Want a Factory?by DALE KRAMER
NOT LONG AGO THE CITY OF NATCHEZ, MISS., FLOATED A $300,000 bond issue, constructed a factory building and leased it to a privately-owned tire company for a monthly rental of only $50. The example is not unique except that most of the millions of dollars of "bait" laid annually before industry by communities is raised by private subscription rather than voted out of the public treasury.
No one without the resources of the United States government could hope to discover the total sum spent in this manner during the last two decadesand, unfortunately, no department has yet attempted it. The task would require more than a little ingenuity and perseverance, for communities which have raised substantial sums of money only to see it vanish into thin air are hesitant to talk about it. But were tax reductions and exemptions added to free buildings, special power rates, moving expenses and other concessions, the sum would reach staggering proportions. A survey made by the New York Journal of Commerce shows, for example, that all southern states offer tax exemptions in various degrees. Municipalities elsewhere have found ways of favoring new industries, sometimes leasing to them, at an inconsequential sum, public and therefore tax free land.
In lieu of exact statistics, a few further examples may be picked at random. Recently Syracuse, N.Y., finding that it had inherited the old Franklin Motor Car plant because of non-payment of taxes, induced the Carrier Corporation, maker of refrigeration equipment, to move in. The community donated $100,000 to cover moving expenses. Elmira, N.Y., gave a plant valued at $250,000 to Remington-Rand. Three years ago Meridian, Miss., put up a shirt factory and furnished free labor for a period of six weeks, only to see the manufacturer move out before the year was out.
Flat River, Mo., built a factory for the Kopman-Woracek Shoe Mfg. Company and paid for it out of a 10 percent subscription of their wages by the workerswhich turned out unhappily for the Kopman-Woracek company because later a federal court made it disgorge the b when it held that in effect the company had withheld portion of the workers' compensation. A slight variation occurred in Kenosha, Wis., where former workmen of defunct hosiery mill got together with local business me raised funds, borrowed more from the Reconstruction Finance Corporation, and started a cooperative manufacturing concern. Even a labor union, the United Electric Radio and Machine Workers Union (CIO) of St. Louis set out to raise $100,000 to keep the Emerson Electric Mfg. Company from moving.
The list, generally of communities of a quarter of million population on down, could be continued indefinitely. Few local Chambers of Commerce, Rotary, Kiwanis, Lions and other clubs have failed to dream of new industries to invigorate their community's economic lidand a high percentage of them have dug into the pockets in an endeavor to translate the dream into reality.
Warsaw Builds a Factory
THE PROBLEM CAN BE SIMPLIFIED BY EXAMINING A SPECIFIC community. The writer, for no very good reason except that it serves as well as another, has chosen Warsaw, Ill for the purpose. Warsaw is not largeslightly uncle 2,000but the loss of an industry on which it once depended, and the decline of agricultural trade, makes it typical in two instances. The hopes which motivate it citizens are, of course, those of any community no matter what its size. In addition, it has experienced almost all the varieties of travail to which a town ambitious in this regard is subjected.
Located on the Mississippi River 175 miles above St. Louis and 270 miles below Chicago, Warsaw feels it has an opportunity to attract industries from both cities. Although on no important railroad, paved highways making transportation by truck economical, and if exceptionally heavy industries should choose to occupy the site, there is shipping by river. But if the Mississippi conceivably might thereby aid, it is also responsible for Warsaw's heavy investment in factory bait. Because the farm area reaches out on only one side, being cut off by the river on the other, the community is certain that industries are necessary for maintenance of its economy, just as a city of larger size is dependent upon factories to supplement farm trade income. Like the larger community, Warsaw is panicked by the loss of an industry.
I was assured on every hand that Warsaw, though quick to admit its bad luck and even possible gullibility has been more fortunate than neighboring communities They point to Hamilton, six miles up the river, which erected an expensive factory building that has never been occupied. Fort Madison, Iowa, they relate, even put up streets of workmen's houses for an industry which did not materialize, and up the river forty miles, on the Illinois side, is the ghost town of Lomax, spector of a great promotion scheme which was to fill the whole valley with belching smokestacks. "Anyhow," the local editor points out, "with us it isn't a question of whether we've done badly or well; the point is that we felt we had, and have, to do something."
