Virginia's low taxes, low pay, union scarcity haven't helped

April 02, 2003|By JAY HANCOCK

THE 880,000-square-foot factory off Candlers Mountain Road in Lynchburg, Va., is switching its product line -- from cell phones to salvation.

Once occupied by Swedish telecom giant Ericsson, the plant got sold in February to a firm that will lease it to Jerry Falwell's Thomas Road Baptist Church. Falwell plans to convert it to an evangelical center.

Not long ago, Ericsson employed more than 2,500 in Lynchburg, contributing to a statewide technology boom that prompted claims of a "Silicon Dominion" and reversed Virginia's manufacturing decline.

Now Ericsson has fewer than 300 Lynchburg workers, and city economic development chief Ed Miller wouldn't be surprised if those jobs evaporate, too.

"I think the prospects for any kind of new cell phone activity in our area are kind of slim, and you know the reason as well as I do," Miller says. "You can make cell phones in China for 50 cents an hour, which is basically free labor. And you can't compete with that no matter what your incentives are."

Some Silicon Dominion. Great manufacturing renaissance.

New Labor Department figures show that the weak economy, the technology crash and China's admission to the World Trade Organization have inflicted what is probably permanent damage to Virginia's manufacturing base, which was once the envy of Rust Belt, unionized states such as Maryland.

Since Virginia factory employment hit an apex in 1998, the state has lost 62,000 manufacturing jobs, or 16.4 percent of the total. Lynchburg accounted for 6,000 of the vagabond jobs. For comparison, manufacturing employment in the nation and Maryland fell 12.9 percent from their 1998 peaks.

George Allen, Virginia's former governor and present senator, once called his state "the high technology leader on the East Coast."

But Allen's biggest economic development trophy as governor, Motorola's $3 billion computer-chip plant outside Richmond, never got built. Last fall, Motorola put the tract up for sale.

The IBM-Toshiba semiconductor plant in Manassas got sold to Micron Technology, which has laid off more than 1,000 people, including 560 in February. Two weeks ago, computer assembler Gateway Inc. announced 237 more layoffs at its Hampton plant, which is down to 500 workers after having once employed more than 2,000.

Infineon Technologies' chip factory outside Richmond still employs 1,750, but the company froze a $1.5 billion expansion.

And employment in Virginia's communications equipment industry -- Ericsson, for example -- "continues to drop significantly," says Christine Chmura, head of Chmura Economics & Analytics in Richmond.

Virginia manufacturing doesn't look much better at the other end of the technology spectrum, either.

Even last year's low mortgage rates and a national explosion in home sales, which often spur sales of furnishings, didn't keep employment from shrinking for Bassett Furniture Industries, based in Bassett, Va.

"We had a very good first quarter last year, but then it started slowing down again once the economy started going down," says Bassett spokesman Jay S. Moore. "It's been a tough way to start the year."

In 1997, Bassett decided to close or sell 14 plants and cut 1,000 jobs, and now the company gets more than one-tenth of its furniture from China instead of its U.S.-based plants -- "typically your more labor-intensive products, things that require hand-painting, hand-carving," says Moore.

Besides operating four factories in Virginia, Bassett has plants in North Carolina, where total manufacturing employment has shrunk since 1995 by a stunning 25 percent, or 200,000 jobs, and Georgia, where statewide factory jobs have fallen 15 percent. Nearby is South Carolina, where factory employment is down 17 percent. Textile layoffs, especially, have hurt these places.

All these states were perceived in the 1990s as Maryland's economic rivals, and all of them -- some consciously, some through inertia -- chose low taxes, low wages and union scarcity as their strategy for drawing and keeping manufacturers. In 2001, for example, average weekly factory pay was $731 in Virginia and $907 in Maryland.

This column is not an argument for high taxes, overpaid employees and despotic unions.

But it seems relevant to point out that the cheapo economic development plan has not immunized Virginia and other Southern states to the kind of economic pain that, when experienced by Maryland a decade ago, prompted endless navel-gazing over this state's business climate. And Virginia's budget problems are a lot worse than Maryland's.

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