CLT Alliance Talks

CLT Alliance Talks: Economic Drivers in the New South

October 26, 2021 Charlotte Regional Business Alliance Season 2 Episode 42
CLT Alliance Talks
CLT Alliance Talks: Economic Drivers in the New South
Show Notes Transcript

Dr. Ryan James, Specialist Master at Deloitte Consulting, explains his research into what is driving development in the New South. Dr. James details the changes and new trends across the workforce and ecosystem that supports business growth. Plus, hear which Charlotte-based company he says is a prime example of building itself and its community to meet the needs of a changing, skilled workforce. 

CLT Alliance  0:00  
Welcome to CLT Alliance Talks, a podcast on business topics, information and tools focused on building an economy for all in the Charlotte Region.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  0:11  
Hello, my name is Kelly O'Brien and I am the president of the Charlotte Regional Business Alliance Foundation, and the Chief Advocacy and Strategy Officer. Today it is really my pleasure to have a conversation with Dr. Ryan James. Doctor James is a specialist master at Deloitte. He is a scholar, a former professor and, of course, a consultant at Big Four. The work that we're going to be talking about today is not a Deloitte-based work product. This conversation really reflects the views and work product that Dr. James has done as an independent consultant. And it's really one that has caught my attention. The topic is understanding the New South and its development. He recently presented this at a conference and it is under review for publication. So Dr. James, welcome. Thank you for joining us today.

Dr. Ryan James, Specialist Master at Deloitte Consulting  1:10  
Thanks for having me. It's really my pleasure.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  1:12  
So tell me, what brought you to this topic?

Dr. Ryan James, Specialist Master at Deloitte Consulting  1:15  
Well, um, I've spent most of my academic career trying to understand the factors that lead to economic and regional economic development, with a real focus of understanding why it is that particular places always seem to be leading in economic development, and why particular places always are seeming to lag behind. And along the way, I've done research that's largely focused in the southeastern United States, because the southeast over the past 50 years really has been the story of and the image of the boom in terms of the United States economy, because it's the Sun Belt, to pull out the colloquial phrase of you know, the Rust Belt in the Sun Belt transition. So if you're going to understand why places grew, the Sun Belt would be a way to go. And in fact, I even relocated from Ohio to come down to North Carolina to do my Ph.D. at North Carolina at Charlotte in 2007. But so I was always interested in understanding why it grew. And while I was down here, I had a lot of good fortune to see. I hesitate to say good fortune, but I was starting to you know, within my first year, I was able to see this growing economy facing a financial crisis. And in Charlotte, that was the home to a large number of banks. I was able to see a housing crisis. I was able to see a recovery. I was able to see a lot of economic transition as we've moved into whatever it is that our new economy is going to be driven of in terms of technology and human resources. So I've been able to see a lot. But what brought me to here is that as I was seeing all these transitions, and as I was talking to other scholars in the field, residents in the in the community and economic development and planning practitioners through the southeast. There were a couple of things that just kept popping up as persistent themes. As the South was really starting to grow up through the 70s and 80s, the narrative was that it was growing because it was a place where there was relatively low labor costs and mature capital could relocate from expensive and ageing factories in the Rust Belt and really take advantage of new investment, newer technologies and cheaper labor costs. And so there was a story of low labor costs really driving this development. And there was also a story of, you know, yes, air conditioning made it able to live down here. But as the population moved down to the South to take advantage of air conditioning amenity. And at this point, I'd also just like to take a quick pause to also note that we can't underestimate the importance of the Civil Rights Movement in opening up the south to development because now for firms, particularly international firms, there was no longer a stigma associated with having an address in the New South. People didn't look at it and say, "Wow, what a backwards place," but rather, "okay, this is a place where we can do business now." But so there was this large story of why places were coming in here. But as I was talking to people, that didn't seem to necessarily be the case.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  4:11  
Dr. James, what kind of people were you talking to?

