Policy Review, Fall 1994
by Glass, Stephen
Early in 1988 Kenosha, Wisconsin became the symbol for the media of all that is supposedly wrong with American capitalism. In January that year, the Chrysler Corporation announced that two days before Christmas, it would close the nation's oldest car factory, laying off 5,500 workers. The plant employed 40 percent of Kenosha's manufacturing workforce, and news accounts were universal in predicting doom for the rustbelt community.
A man dressed as the Grim Reaper paced somberly in front of the auto plant as CNN reported the closure. "This is a journey into misery, " an autoworker told the network. "God knows what will happen to this community," a state senator told the Milwaukee CBS affiliate.
Democratic presidential hopefuls rushed to Kenosha to attack this symbol of the "decade of greed." Jesse Jackson called for a "worker's bill of rights" and denounced the "economic violence" of Chrysler and the American economy under Ronald Reagan. Michael Dukakis wrote to Chrysler CEO Lee Iacocca asking him to save the plant. And Senator Paul Simon (D-IL) accused the corporation of raw profiteering.
But the liberal Democrats, and their friends in the national media, just didn't get it.
Today, six years after the last car rolled off the line, Kenosha has gone from bust to boomtown: Unemployment has been halved, per capita income is up, and new housing starts have soared. This community has become a testament to the resiliency of market capitalism, traditional values, and conservative economic policies. Kenosha is a special tribute to the tax-cutting policies of Wisconsin under Governor Tommy Thompson.
JOBLESS RATE HALVED
"There is no doubt in my mind that we're doing better," says Rick Nemeth, who bought his own tavern after he was laid off. "I have learned that initiative pays off. You're not going to make money overnight, but now I wake up every morning and I am happy with my life." During his 20 years on the assembly-line, Nemeth never made more than $24,000 in a year; today he earns more than $40,000.
And Nemeth is not an exception: Since Chrysler pulled out in December 1988, the unemployment rate has averaged 5.7 percent, less than half the mean of 11.6 percent during the five years preceding the shutdown. Moreover, average annual wages in the community have risen nearly $2,000 per person.
The turnaround came as no surprise to University of Wisconsin-Parkside economist Dick Keehn, who has studied the local economy for almost 25 years, and had predicted the coming boom. In fact, Keehn had urged the community to rid itself of the plant for nearly a decade in order to improve the rustbelt economy.
The economist's reasoning is simple: Since 1959, when the Simmons mattress company left Kenosha, the auto plant, which had been run by the American Motors Corporation (AMC) before being taken over by Chrysler in 1987, had single-handedly dominated the local labor market. In fact, the region's second largest private employers had hired only one-tenth to one-third the number of workers on the car company's payroll, which reached 16,000 under AMC in the 1960s and topped $130 million in the 1980s. This domination of the labor pool by a single company, whose payroll fluctuated dramatically, destabilized the entire region. Smaller companies frequently lost workers to the auto plant, which paid inflated union wages, and new companies were discouraged from moving to the unstable community.
SMALL BUSINESSES THRIVE
The excessive union wages in Kenosha, which in 1985 were $1.65 higher per hour than Chrysler workers across the nation and rated the "least competitive" in the industry, drove jobs away from southeastern Wisconsin. United Auto Worker (UAW) projections in 1988--that the plant closing would force 15,000 people out of work by 1990--were therefore grossly inflated. Instead, that year, only 3,100 people were jobless in the entire county; the shutdown had provided a market where small businesses could compete. Dashed as well were union predictions that 53 percent of dislocated Chrysler workers would be unemployed two years after the closing: Only one-fifth were jobless 27 months after the plant shut down.
Ted Schiess Sr. is one of the auto workers who benefited from the new businesses. Schiess had been a security guard at the Chrysler facility for 24 years when Lee Iacocca announced that the plant would be closed. He is now the safety and security supervisor at a high-tech ink company that moved to Kenosha County after the auto industry left. While Lawter International, Inc., expanded its payroll to 88 people when it moved to Wisconsin from Chicago, it is unlikely it would have been able to compete with the car plant for labor.
"I was the one who shut the lights out and locked the doors of the plant for the last time," Schiess said. "[I felt] Chrysler had used me, but now it has worked out." In fact, it has worked out so well that both of his sons have attended college and Schiess, who is earning a salary that is slightly better than at Chrysler, is saving for his retirement.
