Bacon's Rebellion

Democracy Thrives in Sunlight

Does “Business Climate” Matter? The Bluefield Laboratory.

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by

James A. Bacon
in

There has been some disagreement expressed on this blog about the extent to which Virginia’s top-rated “business climate” makes a difference in economic development. There is an interesting laboratory in the vicinity of Bluefield, a mountain town that straddles the Virginia-West Virginia state line.

The editorial writers of the Bluefield Daily Telegraph certainly believe that business climate makes a difference — a sentiment expressed in a column prompted by the decision of Metal Manufacturing and Processing to locate a $3.2 million facility, which will employ 170, on the Virginia side of the state line, in Tazewell County. Writes the newspaper (which is located on the W.Va., side of the state line, incidentally):

During the announcement of MMP’s new location in Bluefield, Va., S.R. “Dick” Smith, president and CEO of [parent company] Raleigh Mine & Industrial Supply Inc., said Virginia aggressively fought for the new jobs.

“Why did we choose Virginia?” Smith asked. “We had other options — Kentucky and West Virginia. But right here is why we chose Virginia. They are excited about new jobs.”

Smith noted when the plant expansion was first proposed, Tazewell County Economic Development Coordinator Margie Douglas coordinated a meeting the following day — a meeting packed with local and state officials, who said “yes, yes, and yes” to all of the company needs.

That’s just one anecdote, of course. And one could argue that what matters are broader measures of economic performance, not a single manufacturing investment. Well, let’s follow that train of thought…

Income per household, though not without its flaws, is arguably the best single measure of economic prosperity. Tazewell, a county of 45,000 people, has a median income per household of $27,304, as reported by Wikipedia. Neighboring McDowell County, W.Va., is one of the poorest in the nation, with median household income of $16,931. Neighboring Mercer County (where Bluefield is located) draws very close to Tazewell, with median income of $26,628 per household.

To make meaningful comparisons, however, we have to drill down a bit deeper. Incomes in metropolitan (and micropolitan) regions tend to be higher than in non-metro areas. Mercer County is somewhat more urbanized than Tazewell: The larger part of the Bluefield-Princeton micropolitan area resides on the West Virginia side of the state line. That should give Mercer County, W.Va., an edge over Tazewell, but Tazewell has the higher incomes. By this line of analysis, Virgina’s better business climate would seem to make a difference not just for businesses but working men and women.

Poor West Virginia. Such a beautiful state — with so many self-inflicted wounds. The conventional wisdom is that West Virginia is poor because of its geographic location: Its rugged mountains isolate it from commerce all around. By that logic, Switzerland ought to be one of the poorest countries in Europe, but it’s not — it’s one of the wealthiest. Economic development in the knowledge economy depends far more upon culture and institutions than geography. The good news for Virginia and West Virginia alike: While we are captives to our geography, we can change our culture and our institutions.

Business climate matters.

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  1. Anonymous Avatar
    Anonymous

    Bacon,
    Give me a (f….g) break about West Virginia. One of the reasons that Mountaineers have had so much trouble is that jerks in Virginia ripped them off. Plus, West Virginians seem to have a lot more pride and a much more questioning spirit that the smug snobs that tend to populate parts of Virginia like Richmond. Mountaineers had the sense to split from Virginia because of the Old Dominion’s hare-brained, self-serving and destructive policies. It is the only state to voluntarily say it wants no part of the original one, in this case “The Mother of Presidents.” Hah!
    And you also forget, in your cloying laud of Virginia’s “free market” spirit, that Virginia actually suckles thirstily on the federal teat. To be sure, so does West Virginia, thanks to Senators like Robert Byrd. But provincial boosters such as you always seem to forget that little, non free market fact in your hysterical economic fantasies.

    “Mountaineers are Always Free!”

    Peter Galuszka (part-time former West Virgniian)

  2. Larry Gross Avatar
    Larry Gross

    One of the things that Virginia might do (perhaps already doing) is to obtain an exit interview with companies leaving and to also do interviews with newly arriving companies.

    If nothing else – patterns and themes might emerge that could help evolve economical development strategies.

    For every company that leaves Virginia, there is another one locating somewhere – and knowing why they located where they did – even if not in Virginia could help us.

    On the anecdotal subject of this thread – I doubt seriously that the criteria for that company was Virginia’s “excitement” about jobs.

    Let’s see some real reasons.

  3. Jim Bacon Avatar
    Jim Bacon

    Peter, you Mountaineer Maniac, the whole purpose of looking at a microcosm like Bluefield Virginia/West Virginia is to get away from the argument that “Virginia is prosperous only because it sucks at the federal teat.” I think the Bluefield microcosm shows pretty clearly that business climate does make a difference.

    As for my “cloying laud” of Virginia’s free-market spirit, that’s just silly. I have consistently used this blog as a platform for criticizing the state’s many, many lapses from free-market philosophy, and I’ve wondered how Republicans in particular can have the audacity to call themselves free-market supporters, given the market interventionist thrust of so many of their policies.

