How the American South Drives the Low-Wage Economy
Santayana had it wrong: Even if we remember the past, we may be condemned to repeat it. Indeed, the more we learn about the conflict between the North and South that led to the Civil War, the more it becomes apparent that we are reliving that conflict today. The South’s current drive to impose on the rest of the nation its opposition to worker and minority rights—through the vehicle of a Southernized Republican Party—resembles nothing so much as the efforts of antebellum Southern political leaders to blunt the North’s opposition to the slave labor system. Correspondingly, in the recent actions of West Coast and Northeastern cities and states to raise labor standards and protect minority rights, there are echoes of the pre–Civil War frustrations that many Northerners felt at the failure of the federal government to defend and promote a free labor system, frustrations that—ironically—led them to found the Republican Party.
It’s the resilience of the Southern order and the similarities between the Old South and the New that are most surprising—at least, until we disenthrall ourselves from a sanitized understanding of that Old South. It’s taken nearly 100 years for the prevailing image of the pre–Civil War South to become less subject to the racist falsifications that long had shaped it. The malign fantasies of 1915’s The Birth of a Nation and the Golden Age hooey of 1939’s Gone with the Wind have given way to the grim realism of 12 Years A Slave. Through all its incarnations, however, the antebellum South has retained its status as a world apart from the rest of America, whether (as D.W. Griffith would have it) for its chivalry or (as the historical record shows) its savagery.
Southern exceptionalism has also extended to the views of the South’s place in—or more precisely, its purported absence from—the development of the modern American economy. The slavery-saddled South was often considered the quasi-feudal outlier in the early—and presumably Northern—development of 19th-century American capitalism. While finance and factories rose north of the Mason–Dixon Line and railroads spanned the Northern states, the South was an island—with just a sprinkling of banks and rails and virtually no factories at all—largely detached from industrial capitalism’s rise.
In just the past year, however, a spate of revisionist histories has made significant additions to the historical literature that persuasively dispels this image. To be sure, the South was short on factories, trains, and banks, but its brutally productive slave economy spurred the development of the first factories of the industrial age, the textile mills of Massachusetts and Manchester, England, and the railroads that moved their goods. It was also key to the creation of modern finance and such pioneering industrial financiers as the Baring Brothers in Britain and the Brown Brothers in New York. Empire of Cotton by Harvard University historian Sven Beckert, which won this year’s Bancroft Prize, and The Half Has Never Been Told by Cornell University historian Edward Baptist, which won this year’s Hillman Prize, both document how the industrial and financial capitalism of the 19th century arose as a direct result of the conquests, expulsions (of Native Americans), and enslavements that turned the Deep South into a vast slave-labor camp that generated unprecedented profits for manufacturers and bankers who lived hundreds or thousands of miles from the Mississippi Delta.
The American South before the Civil War was the low-wage—actually, the no-wage—anchor of the first global production chain.
Today, as the auto and aerospace manufacturers of Europe and East Asia open low-wage assembly plants in Tennessee, Alabama, South Carolina, and Mississippi, the South has assumed a comparable role once more. Indeed, the South today shares more features with its antebellum ancestor than it has in a very long time. Now as then, white Southern elites and their powerful allies among non-Southern business interests seek to expand to the rest of the nation the South’s subjugation of workers and its suppression of the voting rights of those who might oppose their policies. In fact, now more than then, the South’s efforts to spread its values across America are advancing, as Northern Republicans adopt their Southern counterparts’ antipathy to unions and support for voter suppression, and as workers’ earnings in the North fall toward Southern levels. And now as then, a sectional backlash against Southern norms has emerged that, when combined with the Southern surge, is again creating two nations within one.
IN THE SPRING OF 2011, the Boston Consulting Group made a bold prediction: Manufacturing, which had been fleeing American shores for years, particularly to China, was going to come back. “China’s rising manufacturing costs will significantly erode [the] savings” that U.S. companies had realized by having their products assembled there, three of the firm’s partners wrote in a widely publicized study. The advantages of offshoring would wane, and American manufacturing would rise again.