Just as inflated union wages drove away jobs, the unstable employer also stunted home sales; in the years since Chrysler left, however, construction firms have had difficulty keeping up with new building. Ken Davis, a local realtor since 1978, said Kenoshans would often rent a home for 20 years rather than buy, since they were nervous about the stagnant mono-economy. These fears are reflected in new home sales: From 1980 to the plant closing in 1988, the county granted an average of 401 new housing permits a year. In the years following the plant shut down the county has averaged more than 1,000 approved permits annually.
"We are much better off without the auto plant," Davis said. "This diversified economy is more stable and people aren't terrified to build homes." Whereas houses used to linger on the market for months, in 1993 the average house was sold within 90 days of being offered. It is clear that union-driven public policies, which tried to save the auto plant at any cost, undermined confidence in the local economy.
The anticipated social costs of the shut-down, trumpeted by the Left, also failed to materialize. Union members said domestic violence, alcoholism, and suicide rates would increase when the plant closed. "It's a well-known fact that communities all over the country have experienced these tragedies with a loss of a major employer," United Auto Workers Local 2 President Rudy Kuzel said. "Kenosha would be unique if it didn't follow the pattern."
But research by University of Wisconsin-Parkside sociologist Anne Statham on hundreds of dislocated Chrysler workers demonstrates that just as the market adjusted for the job loss, area residents also adapted well to the closing. Rather than witnessing soaring domestic violence reports, Statham proved that despite being laid off, the dislocated workers had stable family lives: 89 percent reported "never" or "seldom" having tension with their spouse, and 93 percent reported "never" or "seldom" having tension with their children. Moreover, 97 percent of the dislocated workers said they "never" or "seldom" have problems with drinking too much, indicating that the alcoholism predictions were ludicrous.
Tom Dorff is in a position to know if suicide rates increased: He was Kenosha's coroner at the time of the plant closing. "I'm telling you, I didn't notice any difference at all," he said. "My business didn't pick up. It was all very normal."
Finally, Statham disproved the Left's social cost predictions when she asked dislocated Chrysler workers to evaluate their overall life satisfaction three years after they were laid off. Statham's research indicated that 4.9 percent of dislocated workers rated their "life as a whole" positively, while a similar Gallup poll found only 21 percent of Americans nationwide felt the same way.
The market, however, did not act alone in prompting this growth. Traditional values of self-reliance and a strong work ethic are prominent in the Kenosha culture. For instance, sociologist Statham found that 62 percent of the dislocated workers believe that "misfortunes result from the mistakes people make," while only 27 percent of the workers believe that "unhappiness in life is due to bad luck. "
Dave Guardiolo, a former paint-sprayer at the Chrysler plant, demonstrates this belief in personal responsibility. After the factory closing was announced, Guardiolo returned to school and earned a degree in criminal justice. He is now a corrections officer at a county prison where he earns comparable pay and enjoys the challenge of his new job.
In addition to responding generally about their values system, two-thirds of the dislocated workers indicated "there is a job waiting for me if I just look for it," while only a quarter said they believe finding a job is a matter of luck. Leota Boughn, a waitress at the Three Coins Diner, said this properly reflects the Kenosha climate. "There are jobs if people want to work. If you are not lazy, anybody can get a job," said Boughn, who raised her two children single-handedly. "Look at me, I have never been out of work for more than a week. "
Yale Professor Kathryn Marie Dudley can't understand Boughn's straight-forward logic. In Dudley's new book, The End of the Line: Lost Jobs, New Lives in Postindustrial America, the anthropologist relates stories of ruined Kenosha families. She blames the "culture of the mind"--white-collar, college-educated professionals that worked to draw new businesses to the community--for implementing "social Darwinism" and trampling the factory workers' culture. She glorifies their fight to keep the plant and is shocked that many members of the community are "cheerful" and "upbeat" about the benefits of the closing. "Nothing I'd read before starting my fieldwork on the Chrysler shutdown quite prepared me for the fact that a lot of people in and around Kenosha were happy to see the plant close."
Although Dudley can't comprehend the transition, the community has come to understand that fighting to keep the plant open is as absurd as workers wanting the Bain Wagon Works to stay in business 100 years ago. At the turn of the century, this horse-drawn carriage company was one of Kenosha's largest employers, building almost 12,000 buggies in 1890. Although it was the first southeastern-Wisconsin company to produce for more than the local market, by 1920 the firm had laid off all but 100 employees: There simply was no way to compete with the upstart auto plant.
