Presented to the Southern Industrial Development Council (SIDC)
At Biloxi, Mississippi
October, 1971
By
Harold A. Dye, Deputy Director
Georgia Department of Industry and Trade
In an advertisement a few days ago, "Industry Week" made the following statements:
"The United States' share of world steel production dropped from 47% in 1950 to 20% in 1970."
"Our share of the world auto production slid from 81% in 1950 to 33% last year."
"Hourly employment costs in this country are double and triple those to our overseas competitors – and accelerating."
"We are exporting our jobs. We are expending our national strength by making economic decisions on political ground. We are destroying our tax bases."
In 1950 and before, while the United States was leading the world in industrial production, we in the South were not really participating. We were still in the fledgling stage, but in the fifties we were beginning to show that we could fly.
Between 1950 and 1970, had we not made so much progress in the South, these national figures would be even worse than they are. The South has, in reality, kept the bottom from falling out of our national economy and even though belatedly, is making up for the years before 1950 when we were the land of the one-crop economy and were no more than a colony of the industrial North.
As you know, there are only two ways to produce wealth – one is by the production of raw materials; by farming – cotton, peanuts, soybeans, cattle, hogs; by fishing; by the mining of minerals; and by the production of forest products. If, for example, you plant a seed which produces fifty or one hundred fold, you have produced wealth.
Today, raw materials sell for an average price of approximately 15 cents a pound. If you take raw materials and, with manpower and machinery, change the raw material so that the finished product is worth more than the original material, you have the other means of producing wealth –manufacturing.
In the 1930s and 1940s, and for a hundred years before, we used only one means of producing wealth in Georgia and in the other states of the Southeast. Except for a few factories here and there to produce textiles, we produced only raw materials. Therefore, our economy was strictly tied to whatever profit could be made from the production of raw materials. And that was not much. Even now with all the government subsidies, the production of raw materials will not produce enough wealth to make a state or region have a viable economy.
But today, we are also producing manufactured goods. When you bring raw materials at 15 cents a pound in one entrance of a factory and there in the factory, change the form of the raw materials so that you can sell the manufactured goods at 65 cents a pound, you have created wealth and you have a profit potential that may be as much as 35 cents or 40 cents a pound. It is far greater than the profit coming from a pound of raw materials and while producing that pound of manufactured goods, you have employed many more people and have paid them higher wages than the farmer ever employed or paid.
Now, let us look at this from a different point of view. Suppose that in our state, every hour for this whole year, we produce a million pounds of raw material and sell that million pounds outside the state. We take in $150,000 per hour. That sounds good. At the same time, we go outside the state and every hour we buy a million pounds of manufactured goods for use within our state. That cost us $650,000. Obviously, we lose 50 cents on every pound of this transaction, for a total loss to our state of one-half million dollars every hour. No state could have a viable economy for very long if that state sold only raw materials and had to buy all or most of the manufactured goods used. The balance of payments would be intolerable and would soon make that state a debtor to other states.
The surprising thing – or perhaps it is not so surprising – is that in most southern states we did this almost exclusively until the 1930s and we are still doing it in many areas of our states and on many of the products we use; we sell raw materials cheap an buy back the manufactured product dearly. The classic example right now, and a popular one to talk about is peanuts. In Georgia, we sell peanuts at 15 cents a pound and buy back peanut butter at 65 cents a pound. We export over 90% of our peanut crop in the raw material form – the 15 cents a pound form. We really make money for people in Hershey, Pennsylvania and Chicago, Illinois. And those states are not even in the SIDC.
If we were to lose like this on all our raw materials and not compensate with manufacturing, we would never be able to reach a "state" favorable trade balance.
We had an impossible capital outflow before 1950 but are now approaching a balance. When we do reach a favorable trade balance, we will at the same time reach and pass the national average on per-capita income. Unfortunately, as the South obtains a favorable trade balance the United States as a whole is losing its favorable position. This month of October may see the United States reach its greatest trade deficiency of all times. Of course, this unfavorable position is caused in part by the East and Gulf Coast dock strikes, but as the "Industry Week" ad pointed out, "There are other reasons."
Trade balances also apply to counties as well as states and nations. Counties producing only raw materials are faced with a capital outflow problem and a lower per-capita income. They cannot pay for the things that make the county prosper. In Georgia, the county with Georgia's lowest per-capita income has no manufacturing. The county with the second lowest per-capita income has no manufacturing, and so on until you reach the counties with the most manufacturing where you find the highest per-capita income.
If you think this applies only to Georgia, just check your own counties. There may be exceptions but the rule applies. Obviously, to prosper, a county must engage in manufacturing to produce wealth.