The numbers that the authors adduced certainly made their claim seem plausible. As their wages continued to increase, Chinese factory workers, whose pay, adjusted for the productivity differences between China and the United States, came to just 23 percent of their American counterparts’ in 2000, had already seen that figure grow to 31 percent in 2010, and it would likely increase to 44 percent in 2015. More revealing still, however, was the authors’ comparison between factory workers in one particular region of China and one particular region of the U.S. In 2000, they showed, factory workers in and around Shanghai already made 36 percent of the productivity-adjusted pay of workers in Mississippi—a figure that rose to 48 percent in 2010 and that they projected to grow to 69 percent in 2015.
By contrast to the more rigid European economies, with their safeguards of workers’ rights, America’s was perfectly positioned to take advantage of China’s growing labor costs. “America is so robust and so flexible compared to all economies but China,” said Harold Sirkin, BCG senior partner and the study’s primary author, when I interviewed him at the time of his study’s release. “Getting the work rules right, getting the wage scales right—the [U.S.] economy can flex in ways that people wouldn’t believe!”
The study’s readers might be forgiven, though, if their reaction to its revelations was less effusive than the study’s authors. The basis for their comparison was Mississippi? The key to an American manufacturing renaissance was, as the study put it, “an increasingly flexible workforce”? “Flexible” has a distinct economic meaning: being paid less than what had been the standard for American manufacturing workers. It had a distinct geographic meaning, too: Southern.
“We made a mistake by picking Mississippi,” Sirkin admitted when I suggested that most Americans’ view of a rosy national future probably didn’t include having wage levels reduced to those of the country’s poorest state. Indeed, when BCG produced a fuller version of its study a few months later, all mention of Mississippi had vanished. But BCG’s focus merely crossed some state lines. “When all costs are taken into account,” the authors wrote, “certain U.S. states, such as South Carolina, Alabama, and Tennessee, will turn out to be among the least expensive production sites in the industrialized world.”
It’s been four years since BCG made its predictions, and they’ve proved lamentably accurate. The American economy has “flexed” just as the study’s authors said it would: Manufacturing has continued to move to the South, and factory workers’ wages have gone south as well. Between 1980 and 2013, The Wall Street Journal has reported, the number of auto industry jobs in the Midwest fell by 33 percent, while those in the South increased by 52 percent. Alabama saw a rise in manufacturing jobs of 196 percent, South Carolina of 121 percent, and Tennessee of 103 percent; while Ohio saw a decline of 36 percent, Wisconsin of 43 percent, and Michigan of 49 percent.
Even as auto factories were opening all across the South, however, autoworkers’ earnings were falling. From 2001 to 2013, workers at auto-parts plants in Alabama—the state with the highest growth rate—saw their earnings decline by 24 percent, and those in Mississippi by 13.6 percent. The newer the hire, the bleaker the picture, even though by 2013 the industry was recovering, and in the South, booming. New hires’ pay was 24 percent lower than all auto-parts workers in South Carolina and 17 percent lower in Alabama.
One reason wages continued to fall throughout the Deep South, despite the influx of jobs, is the region’s distinctive absence of legislation and institutions that protect workers’ interests. The five states that have no minimum-wage laws are Mississippi, Alabama, Louisiana, Tennessee, and South Carolina. Georgia is one of the two states (the other is Wyoming) that have set minimum wages below the level of the federal standard. (In all these states, of course, employers are required to pay the federal minimum wage.) Likewise, the rates of unionization of Southern states’ workforces are among the lowest in the land: 4.3 percent in Georgia, 3.7 percent in Mississippi, 2.2 percent in South Carolina, 1.9 percent in North Carolina. The extensive use of workers employed by temporary staffing agencies in Southern factories—one former Nissan official has said such workers constitute more than half the workers in Nissan’s Southern plants—has lowered workers’ incomes even more, and created one more obstacle to unionization.
The South’s aversion to both minimum-wage standards and unions is rooted deep within the DNA of white Southern elites, whose primary impulse has always been to keep African Americans down. To those elites, the prospect of biracial unions threatened not just their profits but the legitimacy of their social order. To counter the biracial Southern populist movement that emerged in the 1890s, those elites created Jim Crow laws that legitimated and promoted white racism, and it was largely by manipulating that racism that they were able to thwart almost all the Southern organizing campaigns that unions have waged since the 1930s.
