transfer of a variety of activities from the shop-floor to the computer room with its attendant technical and professional personnel. What was functional specialization within factories in an earlier period is now spatial and organizational fragmentation of the work process, promoting increased centralization and complexity of management, and creating the need for specialized services. In brief, over the past 15 years, the weight of economic activity has shifted from production locales like Detroit to centers of finance and highly specialized services. While old manufacturing centers decline, the need for centralized management and control feeds growth in cities like New York and Los Angeles. Similarly, the ascendance of the advanced services in economic activity generally has reoriented critical tasks of management from production to finance. The expansion in the size and profits of the financial industry, alongside the devastation of once highly profitable manufacturing industries, has fed a perception that much of manufacturing is an obsol ete form of economic growth in advanced economies. One outcome has been policies that favor financial growth, to the benefit of centers of financial activity like New York.

New York City: world financial center

138

Table 6.1 New York City employment, 1987 Industry total manufacturing non-manufacturing private sector construction TCUb trade FIREC services business services legal services government

Emplo yme nt (thousands) 3,611.5 380.8 3,230.7 2,646.1 119.2 217.1 642.3 547.6 1,119.3 305.3° 69.3° 584.6

Sourc e : Year-end Report on 1987, Bureau of Labor Statistics, US Department of Labor, Middle Atlantic Regional Office. Employment Review, New York State, Department of Labor . Note: 0 These figures are not season ally adjusted, while the rest are. b Transportation, communications, utilities c Finance, insurance, real estate.

Place of business and finance in New York City and its region New York City has long been a center of business and finance. What has changed since the late 1970s is the structure of this sector, its magnitude and its weight in the city's economy. 6 In 1987, th e last year for which data are available at the time of writing, employment in New York City stood at 3.6 million workers. The finance and business services complex emp loyed almost a million workers, while manufacturing had declined from about 900 ,000 in 1970 to 380,000 by 1987. (Table 6.1). According to many criteria, New York City is a single labor market, but there are clear differences among the various boroughs and especially between Manhattan and the other four boroughs. One cou ld argue that for certain industries we are dealing wit h separate markets or certain ly sub-markets .7 The distribution of economic activity by borough shows that Manhattan enjoys a disproportionate concentration (66 percent) of all activities . (Table 6.2). The disproportion becomes even more accentuated for certain types of activities: over 89 percent of finance, insurance and real estate (FIRE) and almost 86 percent of business services are located in Manhattan . Comparing the distribution of economic activity by borough in New

S. Sassen Table 6.2

Manhattan's

Industry

all industries construction manufacturing apparel TCU 0 wholesale retail

FIREb business service s personal services heal th services educational services Source: Bureau of the , County Business -, County Business , County Business

139

share of all New York City jobs 1970, 1980, 1982, 1984 1970

1980

1982

1984

(%)

(%)

(%)

(%)

65.8 42.8 56 .7 67.7 56.8 66.5 53 .1 85.9 83.0 61 .5 55.4 69.9

66.0 41.2 57.6 70.3 55.3 71.0 51 .2 88.4 78.1 66.7 43.2 64.7

66.7 42.9 59.0 69.3 56.3 70.4 52.9 88.9 86.4 45.6 42.1 64.2

66.1 41.5 58.8 69.2 55.7 68.7 52 .3 89.7 85.7 45.4 38.9 63.1

Census, Count y Business Patterns 1970 , New York (CBP- 70-34) Patterns 1980, New York (CBP-80-34 ) Patterns 1982, New York (CBP- 82-34 ) Patterns 1984, New York (CBP- 84- 34).

York City, it becomes evident that in Manhattan the largest single concentration is in FIRE, which employed 23.5 percent of all workers in 1985. Sectors prominent in other boroughs are manufacturing in Brooklyn and Queens, health services in the Bronx and retail in Staten Island. (See Appendix Tables 6A.1 and 6A.2.) In 1970, manufacturing still played a significant role in all boroughs, especially in Manhattan. The decline in manufacturing represents one of the most dramatic shifts in the economic base of the city. Using a broader regional and time frame, the specialization index used by Harris (1988) to create Table 6.3 shows that Manhattan already had a disproportionate concentration of FIRE jobs 30 years ago. Manhattan's "specialization index" for FIRE in the New York metropolitan region at 169 in 1956 rose to 195 by 1980, an uncommonly high quotient. The rest of the metropolitan core, consisting largely of the rest of New York City and one New Jersey county, suffered declines in the finance quotient. A second pronounced trend that emerges from such a broader perspective is the decline in manufacturing in the rest of this core, with a specialization index reduced from 121 in 1956 to 86 in 1980. A comparison of this index with both population and employment (Table 6.3) demonstrates that th e rest of the core suffered severe losses in each over the last 30 years. In 1956 this area had 41.8 percent of the region's population and 23.6 percent of its jobs; by 1985 these shares had fallen to 32.4 percent and 16.2 percent. 8 The figures on population and employment also show that Manhattan's overall share of the region's jobs declined significantly , from

New York City: world financial center

140 Table 6.3

Industrial specialization in the New York metropolitan region, 1956 and 1980 Specialization index (NYMR=100)

Percentage Distribution

1956 Manufacturing Wholesaling Finance 1980 Manufacturing Transport Wholesaling Retailing Finance Business services Personal services Prof. services Public admin. NYMR

Man.

Rest of NYC Core

Inner ring

Outer ring

28 .2 6.8 4 .8

69 145 169

121 83 46

117 68 68

128 45 35

21 .5 9.1 5.1 14 .1 9.5 5.9 2.6 22.1 4.8 100.0

78 102 110 70 195 144 108 87 104

86 158 94 101 57 66 104 118 117

111 81 112 114 75 95 200 97 88

122 71 78 113 62 85 85 102 91

Source: Harris (1988), calculated from Hoover and Vernon, Anatomy of a Metropolis, 1962, p. 248; US Bureau of the Census, Place of Work, New York, 1984.

Table 6.4

Population

and employment distribution region, 1956 - 85

in the New York metropolitan

Population

Employment

% Manhattan rest of core inner ring outer ring NYMR ('000's)

%

1956

1975

1985

1956

1975

1985

11.8 41.8 29.7 16.7

8.0 32.1 28.8 31.1

8.1 32.4 29.5 31.0

40.6 23.6 23.5 12.3

29.1 19.0 27.9 24.0

27.2 16.2 27 .9 28.7

15,375

18,394

18,304

6,700

7,216

8,392

Source: Harris (1988) calculated from New York Metropolitan Transportation Council, Metrornonitor, 1986. Hoover and Vernon , Anatomy of a Metropolis (1962 :6). Note: In 1975 and 1986 the NYMR data are for a Tri-Count y Regio n that includ es part of Connecticut in addition to Fairfield County .

40.6 percent in 1956 to 27.2 percent in 1985 (Table 6.4). This declin~

further underlines the disproportionate concentration of FIRE and business services in Manhattan. Clearly, the highest increases in the share of population and employment were in the outer ring. A comparison of the share of different service industries in job growth in New York City and the United States as a whole shows a significantly

S. Sassen Table 6.5 SIC

Employment

in producer services in New York City, 1970, 1977, 1982, 1985

Industry 1970

60 61 62 63 64 65 66 67 73 81 86 89

banking credit agencies commodity brokers insurance carriers insurance agents real estate combined real estate and insurance " holding, investment office business services legal services membership orgs. miscellaneous business services

Total total for all New York industries share of producer services in all industries employment

growth rates

141

Employees 1977

1982

1985

129,267 14,622 95,198 87,799 30,073 100,127

137 ,253 18,537 68,713 73,452 23,134 87,424

170,201 21,719 93,466 71 ,436 26,678 87,754

158,400 27,674 118,896 66 ,849 30 ,889 94,022

1,334

1,117

665

613

8,297 212,045 29,997 81,885

19,657 193,043 37,004 54,220

16,878 250,317 48,962 52,750

17 ,963 283,906 58,729 56,754

59,065

47 ,314

67,081

65,585

839,709

760,868

907,90 7

980 ,280

3,370,829

2,714,385

25.0% 1970 - 1977 -9.4%

2,896,979

3,017,996

31.3%

32.4%

28 .0% 19 77-1982 19.3%

1982 - 1985 8.0 %

Source: Bureau of the Census, County Business Patterns 1970 , New York, (CBP-70-34) --, County Business Patterns 1977, New York (CBP-77-34) --, County Business Patterns 1982 , New York (CBP-82-34 ) --, County Business Patterns 1985, New York (CBP-85-34) Note ° Figures from an average of estimated range of emplo y ees, e.g. 100-249.

higher percentage increase in the city. Of the 300,000 service jobs generated in New York City between 1979 to 1985, about 38 percent were in FIRE and 18 percent in business services, a total of 56 percent of the net addition. For the US as a whole during the same period, FIRE added 13 percent and business services 21.6 percent, for a total of 34.6 percent of all job growth in services. From 1985 to 1987 in New York City these shares increased to 40.4 percent for FIRE and 22 percent for business services (62.4 percent of the n et addition). One outcome of the massive increase in business services and in the volume of financial transactions and associated services is that employment in these areas surpassed manufacturing in 1980. By 1984, finance and business services employed 576,000 workers, about 140,000 more than manufacturing. As recently as 1977, there were 120,000 more jobs

100 % (100%) $26,342,6 63,000 (1.8) 0 2.3 % (19.6) 19.9 (6.3) 4.4 9.8 (7 .8) 11.2 (9.8) 6.6 (10 .3) (21.4) 22.6 (6.8) 6.7 5.3 (4.9) 2.7 (3.5) 8.0 (6.0) 26.9 (29.6) 0.4 (0.76) (9.9) 8.4 (4.2) 4 .1 2.3 (1.9) (2.4) 1.7 (10.8) 10.0 0.9 (0.8)

Manhattan 100 % (100%) $73,227,559,000 4.0 % (3.4) 0 15.0 (15.4) 2.4 (3.9) 10 .1 (7.8) 9 .0 (7.7) (12.6) 7.0 23.7 (17.3) 6.0 (5.3) (3 .2) 3.7 (3.1) 2.0 11.3 (11.4) 30.0 (36 .3) 0.5 (1.1) 8.7 (10 .9) 7.0 (8.3) (2.0) 2.7 2.1 (3.2) 8.8 (10.9) 1.3

1985 Manhattan 100 % (100 %) $54,754,982,000 (1.9) 0 2.3% (13 .7) 13.8 (4.1) 2.5 7.9 (6.5) 9 .1 (7.9) 5.6 (9.9) (23.5) 30 .0 (7.2) 7.6 (4.5) 4.6 3.0 (3.6) (15.0 ) 14 .9 30.1 (35.4) (0.7) 0.3 (12 .2) 10.7 4.1 (4.9) 3.5 (2.7) (3.1 ) 1.9 (11.8) 9.6 1.3

in selected years

New York City

in Ne w York Cit y and Manhattan

Source: County Business Patterns 1977, New York , US Bureau of Census ) (CBP-77-34), Count y Busine ss Patterns 1985 , New York, US Bu reau of Censu s) [CBP-85-34). Note 0 Employment distribution.

100% (100%) $37,075,926,000 (5.4) 0 3.1% (21.9) 21.6 (5.9) 4.1 12.1 (O.9) 10.5 (7.5) 8.5 (11.9) (15.6) 17.8 (0.5) 5.1 4.1 (3.6) (3.2) 2.5 (4.1) 6.2 26.0 (28.3) (1.2) 0.6 (7.1) 6.5 (6.6) 6 .4 1.7 (1.4) (2.6) 1.9 (9.5) 8.7 (0.1) 0 .5

1977

by industries

New Yark City

Annual payroll distribution

construction manufacturing apparel TCU wholesale trade reta il trade FIRE banking insurance carriers and agents real estate others Services personal ser vic es business services health services legal services educational services others Others

all industries

Table 6.6

S. Sassen

143

in manufacturing than in finance and business services. This reflects not simply a shift to a service economy, but a far more specialized recomposition in the city's economic base (Table 6.5). Table 6.6 shows that FIRE accounted for 30 percent of Manhattan's private sector payroll compared to 22.6 percent in 1977 and much higher than its 23.5 percent of employment in 1985. The payroll share of manufacturing, on the other hand, fell from 20 percent for Manhattan in 1977 to 13. 7 percent in 1985. Only two other sectors showed an increase in their share of payroll from 1977 to 1986, business services , up from 8.4 to 10.6 percent and legal services from 2 percent to 3.4 percent. The payroll figures suggest that together, finance and business services are the most important growth sector in New York City. The arts and culture complex is another important component in the economic base of New York City, contributing about $5.6 billion to the metropolitan region. 9 In 1982 the arts industr y generated directly and indirectly over 117,000 jobs, providing $2 billion in personal income. At this level of aggregation, the arts are a larger industry than advertising, or hotel and motel operations, or management consulting services, or computer and data processing services. The largest beneficiaries of the arts in order of importance, are the real estate industry, business and professional services, and wholesale and retail trade. 10 The largest share of the total $2.1 billion in expenditures by the industry is accounted for by labor (45 percent); the second largest single category (at 20 percent) is expenditure for business services (including professional services); the third largest is payroll taxes and benefits. The evidence available for later years is less exhaustive, but clearly indicates continued growth until 1987.

