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The Alabama Surprise


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January 26, 2006

The Alabama Surprise

Michael Mandel

Out of the six states with record low unemployment rates in the previous post, the most surprising (to my mind) was Alabama (okay, so shoot me as a parochial northerner).

So I looked up a few numbers on the state, and I saw that Alabama actually added (!) automotive sector jobs (!!) in 2005, on the strength of the Mercedes, Honda, and Hyundai plants in Alabama, and the supplier networks surrounding them.

Then I called up Carl Ferguson, director of the Center for Business and Economic Research at the University of Alabama, to get the straight scoop about the state. He pointed out that the supplier networks "had touched a significant number of Alabama's counties." As a result, "most of our metro areas are at full employment. It is absolutely a seller's market. There's more jobs going wanting than ever in the past."

I asked Carl for more details on why Alabama was doing so well. He listed several reasons, including location and good infrastructure. He also pointed out that the state had put a lot of emphasis on education, and making itself a place where people would want to live. "The cultural and social amenities that white collar workers and executives expect, you can find here now."

It's good to see a place which is able to compete on a global basis. I may do more about Alabama.

03:00 PM

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Here's what I thought was a very interesting article about a Nissan plant in Mississippi...I expect some of the same factors are at work in Alabama, in particular the high motivation level that goes with having a job better than one has ever had before.

http://money.cnn.com/magazines/business2/business2_archive/2005/06/01/8263466/index.htm

Posted by: David Foster at January 26, 2006 10:42 PM

"[Carl] listed several reasons, including location and good infrastructure. He also pointed out that the state had put a lot of emphasis on education, and making itself a place where people would want to live." -- This all takes government revenue; i.e. taxes.

This is a good example of why I believe we should eliminate federal taxation entirely and let each state determine how much taxation it wishes to endure and what infrastructure, services, and education it wishes to provide to its citizenry. Creative competition would ensue between states for skilled citizens and businesses - who would offer what combination of taxes, services, etc. that would draw the most corporations and the most citizens? Free market capitalism comes to government....

The federal government can go back to doing what the Constitution tells it to do (and I don't recall "invading other nations and/or occupying them" in the Constitution) with money given them as per-capita stipends from the states. $1700 per citizen really ought to suffice.

Posted by: Brandon at January 27, 2006 11:14 AM

In the absence of Federal oversight, the wealthy will always abandon the poor, and effectively prevent/erode the formation and operation of a middle class (as is currently happening). Suggesting that sub-Federal entities compete for jobs by offering money/making expenditures they don't have is self-defeating (witness what currently goes on with TIF's). My read on the Canton plant is that the Japanese are using it as a test case for off-shoring production to less developed countries: once you consider a workforce as uneducated as the one available in Mississippi (or any Deep south state), you might as well go off-shore, and avoid subsidizing an American standard of living.

Brandon, while I often agree with your assessments, I think your solution here amounts to a cop-out. You (like most libertarians) are suggesting a return to the Articles of Confederation, which we tried prior to 1776, for similar reasons - i.e., Virginia didn't want to 'waste' it's resources confronting Massachusetts' problems - and which failed. Why relinquish Federal power to the States? What's so magical about a State as a political-economic entity? Are the interests of Texans so different from Wisconsinites that they need two separate systems of Government to deal with their issues? Let's not forget that States were not invented during the Constitutional Convention as a means to solve any particular set of problems; rather, they were a legacy problem in and of themselves, for which Constitutional compromise was required. Why stop at the State level? Why not retreat to the city level - after all, Chicago's interests are very different from the other 96 counties in Illinois? Or even subdivisions? (we actually see that now, with higher tax-base areas seceding from townships in order to avoid paying for new schools for the children of the recently arrived Mexicans who cut their lawns!) Based on a strict reading of the Constitution, what's to stop a State from seceding from the Union altogether? Union armies resolved this question last time, without ever truly resolving the underlying legal issue. Maybe Texas SHOULD be a 'whole other state'!