Ironically, most of the largest factories that have arisen in the South in recent years belong to European and Asian firms that, in their home countries, pay high wages and are entirely and harmoniously unionized. In going to the South, however, they go native, paying wages and providing benefits well beneath those that such firms as General Motors and Ford offer their employees, and blocking workers’ attempts to unionize. (The one exception to this rule is Volkswagen, whose corporate board—controlled by worker representatives and public officials—has not opposed the unionization of its Chattanooga plant. In that city, state and local public officials have led anti-union campaigns.) Nissan has plants in Tennessee and Mississippi; Mercedes has one in Alabama and will open one next year in South Carolina; BMW has one in South Carolina, where Volvo recently decided to build a new plant; Airbus plans to open one in Alabama. They come to sell to the American market and they come because the labor is cheap.
“Airbus is a global manufacturer,” JÃ¼rgen BÃ¼hl, who heads the treasurer’s office of IG Metall, the German metal-workers union, and is the primary staffer for the union’s representative on Airbus’s board of directors, told me in April. “When we go abroad, we have the high-value work, the research and development, done in Germany. We [workers in German factories] supply the high-value parts. The workers who assemble the parts in the Airbus factory in Tianjin, China, produce 3 to 5 percent of the total value. But given the 6-to-1 productivity advantage that the United States has over China, it’s cheaper to do the final assembly in the U.S.” And a lot cheaper than in high-value-added Germany, where the average hourly compensation for manufacturing workers in 2011 (the last time the Bureau of Labor Statistics performed an international comparison) was a third higher than their U.S. counterparts’ ($47.38 there; $35.53 here).
For global manufacturers, the United States—more precisely, the American South—has become the low-wage alternative to China. For American manufacturers, too: In 2012, General Electric re-shored its production of refrigerators and water heaters from Mexico and China to its Appliance Park factories in Kentucky, nearly doubling the park’s workforce in the process. Unlike the vast majority of Southern factories, Appliance Park was unionized, but in recent years, the union there was compelled to agree to a two-tier contract, in which the lower tier of workers (70 percent of them) make far less than the more senior workers: Their starting hourly pay is just over $13.50, almost $8 less than what new workers at Appliance Park used to receive.
In the 21st century, the American South has become the low-wage anchor of a global production process—just as it was before the Civil War.
THE SLAVE ECONOMY OF the South dominated the antebellum American—and indeed, much of the European—economy. The Industrial Revolution, which first emerged in the cotton mills of Manchester, depended almost entirely on the product of the slave South. Indeed, the two economies—industrial and slave—rose in tandem. The invention of the cotton gin in this nation and the creation of water- and then steam-powered mills in the English Midlands provided the technological wherewithal for the breakthrough, but no less important were the forced exile of Native Americans from the lands that were to become Georgia, Alabama, and Mississippi; the sale and forced migration of more than 800,000 slaves from the Mid-Atlantic states to the cotton states; and the routine use of physical abuse to compel those slaves to become steadily more productive in their planting and picking of cotton. Even as more land was uprooted to make way for expanding cotton fields, Baptist shows that the productivity of the pickers—that is, the number of pounds they individually harvested—more than doubled between 1830 and 1860. Given the complete absence of any technological progress in cotton-picking during this time, and the statements of numerous former slaves testifying to the increased brutality of their overseers during this period to compel them to work faster, Baptist concludes that this was a productivity revolution driven by torture.
Between 1790 and 1860, America’s yearly production of cotton grew from 1.5 million pounds to more than 2.2 billion pounds, from less than 1 percent of the world’s cotton production to two-thirds of all the cotton produced. The lion’s share of that crop was shipped to Britain. By the eve of the Civil War, cotton constituted 61 percent of all U.S. exports, and the U.S. was producing 88 percent of all the cotton that Britain imported. As cotton production expanded, so did the mills; by 1830, one out of six British employees worked in cotton factories.