In dollars and cents the efforts so far cannot be considered very successful. Over the past fifteen years Warsaw has raised $83,000 and presented it to four manufacturers who promised to establish prosperous factories. The payrolls of all of them, including the one which is Still operating, total $370,000. In short, the people of the community put up twenty-two and one half cents of every dollar paid out in wages. Consequently, had every penny the wages been spent in Warsaw, and only with merchants and professional men who furnished the bait, the general profit on sales and services would have lacked matching the costs by a great deal. On the credit side the ledger must, of course, be placed the factory facilities owned by the community, and the fact that at this time a going concern is paying out wages. But, since it is obviously impossible to draw black and white conclusions from a subject so complicated, let us look at the experiences of Warsaw as a social document of the times, rather than in judgment.
In 1924 Warsaw's shoe factory was doing well. Wages were relatively high for a town in which rents were low, and the employees, many of whom had worked in the establishment for two decades, were solid, substantial members of the community. But the agricultural depression was pinching the merchants. Prohibition had closed the ornate white brick brewery at the edge of town. It was time, the community felt, for everyone to put his shoulder to the wagon before it backed up farther, and, if possible, to give it a push forward.
There are a number of ways to get bait displayed. Brokers will cooperate for a slice of it, circular letters may be sent out, or advertisements placed in trade journals. The prospective settler is, of course, always nosing about, and he will smell out the bait in time.
Warsaw commenced negotiations with an established clothing manufacturer who wished to place a branch. Officials came and looked over the ground. Finally an agreement was reached: the community would erect a factory building, permit its use without charge, and present it outright to the manufacturer after he had paid out a total of $500,000 in wages.
The Procession of Promoters Begins
THE BUILDING SHOULD HAVE BEEN SATISFACTORY, FOR THE clothing maker was allowed to design it to fit his needs. It is of brick, one story high, sprawled over a block on Main Street itself. The cost was $35,000, raised among the townspeople. By late 1925 it was completed and the manufacturer moved his machinery in, hired workers, and the community once more felt secure.
But in due time Warsaw was faced with what may be designated as Problem A. The manufacturer decided early in 1929, even before the stock market crash, to close some of his branches. Warsaw never knew exactly whywhether competition had forced him to cut production or whether he could produce more cheaply, after all, by centralized manufacture. All Warsaw knows is that the bright new factory building became empty and that fifty persons who had been receiving from $12 to $20 a week were without income. Merchants felt the loss quickly.
Established factories were not looking for branch sites following the 1929 crash and Warsaw had not managed to hook a likely prospect in the few months before that event. Nor were reliable, well-heeled individuals in a mood to attempt construction of new industries when all about them old ones were crashing down. To make matters worse, Warsaw's shoe factory, also a branch, closed. And agricultural income was declining rapidly.
In 1931, after the new factory building had been idle for two years and the old shoe factory building had been empty for one, a professional promoter representing a Chicago clothes tailoring concern arrived in town with a proposition. His client, so he said, was a successful business man who wanted to get away from the city's high operation cost. True, the depression had been none too kind; although really unnecessary, a few thousands in additional stock would further secure the company's stability. Anyhow, the depression couldn't last much longer. Warsaw business men agreed that certainly things were at rock bottom and had to get better instead of worse.
It was hard to say in such times what was sound and what wasn't. But, even if none too sure of the firm's financial strength, Warsaw men decided they had to take a chance. It was, they felt, either sink or try to swim. So, directed by the Chicago promoter, a great campaign got under way. Committees of leading citizens were organized to sell stock. The shoe factory workers, not desiring to leave the community even if jobs had been available elsewhere, were more than anxious to see the factory started. Thus the promoter found it possible to sell jobs. In exchange for purchase of a $100 share of stock, employment was promised either to the purchaser or to someone he cared to name, the latter provision making it easier to raise money from persons who wanted no jobs for themselves but had relatives they wished to aid. But mostly it was community spirit which made completion of the task possible. Merchants and professional men pledged themselves for a great deal more than they could afford, hoping to get it back in additional business. Retired men dug into their savings to help the town. Altogether $20,000 of stock, a truly staggering sum, was purchased.
Opinion in Warsaw is divided over whether the owners really expected their factory to continue, or whether the whole thing was a scheme to milk the town. At any rate the practices of the concern did not seem designed for the long pull. Its literature sent to prospective customers carried the words UNION MADE in prominent type, although no union of any sort existed. There were photographs of huge factory buildings which the company did not own, and of interior shots which were not taken in Warsawalthough the company had no other factory. Three separate trade namesfor the same productwere used at the same time.
