EconSouth (Second Quarter 2007)
EconSouth (Second Quarter 2007)
|Dennis Lockhart is the president and chief executive officer of the Federal Reserve Bank of Atlanta.||Despite Natural Advantages, Southeast Faces Challenges|
In 1987, a change of jobs took me out of the Southeast after I had lived in the region for eight years. In March of this year, I came back to the region in a new position and with a new view on the Southeastern economy.
As president of the Federal Reserve Bank of Atlanta, I bring economic information about the Sixth Federal Reserve District to the Federal Open Market Committee, which sets monetary policy for the nation. In that role, I talk with businesspeople, civic leaders, bankers, people who have consumer interests, and others to take the pulse of the regional economy. And based on what I've seen and heard since my return to the Southeast, the overall health of the region is considerably stronger today than it was 20 years ago.
Picking up the pace
In the 1960s, '70s, and '80s, some people considered the Southeast to be an economic backwater. But progress in the Southeastern economy during the past two decades has been remarkable, and today the region's economy is as vibrant as the nation's.
That transformation has occurred because in recent decades domestic and international firms began to discover the Southeast's advantages over other parts of the country. Among those advantages are lower-cost labor and less rigid labor markets, plentiful natural resources, a moderate climate, and a good quality of life. The region's leaders realized that they could build on these advantages by using incentives to attract business to the region, and they have been quite successful in this endeavor as companies from the North, Midwest, and overseas have entered the region in significant numbers.
Although many longtime manufacturing industries, such as apparel and textiles, have shrunk considerably, the region has developed a strong service sector, where jobs are growing in legal services, finance, tourism, back-office support centers, and gaming. In addition, high-skill and high-tech manufacturing have blossomed, with aerospace, automotives, and defense becoming key industries in the region along with more traditional manufacturing industries, such as building products.
The sweet smell of Southeastern success
These developments have brought a new level of economic success to the Southeast. Alabama, Mississippi, Tennessee, and Georgia have enjoyed direct investment such as plant openings from foreign automotive producers and their suppliers. And while Florida has been a tourist destination for years, not many people 20 years ago thought that Mississippi would one day be home to a highly profitable gaming industry. Also, cities such as Atlanta, Miami, Orlando, and others have become prominent destinations for visitors from around the world.
With this economic expansion has come growth in real per capita income, which increased from an average of just under $19,000 for Southeastern states in 1987 to nearly $27,500 in 2006, growth of 45 percent. Although this performance has not been even across all states in the region, it compares well with the nation's 38 percent growth during the same period.
These gains in per capita income as well as taxes paid by businesses have substantially boosted Southeastern states' revenues, which grew 205 percent on average during this time frame; Florida enjoyed the strongest growth, at 235 percent.
Rising to the challenges
It is important for the region's leaders to recognize that the successes of the past 20 years have bred new challenges.
For instance, while cheaper labor was a significant draw for the region in the past, it is no longer as big an advantage because many jobs can be filled more cheaply offshore. The region must therefore position itself with a new comparative advantage.
Education can play an important role by helping develop skilled workers who are able to tackle the demands of the 21st century. But the Southeastern states have traditionally lagged behind the nation in building successful elementary and high school education programs. So leaders in this region must develop strategies that will distinguish tomorrow's workers for both domestic and international employers.
In the past, plentiful natural resources made the region attractive, but the quality of the environment is becoming an issue here just as it is worldwide. To be successful, states in this region must work together to address environmental challenges related to clean air, water availability, and energy demands. For too long environmental solutions have stopped at state lines, but to be successful in the future, collective solutions must be debated, developed, and embraced.
Finally, one thing we've all learned is that economic shocks can hit no matter where people live. Virtually every area of the Southeast has experienced a natural disaster, an industrial plant or military base closing, or a big merger that moves corporate offices out of a community.
Typically, the cities and states most resilient to these challenges were the ones that made the best preparations. It's why I believe economic resilience—which includes having an economy with a diversified business base, adaptable firms and workers, an openness to talent and capital, industrial innovation, and solid emergency preparedness—is a critical component to long-term success. I also believe economic resilience will become increasingly important for communities, states, regions, and the nation as they strive to prepare for the strong punches that Mother Nature or global competition can throw.
If the Southeast can address these challenges with foresight, I believe that its economy will prosper for the next 20 years and beyond.