By becoming more cost competitive, the Midwest is luring back manufacturers, creating signs of hope in a troubled region.
We're not used to thinking of the old industrial Midwest as a beacon of good news. Just the opposite. It's Exhibit A in the story of America's economic decline -- a land of hollowed-out factory towns and shrinking cities. There's an entire genre of photography dedicated to Detroit's decaying cityscape alone.
Yet, it may be time to rethink that view. Because there are signs that the heart of the rust belt may be finally shaking off its rust.
For the past thirty years or so, there have been two great running narratives about American manufacturing, both of which have been disastrous for the Midwest's economy. The first has been about the disappearing factory worker -- how by shipping some jobs abroad and replacing others with machines, companies have figured out ways to produce more goods with millions of fewer employees on their assembly lines. The second narrative has been about migration -- the decision by companies to move production away from once-booming industrial centers of the north, to southern states with weaker unions and lower wages.
Both of those trends, it appears, may have drawn to an end.
The first sign of hope is the bounce-back the country has seen in manufacturing employment since the end of the recession. The graph below, courtesy of a recent Brookings Institute report, shows the great plunge of U.S. factory jobs over the last three decades, from more than 19.4 million in 1979 to a little more than 11.5 million in 2010. Recently, manufacturing has staged a small comeback. Between January 2010 and December 2011, we added 350,000 jobs in the sector. It's a modest increase, but at least it's a movement in the right direction.
It's certainly possible that manufacturing is experiencing its own version of a dead cat bounce -- that employment fell so low in the wake of the recession, it simply had to recover a bit, even though the sector is still effectively moribund. But there are reasons to believe that we're seeing bona fide signs of life. The auto industry has gotten healthy. Exports are increasing. And some large manufacturers, including General Electric, Whirlpool, and Ford have started bringing jobs back to the U.S. from overseas -- a trend often referred to as "onshoring." These companies have discovered that with rising costs in China, it can be just as cost effective to make products here at home as overseas.
The biggest beneficiary of these trends has been the Midwest -- which is something of a shock. For years, many observers have believed that if America ever experienced a manufacturing renaissance, it would happen in Dixie. States like Alabama, South Carolina, and Tennessee made themselves attractive to foreign manufacturers as well as companies up north, by using right-to-work laws to weaken unions and keep wages at cut-throat-competitive levels. They also offered up incentives in the form of sweet tax deals. All of this was supposed to make them the center of the future manufacturing economy.