A VICTORY FOR THE MARKET
While the closing of the auto plant in Kenosha allowed a conservative market-based economy to germinate, Governor Tommy Thompson's pro-business initiatives--specifically deregulation and tax reductions--provided the necessary fertilizer. By minimizing state control over utilities, Thompson allowed the Wisconsin Energy and Power Corporation (WEPCO) to build a $1.6 billion corporate park in Kenosha County, which is just 45 minutes north of Chicago. This reduction in government interference provided WEPCO with the ability to attract more power consumers to Wisconsin, and energy costs have subsequently fallen; they are currently 20 to 40 percent less than the rates in neighboring Illinois.
The low power and land costs have enticed 17 companies to relocate from Chicago to the Kenosha industrial park. And this protection from government has translated into significant savings which promotes ingenuity. For instance, Calumet Diversified Meats, Inc. developed one of the nation's most advanced pork processing facilities in Kenosha once it was freed from Illinois's expensive, highly regulated utility costs.
Likewise, Brooks Sausage, one of McDonald's three national suppliers of breakfast meat with sales of $30 million, saved $400,000 a year on power costs by moving from Chicago to Kenosha. These annual savings have allowed the company, which was recently ranked by Black Enterprise as one of the nation's 30 largest black-owned corporations, to enter the highly-competitive Japanese food market.
Unlike many of its neighboring companies, Nitro-Bar Inc. did not relocate from Chicago, but began in 1992 in the Kenosha industrial park, where it has since developed a high-tech method to remove chrome plating.
These companies embody the creative destruction inherent in Thompson's Wisconsin economic miracle. The 6 million-square foot Chrysler car plant was highly inefficient. Since it was originally intended to manufacture bicycles and mattresses, the factory was divided into two facilities 1.5 miles apart: the lakefront plant, which includes the painting facility, and the main plant where final assembly takes place. Smaller cars, such as the Omni and Horizon, had their frames built, trimmed, and painted at the lakefront facility and then were trucked to the main plant for assembly. The larger cars, such as the Fifth Avenue, were built at the main plant, sent to the lakefront plant for painting, and then trucked back to the main plant for assembly.
While liberals may think America's economy is faltering when an inefficient Chrysler plant closes, conservatives look at Calumet Diversified Meats, Brooks Sausage, and Nitro-Bar and know that America is thriving. In fact, since the Chrysler plant closed, Kenosha has gained 33 percent more employers.
THE WISCONSIN MIRACLE
Governor Thompson has promoted business throughout the state, and specifically in Kenosha, by advocating the creation of Tax Incremental Financing (TIF) districts, despite significant liberal opposition. TIF districts allow businesses to more readily develop infrastructure. For instance, one of the attractions of Wisconsin for Illinois companies is lower land costs. If an industrial park had to pay for infrastructure improvement, this advantage would be readily lost: TIF districts allow the local governments to retire bonds for these improvements with a portion of the tax revenue that is generated by the new businesses.
Thompson also created a 60-percent exemption for capital gains and eliminated inheritance taxes. In fact, over the past seven years, state taxes have been cut by more than $1 billion, and Wisconsin is still the only state to have had a balanced budget in each of those terms. Wayne Koessel, an official with WEPCO, believes these efforts have promoted a business friendly environment that encourages companies to move to, or expand within, Wisconsin. Cognetics, a Massachusetts-based economic think tank, agrees. In 1993 and 1994 the research group rated Wisconsin the best small business climate outside of the sunbelt.
Kenosha is not the only region to have benefited from Thompson's pro-business initiatives: From 1983 to June 1994 the entire state's unemployment rate has dropped from 10.4 percent to 4.3 percent. During the last seven years, Wisconsin created 44,600 manufacturing jobs while the nation lost 1.1 million. The Dairy State is a textbook example of conservative economics and disproves the liberal contention that government must raise taxes to increase revenue. The drastic tax cuts have resulted in a 39 percent increase in state revenue. Likewise, lower taxes have created jobs, and the state has realized a 19 percent decrease--the nation's highest--in welfare cases. In fact, every county has reported a decline in the number of welfare recipients since 1987 and 50 of the 72 counties report at least 30 percent less cases.
Kenosha is an illustration of the beau of American capitalism. While the Left tried to interfere in the market to prop up an inefficient plant, their failure--and the community's subsequent success--demonstrates the resilience of a conservative economy. The Chrysler facility was replaced by small-and medium-sized companies that were more suited to compete. Simultaneously, the unfettered market aided workers who realized higher wages and lower unemployment rates.
Doris Techert, 73 and a life-long resident of Kenosha, says that the people of Kenosha know the economy is healthy: "If you want to work here, I'll guarantee you can get a job. This is the American Dream."
STEPHEN GLASS is assistant editor of Policy Review.