Foreign Dollars Key To Southern Revival

AT first glance, the most distinctive characteristics of the Southern economy may seem at odds: The region captures the highest percentage of foreign investment in the United States yet struggles with the nation's highest illiteracy rate. But because Southern growth is increasingly dependent on foreign capital, the region is challenged to better educate its work force to make it meet the demands of a more technologically advanced economy.

Foreign investment promises job creation and capital investment for Southern states - which is crucial because only a small percentage of incoming capital migrates from the Northern tier.

Advanced high technology represents more than 20 percent of US exports, according to the US Commerce Department. Southerners are concerned about keeping up - and remaining attractive to foreign investors looking for an educated work force.

``Adult illiteracy is a major impediment to economic development,'' says Carol Conway, interim director of the Southern Growth Policies Board in Research Triangle Park, N.C. ``Nationally, the percentage of functionally illiterate adults in the work force is 15 percent; in the South it's somewhere between 15 percent and 30 percent.''

With 19 million illiterate adults who lack a high school diploma, the South is grappling with ``technological changes and the globalization'' of business, Ms. Conway says. In Louisiana, Mississippi, and Kentucky, prospects are slim for the unemployed. ``It used to be fine to let kids drop out of school,'' she says. ``But unskilled jobs which require no training are decreasing. That 40 percent dropout rate cannot be sustained'' by an increasingly mechanized farm sector.

At a time when Americans point to Japanese investment in the US as intrusive, Southerners are welcoming it. From 1977 to '87, the average annual growth rate of Japanese investment in the US was 14 percent; in the South it registered 19 percent, Conway says. Japanese investors generally like the South's historically nonunion labor climate, and its attitude toward their investments.

Southern economic growth outpaced the nation from 1977 to '87, but in '89 there was a reverse shift, says Donald Ratajczak of Georgia State University's Economic Forecasting Center.

``There is a lingering parochialism in the South,'' Mr. Ratajczak says. ``When we speak of the North-South divide, we're talking about the Northern Hemisphere versus the Southern Hemisphere. When the Southerners refer to North-South, they're talking about the Northern and Southern states. Awareness on an international scale is very limited.''

But as international trade competition gets more fierce, Southern producers must become more competitive abroad, and maintain a strong presence domestically.

``The biggest downturn at home in the Southeast has been in the construction market and homebuilding,'' says Cedric Suzman, vice president of the Southern Center for International Studies. It is a barometer, he says, of ``overbuilding and a slowdown in the influx of the population. New businesses are not coming in and the old ones aren't expanding at the same rate.''

In Georgia the automobile industry reflects the same problems with overcapacity as the car industry nationally, Mr. Suzman says. And another concern is vulnerability to defense cuts. In some areas, military training is the entire employment base, Ratajczak says. Little growth is coming from textiles, an old and stately Southern industry. The apparel industry is also shrinking.

Texas, a relatively high-technology state, ``is nudging forward,'' Ratajczak says. ``At least it's not receding anymore.'' Emerging from the twin recession in energy and technology from 1986 to '88, Texas is slightly ahead of the national growth rate.

Higher productivity and production in the South may mean fewer jobs, however. Ratajczak identifies prospects for growth including some factories' plans to increase production by up to 50 percent with 20 percent fewer employees. Says Conway: ``We're bound to learn greater efficiency from foreign investment and competition.''