The non-Southern supporters of the Southern slave economy included not only industrialists, but also many of the leading bankers in the U.S. and the U.K. Since harvests are seasonal, farmers invariably need credit, for which they need to put up collateral. The collateral that Southern cotton growers put up was most commonly their slaves: 88 percent of the loans to growers in Louisiana and 82 percent in South Carolina, Beckert shows, were secured by their enslaved workers. When growers couldn’t meet their obligations, as thousands could not after the financial panic of 1837, banks ended up owning slaves and even entire plantations. Brown Brothers, on its way to becoming one of Wall Street’s leading investment banks, owned 13 plantations and many hundreds of slaves after the 1837 collapse. Major banks, such as Baring Brothers, even securitized slaves, much as banks in our time securitize home mortgages: They sold bonds to investors based on bundles of loans that slaveholders had taken out. Whenever the economy went bad, or the price of cotton dropped, owners would sell their slaves, irrevocably sundering thousands of African American families.
The Southern slave economy was simply too big and profitable for Northern and British banks to shun. In 1831 and 1832, even the Bank of the United States—the Philadelphia-based national bank that epitomized Northeastern elites, and which, largely for that reason, Andrew Jackson later abolished—made loans so large to a single firm whose sole business was slave trading that they constituted 5 percent of all the bank’s credit during those years. The ties between Northern bankers and Southern slavers were so strong that as the South seceded in 1860 and 1861, New York Mayor Fernando Wood urged his city—then as now the center of American finance—to secede as well. New York’s British counterpart was Liverpool, the port city to which Southern cotton was shipped en route to Manchester. Liverpudlian bankers were major investors in the slave economy, and during the Civil War they not only extended credit to the Confederacy, but also funded the manufacture of arms bound for the South and the construction of Confederate warships.
The conflict between the North and the South in the decades before the Civil War centered on the question of whose labor system would prevail. The steady expansion of the United States westward provided a frequent flashpoint, posing the question of whether new states would be free or slave. The prospective admission of Missouri, in 1819 and 1820, provoked the first such sectional battle. Though the abolitionist movement was in its infancy, Southern leaders such as South Carolina’s John C. Calhoun were ever wary that the admission of new non-slave states would bring more anti-slavery senators and representatives to Congress, eventually threatening slavery’s continued existence. Until the outbreak of the Civil War, however, the South retained enough congressional, executive, and judicial support to eliminate the line dividing future slave states from free states in the Western territories, and to criminalize assistance to escaped slaves in the Northern states. While the political power of the South didn’t significantly affect the earnings of Northern workers and farmers, the persistent growth of that power and the threat it ultimately posed to the Northern economy—and to the North’s increasingly democratic values—led to the formation of a distinctly Northern Republican Party and, in time, to civil war.
Today, by other means, that conflict continues.
THERE'S NOTHING NEW ABOUT Northern manufacturers moving south to lower their labor costs. Textile factories, which had been located chiefly in New England, began to pop up in the South as early as the 1880s. In 1922, the average hourly wage in Massachusetts mills was 41 cents while in Alabama, it was 21 cents. Over the next six years, 40 percent of the Massachusetts factories shuttered their gates, and by the mid-1960s, the Southern textile industry was out-producing its Northern counterpart by a 24-to-1 margin.
But the shift of higher-value manufacturing to the South since the 1960s, once the South was air-conditioned and its Jim Crow laws nullified, has had a more profound effect on the American economy. Workers at the unionized auto, steel, aerospace, and other durable-goods factories in the Northern and Western states during the three decades following World War II attained a standard of living and of employment stability all but unknown to earlier generations of workers. Since the 1970s, however, that standard—and with it, the American middle class—has been eroded by the emergence of lower-wage competition from both the Global South and the domestic South.
Confronted not only with the financial collapse of 2008 and the ensuing Great Recession, but also with the double whammy of the two Souths, the median wage of all U.S. manufacturing workers fell by 4.4 percent between 2003 and 2013. Facing the possible collapse of the unionized auto industry, the United Auto Workers was compelled to institute two-tier contracts, bringing their less-senior members’ pay down to the levels that workers in the non-union Southern plants make. Newer hires at General Motors, Ford, and Chrysler are paid roughly half ($14 to $19 an hour) of what more senior workers make, and can’t make more no matter how long they work there. (Now that the industry has recovered, removing that ceiling from those workers’ pay has become, not surprisingly, a UAW priority.)