Legal theory, political theory, economic theory .... these are all great intellectual games, but, at the end of the day, I only care about the answer to one question, back here in the real world: am I better off than my parents' generation? So far (I'm a 41yr old Gen-X'er), the answer is a resounding 'no' - I have a better job, and make more money, but have much less economic security than my father or the elder Boomers, and have all of the stress that attends that issue. A college education didn't help. I believe that libertarian calls for tribalism are an ill-advised response to that stress. Federal checks on modern-day robber barons (the courts have even declared the corporation to be a person) are the only thing standing between the American Dream, as defined in the post-WW2 era, and a return to the 'good old days' before WW2, when we didn't have a recognizable middle class, and Pinkertons beat would-be unionists. The American Dream belongs to that middle class - not to the wealthy - and a retreat of Federal power would only exacerbate that erosion. Maybe the middle class should secede from the social contract that allows all of that wealth to pile up in one place to begin with!

Posted by: larry b in op at January 27, 2006 04:31 PM

The auto plants have done wonders for the state. Even if the jobs are non-union the cost of living in AL is very cheap compared to some of the other states. It's also a beautiful state with a temperate climate and Birmingham is a comfortable city.

Education is a sore spot however. The citizens voted down a major tax increase a couple years ago to provide additional (necessary) support for the state school system. Alabama also has a very regressive tax structure. Changes to it were also rejected.

Posted by: Wes at January 27, 2006 04:33 PM

larry b...

The world is a very different place now than in 1776, or even 1946. I'm not a complete libertarian - only as far as federalism goes. I'm a fervent believer in government support for infrastructure, including education and core research, and social safety nets (to a limited degree). I think it would be better handled at the state level where there would be less bureaucracy and more direct oversight.

And there's just no good reason to throw $600 billion a year at the military (including "supplements"). We averaged $360 billion per year in adjusted dollars during the Cold War, facing the entire Soviet empire and Warsaw Pact... why do we need to spend $600 billion now? We don't. There's something very shady going on....

Posted by: Brandon at January 28, 2006 08:34 PM

larry b.

Are you sure that you are not falling into two traps - projecting your sense of economic insecurity on everyone else and inflating the past into some sort of "good ol' days"? Most of the country is much better off than their parents and grand-parents generations - for so many reasons - and the "economic security" that you believe your parents had seems more myth than reality. Just because an economic cycle didn't destroy their pension while they needed it, needed mean it wasn't incredibly insecure.

And the libertarian call is not for tribalism - it is for more competition! Competition is what spurs innovation and helps society discover what works well. Despite what scholars and bureacrats think of themselves, no one knows the "right" answer to many problems - but with lots of smart people making good attempts and competing, we can all discover the answers that work. Basic capitalism - some companies succeed, some fail. Let's bring this to government. Let's decentralize power and let the state competes for where people live and for their money. Alabama could turn out to be a great example of this.

Posted by: Will at January 29, 2006 12:53 PM

The thing that is missing in the comments above are the economics of running an automotive manufacturing plant. Lanor cost is only one small piece of the equation.

Let's take a look at indirect cost like frieght and overhead. The secret to the Asian southern strategy is bring their supply chain with them. They then reduce the finished goods supply chain significantly, and the resultant work in process inventory carrying cost. The fact that the burden is shifted to the supplier is less important, as they often share the burden through low cost capital arrangements.

Companies recognize the capability of the labor force going into the arrangement, and often negotiate long and subsidized training programs with the state. The biggest obstacle, I would imagine, is in skill trades required to both build and maintain the factory. They most likely need to pay over the area going rate to intice these type of people to relocate. But, given the relative flexibility of American labor to move, this is not as great an obstacle as other parts of the world.

The save associated with working out a clean sheet manufacturing site and negotiating a arrangement with the local authorities is also helpful.

All in all, the southern strategy is a sound one, and does not simply rely on low labor rates to succeed.

Posted by: Eric at January 29, 2006 01:48 PM

Your overly congratulatory piece on Greenspan is pure garbage and makes me sick!

Posted by: Jeff D at January 30, 2006 01:29 PM

If there are too many jobsin Alabama, take your factory to Ohio! GM, Delphi, Ford, and Chrysler are all closing factories there. You don't have to worry about unionism because Honda of America has been very successful in keeping unions out of its' Marysville, OH plant. We have many skilled and unskilled workers who would love a new job! We just passed a new law that allows the state to throw money at building infrastructure to your specifications.

Please come home to the rust belt. We miss you.

Posted by: Kathleen Knese at January 30, 2006 06:17 PM


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