Components of growth of finance and business services in New York City Today, a large number of highly specialized service firms and non-bank financial institutions are the core of this sector. The reorganization of the financial industry over the past few years has brought about fund amenta l chan ges, characterized by less regulation, mor e diversification, more competition, accelerated growth and the loss of market share by the large commercial banks. In the earlier period, the banks had dominated a market characterized by high levels of regulation , low inflation and moderate but predictable growth rates. High inflation in the 1970s , the growing use by corporat e borrowers of the Euromarket and the Third World debt crisis changed these cond itions. By the early 1980s New York not only had a large concentration of

144

New York City: world financial center

national service, financial and industrial firms engaged in international business, but also emerged as a key location for foreign firms seeking access to US markets. The large increase in direct foreign investment in the US beginning in 1981 raised the order of magnitude of international transactions. The city's vast telecommunications and transportation infrastructure facilitated these developments. Finally, New York City's role as the leading import-export center in the US at a time of high volume activity has promoted growth in the range of associated services. Currently, at least 20 percent of US ocean imports and 40 percent of air cargo imports pass through New York City. These figur es represent a considerable volume of acti viti es giv en that the US accounts for 20 percent of worldwide imports and 15 percent of exports. The associated service activities range from industrial to financial. Among these are warehousing, trucking , packaging, wholesaling, distribution, legal and accounting services specialized in international transactions, and financing. The internationalization of production , servicing and finan ce has given New York add ed weight as a location for key decision making about production, trade, investment and finance by both US and foreign firms. It concentrates in one particular location a strategic combination of firms, people and resources. The leading growth sector in the financial complex is the securities industry. The volume of all issues by US securities firms rose from US $82.4 billion in 1984 to US $286 .0 billion in 1986 . Not surprisingly, employment in the securities industry in New York City rose from 70,200 to 90,000 in 1980; 119,000 in 1985; and 156,000 in 1987 (Appendix Table 6A.3). The purchase by foreigners of US treasuries increased from US $12.8 billion , a figure already reflecting the rapid growth of the pr eceding years , to $24.2 billion in 1985 and $50 billlon in 1986 . Th e level of specialization in many of th e advanc ed services has increased. For example, large firms now tend to use several corporate specialized legal firms. Similarly, central to the growth of management consulting has been a high level of specialization oriented to institutional investment. This has in turn created a need and a dependence on a combination of oth er servic es and resources. A high level of contact among firms is requir ed at th e point of produ ction even though these firms can serve widel y dispersed regional, national and int ernational markets. 11 New York City clearly has emerged as a desirable location for such contact, notwithstanding higher costs of operation than in other US cities. New York City law firms are becoming dis ti n ct from thos e of oth er citi es, notably Los Ang eles and Chicago, in th eir typ e and level of

S. Sassen

145

specialization. For example, research by Mollenkopf from the City University of New York found that corporate legal firms in New York City are far more likely to have international expertise. 12 While large firms in Los Angeles and Chicago are expanding to New York City and other regional growth centers, the large New York City firms have set up branches in foreign financial centers as well as in Washington DC, an important city in the international chain of transactions. A key source of growth of international legal services in New York City has been the rise of investment banking. Using the Martindale-Hubbell Law Directory, one can calculate the share of law firms with foreign branches in Manhattan, Los Angeles, and Chicago. Manhattan had 78 such firms; there were 39 in Los Angeles and 11 in Chicago (Appendix Table 6A.4). Together these developments have brought about a rapidity and scale of growth that are specific to this economic phase, rather than being merely a continuation of older trends. This rapidity and scale have created intense pressures on space, in all its forms : housing, offices, retail, manufacturing and space for circulation. The outcome has been a pronounced transformation in the spatial organization and built environment of the city. It has meant that urban space itself has become a prime target for investors, foreign and domestic. Commercial, office and residential space has emerged as a preferred investment. Much of this activity is concentrated in a relatively small area of Manhattan, which has become the key location for the financial and corporate services, and headquarters of firms with international markets. National market headquarters are moving to lower-cost locations in the greater metropolitan area. The Manhattan CBD, extending from 60th Street all the way to the tip of the island, houses 58 percent of the city 's jobs in 600 million square feet of non-residential floor space, one of the high est densities for a CBD. This space includes mor e than half of all the foreign bank offices in the US. According to the Regional Plan Association, in 198 7 the 454 firms listed on the Stock Exchange and headquartered in Manhattan controlled US $770 billion in worldwide sales (in 1982 constant dollars). These include 38 financial and securities firms with about $100 billion in sales. In contrast, the 54 Exchange listed headquarters locat ed in the rest of the city control $3 billion in sales. In brief , much of what constitutes the leading int ernational center for finance, multinational headquarters and specialized servicing, is situated in a small area. This extreme geographic concentration is taking place in an era of global telecommunications capability. These simultan eous developments reflect an emerg ing relationship between new centralized functions and new decentralization capabilities.

146

New York City: world financial center

New York and other major cities Major cities may be seen as the sites of production for a new "basic" industry . While all cities contain a core of service industries, location quotients for different sized SMAs (Standard Metropolitan Statistical Areas) clearly show the largest ones to have a disproportionate concentration of business and distributive service industries. 13 The availability of these services encourages the concentration of users or the formation of a market for such services; and the agglomeration economies of the concentration enhance the trend . Because these services are produced fundamentally for "export", any city with a certain set of resources could conceivably become the site of this specialized industry. For example, these services have also grown in Chicago, the principal center of the industrial Midwest, and an important location for multinational industrial firms . From 1977 to 1984 average annual growth rates in several specialized services compared favorably with those of New York City (Appendix Tables 6A.5 and 6A.6). The difference lies in the incidence of certain industry groups. Chicago's employment share in FIRE was 6.1 percent in 1981 compared with 11.5 percent in New York City; these figures increased to respectively 7.4 percent and 12.4 percent by 1985. To ground the comparison in a broader complex of industri es, we used the categorization of information industries, adding the communication group (SIC 48) to FIRE, business, and legal services. New York City's share of 26.3 percent is significantly higher than Los Angeles' 17.8 percent and Chicago's 20.3 percent. But these are all above the 15 percent for the US as a whole (Table 6.7) . The relative significance of the three cities is indicated by a comparison of the location quotients of FIRE for eac h . New York City's quoti en t at 2.3 is about double that of Los Angeles, partl y due to the significant weight of manufacturing in that city. It is also significantly higher than Chicago's. To provide a context for these figures the quotients of services as a whole were calculated for these three locations , and much smaller differences were found (Appendix Table 6A.7). One particular indicator of the uneven distribution of financial activity is the leve l of foreign deposits at the 200 largest banks in th e US (Appendix Table 6A.8). In 1986 New York City received 68.8 percent of all foreign deposits in the 200 largest banks in the US, a share that rose to 85.6 for the ten largest banks. The respective shares for Los Angeles were 2.9 percent and 6.4 percent, while Chicago had 8.5 percent for th e top 200 and none for the top ten. Yet, Chicago had a larger concentration of

FIRE business services legal services

77,800 507,600 273,700 60,100

(no .) 3,488,100

%

26.4

2.2 14.0 7.9 1.7

100.0 61,928 268,379 226,346 37,542

(no.) 3,345,520

Los Angeles

%

17 .8

1.9 8.0 6.8 1.1

31,697 223,501 162,264 26,092

20 .3

1.5 10.2 7 .4 1.2

100.0

%

Chicago (Cook County)

1985

(no.) 2,187,992

industries,

100.0

in the information

1,282,616 6,004,136 4 ,272,2 01 685,456

(no .) 81,119,257

us

Source: Bureau of the Census, County Business Patterns, 1985, New York, various issues. Employ ment Review, January 1987, New York State, Depa rtm ent of Labor. Note ° Communication includes: telephone communication, telegraph communication, radio and television broadcasting, communication

share of information industries to total employment

SIC 48 60-69 73 81

Total employment industry communication°

Employment

New York Cit y

Table 6.7

%

services.

15.1

1.6 7.4 5.2 0.9

100.0

148

New York City: world financial center

deposits in the top 200 banks than had Los Angeles. While both Chicago and Los Angeles had absolute increases in foreign deposits compared with 1976, they have not raised their share of all deposits. The share of New York City has increased by almost 12 percent and its absolute value more than doubled from $92 billion in 1976 to $194 billion in 1986. The locational concentration of these growth sectors explains the massive development of high-rise office buildings to house these activities and the generation of high-income jobs partly explains the massive development of luxury residential buildings, trends evident in all these cities and particularly in New York. But the dominant economic sectors, along with other sectors, also create a demand for goods and services produced by firms that lack the bidding power of firms in the economic core. These range from small manufacturing firms with specific clients to "industrial services": warehousing, finishing work , various kinds of delivery services , truck servicing, and packaging. Furthermore, both the dominant economic sectors and the ancillary services create low-wage jobs which entail a demand for low-cost housing and commerce by the workers employed in those jobs. The next section examines some of these issues.

Distribution of benefits What has the presence of this highly dynamic complex of financial and business services meant for the population and workforce of New York City? Has the high growth of the city's economy over the past decade improved the income and occupational distribution of residents? There are at least four aspects worth considering. One is the size of the nucleus of jobs represented by the leading sectors; another is its connection with the rest of the city's economy, two subjects already discussed above. A third is the overall income and occupational distribution of the workforce ; and the final one, which cuts across the others, is how the ethnic and racial diversity in New York City's labor force interacts with the economic growth trends. Here we focus mostly on the last two. 14 Recapitulating information presented earlier (see Table 6.6), 30 percent of employment and 35 perc ent of New York City's payroll are in FIRE and busin ess and legal services. For Manhattan, these p ercenta ges rise to 37.7 percent of employment and 44 percent of the payroll. The other main components are health services which account for 8 percent of all employment, manufacturing for 15 per cent and trade for 20 percent. Together these three account for almost half of all employment and for 38 percent of the city's payroll, a proportionately much lower

S. Sassen

149

share of payroll than the first group. The disparity in the payroll: employment shares ratio between these two groups of industries is far stronger today than it was ten years ago. In 1977 FIRE represented 23 percent of payroll and 21 percent of employment in Manhattan; in 1985, these shares had risen (divergently) to 30 percent and 23 percent. Services, on the other hand, had a payroll share of 27 percent and an employment share of 30 percent in 1977 in Manhattan; in 1985 these figures had risen to 30 percent and 35 percent indicating a decline in relative payroll share. Thus in relation to employment, FIRE gained payroll share and services lost share (see Table 6.6). County Business Patterns data on weekly payments by industry reveal two trends (Appendix Table 6A.9). One is the considerable variation in such payments among the chief industry groups. A second trend is that Manhattan-based jobs have higher average weekly payments in all significant industry groups than do jobs in the outer boroughs of the city. In 1985, nominal weekly payments in construction ranged from $689 in Manhattan to $468 in Brooklyn (Kings County); in manufacturing, from $575 in Manhattan to $342 in Brooklyn; in FIRE, from $732 in Manhattan to $344 in the Bronx; in services as a whole, $487 in Manhattan to $314 in Staten Island (Richmond County). Within the service sector, business services ranged from $501 in Manhattan to $242 in Staten Island; personal services were uniformly low, ranging from $257 in Manhattan to $176 in Staten Island; and legal services ranged from $729 in Manhattan to $405 in Queens. These data are averages, and do not indicate the distribution of weekly payments by occupation within industry. However, they point to a clear difference between Manhattan and the other boroughs. Earnings by occupation and industry show a tendency towards lower income for clerical, technical, and blue-collar service workers in nonmanufacturing industries than in manufacturing, transportation and utilities (Appendix Tables 6A.11 and 6A.12) . Over half of all new jobs created in the city are high-income jobs in leading sectors, notably FIRE. However, it appears that much of the job growth in New York City has been in occupations paying less than in declining industries or for the same jobs ten years ago. Combining these income data with New York City's current trend of job losses in manufacturing and gains in certain service industries points to an increase in higher income jobs and a decline in better paying jobs at the lower end of the occupational structure. The projections on job growth for New York City by the New York State Department of Labor point to a continuation of these trends . Out of a total of four million jobs for 1988, clerical occupations are expected to account for over one million jobs, professional occupations for over

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New York City: world financial center

800,000, managers for 400,000, service occupations for 700,000, and crafts, operatives and laborers for 780,000. Over the past few years , more than half of all new jobs have been high-income jobs. Given common conceptions of the post-industrial city, it is worth noting that these last three blue collar occupations are projected to provide 108,000 openings a year, which is one in every six job openings, partly an indication of high turnover. This points to a mass of high-income and a mass of lower-income jobs. There is a parallel tendency towards increased ethnic/racial segmentation in the labor force. Most of the growth in New York City's labor force since 1977 was accounted for by women and minority workers, two increasingly overlapping categories. In 1970, 39 percent of the workforce was female; by 1986, it was up to 45 percent. Several projections show that by 1990 women will hold more jobs than men do in the city. Blacks and Hispanics now provide for half of the resident workforce while most of the commuters are white . From 1977 to 1986 the resident labor force grew by 169,000. Minority workers increased by 237,000 or 30 percent, compared with a loss of 68,000 whites. The Hispanic workforce is estimated to have increased by 20 percent. Of the 3.2 million resident workers, 1.6 million are non-Hispanic whites; 663,000 or 20.5 percent, are Hispanic (both native and foreign born); and 928,000 or 28.8 percent are black and other non-Hispanic workers. A more detailed analysis of these estimates shows that the proportion of the minority population holding jobs was 50.1 percent compared with 54.7 percent for non-Hispanic whites. Within the minority population it was 51 percent for blacks and other races and 47.2 percent for Hispanics. While minority workers now represent almost half of the resident work force, they account for only 10 percent of the 700,000 workers who commute to the city. The BLS estimates that commuters account for less than a third of all New York City workers (Appendix Tabl e 6A.13) . Census sources, while outdated, allow for detailed employment, industry and occupational distributions by national origin. From 1970 to 1980 the number of white native born workers declined from 1.8 million to 1.4 million and that of foreign born whites from 417,000 to 315,000. The number of native born blacks decreased slightly from 462,700 to 440,200 and that of foreign born blacks increased from 55,500 to 170,300. Foreign born blacks, Asians and Hispanics added the largest number of workers. 15 Minority workers continue to be under-represented in higher level jobs. As of 1986, 16 percent of all Hispanics and 21 percent of all employed blacks and other races held managerial, professional and technic al support jobs as compared to 36 percent of whites. The figures