But it was a bright day in a gloomy era when a hundred Warsawans, mostly women, began to make the machinery hum. The owners said that of course it would take a while for the workers to become proficient and so they must work at piece rates. It did not go very well. Sometimes the workers drudged for a whole week and got a single dollar or even less. But they kept at it; after a little they would surely get the hang of it. The best workers finally raised themselves to an $8 or $10 weekly average, but beyond that it was impossible to go.
The factory did not fail for lack of willing workers even at these wages. Yet fail it did, less than a year after start of operation. Stockholders got not a red cent. Even a lien for repairs on the building, held by local mechanics who in order to aid the enterprise had not pressed their claim, turned out to be uncollectible. And when everything was figured up it was discovered that $19,000 had been paid in wagesexactly $1,000 less than the people of Warsaw had purchased in stock.
For a long time after that the neat factory building was allowed to stand empty. Even so, it was an expense for there was the upkeep and taxes. For a while no one had the stomach to talk factory and when the topic did come back into conversation it was coupled with a vow never to raise another penny of capital and very little for anything else.
Warsaw Won't Give Up
This time it was a leathergoods concern which specialized in manufacture of women's pocketbooks. No capital was requested, which made everybody feel good, but the manufacturer desired some financial help for moving his machinery, and of course he wanted the building in first-class condition. His payroll, he said, would run about $1,000 a week at first, then grow. The same old proposition on the building suited him; after payment of $600,000 in wages he would secure title.
Committees were formed again and they scoured the town for money. It took more than anyone had supposed. A new roof had to be put on the building which by now in 1936, was eleven years old. The moving of the machinery, again from Chicago, cost several hundred dollars All told, Warsaw had to produce $2,000 before operations were commenced.
There was another angle, which we may list as Problem C. The leathergoods manufacturer had had labor trouble in Chicago. He wanted cheap labor and he wanted to be sure it would not be bothered by labor organizers. Spokesmen for the community said that could be handled. Sure enough, a crew of workers had hardly taken their posts when two labor organizers appeared on the streets of Warsaw, the first ever seen there. They distributed handbills and tried to talk to workers. But the community stood by its promise to the manufacturer.
The labor men probably miscalculated in coming so early, for the factory employees had been without work for a long time, and since they were unused to labor unions they were more than willing to give the new venture a chance. Local business men took the arrival of the labor union men as an unwarranted intrusion into their private affairs. One prominent Warsaw man told me: "I am, probably unlike a great many around here, more or less sympathetic with unions and I believe that had the factory been a going concern I would have been with the employees because they are our own people. But this time it looked as if the union wanted to keep our factory from starting in to force it back to Chicago." At any rate, the organizers were menaced by local persons and got no sympathy from the town authorities. One of them returned later and tried to call a meeting, but this procedure also failed.
Meanwhile operations got under way. Again most of workers were women, with the majority receiving $10 a week. A few who learned to operate stitching machines got $14, and men who became skilled at cutting leather drew as much as $20. Warsaw considers these relatively good wages. A modern house rents for $25 a month, an unmodern one for $10 to $15. Vegetable gardens are feasible, so that workers would have been satisfied with these wages, at least for a while. The trouble was frequent lay-offs made pay extremely sketchy.
The business men had laid out $2,000 and made sure the manufacturer was unbothered by "agitators." They learned, after a year or two (Problem D) that their task had not been completed. the factory-owner got into financial trouble he rushed at once to them with tales of impending disaster. The bank, naturally, was pressed to aid what now was a local enterprise. It succumbed to the extent of $10,000. When that was gone the manufacturer came forward with another ultimatum Warsaw was distraught; more so because, when in its early stages the leathergoods concern appeared sound, the community had scraped the bottom of its purse for enough funds to establish another factory, this time a battery-making concern, in the old shoe factory building. But there was still a little good money to go after bad. A few business and professional men managed to raise $4,000 among themselves, and loaned it to the shaky leathergoods maker.
The arrangement with the battery manufacturer was made in 1937. The old shoe factory had been empty for seven years and anyhow was an old-fashioned four-story affair, but the community agreed to put it in first-class condition. Warsaw also agreed to cart coal and acid and other materials from the railroad track to the factorya distance of several hundred feet. This would go on forever, or as long as the manufacturer chose to remain. No capital was demanded, however, nor cash for moving machinery.