    (Also, I would not equate “free market” with “pro business.” If “pro business” means using the power of government to transfer wealth from the general population to favored businesses, I am totally in opposition to it.)

    Finally, let me say this about West Virginians. They got one big thing right: They seceded from Virginia rather than fight for slavery. (However, secession wasn’t all about altruism towards slaves. Let us not delude ourselves: The commercial orientation of the region towards the Ohio Valley, and the unwillingness of Virginia to extend public improvements to the mountains also were self-interested considerations behind the secession).

    But West Virginia has pretty well bolluxed things since. The state has been one of the most populist, business-hostile states in the country, and its inhabitants are paying the price.

  4. Anonymous Avatar
    Anonymous

    You think the activities of the coal barons might have had something to do with that?

  5. Groveton Avatar
    Groveton

    First, I applaud the people of Tazewell County for working to bring employment to their community.

    Second, I applaud Jim Bacon for acknowledging income per household as a vital measure of societal success. I personally prefer per capita income but we are in the same ballpark here.

    Now the bad news – I really question whether the Metal Manufacturing and Processing company moved to the Virginia side of the state line because of Virginia’s business climate. It sounds a lot more like an effective local effort which, as I have said, should be applauded.

    Jim’s argument then moves on to comparing income levels between Tazewell County, VA and Mercer County and McDowell County, WVa. Now things get interesting. Jim makes the following argument, after acknowledging that Mercer County, WVa has about the same income as Tazewell County, Va.:

    “To make meaningful comparisons, however, we have to drill down a bit deeper. Incomes in metropolitan (and micropolitan) regions tend to be higher than in non-metro areas. Mercer County is somewhat more urbanized than Tazewell: The larger part of the Bluefield-Princeton micropolitan area resides on the West Virginia side of the state line. That should give Mercer County, W.Va., an edge over Tazewell, but Tazewell has the higher incomes. By this line of analysis, Virgina’s better business climate would seem to make a difference not just for businesses but working men and women.”.

    Wow.

    That argument seems to be taking some liberties with observable data. Here are my thoughts:

    1. The real question is why McDowell County (WV) is so much poorer than neighboring Mercer County (WV). Since both counties are in West Virginia they both suffer under West Virginia’s supposed disinterest in Business. This difference between two West Virginia counties is much more significant than the difference between the West Virginia and Virginia counties.

    2. Jim’s argument is that Tazewell, VA ($27,304) has more income than Mercer County, WV ($26,628). My first note is that the difference is $676 per year. In other words, the Virginia residents make 2.5% more. Hardly compelling proof of Virginia’s superior business climate.

    3. Jim tries to stretch the $676 by arguing that Mercer County is more urbanized than Tazewell County. Therefore, according to Jim, Mercer should have more money because urbanized areas are richer than non-urbanized areas. In Jim’s own backyard this is not the case. The highly urbanized city of Richmond has median household income of $31,121. Jim’s home county (which borders the city of Richmond) is Henrico County – with a median household income of $49,185. So, the highly urbanized City of Richmond is considerably less wealthy than far less urbanized Henrico County.

    Richmond too big to use in comparison? Let’s take another example. Let’s look at Front Royal, VA and the county that surrounds it – Warren County. Front Royal is the county seat of Warren County. Front Royal – median household income – $34,786. Warren County – median household income – $42,422. Once again I fail to find support for Jim Bacon’s contention that a more urban area should have higher incomes than the less urban area surrounding it.

    One more time for luck. Charlottesville and Albemarle County. City of Charlottesville – $31,007, Albemarle County – $50,749.

    4. Jim says, “Incomes in metropolitan (and micropolitan) regions tend to be higher than in non-metro areas.”. Not true in Richmond/Henrico, not true in Front Royal/Warren, not true in Charlottesville/Albemarle. From these examples it seems that West Virginia is doing pretty darn well – having most of the metro area and staying within $700 of the Virginia side of the counties.

    5. I don’t have the Forbes pseudo-study in front of me but I seem to recall that West Virginia was at the bottom or almost at the bottom of the list. So, there is basically no difference in income (after adjusting for the penalty of having more of the urban area) between the #1 state for business and the #50 state for business.

  6. Jim Bacon Avatar
    Jim Bacon

    Groveton, Here’s the flaw in your logic. You’re confusing cities/counties with metro/non-metro.

    In Virginia, the urbanized counties outside of core historical cities almost all have higher incomes than the cities. That’s a very different phenomenon than comparing metropolitan areas (core cities, urbanized pieces of counties and all) with non-metropolitan counties.

    I’ll admit that my Tazewell/Mercer comparison was a bit of a stretch because the data I was working with was very rough.

    Maybe it would be more useful to compare non-metropolitan McDowell County, W.Va., with Buchanan County, Va., right across the state line. Both are non-metropolitan counties consisting of hamlets strung along valley roads, and the economies of both revolve around coal mining.

    McDowell County median household income: $16,931
    Buchanan county median household income: $22,213

    Case rests.

    (For the record, I think Wikipedia was using 2000 Census numbers, so they are eight years out of date.)

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