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for whites are underestimates in that they exclude commuters, 90 percent of whom are white and many with higher level jobs . Among Hispanics there continues to be over-representation in manufacturing, though in absolute numbers the vast majority of Hispanics in the labor force are in clerical and service jobs. The income and occupational racial/ethnic segmentation is evident also in more general social and educational characteristics of the city's population. Immigrant and native minority workers constitute a large share of the population and one that is expected to grow. Most, if not all, projections put the minority population at about 60 percent by 1990. According to the 1980 Census almost 25 percent of the city's population was foreign born. If undocumented immigrants were included, this figure would be significantly higher. Perhaps even more notable is the fact that one out of every five residents between 20 and 44 years of age, that is, in prime working age , was an immigrant who arrived after 1964. The future labor market impact can be seen in the fact that one out of every four children under ten in 1980 resided in an immigrant household. Educational data for minority workers suggests a disadvantaged labor force. According to the 1980 census, 42 percent of the city's blacks and 60 percent of Hispanics aged 25 and over had no high school diploma. About 80 percent of the 50,000 youths aged 16 to 19 who dropped out of school were minority. The available evidence indicates that persons who do not complete high-school are more likely to be unemployed or concentrated in low-income jobs. Other figures for the general population in New Yark City confirm the occupational and income data indicating that the pronounced growth in the city's finance and business service sectors has not brought about an overall upgrading in the socio-economic conditions of large segments of the population. While per capita personal income increased at a rate five times higher in New York city than nation-wide, these gains are unevenly distributed. Since 1977 real incomes have risen for the upper half and especially the upper quarter of the city's population. However, real incomes have dropped for many other groups, and from 1980 to 1984, poverty increased by 20 percent. 16 By 1987, 24 percent of New York City's population, 1.8 million people , were under the federal standard set in 1987 at $11,611 for a family of four. Th e poor are disproportionately bla ck and Hispanic. In 1985, 32 percent of blacks and 44 percent of Hispanics were below the poverty line. In 1982, about 42 percent of, respectively, Hispanic and black children in New York City lived with their mother only, another indication of the incidence of poverty. In New Yark City most of the poor now are children, a situation reminiscent of Third World cities.

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With one out of every four residents in the City below the poverty line and a labor force participation rate which stood at 52 percent in 1987, about 10 percent below the US rate, the evidence suggests that at best growth in the leading sectors has ignored a mass of disadvantaged workers, and at worst it has contributed to the increase in their numbers.

Conclusion Finance and business services account for a significant share of New York City's workforce and payroll. They were also the lead ing growth sectors after the city's fiscal crisis of 1975-76. This development raises several questions. One is whether these trends distinguish the economic base in New York City from (a) the country as a whole and (b) other major cities. L_ocation quotients for FIRE and business services show clearly that these sectors are more prominent in New York City and other major cities, notably Los Angeles and Chicago, than in the US as a whole. But New York City can also be distinguished quantitatively and qualitatively from those major cities, in terms of the economic weight of these industries in the city's economic base and the more international character of business transacted. The evidence suggests, then, that major cities and especia lly New York City, contain seed-bed conditions that promote these particular forms of growth, and, most importantly, the next stage innovations in these sectors . The development and operations of these sectors and the stimulus of these innovations benefit from and require high levels of agglomeration, as well as integration into the international market. Secondly, the persistence of agglomeration is particularly intriguing in an era when developments in telecommunications and computer technology should in principle have facilitated and promoted spatial dispersal. The high degree of managerial and financial agglomeration evident in New York City is owed in large part to the emergence of a worldwide network of production sites and financial markets linked by telecommunications and computer technology. The technical developments that have made spatially decentraliz ed production and supply systems possibl e have mandated and crea ted new forms of centralization of top level management, control, design and servicing. The accelerated pace of technological and economic growth has promoted and built upon innovations. A third set of questions concerns the integration of this high growth economic core into (a) the economy of the region; (b) th e econo my ofthe city. The fragmentary evidence presented here suggests that only

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limited integration has taken place between the new finance and service sector and the broader economy of the region. There is a high concentration of firms with international markets in New York City, and specifically in Manhattan, while firms with national markets are concentrated in the outer ring of the metropolitan region. Much of New York City's finance and business services activity ic; oriented towards the international market or towards foreign firms operating in the US rather than the New York region. Regarding integration into the broader city's economy, one evaluation of the evidence suggests that there is actually more integration than meets the eye. 17 What appears as the declining inner ring of the region is a form of articulation with leading economic sectors, but one that is characterized by socio-economic and physical segmentation. Parts of the Bronx, Brooklyn and Queens actually house sectors of the economy and workforce which provide goods, services and labor to the complex of financial and business services but have very different occupational, income and industry characteristics as well as distinct physical expressions. One example of this is a range of industrial services, such as warehousing, trucking, printing and packaging. Even though they provide key services many of these firms cannot compete for space in much of New York City, and are under immense pressure to reduce costs. Fmthermore, both the leading economic sectors and the ancillary services create a supply of low-wage jobs which in turn creates a demand for low-cost housing and commerce; also these are not competitive land uses in much of New York City. At what point do these tensions in society and land use reach a level where the only, or the most viable solution is one or more of the following: large-scale spatial dispersal of a significant number of firms in the leading economic sector, or a significant contraction in many industries from securities to printing to r8_§1aurants,or an expansion of the informal economy? One such cycle dfdispersal has already occurred as many national market firms have moved their headquarters to the outer ring of the metropolitan region. International market firms and the export-oriented business and financial services have retained their headquarters in Manhattan. The pressures that led to this earlier phase of dispersal may have contributed to, or sharpened the new seed-bed functions , specifically , the development of export oriented business and financial services and th e production of innovations in these sectors. Not least are the issues concerning the distribution of benefits and burdens associated with this growth. The evidence on general socioeconomic conditions in New York City suggests that its comparative advantage in finance and business services and the massive growth in these sectors has not translated into a greater level of well-bein g for a

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large share of the workers; and there is some evidence (not presented here) that other sectors of the economy and workforce have experienced displacement owing to the acute competition for commercial and residential space pushing some firms underground. Equally, and perhaps of even more concern, this type of growth has not only accentuated the inequality in the bidding power of different types of firms and in the income structure, but also has hurt sectors of the economy necessary to the operation of the leading sector firms. Finally, such growth has not contributed to an overall improvement in the income and socio-economic conditions of large sectors of the population; on the contrary, these conditions have seriously deteriorated over the past decade. In sum, the leading growth sectors in New York City are linked to the international market, a relationship central to the phase of rapid growth that began in 1977 after the financial crisis. The city's new seed-bed function can be seen in the conditions it provides for this particular kind of growth: finance and business services for the international market and the production of innovations in these sectors. However, while these sectors account for over a third of the city's economy and their rapid growth has contributed to growth in a broad range of other economic sectors, this type of growth has not contributed to a reduction in poverty, nor has it raised the wage levels of lower-paying jobs. After ten years of extremely rapid and high-profit growth, there is now more poverty in the city, more polarization of income and an expanding informal economy.

7 Industrial growth and restructuring of metropolitan regions EDWARD M. BERGMAN

Introduction DETAILS may differ among various accounts, but there is widespread and general agreement about the timing, features, scope and importance of industrial restructuring for US regional development. Competition from Europe and Asia , a slowing of US productivity, and internal reorganization of corporate functions to rationalize control or reduce costs, are all advanced as (partial) grounds for the spiraling decline of some US regions and the surging growth of others. This line of analysis and policy research emerged during the late 1970s and has almost replaced previous urban policy debates about central cities verses suburbs. Indeed, those debates were, by the late 1970s, transformed, as interregional migration displaced intra-r egiona l considerations for job and housing access . Some displacement of intra-regional concerns has occurred because whole metropolitan regions, centra l cities and suburbs alike, lost large shares of economic activity during periods of restructuring, often in the middle ranges of earned income. The visibly stronger causal mechanisms, i.e., economic and industrial restructuring factors, at work in determining the fortunes of regions drew attention to the greater salience of economic struc ture and away from the political differentiation among jurisdictions wit hin metropolitan regions.

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Finally, some of the original issues addressed by interregional policy research seemed to disappear in the 1970s when small towns and rural areas began capturing a surprising share of industrial growth and development. Much of that growth was driven by late-product cycle, branch plant production whh:;h would later be suppressed during the 1982 recessionary trough as a stronger dollar, fierce international competitors and complacent US corporations cut back the rural surges of the 1970s. As the once resurgent non-metropolitan economies of the 1970s faded in the 1980s, the metropolitan advantages of research and development, advanced producer services, corporate headquarters, skilled technicians and superior communications steadily recaptured national shares of industrial output and employment. However, these advantages are not uniformly distributed across metropolitan regions. We have come round nearly one full policy cycle and are back at the point where intra-metropolitan differentiation is once again an important collateral policy issue . But the interregional and international policy issues, which the research output of a decade rightly emphasizes, remain an important context for restructuring within metropolitan regions. In other words, a richer and fuller account can now be presented of some important connections between these various levels of restructuring and the layered divisions of labor which result . This chapter investigates the nature of intra-regional and industrial restructuring in a sample of 17 states and 1,032 metropolitan region counties in the US South and Midwest which enjoyed excep tionally strong rural resurgence in the 1970s followed by an even stronger period of metropolitan growth and economic restructuring. 1 Insights derived from previous studies of the national system of cities, internationally traded industrial goods and the intra-metropolitan division of labor among industries will provide the basic conceptual apparatus with which to examine evidence of industrial restructuring.

Counterfactual growth: system and sectors The only innovative investigation of national urban policy since the Reagan Administration took office was completed by the Committee on National Urban Policy in 1983 . In attempting to evaluate the m erits of people versus place-based urban polic y, it embraced a new view of large "places" put forth by Noyelle and Stanback. 2 These places were those metropolitan economies that held relatively distinct positions within the "system of cities", a system defined by functional roles within the US economy. The roles they saw open to metropolitan regions are direct analogs of corporate structure (headquarters, functional centers,

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regional offices, production centers, research and development) and broad sectoral divisions (goods, services, government, military). Since the logic of restructuring emphasizes one role over others in each metropolitan area, these "ideal type " functions were in a continuous process of being defined rather than representing actuality. Moreover, the logic corresponded loosely with constellations of metropolitan economies which were visibly prospering (headquarters, research and development centers) or languishing (manufacturing). Its appeal was further reinforced by association with a new view of the services economy which was more reasonably sorted into six recognizable subclassifications: distributive, corporate /producer, retailing, consumer, nonprofit, and government services. Landis later adopts Noyelle and Stanback's basic functional scheme to assign values for dummy variables in a regression model which explains the growth of sectors (1977-85) for 76 metropolitan centers. 3 He finds their scheme superior to other simple conceptualizations (sectoral location quoti en ts, US regional dummies, bi-coastal dummies) in explaining percentage changes of employment. In trying to extend his analysis to intra-metropolitan growth, Landis relies upon the 1977 and 1982 Economic Census for data in central cities and suburbs. While the richness of Economic Census data is attractive for the purpose, their analysis is risky for two reasons. First, the 1977-82 period is asymmetric with respect to th e business cycle: 1977 is a recovery year and 1982 is the deepest recessionary trough since the great depression. Changes measured between these two years reflect to a considerable degree the exposure of a local economy to the economic downturn rather than secular change. 4 Second, the intra-metropolitan distinction is central city versus suburbs only. The changing fortunes of nonmetropolitan "ring" counties which surround Metropolitan Statistical Areas (MSAs) have , since the 1970s , been drawn into ever tighter metropolitan orbit as peripheral rings of a larger metropolitan region. They are now an intrinsic part of the metropolitan regions and deserve consideration. This analysis will rely on data for 1977 and 1984 (comparable business cycle positions), for detailed industrial sectors, and for broader components of southern and midw estern metropolitan economies (metropolitan areas an d their non-metropolitan rings). Rather than specify a growth model, the data will be used first to answer the counterfactual question a shift-share analysis is designed to address: what "unexpected" growth (or decline) of Noyelle-Stanback MSAs can be observed after accounting for simple effects of total growth and th eir industry mix? Put differently , if total growth and industry mix effects are removed, do MSAs then grow faster (positive shift residual) or

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1 million, 250K to 1 million, under 250K population). Changes in the industrial structure of these counties are then factor analyzed to detect the presence of systematic industrial restructuring . The data and numerous classifications used here are derived from a larger study by the author of industrial restructuring in metropolitan and rural regions. See Bergman, E. M. 1989. Industrial transition paths . Unpublished Report to Economic Development Administration. 2 An earlier and quite perceptive evaluation of people vs. place as an organizing concept for urban policy appeared in a book by Clark, G.L., 1982. Interregional migration, national policy and social justice. Totowa, NJ: Rowman & Allenheld. The work of Noyelle, T. J. and T. M. Stanback, 1983. Economic transformation of American cities. Totowa, NJ: Rowman & Allenheld, provided the basis for classifying cities and their place in a new national system that might form the logical framework for urban policy. See Hanson, R., 1983. Rethinking urban policy : urban development in an advanced economy. Washington DC: National Academic Press. Although this framework has been widely considered and used in subsequent analysis of urban issues, it was not adopted by the Reagan Administration, which in 1985 re-established the Committee on National Urban Policy at the National Research Council. The Committee's first action was to commission a new series of background papers and publish them along with a Committee Report (1988) in a book titled Urban change and poverty. Washington DC: National Academy Press . 3 Landis, J. D., 1987. An empirical basis for national urban policy . Urban Studies 1987 24 518- 533. 4 A similar problem was encountered in a study that sought to analyze secular trends underlying a dramatic reversal of manufacturing (and total employment) growth in parts of the rural south using 1977-82 data, Rosenfeld, S. R., E. M. Bergman & S. Rubin, 1985. After the factories. Research Triangle Park, NC: Southern Growth Policies Board . To correct the recessionary bias that results from analyzing change between these dates, a "business-cycle neutral" period spanning two full cycles was proposed by Bergman, E. M. op. cit., and later adopted in a followup study by Rosenfeld, S. A. & E. M. Bergman, 1989. Making connections . Research Triangle Park, NC: Southern Growth Policies Board. The 1977-84 period adopted in both studies is also used in this chapter . 5 Counterfactual analysis is dri ven by the "what if" question now so familiar to all spreadsheet users of personal computers. When presented with a table of initial values (eg., base year employment levels of MSAs), one can ask what would result if all those values are adjusted by some common