Dr. Ryan James, Specialist Master at Deloitte Consulting  4:15  
Oh, I was talking to you know, some scholars at conferences looking at the southeast. I would talk to practitioners of both planning and economic development. I have a master's degree in planning, so as I was navigating that community as well and building my professional contacts. But we were talking about some of the challenges that communities were facing in terms of business recruitment, job recruitment and retention. And also talking to just people like one of the people I talked the most with. I always say that the best thing to happen about me coming to UNC Charlotte was I moved down here and I met my now wife. And her father, her family owned a barbecue restaurant in Kannapolis for decades. When the mill in Kannapolis closed, he was able to give me stories firsthand of how that impacted the community. It was a mainstay, and really the only game in town for the longest time of where people would work. And it was embedded. I remember having the conversations around 2010 -2011 with him, but the mill had closed before then. So I think it had closed before time. But he would tell me that, you know, you would see it was so embedded that you would graduate from high school, and then you would go work at the mill. And that's just, you know, that wasn't the embedded culture there. And that when it closed, it really changed his clientele. People that know what they're going to do. People are spending a little less money. And I will say this for the owner of the facility, even though he closed the site, he did say he wasn't going to be abandoning the community, but rather, was redeveloped now into the technology park and to the r&d large facility. But what ended up happening was it it wasn't the displaced mill workers who got those jobs, there was a skill mismatch, and rather, was an influx of new highly educated talent into Kannapolis, coming out of the university system in North Carolina, which is really second to none. And they would come in and they will be working there. But so what we saw was almost a bimodal distribution of development within Kannapolis of a large number of folks who were being left behind, and new residents into the area who were taking it off. So that was an interesting story of this disconnect. But it got me thinking, well, things might now be changing if this historic importance of manufacturing, and cheap labor no longer mattered as much as skills. And this is reflective of you know, the larger economy, particularly in the U.S. and in Western countries. So I decided, let's take a look and see what is going on. And what are the factors that are identifying southern economic development really post 1990, which is kind of a good cutoff point in economic cycles for where the new economy really started to take off. So that really was my goal behind it to understand if those old assumptions of cheap labor, cheap land and low labor competition were really still as important as they were.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  7:13  
Interesting. Okay, so what did you find?

Dr. Ryan James, Specialist Master at Deloitte Consulting  7:17  
I guess, in a pure research and in governmental answer, it's complicated. But

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  7:25  
Like law school, we say 'it depends.' 

