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Former FTC director foresees endurance of Upstate economy

Manufacturing
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While the area’s textile boom faded away in the latter half of the last century, the manufacturing base it brought with it endures and continues to spur on development and relocation to the area. (Photo/Molly Hulsey) The wound left by the exodus of the fabrics industry in the late 20th century was even greater than the one caused by the Great Depression for the region once known as the “Textile Center of the World.”

Still, the spine of the Appalachian mountains running north to south across the South Carolina Upstate had always kept its inhabitants looking outward and eastward, according to Bruce Yandle, dean emeritus of Clemson University’s College of Business and Behavioral Science, former executive director of the Federal Trade Commission and senior economist on Gerald Ford and Jimmy Carter’s Council of Wage Price Stability.

The international market that reeled away the Upstate’s textile jobs also brought it automobile manufacturers and scores of suppliers in their wake — building up what Yandle calls the strongest economy in the Southeast, the strongest regional economy east of the Mississippi.

“Not just strength in terms of muscle with production and income growth, but a dynamism,” said Yandle, adding that many international textile machine manufacturers discovered the Upstate at the height of the textile boom, putting it on the map for the likes of BMW Manufacturing and Michelin once textile factories largely fled the area.

And now as economic fears escalate following the multi-month global shutdown sparked by the COVID-19 pandemic, Yandle sees that even still, its scars will likely heal in South Carolina much faster than in other states, especially with its popularity among transplants. Yandle cited a 2019 U-Haul mover’s survey in which the Carolinas were among the top five most popular destinations for relocation in the country.

“The stronger they were, the better they will be positioned to endure and then come out of this thing,” he said of the nation’s various regions. “The Upstate: one of the stronger regions of the country, attracting a lot of people, highly concentrated in manufacturing — has been for decades. In fact, I think you can go back to the end of World War I and come forward and see a highly concentrated manufacturing economy with different kinds of products over the decades.”

Yandle hesitated to predict the economic future in light of further viral mutations, future epidemic surges or political turns in what he called a command economy, or a system where a centralized government controls the market instead of a free market, due to the new coronavirus.

“It’s very hazardous to try to make a forecast believing that you may be accurate, but nevertheless let’s do that, let’s do that,” he said. “Let’s do the best we can.”

Yandle expects that negative growth in GDP will continue to bottom-out until at least 2022 with recovery on the horizon of 2021.

As much as South Carolina’s low density led to workforce development issues pre-COVID-19, the role it plays in squelching infection may now be one of the state’s saving graces, alongside an independence from mass transit systems, he said.

Strong leadership at the local and community level and a youthful, high-tech manufacturing base, will also shelter the state — and the Upstate — from the most ravaging economic effects of the virus.             

On the other hand, some strengths can also double as weaknesses, at least in the short term.

The Upstate’s specialty in car manufacturing — an industry reliant on global exports and imported parts — may make it more vulnerable to the slump experienced by the global economy, while the preeminence of aircraft component manufacturers like Boeing will also make a dent.

“But the people involved in that kind of manufacturing are highly adaptable to the manufacturing of other kinds of components,” he said. “So, in terms of the longer run, that is still an advantage for the region.”

Yandle monitors the port of Charleston and its Upstate limb, the S.C. Inland Port Greer, as an indicator of South Carolina’s economic health.

“The activities at the inland port have far exceeded anybody’s forecast,” he said.

Still, a number of imports bound for nearby retail distributors originated from China. Yandle believes that global trade restrictions created by the pandemic could lead to shorter, more domestic-based supply chains, but he said that it will still create an unavoidable dent in the economy’s growth rate.

“Then, we were made vulnerable prior to the pandemic’s occurrence,” Yandle said, emphasizing the Upstate’s flurry of growth until one of the country’s most global economies slowed with the Trump administration’s trade wars and protectionist policies.

“While our area is one of the strongest in the region and in the eastern United States, it is also one of the most international economies in America,” he said. “Then you look at where our goods go from South Carolina, and the number one destination is China. The number two destination is Germany. So, when we have a national government that chooses to engage in trade wars with the countries that are our best customers, there’s a bit of trouble on the horizon right here in River City.”

Yandle does foresee that some manufacturers will bring their North American supply chain stateside as result of the uncertainty created by the trade wars and the pandemic — he said he heard BMW may begin to build some of their engines in the United States instead of Germany — but that doesn’t necessarily mean they will settle in the Upstate.

Mounting national, state and municipal debt following plummeting interest rates and the release of ream after ream of stimulus packages — with limited individual spending power possible at the moment — also will muddle budgets and constrict public projects in the years ahead. Some government agencies will be stripped of some of their funding to patch up other holes.

“There’s a massive amount of money that has come in, and that’s debt that somebody’s going to have to deal with in the future and in addition to dealing with the debt itself, is going be paying the carrying cost of the debt. Also, the debt itself will probably become the third largest item on our national budget. When those interest rates go up, that balloon is going to get larger, and it’s going to squeeze other parts of government activity,” he said, trickling from a federal level to municipal bonds and budgets.

Cuts in state revenues have slashed South Carolina’s forecasted revenue spending for the next financial year by $500 million, he said. Sales and income taxes have plummeted along with retail sales and employment rates.

Meanwhile, Japan and China are also the country’s top creditors in terms of federal bonds, and Yandle does worry that escalating trade tensions could also impact this relationship. He said that it’s not in China’s interest to sell or constrict future purchases of U.S. bonds, but countries will act contrary to their own economic interests when provoked.

“In a way, it’s sort of dark humor to think how angry we are officially at a national level with China, but their buying of our bonds makes it possible for us to consume more than we produce every year,” he said. “We consume more than we produce every year, and then some people get mad because so many goods are coming from other countries instead of coming from here.”

This story originally appeared in the June 15, 2020, print edition of the GSA Business Report.

Reach Molly Hulsey at 864-720-1223.

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