Upper Midwest
From Site Selection magazine, September 2009

A Big Wake-Up Call
A native son with a global perspective delivers a blunt yet optimistic
assessment of the Midwest's future as an economic engine.
Caught in the Middle
an the Midwest, the "Silicon Valley of its era," emerge from the recession a region ready to embrace the next industrial revolution – one most likely based on alternative energy? Perhaps. It has a couple of strikes against it, but a bullpen full of energetic players eager to prove themselves in the big leagues.
      How the game turns out in the long run is for the future to decide. The factors driving that outcome – the Midwest's rich industrial heritage, its ethos, the "balkanized" nature of both its geography and its transition to a knowledge-based economy and its place in the global economy – are the topic of "Caught in the Middle: America's Heartland in the Age of Globalism" (Bloomsbury, 2008; postscript in paperback version, 2009) by Richard C. Longworth, senior fellow at The Chicago Council on Global Affairs.
      Longworth's book, his second, delivers piercing insights into local and regional dynamics in the Midwest, of value to any site selector considering new or expanded facilities there. It's also a seriously good read. Among other credentials, Iowa-born Longworth is a 20-year veteran foreign correspondent with the Chicago Tribune and has reported from 75 countries on five continents. He knows how to keep a reader's attention.
Richard C. Longworth, senior fellow at The Chicago Council on Global Affairs
Richard C. Longworth, senior fellow at The Chicago Council on Global Affairs

      "Caught in the Middle" is at times critical of the Midwest for falling perilously behind in the global race for economic viability; at other times forgiving, given forces at work beyond its control; and cautiously optimistic the rest of the time that the region can do more than talk about solutions for the future – that is, can act decisively to leverage its huge economic strengths (the Great Lakes, to name just one example) to the betterment of its industries and citizens.
      Like a father assessing the progress of his progeny, Longworth clearly loves the Midwest and wants it to succeed.
      The book was published before the recession technically began in late 2008, noted Longworth in an interview on September 24th.
      "You could say the Midwest has been in recession long before it hit the rest of the country," he says, but in spots it's much worse. Even on a larger scale, there's no more denying that things have changed in the global economy, and the Midwest is in a fix. "People know that this time the situation is different, and that a lot of what was used to get through hard times in the past is gone. Now, people are paying attention. This recession is a big wake-up call. If we don't take advantage of it, the same problems that existed before the recession will continue to be there."
      Working against a regional recovery is the lack of a regional outlook on the part of players throughout the Midwest. There are some cross-state-border initiatives taking root, such as one across part of the Ohio-Pennsylvania line, but generally speaking, what happens in Michigan stays in Michigan.
      A new economic development entity for the Chicago economic region stops at the Wisconsin lines and at the Indiana border, even though "the region itself sprawls across four states, from Milwaukee through Chicago, into northern Indiana and up into western Michigan," says Longworth. "There's no real joint planning going on between those areas. State governments aren't working on regional solutions, because they are beholden to the people who elect them. A lot of the local economic development people really get it, though."

Marshall Plan Redux?
      A 21st Century "Marshall Plan" might be the answer for the Midwest, where the federal government steps in with a massive spending plan for the region. It wouldn't be dissimilar to the first Marshall Plan following World War II, where U.S. funds for rebuilding were invested in European nations at war with each other not long before. But the U.S. insisted that the Europeans plan their recovery on a regional, continental basis. Says Longworth, "The need was so great and the money so lavish that they buried the hatchet and did it."
      In the case of the Midwest, he says, a similar mindset would be required.
      "If Washington were to invest regionally in, say, bio research or proper economic exploitation of the Great Lakes water or a high-speed rail network, it would need to make clear that the states must work together, that it will not talk to individual state governments, that the states need to approach Washington as a region. That would work. We're starting to see some of this in the area of high-speed rail with a bill before the House that would promise a lot of money and seems to have these stipulations in it. As a result, people in Chicago and St. Louis are really beginning to talk about this together. A project like this could get these balkanized, mutually hostile and competitive Midwestern states working together. I really hope it works."

Are Unions Still Relevant?
      Much has been said and written in recent months about unions and their role in today's American automotive industry – no other industry has played as vital a role in the Midwest economy for the past 100 years. Today, automotive plants are closing in the Midwest and elsewhere, as southern locations see largely foreign carmakers making new investments and expanding existing facilities. (A notable exception is Carbon Motors Corp.'s recent selection of Connersville, Ind., as the location for its US$350-million, 1,300-employee plant for producing police vehicles.)
      So in general, have the unions helped or hurt the Midwest?
      "Overall, they have definitely helped," says Longworth. "The 1930s were the beginning of a golden industrial era that we've been living on ever since. Working-class people, even without a high school education, were able to live a good, solid middle-class life. During this time, the great corporations that powered the economy and the unions, which made sure the prosperity was shared, rose together. It was a cooperative effort, and they worked together.
      "In recent years, they've been declining together," he continues. "Today, the big unionized corporations, like GM, are all but gone, and the unions are all but gone. Both are hanging on as best they can, but they're shadows of their former selves. The corporations and unions are trying to work out soft landings so their workers and members can stay in business. When a factory closes, the union local chapter closes." When Maytag closed its Newton, Iowa, plant, the UAW local there closed, too.
      "Yes, unions were positive at one time," Longworth concludes. "They helped provide a marvelous living for millions of people. You have to regret the passing of that time, but there you are. The heyday of the unions was a Midwestern and New England phenomenon."
      As for southern automotive manufacturers, who tend to be German and Asian, Longworth points out that they, too, have union issues "back home in Germany, where in an increasingly global economy they are stifled by the German unions with their very rigid work rules and generous vacation time. That's what's behind Daimler-Benz's investment in third-world countries and Alabama. It does change the [automotive industry] game totally."
      New unionization models are emerging that Longworth says "the UAW would never have swallowed before. As I mention in the book, a factory in Dundee, Michigan, is turning out all these auto engines at a third the cost of what they used to, and it's a unionized plant. The unionization and wage structures are much different from before.
      "This is quite interesting, and nobody has latched onto it: The Midwest is not union territory anymore," Longworth asserts. "The unions as we know them are gone. They don't have the power, and where they try to exercise power, they lose. Wherever they try to behave in the old way, there will be no investment. Increasingly throughout the Midwest, the forces of globalization and the emergence of the Sunbelt have changed the rules. If we're going to have investment here, we can do it with unions, but not your granddaddy's unions. So the cost of unionization is nowhere near the barrier to potential investment in the Midwest that it would have been 20 or 30 years ago."
      Meanwhile, like most states, Midwestern states are opening business recruitment offices all over Asia and elsewhere in the hope of bringing, say, Chinese investment back to Iowa or Wisconsin.
      "But the Chinese don't know where Wisconsin is," says Longworth. "There are about 30 Chinese cities with more people than the State of Iowa, yet Iowa is over there trying to swing in China. Midwestern states and cities ought to be working together to get investment from China and other countries into the Midwest. The idea that the Midwest, which rose as a region through much of the 19th and 20th centuries, and has declined as a region ever since, will only recover as a region has not sunk in within state capitals."

Industries of the Future, Maybe
      The importance of a regional approach to the Midwest's industrial future cannot be overstated, in Longworth's view. In a February 2009 Global Midwest Policy Brief issued by The Chicago Council on Global Affairs, he writes: "The industries of the future, by their very nature, sweep across state borders as though they don't exist. They are regional in essence, and if the Midwest doesn't exploit them as a region, it won't benefit from any of them."
      What are the Midwest's industries of the future? Following are Longworth's picks and some condensed observations as outlined in the Policy Brief:

      • Clean water technology. The Great Lakes Compact already is in place. "But protecting the water and using it are two different things. According to a National Intelligence Council (NIC) paper, "New industrial uses for water abound in farming, biofuel, biopharma, nanotech, chemicals and semiconductor industries. The region that finds, funds and exploits these uses will have a grip on the economy of the future." The University of Wisconsin at Milwaukee is exploring a freshwater research institute. "This good idea would be better if it teamed with other lakeside schools, such as the University of Illinois at Chicago, Wayne State in Detroit and Case Western in Cleveland."
      • Bioscience and biotechnology. The Midwest has lots of top-notch biofirms, like ADM, Cargill, Dow AgroSciences, Monsanto, Pioneer Hi-Bred, Abbott, Eli Lilly and others. "If we're so smart, why aren't we rich? If the Midwest is doing so much research, why are most of the biojobs still located on the two coasts?" Balkanization and a lack of venture capital are the main reasons research tends not to be commercialized in the Midwest.
      • Nanotechnology. "If the Midwest knows plants and animals, it also knows materials." Some centers of this emerging science are taking shape, as in Dayton, Ohio. "But no one is trying to link this work with research going on elsewhere in the Midwest to leverage what should be one of the region's strengths."
      • Green industry. "Old industrial towns that were prepared to turn out the lights have found new life" in the race to create alternatives to fossil fuels. Newton, Iowa, and Greenville, Mich., which lost Maytag and Electrolux plants, respectively, are just two examples. "But as in bio and nano, this is an infant revolution. That NIC forecast sees a future in green technology, especially for the region that develops efficient energy storage technology."
      • Transit. Stop thinking about an auto industry, and start thinking about a transit industry, Longworth urges. "A new transit industry would include cars and trucks, of course. But it's time to get serious about rapid transit, both light transit within urban regions and, especially, a high-speed rail network that would truly tie the region together. This industry would create hundreds of thousands of jobs."

      In September, Longworth added healthcare to the list.
      "So many cities in the region have big hospitals, and there are a lot of medical schools here," he relates. "A number of places are rolling the dice on a medical future. Some, like Kansas City and Grand Rapids, are going into medical research in such a big and well-funded way that it will probably work."

Dayton's Dilemma
      Part of Chapter 3 – "From Rust to Bust" – traces Dayton, Ohio's passage from industrial powerhouse to a mid-sized city with a questionable future. Auto parts supplier Delphi's bankruptcy filing a few years ago was a body blow to the city, and Caught in the Middle was published a year before NCR announced it would relocate 1,200 jobs to suburban Atlanta.
      So if Dayton is a microcosm of the Midwest, what is the city's prognosis?
      Losing old industry has taken a serious toll on the city's population, but much of what is in Dayton today is not old industry, says Longworth. NCR was less focused on making cash registers than on data management, for example, so that loss is particularly acute.
      "Dayton has Wright-Patterson Air Force Base, and the Air Force has moved aerospace medicine there," notes Longworth. "They are also a center of Air Force intelligence – satellites, imaging, data transmission – a lot of space-age stuff. Dayton is very interested in what spins off from Wright-Patt in the medical and imaging areas to revitalize their economy. It's the right thing to hope for, and the economic development people there are asking the right questions. [Dayton Development Coalition President and CEO] Jim Leftwich is a very bright guy."

Keep an Eye on These Metros
      Now for a look at the rest of the Midwest. Site Selection asked Longworth to name a city or two in each of the states he includes in his definition of the Midwest that he considers to be bright spots, leaders in their states' economic turnaround or, at the very least, worth site selectors' attention in 2009 and beyond. Here they are.
Minnesota Minnesota: "The Twin Cities region, which is responsible for about 65 percent of the state's GDP, and Rochester."
IowaIowa: "Des Moines is doing quite well. The Cedar Rapids-Iowa City corridor really was hurt by the floods. But they have a lot of smart people doing everything right. I have every confidence they'll come back. The Cedar Valley region around Waterloo is pushing the right buttons."
WisconsinWisconsin: "Madison, certainly. And there are pockets of prosperity in the north. Also, an area called NewNorth from Oshkosh to Appleton to Green Bay – they're working hard."
Michigan Michigan: "Two areas – Traverse City, with the only newspaper in the country I know of whose circulation is increasing. They have a critical mass of culture and entertainment there. Secondly, Grand Rapids because of Amway's investment and the Medical Mile they've created. … Kalamazoo, too."
Ohio Ohio: "Columbus is doing well and not losing population. Akron is interesting. It's taking its old base in rubber and is working hard on a new polymers industry. Wooster has a good local college, an ag branch of Ohio State and a beautiful downtown. It's a thriving town."
Indiana Indiana: "Indianapolis is doing quite well with its mix of industries and a couple of good universities. Warsaw is a successful orthopedic center."
Illinois Illinois: "Chicago, for lots of reasons, including being the only global city in the region. Will County and Joliet are growing quickly, feeding off of Chicago and doing very well at it. Peoria is doing all the right things. There is the feeling there of being in a place with a future."
Northern Missouri Northern Missouri: "Kansas City is doing good things in animal health and medical research, but they need to be doing more with the Kansas City in Kansas. St. Louis is asking all the right questions."

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