Dr. Ryan James, Specialist Master at Deloitte Consulting  7:29  
And that's, that is the answer for everything. Well, I found a couple things right off the bat. First and foremost, manufacturing and concentrations of manufacturing employment are no longer driving southern regional development at the county level, and at the community level. So communities that had large percentages of their labor force employed in manufacturing, Actually displayed much and significantly slower income growth than communities that were either focused on skilled labor or focused on growing sectors within the national economy, such as finance, insurance, and real estate or business and professional services. So these, the service industry in the service economy, even in the New South was replacing the manufacturing economy. So that was critically important as a finding that manufacturing didn't play as much of a role. That does come with an important caveat here, I only analyze manufacturing at the industry level. My suspicion would be but I haven't run the data to test it is that we would see it actually having a that if we bifurcated it out to the nature of the manufacturing from unskilled to skilled and semi skilled, we might see a different result. But that but where skilled and semi skilled manufacturing and more flexible production processes could still potentially have a positive effect. And that would also align with a larger narrative that's emerging that skilled labor is important in the New South. So that's what I would suspect to see. But I haven't, don't have the analysis to confirm that. But at a larger scale, concentrations of manufacturing aren't driving the economy as they were. We also found that in terms of industrial sectors that were positively influencing at finance, insurance and real estate concentrations in business services and personal services were important. But also so was education. And so communities that had high levels of their population with a bachelor's degree and higher levels of concentrations in you know, in the financial and insurance sectors and business services as well as transportation and logistics, we're in a much better position. And we're growing at significantly faster rates than those that were focused in the more traditional Southern old economy sectors. And so this tells us that really the story of the South as a hub of cheap labor isn't really representative of what the economy doing now it's much more focuseda nd it's much more akin to the knowledge economy in the service economy that's dominating the rest of really post 1990 Western European and North American economic activity. So we aren't the cheap labor home anymore, our skilled labor industries and our workforce is doing the driving now. And I think that's an important story, because it has a lot of impact on what both state level and local and regional economic development policies can be on where you can get the most bang for your buck, and what industries and where you could place investments. What I think is important, and I realize I'm rambling, so after this, I'll pause and hand the baton back to you, is that we see this interaction that is really reinforcing ideas of both amenity development, quality of life and kind of cluster based development as well, where business services, concentrations of business support services are really positively associated with growth. So that means that in communities that have the support services, you know, the accounting, the legal support, and even down to ideas, such as you know, printing and advertising and marketing, that if there's the ecosystem to support business, that community will grow, because firms aren't going to have to do everything in shop, and there's an expertise to tap into. So that's really important. So investing in how you can link what you do well, and what type of support services you have to industrial recruitment would be a major selling point. And similarly, we see that there is a positive impact on per capita parks and recreation expenditures. So that also gets into the idea of quality of life. We do know that folks relocated back in the middle to late 20th century from the rust belt to the southeast, largely, not largely, but as a function of amenity, you know, it's not as cold, you don't have the ice storms quite so much and you have more time outside. And even down to the community scale, we're seeing that communities that have greater recreational facilities, public facilities, and parks and things to do outdoors are growing at faster rates, there's actually get, you're getting a return to that investment at the community scale in terms of income growth within your community. So and that reinforces some of the ideas that we see in coming out of some of the work that others have done that skilled labor has a greater ability to call their shots, so to speak, and where they want to work. And so that if you have communities that also are good places to live, it's going to attract talent, and talent can transition to economic growth.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  12:40  
So you've brought up so many points, you know, the work that we're doing at the Charlotte Regional Business Alliance. Our research shows that, you know, advanced manufacturing is a major driver of our regional economy. And I think we've identified approximately 3600, you know, manufacturing firms throughout our 15 county footprint and, you know, over 100,000, I think it's actually closer to 150,000 employees in that sector. So I appreciate you kind of qualifying, you know, the different ways that manufacturing can can be defined, but it is such an important driver of our of our regional economy. I think the work that you're doing is critical for people to understand. And and I guess, you know, one question that I have is, when you talk about the New South, what were the geographical boundaries? And you know, what, how micro level did you go?

Dr. Ryan James, Specialist Master at Deloitte Consulting  13:42  
I ran at the county level, and it basically it built off of a paper that I had written, it was really the first paper I wrote ever that got published back in 2010, where I used the rapid growth process of the southeast to identify, you know, where are the places that are structurally similar. So it included everything from Kentucky and Virginia, south and east of Arkansas and Louisiana. We excluded West Virginia, because that was more a function of the Appalachian economy than the New South. So specifically, it included all of the counties that were within Arkansas, Louisiana, Mississippi, Alabama, Florida, Georgia, Tennessee, both the Carolinas, Virginia and Kentucky. And so we ran that at the county level. And I think just to get to your manufacturing point as well, I think you're 100% correct. And and the focus of advanced manufacturing, I think represents the type of manufacturing focus that will be critically important and it actually also represents a movement away from some of the more traditionalist southern economic development focus on manufacturing where we will see, particularly through the middle 20th centuries, policies focused on simply exploiting low labor costs, you know, it's like, come here, we'll give you a tax break and your cost per hour are here. And that was the end of it. And from what we see is that what the story is if a firm is willing was willing to relocate from one state to another for low labor costs, we had no assurance that they weren't going to do the same for us once the time came. But when it comes to advanced manufacturing, there are a couple of differences that make it that would that from what my analysis will show would make it a little bit better as that one, there's a close proximity to, you know, to transportation, which and logistics, which is important here. And so if you're dealing with advanced manufacturing, you're dealing with products that require some skill to assemble. So it's not just low labor costs, but actually, it's the skill and ability to make it within your labor force, but also the ability to make this higher value product and ship it effectively to its new market. And so that's an ability that you can that can be bundled with the transportation and logistics sector, as well as the good both for your education sector in the community college, and the community colleges here within North Carolina for continued worker retraining within manufacturing, and those are things that we're seeing are more important, particularly for advanced manufacturing, than just then then the low labor costs. So it's a different type of manufacturing. And I think that type of manufacturing fits well, with where we're seeing this transition. This is the type of manufacturing where, where the region can not just be competitive, but can be very competitive, because of all the assets that it has.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  16:44  
And in your research, were you able to identify where two or four year higher ed, you know, we're doing it right in terms of, you know, designing curriculum for local employers, or providing the certifications that were needed.

