Regional Update (July-September 1996)

Index The state of the states Southeastern manufacturing survey Views from the region Southeastern economic indicators

Cover Story - Full Speed Ahead for the Southeast's Maritime Industry

Have Taxes Contributed to the South's Economic Rise?

The Southeast's Economy Claims Its Olympic Prize

The Growing Symbiosis in Southeastern Business

The Southeast's Economy
Claims its Olympic Prize

The Centennial Olympic Games were not held in Atlanta to stimulate economic development in the Southeast. The Games were awarded because of the region's long-standing economic success. In the long term the Games provided only a small addition to a vibrant and growing economy. Tom Cunningham, Research Officer at the Atlanta Fed, offered this Olympic perspective in a speech to the Atlanta Fed's Small Business, Agriculture, and Labor Advisory Council.

he Olympics came to Atlanta (and the Southeast) largely as a result of the city's success as a business center—not to promote economic development per se. They were, in essence, an acknowledgment of the development that had already taken place. So, post-Olympics, what are the short- and long-term economic implications of the Games for Atlanta in particular and the Southeast in general?

The overall short-term economic impact was marginal. About $4-5 billion in spending occurred over several years compared with personal income in Georgia, which is currently over $160 billion per year. By comparison, Hurricane Andrew generated four times as much economic impact when the storm hit Miami. So Olympic expenditure was very welcome, but it was a relatively small addition to an already vibrant and growing economy.

However, now that the Games are over, many people seem worried about some sort of permanent economic slowdown. This type of downturn looks unlikely; any downward spike should be transitional, due largely to the regional shortage of entry-level workers. Consequently, there should be more than enough capacity in the economy to absorb ex-Olympic workers.

In the long term, the legacy of the Games in Atlanta is physical: a more modern airport, updated infrastructure, and a more attractive downtown center. What the Games provided was a reasonable political incentive for the city of Atlanta to tackle a lot of infrastructure problems that needed to be addressed but didn't have an actual deadline. A terrific example is the Olympic stadium. By building the stadium, the city solved the problem—both politically and geographically—of where the Braves [baseball team] play for the next 20 years.

A modest boost for the regional economy

If the Olympics came to Atlanta because of the region's economic success, what accounts for that success? It is important to realize that the Games did not, and will not, decouple the region from the trends of the national economy. Markets in the region remain well integrated with national markets but have been very successful at attracting businesses at a faster rate than other parts of the country. For instance, over the past 15 years Georgia has outperformed the country on average by about a percentage point each year in terms of employment growth.

Why? There are three reasons. One is very visible. The other two are more subtle and are partly responsible for why Atlanta has become the business center it is.

First, one of the most dynamic things happening in the Southeast generally—and north Georgia in particular—is the growth of the auto industry. The South is now the place to make cars in the United States. Of the auto assembly plants opened or refurbished in the past 10 years, almost all are within 500 miles of Georgia's neighboring state of Tennessee.

Now, it's impressive to attract the likes of Mercedes, BMW, Volvo—but the money in autos is not in assembly; it's in components. With assembly plants moving south, over time components manufacturers are going to move south as well.

The second thing going on relates to the view of the South as a relatively good, inexpensive place to live and to do business. And it explains why manufacturing and service industries are rapidly moving into the region. For example, if you are a manufacturer or service provider whose product's price is determined in national or international markets and you move to the South, you can give your workers the same pay and benefits for less cost in nominal terms. For workers this translates into higher real quality of life compared with elsewhere. Thus, employers can attract workers to the region while paying a lower wage bill.

The third reason, which applies to the Atlanta area in particular, is what economists call economies of agglomeration. Once you get a core set of businesses and talented individuals in place, it becomes progressively easier to bring more people into an area. After all, it's far easier for businesses to locate someplace where suppliers and workers already are than someplace where they must be brought in. What the Atlanta area has been particularly good at doing is attracting white-collar professionals. So the Atlanta area now has a core of competency that makes it attractive to many types of outside businesses.