Rust Belt – Decline, Importance, Future

by David Berendes
In the 20th century the area of western New York, Pennsylvania, West Virginia, Ohio, Indiana and the Lower Peninsula of Michigan with Illinois, Iowa and Wisconsin was not called Rust Belt. It was referred to as Manufacturing Belt, Factory Belt or Steel Belt. The economy had several boom periods and was a magnet for immigrants. It was the role model of the American Dream. You work hard, you earn good money. Everyone gets the chance to earn his own money that he and his family can live off.
But today the situation is different. While the rest of the country is recovering from unemployment the Rust Belt still has an unemployment rate of up to 15% compared to 6% of the rest of the country. Because of the failing economy, there is a lack of opportunities for the people living in the Rust Belt. Probably caused by this are the high rates of drug abuse which are way higher than in the rest of the country. In 2015 16,567 people died of drug abuse in the states that belong to the Rust Belt.
Even though they still live in an industrialized country which normally has high life expectancy the people in the Rust Belt have a low life expectancy. In Cincinnati, Detroit and Indianapolis the average mean age at death is just 77.4 years which is a big gap to the mean age of 81.8 years in New York City.
But why is the Rust Belt so important? First of all, it’s states have 133 electoral votes. Both Barack Obama and Donald Trump had the backing of this region. So whoever will run for President of the United States of America in 2020 will depend on those electoral votes.
The public opinion is that the situation Belt is only caused by Globalization We will have a look at the reasons for decline later on. But it is still very important for politicians to improve the life of the people living in the Rust Belt in a time where the public questions Globalization and its effects.
Most people think the decline of the Rust Belt started in the 1970s but it actually started during the 1950s. During that time the region’s dominant industries faced virtually no product or labor competition. Even though this is described as the good times of the Rust Belt this started the problems of the Rust Belt. Since there were only economic giants the market situation was close to a monopoly. So they had little incentive to innovate or become more productive. Limiting competition is oligopolistic behavior instead of the free market with competition and innovation that is normally connected with the United States economy in our mind.
The Rust Belt industries were, in fact, able to limit the competition successfully by lobbying the government to protect them from competition from the 1950s till 1980s.
But not only the industry was good at preventing competition. The powerful labor unions were also very successfully to limit labor competition. Compared with other similar workers the average Rust Belt worker enjoyed about a 12% wage premium for the same work.
After the 1980s the competitive pressure increased. The production shifted to southern parts of the USA and more imports. This slowed the decline because the competitive pressure forced the companies to become more innovative and productive. It must be observed that before the industries of the Rust Belt went abroad that they shifted to the southern parts of the United States.
Current research shows that Rust Belt industries would likely be stronger today than they currently are had Congress not acceded to industry lobbying efforts for protections from (foreign) competition during the 1970s. The longer that lack of competition within an industry exists, the weaker the industry ultimately becomes.
Since the 1980s many presidential candidates have devoted much of their time to the economic concerns of the Rust Belt region. I will look now at the strategies of the last President Barack Obama and the now serving President Donald Trump because they have different attempts and strategies. But both tried to re-increase the manufacturing base. But the question is: How can you do that?
The manufacturing jobs were only partly replaced. Most of by much lower paying jobs in retail and government. The people with those low paid jobs as well as, of course, the people who are still unemployed are not satisfied with that.
During the term of Obama, they were trying to settle new Industries in this region. Most of the factories are automated and produce and develop new things like nanotechnology.
The problem with those types of manufacturing is that it requires fewer workers who need advanced training and skills. You can tell that this did not help a lot without looking at any economic statistics. The Republican Presidential Candidate Donald Trump won the 4 usually Democratic States of the Rust Belt during his election. This is the obvious proof that Obama’s plan for the Rust Belt did not work out or could satisfy the citizens.
Donald Trump wants to establish his policy of „America first“. He showed recently what he means by that phrase when he set up the decree that for the future big pipeline projects only steel made in the USA will be used. But this reminds a lot of the protection that was established in the 1970s which accelerated the decline of the Rust Belt. So will the same mistake be made again?
In an interview with „Der Standard“, a worker of one of the remaining industry company in the Rust Belt stated that he does not believe that because of Donald Trump a wonder will happen and all the jobs would suddenly come back. But he likes that he talks about the rights topics and gets public attention on them.
Here we have to wait if this was just a symbolic act or if he will continue trying to limit competition to try to help the people in the Rust Belt.
The different attempts of helping did not work. Maybe there is the need of more competitive pressure so the companies come up with innovations and find ways to become more productive.
As it says in the constitution the citizens of the United States of America „are endowed by their Creator with certain inalienable rights, that among these are life, liberty and the pursuit of happiness“.
The government ensures a free and humanely life. They can support the people in their pursuit of happiness. But too much protection will be contra productive. Competition is one of the essentials of a market economy. Otherwise, it will still be missing innovation and efficiency.
If the Rust Belt is to thrive again, it must be able to compete and succeed in an exceptionally competitive national and world economy, something that the industries fought against for many years. For this to happen the government needs to allow competition. Blocking it through laws to protect the industries or supporting them with massive subsidies is more harming than helping.
But of course its still questionable if this way would work. But the more important question is if it is possible for the next presidential candidate to postulate to stop the programs in the Rust Belt and still get their votes. I personally would doubt that but let’s1 see what the future brings.