What's working now

In providing jobs for North Carolinians, it's not what uesd to.
And what works today might not tomorrow.
By Edward Martin and Frank Maley

Up the hill from God’s Acre, biotechnology could be Jim Crawford’s salvation. In a laboratory a few blocks from Old Salem’s cemetery, where Moravians sleep — some since the 1700s — beneath rows of marble slabs, he works in the sterile air of biological safety cabinets, extracting cells from the amniotic fluid of pregnant women. The nonembryonic stem cells can morph into different types of body tissue.

“Some of these, we want to remain like stem cells,” Crawford says from inside his white coat and safety glasses. ”But others, we want to change into muscle and nerve.” This is not science fiction. This is the Wake Forest Institute for Regenerative Medicine in downtown Winston-Salem. They grow human organs here.

At 57, Crawford is cultivating something else — another career. Since the 1980s, layoffs have cost him jobs in textiles, electronics and the furniture industry. After the 2005 shutdown of PMI Industries Inc., which made furniture hardware and other products in Welcome, just south of the Twin City, he earned a two-year biotechnology degree from Forsyth Technical Community College. That helped him land a job here. “In the future, you’re going to have to be willing to retrain and relocate to survive,” he says. But such job security can come at a cost. “I’m making about half of what I was when I left PMI, and that was in the $60,000s.”

Crawford’s career path has followed changes in an economy once dependent on manufacturing textiles, furniture and tobacco products and now leaning more heavily on life sciences, finance and other emerging sectors. “We’re the poster child for a region in transition,” says Don Kirkman, CEO of the Greensboro-based Piedmont Triad Partnership. The 12 counties that make up the economic-development organization had a net loss of nearly 30,000 insured-employment jobs from 2000 to 2006. Vanished — or shadows of their former selves — are the headquarters and plants that once made the region the center of the state’s manufacturing might. Statewide, net job creation has varied, with counties that make up the Research Triangle Partnership gaining sharply but some other regions stagnant or losing ground. Figures show state-insured employment in the North Carolina portion of the Charlotte Regional Partnership increased 2% in the period.

The economic shifts have instilled fear and confusion in workers. North Carolina has shed 300,000 old-line manufacturing jobs over the last three decades. Per capita personal income, after peaking in 1997 at 93% of the U.S. figure, has slipped eight of the last nine years, the first sustained decline since the Great Depression. In 2006, it stood at 88% — about where it did in 1987. Household incomes, adjusted for inflation, fell 8% between 2000 and 2005, N.C. State University economist Michael Walden notes. But even those figures are open to interpretation. “We’re a fast-growing state, and young people starting in their careers make less,” says Mark Vitner, regional and national economist at Wachovia Corp. in Charlotte. North Carolina also has the nation’s second-highest rate of legal and illegal immigration. The newcomers, primarily from Latin America, are young and have a birth rate double that of non-Hispanics. Babies, Vitner points out, earn nothing.

To get a picture of what’s happening, focus on the Triad. Probe its technology enclaves, gritty mill towns and back roads, and you’ll find a landscape dotted with prosperity but also littered with the dead-end, dead-wrong assumptions of the past: Automation would save textiles; tobacco would reign forever; foreign furniture could never compete with North Carolina’s. It’s a glimpse into the future, too, with great promise but many potential pitfalls. Jim Crawford is a case study.

Across the street from where he works in Piedmont Triad Research Park, along silent hallways in aseptic glass cubicles lined with beakers and test tubes, Targacept Inc. researchers and technicians target the brain’s nicotinic receptors in a search for drugs to treat Alzheimer’s and other diseases. In the next building, two new companies delve into nanotechnology. Working within billionths of a meter — 100,000th the width of a human hair, explains physicist Daryl Boudreaux, the president of both — PlexiLight Inc. searches for commercially viable ways to generate light while FiberCell Inc. seeks technology to capture electricity from the sun. Then drive 30 minutes to the south side of the city where you’ll find more than 40 technicians at Tengion Inc., which licenses technology from Crawford’s employer, cultivating neo-bladders for patients in medical trials. Commercial production could begin within three years.

