Rust Belt is on the rebound

TOLEDO, Ohio — I spent a couple of days this past weekend here in the heart of the Rust Belt. I visited the University of Toledo, where I had been invited to give the commencement address — and I learned about the University’s National Center for Tooling and Precision Components, one of several initiatives to help regain U.S. leadership in robots and machine tools.

I then took a trip into Saline, Mich. — just west of Detroit — to visit NSK’s high-tech ball-bearing manufacturing plant run jointly by American and Japanese managers but owned by the Japanese. Here I got a glimpse of the tremendous resurgence in manufacturing in America — fueled, in part, by management that works smarter (e.g., just-in-time inventory systems, closer relations between suppliers and customers) and direct foreign investment that creates new, high-paying jobs for American workers.

Here was another living example of Joseph Shumpeter’s observation that capitalism is a process of “creative destruction.” The Great Lakes region was once the foremost example of regional economic decline. As recently as the 1980s, plant closings, business failures and mass layoffs were accompanied by unemployment rates as high as 25%. The plight of the region was described in cover stories of Business Weekand other national news magazines as examples of the “deindustrialization” of America. However, the pundits were wrong.

After being left for dead, the Great Lakes region has, in the words of a recent report by the John Heinz School of Public Policy and Management, “become the focal point for sweeping economic restructuring and dramatic manufacturing recovery.” Result: Today, the region accounts for 36% of all manufacturing output in the U.S., even though it has only 30% of the population, attracts substantial foreign direct investment and — with per capita defense outlays equal to only 60% the national average — is less defense-dependent than any other region.

The region has bounced back for two reasons: Its fundamentals are good and it has adopted a high performance strategy for economic renewal.

Regarding fundamentals, the region has some of the world’s best colleges and universities. It has world-class infrastructure — interstate highways, international airports and water transportation with access to the sea via the St. Lawrence Seaway — including advanced telecommunications, the key to competitiveness in the future. The people of this region have a good work ethic and solid Midwestern values. All of

These are ingredients for success in America’s New Economy.

Regarding high-performance strategies for economic renewal, the region is developing a global focus that emphasizes exports and incentives for foreign investment, communications and transportation infrastructure to facilitate information sharing and just-in-time delivery of goods and services, more flexible approaches to regulation, and business-government relationships that support rather than slow down the transition to the New Economy.

If you add up the wealth of the seven Great Lakes states, their GDP totals $1.6 trillion. That ranks the Great Lakes region third in the world — smaller than the U.S., and only slightly smaller than Japan, but larger than Germany, France and Britain. They now have a formula and all the ingredients for economic renewal. So much for the old Rust Belt.