292

6

7 8

9 10 11 12 13 14

15 16

17

Notes factor (total growth of reference area) or by another factor (industrial mix) associated with each initial value. Neither of these adjustments needs to reflect the forces actually at work which might affect the initial values: we are only asking "what " would result "if" total growth and industry-specific growth rates were applied to each MSA's initial employment levels and were then compared with observed MSA growth. The assumption embedded in this exercise is precisely equivalent to expecting the national (or reference area) economy to consist of subdivisions or local economies all of which behave identicall y i.e., as clones. As w ith any standardization technique, this accounting scheme is primaril y useful to convert and compare raw rates of actual change. When , therefore, deviant local economies are actually observed to grow faster than the counterfactual expectation of shift share, we say the y have exhibited a positive shift. If how ever others grew slower than expected , they are judged to have a negative shift. In an analysis of 1,700 counties, several factors that measure or otherwise reflect aspects of economic and regional restructuring were found important in predicting which non-metropolitan counties in 1977 became metropolitan by 1984 (or which metro counties lost their MSA status by 1984). Rising 1977-84 unemployment rates, high leve ls of 1977-84 economic restructuring and high employment conc entra tions of tourism, resource, capita l and labor-intensive manufacturing, corporate services and federal civilian government sectors increased the probability of a county becoming non-metropolitan. On the other hand, counties were more likely to enter the metropolitan system if they had high 1980 residential densities, enjoyed access to interstate highways, had large populations or large shares of population in central cities, and if the y had large concentrations of consumer service industri es . This is presented in detail by Bergm an , E. M. & G. Maier in Bergman, E. M. op. cit. Maskus , K. E., 1983. The changing structure of comparative advantage in American manufacturing. Ann Arbor: UMI Research Press. Lawrence divides all manufacturing sectors into groups which reflect their comparative input-intensities. Appendix 2 arrays these sectors into his four dependency groups: technology, capital, labor and resources . See Lawrence , R. A., 1984 . Can America compete? Washington DC: Brookings Appendix Table 2 and pp. 63-4. Lawrence, R.A., ibid, p. 75. Maskus, op. cit. p. 60. Goldstein, H. A. (ed.), 1987. The state and local industrial policy question. Chicago: Planners Press . Hanson, op. cit. Bergman , E. M. & H. A. Goldstein, 1986. Dynami cs, structural change and economic development, in Bergman, E. M. (ed.), Loca l economies in transition. Durh am, NC: Duke University Press, pp. 84-110. Bergman, E. M. Industrial transition paths , op. cit. Lawrence, J. A., op. cit. pp. 63- 4. Bergman, E. M. , 1988. Growth of technologically-dependent industr y in US counties: multiple industr y definitions and growth component duality. Paper presented at Hamburg-Harburg Forum , Technical Universit y of Hamburg - Harburg, Federal Republic of Germany. It is difficult to find general agreement in the literature about useful definitions of high-technology, although there is no lack of possible cand id ates. Among th e earliest and most complete descriptive evaluations

Notes

18

19 20

21

22

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of high technology for purposes of regional analysis is supplied by Office of Technology Assessment, 1984. Technology, innovations and regional economic development. Report OTA-STI-238. Washington DC: USGPO. Other illustrative discussions and applications include Bergman, E. M., 1989. Industrial transition paths, op. cit. Burgan, J.,1985. Cyclical behavior of high-tech industries. BLS Monthly Labor Review May pp. 9-15 and Thompson, C., 1987 . Definitions of high technology and government programs in the USA: a case study of variations in industrial policy under a federal system. Environment and Planning C 1987 pp. 417-431. The more restrictive definitions supplied by Bureau of Labor Statistics are shown to discriminate best among factors associated with high-tech industry growth. In a study by E. Bergman , Growth of technologicallydependent industry ... , op . cit. the most restrictive definition (R&D standardized expenditure) was analyzed directly; further, the industries it defines were also "netted" out from a second, larger set of ELS-defined set of industries (percent of skilled occupations in work force). These steps yield two mutually exclusive definitions that are used here to represent "R&D" and "technical/occupation" based forms of manufacturing. The principal inputs (natural resources, low cost labor, capital, technology) identified by Lawren ce , op. cit., to class ify industries is based directly on an international trade logic of national comparative advantage. But it may also apply with lesser force (and at tighter margins) to interregional differences in locaL US economies. That is, many local economies can supply some rather than other inputs more effectively than another group might. Accordingly, growth of industries dependent on particular inputs are, ceteris paribus, expected to grow or prosper in local US economies that supply such inputs efficiently and thereby compete with similarly endowed regions of all countries in the global division of labor. Bergman, E. M ., 1988. North Carolina's metropolitan economy emerges. In NC Carolina Commission on jobs and economic growth. Report. Raleigh, NC-p. xv. Some critics of social policy adopted during the Reagan era charge the Administration with an unrealistic (and undue) reliance on the predicted shrinking labor supply to stimulate educational upgrading of minorities and marginalized populations from private sources. The labor shortfall thesis on which this reliance is based was first examined by Easterlin, R.A., 1987 . Birth and fortune. Chica go: Univ ers ity of Chicago Press. In preparing a detailed descriptive account (Local area economic growth patterns: a comparison of the 1980s and previous decades) of local growth patterns for the Committee on National Urban Policy, op. cit. Daniel Garnick reviews several earlier theoretical perspectives and concludes The import of these results is that, although there appear to be many long-term industrial and regional structural elements at work underlying the shifting balances in metropolitan and non-metropolitan area growth, no single or overar ching theory appears to be able to des cribe adequately the dynamics of area growth and decline . (p. 199-200) (emphasis added) There may in fact be no single, overarching theory as Garnick contends but this judgment should spur rather than preclude efforts of the type represented here to analyze finer-grained growth patterns and develop carefully tuned measures or definitions that might eventually reveal the basis for sound theoretical reformulations. Thompson's seminal book (1965) A preface to urban economics, Baltimore:

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Johns Hopkins Press, laid out the essentials which were condensed in a widely cited article "Internal and external factors in the development of urban economies", in Perloff, H. S. & L. Wingo (eds.), 1968. Issues in urban economics, Baltimore: Johns Hopkins Press . In switching away from a sector-driven model to one based on occupations and labor skills, W.R. and P. R. Thompson elaborate their views by contrasting these overlapping perspectives, "National industries and local occupational strengths: the cross-hairs of targeting", Urban Studies 1987, pp. 547-560. See also from this article the citations to several additional articles which elaborate their main points. 23 This switch in emphasis has its parallels in the evolution of business climate indices produced first by Grant Thornton, later modified in INC and then wholly reformulated by the Corporation for Enterprise Development . As American business became more sensitive to early product cycle factors, the four sub-indices used by CED rise in importance compared with the input-cost sensitive index of Grant Thornton. A good discussion and evaluation of these indices can be found in Skora, C. L., 1988 , who concludes from his evaluation " ... that business climate indexes of the Grant Thornton and the old INC variety are useless as predictors" (p. 151). Rankings of state business climate's an evaluation of their usefulness in forecasting, Economic Development Quart erly 2 (2) 138-152. 24 Bergman, E. M. Growth of technologically-dependent industry . . . , op. cit. 25 Much of the justifiable criticism leveled at the work of David Birch and other analysts who measure only the job generation of small business is directed solely at serious flaws in the Dun and Bradstreet data which compromise such measurements. Missing, however, in The job generation process (Final Report to EDA, US Department of Commerce, 1979) , its many imitators and in typical critiques of this approach, is any serious consideration of the underlying mechanism Or functions performed by small business in a local economy. The debates too often swirl around empirical evidence of whether small business generates jobs at the rate or of the type claimed , rather than focusing on why an enterprise known principally for being small (or young or new) might have some inherent advantage that results in favorable local growth prospects. 26 Tiebout's original work reflected the rational calculus of households who located within metropolitan jurisdictions to consume an optimal package of public services. See Tiebout, C., 1956. A pure theory of local expenditures. Journal of Political Economy 64, 416-424. But the logic extends to enterprises as well (perhaps better) that seek optimal intra-metropolitan submarkets where good access to key agglomeration economies might be found, particularly microbusiness climates with the overall features evaluated by Skoro, op. cit ., the skill endowments identified by W. Thompson and P. Thompson, op. cit., or the social agglomeration economies sketched earlier by Richardson, H. W., 1973. Regional growth th eory. NY: Halsted Books - pp. 193 - 196. 2 7 The proposed outlin e is advanced quite modestly as a framework in need of considerable development. A truly comprehensive metropolitan area development model would exhaust bounded space and evaluate the alternative futures of all the lo cal governments within the area . .. But breaking new ground here proceeds slowly and we begin modestly with a simple quantification of the position and potential of the central city only, compared to the

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metropolitan area of which it is a functional part. Thompson, W.R. & P. R. Thompson, op. cit. p. 50.

28 29

30

31

32

33

This chapter is one attempt to equate the skill-based sectors of their model with specific industries and to measure evidence of their restructuring across all types of metropolitan counties, including large core city counties. Thompson, W. R. & P.R. Thompson, ibid. When sectoral change (1977-84) in each count y is calculated as a percentage of 1977 employment and then factor anal yze d, the resulting combinations are distinct subsets of sectors having internally correlated change. That is , within each subset are sectors whose closely correlated growth (or decline) tends to lead certain MSA components along a particular development path. Since we know which MSA compo nents are affected most by any particular subset of restruct uring sectors (i.e., their "factor scores"), above or below average effects can be known for each type of MSA county (e.g., core, suburb, etc.) we can assess whether some further intrametropolitan division of labor (among sectors) is presently unfolding and whether it applies with greater force to certain MSA components but not to others. For a more complete discussion of the technique and of alternate interpretations whi ch result from variations of this approach to analyzing restructuring evidence, see Bergman, E. M., Industrial transition paths, op. cit. pp. 35-46, 55-66. Industrial restructuring can be measured with a variety of indices, each of which captures rather different (often uncorrelated) dimensions of overall industrial change in local economies. Bergman, E. M., Industrial transition paths, op. cit. Star charts represent an ideal means to compare factor score differentials. Since average degrees of restructuring in each metropolitan subregion yields an equil ateral polygon, above - or below-average degrees of restructuring in certain submetropolitan regions will distort proportionately and visibly the length of polygon legs. Extensive use of these charts was made to represent similar forms of restructuring in metropolitan and purely rural regions in Bergman, E. M., ibid. Thompson, W. R. & P. R. Thompson, op. cit. use job-.to-workers ratios executive /administrative force and a var iet y of business service receipts (legal services, accounting /aud iting, engineering service, wholesale service, business service, hotel service, eating and drinking, and architectural services) to capture the business center concept. The hous ehold service center is described by CBD/MSA ratio of shopping sales, hospital inpatient days, general merchandise retail sales, amusement /recreation receipts, health service receipts, 70-80 percent change in central city population. These hypothesized features are reasonably close to the smaller but similar mixture of sectors that were found in this study to be concentrating in the largest core counties. . This is , perhaps, yet another illustration of how pervasive and important the military is to the structure and location of US industry. To the degree that industries dependent on technical labor rely on released armed forces personnel, some regions slated to lose their military bases following the Commission's 1988 recommendation may also lose significant shares of the associated industrial base. The undue (and largel y unre cognized ) reliance on military technical training to improve labor force skills is analoguous to the role played by the GI Bill since World War II in broadening the base of college attendance. Because these contributions go unnoti ced, there is little

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incentive to develop superior policies at national or state levels to train skilled workers at all education levels. Only as the so-called "Easterlin Thesis" becomes increasingly manifested during the 1980s has a sudden and active interest blossomed among US industrialists to improve education and training for all members of our labor force. 34 A little more than half (54 percent) of the change in employment levels for sectors across 1,032 MSA region counties was correlated with change in one or more other sectors. The remaining 46 percent of sectoral change occurred independently or randomly. 35 Bergman, E. M., Growth of technologically dependent industry . . . , op. cit. 36 Cohen, S. & Zysman, J., 1987. In Manufacturing matters NY: Basic Books, make an increasingly accepted argument that many producer services cannot survive without manufacturing, even if such sectors grow large and (temporarily) scale-efficient enough to export services. 3 7 A useful thumbnail sketch and comparison of production system options is available in Aggarwal, S. C., 1985. MRP, JIT, OPT, FMS? Making sense of production operation systems . Harvard Business Review - SeptemberOctober 1985, pp . 8-16 . The connection between similar systems and industrial policy at state and local levels is suggested by Schmenner, R. W. , Productivity in the factory and industrial policy. In Goldstein, H. A., op . cit. pp. 54-59. 38 ibid, Table 3.

Notes to Chapter 8 1 Unless otherwise specified all data come from : National Income and Product Accounts of the United States 1929-1982 , Tables 6.2, pp. 254-255 and succeeding Surveys of Current Business, July issue Table 6.2. 2 European Economy Sept. 1985, (25) 77. 3 Ibid. 4 OECD labor statistics. 5 NIPA Table 6.2 . 6 Ibid . 7 Obtained by dividing value added in manufacturing per full-time full-year employment.

