Down so long this looks like up

The erosion of the Triadís once-mighty manufacturing base is a problem that predates ó and will survive ó the recession.

The í00s werenít kind to the Triad. Employment in the region slipped about 5% during the decade as manufacturing jobs left, and sometimes it seemed as if that sorting hub promised by Memphis, Tenn.-based FedEx Corp. would never materialize. Like the rest of the country, the Triad has been socked by recession, but recovery has begun, according to G. Donald Jud, emeritus professor in the Bryan School of Business and Economics at UNC Greensboro and past president of the American Real Estate Society. The biggest evidence comes from the regionís housing market, where third-quarter home sales were up 18% last year and values were holding steady. He expects employment to pick up by the middle of this year.

BNC: Employment in the Triad is about 95% of what it was in the year 2000. Why?

Jud: Just in the Greensboro metropolitan statistical area, weíve lost about 24,000 jobs since January 2000. The main reason is the loss of manufacturing jobs. Because of that, our economy had to grow faster in other areas just to stay abreast, and we havenít done that. Our manufacturing involvement is still right at about 15%. That compares to a national rate of about 10%, so we may have more to bleed.

Could anything have cushioned the losses?

It would have helped if we had been more involved in things like health care and education. The Winston-Salem MSA has a heavy concentration in health care and education, but Greensboro and Burlington do not. It would have helped if more people had advanced degrees. Economies in places that have more people with advanced degrees grow faster. And North Carolinaís high marginal tax rate has some responsibility. I just completed a study of MSAs across the country between 2000 and June 2009. It asked why some grew faster than others. That high marginal tax rate is one factor that stood out.

What can be done?

The No. 1 thing is to have a strong recovery nationally, because the Triad economy is going to follow the national economy. We are in a recovery nationally, and we are in a recovery in the Triad.

Can anything be done locally?

Not quickly. But there are things that need to be done. We need to provide the highest-quality public services at the lowest possible price and have the most efficient government that we can, because we compete with local governments all over the world. Businesses shop around. Individuals shop around. They want high-quality public services, they want roads, sewer and good schools, and they want them with low tax rates.

What else?

We can do more with special initiatives to attract people with advanced degrees. We do it, but we need to do more, with a biotech emphasis in Winston and nanotechnology in Greensboro. We should continue the push for a pharmacy school in Greensboro with the same kind of initiative that brought the law school. Basically, we need to make our region attractive, where educated people who are highly productive will want to live. The state could help by lowering the marginal tax rate.

What are the prospects for manufacturing in the Triad?

We will continue to produce goods, but we are going to do it with fewer and fewer people. Those manufacturing jobs that had been here for decades are never coming back. Textiles, apparel, furniture and tobacco are gone for good.

What do you see happening for the regionís tobacco companies ó Reynolds in Winston-Salem and Lorillard in Greensboro?

We had hoped that they would consider product expansions in the Triad. We have a labor force that, if not producing cigarettes and tobacco products, can produce other things those companies may want to be involved in. Having said that, we were a center of tobacco manufacturing. Itís not clear that we will be a center of food production or other things.

How will the regionís bid to become a hub for aviation and logistics play out?

We donít have a big passenger hub at the Greensboro airport. So companies like FedEx want to use it to bring in freight, and other companies want to use it as a place to locate and produce airplanes. Thatís a positive thing. I donít think itís in the cards for us to become a center of aircraft production like, say, Wichita, Kan. But we could attract similar industries and their suppliers.

How much have FedExís delays in ramping up operations at the new sorting hub stunted development of the aerotropolis envisioned by local leaders?

The delays are significant, but there is no question that FedEx is going to be important to our future. We can link our airport to our interstate highway system, and weíre on a juncture of four major interstate highways. Thatís more than any MSA in the Southeast ó more than Atlanta. Couple that with an airfreight hub, and we become a very good place to do business. You can ship parts in from anywhere in the world overnight, then ship them out the next day or put them on trucks and have them anywhere in the Southeast. Because of that FedEx hub, we become a competitive location for any company that wants to do business with the world and in the Southeast. So any delay in that is to our detriment. Another thing that is to our detriment is that we have delayed building our loop, which would make it easier to move from one interstate highway to another. If we had it built, our job base would be much larger.

