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April 18, 2012

Manufacturing as Destiny, Part II

By Bill Testa

During a recent visit and tour of Racine, Wisconsin, and vicinity, I was reminded of the difficult challenges that face older manufacturing-oriented cities. It would be tough to find a place as steeped in manufacturing as the Racine area. As recently as 1969, over 40 percent of the Racine metropolitan area’s jobs were to found in the sector—double the national level. Since then, the Racine area’s experience has been similar to that of so many manufacturing-oriented places. Due primarily to job losses in the sector, manufacturing now represents only 20 percent of the Racine area work force, and this is still more than double today’s national average!


Forty years ago, with such a heavy orientation in manufacturing, it would have been risky indeed for Racine area leaders to neglect the needs of this sector and focus their full attention toward diversifying the local economy. Even today, Racine’s makers of household cleaning products, farm machinery, and hydraulic mechanisms used in marine craft remain a vibrant part of its economy.

So, over the years, Racine’s leaders have pursued a dual development strategy of maintaining the region’s manufacturing base to the extent possible, while also trying to shift gears to the growing services sectors of the economy, including residential living, tourism and recreation, and business and professional services. In particular, the region has, on the one hand, worked to rebuild its downtown and neighborhoods and develop its lakefront and riverfront with bikeways, beaches, downtown festivals, and marinas for pleasure boats. At the same time, it continued to pursue manufacturing and distribution through cleanup and environmental remediation of vacant industrial land, development of new industrial sites, aggressive work force training and education, and construction of viable overland transportation for moving freight and materials.

Driving around the City of Racine, one can clearly see the challenges to planning and redevelopment as they relate to region’s economic base and physical footprints. This area was built around manufacturing and heavy industry and has a legacy of neighborhoods with small houses where former factory workers resided and frequented neighborhood stores, meeting halls, churches, and taverns. The challenges lie in creating cohesive links between the parks and revitalized downtown across areas of older factory buildings, railway tracks, and busy highways carrying freight among still-working factory operations and warehouses. At the same time, new land to accommodate today’s spacious industrial development, such as warehousing and distribution, must be fashioned or reclaimed from a hodge-podge of small parcels of varied-use land. Mayors, county officials, town planners, and economic development officials have their hands full in Racine as they do in many towns of the Midwest.

The issues and lessons from such redevelopment efforts are currently being assessed by the Community Development and Policy Studies (CDPS) group at the Chicago Fed as part of their Industrial Cities Initiative (ICI). At the recent inaugural conference to discuss the ICI, I presented some statistical results which, I think, corroborate the sharp challenges of industrial cities such as Racine.

In our statistical analysis of 83 metropolitan areas (MSAs) located in the midwestern states from Iowa and Minnesota eastward to Ohio, we examined two main influences on MSA growth. We measure growth both as per capita income and separately by total jobs. Drawing on the large existing body of research, we demonstrate that an MSA’s initial “educational attainment of the adult work force” apparently exerts a strong influence on subsequent growth in jobs and income across MSAs. Educational attainment has been previously found to be influential for several reasons. For one, places with higher educational attainment have been better able to shift into new industries and occupations when their former mainstays (such as manufacturing) have declined. Further, new business start-ups and entrepreneurial activity appear to arise more easily among work force populations having higher education.

We also tested the degree to which MSAs with higher initial concentrations of manufacturing employment were more or less successful in their subsequent economic growth. What we found was that, even after accounting for the influence of educational attainment, a historical manufacturing orientation tended to depress subsequent growth. Moreover, the effects were long-lived. An MSA’s tendency to host manufacturing 20 years prior continued to depress overall economic growth. For example, we correlated MSA manufacturing concentration in 1969 with subsequent growth during 1990 to 2009 and found that the manufacturing legacy was a significant drag on economic growth and development for the much later period.

All things considered, the redevelopment achievements of many of our older manufacturing cities are remarkable.

Posted by Testa at April 18, 2012 8:11 AM

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