The decline of Northern wages to Southern levels hasn’t been confined to manufacturing. The expansion of Walmart from its Southern base into the North and West has had a profound effect on the incomes of retail workers and of workers all along its supply chain. Ferociously anti-union (when butchers at one Texas Walmart sought to unionize, company executives responded by eliminating the meat departments from every store in Texas and six neighboring states), Walmart directs its managers to keep payroll expenses between 5.5 percent and 8 percent of sales, though the norm in retail marketing is between 8 percent and 12 percent. Wages in counties where a Walmart has been operating for eight years, economist David Neumark has found, are 2.5 percent to 4.8 percent lower than those in comparable counties with no Walmart outlets.
But Walmart—America’s largest private-sector employer, with 1.4 million U.S. employees—is in lots of counties. In tandem with Southern manufacturers and with the spread of Southern economic norms, it has brought Northern wages closer to Southern levels. In 2008, the wage gap between states of the industrial Midwest and those of the South—for all workers, not just those in manufacturing—was nearly $7, according to Moody’s Analytics. By the end of 2011, it had fallen to $3.34.
THE SPREAD OF SOUTHERN earning levels northward has been accompanied and abetted by the concomitant spread of Southern values. Just as Northern bankers and textile mill owners such as Massachusetts’s Abbott Lawrence profited from and supported the antebellum South, today’s business and financial leaders from all parts of the nation profit from the low-wage production of the global and domestic souths, and support the suppression of unions in the North as well as the South. What’s new is the spread of historically white Southern values to Northern Republican politicians—the latest development in the 50-year Southernization (and nearly complete racial whitening) of the Republican Party.
In the last three years, the Republican governors and legislatures of such onetime union bastions as Michigan, Indiana, and Wisconsin have joined the South in enacting “right to work” laws intended to reduce union membership. Since these laws cover only private-sector unions, and thus have no effect on the labor costs of government employees, the Republicans’ initial motivation was almost entirely political: Diminishing unions weakened institutions that generally campaigned for Democrats. But in recent months, bills to lower wages for construction workers on public projects have been moving through the legislatures in those three states, and the Michigan legislature has passed a bill forbidding cities from setting their own minimum-wage standards—all measures designed to hit workers’ pocketbooks. Moreover, laws designed to depress minority, millennial, and Democratic voting by requiring voters to present particular kinds of photo identification have been enacted not only by eight of the eleven once-Confederate states, but by Indiana, Michigan, and Wisconsin as well. Like the pre-1861 slaveholding elites, today’s Republicans appear increasingly dedicated to Southernizing the North.
White racism is the great hardy perennial of American life and politics, and it has never been confined to the South. But never before have Northern-state governments (all of them Republican) sought so successfully to emulate policies of racial suppression and anti-working-class economics that the South originated. Four decades of declining economic prospects, overlapping with a demographic revolution that has transformed a predominantly white nation into a profoundly multiracial one, has heightened racist anxieties among many within both the Northern and Southern white working classes—anxieties that Republicans, both Northern and Southern, have skillfully exploited. And as globalization weakened the power of unions in the once-industrial Midwest, Republicans in those states who long had wished to make unions as inconsequential as they are in the South had a golden opportunity—and took it.
With divided government at the federal level blocking such measures as a minimum-wage hike, and with Southern congressional resistance to strengthening workers’ rights blocking labor-law reform even when Democrats have controlled Congress, the federal government in recent decades has done little to obstruct the nationalization of the white South’s racist and anti-worker norms. Since 2013, however, at the very same time that Northern Republicans have moved right, states and cities where multiracial liberal coalitions govern have taken it upon themselves to enact their own minimum-wage increases, paid sick-day legislation, and statutes making it easier to vote. But there are too few such states to offset the malign influence of the South on broader wage trends.
Barack Obama came to national prominence in 2004 hoping to bridge the divisions between blue states and red. Instead, these gulfs have deepened. Federal remedy is stymied; the public policies of the red and blue states are racing apart; and the fundamental divisions that turned one nation into two in 1861 loom larger today than they have in a very long time.