Dr. Ryan James, Specialist Master at Deloitte Consulting  17:02  
Not this one in particular, it really just more was emphasized on the percentage of the population was just a measure of human capital within each individual county. But what we did see and I was able to tease out, is that it seems to be that it's most impactful in the urban areas, we see that the educational expenditures within the states, on higher education are tending to impact the urban and suburban areas, more so then the rural economies and to an extent that makes some sense. Because after you graduate and have you know, a bachelor's degree or up to, you know, a doctoral degree in something, there's going to be more opportunity to have employment in those higher skilled industries in the urban areas simply because there are more jobs. So part of the challenge, I think, is in these rural communities is, as well as in some of the suburban communities, is helping to prevent some of the brain drain and helping to link them to their surrounding urban areas as well.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  18:10  
And when you talk about kind of the playspace, do any examples of you know, kind of who's doing it right?

Unknown Speaker  18:18  
I really, really, really hate to be a homer, but I'm going to go ahead and do it anyway. The story of Charlotte and Bank of America, I cannot give a better example of how it was done right, in terms of building a place, essentially out of nothing that meets the changing demands for in the changing needs of a skilled workforce. As Bank of America grew., you know, the story is, and it's really a great example of we see some other firms working with their communities, like Charlotte did with Bank of America and as Hallmark in Kansas City is one example. But the idea of as Bank of America grew, and started to move out of just being a regional bank, it was important to Hugh McColl at the time that it stay in Charlotte, and it stay a southern bank based on his experiences. And so when they were as they started acquiring banks and becoming more and more important and moving not just from retail banking, but into investment banking, and they'd be hiring these skilled bankers from San Francisco, New York and London, who would fly in and say, I'm going to steal the story from one of my professors, so I get my apologies to Bill Braves, but I'm taking your story Bill, they would fly in and get off the plane. And you know, in the early 80s, and the mid 80s, and say, 'Alright, so I'm here with this new job at this bank, and I'm going to help it grow. Here are the things; I don't drive. So I need to be on a place near public transportation. Where I can walk? Where are the places where I can go get a high quality meal at one in the morning? And where is a bit of wear is a historic house that I can buy close to work because again, I need to walk or hop on the public transportation?' Everybody kind of looked around and said, well, not here. And so Bank of Americaworked with the city of Charlotte to really redevelop the downtown, to have a greater degree of density to have the greater concentration of essentially these communities built around other historic homes, public amenity that could support this new workforce that was coming in who either didn't drive or needed to have access to round the clock service sectors. And so if you look at the transformation of Charlotte from 1970, to 2000, it's dramatic downtown. And a lot of that is thanks to the public-private work at Bank of America and the city of Charlotte did. So I mean, Charlotte's an example of how it was done right at a large scale.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  20:44  
Well, as I happen to be sitting in Charlotte today, I really appreciate that story. And it is, it's it is a great, best practice. So thank you for sharing that. And so would you say that you feel optimistic about the New South? I mean, obviously, if we were having this conversation, 40 years ago, if somebody had a crystal ball, there was almost unimaginable, the growth and and the changes, what do you think the future brings for the South?

