Changing landscape

BYLINE: TOM WALKER

c.2007, Atlanta Journal-Constitution

Government ministers and business leaders from 25 nations have already confirmed they will attend the inaugural Americas Competitiveness Forum next month in Atlanta, hosted by U.S. Secretary of Commerce Carlos Gutierrez.

The official agenda of the June 11-12 event is to provide "a venue for government ministers from the Western Hemisphere to come together with leaders from the private sector, academia and nongovernmental organizations to explore cutting edge ideas and best practices in several key areas of competitiveness, with the ultimate goal of enhancing economic prosperity in the region."

Needless to say, Georgia's economic and business development leaders will do more than play the good host to these important visitors. They will see the forum as opportunity writ large.

Georgia's industry-hunters, after all, are mindful that the state is one of the biggest recipients of direct foreign investment in the Southeast, and is at or near the top in the annual value of manufacturing exports to foreign markets.

The Georgia leaders are just as mindful that the playing field of economic and business competition among Southeast states is far more level now than it was in the 1960s and '70s, the height of the "Sun Belt" era when Atlanta and Georgia surged past their neighbors.

To be sure, Atlanta and Georgia are still front-runners in the economic game. But the neighbors have been catching up in recent years, and the competition for business development is tougher.

"I can't comment on other states, but I do know they are more competitive now," Commissioner Ken Stewart of the Georgia Department of Economic Development said of today's economic environment. "And now, in this global environment, the competition is among countries. We are all competing for the same thing."

Stewart sees the selection of Atlanta as the site of the international competitiveness forum as a tribute to the city and state's roles in regional economic development, and not just a convenient place to hold a meeting.

Economists who follow the Southeast say change is the one constant in the region over recent decades.

More competition

Not many years ago, growth in the South was "basically Atlanta," said Federal Reserve Bank of Atlanta economist John Robertson.

"Now, as the other states have changed, business is not just looking at Atlanta," he said. "Nashville, Tennessee, is competing with Atlanta for corporate headquarters."

State economies in the Southeast have converged on Georgia's in major economic variables, such as per capita personal income, median family income and job growth, especially among states fronting the Atlantic Ocean.

Ditto for the major cities in the region, such as Atlanta, Charlotte, Nashville and Tampa. Government data show that since 2000, employment has increased in all of these urban areas, with the biggest growth in financial services, education, health care, and leisure and hospitality industries. Meanwhile, manufacturing employment declined broadly.

Another barometer of convergence is the number and size of publicly traded companies. Georgia once had a clear lead, but in 2006 the 14 Fortune 500 companies headquartered in North Carolina posted total revenue of $308 billion, compared with $287 billion for the 15 Fortune companies in Georgia, with both states ahead of the other Southeast states.

Alabama is a case in point in how other Southeast states have accelerated their economic development, according to Robertson.

"Alabama didn't grow for a long time, and then in the last decade experienced the kind of growth it never had before, with the end of the apparel industry and the growth of auto and defense industries," he said.

Indeed, the growth of the Southeast's auto industry is emblematic of what has happened in the Sun Belt region in the past 25 years. In this case, the region benefited from changes in the auto assembly industry. Domestic and foreign automakers were attracted to the Southeast's weather and lower labor and land costs, and built assembly plants and suppliers throughout the region.

Alabama captured a big share of the region's auto industry. DaimlerChrysler opened a Mercedes factory in Vance, Ala., in 1997, Honda in Lincoln in 2001 and Hyundai in Montgomery in 2005. Hyundai Motor recently announced it will build a second engine plant to serve the Montgomery plant.

Alabamians were also instrumental in persuading South Korea's Hyundai to locate the Kia auto plant just across the state line at West Point, Ga., which will be supported by parts and other suppliers in both states.

Georgia, meanwhile, is losing both the General Motors Doraville auto assembly plant and the Ford Motor plant at Hapeville for reasons that have little to do with Georgia's economic policies.

The Southeast's changing economic landscape has also had broad political and social consequences for the entire region, and over a longer period.

Between the 1930s Depression and the early 1980s, economic historians say, Georgia went through a revolution.

The state's economy went from agriculture to industry, lifting per-capita personal income from one-half the national average in 1930 to 90 percent in 1980.

Its population went from the farm to the city. By 1960, the census counted more Georgians in cities than in rural locations.

Relations between African-Americans and whites improved and had a major economic impact on Georgia, whose leaders chose not to take a line-in-the-sand position on integration.

Georgia and other Southeastern states morphed into "the Sun Belt," where economic opportunity - and air conditioning - made existence attractive as older manufacturing centers of the North and Midwest suffered higher energy costs and deteriorating industry.

Economists say the South started to lose its age-old trump card of cheap, nonunion labor, low taxes and pro-business local and state governments when the kind of manufacturing industry attracted by that formula began moving offshore to even-lower-wage labor.

To compete now, Southern states were forced to spend enormous catch-up sums on public education to provide the kind of labor force needed in the emerging, higher-technology era. This changed the economic profiles of the states.

Georgia is typical. Manufacturing employment declined almost 18 percent between 1998 and 2006, according to the Georgia State University Economic Forecasting Center. But other sectors expanded: education and health services by 31 percent, leisure and hospitality by about 20 percent, financial services by 15.5 percent, and professional and business services by 12 percent.

Clearly, the message from state and business leaders is, "Don't play 'Taps' for Georgia."

"We have to continue to evaluate our competitive position. What we do know is that Georgia offers many advantages that companies can't get in competing states," said Commissioner Stewart. "Those are things we all know, such as logistics, the [Hartsfield-Jackson International] airport, the seaports, and the interstate and rail infrastructure."

Young work force

Stewart said Georgia's educational initiatives have attracted a young, skilled work force that is highly educated and a magnet for companies.

A new survey commissioned by Business 2.0 magazine found that metro Atlanta "leads the nation in attracting the labor market's most coveted demographic: college-educated workers ages 25-34."

While manufacturing employment has declined, manufacturing output has increased in Georgia and elsewhere, reflecting improvement in productivity and efficiency. But industry-hunters are also looking for the next industry that will give a boost to local and state economies.

Stewart said "life science industries" as a group expanded 40 percent between 1997 and 2002, compared with 10 percent growth for more traditional industrial and service sectors.

"Life sciences is obviously a growth industry, and one we have and will continue to focus on," Stewart said of the field that includes medicine, biology, anthropology, ecology and other branches of science that deal with living organisms.

Traffic issues

What are the red warning flags that might give neighboring states a competitive edge?

For Atlanta, success itself is viewed in some circles as a threat.

"Traffic can have an impact on the capacity to sustain growth," University of Georgia economist Jeffrey Humphreys said of metro Atlanta's famous gridlock. "Some companies may think twice about moving to Atlanta because of transportation issues. But all large metropolitan areas are dealing with the same things."

Water has also been cited as a concern as Georgia's population continues to grow. But the water problem is not supply but price, said Humphreys, director of the UGA's Simon S. Selig Center for Economic Growth.

"The big issue is how much water will cost, not whether we will have it. Does that mean the days of basically inexpensive water is behind us? Water treatment is costly. But it's a bigger problem in the western half of the Sun Belt," he said.

Humphreys said growth in Georgia and elsewhere in the region will come increasingly from retirees, lured by both the climate and lower housing and living costs. He said the western half of the Sun Belt, in contrast, is very expensive by comparison.

The good news, said Humphreys, is this: "We have a lot to promote. We have a good story to tell. If anything, we need to invest more in telling the story and making it more effective."