Economic Decline in the American Industrial Heartland

Regional, National and International Forces

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Sam Zivot
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Geography 350
Prof. Jim Whitehead
July 22, 2004
The American industrial heartland, which spans throughout the five great lakes states of

Ohio, Indiana, Illinois, Wisconsin and Michigan, was once home to some of the nation’s

most dynamic and prosperous cities. The cities of Chicago, Detroit, Indianapolis,

Milwaukee, and Cleveland, were the centers of American pride, producing the lion’s

share of the nation’s steel, machine tools, automobiles, rubber and consumer durables.

Manufacturing was king in the regional economy of the industrial heartland and its cities

continued to boom well into the twentieth century. However, as a number of forces of

change emerged, the once impressive economic prosperity of the region and its cities

would steadily begin to crumble. The stitches holding the economic vitality of the

heartland cities together would gradually be pulled apart by a number of regional,

national and international forces. Using the example of the decline of the heartland’s

cities, this essay will demonstrate how the economic success or failure of cities is often

beyond the control of the cities themselves. Entangled in a web of complex regional,

national and international linkages, the fate of cities is largely determined outside of their

physical boundaries.

Regional Level Factors of Decline

Dependence on the Automobile Industry

The economic lifeblood of the Heartland’s cities has been heavily dependent on the

success of one industry; the automotive industry. While the region has produced a range

of heavy industrial manufacturing goods including steel, machine tools, electrical

machinery, and rubber, demand for these goods is predominantly determined by the
automotive industry. The Automobile assembly plants of Detroit call upon the rubber

plants of Akron, the metal foundries of Chicago and Cleveland, the machine tool shops of

Cincinnati, the steel industry of Gary and the hydraulics plant of Columbus and Dayton,

who in turn depend on Detroit to drive industrial demand (Szelenyi 142). The economic

fortune of Akron, who at its peek produced 66% of the nation’s tires, was almost

exclusively determined by the automotive industry, while similarly Cleveland depended

on Detroit for over 50% of its steel purchases (Teaford 178). At its height in the 1950’s,

this automotive triangle accounted for 90% of the nation’s automobile production, but has

since been met with a number of challenges that have significantly reduced the

percentage of this share (Szelenyi 142). Rising energy prices, economic recession,

saturated automobile markets and the increase of foreign competition have shaken every

point of the automotive triangle. The increasing penetration of imported automobiles into

the US market, has dealt the American automobile companies (and their suppliers) a

severe blow, as their share of the domestic market would suffer a decline from 85% to

35% during the three decade from 1940-1970 (Szelenyi 143). Similarly, the energy crisis

of the 1970’s demanded that vehicles be smaller and leaner, which would substantially

cut back Detroit’s demand from its industrial suppliers, causing further economic

hardship in the heartland. In a relationship as interdependent as this one, the problem is

that the hopes and fortunes of an entire region are largely dependant on the success or

failure of one industry. While the superior diversity of Chicago’s economic base helped to

cushion it from the adverse performance of the automobile industry, most of the cities of

the heartland’s economy remained vulnerable to shifts in automotive demand and to the

prospect of industrial decentralization. The emergence of Los Angeles and San Francisco
as rival domestic centers for automobile manufacturing, would spell a dim future for the

economy of the heartland

Unfavorable Business Climate

With a progressive political climate and a long tradition of Industrial labor in its midst,

the heartland would develop into the nation’s stronghold of organized labor by the mid

twentieth century. The power of labor unions in the heartland states was evident, as

workers united to enact massive sit down strikes, which ceded the operations of many

powerful manufacturing firms. Unions succeeded in steadily driving up workers wages

and benefit packages, seemingly holding the welfare of corporations in their hands.

However, the mounting labor costs began to eat away at corporate profits and in the

decades following the World War Two the industrial heartland was loosing its

attractiveness as a center of industrial investment. The heartland came to be increasingly

regarded as a poor business climate, with high corporate taxes, escalating energy costs,

and a record of violent labor-management relations. Increasing the worker wage by 10%

was found to decrease the number of firms choosing to locate in a specific state by a rate

of 9% (Plant 32). The high degree of unionization in the region would act as a significant

determinant in shifting future manufacturing growth to the American South (Plant 34).

The South offered industrial investors a more favorable business climate, with states

enacting legislation that deterred unionization, ensuring that labor costs would be kept

low. Additionally, the South offered industry a considerable savings in the cost of energy,

as well as lower corporate taxes. Unfortunately for the heartland its unfavorable business

climate resulted in high production costs for firms, serving to reduce future investment in
the region and encouraged factories of heartland to shift their operations elsewhere (Plant

105).

