Smokestack industry still has key role in Midwest's future

What's next for America's industrial heartland? Myriad layoffs and plant closings, brought on by the recession and growing overseas competition, have fueled predictions here that it may only be a matter of time before the Midwest's heavy industries fall, never to rise again.

But the consensus of a number of regional economic experts queried by the Monitor is that - dependent as this region is on steel, cars, farm equipment, and machinery production - no such economic obituary is in order.

They readily concede that Midwest manufacturing will never again employ as many workers as it once did, and that a radical streamlining of its structure and operations is vital.

''If it's going to survive, it's got to modernize and learn to contain its costs,'' explains Nina Klarich, chief regional economist with the First National Bank of Chicago.

But few economists rate the region's heavy industry as in any genuine danger of extinction.

''Don't sell the smokestack industries short - they're still at the heart of this region's growth,'' says Paul Moscarello of Merrill Lynch Economics Inc. ''It's just that we've grown a little lazy and haven't invested in modernizing equipment to make them as profitable as they should be.''

''I think there's a common image that the smokestack industries are dead, but I don't think we'll ever even get near that point,'' agrees Robert Schnorbus, a regional economist with the Federal Reserve Bank of Cleveland. ''The Midwest is going to continue to be a manufacturing-based economy for a very long time.''

Still, there are few signs as yet that producers are willing or able to invest the needed dollars to keep these industries going and growing. A recent Commerce Department survey, for instance, reveals that businessmen expect to reduce capital spending by almost 4 percent this year. George Cloos, vice-president of the Federal Reserve Bank of Chicago, says the only capital spending increases he has noticed have been for backhoes, which scoop up dirt for trenches and foundations, and for a little logging equipment.

Yet replacement and expansion of industrial equipment is expected to play a vital role in the Midwest's recovery. Usually that kind of capital spending picks up in the third or fourth quarter after a recovery begins. This time, most economists say, it will come later.

''Much of the Midwest's existing capital stock is extremely old, but business is behaving in a very cautious manner,'' notes Mimi Ryan, a regional economist with Data Resources Inc.

Some economists insist that stepped-up consumer spending for cars, appliances , housing, and steel over the last several weeks has already helped the Midwest considerably.

''The evidence in hand suggests that we're coming along very nicely on the recovery trail and are not out of step with the national average,'' says Charles Lee, vice-president of Chicago's Northern Trust Bank. ''The level of activity in certain areas is depressed - and nothing to be happy about. But the change in activity is quite positive.''

When the Midwestern economy does recover - and most experts insist it will not until capital spending picks up - the smokestack belt will remain a region in transition. It has been estimated that more than 1 million manufacturing jobs have been permanently lost over the last four years.

''You may see production go back to historical highs - but not employment,'' insists Stanley Duobinis, a regional economist with Chase Econometrics. Though there are glimmers of hope, as auto and steel workers are periodically recalled in small numbers, many who have been laid off must retrain, relocate, or both. Many have taken lower-paying service jobs such as clerking or waitressing. For most, the transition is tough.

''It takes a long time for a steelworker to realize that his job is really gone, and you can't convert him into a computer programmer or medical aide overnight,'' explains Mr. Schnorbus.

For their part, Midwestern manufacturers continue to search for ways to pare down and consolidate operations. General Motors' Buick Division, for instance, recently announced plans to centralize operations from start to finish on 1986 model cars made in Flint, Mich., which it is calling ''Buick City.'' Buick is encouraging parts, materials, and service suppliers to locate nearer its assembly lines, and will order supplies on a much more precise schedule than in years past. The hope is to save transport and inventory holding costs.

''One thing high interest rates made everyone aware of is how expensive it is to hold spare parts and supplies in inventory,'' notes Chase's Mr. Duobinis, who says he thinks other automakers will soon follow Buick's lead.

Though manufacturing has been growing at a slower rate in the Midwest than in other parts of the nation, many economists say that in time this region too will experience some growth. The comparative economic advantage of relocating Midwestern industries in other parts of the country, for instance, is not expected to continue forever. And the region's excess skilled labor supply may soon begin to attract more varied industries such as pharmaceuticals, medical diagnostic equipment, and business communication systems.

''As long as manufacturing nationally continues to grow - albeit at a lesser rate than service industries - I think we'll capture our share,'' insists Schnorbus.

But economists are not looking to the region's heavy, mature industries as a source of growth. A few doubt that some farm equipment manufacturers will even survive the lingering effects of the recession. Though crop prices have improved a little since December, farmers are not expected to be in a good position for another two or three years.

The Midwest would like to lure as much high-technology industry as possible. But David Merkowitz of the Northeast-Midwest Institute in Washington, D.C., argues that the supply of such industry is limited and often not labor intensive. The institute is encouraging communities in the Midwest and elsewhere to decide on a broad, grass-roots basis what economic direction they want to take and then try to pave the way as much as they can. Mr. Merkowitz cites Cleveland's decision to concentrate on the growth of health services and medical technology as a case in point.

''We're warning people, especially in the Midwest, about the dangers in following the siren song of high-tech,'' he says. ''The hope is that they will look at other creative strategies.''

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