Warsaw soon found that it had been over-anxious. As soon as one job was completed it was found another was necessary, and that the last had cost more than had been anticipated. A sum of $12,000 had been expended before the battery company was satisfied, and the cost for a man and truck to haul coal and acid would certainly total $1,000 yearly. Nothing was said directly about the labor problem, but officials of the company were undoubtedly aware of Warsaw's attitude toward the men who tried to organize the leathergoods workers. They would have taken pains to reassure themselves because they had labor trouble elsewhere.
The battery people are well-liked because they liberated Warsaw from some of its promises. For one thing, they agreed to haul their own coal and acid if Warsaw provided a truck. A second-hand truck was bought and paid for, and that ended the matter. A part of the repair bill was also assumed by the firm, at least to the extent of $3,500, although this was in addition to the $12,000 put up by Warsaw. In return, it is true, the city deeded over the building, but it might have had to do that anyhow, for it had been agreed that the building would go to the manufacturer after five years of operation. However, Warsaw still has an opportunity to get the building back should the firm move before five years had passed.
Cheaper production elsewhere would be difficult, for the Warsaw workers receive about half the wages paid unionized employee in the concern's city plants. The fifty-eight working start at 30 cents an hour, are raised to 35 and 40 cents, and a few receive slightly more. For its part, the company declares that Warsaw workers are unable to reach the rapid pace of its city employee. Whether the workers will long be satisfied with the present pay no one can say, but it is safe to assume that if they agitate for higher remuneration the manufacturer, unless he shows himself an exception to the rule, will drop the whole problem into the lap of Warsaw's business men.
A Formula for Your Town
BECAUSE SOME COMMUNITIES AND STATES HAVE GONE TO WHAT appears ludicrous and wasteful extremes in their effort to lure manufacturing, it cannot therefore be concluded that a sane approach to the problem of community planning is impossible. Hobo or wandering panhandler employers are numerous, with many communities willing, as one industrial consultant put it, to let them move into the city hall itself but some localities have looked deeper for the answer.
Each spring representatives of a large number of America cities meet in the United States Chamber of Commerce building in Washington for a discussion of industrial development. The gathering is for mutual exchange of ideas and no hard and fast decisions are made, but certain do's and don'ts for community development have met general agreement.
First, it is understood that valuable industries settle and remain only in localities fitted to their needs. Consequently it is deemed necessary to survey the community for availability of raw material, labor, markets, transportation, power and legislation pertinent to manufacture. Once such a survey is completed, the community knows what type of industry it may hope to interest. Groups which have tried to approach the problem scientifically invariably have such surveys. The New England Council, for example, is able to furnish an exhaustive study for each of 175 communities.
Most of the representatives, as well as municipal experts industrial engineers and heads of college industrial divisions declare against "bait." Obviously, the inducement policy carried to its final conclusion would mean rent free, tax exempt properties for all, with enticement of industry from one community to another reaching the reductio ad absurdum of two people trying to make a living by taking in each other's wash since no wise manufacturer will place his factory, or a branch, in an uneconomic location, bonuses will have no interest to him unless year after year they offset the difference between the unprofitable and a profitable sitewhich means that the community levies a perpetual tax on itself. It is true, however, that most vocal in this respect are representatives of old industrial centers which stand to lose by inducements to their already established manufacturers. And given a specific opportunity to secure a reliable industry by a few concessions, not all of them can be depended upon to reject it. The temptation to take the cash and let the credit go is sometimes irresistible.
It is notable, too, that many communities are suspicious of the employer who depends upon cheap labor for his existence. The usual result, it has been found, is labor strife. If the manufacturer is to continue, the community must curb unions and break strikes, a task expensive as well as unsavory. Failure is likely to mean loss of the factory with the addition of its employee, some of whom may have come to the community for jobs, to the relief rolls. The law establishing minimum wages and hours also has given pause to the searcher for cheap labor, and labor unions are becoming more successful in pursuing runaway employers.
But the understandable desire of communities to gain losing ground and to grow is certain to result in the continuation o intensive industrial development efforts. That being the case it is possible only to advise smaller communities to benefit by the conclusions arrived at by larger cities from their experience and the studies of their hired experts. Thus, although hardly a rigid formula, the following general rule of procedure may be deduced for the public-spirited body a men trying to improve their community: