The perils of a mature industrial state

WHAT does it mean in these perilous times to be a "mature" industrial state like Illinois? In some ways, it's not unlike being a mature, middle-aged person. You've got more obligations and responsibilities than ever before, and you're working as hard as you can just to keep up with them. But you notice you're not moving on the fast track anymore and are sagging in places that used to look firm and robust.

Where Illinois has been feeling a very definite sag is in the manufacturing sector of the economy, long considered a major source of economic growth. This is disturbing news, for even though service jobs are expected to increase in the future, it is hard to see how the state (or the nation) can survive unless heavy industries and satellite manufacturing firms are producing the products which keep everything else going.

There has been much talk and some progress in improving the state's business climate, but Illinois' present economic problems and its very real hopes for the future go far beyond the traditional wrangling over "hard" business issues and "soft" social and environmental issues.

As an older industrial state, Illinois has splendid cities (whose centers have been foolishly abandoned) and a magnificent transportation system (which has been allowed to fall into disrepair). Illinois is still one of the top manufacturing states in the nation, but many of its factories are old and inefficient and use outdated technologies to produce outdated products. (Too many older firms in Illinois have been going out of business instead of remodeling or expanding, and not enough new firms are coming into existence or surviving those first difficult years. This situation, rather than migration to the Sunbelt, appears to be the major cause of the state's loss of manufacturing jobs.)

There are other anomalies. Over the last four decades, Chicago has become one of the world's great financial centers, but at the same time small- and middle-sized businesses and older neighborhoods and communities in Illinois have not been able to borrow the money they need for simple maintenance and long-term improvements. This has had a dire effect on the job situation. (According to the Illinois Commission for Economic Development, 90 percent of new jobs are the result of the birth of new small businesses or the expansion of existing firms.)

Tight money markets and the recession are making the outlook bleak for small businesses

Finally, there has been an almost unbelievable lack of communication. A comment often heard these days when business people get together with finance experts and government officials is: "If only so-and-so had known that, he wouldn't have had to go out of business." And when representatives from the Department of Commerce and Community Affairs (DCCA) — along with economic development staff from Illinois Bell and mayors from local municipalities — began calling on businesses in the south suburban area of Chicago, a typical response was: "We didn't think anyone knew we existed."

What has happened, of course, is that Illinois and other older industrial centers are bearing the brunt of worldwide shifts in capital investment, energy use, technology, availability of resources and the nature of work itself, Like a red light on the dashboard, the 1974-75 recession warned us we were running low on oil, but it was also a signal to slow down and change direction. There are, as we all know, limits to what a community, state or region can do for its own economy. But nobody has to be reminded of these limits. More interesting are the changes that can be accomplished on the state or local level.

For one thing, Illinois has begun to use its considerable financial resources to restore its own economic base. Over the last several years, Chicago banks and insurance companies have been putting together innovative programs to get development capital to neighborhoods and businesses — particularly small- and medium-sized firms which lack access to long-term loans at low interest rates and are often caught (like family farms) in disastrous refinancing cycles. Both the Continental Bank of Chicago and First National Bank of Chicago spearheaded proposed changes in the federal Economic Development Administration (FDA) loan program which Congress is now considering. The changes would make long-term investment capital available to small firms without the delays and red tape which have characterize: EDA financing in the past. The Chicago banks are now working with DCCA to prepare the state for an expected increase in EDA loans next year. Most Illinois businesses will be eligible — and they will need all the help they can get. Tight money markets and the recession are making the outlook bleak for small businesses.

EDA loans are just one kind of financing which businesses and state and local governments need to know about. At today's high interest rates, private capital, in many cases, can no longer finance economic development

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2/July 1980/Illinois Issues

The state of the State
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The perils of a mature industrial state

on its own. And with today's tight budgets, government — including the federal government — can no longer provide more than marginal assistance. As a result, businesses must work closely with local, state and federal officials to put together an adequate financing package, and all the parties involved must share the risk. A typical funding plan might include private money, local tax increment funding, state industrial revenue bonds, plus guaranteed EDA loans or perhaps an Urban Development Action Grant from the U.S. Department of Housing and Urban Development. Other sources of federal funds are: the Department of Energy, the Farmers Home Administration, Urban Mass Transit Funds, and the Small Business Administration.

Federal programs favor businesses located in economically depressed areas, particularly if they create new jobs and tax revenues. All this, of course, is a boon to your average middle-aged industrial state, providing it can put the businesses in touch with the funding sources — and providing the communities involved know their real needs and are willing to fight for them.

In the long run, Illinois may be in better economic shape than some of the Sunbelt states, for it has the basics — land, water, fuel, a central location, established communities and a trained labor force. There is also a growing consensus that for sound economic development the state must stop letting these assets deteriorate and start building on what is already there. From this point of view, the state's established communities are an irreplaceable resource. As the Task Force on the Future of Illinois explains in its thick and meaty report: by rebuilding and expanding the businesses within those communities and restoring the neighborhoods, we can create jobs, raise revenues, save energy and farmlands, and make life a lot more pleasant for everyone.

Back in the 1960's that would have been called a "far out" view peculiar to neighborhood coalitions and environmental groups. Today everyone is at least giving it lip service. For one thing, business, government, labor and environmental leaders have found that without an ecological view of the situation, it's impossible to understand or even talk together about economic development problems — let alone solve them.