In the Triad, the potential for research, logistics and advanced-manufacturing jobs seems boundless. Texas-based computer maker Dell, which employs 1,100 in Winston-Salem, is just settling in. Tennessee-based air courier FedEx will employ 500 in Greensboro when its sorting hub opens in 2009. Honda Aircraft, part of the Japanese car maker, plans to spend $100 million and employ 300 at the headquarters of its budding aviation business in Greensboro. It also plans to open a $28 million, 70-employee plant to make jet engines in Burlington. In that former mill town, Laboratory Corporation of America Holdings performs medical tests. About 3,000 work in some 40 buildings downtown and elsewhere in Alamance County.

Manufacturing is still key. “It has shrunk as a percentage of the work force, but it hasn’t shrunk in importance to the economy,” says Mac Williams, president of the Alamance County Area Chamber of Commerce. About 3,600 work for Reynolds American Inc. in North Carolina, most in and around Winston-Salem. But that number is down from about 14,000 in the 1980s. Many of the losses were what a 2007 study by the N.C. Commission on Workforce Development calls “middle jobs” — the ones that let a worker with minimal education support a family.

While other nations have taken many jobs, so has automation, weapon of choice against cheap foreign labor. Go 25 miles west of Winston-Salem to the foothills town of Yadkinville, where Greensboro-based Unifi Inc.’s million-square-foot, six-story polyester-fiber plant is an example. On vast floors, each as big as a typical Wal-Mart, giant machines whine while robotic AGVs — automated guided vehicles — doff millions of cones of yarn a year. Human hands never touch the material.

At work here and elsewhere, Walden says, is a seismic upheaval of the state’s economic bedrock. “It’s flip-flopped,” the economist says, with the homegrown manufacturers that once ensured a measure of stability statewide, and to the Triad in particular, muscled aside by new ones with shallow roots. Tobacco, textiles (including apparel) and furniture (including forest products) made up 22% of the gross state product in the late 1970s. That has slipped to about 7%, Walden says. Meanwhile, the combined share for banking, technology, pharmaceuticals, food processing and vehicle parts has nearly doubled, from about 10% to more than 17%.

Economists, wary employees like Crawford and corporate executives say something else has vanished — the days when the presence of the big three traditional industries assured a community could rest easy about the future, unfounded as that faith proved to be. What assumptions, they ask, will the next 10 years disprove? The next 30? Is China, now wooing such hot Tar Heel industries as pharmaceuticals, the enemy? Or the Indian Ocean nation of Mauritius, where industrial output — some textile workers wear roller skates to tend machines quicker — is rising at twice the rate of China’s? Or India, which has snatched thousands of jobs from North Carolina’s vaunted banking industry?

Or with footloose companies that invest in brains rather than bricks — enabling them to relocate at the drop of an incentives check — is the greatest threat to a community’s economy really the town, county or state next door? A recent legislative study found the state had promised $3.7 billion in the last three years to get businesses to move or expand here. That figure doesn’t include local incentives. What happens if the money dries up? Welcome to the new age of uncertainty.

Have doubts about globalism’s impact on the state economy? Visit High Point. Here its invisible hand has picked up the center city and moved it eight miles away. In October, streets of the old downtown are packed, the conversations on them taking the tone of an international bazaar. Foreign flags flutter on every corner. Russian accents mingle with those from Sri Lanka, Japan, France — 100 nations in all. This is the High Point Market.

Loren Hill, 53, president of the High Point Economic Development Corp., watches the scene from his office window. “Over there is where the Federal Building and old U.S. Post Office were when I went to register for the draft in 1972.” It’s now a market showroom. Nearby is Showplace, a convention center. Fronting it is the 13-story International Home Furnishings Center, 80 acres of floor space for exhibitors. “My mom used to work at the Sears retail store where Showplace is now.”