Some of the growth in logistics has been in warehousing jobs. Do those jobs pay well enough to pursue?

They may, because we have people that need employment at lower wage levels. But youíre not going to have a lot of people employed there. We have lost jobs in that area related to manufacturing. If youíre not selling goods, youíre not producing the goods and youíre not shipping the goods. Transportation employment is down about 9.3% over the past year.

Will that number go back up when the economy recovers?

When that happens, manufacturing production here will beef up and transportation employment will increase.

What does the Triad have to do to build its life-sciences sector?

Life-sciences companies are developed as spinoffs from research and development, mainly at local universities and colleges. We need to support the Wake Forest medical school and Wake Forest, UNC Greensboro and other universities doing frontier-level research. That will generate ideas and products and companies. You make sure they have the facilities so they can take an idea from the lab into a business incubator and get it going at the first level. There are things you can do, and we are doing them. Thatís something we donít want to lose sight of. Thatís going to be important.

Can Gateway University Research Park in Greensboro and Piedmont Triad Research Park in Winston-Salem coexist?

I donít know why not. It is good to have a lot of research parks. It is good to have competition. Itís good to have space available. Let the flowers bloom where they can.

Could they build more critical mass by working together?

Thatís always a possibility. The problem is that itís like getting universities to work together ó itís hard. They are natural competitors. You have to have some outside force thatís going to give them an incentive to cooperate.

Thatís true for cities and counties, too, especially with the Triadís rivalries.

Exactly. That kind of thing has to come either from the state or the federal government, or perhaps it comes from a foundation like Z. Smith Reynolds. If any of them would make it in the interest of local institutions in Winston-Salem and Greensboro to cooperate, then undoubtedly there would be much more cooperation. The region has the communication in place now for cities to work together. But Iím not sure the competition is bad. Maybe the competition between Winston and Greensboro makes us both better. We all need something to spur us to greater efforts.

Speaking of competition, how can Gateway and Piedmont Triad Research Park compete with Research Triangle Park?

Clearly, as RTP gets congested, real-estate values go up. People can look down the road and say: ĎGosh, I may not lose so much if I move 50 miles down the interstate and Iím in Greensboro.í To be competitive, weíve got to have a price advantage in rents and property value and even wages. I wouldnít think you lose a whole lot by moving down the interstate. The key is making sure the people that you compete for in a national market donít see living in Greensboro as a disadvantage relative to living in Raleigh. That means Greensboro needs to have good schools and reasonable taxes and all of those things attractive to companies.

Why havenít there been more homegrown high-tech successes like RF Micro Devices?

We probably are not doing enough high-quality research at our local educational institutions. The more research you do at local universities, the more of that kind of thing you are going to get.

What lesson did the region learn from Dell?

The major one is that it is difficult to predict what kind of industry you are going to need in the future. So you need to be careful about putting too much faith in industrial policy and trying to steer the economy. Because we are in such a dynamic economy, the needs can change quickly. Even big winners like Dell have seen their business model become antiquated. Right now, everybody wants to be in biotechnology because it pays well and is growing rapidly. But that could change. You donít want to put all your chips on a single bet.

What can be done to improve access to capital for Triad businesses?

Itís not a big issue here, nor is it much of an issue anywhere. There are lots of people around with money to lend to people who have good ideas. Not everybody agrees, but thatís my view. Over the past year, we have been through a big trauma in the capital markets, but they have come back and are functioning reasonably well now.

Unlike much of the state, foreclosures in the region were down in 2009 compared with the previous year. Why?

My numbers show that home sales were up. Thatís part of the recovery process in the Triad. They also show that housing values across the region have flattened out. They are no longer declining nearly at the pace they were the previous six months. Sales are up 3% year-over-year and 18% for the third quarter. Some of that was due to the homebuyer tax credit, but itís also because an economic recovery is under way.

What is your outlook for 2010?

Positive. The recovery is not going to be as fast as past recoveries, but we arenít going to have a double dip. By the middle of the year, we even should see our unemployment rate start to come down.