Recession pummels South’s ‘miracle' economy

An afternoon train clunks by in the distance. Steve Hill gathers his thoughts as he closes up his feed shop. He has bad news for his employees, and the next morning he will deliver it.

"Saturday has been a big cash day for us, because a lot of hunters and fishermen come through," says the Sparta shopkeeper and county commissioner, his tired eyes lit by a red Georgia sunset. "But it's been slow. I think people's unemployment benefits are finally drying up. The fact is, we have to cut back, starting tomorrow."

Over the past few decades, millions of Americans moved to the South's big cities and even deeper into the region, drawn by low taxes, light regulations, and easy living. But the underbelly of the Southern "miracle" – a low-wage workforce employed largely by timber groups, service industries, and light manufacturing - is being exposed by recessionary rollbacks in home-building and car manufacturing.

Eight Southern states are seeing unemployment and work-hour cutbacks rising faster than the national average and seven states now have double-digit unemployment rates. That's putting pressure on governors and legislatures to expand historically meager unemployment benefits and raise taxes – part of the political upheavals riding the economic tides from Sparta to Washington.

The situation is particularly harsh in Hancock County, Ga., which, along with its neighbor, Warren County, now faces 20 percent unemployment – the highest in the state. Dwindling timber taxes means the county can't even afford to maintain some of its 400 miles of dirt roads.

Alabama's Jefferson County was forced to lay off 1,000 workers earlier this week – about one fourth of its workforce – after risky investments in municipal bonds went awry.

It's put a damper on local celebrations and weekend excursions on Lake Oconee. And it has conservatives worried about the future of the pro-business economy epitomized by the South, a strategy some economists say laid the foundation for the credit and housing crash.

"Ultimately, the recession is going to hit us [in the South] harder," because of the higher percentage of people in poverty, says Marianne Hill, senior economist at the Institutions of Higher Learning in Jackson, Miss. At the same time, she notes, Southern politicians are reluctant to tax the wealthy.

The income gap grew three times faster in the South than the national average in the past decade or so, says Ms. Hill, even as Southern cities such as Atlanta, Austin, and Raleigh became some of the fastest-growing cities, attracting banking and research communities.

In Mississippi, wages for the highest earners grew by 23 percent between 1995 and 2003, compared with 9 percent for the rest of the country, according to the Institutions of Higher Learning.

Growing income inequality "is a national story, but the South may show it most dramatically because they pushed the low-wage strategy most successfully," says Joseph Persky, an economist at the University of Illinois in Chicago, who has studied the economy of the South. He believes the region's low-wage, anti-union model won't survive as the economy moves away from traditional manufacturing industries. "[The South] can't compete with Mexico, let alone China."

Local conservatives paint a slightly different picture: In the past three decades, majority-black, Democratic counties such as Warren and Hancock have seen government share of county domestic product grow to more than 50 percent. That, they say, has suppressed enterprise and self-determination.

When a French perfume bottle-maker moved into Hancock County, says Sparta shopkeeper Mr. Hill, most job applications came from outside the county. Locals who got hired showed little interest in the work and tended not to last, he adds.

"There's work to be done here, but people don't want to do it," agrees Andrew Coard, who lived all over the world before settling in a turn-of-the-century farmhouse in tiny Jewell, Ga., and opening an antiques shop. Even with unemployment at historic highs in the area, Mr. Coard says he can't find anybody to drive 20 miles to fix up his property.

"The predominant white culture in the South has been strongly oriented towards creation of wealth, not so much redistribution of wealth, and [President] Obama's current policies are really a challenge to that whole idea," says Merle Black, a political science professor at Emory University in Atlanta. Conservatives here fear a Democratic Washington will use the recession to push greater regulation and taxes in the region.

That won't be easy. The South's most unpopular governor right now is North Carolina's Bev Perdue, a Democrat who faces 25 percent approval ratings after proposing $1.6 billion in new taxes to plug a budget gap. And none of the 23 states that voted to expand unemployment benefits during this recession are in the South.

Conservatives maintain their faith in the Southern model. The South's economy may be struggling now, but in the long-term, it is more likely to be successful, says Patrick Fleenor, chief economist at the conservative Tax Foundation in Washington.

"The way to fix this economy is to invest in human capital and encourage people to invest in themselves. The state can't fix the wage gap through income transfers," he says.

For Sparta resident David Smith, what's important is not how jobs are created but how soon. The retiree watches the streets from the porch of the old Drummer Hotel, now a low-income apartment complex. He sees crime up and too many residents idle. "I'm just glad I'm not out there having to look for a job," he says.