More than 180 buildings — 90% of the city’s core — are devoted to the furniture market, attended by 80,000 buyers twice each year. The market thrives here, despite a billion-dollar effort by Las Vegas to lure it there, but High Point’s traditional manufacturers have taken a beating. “When I look at the list of top employers from 20 years ago, we had 17 hosiery mills in town. Today, there are two,” Hill says. The new downtown? “It has shifted out to the Piedmont Centre,” says Tom Dayvault, president of the High Point Chamber of Commerce. The 1,100-acre business park is on the city’s northeast fringes, five minutes from Piedmont Triad International Airport. Many of High Point’s 70 foreign-based companies have Piedmont Centre addresses. More than 11,000 people work in office complexes along its manicured hollows and hilltops. Thousands of them perform back-office jobs for global corporations such as Charlotte-based Bank of America Corp.

Dayvault, Hill, Walden and others stress that manufacturing isn’t dying. Nationwide — and economists say the trend holds true for North Carolina — the value of manufactured goods in 2005 was a record $4.5 billion. But dig deeper. The smallest work force since 1950 produced those goods. Consider High Point and furniture. The industry employs 65,000 and has an annual economic impact of $8 billion in Guilford, Randolph, Davidson and Forsyth, the four counties that touch the city. The market, a year-round industry in itself — it has, for instance, spawned dozens of furniture-catalog photography studios — has an impact of $1.2 billion. “If High Point hosted the Super Bowl,” Dayvault says, “it wouldn’t have that kind of impact.”

But globalization has shriveled furniture employment in North Carolina. Peaking at nearly 100,000 in the 1980s, when 60% of America’s furniture was made within 200 miles of High Point, manufacturing has declined to fewer than 50,000 jobs. Nearly half of the furniture sold in the U.S. arrives from overseas. Most of the jobs remaining are concentrated in design — Winston-Salem is attempting to brand itself as a design center, Chamber of Commerce President Gayle Anderson says — headquarters, distribution, marketing and niche manufacturing. Marquis Seating Co., which makes upholstered hotel furniture, recently moved into a 160,000-square-foot building in High Point vacated by another manufacturer. But it brought its 100 employees from nearby Lexington.

“That’s the wave of the future,” Walden says. “The legacy industries have been protected, in many cases operating just in the U.S. economy where trade rules, restrictions and laws protected their markets. There’s a different world now, a closer world. There’s international competition, cheaper foreign labor, lower trade barriers.” It’s a tough world. A stalwart of the High Point market, Henredon Furniture Industries, founded in Morganton in 1945 and now a subsidiary of St. Louis-based Furniture Brands International, sold high-end, hand-carved beds for $5,000 in the 1990s. Today, similar beds made in China retail for about $700.

To replace lost jobs, industry hunters have set their sights on new targets. Jeffrey Garstka, vice president of Winston-Salem Business Inc., says his organization aims at five: advanced manufacturing, distribution, logistics, financial services and life sciences. The last includes research centers such as Crawford’s employer and businesses that support the region’s major medical centers and Wake Forest University’s medical school. Not only are the Triad’s hospitals and health systems major employers, they have something few of the emerging industries do: ties to a place. Anderson, the chamber president, notes that — with the exceptions of reading X-rays and interpreting MRIs, some of which is being outsourced overseas — health care always will be delivered locally.

“The time,” Walden says, “is past when, as we did in the 20th century, we could have two or three industrial sectors that were solid, purely North Carolina-based.” Furniture makers clustered here because of the hardwood forests and craftsmanship of the settlers who made this their home. Tobacco factories sprang up because the crop flourished in the state’s rich soil and temperate climate. New England textile barons, as well as native entrepreneurs, exploited the rivers and streams to power their mills and, as subsistence farms were clapped out, cheap labor to tend their looms.

Compare that with, say, nanotechnology. Boudreaux, the president of FiberCell and PlexiLight, is also a partner in NanoHoldings, the Rowayton, Conn.-based venture-capital firm that launched them and 12 other nanotech companies elsewhere. It was attracted to the Triad by work being done at Wake Forest’s Center for Nanotechnology and Molecular Materials. The university’s research and aggressive efforts to commercialize it with startups like Boudreaux’s are a draw, but will they have the hold that North Carolina’s natural and labor resources had for so long on its traditional industries? What is there that distinguishes this place from countless others nationwide?