Let's examine this from a state point of view. In 1930, the per-capita income in Georgia was $340. In that same year, the United States average was $700. Now it doesn't' take much figuring to realize that $340 is less than 50% of $700, so for every dollar that we could spend in Georgia in 1930, the rest of the United States had over $2 to spend. It meant that the rest of the United States had a better purchasing power and a better tax base and, in effect, was twice as well off as we were in Georgia. Now just to refresh your memory – there were several southern states that were no better off than Georgia. The South as a whole was in dire straits.
Our per-capita income had a decided effect on everything we did. We had poor roads and poor health facilities. We had poor institutions for the correction of our mental problems and our jails were full. We had no state parks and our streams ran red with top soil. Our infant mortality rate was the highest in the United States. We had pellagra, malaria, and hookworm. We were poverty stricken and were losing our bright minds to some place that offered more. And talk about pollution. In those days, we really had it. We, individually, as a state and as a region were really hurting.
In 1930, Georgia spent a greater percentage of its tax dollars on education than any other state in the United States. Now, I said a greater percentage of our tax dollar went to education in Georgia in 1930 than any other state in the United States, yet only three other states, and they were southern states, out of all the states in the Union, spent less actual dollars per pupil. We were at the top in percentage, but near the bottom in real dollars. Even though we had the desire to educate our children as indicated by the fact that we were putting a greater percentage of our tax dollars into education than anybody else in America, we could not establish a real educational system.
But things have changed. In 1970, the per-capita income of Georgians was over $3,300 – a gain of almost 1000% between 1930 and 1970. That is almost $3,000 more to spend this year by each Georgian than in 1930, and instead of being less than 49% of the national average, we are now over 85%. The same general increases apply to other southern states.
Finally, we are on our way. And don't ever forget it, we are on our way because we went into manufacturing – and there is something else we must never forget – if for any reason we so handicap our manufacturing that we drive it overseas – we will be right back where we were – a poverty stricken, run down section of the world buying from others and soon living in the past.
Since we were in such desperate straits until so recently, why didn't we know that we needed a double barrel economy and not a single barrel approach?
I think maybe that in the last 50 to 70 years, we have known that we had to get into manufacturing but then as we wanted to change, we found that we were faced with unbelievable handicaps and road blocks.
When our ancestors settled in this part of America, the land was so bountiful that we missed the industrial revolution and instead developed an aristocratic land owning society. I think a better name for that "Pre-war between the states society" would be the "have and have not" period. We had the extremes but we did not have a large middle class and that lack of a large middle class was to handicap us for a hundred years to come.
The War Between the States changed our attitudes but not our ability to do anything about the conditions in which we found ourselves. We could see that we lost the war because we could not compete in the munitions factories, in the ship yards, and on the railroads. We could not produce the manufactured goods to sustain ourselves.
Yet, after the war, when we tried to change, we were faced with strong, entrenched competition. We had lost our capital wealth and had to rebuild from scratch. We borrowed money and paid interest to other sections of the country and we were faced with the hidden tariffs of differential freight rates.
And while we fought outsiders, we fought a worse battle from within. We had the "Lost Cause" philosophy and we gloried in that "Lost Cause" at the expense of future causes. We had politicians who could get elected time after time by raking over dead ashes of the Civil War. Politicians who could fight with all their might for a cotton subsidiary and never raise their voice to get rid of discriminatory freight rates – but then as now, the politician only expressed the thoughts of the people.
Geared to the philosophy of the past, our schools for many years did not prepare young people for a changing future – about half were not being prepared for anything but the farm, and more of the one-crop economy that was already hampering our progress.
But things changed.
You know these things as well as I do.
The freight rates were equalized. Trucking and later aircraft came along to help tie our far flung Southland together.
The educational system began to change for the better and vocational education reared its beautiful head. And, we established great institutions like Georgia Tech, which prepared our youth for the great technical age. (I know there are other great universities and colleges in every state in the SIDC, but remember, I'm from Georgia Tech – The Top One).
Capital became available spurred by World War II and by Coca-Cola and cigarette and oil fortunes and by industrial revenue bonds. Private banks began to make business loans and fledglings like Delta Airlines became giants!
The market area improved because people began to save money and southern manufacturers began to sell some of their goods at home. Right now the biggest market in the United States is our Southland and it is economy a better market as our per-capita income increases.
Other things happened too. Some we made to happen but some just came along as a bonus. Herty made paper from pine trees that were here all the time. But, the Great Paper Making Industry and its tremendous ancillary industries were created.
Yet with everything considered, the greatest change was in our philosophy. We began to want industry and by wanting industry we did the things necessary to get it. Just wanting the industry may have been the biggest forward step of all.
Now! Do we keep on moving forward, or do we help America go from the number one industrial nation, with the world's highest living standards, to a second-class country in one generation? We can easily do that. In fact, the seed may already be sown.