Notes to Chapter 9 1 This chapter is based, in part, upon Clark, G. L., 1988. The Den is Winston Memorial Lecture: Planning in a world of economic restructuring. The Australian Planner 26 5-14 , presented to the 1988 Royal Australian Planning Institute biannual conference. Many people made useful comments on this particular paper including Lloyd Rodwin, Bennett Harrison, Meric Gertler, Ben Fischer, Richard Florida, and Bruce Spratling. 2 Clark, G. L., M. Gertler & J. Whiteman , 1986. Regional dynamics : studies in adjustment theory . Winchester , Mass . & London : Unwin Hyman. 3 An earlier statement of this argument was given by Thompson, W., 1972 . The national system of cities as an object of public policy. Urban Studies 9 99-116 . 4 A recent assessment along these lines comes from Crandall, R. W., 1988 .

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The regional shift of US economic activity. In Litan, R. E., R. Z. Lawrence & C. L. Shultze (eds.), American living standards: threats and challenges. Washington DC: Brookings. Another relevant citation includes McKenzie, R. B., 1984. Fugitive industry : the economics and politics of deindustrialization. Cambridge, Mass.: Ballinger Press. Note that there is considerable debate over the probable consequences of north-south relocations; some (like McKenzie) suggest that such relocations are an inevitable and salutary aspect of a trend towards interregional income convergence, and; others (like Garnick, D. & H. L. Friedenberg, 1982. Accounting for regional differences in per capita personal income growth, 1929-1979. Survey of Current Business 62 24-34) argue that supposed income convergence is a statistical artifact, not a reality (in theoretical economic terms at least). Barts, G. & J. Stein, 1964. Economic growth in a free market. NY: Columbia University Press; Richardson, H., 1973, Regional growth theory. London: Macmillan. Markusen, A., 1985. Profit cycles, oligopoly and regional development. Cambridge, Mass: MIT Press; Massey, D., 1984. Spatial divisions of labor. London: Macmillan. Clark, G. L., 1989 . Unions and communities under siege : American communities and the crisis of organized labor . Cambridge & NY: Cambridge University Press. , Harvey, D., 1988. The geographical and geopolitical consequences of the transition from Fordist to flexible accumulation. In Sternlieb, G. & J.Hughes (eds.), America's new market geography: nation, region and metropolis, New Brunswick, NJ: Center for Urban Policy Research, Rutgers University pp. 101-135. See in particular Scott, A. 1988. New industrial spaces . London : Pion; Storper, M., 1989. The transition to flexible specialization: the division of labor, external economies and the crossing of industrial divid es. Cambridge Journal of Economics (forthcoming); Storper, M. & A. Scott, 1988. The geographical foundations and social regulation of flexible production complexes. In Dear, M. & J. Walch (eds .), Territory and social reproduction . Winchester, Mass. & London: Unwin Hyman. Their work begins with Fiore , M. & C. Sabel, 1984 . The second industrial divid e. New York: Basic Books , with its emphasis on flexible production systems; makes a link to Aglietta, M. 1976. A theor y of capitalist regulation. London: New Left Books; and extends the story by incorporating notions of minimizing transaction costs and maximizing external economies by locating in "appropriate" places. While they are rightly nervous of attributing too much to flexible production in the sense that this movement is an epochal change of capitalism, they remain forceful advocates of its potential for fundamentall y transforming how production is geographically organized. Hall, P ., 1988. Regions and the transition to the information economy . In Sternlieb, G., & J. Hughes (eds .), America's new market geography: nation, region, and metropolis . New Brunswick, NJ: Center for Urban Policy Research, Rutgers University - pp. 137-160. There are, of course, significant differences in scope and opinion amongst those who see the coming of a new Kondratieff growth-cycle. In the urban studies lit erature, some theorists focus more upon th e histor y of Kondratieff-like cycles of urbanization (see Berry, B. J. L., 1989. Migration rev ersa ls in perspective: the long wave evidence. International Regional Science ·Revi ew (forth -

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Notes coming), while others have tended to emphasize the consequences of an information revolution on the form of contemporary cities. Mandel, E., 1980. Long waves of capitalist development. Cambridge: Cambridge University Press is an interesting account of the theory applied to the long-run evolution of the global economy. Friedman, B., 1988. Day of reckoning: the consequences of American· economic policy under Reagan and after. New York: Random House (on the consequences of the Reagan administration); Office of Technology Assessment, 1988 Paying the bill: manufacturing and America 's trade deficit. Washington DC: Congress of the United States (for a detailed account of the consequences of recent federal economic polic y on US manufacturing and trade) . Grunwald, J. & K. Flamm (eds.), 1985. The global factory: for eign assembly in international trade. Washington DC: Brookings (an excellent overview of the issue). In the past year, a great deal of concern has been raised in the US about the long-run prospects of the New York area financial economy relative to the emerging financial and service centers of the Pacific rim and Europe. Just as there has been a radical change in the industrial fortunes of US industry, there could be easily the same kind of decline in the US's financial servic es economy. Clark, G. L., 1988. Corporate restructuring in the US steel industry: adjustment strategies and local labor relations. In Sternlieb, G. & J. Hughes (eds.), America's new economic geography. New Brunswick, NJ: Center for Urban Policy Research, Rutgers University pp. 179-216, gives an extensive and detailed assessment of the regional consequences of the rationalization of the US steel industry. My recent paper on auto restructuring in th e Midwest (Clark, G. L., 1986. The crisis of the Midwest auto industr y. In Scott, A. & M. Storper (e,ds.), Production , work, territory. Winchester, Mass. London: Unwin Hyman) is thought by some to have been overly pessimistic. The region has not lost as many jobs as once forecast, and there appears to be a minor renaissance amongst the largest US auto manufacturers. Though employment has stabilized, there is a crisis in the Midwest auto industry - a crisis of organization, labor-management relationships, and community well-being fueled by a drastic inter-plant competition for scarce corporate in vestme nt. The advent of Japanese auto producers in the Midwest has served only to emphasize the stakes of inter-community competition. See Mair, A., R. Florida & M. Kenney, 1988. The new geography of auto manufacturing in the United States. Working Paper 88-30. Pittsburgh: School of Urban and Public Affairs, Carnegie Mellon University. Th e seminal source on regional deindustrialization is Bluestone , B. & B. Harrison, 1982. The deindustrialization of America. NY: Basic Books. More recently, the volume edited by Sternlieb, G. & J. Hughes, 1988 . America's new market geography. New Brunswick: Center for Urban Policy Research, Rutgers University, provides a bro ad perspective on the theor y and patterns of restructuring including essays on restructuring in basic industry, the transformation of the servi ce economy, and the regional consequences of new forms of information technology amongst other sectors and issues . Blanchard, 0 . J. & L. Summers, 1986. Hysteresis and the European un employmen t problem. In Fischer, S. (ed .), NBER Macroeconomics Annual. Cambridge, Mass.: MIT Press. Thes e authors have developed a

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24

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related interpretation of the persistence of high levels of unemployment in Europe based on what they label as the "hysteresis" of European economies and institutions. In part, critics of European economic policy argue that the rigidities (inflexibility) of countries' labor markets and their regulatory institutions are a vital explanation of the poor performance (in terms of job creation) of these economies over the past decade. For a detailed overview of the Bretton Woods agreement from the US perspective (including a discussion of John Maynard Keynes ' role in the design and ratification of the agreement) see Dam, K. 1982. The rules of the game: reform and evolution in the international monetary system . Chicago: University of Chicago Press. Dam provides an overview of both the regulatory regime, its administration and its economic implications . Branson, W., 1980. Trends in United States international trade and investment since World War II. In Feldstein, M. (ed .), The American economy in transition. Chicago: University of Chicago Press . Branson noted that, "the United States produced more than 60 percent of the world's output of manufactures in the late 1940s" (p. 183). Only after the 1960s did the world economy recover its productive capacity to challenge the dominance of American corporations. Winham, G., 1986. International trade and the Tokyo round negotiation. Princeton : Princeton University Press. Krasner, S., 1978. Defending the national interest: raw materials investments and US foreign policy. Princeton: Princeton University Press . This is apparent for many industries, including the traditional manufacturing sectors like textiles, shoes and apparel, the more hi-tech industries like electronics, and machine tools, and, now, services, Scott, A. & M. Storper's (1986) edited collection Production, work, territory . Winchester, Mass. and London : Unwin Hyman, provides many useful examples consistent with this thesis. For related and initial statements on the imperatives and consequences of the spatial division of employment see Clark, G. L., 1981. The employment relation and spatial division of labor: a hypothesis. Annals, Association of American Geographers 71 412-424. Porter, M. (ed.) 1986. Competition in global industries . Boston, Mass.: Harvard Business School - provides a useful overview of the dimen sions of this issue. The relative inflexibility of nominal wages, and the essentially exogenous impacts of lower labor productivity, increasing inflation, and the increasing value of the US dollar forced US real wages (compared to foreign competitors) far higher than the market could bear. In these ways, the US economy stagnated as adjustment lagged far behind events. A decade later, with a declining value of the dollar and accelerating increases in labor productivity in basic industries, the competitive ability of US firms has much improved. The consequences, though, have been drastic - felt most obviously in high levels of unemployment and displacement in these same industries. Morishima, M., 1984. The economics of industrial society. Cambridge: Cambridge University Press, provides a theoretical treatment of these kinds of adjustment problems. Zarnowitz, V. & G. Moore, 1986 . Major changes in cyclical behavior. In Gordon, R. J. (ed.), The American business cycle: continuity and change. Chicago: The University of Chicago Press. The y provide a detailed and comprehensive analysis of the significance of the 1981/82 recession relative

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33 34

Notes to previous economic events. They note that unusually large inter-sectoral employment shifts were a contributing factor to sustained and high levels of US unemployment. This was perhaps one of the first US recessions to be dominated by external shifts (structural shifts) in US international competitiveness. By some accounts, nearly half of the 12 million US workers unemployed in the early 1980s were permanently displared, and in recent years (1984-86) the annual rate of displacement has been as much as 1.5 million workers per year - see Cyert , R. & D. Mowery (eds.), 1987. Technolog y and employment: innovation and growth in the US economy. Washington DC: National Academy Press; Mishel, L. & J. Simon , 1988. The state of working America. Washington DC: Economic Policy Institute, have a useful compendium of facts of the performance of the US economy over the 1980s. For a most exhaustive and thorough treatment of the income distribution consequences of corporate restructuring see Harrison, B. and B. Bluestone, 1988. The great U-turn. NY : Basic Books. There is enormous debate over recent trends in US income ; not all commentators would agree with my assessment, nor would they necessarily agree with Harrison and Bluestone. For a rather different view (emphasizing issues of labor productivity and macroeconomic shocks) see Levy, F. 1988 . Incomes, families, and living standards. In Litan, R., R. Lawrence, and C. Shultze, American living standards. Washington DC: Brookings In Clark, G. L., M. Gertler & J. Whiteman, Regional dynamics, op. cit. we describe the adjustment problem as a problem of understanding "how economic uncertainty is absorbed by the spatial organization of production ... [and] the implications of such organization for the structure and dynamics of regional economies" - p. 2. In recent years there have been announcements in the US media of further layoffs in the US comp uter and electronics industry, the direct result of increased global competition and the introduction of new products . International Business Machines (IBM) was cited in The New York Times (June 30, 1988) as planning to layoff about 10,000 employees and close five of its plants. Company spokesmen noted that, "new products required fewer micro-chips and other components ... [and] modern production lines are also more flexible, allowing individual plants to react more qui ckly to changes in demand" - p. 29). Lawrence, R. Z., 1988. The int erna tional dimension. In American Jiving standards op. cit. has an interesting speculative discussion of the immediate future of the US economy in an era of a declining US dollar. While I do not agree with him on how adjustment ought to be managed, his comments on living standards are useful for readers not accustomed to situating US economic growth in an international con text. The best recent analysis of US competitive policy (or the lack thereof) is in Scott, B. & G. Lodge (eds.), 1985. US compe titi veness in the global economy. Boston, Mass : Harv ard Business School. The largest packing compa ny, Continental Can Corporation became an insurance and financial services company in the late 1970s before management orchestrated a private leveraged buy-out that resulted in asset stripping and re-sale of the financial business businesses. American Can Corporation reversed Continental Can's strategy by selling its packaging facilities to the new merged packing company and thus concentrating on financial services. See Clark, G. L., 1990. Location, management strategy

Notes

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36

37

38

39 40

41 42 43 44

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and workers' pensions. Environment and planning A (forthcoming ), for details. Milwaukee Spring Division of Illinois Coil Spring Co. II, 268 NLRB 601 (1984); and Otis Elevator, a Wholly Owned Subsidiary of United Technologies II, 269 NLRB 891 (1984) . These cases are described and analyzed in detail in Clark, G. L., Unions and communities under siege. op . cit. For an historical perspective on workers ' welfare, labor mobilization and employers domination of communities, both in the north and the south of the United States, see Leab, D. (ed .), 1985 . The labor history reader . Urbana, Illinois : University of Ilinois Press . See Schoenberger, E., 1988. From Fordism to flexible accumulation: technology, competitive strategies, and international location. Environment and planning D: society and space 6 245- 262; and her conference pa per "Some dilemmas of automation: case study evidence" for relevant comments, though more centrally fixed within Harvey 's perspective than my own. Compare with Harvey, D., The geographical and geopolitical consequences of the transition from Fordist to flexible accumulation, Scott, A., New industrial spaces, and Hall, P ., Regions and the transition to the information economy (op. cit.). Piore M. & C. Sabel The second industrial divide. op. cit. See Gertler, M., 1988. The limits to flexibility: comments on the postFordist vision of production and its geography. Transactions, Institute of British Geographers NS 13 419-432, and Kelle y M. & H. Brooks, 1988. The state of computerized automation in US manufa ctu ring. Cambridge, Mass: Kennedy School of Government, Harvard University. Harrison, B., 1987 Cold bath or restructuring: an expansion of the Weisskopf - Bowles-Gordon framework. Science and Society 51 82- 92. Parker, M. & J. Slaughter, 1988. Choosing sides : unions and the team concept. Boston: South End Press. For more material on the community connection between union solidarity and economic restructuring, see Clark, G. L. Unions and communities under siege . op . cit. Early in the first Reagan administration, the 1982 President's National Urban Policy Report. Washington DC: USGPO, argued vigorously against an interventionist urban policy. A number of claims were made to back this retreat from direct federal responsibility for the well-b eing of American cities. It was asserted that by concentrating on accelerating national economic growth, as opposed to policies of redistribution, all cities and their residents would be made better off. It was also asserted that govern ment intervention only made social problems worse; that urban problems were only "solvable" through the market. There are many reasons to doubt the theoretical assumptions of these claims and there are reasons to doubt the empirical veracity of claims that the market can correct urban problems (see Clark, G. L., 1983. Int erreg ional migration, national policy and social justic e. Totowa, NJ: Rowman & Allanheld). Given the recent "competitions" for auto-plants involving many of the midwestern states, as well as other "competitions" for federal government investment (from NASA sites through to super-collidor laboratorie s), there are good reasons to suppose that such competitions only bid-down (in Markusen and Carlson's terms) the loc al tax base. On the other hand, it is just as apparent that few states can afford the luxury of not participating in

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these competitions, given the hostility of the federal government to local economic development. 46 For an assessment of the role of urban economic planning, and the relationship between planning and state th eory, see generally Dear, M. & A. J.Scott (eds.), 1981. Urbanization and urban planning in capitalist society. London & NY: Methuen. Another, more theoretical treatment, is Clark , G. L. & M. Dear, 1984. State apparatus: structures and language of legitimacy. London & Winchester, Mass: Unwin Hyman .