“Virtually every state in the union has people trying to get funding from legislators, economic incentives or whatever to start a Nanotech Valley this or a Nanotech Center that or whatever,” Boudreaux says. “All of them hope to create the next Silicon Valley. But with technology, that’s just not going to happen. There’s also a lot of global activity in this field as the world becomes a smaller place. Scientists all over are looking at nanotechnology. We have some overseas operations because all the good ideas aren’t going to happen in the U.S.A.”

In this respect, some of the state’s new economic engines might prove as vulnerable as textiles, tobacco and furniture finally turned out to be. Banking, which dominates the skyline in Winston-Salem and Charlotte, is a prime example. Moravians, members of a German-speaking religious sect whose roots go back to the 15th century, came from Pennsylvania to settle a 100,000-acre tract that came to be known as Wachau after the estate of their patron in Saxony. They founded Salem, their third settlement in what would become Forsyth County, in 1766.

When William Lemly decided to move his bank from Salem to the county seat of Winston in 1879 — only a few years after Richard Joshua Reynolds opened his tobacco factory there — he needed a new charter and new name. He chose Wachovia. It would grow into the largest bank in the South and, for more than 120 years, Winston-Salem would remain its home. The 34-story, Cesar Pelli-designed tower that housed its headquarters is the city’s tallest building; its old building, the second-tallest. Both dwarf the iconic Reynolds Building. But Wachovia fell behind the big Charlotte banks and, in 2001, merged with First Union Corp. — which also took its name. Headquarters, and hundreds of jobs, departed the Twin City for the Queen City.

Winston-Salem is still the home of a major financial holding company. BB&T Corp., the state’s third-largest bank, operates in 11 states and the District of Columbia. It employs about 1,400 in Forsyth County and nearly 11,000 in North Carolina. But in its rapidly consolidating industry, the lesson of Wachovia is not forgotten. BB&T has long been rumored a takeover target of larger banks such as San Francisco-based Wells Fargo. If that were to happen, some in Eastern North Carolina would call it just. The company, founded in Wilson in 1872, moved to Winston-Salem in 1995 after its merger with Southern National, another émigré from that part of the state.

Even the mammoth Charlotte banks might not be immune to such forces, which causes sleepless nights for some boosters of what has become the nation’s second-largest financial center. Wachovia and Bank of America are now global companies, tied to North Carolina by history, personalities and the fortune they’ve invested in real estate and infrastructure. All that could be trumped by the right deal or a decision from the top that living costs make North Carolina a fine place for operations but headquarters need to be somewhere else.

Another of Walden’s emerging big five — pharmaceuticals — could be imperiled by a different threat, the same that old-line manufacturers faced. At the end of a giant conference table in Targacept’s boardroom, Alan Musso, the company’s vice president and chief financial officer, and Linda Gretton, director of investor and public relations, outline the company’s rise. Until 1997 a subsidiary of Reynolds Tobacco, it earned headlines by demonstrating how receptors in the brain that respond to nicotine might be targeted with drugs to treat a litany of illnesses, including schizophrenia, attention-deficit disorder and depression. It holds 95 patents.

Targacept’s small size and high-caliber work force — more than 40% of its 102 employees have Ph.D.s or medical degrees — are its assets. “It’s no secret that the pressure on Big Pharma to produce is enormous,” Gretton says. Here decisions can be made down the hall, not halfway around the globe. A new drug typically takes about 10 years to bring to market. “Hence their decision to go outside with young pharmaceutical companies like ours.”