National Level Factors of Decline

Emergence of the Post Industrial Service Economy

In the decades following World War two, the cities of the heartland would begin to

experience economic decline as the result of fundamental structural changes in the

nation’s employment system, which greatly undermined the importance of manufacturing

employment in the American labor force. What was rapidly emerging in the American

republic was what Daniel Bell has called the “rise of a technocratic, post industrial

society, with a centrality on knowledge” (Brunn & Wheeler 112) Manufacturing

employment in the United States was giving way to the rapidly emerging service sector

which would account for 94% of the jobs created between 1970-1984 (Perrucci & Torg

23). While the service sector witnessed remarkable growth, the manufacturing sector

faltered, displacing 4.6 million workers from 1983-1987 (Patch 3). The sharp decline of

employment in the American manufacturing sector was more than a cyclical economic

downturn for heavy industry. American manufacturing workers would not be recalled to

their jobs once economic conditions improved. Technological innovation, the deskilling

of labor, increasing foreign investment, macro economic change and the shifting of

production facilities abroad represented structural changes in the American labor force

that rendered the manufacturing worker largely obsolete in United States. America was

entering the post industrial age and by definition the industrial heartland was out of date.
Dallas, Atlanta, San Diego and other cities engineered for the post industrial age, would

assume the economic advantage.

Met with mounting corporate taxes, wage increases, escalating utility costs and the

presence of labor unions, American manufacturing firms were met with declining rates of

profit. In an effort to remain competitive, firms responded by shutting down their

domestic plants and shifted their operations oversees. The dependence of the heartland on

manufacturing activities would mean that its cities were the hardest hit by the

transformation to a service based economy. Chicago witnessed a massive 59% decline in

its manufacturing employment, from 1947-1982, and lost 203,000 manufacturing jobs

due to plant closures and contractions from 1977-1981 alone (Squires, Bennett, McCourt

& Wyden 27). In the state of Indiana, 45% of Indiana’s employment loss from 1977-1980

came as a direct result of the closure of its manufacturing plants (Perrucci & Targ 35).

The job loss rate of the five states of the industrial heartland reached 20% from 1979-

1986, twice that of the national average, while the American West, equipped with a strong

post industrial economy based in high tech, aerospace and defense witnessed substantial

employment gains (Rodwin 33). The rise of the white collar class in America, severely

threatened the economic vitality of industrially dependent heartland; in the post factory

era, the industrial heartland would be left behind.

The job loss and the consequent loss of wages in the industrial heartland snowballed into

all sectors of the regions economy, bringing about urban decay throughout its cities. As

manufacturing shut down and the information sector took its place, the city of Chicago
saw its number of poor households double in the 1970’s (Cowie & Heathcott X).

Throughout the heartland, populations declined, housing depleted, crime rates soared,

poverty reigned and government social assistance programs were cut in the midst of

crisis. The return to the workforce had continued to be a difficult task for laid off

manufacturing workers, who do not possess the necessary skill sets to succeed in the

nation’s post industrial economy. The factory job had given way to design, marketing,

insurance, finance and other specialized services, unfamiliar to the former plant worker.

While former industrial workers did gradually return to the labor force, most have been

relegated to menial service positions that offer significant pay cuts and few benefits. The

former auto worker and the former steel worker earn only 43% and 47% of their former

wages respectively (Bluestone 2). Few laid off workers have entered the much publicized

high tech sector, with most taking occupations as cashiers, cooks, janitors, security

guards and receptionists (Phillips 48).

Emergence of the American Sunbelt

As America entered the post industrial age, she would witness the shift of its national

production stronghold from the cities of the heartland to the cities of the American South

and West. Running through the stretch of cities from California in the West, through to

Arizona, Texas, Georgia and Florida, the geographic region termed the “American

Sunbelt” was fast on the rise, challenging the heartland for the position of national

manufacturing predominance. Lower living costs, lower taxes, cheaper energy prices and

increased federal spending, attracted both populations and investment to the Sunbelt.

While the United States as a whole lost much of its consumer manufacturing industry
oversees, the defense industries production facilities remained largely concentrated

within American boarders. Unfortunately for the cities of the heartland, such production

facilities were located outside its geographical sphere, to its South and to its West.

Focused on meeting the pent up demand for consumer goods in the midst of the post war

period, the heartland’s manufacturing firms had neither the incentive nor the capacity to

modernize their production for the age of aerospace and high tech (Rodwin 46).

Comparatively, the cities of the Sunbelt tooled their industries for the high tech industries

of the future and would acquire a disproportionate amount of the nation’s lucrative

defense contracts (Rodwin 29).

While the cities of the heartland had been proficient producers for the defense industry in

the past, the increasing sophistication of modern weapon systems demand the high tech

components of the Sunbelt, more so than they do the steel and machine tools of the

heartland. Accordingly, the heartland will continue to loose government contracts to the

aerospace, electronics and communications beneficiaries of the Sunbelt (Rodwin 57). The

decrease in federal spending in the heartland and the mass exodus of its key scientific and

management personnel to the Sunbelt have further hampered the ability of its cities to

compete (Rodwin 58). Alternatively, The Sunbelt’s diversified economic base, acquisition

of lucrative defense contracts, and strong presence of high tech firms, have allowed its

cities to thrive in the post industrial era.