Notes to Chapter 10 1 It is interesting to note that, in the period of active federal involvement in regional development issues, the law of symmetry of institutional structures was much in evidence, so that the institutional structure of state and other subnational agencies evolved to match that of the federal agencies; as a result of this parallel convergence, the institutions of various regions closely resembled each other . As the federal presence in this policy area has faded, the institutional structure of subnational agencies has accordingly evolved divergently. 2 Baumol, W. J.,1989. Is there a US productivity crisis? Science 246 611-615. 3 The maquilas are manufacturing plants (predominantly doing assembly work) on the Mexican side of the border. Under a US-Mexico treaty, American components can receive further elaboration in these plants and be reimported into the United States without tariffs or quotas. As a result of this program, this northern region of Mexico is experiencing very rapid urbanization and industriali zation. 4 The Industrial Belt is the term tradition ally used to refer to a loosely defined region extending from the Northeast to the Midwest. However, in current usage, the Rust Belt refers primarily to the Midwest . 5 This is a rare case where the basis for the location of information-based industry is understood: as in the case of those earlier manufacturing industrie s, the attraction in this case is cheap and docile labor, and the enabling conditions are the routinization of the activities, the development of cheap and mobile capital equipment, and good tr ansportation (in this case, telephone voice and data connections). 6 Alonso, W., 1988. Population and region al development. In Higgins, B. & D. J. Savoie (eds.), Regional economic d eve lopment: essays in honour of Frangois Perroux. Boston: Unwin Hyman; From Alfred Weber to Max: the shifting style of regional policy. In Chatterji, M. (ed.). 7 Weber , A., 1909. Alfred Weber 's theory of the location of industries, edited and translated by Carl J.Friedrich, 1929. Chicago: the University of Chicago Press. 8 The argument that government subsidies create a culture of dependency and stifles initiative in its intended beneficiaries is more familiar in its app licatio n to welfare programs for the poor. 9 The Wall Street Journal, February 16, 1989, p. A16. 10 Sabel, C. & M. Piore, 1984. The second industrial divide. NY: Basic Books . 11 David Birch's work and influence is discussed in greater detail in my essay "From Alfred Weber to Max: the shifting style of regional policy " op. cit. The citations below are taken from his book Birch , D., 1987 . Job creat ion in America: how our smallest companies put the most people to work. NY:

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The Free Press, which is almost the first generally available statement of his analysis and conclusions. 12 Schmidt, W. E., 1989. What the states are doing for industry? The New York Times, February 5, 1989 . 13 Boorstin, D. J.,1965.The Americans: the national experien ce. NY: Random House - Vol. 1, pp. 2, 3.

Notes to Appendix to Chapter 3 1 Perloff , H. S., E. S. Dunn, E. Lampard & R. F. Muth, 1960. Regions, resources, and economic growth. Lincoln Neb: University of Nebraska Press. Shiftshare is mechanistic and has been subject to debate in regional science, especially with regard to its forecasting ability. We use it here for descriptive purposes only. For a good review of shift-share, see Stevens, B. H. & C. L. Moore, 1980. A critical review of shift-share as a forecasting tool, Journal of Regional Science 20 419-437. 2 Glickman, N. J., 1987. The employm ent eff ects of US direct inve stment abroad, paper presented at the 1987 meetings of the Regional Science Association, Nov emb er 10. 3 Kuehn, J. A. & C. H. Braschler, 1985. Impa cts of for eign trad e, automation and comparative advantage on manufacturing employment changes, 1975-80. Washington DC: Agriculture and Rural Economies Division, Economic Research Service, US Department opf Agriculture. 4 XA and XD are equivalent to ESTI and EDIS in Equations (3A.1) and (3A.2).

Notes on contributors

William Alonso is Saltonstall Professor of Population Policy at Harvard University. Earlier he was Professor of Regional Planning, first at Harvard University and then at the University of Californi a, Berkeley . He has also been President of the Regional Science Association. Professor Alonso is the author of Location and land use (1964), and editor of Regional dev elopment and plannin g (1964), and Regional policy (with J.R. P. Friedmann), The Politics of numb ers (with Paul Starr) an d Population in an interacting world, and numerous articles in professional and other journals. He has consu lted extensive ly for nation al and int ernational organizations in the United States, Europe, Australia, and in several developing countries . Edward M. Bergman is Professor of City and Regional Planning and Director, Institute for Economic Development, University of North Carolina. Dr. Bergma n teaches courses in local economic development and industrial policy, labor mark et and emp loyment planning , and planning theory. He directs a faculty and stude nt exchange program between the Universit y of North Carolina at Chape l Hill and the Vienna University of Economics. He serves on the National Rural Studies Committee and consu lts with the Southern Growth Policies Board, Southern Technology Council, and other public and private clients, while also maintaining an active research agenda . His current research focuses on industrial restructuring among state and local economies, regional development potentials across metropolitan and rural areas, and compara tive US-European development policy. Virginia Carlson is a Ph . D. Candidate in Politica l Science and a Research Fellow at the Center for Urban Affairs and Policy Research at a Northw estern University. She has worked for local Chicago community-based economic development organizations such as the Midwest Center for Labor Research and the Center for Urban Economic Develop ment. Currently, her dissertation research exp lores the implications of the growt h of service industri es for the formation of new local and national political coalitions . Gordon L. Clark is Professo r of Labor Studies and Urban Policy at Carnegie Mellon Universi ty in th e School of Urban and Public Affairs. Professor Clark taught previously at the University of Chicago and at Harvard University's Kenn edy School of Government. He was also a staff member of the National Acad emy of Science's Committee on National Urban Policy; and he has been an expert witness in court cases dealing with land use zoning and urban structure and planning and a consultant on comm unit y economic development, local labor market training , and displaced workers. Clark 's books include Judge s and

Notes on contributors

305

the cities: interpreting local autonomy and Regional dynamics: studies in adjustment theory and Interregional migration, national policy and social justice. He is also co-author of State apparatus: structures and language of legitimacy. Amy K. Glasmeier, Assistant Professor of Community and Regional Planning at the School of Architecture at the University of Texas (Austin), holds a professional Master's degree and a doctorate from the University of California at Berkeley, Department of City and Regional Planning. Dr. Glasmeier served as a consultant to the Congressional Office of Technology Assessment on high technology industries and regional development and has recently completed a major research study on high-tech industries and rural areas for the Ford Foundation's Rural Economic Policy Project. With Norman Glickman, she is completing a study of the economic development impacts of foreign direct investment sponsored by the Economic Development Administration and the Aspen Institute. Professor Glasmeier has authored numerous articles and is a co-author (with Peter Hall and Ann R. Markusen) of High tech America. Her current work focuses on the role of merchant wholesalers in regional development, services in rural areas, and the evolution of the world watch industry . Norman J. Glickman is Director of the Center for Urban Policy Resear ch and State of New Jersey Professor of Planning at Rutgers University. Until mid 1989, he was Mike Hogg Professor in Urban Policy at the Lyndon Baines Johnson School of Public Affairs at the University of Texas at Austin. A specialist in urban and regional economics, Professor Glickman has a Ph. D. in economics from the University of Pennsylvania. From 1970 until he joined the LBJ School faculty in 1983, he served on the faculty of the University of Pennsylvania as Professor in the Department of Regional Science. He has also held tea ching and research positions at institutions throughout the world, including the Netherlands Institute for Advanced Study in the Humanities and Social Sciences; the International Institute for Applied Systems Analysis in Austria; Gakushuin University and the Japan Center for Area Development Research; and the University of Haifa in Israel. Professor Glickman has written and edited numerous books and articles, and is the co-author of the The new competitors: how foreign investors are changing the U.S. Economy . Bennett Harrison is Professor of Political Economy and Planning in the Department of Urban Studies and Planning at MIT . He is the author or co-author of seven books, including The deindustrialization of America and The great U-turn: corporate restructuring and the polarizing of America, both written with Barry Bluestone . He teaches political economy, economic development, and labor theory; serves as a consultant to government agencies at both the state and national level; and works closely with a number of labor unions and community organizations on problems of economic dislocation and job creation. In addition to papers published in scholarly journals in the fields of economics, planning, and public policy, Professor Harrison is now a columnist for MIT's monthly journal, Technology Review . He also writes regularly for newspapers and magazines and offers radio and television commentary on local and national economic issues. He has lectured extensively in the US, Europe, and the Far East. Jean Kluver is an economist at the Massachu setts Department of Employment

306

Notes on contributors

and Training and works as a research consultant to labor unions and economic development organizations. Formerly, she was an editor of Dollars & Sense magazine and an instructor of economics at Wheelock College.

Ann R. Markusen is Professor of Regional and Industrial Economics at Rutgers University. She has written widely on American regional economies and on national industrial and regional policy. She is an active consultant to Congress, state and city governments and public interest organizations, and a frequent guest on the Chicago "Tonight Show" 's economi c roundtable. Her books include Regions: The economics and politics of territory (1987), Profit cycles, oligopoly and regional development (1985), and High tech America (1986) , the latter co-authored with Peter Hall and Amy Glasmeier. Her current research efforts are on th e regional economic implications of international trade and military spending. Forthcoming books include The rise of the gunbelt (1990), with Peter Hall, Sabina Deltrich and Scott Campbell, and The Cold War economy (1991). Lloyd Rodwin is Ford International Professor Emeritus and Senior Lecturer at the Massachusetts Institute of Technology. Head of the Depar tment of Urban Studies and Planning at MIT from 1969 to 1973, he was a cofounder and head of the Faculty Policy Committee of the Joint Center for Urba n Studies of MIT and Harvard University (1959-1969) . Professor Rodwin also founded and served as Director of the Special Program for Urban and Regional Studies of developing Areas (SPURS) from 1967 to 1988. Be has been President of the Regional Science Association in 1986-87, as wel} as an adviser on problems of housing, urban policies and regional development to many governments . His previous books are The British new towns policy, Housing and economic progress, Nations and cities, Cities and city planning. He has also edited The future metropolis, Planning urban growth and regional development, cities of the mind (with Robert Hollister), and Shelter , settlement and development. Saskia Sassen is Professor of Urban Planning and Chair of the Division of Planning and Historic Preservation at the Graduate School of Ar chit ecture, Planning and Preservation of Columbia University. Much of her research has been on the economic base of large cities, including a focus on labor market dynamics and the incorporation of immigrants. In addition to contributions to academic journals and books, she is the author of the recently published The mobility of labor and capital: A study in international investment and labor flow (1988) and is currently completing a new book , Global cities: New York, London , Tokyo . Hidehiko Sazanami, Director of the United Nations Center for Regional Development in Nagoya, is former Professor of Urban Environmental Planning at the Institut e of Socio Economic Planning, University of Tsukuba. He has served as Director of the Urban and Regional Planning Division at the Building Research Institute, Ministry of Reconstruction, Senior Lecturer at the Institute of Social Studies, the Hague, Netherlands , and in various kinds of government advisory activities at the central and local government level in Japan and in several Third World countries. In addition to many articles written for professional journals, his books include Metropolitan planning and management and Local social development planning.

Notes on contributors

307

Philip Shapira is Research Assistant Professor at the Regional Research Institute, West Virginia University where he conducts research and policy analysis on industrial restructuring competitiveness, manufacturing technology transfer, and regional economic development. Previously, Dr. Shapira was with the Office of Technology Assessment (OTA) of the United States Congress in Washington, DC. At OTA, he worked on an assessment of technology, innovation and US trade and helped author a special report Paying the bill : manufacturing and America's trade deficit (1988). Dr. Shapira received his Ph . D. in City and Regional Planning in 1986 from the University of California, Berkele y; he holds a Master's degree in Economics from the University of California, Berkeley, a Master's in City Planning from MIT, and a Diploma in Town and Country Planning from the Gloucestershire College of Art and Design, England. Michael B. Teitz is Professor of City and Regional Planning at the University of California, Berkeley, where he has taught since 1963. His main areas of teaching and research are regional and urban economic development, and housing policy and planning. In recent years, he has studied the California economy and has been a consultant and advisor to organizations concerned with economic development, including the California Economic Deve lopment Corporation. He is the author of numerous reports as well as articles for professional and other journals . Lester C. Thurow is currently Gordon Y. Billard Professor of Economics and Management at MIT's Sloan School of Management and Dean of MIT 's Sloan School of Management. In addition to his contributions to a variety of academic journals, Professor Thurow is the author, co-author or editor of twel ve books. His individual works include Poverty and discrimination (1969), Investment in human cap ital (1970), The impact of taxes on th e American economy (1971), Generating inequalit y (1975), The zero-sum society (1980), and Dan gerous currents: the state of economics (1983). He is co-author, with Robert L. Heilbroner, of Understanding macroeconomics (7th ed., 1981), Five economic challenges (1981), Economics explained (1982) , Understanding macroeconomics (6th ed., 1983), and Th e economic problem (7th ed ., 1984). From 1981 to 1984 Lester Thurow served as a contributing editor of Newsweek, during which time he published a regular column. He currently writes a column for Technology Review, and also writes frequently for The Boston Globe, The Los Angel es Times and Th e New York Times, where he was a member of the editorial board from August to December 1979.