Dr. Ryan James, Specialist Master at Deloitte Consulting  21:18  
Change, but change is good. And the truth is, I'm really optimistic about it. I think that there's a lot of talent and a lot of the university systems in the southeast, and North Carolina in particular has one of the best as does, as the systems in Georgia and through Tennessee, have done a really good job of producing human capital. Some of the cities have made a real effort in growing to accommodate it. Charlotte has done a fantastic job. Atlanta, despite its traffic challenges, has done a good jobin attracting firms as well. And we have good airport hubs. And we've been really focused on building good international connections through business parks through industrial parks. And so I see a lot of potential here for it. And I think the scope of the growth is really going to come down to how innovative we're all willing to be in terms of development policy and development practice. Some of the things that we're going to have to make a focus and change our way of thinking of is that simple industrial recruitment or simple subsidization  just isn't enough anymore, a more comprehensive approach is needed. And we've seen, like in Charlotte, we've seen that New South cities and a lot of New South governments are more willing to take this comprehensive approach, I think that puts us as a region at a real advantage, understanding how everything comes together. And I think the other factor that's going to be particularly important, and I think is something that the Charlotte region does very well, particularly through your organization, is taking a regional approach to economic development. It's not just one city, it's not just one county, but rather, it's the region where people work and firms interact with each other across city and county boundaries. So it's, though a willingness to collaborate and a willingness to, you know, market and share the regional assets that are going to that are really going to matter the most. And the Charlotte Regional Business Alliance is I've all I've pointed to it as a model of how to do it right of how to collaborate. So instead of economic development agencies fighting for a larger piece of the same sized pie, rather, they can collaborate to make the pie bigger, or maybe even have two pies. I mean, who doesn't like pie? So I think more innovative approaches like what we're doing here in Charlotte, are going to really also help set the region apart. So I'm optimistic.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  23:52  
Well, I'm glad to hear that. And of course, I could not agree with you more. I think that the regional approach, you see it nationally and internationally, is not only the way of the future, it is the way of now. And we look at our South Carolina partners and the assets that they bring to the region is is a critical asset to North Carolina, and the North Carolina assets are a critical resource for South Carolina and the collective make us more competitive nationally and internationally. So I am again, I am very excited about the platform that the Charlotte Regional Business Alliance provides. So as we wrap up, Dr. James, any other points that for somebody that may not have an opportunity to read your work when it's published, anything that you want to make sure that that they're aware of our listeners today?

Dr. Ryan James, Specialist Master at Deloitte Consulting  24:44  
I did bring up before forgot we were talking about the regional approach our and our analysis really did point to the importance of that. We were able to identify a spillover and interaction effect particularly in business support services. So within, for example, within the Charlotte economy, the concentration of business support services in Mecklenburg County was also similarly producing positive growth effects and Iredell and Cabarrus County and all of its surrounding counties as well. So the data really shows that we're in this together. And so I mean that I think that would be the one of the biggest takeaways, if I wanted to impart a message to economic development, collaborators practitioners is, first and foremost recognize the importance of the regional approach and that we're in this, we're in this global economy together. So let's work together. And if we do that, we have a real competitive advantage.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  25:42  
Well, Dr. James, thank you for your insights today. Thank you for the work that you do. We're so happy to have you back in Charlotte. I know when we were first introduced you were outside of this region, grateful for your time today and look forward to continuing to work together.

Dr. Ryan James, Specialist Master at Deloitte Consulting  26:00  
All right. Well, thank you. I really enjoyed the conversation.

Kelly O'Brien, Chief Advocacy and Strategy Officer, Charlotte Regional Business Alliance  26:03  
And to our listeners, if you'd like to get in touch with Dr. James, feel free to reach out to me Kelly O'Brien and KOBrien@Charlotteregion.com.

CLT Alliance  26:13  
Learn more about the Charlotte Regional Business Alliance at Charlotteregion.com.