Michigan’s company towns: striking a balance with powerful employers

It's easy to spot the influence Dow Chemical Co. has had on Midland.

The family name of the chemical company's ancestors is inescapable around town, from the public library to a minor league baseball stadium. The homes of Dow founder Herbert H. Dow and his son, the architect Alden B. Dow, are national historic landmarks. The Dow family foundation has given hundreds of millions of dollars to organizations across the state since the 1930s.

In many ways, Midland is a model company town, boasting economic and cultural offerings far beyond what might be expected from a city of about 42,000 people, all thanks to its dominant corporate resident.

That position, though, could be at risk as the chemical company finalizes a $130 billion merger with Wilmington, Del.-based DuPont that will split off some of its businesses.

When completed, Midland will still be home to one of three companies to be spun off from the new DowDuPont, the companies said in a Securities and Exchange Commission filing in February.

Though the company says it remains committed to Midland — as evidenced by a six-story, 150,000-square-foot building under construction at its corporate headquarters campus — the real impact of the merger remains largely unknown.

Midland is not the first community to navigate these issues. Michigan is home to several such company towns, home to a Fortune 500 headquarters or dominant local employer. Think Kellogg Co. in Battle Creek or Whirlpool Corp. in Benton Harbor.

Those companies and the jobs they bring help pay for homes, send kids to college and offer all the other benefits of economic engines.

But as economies change and global trends influence how and where manufacturing occurs, municipalities everywhere have to consider strategies to retain existing businesses and attract new ones. For a company town, the risk is much greater.

Consider the example of Greenville, which in 2006 lost its major AB Electrolux refrigerator plant to Mexico — and 2,700 jobs — in one swoop. Or Flint, a longtime General Motors hub that saw employment fall from a peak of 80,000 in the 1970s to about 7,200 today.

There are other examples. Baby food maker Gerber Products Co., which started in Fremont, was sold in 2007 to a Nestle Group subsidiary and is now headquartered in Florham Park, N.J. — though the company still maintains a 1,300-person workforce in Newaygo County. And The Upjohn Co., a pharmaceutical firm founded in Kalamazoo in the 1880s, eventually became part of New York-based Pfizer Inc. through a series of mergers, and is a far smaller employer in Kalamazoo County than it was in past decades.

A town that is home to a corporation that can innovate and adapt to changing times is more likely to succeed, since businesses that make up the company's supply chain are more likely to decide to move nearby, said Jim Robey, regional economic planning services director for the W.E. Upjohn Institute for Employment Research in Kalamazoo.

That reduces logistics and transportation costs for the companies, Robey said, while creating more jobs for local residents.

The downside, though, is that "sometimes cities take those folks for granted," he said. Translated, it's the belief that a company is "too big to leave."

Globalization and technological change "certainly puts the larger firms at risk," said Donald Grimes, an economist and senior research associate at the University of Michigan's Institute for Research on Labor, Employment and the Economy. That's partly due to the fact that large U.S. companies now compete directly with companies abroad.

Despite surviving recessions in the 1970s and 1980s, "nobody in Michigan was contemplating General Motors and Chrysler filing for bankruptcy until it happened," Grimes said. "One of those guys easily could go out of business sometime in the next 20 years, too. ... (Kellogg in) Battle Creek — they could get bought up and moved."

If a major corporation were to leave, he added, all of the services that company supports would fall away, too — local property tax revenue, payroll and income taxes, property values, philanthropic contributions.

"It's a bad thing, no question," Grimes said.

Pluses and minuses

The existence of company towns can partially be explained this way: Companies that come to dominate a local economy tend to pay higher wages — something smaller cities and rural counties often find attractive, Grimes said.
A smaller town that has one major employer isn't likely to land another, he said, so communities try hard to hold onto them.

Grimes said he doesn't know of many smaller towns landing large companies these days, adding that many knowledge-based firms in particular prefer to locate in bigger metropolitan areas with more transportation options and a larger talent pool.

For company towns that have a sizable employer paying higher wages, it also can make it harder for a community to attract other businesses that don't pay competitive wages, Robey said.

Where small towns can win, he said, is in their flexibility and their relative ease at bringing the big players to the table to negotiate a deal compared to larger cities.

On the flip side, Robey added, smaller towns might be more risk-averse and have a harder time drumming up the capital resources needed for big projects.