Acknowledgements

The ten studies in this book were commissioned by the United Nations Centre for Regional Development under the auspices of an ongoing research project on industrial transformation and regional development. Six of the studies, viz: those by Lloyd Rodwin, Ann R. Markusen and Virginia Carlson, Bennett Harrison and Jean Kluver, Norman Glickman and Amy Glasmeier, Saskia Sassen , and Lester Thurow were presented at the 1988 International Conference on Comparative Regional Development Studies. The remaining studies, by Michael B. Teitz and Philip Shapira , Edward M. Bergman, Gordon L. Clark, and William Alonso were commissioned subsequently . The f..ndings of the initial six studies were presented in a series of successive seminars and workshops, 11- 16 July 1988, i.e., the Gifu International Symposium, the Nagoya International Forum, the Tokyo International Symposium, and two Expert Group Workshops , one in Nagoya and the other in Tokyo. The contributions and co-sponsorship of several institutions made these meetings possible. They include the Prefectural Governments of Gifu and Aichi, and Nagoya City Government, the Nagoya Bankers Association, Nagoya University, the Japan Development Bank and the Japan Centre for Area Development Research. We appreciate their assistance very much. We also extend our thanks to the members of the Organizing Committee for the International Conference on Comparative Regional Development Studies, for their guidance in coordinating this multifaceted programme; to the discussants and participants who attended the conference, for their timely and perceptive advice; to the staff of UNCRD for their exceptional efficiency and gracious assistance, and to Marcia Ross for h elpful typing and editing assistance in the preparation of the manuscript for production. Finally, all of the contributors, particularly Bennett Harrison and Ann R. Markusen, invested an immense amount of time and energy in critiquing the papers and in making constructive suggestions for the organization of this enterprise. Lloyd Rodwin Hidehiko Sazanami

List of tables

page

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 3.1 4.1 4.2 5.1

5.2 6.1 6.2 6.3 6.4 6.5 6.6 6.7 7.1 8.1 8.2

Regional change in non-agricultural employment, 1979-86 (in thousands) Regional change in manufacturing employment, 1979-86 (in thousands) Regional re-employment rates of displaced workers Components of population growth rates by regions, 1980-85 Growth rates in Midwest population and employment, 1979- 86 Percent change in state manufacturing employment, 1972- 86 Per capita defense prime contracts relative to US average Highest and lowest ranking states in military shipments, 1983 Shift-share: components of change in employment by region, 1977-82 Employment in California, by sector, 1972-87 Estimated employment gains and losses, by sector, US and California, 1979- 84 Year-round, full-time (YRFT) workers earning less than 50 percent and more than 200 percent of 1973 median annual wages and salaries for all YRFT workers, adjusted for inflation by the CPI Non-agricultural employment levels and change, 1973-87, Massachusetts and the US New York City employment, 1987 Manhattan's share of all New York City jobs, 1970, 1980, 1982, 1984 Industrial specialization in the New York metropolitan region , 1956 and 1980 Population and employment distribution in the New York metropolitan region, 1956-85 Employment in producer services in New York City, 1970, 1977 , 1982, 1985 Annual payroll distribution by industries in New York City and Manhattan in selected years Employment in the information industries, 1985 Restructured sector combinations (rotated factor pattern) Contribution of services to gross fixed investment, 1980- 82 Level of compensation per employee, 1983

32 32 33 34 38 42 44 45 77 88 94

115 120 138 139 140 140 141 142 147 168 181 181

List of tables

310 8.3 8.4 8.5 8.6 5A.1 5A.2 5A.3 5A.4 5A.5 6A.1 6A.2 6A.3 6A.4 6A.5 6A.6

Annual rates of job creation in services Share of services in job creation Number of jobs created in finance, 1979-85 Service job creation Massachusetts employment by county Shift-share analysis: Massachusetts versus US, 1973-87 Shift-share analysis: Massachusetts versus US, 1973-79 Shift-share analysis: Massachusetts versus US, 1979-84 Shift-share analysis: Massachusetts versus US , 1984-87 Distribution of economic activities by borough in New York City, 1970 (%) Distribution of economic activiti es by borough in New York City, 1985 (%) Employment in New York City financial industries (1982, 1985, 1987) Law firms with foreign branches in Manhattan, Los Angeles and Chicago, 1988 New York City and Chicago, 1977-84 ; emplo yment growth rates, produc er serv ices New York City and Chicago; employment in selected industries (%)

Location quotients of FIRE and service industries in selected US cities , 1985 6A.8 Foreign deposits at 200 largest banks, United State s, New York City, Los An geles and Chi cago, 1976 and 1986 (dollar s in billions) 6A.9 New York City: average weekly paym ents by borough, 198 5 (US$) 6A.10 New York City: median weekly earnings of office workers by industry group, 1981, 1987 (US$) 6A.11 New York City: median weekly earnings of professional and techni cal work ers by industry group, 1981 , 1987 6A.12 Unemploym ent rat es and emplo yment population rates, United States and New York City (not season ally adjusted) 7A.1 Service sectors (by SIC number) 7A.2 Manufacturing sectors

182 182 185 187 245 249 250 251 252 253 254 255 255 256 256

6A.7

256

257 258 258 259 260 266 267

List of figures

1.1 1.2 1.3 1.4 2.1 2.2 3.1 3.2 3.3 3.4 3.5 3.6 4.1 4.2 4.3 4.4 4.5 4.6 4.7 5.1 5.2 5.3 5.4 5.5 5.6 7.1 7.2

Census regions and geographic divisions of the US Regions in the central US The New York- New Jersey metropolitan region California economic regions Regions in the central US East North Central region employment shift effects, 1979-86 (1,000) Employment growth in the US, Sunbelt and selected Sunbelt states , 1969-86 The concentration of employment growth in the South, 1969-86 Relative per capita income as a percentage of the US average, 1929-86 Inequality in the South compared to the nation Location quotients of defence production by state Foreign new plants and plant expansions by census region California economic regions California and US total population, 1940-88 California gross product, 1963-86 California gross product, by sector, 1963-86 Job losses in California by sector, 1979-84 California projected labor force change, by ethnicity and selected age groups, 1987-95 Occupational structure of the labor force by ethnic group. California, 1986 Distribution of aggregate wages among quintiles of year-round full-time workers, 1979 and 1986 Relative wages in Massachusetts counties, 1986 Massachusetts and US productivity growth, all sectors: 1973-86 Massachusetts employment shifts, by sector: 1973-79 Massachusetts employment shifts, by sector: 1979-84 Massachusetts employment shifts, by sector: 1984-87 Gradient of pshifts for Noyelle-Stanback metropolitan areas and rings Pshift gradient and its largest sectoral component for Noyelle-Stanback metropolitan areas (a) and rings (b)

page 5 6 7 9 31 39 65 65 68 71 74 75 83 85 85 86 92 98 99 116 117 124 126 126 127 158 162

312 7.3 7A.1 7A.2 7A.3 7A.4

List of figures Pshift gradient and its largest sectoral component Noyelle-Stanback metropolitan areas and rings Pshift gradient and its largest sectoral component Atlantic metropolitan areas (a) and rings (b) Pshift gradient and its largest sectoral component Central metropolitan areas (a) and rings (b) Pshift gradient and its largest sectoral component Central metropolitan areas (a) and rings (b) Pshift gradient and its largest sectoral component Central metropolitan areas (a) and rings (b)

for 170 for South 261 for East South 263 for West South 264 for East North 265

Index Numbers in italics refer to figures in text access to American markets 226 agriculture base for boom 195 in California 82, 87 employment decline 66 infrastructure support 100 Alabama 66, 70 Alonso, Professor William 304 approaches to development 192 Bergman, Professor Edw ard 304 bidding for foreign pl ants 196-7 Birch, David 82 , 232-3, 280, 294 black employment 68, 95, 277 bloc economies ix blue-collar decline in job opportunities 206 migration of workers 34, 206 Boston 112, 193-4 Bretton Woods agreement 203-4 business services composition of 107 growth 183 California change in economic structure 82 core growth area 19 defense contracts 4 3 , 91 economic regions 1.4 , 4.1 employment 87, Table, 4 .1, 89 GNP ranking 9, 81 gross state product 4.3, 85-6, 4 .4, 280

high-te ch industry 83, 87 in-migration 100 infrastructure 99-100 job losses 17 , 91 - 3, 4.5, Table 4.2 labor by ethnic group 4.7, 95 , 277 labor force projections 97 - 8, 4.6 as a low-wa ge area 20, 89 per capita income 95 plant closur es 82, 280 population 84, 4.2, 91, 100-1 servi ce jobs 83, 88 training for work 83, 99, 281 un employm ent 95, 280

urban de velopment 100, 281 world links 96, 280 capital flows ix increased mobility of 20 intensive energy sectors 75 capital market changes 189 cargo cult approach to development 227 Carlson, Virginia 304 categories of service jobs 19, 180 census regions of the United States 1.1, 1.2

centers of international commerce 40 change in capitalism 213 Chicago experience 40, 41, 54, 272, 275 Clark, Professor Gordon 10, 304 climate and labor 112-13 Committee on National Urban Polic y 156, 161

communiti es and corporations 210-12 community problems and closures 15 comparative employment share in cities 146

competition between communities for jobs 208, 301 effect from Europe and Asia 10 federal government response to 207 int ernational 212 competitive pressures, response to 20 cons umer mark et 91, 196 core areas of concentrated growth 19 corporate restructuring 207 corporations and communities 210-12 county sectoral change 167 cross-national joint ventures x cultural production eco nomies 41 d ecli ne in fina ncial services 189-90 decline in manufacturing, an d global workshops 23 decline of manufacturing employment 17 decline in national regional planning 230 defense contracts in California 43 electro ni cs 19 3 implicit US policy 22

314

Index

defense contracts cont. in Massachusetts 106, 123-4, 287 in the Midwest 43 military shipments Table 2.8 , 3.4 in New England 22, 43 recipients per capita 43, Table 2.7 defense production location quotients 3.5 defense spending in California 43, 91 contracts in Massachusetts 109, 123, 283-4 military employment 171, 295 military personnel 70-2, 277-8 and regional restructuring 43, 47 definition of low-wage industries 69 deindustrialization conditions for 35-6 forces at work 36 key features 11 problem in Japan 3 thesis 12, 13, 23, 270 types of region affected 17 Department of Housing and Urban Development 215 developed countries, labor markets ix developing countries and direct foreign investment viii developing economies and strategies x development outsid e boom areas 21 development policies failure 191 development programs for new businesses 52, 53 disenchantment in planning intervention 230 displaced workers in California 92 concerns of 224 job choice 14-15 lifetime unemployment of 224 migration of 34 re-emp loyment rates Table 2.3, 34 survey 91 divided communities, corporate opportunities 211 domestic mark et , import share of 37 dominant industries in the Midwest 47

economic development Industrial Action Projects 130 models 24 new agencies 49 policy in Massachusetts 107 Economic Development Administration 215,223 economic flexibility 206 economic growth and decline post-industrial thesis 12 reasons for 12 economy boom, without population growth 193 education California's difficulties 83 inadequate work training 99, 281 problems in South 63, 79 effect of migrants 102 Employee Stock Ownership Plans 54, 275 employment in California 87, Table 4.1, 89 change in manufacturing Tabl e 2.2 components of change 76, 78 , Table 3.1 East North Central shift effect 2 .2 gains and losses Table 4.2 growth 3.1 in information industries Table 6.7 Manhattan 's share Table 6.2 in metropolitan areas 163, 7.1, 7.2 in New York City Table 6.1, Tabl e 6.5 non-agricultural Tabl e 2.1, Table 5.2, 286 employment growth in manufac turing 17, 89 Massachusetts rate 106, 119 in Midwest Table 2.5 in services 19 shift-share analysis 241, Table 5A2-5 in the South 41, 64, 3.1, 3.2, 66, 73 in Sunbelt 3.1 energy 72- 3, 179 ethnic group employment 4.7 Europe ix, 18, 57 exports recovery 191 as share of output 3 7

East North Central states Census Bureau definition 2.1 composition 4 defined 30-1 employment 2.2, 41 non-agricultural employment loss 32 population movements 34-5 East North Central states see also industrial heartl and economic decline, time to break from 25

Fair Labor Standards Act 63 federal government policies in California 86, 90 influ ence in South 61, 63 in markets 14-15, 41 federal program of enterprise zones 232 finance, insurance and real estate 139-40, 152 financial capitals and time zones 195 financial centers, and world syste m 136 firms with international markets 153

