Rust Belt - History

History

The linking of the former Northwest Territory with the once-rapidly industrializing East Coast was effected through several large-scale infrastructural works, most notably the Erie Canal in 1825, the Baltimore and Ohio Railroad in 1830, the Allegheny Portage Railroad in 1834, and the consolidation of the New York Central after the American Civil War. A gate was thereby opened between a variety of burgeoning industries on the interior North American continent and the markets not only of the large Eastern cities, but of Western Europe as well. Coal, iron ore and other raw materials are shipped in from surrounding regions which emerged as major ports on the Great Lakes and served as transportation hubs for the region with a proximity to railroad lines. Coming in the other direction were millions of European immigrants, who populated the cities along the Great Lakes shores with then-unprecedented speed: Chicago, famously, was a rural trading post in the 1840s but grew to be as big as Paris by the time of the 1893 Colombian Exposition.

Early signs of the difficulty in the northern states were evident early in the 20th century, before the "boom years" were even over. Lowell, Massachusetts, once the center of textile production in the United States, was described in the magazine Harper's as "a depressed industrial desert" as early as 1931, as its textile concerns were being uprooted and sent southward, primarily to the Carolinas. After the Great Depression, American entry into the Second World War effected a rapid return to economic growth, during which much of the industrial North reached its peak in population and industrial output.

The northern cities experienced changes that followed the end of the war, with the onset of the outward migration of residents to newer suburban communities, and the declining role of manufacturing in the American economy.

Outsourcing of manufacturing jobs in tradeable goods has been an important issue in the region. One source has been globalization and the expansion of worldwide free trade agreements. Anti-globalization groups argue that trade with developing countries has resulted in stiff competition from countries such as China which pegs its currency to the dollar and has much lower prevailing wages, forcing domestic wages to drift downward. Some economists are concerned that long-run effects of high trade deficits and outsourcing are a cause of economic problems in the U.S. with high external debt (amount owed to foreign lenders) and a serious deterioration in the United States net international investment position (NIIP) (-24% of GDP). Some economists contend that the U.S. is borrowing to fund consumption of imports while accumulating unsustainable amounts of debt. On June 26, 2009, Jeff Immelt, the CEO of General Electric, called for the United States to increase its manufacturing base employment to 20% of the workforce, commenting that the U.S. has outsourced too much in some areas and can no longer rely on the financial sector and consumer spending to drive demand.

Since the 1960s, the expansion of worldwide free trade agreements have been less favorable to U.S. workers. Imported goods such as steel cost much less to produce in third world countries with cheap foreign labor (see steel crisis). Beginning with the recession of 1970-71, a pattern emerged. Competitive devaluation combined with each successive downturn saw traditional U.S. manufacturing workers experience lay-offs. Wealth-producing primary and secondary sector jobs such as those in manufacturing and computer software were often replaced by much-lower-paying wealth-consuming jobs such as those in retail and government in the service sector when the economy recovered. A gradual expansion of the U.S. trade deficit with China began in 1985. In the ensuing years the U.S. developed a massive trade deficit with the Asian nations of China, Japan, Taiwan, and South Korea. As a result, the traditional manufacturing workers in the region have experienced economic upheaval. This effect has devastated government budgets across the U.S and increased corporate borrowing to fund retiree benefits. Some economists believe that GDP and employment can be dragged down by large long-run trade deficits.

A February 2009 report by the Economic Policy Institute showed that unionization does not hinder international competitiveness, and may in fact encourage it A March 3, 2008 Wall Street Journal editorial claimed that, while Ohio lost 10,000 jobs in the past decade, Texas created 1.6 million new jobs. The editorial stated, "Ohio's most crippling handicap may be that its politicians – and thus its employers – are still in the grip of such industrial unions as the United Auto Workers." A September 13, 2008 opinion column by Phil Gramm and Mike Solon stated, "Yes, Michigan lost 83,000 auto manufacturing jobs during the past decade and a half, but more than 91,000 new auto manufacturing jobs sprung up in Alabama, Tennessee, Kentucky, Georgia, North Carolina, South Carolina, Virginia and Texas."