The closing of the Pillowtex manufacturing plant in Kannapolis, N.C., left many shaking their heads in disbelief. What happened to the once-robust plant--the economic anchor for the town?
Vast disagreement exists between protectionists and free traders on the reasons for the closing. Some groups, including textile unions, were quick to find fault with free trade policies, which they claim attract industry away from the expensive regulations of the United States.
Economics professor Ed Tower, however, said he favors a more multifaceted explanation. "It is a real mistake to blame international trade alone for the substantial loss in jobs in U.S. manufacturing," he said.
Tower attributed the Pillowtex closings to a manufacturing trend in which technological advances increase production while reducing the need for workers. A similar change, he said, took place in the 20th century in the agricultural sector.
Like Tower, University of North Carolina at Chapel Hill economics professor Pat Conway cautioned against attaching too much significance to free trade as a reason for the plant's closing. "Pillowtex closed due to a combination of events: it was very vulnerable to downturns because it was so highly levered, there was a downturn in domestic demand for these products due to the recession and there was an increase in competitor pressure from foreign producers," he said.
One of the major pressures on the company was its inability to service its debt, Conway said. Pillowtex took over the N.C. firm Fieldcrest in the mid-1990s by borrowing money, buying stock and then relying on production to generate enough revenue to make debt payments while maintaining a profit. It therefore lost flexibility in dealing with the downturn in demand that was symptomatic of a nationwide recession because so much of the company's revenue was already devoted to debt payment. "Companies that operate more conservatively are still operating and competing in the current marketplace," said Conway.
Conway said that over the past months he has interviewed 20 textile executives from companies other than Pillowtex, all of whom said they can compete, although the U.S. textile industry faces tough competition.
One of the most obvious microeconomic impacts is the immediate inability of former workers to pay bills. Sixty-one percent of the former workers own their own homes, said Charles Page, senior vice president for community building with the United Way of Central Carolinas. "They had been working all their lives, then maybe had only four or five years left on their mortgages, but now they are presented with not being able to make those payments and losing everything they'd gained over all those years," he said.
Tower describes the workers' capital loss as a by-product of economic trends.
"When the textile industry moves [away] from communities that are heavily involved, the people may have to move away. The tremendous fall-off in housing prices is another cost that these workers have to bear," Tower explained. "When most economists look at the textile industry, they don't consider stuff like housing."
Other secondary casualties of the company's closing include businesses--from fast food to hair salons--that formerly found a customer base in Pillowtex workers.
"Within the first week, we had a man come in who owned a little private auto repair service right down the road from the plant; all of his customers were from the plant and he hadn't had customers in weeks," said Marty Morris, director of the United Way's 211 program who is currently working at the Kimball Lutheran Church Community Service Center in Kannapolis. "The ability of these out-of-work people to purchase goods and employ services has diminished. The trickle-down effect has happened much faster than anticipated."
"At the heart, this is $300 million of payroll no longer being infused into the greater community," said McCray Benson, senior vice president for community philanthropy with the Foundation for the Carolinas. "It will have ripple effects into the independent entrepreneurial businesses, like the café down the street," he said.
In general, Benson said he expects members of society to take care of those who are unemployed due to the ongoing trend away from production. "If we're dealing in a world economy, we also have to look at if there's a place for a livable wage for everyone in the world," he said. "Are we expecting the U.S. quality of life to reduce so that we can have more of an equilibrium of quality of life worldwide?"
History professor John French took this argument one step further, saying economic growth must be shared globally and monitored by a just and equitable trade and investment regime. "
How come the richest society in the world can't even generate jobs for its poorest people in one of its poorest states?" he asked.
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