This entry is based on a paper I wrote in the spring of 2011 for my political science class on state and civic government. Any errors or omissions are my own.
As of early 2011, Birmingham has been through some tough years. As part of banking reforms put in place after the 2008 stock market crash, available credit across the U.S. has tightened for both business and consumers. In many parts of the United States, including Alabama, established industries that were losing money or had thin profit margins, closed up or transferred operations to lower wage regions outside the United States. This included much of Alabama’s remaining textile industry. Did past Birmingham and Alabama state governance contributed – or detracted – from the state’s long-term economic development? Is the region adequately prepared for the future? What changes are necessary to promote long term economic growth in a new world economy where more countries can compete successfully with United States industry? In this blog entry, I offer my assessment as a regional newcomer who’s lived, worked — and experienced — other parts of North America.
The modern Southern economic development effort started in 1936 with Hugh Lawson White. At that time, most Southern states’ economies were based on the agricultural staples cotton, corn and tobacco, along with forestry and mining. Until the 1920s, White had run a successful lumber cutting company in Columbia, Mississippi. When local timber reserves ran out, most of the town’s men were thrown out of work. The local economy was devastated.
After election as mayor in 1929, White resolved to help solve the problem. In addition to encouraging agricultural reform and diversification, he helped start the new Marion County Chamber of Commerce and worked to develop new industry. Although a canning plant followed a knitting mill, that wasn’t enough to full employ the labor force and guarantee prosperity. White contacted a factory relocation specialist who helped him find a firm willing to move to the area. As a condition of the move, the shirt and pajama maker’s executives, wanted a subsidy from the town, “…$85,000 for the construction of a plant building.”
Financed by a bundle of signed promissory notes collected from the townspeople, a personal bond of $1 million and over 1400 filled-out job applications, White convinced Reliance Manufacturing to move to Columbia. He and his associates set up a training school. Trainees agreed to work for free until they had reached an agreed-on proficiency standard. The women toiled long hours. While their wages were low, even by the standards of the time, they helped revitalized the area’s economy. Columbia’s volume of business increased 26% while similar cities had shown a 4% decline.
White successfully ran for state governor in 1935. In office, he initiated the Mississippi “Balance Agriculture With Industry” program to bring more industry to the state. It was not without controversy. With passage of the Mississippi Industrial Act and creation of the Mississippi Industrial Commission, a business model based on providing incentives for northern business to relocate to the South, was established.
Alabama had done much better than Mississippi since Reconstruction. Birmingham boomed with the opening of mines and the founding of smelters. But rural Alabama hadn’t done so well. Farming was a hardscrabble life for anyone who wasn’t a large landowner. Many were so poor that the Great Depression brought little change in circumstance. In 1936, the Alabama state government created the Alabama State Planning Commission to assist new business development, especially in rural areas. It eventually adopted the Mississippi Industrial Commission techniques of using subsidies to bring in outside firms.
After WWII, Alabama passed the 1949 Cater Act, authorizing “the formation of municipal industrial development corporations that could issue bonds to finance, build and equip manufacturing or other industrial plants for lease to private firms”. With the passage of the Wallace Act in 1951, cities were also allowed to enter into contracts with prospective industries directly and to finance plant construction with municipal bonds. Municipal bonds were originally conceived as a way of raising funds for school and road construction. But Alabama took them to new heights, using them to help fund industrial infrastructure to attract out-of-state business. By the mid-sixties, Alabama, along with Mississippi and Louisiana, also offered ten-year tax exemptions from both state and local taxes.
Alabama used this model to attract businesses to the state until the early 1980s. Many cities and counties set up industrial development boards to finance new facilities. During the 1970s, employment in the rural areas boomed as northern companies moved production plants requiring low-skilled labor south. While this eased the worst rural poverty, this practice also set the region up for eventual job losses. Most of these low-skilled/labor-intensive jobs have subsequently moved overseas. The rural counties of Alabama are again scouting for branch plants to sustain their local economies. New, incoming employers require employees with better education. Which brings us to present day.