International Level Factors of Decline
The Emergence of Foreign Competition

The United States emerged from the Second World War as the world’s predominant

economic power. Relatively unscathed from the damages wrought by the war and with

much of Europe and Asia in ruins, the American super power was encountered with little

international industrial competition and enjoyed large trade surpluses, which filtered

down into the economies of the industrial heartland. Comfortable with their preeminent

economic position in the national economy, many US manufacturing firms exercised little

foresight in gauging the growth of international competition and rapidly began to loose

ground to the emerging Europe and Japan (Bluestone 5). Foreign competitors had inched

ahead in the development of cost saving machinery and product innovation, placing a

strain on the American international market share of industrial products and automobiles.

The decline of the American market share in oil, iron, steel and automobile production,

significantly damaged its foreign trade position, as the nation experienced its first balance

of trade deficit of the twentieth century in 1971 (Rodwin 35). By 1980, Japan was

producing more vehicles than all of North America, securing an impressive 9.5 billion

dollar trade surplus with the continent (Bluestone 5). The declining American market

share, led to cutbacks in production in the heartland’s factories, resulting in layoffs and

outright plant closings. Rather than focus on the development of more cost effective

production techniques and product innovation, to keep pace with their international
competitors, American firms been pulling out of their domestic industrial investments and

have shifted their production facilities oversees (Bluestone 6).

The New International Division of Labor

The international economy is now characterized by what academics have termed the

“New International Division of Labor” (NIDL), wherein high tech research, marketing,

management, design and legal functions are concentrated in the industrialized nations and

manufacturing functions are outsourced to the developing world. The NIDL has been

facilitated by improvements in communications and transportation technology, labor

simplification technology, the emergence of an international labor force and the

development of an international trade apparatus (Phillips 52). Such innovations have

eased the flight of capital across boarders and have allowed American firms to control the

production process worldwide. Resultantly, increasing percentages of profits are being

generated oversees, with General Motors generating a record 90% of profits in foreign

markets in 1993 (Phillips 55). While cities possessing diversified service sectors

equipped with an abundance of trade and finance functions have benefited from the

NIDL, the cities of the heartland, that specialize heavily in the production of consumer

durables and non military capital goods, have suffered from both mounting foreign

competition, and the flight of production facilities oversees (Rodwin 38). While

American manufacturing firms recorded record profits in the mid 1990’s, an increasingly

small share of their success would be felt in the heartland, since a great share of these

profits were realized because of domestic plant closings. The withdrawal of capital

investment from American manufacturing facilities to operations abroad, has transformed

the most prominent industrial cities of the heartland into what has been termed as the

American the rust belt. The loss of workers wages and the decline in the corporate tax

bases of heartland’s cities has brought about urban decay, urban fiscal crisis and cut backs

in social services.

The Contemporary Heartland

By the early 1990’s, the economy of the heartland was on the mend. At the root of the

revival was the growing efficiency of the manufacturing sector. While investment in U.S

manufacturing had shifted primarily to newer manufacturing (high tech products,

chemicals and pharmaceuticals), production in the traditional heartland industries have

demonstrated a commendable recovery. Industrial machinery production increased by

155% from 1989-2002, while primary metal products and automobiles also witnessed

strong increases in output during this period (Cowie & Heathcott XII). The technological

innovations of the information revolution had finally started to diffuse throughout the

economy greatly ameliorating the efficiency of manufacturing production. While the

increasing efficiency of U.S manufacturing has resulted in improvements in productive

capacity, factories have become so efficient that the labor force required to operate them

continues to shrink. While the manufacturing sector employed 31% of America’s labor

force in 1959 by 2001 it employed only 12.6% (Cowie & Heathcott XII). Despite

increases in the productive capacity of industry, the predominance of the service sector in

the labor force is assured. As the workforce of the industrial heartland’s cities, gradually

adopt the technical skills for success in the new service based economy, the urban plight
brought on by the rapid deindustrialization process will begin to fade. The cities of the

post industrial era that will experience the highest rates of economic growth will be those

linked to international commercial activity, that provide transportation, communication,

finance, marketing, accounting and consulting services (Rodwin 48). Whether or not the

cities of the heartland will assume these functions critical for success in the twenty first

century is yet to be determined.

This paper has employed the example of the decline of the American industrial heartland,

to demonstrate that the fate of cities is often determined outside of their physical

boundaries. Cities do not exist as independent entities and are affected by regional,

national and international forces over which city officials have a narrow range of control.

At the regional level the cities of the heartland were adversely affected by their singular

dependence on the automotive industry and unfavorable business climate, on the national

level the cities were threatened by the rise of the American Sunbelt and the transition to a

post industrial service based economy, and on the international level the cities were

challenged with increasing foreign competition and a New International Division of

Labor. By no means does this represent an exhaustive list of the reasons for the

heartland’s decline, but these factors are selected to demonstrate how the city interacts

with regional, national and international forces of change.

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