I, for one, am very much afraid that America has let the pendulum swing so far in the direction of the environmentalist and ecologist that the pendulum may be stuck and it just might not swing back to an area of reason.
Pollution has been unbelievably overplayed. Talking about it, making fortunes for some and electing thousands of others to office, just like the "Lost Cause" elected thousands in past years.
A few months back, the editor of LOOK magazine, in an article entitled "Disaster Lobby" pointed out the danger very well. If you have not read that article, you should. It gives the thinking man an opportunity to do something about the emotional pseudo-environmentalist and would-be ecologist.
In the next Sessions of our State Legislatures and the present Session of the U.S. Congress, our representatives are being and are going to be bombarded with requests in the name of environmental preservation, to prohibit industry and industrial development. The Muskie Bill is an example. Get it and read it. That bill can easily put our chemical industry out of business in America. Even now preliminary studies indicate that the Muskie Bill alone will add 25% to the cost of production in American factories. With such an increase in American manufacturing, how can we possibly compete with overseas manufacturers? What will happen to our domestic inflation?
Inflation will go right out the top. We already have tremendous labor differentials and even a small percentage increase might be the straw that breaks the camel's back. Careful or we will one day see "imports" greatly outweigh "exports."
Even now the EPA is adding six months to every development project just by delaying permit approvals. Ask Bob Leak, the Director of Economic Development in South Carolina, about the ninety-some odd permits that are required to get one power plant going in South Carolina and after three years how only 87 have been obtained. That is one reason for the energy shortage we are now experiencing. Bob is sitting right over there.
Lake Lanier is a man-made lake on the Chattahoochee River about 30 miles north of Atlanta. Last year, over 10,000,000 visitors enjoyed the lake and spend countless millions of dollars either coming to Georgia or staying in Georgia for their vacations on the lake. The dam and its controls also made the Chattahoochee River below the dam into one of the beautiful streams of America. And, it was not before the dam was built! The river was at flood tide in the fall and spring and a dry gulch in the summer. In low water periods, the river could not supply enough water to Atlanta with a quarter million people. Now, with one and a half million people (in 2007, over 3 million people) and the lake, Atlanta is easily supplied with bountiful water, a scenic river and an attraction that draws ten million people a year. But Atlanta is growing fast. The day will come when we must have other sources of water.
There were people who fought building Lake Lanier because they said it would damage the environment, destroy the river and ten thousand people would lose a place to fish and swim, etc.
The same kind of people are now fighting the development of a lake on the Flint River with a dam about 50 miles south of Atlanta (fifteen miles south of Hartsfield, Georgia's great international airport). They argue that ten thousand people will not be able to enjoy the river after it is inundated. Maybe the ten thousand people won't but ten million people will, and Albany and Bainbridge and other cities to the south will not have annual floods, but will have a better, cleaner river and a guaranteed supply of water just like Atlanta.
Did you know? There was actually an opposition article in an Atlanta newspaper with a heart-rendering story about two little male birds singing to each other across the Flint River. One said to the other, "You stay on your side and I'll stay on mine." These two birds would lose their nests. I guess that it is alright but I for one am far more interested in the welfare of the people of Georgia than I am in the birds. If the lake is built, it will be too wide for one bird to invade the other's territory. We must built the already funded ($80,000,000) Sprewell Bluff Dam.
Before leaving lakes, I would like to mention one lake in North Georgia called Allatoona. Allatoona is man-made just like Lake Lanier and it too draws millions of visitors yearly. Interstate 75 was planned to cross Allatoona but the environmentalists forced a re-routing and a three year delay because they said I-75 would destroy the natural beauty of Lake Allatoona.
They forget that beautiful Allatoona would not be there in the first place except for man and they did not consider the loss to Georgia of thousands of people routed around Georgia to avoid the uncompleted stretch of I-75. They also forgot the lives that will be lost on an overloaded US 41 which must stay in use for an additional three years.
Well, the loss to Georgia of travel business will be and already has been in the tens of millions of dollars, and if just one life is lost, that is an irreplaceable loss to me. That one life is worth far more than the self-satisfaction of a pseudo-environmentalist.
I have talked about man-made lakes in Georgia to show just part of the problem. I chose lakes because we are having similar problems in each of the states in the SIDC and you are probably aware of some of these cases.
I am sorry that time does not permit me to give you dozens of examples of the problems facing us. But if I can close by making a request, it might be of more value.
Let us read up on the subject of environment and on other things that can and are being used to restrict industry and our overall economic development and let us begin a counter campaign with our public officials.
Our public officials, who are for the most part, intelligent and well-meaning individuals, who do not want to see America fall back. Let us give them the ammunition to fight the battle – let us write and call and tell. Let us put the South and American back in business.
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