For the past eighty years, Alabama industrial policy has generally been two steps and twenty years behind the rest of the country. Up until the 1920s, spurred by Birmingham’s steel smelters, Alabama’s growth had outstripped many of the other Southern states. By 1925, it was the fourth in the South for manufacturing jobs. The key to its economic success was Birmingham. Fueled by the steel industry, the city grew – but as a one-company town, where it was to the company’s advantage to keep its workforce segregated and divided. The large smelters and mines were owned by northern-based companies, whose only real concern was return on shareholder investment. The largest was T.C.I.- U.S. Steel. This was a colonial economy – and the smelters’ lawyers were able to successfully lobby the state legislature to prevent the city from doing anything that would affect their profitability. They successfully fought adding any of their properties to the city’s tax base. As Charles E. Connerly details in his paper “One Great City or Colonial Economy?: Explaining Birmingham’s Annexation Struggles, 1945 – 1990”:
“In 1923, State Senator Walter Brower, the sole senator representing Birmingham in the state legislature, submitted a bill calling for the annexation of T.C.I.-U.S. Steel’s Ensley mill into Birmingham. … In response, the Alabama Senate took the unusual step … (of) voting down Brower’s proposal. Legislators opposing Brower’s bill cited a pledge that had supposedly been made “by local authorities” in 1898 never to annex the steel mill.
Two weeks after the defeat of Brower’s bill, the Alabama legislature adopted a new state code, which effectively closed off the other primary method by which Birmingham could annex the T.C.I.-U.S. Steel property … Prior to 1923, Alabama law permitted municipalities to call elections for the annexation of unincorporated areas … The 1923 legislature amended the Alabama Code so that cities who wished to annex unincorporated areas must first obtain signatures from owners of 60 percent of the acreage to be annexed and signatures from at least four qualified voters on each 40-acre section within the area to be annexed. … Although the Alabama legislature in 1953 reduced the number of elector signatures from four to two, the petition requirement for annexation of unincorporated territory has remained a part of Alabama annexation law since 1923.”
There were other reasons Birmingham had difficulty expanding its tax base. In Alabama, school districts are contiguous with city and county boundaries. Birmingham had a large black population working in the smelters and coal mines. Early in the region’s development, the industrial suburbs, Bessemer, Tarrant, Fairfield and Irondale, were built and incorporated as company towns. With the passage of the 1923 anti-annexation law, and later in response to the 1954 end of segregation, these towns were able to successfully resist Birmingham’s annexation efforts. Prior to 1951, Birmingham’s white population isolated themselves from their African-American neighbors through the use of exclusionary zoning ordinances. When the U.S. Supreme Court struck down these laws, and later in 1954 declared the segregation of public facilities (and schools) unconstitutional, white suburban residents were able to use the state code to block annexation by the city. In 1949, despite T.C.I-U.S. Steel’s efforts, Birmingham’s mayor, Cooper Green, was finally able to marshal enough referendum support to annex 13.4 square miles of unincorporated area, including the Sloss-Sheffield by-products plant, T.C.I.-U.S. Steel’s Ensley Works, the Louisville and Nashville Railroad shops, and a cement plant. By contrast, other Southern cities such as Atlanta and Tampa, encountered less resistance to expansion by annexation because their school districts were not contiguous with the city boundaries.
Attempts in 1959, 1964, 1970, and 1979 to consolidate the city by annexing the suburbs were also defeated. In all cases the issue of the school systems was the deciding factor. 1970s-era attempts to change the state law regarding how annexations of unincorporated land were to be conducted were also successfully blocked by corporate interests.
In 1974, under the leadership of Mayor David Vann, the City of Birmingham tried a new annexation technique. Under Title 37, Chapter 12 of the Alabama Statutes, jurisdictions with populations of 25,000 or more could call annexation elections without petition from landowners or residents. A majority vote of the qualified voters in the area would determine whether the area would be annexed to the jurisdiction. To do it, the city would forfeit revenue from property taxes and occupational license and business license fees for a period of five to fifteen years and would have to provide full police and fire services. Vann saw this as the only way that Birmingham was going to access land with potential for commercial and industrial development – and a future tax base independent of the steel industry.
The Birmingham City Council encountered stiff opposition from U.S. Steel, but was eventually successful in annexing the Cahaba Valley and Oxmoor Valley. It also helped that U.S. Steel’s land-holding company also began to view the lands as potential real estate developments, rather than future mines.