Two companies that have cast part of their lot with Targacept are London-based AstraZeneca International Corp. and GlaxoSmithKline PLC, also based in London but with U.S. headquarters in Research Triangle Park and Philadelphia. They have poured $55 million into the company. At the same time, both are investing heavily in a pharmaceutical frontier — China. GlaxoSmithKline conducted more than 30 drug trials there in 2007; AstraZeneca is building a research-and-development plant in Shanghai. American-trained Chinese scientists will work for less than half the salaries paid their Tar Heel counterparts. Technicians at some Winston-Salem biotech companies labor side-by-side with Chinese who expect to return home after their training.

The stakes could be enormous. For example, the state recently awarded an incentives grant valued at more than $6.5 million to High Point-based TransTech Pharma Co., which does research on treatments for cancer and other illnesses, and PharmaCore Inc., which manufactures drugs. The new jobs, company officials say, will pay an average of about $97,000 a year.

Sometimes they rise like a phoenix, if not from the ashes then the rubble of the old. A warehouse for Kayser-Roth, a hosiery and apparel maker caught in the textile industry’s downdraft, used to be on this corner in downtown Burlington. It was demolished to make way for the red-brick and glass, four-story, 114,000-square-foot headquarters of Laboratory Corporation of America, the medical-testing company that started here in 1969. Now Alamance County’s largest employer, it employs 25,000 worldwide and grossed $3.6 billion in 2006.

Communities that thrive in the future will be those that constantly remake themselves, adapt, diversify and invest in human and intellectual capital. It won’t be painless. Many places might find it impossible. “The big challenge is, the new industries are not necessarily located where the old industries have been,“ Walden says. “You’ve got geographic winners and losers. If you go to the Rocky Mount-Wilson area, you find they’ve lost out on the phase.” Among his winners: “The Triangle is one, Charlotte is one. I’m not sure about the Triad yet.”

Educational attainment, though more amorphous than hardwood forests for furniture, rich soil for tobacco or rivers for mills, will be communities’ best bets for the future. “East of Interstate 95 but inland off the coast, that whole area has some work to do. If average educational attainment is under 12 years, you’ve got a serious problem. The south-central area is another region that’s going to struggle, along with the foothills west of the Triad.”

Walden’s assessment amounts to more than paying lip service to the premise that it pays to stay in school. In the last 10 years, he says, not only those workers who didn’t finish high school but anyone without a college degree suffered inflation-adjusted cuts in earnings. “It’s not a pretty picture for those households,” he says. “In the old days, when a person came out of high school or maybe if they didn’t even finish high school, they could go to a textile mill or furniture factory and find a job. You can’t do that anymore.”

Other forces, though they may turn out to be transient, will guide the Tar Heel economy of the future. Visit the laboratory where Jim Crawford works. Its director can usually be found in a white coat, a man with a pinched face and almost timid manner. He’s Anthony Atala, recruited to Wake Forest University Baptist Medical Center in 2004 from a post as director of tissue engineering and cellular therapeutics at Children’s Hospital Boston and Harvard Medical School. A team of more than 20 physicians, scientists and engineers accompanied him to Winston-Salem. Atala became director of Baptist’s tissue institute and chairman of the department of urology.

His is the face of intellectual capital, the seed that will grow into success, but for only a handful of North Carolina’s most fortunate communities. Across town at the labs of Tengion, the King of Prussia, Pa.-based company’s vice president of finance and administration explains the technology being used, all developed by Atala. It begins, Gary Sender says, with a biopsy of a patient’s bladder, which is sent to a lab where its cells are placed on a scaffold shaped like the organ.

Once the cells are implanted and have grown for six to eight weeks, the scaffold is sent to the patient’s surgeon, who implants it. “The body takes over from there, and at the end of the day — about two months — the patient is left with a new bladder.” Tengion estimates there’s a demand for about 10,000 to 15,000 such procedures a year, a market potentially worth hundreds of millions of dollars. And the technology, developed by Atala, might work for other organs.

Tengion, Wake Forest officials report, is only one of a half-dozen or more small companies that already have been spun off by Atala’s work. More are coming. Some have the potential to become giants among their peers, as Burlington Industries and Reynolds Tobacco were among theirs. But they’ll be spawned by education and intellect, not soil, water or wood.