Index first federal government planning 222 First World Transnational Corporat ions (TNC] ix flexibility in communities 209 Florida economic activities 6 employment 41, 64 foreign direct investment in 75 populationgrowth 63, 66, 277 weapon production 70 foreign competition 47, 69, 205 market penetration 18 foreign banking 136 - 7, 148 foreign direct investment acquisitions 74-5, 279 developing countries and viii new plants 3.6 reasons for 279 in the South 75 foreign investment and employment losses 78, 278 foreign plants 57, 196 - 7 forestry 87 free market emphasis 230 free market world explained 231 free markets, shared views on 16 free trad e policy 41 Georgia 70 , 75 Glasrneier, Professor Arny 305 Glickman, Professor Norm an J. 305 global economy centralized services 133 and surplus capital ix taking advantage 219 government control stifling creativity 230 Gross Development Product 13-14, 2 70 Gross National Product (GNP] Californian ranking 9 faster financia l services growt h 185 and manufacturing growth 35 gross product , in California 4.3, 4.4, 85-6 growth determinants 227 growth and int erna tional mark ets 18, 154 growth in part-time employment 182 Harrison, Professor Bennett 305 Harvey, David 213 heartland region, regional emp loym ent change 39 high-tech electronics 193 high-tech industry comparisons of success 46-7 electronics 91, 193 job growth 106 job lo ss 93 in Massachusetts 105, 119 ·, 122, 286

315

in New England 22 reliance on imports 58, 276 shift in California 91 in the South 72 telecommunications equipment 45 history of local policies 222 hollowing and developing countries vii explained 11 implication s for Third World 4 industry responds to pressure 20 in the Midwest 18 human capital 24, 79 human resourc e development ix Illinois 4 , 14-15, 35, 38 impact of financial markets 135 impact of international trade 38 import share of domestic market 37 import-export s in California 96 , 28 0 imports and wages 205, 299 in-migration California 100 Florida 66 , 67 Texas 66, 6 7 Indiana 4, 35 Industrial Action Projects 130 industrial contro l lost by authorities 18 industrial heartland Chicago's experience 40, 41, 2 72 region 30 share of nation al job loss 33, 271 industrial hea rtland see also East North Central states industrial policy 14, 207 industrial restructuring 155 indu strial rete ntion lack of stud y 56 programs 54, 55 industries discarded 202 industry sectors and restructuring 169 inequ ality in the South 3.4 infrastructure effect of obsolescent 165 support 100, 129, 191 innovat ive industries , Sunbelt share 42 insurance 87 International Banking Act, the 137 international economy and em plo yment 73- 4 influence on regional development 18 international economy effects 82 , 200 international market integration 3 7 internaUonalization of trade 202 interregional inequalities 22-3 intervention strategies success 15 James, William 16

316 Japan access to American markets 226 hollowing process 11 intervention success 15 investing in bloc economies ix penetration of US markets 18 plants in Midwest 57 potential problems 3 service jobs 180 unemployment rates 4 job growth in California 8 7 projections for New York City 149-50 rates 33, 271 job losses in California 91, 4.5, 92-4 in heavy industry 56 in manufacturing 17 reasons for 14 through plant closures 29, 31-2 job opportunities for blue-collar workers 22 for high! y skilled 22 jobs created annual rate in services Table 8.3 in finance Table 8.5, 185 share of service Table 8.4, Table 8 .6 Kennedy-Johnson planning approach 223 Kluver , Jean 281, 305 Kondratieff cycle 202, 213 labor by ethnic group in California 4.7 increased mobility of 20 management relations 213-14 minorities in New York 150 non-union 89 projected change in California 4.6 labor migration 21, 34 , 111 labor shortage and company expansion 106 and house prices 113,129 of Massachusetts ' companies 122 an d New England climate 112-13 links between services 183 local initiative possibilities 234 - 5 local p lanning 216 local policies, history of 222 local well-being standardiz ed 223 localities import ance 218 location decis ions 194 long term , structural transformation 16 loss of large employers, effects of 224 loss of manufacturing jobs attributed 225 Loui siana 6, 75 low-wage industries effects of foreign compet ition 69

Index share of total employment 69 in the South 69-70 low-wage job areas 20, 61, 69-70, 194 low -wage job losses 17 machine tool decline 196 macro-economic policies 48, 56 , 82 management centralizing services 25, 133 and job retention 21 labor relations 213-14 poor performance of 36 Manhattan econo mic base 107 FIRE employment 139-40 higher pay 149 key location for services 145 payroll di stribution Table 6 .6 share of New York jobs Table 6 .2 Manhattani zation 107 manufactured imports increase 13 manufacturing factors affecting output 36 impact on computer 91 in low-wage industries 69, 89 relocation benefit to South 6 revival 189 traditional decline 119 manufa ctur ing activities futur e nature of 24 shift to spec ialized services 11 manufacturing and comput er changes 137 manufacturing employment character of 3 5 growth in the South 66 percentage change Table 2.6 regional change in Tabl e 2.2 manufacturin g growth conclusions 164 differ entials 41 and GNP relationships 35 manufacturing industries branch plant areas 197 high-tech 43 hollowing viii prospects 23 sectors Table 7 A. 2 manufacturing job s in California 87 lost 17, 93 national decline 33 replaced by service employment 14 mark et conditions 205 market inte gration 37 market price and resour ce allocations 16 market segmen ts abando ned 4 7, 273 mark et shar e gain ed 212

Index Markusen, Profe ssor Ann R. 306 Massac husetts Boston 112, 193-4 breaking economic decl in e 25 busin ess links with education 130 comparison with Midwest 57 defense contracts 123-4, 287, 288 economic development policy 107-8, 129, 282-3 employment by county Table 5A.1 employment growth 106,119 emp loyment shifts 125, 5.4, 5.5, 5.6, 288 field of study 8 gross state product 123, 5.3, 287 high-tech industry 106, 109, 116, 122 , 193,283-4,286 income disparity 105-6, 118, 286 job creation 129 labor shortage 112,122 manufacturing jobs 17, 105 non-agricultural employment 5.2 , 286 population movement 111- 12 productivity growth 5.3 public policies 110, 129, 131, 284, 289 research and development 109-10 restructuring model 8 shift of production 122, 286 shift~share analysis 125, 288 state tax redistribution 110 stimulating high-t ech 129 unemployment rates 108- 9, 111, 118 wages 114, Table 5.1, 5.1, 5.2, 122 metals 87 metropolitan areas changing fortunes 157 emp loyment 7.1, 7.2, 163 growth differentials 35 growth rates of, and rings 159, 292 infr astru ctur e 166, 294 sectoral compone nts 7.2, 7.3, sectors combinations Table 7.1 sectors supported 175 Michigan 4, 35, 36 Midwest agricu ltural expor t decline 38 attract ing outsid e business 51 as cent er of plan closures 31 defense contracts 43, 45 existing firms dis advantaged 52 future outlook 57-8 geographical area 4 and high-tech manufacturing 46 hollowing experience 18 impact of impli cit natio na l polici es 22 , 41 job losses 17, 30 jobs dependent on national policy 30

317

market segments abandoned 47, 273 and Massachusetts revival 57 net job shrinkage 29 new technology 47, 273 policy issues 21 policy tools and responses 49, 50 population and employment growth Table 2.5 research and development work 57 strategie s of economic developmen t 49-50 , 53,274,275 Midwest see also industrial heartland mining 87 Mississippi 70 mobile manufacturing in the South 6 multilateral trading system 213 national concerns put displa ced workers second 224 trade bal ance s 224 National Industrial Relations Act 63 National Labor Relations Board 209 natural resource availability 189 natural resources 72-3 in the South 61 decline consequences 73 nature of intra-regional restructuring 156 needs of retentio n strategy 59 net immigra tion 34 net migration from Massachusetts 111 New Deal law s 63 New England defense contracts 43 economi c revival 22 net new job growth 29 population movement 111-1 2 re-emplo ymen t rates 34 recovery 46 unemplo yment rates 104 new industries 226, 229 new jobs at low er wages 22 in Massac husetts 105 New York City arts indu stry 143 aspects of services 144, 148 clear borou gh differ ences 138, 290 econom ic activ iti es Table 6A3-7 emp loyment Table 6.1, Tabl e 6.5, 144 , Table 6A3- 7 financial services 133- 7, Tabl e 6A.8 growth in services 134, 137 as import -expo rt center 144 labor force groupings 150- 1 payroll distribution Table 6.6, Tabl e 6A9-11 un emp loyment rates Table 6A1 2 New York City see also Manhattan

Index

318 New York metropolitan region field of study 8 industrial specialization Table 6.3 manufacturing jobs lost 17 population and employment Table 6.4

New York-New Jersey metropolitan region 1.3 newly industrialing countries (NICs) vii non-metropolitan counties 160 , 292 North Carolina 70, 75 Noyelle and Stanback 156, 157, 291 office space expense 184 offshore developments 82, 226-7 Ohio 4, 14-15, 35 oil-dependent states 61, 73 Oklahoma 6, 34 pace of change 20 payroll by industries, New Yorlc/ Manhattan Table 6.6, 143, 149 people expo rtation 198 per capita in comes in California 95 in the South 67-8, 3.3 Piore and Sabel 24, 213 planners' role 217 plant closure s, and job losses 29, 31-2 plants shut, in Massachusetts 17 policy issues and choices 20-1, 47 to Third World countries 49 population forecast for California 101 net decline 35 New England movement 111-12 population grow th in California 84, 4.2, 100 - 1 differing rates of 34 - 5 in Midwest Table 2.5 rates by region Table 2.4 post-industrial society changes 36 post-industrial thesis 12, 16 , 23 post-war trade 203 price competition 205 private -public partnership and corruption 234

production shift to low-w age areas 20 productivity decline 13 growth in Massachusetts 5.3 improvements 23 means of incr easing 19-20 public development programs 20-1 public works projects 129 quality of emp loyees 166

rates/share of job creation Table 8 .3, Table 8.4

raw materials 179 re-employment rates 34 re-emp loym ent rates of workers Table 2.3 real wage growth 188 regional development investment in California 90 policies 191-2 regional equity and free market 231 regional growth process 201 regional manufacturing factors for poor performance 36 shifts and defense 47 regional programs, as social learning 236 regulated by history 212 research and development 57, 109-10 , 161

residents below poverty 152 resourc e allocation, by market price 16 ring counties 157 Rodwin, Professor Lloyd 306 routine manufacturing industries 173 rules for global trade 203 Sable and Piore 232 Sassen, Professor Saskia 306 Sazanami, Professor Hid ehiko 4, 306 securities industry in financ e 144 service econo my, understanding the 225 service industry categor ies 19, 180 contribution to investment Table 8.1 financial services 135-7, 185 growth boom slowing 183 jobs created 182, 185 service sector, worth of activities 226 services and finance 8 7 Shapira, Professor Philip 397 share of output exported 3 7 shift from high to low pay 224 shopping trends 182 skilled labor recognized 63-4 small busine ss approach 53 social program cuts 230 South, th e effect of intern ationa l economy 73, 78 breaking econo mi c decline 22 , 25 Census Bureau definition 62 , 2 76 composition 6 cultural and economic history 62 defense spending 70, 277-8 education 63, 79 employment 41 , 64, 3.1, 3.2, 66, 68- 9 federal governmen t policy 61, 63 high-tech industries 72, 278 in -migration 66 low -wage jobs 17, 69 - 70

Index manufacturing jobs lost 17 manufacturing relocation benefit 6 natural resources 61, 72-3 net new job growth 29 per capita incomes 67-8, 3.3 policy issues 21, 78 Southern Growth Policies Board 79-80, 234 see also Florida and Texas South Carolina 66, 70 Southern Growth Policies Board 79-80, 234 state out-migration 34 steel access to shipping 196 growth and decline 191, 195 related job losses 14-15, 205-6 Steel Valley Authority 55 strategic growth areas 18 strategies for recruitment 79 structural change analysis 160 structural transformation, long term 16 subsidies to weak industries 230 Sunbelt, the, see California and the South surviving international competition 208 tariff barriers 191 tax cuts and industries 190 tax and infrastructure 195 technology, cross-national flows viii Teitz, Professor Michael B. 307 temporary employment 184 Tennessee 70, 75 Tennessee Valley Authority 215 Texas economic activities 6 employment growth 41, 64 foreign direct investment 75 and immigrant labor 64 NASA64 as oil and gas center 64 population growth 63, 66, 277 weapon production 70 theoretical tools questioned 201 thesis of change 12, 13 Third World countries cons·equences of policies to 49 migrant labor 98 penetration of US markets 18 restructuring implications for 4 Thompson, Wilbur 165 Thurow, Professor Lester C. 10, 307 · timber 6 trade deficit explained 187 trade theories 3 7 trade-induced restructuring benefits 40 as government policy 41

319

training for work 63, 79, 83, 99, 281 trans-nationalization see hollowing Transnational Corporations (TNCs) x transportation support 20, 179 , 191 unemployment in California 9, 95, 280 in Massachusetts 108-9, 111, 118 in New England 104 rates in Japan 4 in United States 4, 15 unions decline in Massachusetts 108 and job retention 21 lose influence 108 non-union labor 89 United Auto Workers union experiments 214 United Nations Center for Regional Development (UNCRD) Professor Hidehiko Sanzanami, Director 4

study background vii, 4 United States as debtor nation 188 implicit industrial policy 22 link with international economy 18 regions and geographic divisions 1.1, 1.2, 2.1

university research parks 53 urban development by commerce in Massachusetts 113 opposition m California 100 , 281 urban and regional planning federal opposition to 215, 301 first by federal government 222 as political function 217 venture capital community 109 Virginia 66, 70 wage and salary incomes 114, Table 5.1, 5.1, 116, 285, 300 wages and working conditions 63 Washington defense contracts 43 weapon production 70 Weber, Alfred, theory 228 West, the, net new job growth 29 white collar employment viii, 183-4 Wisconsin 4, 35 women 19, 27, 182, 227 work force skills 190 worker community experiments 210 worker cooperation and communities 210 Works Progress Administration 63 world economy and domestic economic change 37 world pattern of change 184 worldwide financial capitals 136, 195