July 2012

Ela Rausch: Welcome to the Federal Reserve Bank of Atlanta's Economic Development podcast series. I'm Ela Rausch with the Federal Reserve Bank of Minneapolis.

It has been the experience of many cities that the single industry that once dominated their economy is now shrinking and that local jobs are being lost. Some have responded by encouraging the growth of other existing industries or by diversifying into new sectors. Planning, policy, and strategic investment each play a critical role in this equation to ensure community growth and resilience to future economic shifts. In this session, we will hear about two North Carolina cities—Concord and Eden—that lost their textile employment base and their unique economic recovery paths. We will also consider the question of how policymakers and practitioners can leverage the assets of cities to foster new economic activity.

Today I'm speaking with Kim Zeuli, vice president and community development officer at the Federal Reserve Bank of Richmond. Kim, thank you for speaking with us today.

Kim Zeuli: Thanks for the opportunity.

Rausch: To start, it would help if you could provide a little bit of history. Can you tell us about the early dynamics and development patterns that led to the strong textile industries in these respective cities?

Photo of Kim ZeuliZeuli: Sure. Despite the fact that southern states were historically major cotton producers, the textile industry had a greater presence in the New England area and didn't move to the South until the beginning of the 20th century. But by the 1920s North Carolina had become a major center for the textile industry. At the peak of the textile manufacturing in the U.S., which was in the 1940s, almost 10 percent of textile jobs were located in North Carolina, and they were located mostly in small rural towns. In fact, the textile industry was one of the two largest employers in small rural towns in North Carolina. In North Carolina the textile industry peaked around the 1970s, at which point it contributed to almost 20 percent of the state's total employment.

So we studied two communities in North Carolina. Eden is a community in rural Rockingham County, which borders Virginia and the central part of North Carolina. It has a long history in textile manufacturing and is a typical southern mill town. Two major rivers flow through Eden and provide access to what is essentially an unlimited supply of water. This makes it an attractive location for industries that rely heavily on water such as textiles, other types of manufacturing, and brewing. Textile mills have existed in Rockingham County, which is Eden's county, as early as 1764. In 1912 Marshall Field (that Marshall Field from Chicago) purchased six large textile mills. He renamed the facility Fieldcrest Mills and established company headquarters in what is now Eden.

Concord is another historic mill town and is located in Cabarrus County, just 25 miles from downtown Charlotte. It was the home of the textile legend James Cannon. Cannon built his first textile mill in the town in 1887, and in 1928 Cannon's Mills was formed from the consolidation of Cannon Manufacturing with several other manufacturing companies and mills. Despite the fact that Concord did not have unrestricted access to water supplies, the proximity to a railroad just west of town contributed to the growth of the textile industry.

Rausch: How did the cities of Concord and Eden respond to the decline of the textile industry?

Zeuli: In the 1970s at the peak of the textile manufacturing industry in the state, Concord and Eden were very similar in the sense that they shared equivalent social and economic positions, and they had a similar level of economic dependence on textile manufacturing. During the decline of the textile industry, especially from 1970 to 1990, both communities experienced a gradual loss of their textile base.

City leadership in Concord and Eden responded differently to the shift in their local economy. The most significant difference seems to be in the timing of their response. Concord's leaders anticipated the decline of the textile industry in the mid-1980s, and the town experienced a significant period of growth during the mid-1980s and 1990s largely due to annexation, which meant that they consolidated other local towns and other economic opportunities with them. Newly elected council members and new city managers realized that they needed to diversify the local economy. As the mayor of Concord reminisced, "They had the courage to go against conventional wisdom at the time and had the common sense to know that you don't put all of your eggs in one basket."

The city leadership of Eden didn't seem to respond with the same sense of urgency as in Concord. Some residents we interviewed shared that they felt the city waited too long to react to the declining textile industry. Their development activity should have started in the early 1990s and actually happened about a decade later. As one person we interviewed stated, "They were waiting for the next 'white horse'—another company or industry to take care of us. They thought that surely someone would come save us." So, as a result, Concord was able to remain on the same growth path even after the decline of the textile industry, whereas Eden has not yet been able to regain its same economic footing that it had when it was so dependent on textiles.