Birmingham’s efforts to diversify beyond being one company town were seriously hampered by T.C.I.-U.S. Steel until the company closed its smelting operations in the early 1980s. T.C.I.-U.S. Steel benefited by having a racially divided town – it had kept its unionized workers divided for over 70 years and prevented effective action regarding pay raises. It benefited by being the sole large employer. After WWII, T.C.I.- U.S. Steel had blocked the founding of an engineering school. Until the 1960s, with the founding of the University of Alabama at Birmingham (UAB), it had successfully prevented competition for its workforce and had seriously slowed the growth of a diversified economic base. According to Cobb, “Observers consistently linked Birmingham’s reputation for racial backwardness to it’s economic stagnation.” In reaction to the restrictions imposed on them by the 1901 state constitution, African-Americans had voted with their feet. From 1920 – 1924, it’s thought that over a half million left for better opportunities in the northern cities. State population growth slowed. From 1950 to 1960, Birmingham’s population grew by 14% while Atlanta’s, grew by 40%.
In the early sixties, hoping to improve Birmingham’s image, a group of financial and business leaders had succeeded in getting the electorate to vote to switch to a mayor-council form of government. Elections were held in April 1963 and moderate segregationist Albert Boutwell was elected as the new mayor over the extreme segregationist candidate and current police commissioner, Eugene “Bull” Connor. However, Bull Connor filed suit to preserve the city commission’s authority. During that gap in leadership, with two separate groups claiming leadership of the city government, the Freedom Riders arrived in Birmingham. A mob, curiously without police presence, awaited them at the bus terminal. A delegation of northern companies who were in the city to scout potential industrial sites, saw the ensuing assault and decided that they wanted no part of a city where racism was that blatant. As the spotlight shone on Birmingham and Alabama’s fights over segregation, additional companies continued to decide not to move their plants there. One Ohio kaolin processing firm decided not to move to Mobile. Hammermill Paper came under public pressure across the United States for deciding to locate a plant in Selma. But Alabama’s in-state industrial leadership didn’t publicly come out against segregation until the death of a Selma protestor. By then, the damage to Birmingham’s reputation was done. Privately, many industry leaders across the South continued to support segregation, just not enough to fight for it.
Although things have been changing in Alabama and Birmingham (mainly due to generational turnover) there is still a legacy of distrust and a social capital deficit. According to Stephen Knack of the World Bank, levels of trust in government serve as an indicator of the functioning and competency of that government. As has been demonstrated all too often in Alabama, “Where fewer citizens are motivated by a sense of civic obligation to stay informed and to participate in political life, the extremes on the political spectrum are more likely to dominate the public agenda, and debate becomes more polarized.”. The 2000 and 2004 referendums to remove racist language from the state constitution offer contrasting examples. The 2000 referendum to remove the prohibition against interracial marriage was passed with only token opposition. In Webster and Quinton’s paper “The electoral geographies of two segregationist (“Jim Crow”) referenda in Alabama”, Dr. Natalie Davis, a Birmingham-Southern political scientist, estimated that only 44% of white voters cast ballots in favor of deleting the ban. The 2004 referendum to remove unenforceable language regarding poll taxes, school segregation and the 1954 declaration that there was no right to a public education in Alabama, was a different matter. Governor Bob Riley had created a commission in 2002 to advise how to improve the state’s constitutional language. The commission advised striking Sections 259 regarding poll taxes and 256 regarding segregation of schools. When the recommendations arrived at the state legislature, the legislature leadership added Article 111, a declaration that there was no right to a public education in Alabama. Former Chief Justice of the State Supreme Court Roy Moore, Tom Parker and John Giles, the President of the Alabama Christian Association, successfully mounted a campaign opposing the change. They charged that approving the removal of Article 111 could be construed as a new right to public education and that would lead to lawsuits against the state regarding existing unequal levels of funding. Given many conservative voters’ distrust of governance in the state, especially with regards to the public schools, the referendum to strike the language was defeated. However, in Webster & Quinton’s opinion, the key factor in the decision was lack of urban moderate and liberal voter turnout. Not enough of the people who wanted to move the state forward were motivated enough to vote in the election. In the future, engaged moderate forward-thinking voter turnout in the urban and suburban areas is going to be critical to the state’s progress.
Today, the Alabama Development Office (ADO), under the control of the Governor’s Office, is the current state industrial promotion organization. Historically, most of the industries that did business in the state were branch plants of U.S. companies. Eighteen years ago, those branch plants began to include foreign companies as Mercedes Benz brought its first North American automobile assembly plant to Alabama, soon followed by Honda and Hyandai. In May 2010, the ADO’s mandate was redefined to shift focus to starting to grow companies from within Alabama. The Alabama state legislature approved new statutory economic development incentives to include corporate headquarters, research and development facilities, and “green” employers.
Other state organizations involved with workforce training and industrial promotion are:
- Alabama Association of Regional Councils
Statewide coordinating body for the state’s various regional councils.
- Alabama Department of Economic and Community Affairs
Department of the state government.
- Alabama Institute for Manufacturing Excellence
Part of the University of Alabama in Tuscaloosa.
- Alabama Technology Network
Part of the state two-year college system, with a focus on solving problems within the manufacturing sector. Its team of experts provides assistance in lean manufacturing, quality assurance, environmental health, safety and industrial maintenance training.
- Business Council of Alabama
Nonprofit dedicated to promoting small business in the state. Also serves as a lobbying organization.
- Economic Development Association of Alabama
Membership organization for economic development professionals in Alabama.
- Economic Development Partnership of Alabama
Private non-profit supported by leading state businesses.
- North Alabama Industrial Development Association, an organization supported by the Tennessee Valley Authority which specifically recruits industry requiring lots of electricity to the north part of the state.
In the fall of 2010, the Birmingham Business Alliance, created by the merger of Birmingham Regional Chamber of Commerce and the Metropolitan Development Board, launched Blueprint Birmingham, a locally backed effort to develop a regional plan for the Birmingham-Hoover Metropolitan Statistical Area (MSA). While the final action plan is still being refined, the initial analysis revealed that there are critical state and regional weaknesses resulting from past governance decisions that pose serious threats to region’s future prosperity. These are:
- A lack of federal research funding to any institutions in the greater regional area other than UAB.
- No state and local government funding of research as compared to other jurisdictions in the U.S.
- Too few engineers being trained within the state
- Not enough students enrolled in university level mathematics and physics courses
- A failure to capitalize on the region’s metal-working history and accumulated skill sets.
- Historically low performance of the City of Birmingham school system, especially regarding mathematics and science instruction
- Low overall state high school and university graduation rates.
- A high poverty rate in the Greater Birmingham area, in combination with salaries that were approaching the national norms as of 2007, that indicates a widening rift between the haves and have-nots.
- No international destinations or Customs capability (a new Customs facility will open at the Birmingham-Shuttleworth International Airport as part of an extensive rebuilding, currently in progress. Projected completion is 2014).
- Lack of transit.
- Underutilization of serviced land within the city boundaries.
- No northern beltline highway or connection to the new inter-modal terminal recently opened in McCalla.
However, the most damaging point, according to the report, is the lack of regional co-operation and governance. Currently, there are 97 separate city, county and town governments in the seven-county MSA. To quote the report “This fragmentation has contributed to an environment where it is incredibly difficult to obtain regional consensus, achieve government efficiencies and build public confidence with so many competing governments.” This isn’t effective use of anyone’s time or money. While many in Alabama object to a larger role for government because of past performance, there are efficiencies of scale that can only be gained by a more powerful regional government or special districts. Historically, outside interests shaped the region to serve their purposes. Today, that influence Is much reduced. If Birmingham-Hoover MSA residents don’t act to get things working better, no one else will.
The 2010 State New Economy Index, published by The Information Technology & Innovation Foundation, places Alabama 47th out of 50 states in terms of preparedness to compete in the new knowledge-based economy. Only Arkansas, West Virginia and Mississippi fare worse. According to the Metropolitan Policy Program’s “Metro Areas and the New Economy: A 50-State Analysis” by Alan Berube and Carey Anne Nadeau, while sectors (mainly Huntsville) are well prepared, the state as a whole is not. Only 28.7%t of Birmingham 24 – 64 year-olds have a post secondary degree, as compared to Minneapolis-St. Paul MN, where 68.5% do, or Raleigh, NC where the number is 44.3%. Birmingham and Alabama have significant challenges if the city and state is to remain a prosperous region.
Alabama has a long history of less-than-optimal governance. While it has progressed significantly over the past thirty years, there is still considerable room for improvement. If the state is to make optimum use of both its and its citizen’s time and resources, investments must be made in electronic government services, infrastructure, neighborhoods, bridges and roads. The state constitution needs to be streamlined, and science and mathematics education must be improved. The state economy must move to growing and promoting new companies from within, a process that only started this past year. At minimum, it will take ten years and much determined effort to bear fruit – and, based on the experiences of other cities in North American, will most likely take twenty. Are Birmingham’s and Alabama’s citizens sufficiently motivated to make it happen?