"Major employers here are regularly contacted by economic developers" from other places, he said. "Every town, municipality, village, region should be concerned about their employer base."

The biggest factors affecting workplace decisions today are talent and real estate, Robey said. To be competitive, he suggested communities take stock of their available workforce and buildings.

Municipalities should act more as a partner than a roadblock, he said, especially when it comes to infrastructure or other business needs that could ultimately affect the cost of doing business in a particular place.

But, he added: "I don't mean that you give them the farm."

Cities that rebound

In 2014, the Federal Reserve Bank of Chicago published a report from a years-long study called the Industrial Cities Initiative, which looked at ways 10 Midwestern cities have rebounded from manufacturing job losses.

The bank covers Michigan's Lower Peninsula, along with Iowa and parts of Wisconsin, Illinois and Indiana. Grand Rapids and Pontiac were profiled as part of the project.

Researchers weren't able to pinpoint a factor or factors that worked consistently in multiple cities, so there's no silver-bullet conclusion that could serve as the starting point for a community looking to jumpstart its industrial recovery.

Yet several characteristics emerged of cities that do it well — namely, leaders who are connected to a bigger economic vision and strategy for the city; a greater awareness of the need for regional solutions; and a general openness to racial and socioeconomic diversity, the report shows.

"The way we used to think of it was you had your economic development professionals, and the holy grail of economic development was job creation. It was simply counting those jobs, without a whole lot of thought toward quality or sort of sustainability," said Susan Longworth, senior business economist with the Chicago Fed and a leader on the project.

"And then you had your community development folks who were really concerned with the quality of life" aspects of a place, Longworth said. "The line between those two disciplines is much more blurred for a lot of these places, and they have to work together."

In more than one city, researchers heard stories about business, municipal and community college leaders acting as "sort of the R&D department for many of these businesses when they needed to implement a new technology," Longworth said.

In Green Bay, Wis., for instance, a team deconstructed the papermaking process used by a paper mill and discovered they had pieces that could serve the wind turbine industry, she said. Leaders in Cedar Rapids, Iowa, began to link their city to the creative corridor in Iowa City, roughly 30 miles to the south and the home of the University of Iowa.

Regional thinking

So what does that mean for a company town — especially one that lost its dominant employer?

In Longworth's view, a shift toward regional thinking about economic development is crucial. That kind of shift requires coordination and doesn't happen overnight, she said, but rather is precipitated by a "pain point," such as a factory closure.

"The decision to stay or to leave is not a personal one anymore. It's one driven by economics," she said. "The eventual decision was quite a surprise and often served as a wake-up call for many of these places that were going along. And why wouldn't they? Things were good.

"Some of those lessons were hard-learned, and the (places) that are sort of thriving … (are) the ones that are very proactive in thinking about their economy and in thinking about the region."

In Michigan, cities like Greenville are moving in this direction. The city, and Montcalm County shortly thereafter, signed contracts with Grand Rapids-based economic development agency The Right Place Inc. to begin to market the city as part of the larger West Michigan region.

Not even two years later, that contract already has yielded a $140 million investment from a Chinese aluminum wheel manufacturer that plans to employ close to 300 people in Greenville.

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Comments

Gene Markel
Mon, 04/11/2016 - 10:39am
The ultimate Company Town, Flint what was the true home of GM is now a small remnant of the largest manufacturing sights in Michigan. Thanks Roger.
Matt
Mon, 04/11/2016 - 2:52pm
So given Flint's large available workforce, why aren't (didn't) companies flocking to the place to grab all those former autoworkers? What killed the place?
Wed, 04/13/2016 - 8:39am
Without trying to comment on today's Flint workers, many of those men and women of the Roger and Me days are probably too old and physically worn out 30 years later for industrial work. Factory work beats you down; that's why the UAW pushed "30 and out."
duane
Mon, 04/11/2016 - 4:24pm
This series of articles creates a desire to know more about the why and how the towns succeed or don't. I think there are things to be learned that could help communities and the state do things to make communities and the state more appealing to employers. If it is appealing to a large employer that does most of their business outside of the community/stat that should also be appealing to similar employers. Why and how does a local company go global and stay local? It would be interesting how a small town impacts the company's global practices. How does the community support the success of the company and be an asset to retaining the people in the company thus the company? All of the companies seem to have been in the towns for generations, I wonder how much of the company/founding cultures became reflected in town cultures and how much that the town cultures influenced the company cultures.