The closing of the Pillowtex plant in July 2003 was a particularly devastating event for Eden and the Concord region. It was the largest permanent layoff in the history of the state, and it resulted in the loss of over 7,600 jobs. During 1990 to 2000 the textile share of total employment had declined in Concord from over 14 percent to 4 percent, and the local residents that we interviewed did not consider the closure of the plant as a significant economic shock. In 2000, textile manufacturing was still over 17 percent of total employment in Eden. The Pillowtex closing resulted in the loss of 450 jobs in that town. Not only was Eden more dependent on textile manufacturing, but it was also the identity of the city, and the plant closure had a devastating economic and psychological impact on the community.

Rausch: Kim, your research emphasizes the importance of community resiliency. I'm wondering if you can tell listeners a little bit more about your research and how you define resiliency.

Zeuli: We define community resilience as the ability of a community to return to its prior economic growth path after experiencing a shock. This definition is adopted from resiliency definitions in the natural sciences and disaster studies. A community's resiliency can be classified by a matter of degrees along a continuum. At one extreme the community is perfectly resilient, which means it is unaffected by an adverse economic shock, and at the other the community is absolutely nonresilient, which means it is crushed by an economic shock. One can think of communities that are devastated by a natural disaster. Most cities will lie somewhere between these two extremes.

So we tested the idea of resiliency with the two communities that I mentioned before—Eden and Concord—because they suffered the same economic shocks. They suffered the decline of the textile industry as well as significant unanticipated shock with the Pillowtex plant closure.

Rausch: Kim, what are the elements that you think are key to resiliency when it comes to economic development?

Zeuli: Recent studies on resiliency have identified a wide variety of factors contributing to resiliency. They include a mix of economic and socioeconomic variables such as household income, poverty rates, unemployment, industry structure and industrial diversity, the level of education of the population, and the share of the working-age population. But industry diversification is perhaps one of the most important determinants of resiliency. This factor has been cited in numerous studies and it has been found to be a strong contributing factor to resiliency. The more dependent a community is on a single industry, the less resilient it is going to be in withstanding the shocks affecting that particular industry.

In Eden and Concord we also found that local leadership is another important determinant of resiliency. So, as I mentioned before, they responded in much different manners (the local leaders) and as a result they responded to the shock in different ways.

Other determinants of resiliency are endowments and natural resources, the quality of the labor force, population diversity, and community cohesion. For example, a big difference between Concord and Eden is access to water. As I mentioned earlier, two rivers flow through Eden, giving it an unlimited supply to water, which makes it an attractive location for industries that rely on water. However, what appeared to be a comparative advantage for Eden also made it more dependent on these industries, thus making it less resilient. In contrast, the limited access to water in Concord was a constraint that forced the community to diversify away from nonwater-dependent industries such as textiles. For example, Concord has now developed a tourism industry, building on its early investments in a regional airport and the Charlotte Speedway, which hosts major NASCAR races. The major employers in Concord now represent a diverse set of industries ranging from medical to retail organizations.

I think it will take a while before we see similar results in Eden since their approach was initially more reactive than proactive. Eden is now looking to boost tourism and attract and retain businesses. The greatest promise in Eden lies in its new city economic development staff. They have two full-time people devoted to professional economic development, which is rare for small towns.

Rausch: Kim, what would you say are the implications of this case study for other cities with a large manufacturing base? What about the takeaways for other cities?

Zeuli: I think our case studies highlight the importance of considering resiliency versus just growth in local planning. Some shocks can be anticipated early on, such as the decline of the textile industry, while others may be really unanticipated, such as a sudden plant closure or a natural disaster. Also, resiliency shifts over time. For example, in Concord now, they fear that they have now become overly dependent on the tourism industry and NASCAR. Eden, on the other hand, has really diversified its main base. While they are still focused on manufacturing, they are looking at advanced manufacturing and other options, such as tourism and potentially a new prison.

So the two different outcomes in what were originally two very similar cities show that community resiliency can be fostered and built over time by strategically leveraging both natural and human capital resources.

Rausch: Kim, thank you for joining us today.

Zeuli: It has been my pleasure.

Rausch: This concludes our podcast. We've been speaking with Kim Zeuli, vice president and community development officer at the Richmond Fed.

We hope that you will attend our upcoming national conference on workforce development, titled "The Future of Workforce Development: Where Research Meets Practice." It is happening on September 19–20 in Kansas City. The Kansas City and Atlanta Feds are cohosting this conference. For more information and to register, visit workforce.kcfed.org.

For more podcasts on this topic and others, please visit the Atlanta Fed's website at www.frbatlanta.org. If you have comments or questions, please e-mail podcast@frbatlanta.org. Thank you for listening.