Rust Belt Charm

Why do Southern states have a competitive advantage over Northern states?
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Today it is often taken as a given that the Southern states have a competitive advantage over Michigan and other Rust Belt states when it comes to attracting new businesses and investment. The common assumption is the advantage stems from the reduced influence of organized labor in the South and the early adoption of “right-to-work” laws. However, like most complex economic issues, it is unfair to lay all of the blame on the unions.

Consider that Michigan, once an epicenter of union culture, is now a right-to-work state. As a result, so the assumption goes, Michigan should be seeing an ever-increasing slice of the business relocation pie — but that, unfortunately, has not been the case. Instead, we continue to lose out to our competitors down South to states like South Carolina and Tennessee.

This proves there are other factors beyond union politics that attract businesses and jobs to sunnier pastures.

So what is going on? At any given time, governors, civic leaders, and business recruiters jet off to Asia, Europe, and beyond in search of new companies, investment, and jobs to bring home to their respective states. While these marketing trips can generate positive results, more often than not they produce little beyond goodwill between state governments and businesses.

The explanation is simple. While individual states can offer perks and tax benefits to lure foreign investment, they’re constantly fighting against the flood of the U.S. trade policy, which incentivizes companies to move production and investment overseas where labor is cheap and regulations are minimal. The products are shipped back duty-free.

Until those incentives go away, it is extremely unlikely that economic trade missions will ever be successful in bringing back substantial amounts of foreign investment to Michigan or any other state, especially when those states are all competing for the same business.

But there is a new approach, and it has largely been adopted by Southern states. Instead of fighting with other regions for opportunities overseas, these leaders choose to stay at home and market their development programs and incentives to attract businesses from other metropolitan areas.

If you add up all of the China trips our elected leaders take and compare them against the quantifiable results, you would see a new Chinese industry: Entertaining U.S. political and business leaders while introducing them to their Chinese counterparts. Ironically, the largest increase in jobs has been among Chinese citizens helping Western governments chase jobs in China.

 

Recognizing foreign trade missions are expensive endeavors, Southern states asked a difficult question: What exactly does it take to succeed in the high-stakes jobs game? They understood that Northern states like Michigan had the talent and a proven track record in manufacturing. They also understood that because of their talent deficit, competing with tax incentives alone would not get the job done.

But they also realized that many Northern states had an institutional weakness in the way they conducted business development. They knew that many businesses saw entrenched government bureaucracy and powerful labor unions as a barrier to new investment. They realized that addressing those obstacles might provide the competitive advantage needed to draw in new business and jobs. The only question was, how to do it?

In the end, the answer was strikingly simple: They used good, old-fashioned Southern hospitality to make it work. Local leaders, from the governor on down, made it clear that Job One was to make it as easy as possible for a company to relocate operations to their state.

They tore down vertical silos between economic development and regulatory agencies and created a horizontal integration that united the purpose of every department. Their job as government leaders was to facilitate new business, not stifle it.

John Rakolta, chairman and CEO of Walbridge, a large construction firm in Detroit, describes it best: “The (Southern states) recognized that lack of communication between public units sent the wrong message and that collaboration between agencies, labor, and the ability to train their workforce was the right way to go,” he says.

“They recognize the value of having a good business in their state, particularly in a globally competitive marketplace. Confrontation between various silos does not win. Collaboration with units such as economic development agencies not only works, but wins.”

He also reiterated that the concept of Southern hospitality is a unique trait that reinforces the message that everyone works together.

Perhaps we could use a little Southern hospitality of our own to tear down our silos and work together to rebuild Detroit. Now is the time to reinvent our thinking. It’s called teamwork. db

John Jamian is executive director of the Detroit/Wayne County Port Authority in Detroit and a former state representative.

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