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Originally published July 12, 2009 at 12:00 AM | Page modified July 12, 2009 at 1:37 AM

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On the Economy

Boeing risks overplaying its hand with Southern strategy

It's healthy to run a little scared in today's economy as long as you don't run over the edge of a cliff or throw others off. That's the risk with the most strident comments about the bad-business climate here.

Special to The Seattle Times

Reality check: If Boeing's Puget Sound employees decertified their unions and agreed to a 20 percent pay cut tomorrow, the company would still shop around the location of its second Dreamliner assembly.

This is a game at which Southern states excel. It's an open question whether South Carolina still has game. The state:

• Is in political chaos with a governor mired in scandal.

• Is suffering some of the highest unemployment in the nation, 12.1 percent in May.

• Finances are so troubled it may have trouble marshaling the incentives it has successfully used in the past.

The Vought assembly plant purchased by Boeing was among the most troubled parts of the 787s outsourced-supply chain, in part because of less experienced workers and arguably without the talent and synergy that come from a dense, highly skilled aerospace cluster. Turning it into a full-scale production line, as in Everett and Renton, would require huge investment.

Still, the threat is real. It's already brought out the long knives of some business lobbyists against Puget Sound unionized employees and reinvigorated the questionable charge that Washington has a dismal business climate.

On the other hand, some are so sick of kowtowing to Boeing threats they're ready to call the company's bluff. Division, exaggerated or misunderstood business conditions here also play to South Carolina's advantage.

Southern economic-development strategy is only partly based on lower wages. In its purest form, it involves state officials making a full-court press to win a single high-end economic asset, especially using huge tax breaks, other public incentives and cheap land.

South Carolina epitomized this with its courtship of BMW in the 1990s. The German automaker built its only North American factory near Spartanburg and spawned a supply chain that caused the local Interstate to be nicknamed the autobahn.

The Southern states were desperate to diversify beyond agriculture and textiles, and they also benefited from the migration to the Sun Belt and the rise of Atlanta and Charlotte, N.C. The strategy has not been without controversy, with critics questioning whether many projects ever meet the optimistic projections that sold them. In many cases, the results don't match the BMW benchmark and in few do they create widespread prosperity.

For example, North Carolina recently trumpeted a $1 billion Apple data center in a rural county, thanks to a $46 million tax break. The operation will employ only 51 people in a state that has lost hundreds of thousands of jobs in textiles, apparel, furniture and now banking. That's more than $900,000 per permanent job.

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In fact, the Great Disruption is affecting many parts of the South far worse than Western Washington.

There's no guarantee that the South will see the kind of success in the future that it enjoyed in the bubble and Sun Belt migration days.

Of course, the same is true for Seattle, a theme regular readers of this column are familiar with. It's healthy to run a little scared in today's economy as long as you don't run over the edge of a cliff or throw others off. That's the risk with the most strident comments about the bad-business climate here.

It's mostly a myth.

And, in addition to being divisive because much of it translates into blaming workers or programs that benefit them, it obscures the real competitive issues that face us.

The Puget Sound region has one of the most vibrant, talent-rich and diverse metro economies in the nation. It's what allowed it to avoid the downdraft of the recession for so long and to sustain comparatively light injuries as events continued to worsen globally. Seattle punches well above its weight-class among metro areas.

The Beacon Hill Institute at Suffolk University in Boston ranked Washington No. 6 in its 2008 State Competitiveness Report, which looks at a wide range of yardsticks, from fiscal policy to business development. South Carolina came in at No. 46.

In Corporation for Enterprise Development's (CFED) last Development Report Card for the States, a widely respected benchmark covering everything from the economy to social issues and quality of life, Washington received a B grade. South Carolina earned a C.

And in its new Asset and Opportunity Scorecard, which assesses 46 measures of individual well-being, CFED, a nonpartisan, best-practices think tank whose sponsors include Bank of America and Wal-Mart, rated Washington a B and South Carolina a D.

Meanwhile, a recent report by the Milken Institute put Seattle 11th among the nation's elite life-science clusters. The closest it came to Carolina was No. 5 Raleigh-Durham, N.C. Its Research Triangle Park has benefited from six decades of patient state investments and three research universities rather than the incentives game of South Carolina.

Unions are a familiar whipping boy in the bad-business-climate myth. Funny, the world's largest exporter of manufactured goods is union-heavy Germany.

And it stretches credulity to argue that four strikes over 20 years are anywhere near the competitive burden of the executive blunders that put the Dreamliner behind schedule. (Incidentally, the Vought plant in North Charleston is represented by the International Association of Machinists.)

It's especially disingenuous to hide behind the myth when Boeing has benefited from billions in tax breaks and other incentives here.

The Puget Sound region has serious competitive disadvantages, too many of which get little attention. Business taxes are relatively high, partly a consequence of having no income tax and tax-limitation measures. They fall heaviest on smaller, unsexy industries without Boeing's lobbying power.

In CFED's categories of business vitality, Washington went from an A in 2000 to a D in 2007, hurt by less manufacturing investment, fewer jobs created by startups and fewer company's going public.

Businesses created by university research, a critical element to Silicon Valley, is tepid here. We're creating and growing far fewer firms that could be tomorrow's Microsofts.

As with many technology and creative hot spots, Seattle suffers from affordability problems. You can get a lot of house for the money in South Carolina.

We do need to cooperate and fight together to preserve and expand this world-class aerospace cluster. We need to realize our rivals are in Shanghai and Singapore not just South Carolina.

But Boeing risks overplaying its hand. We survived the loss of its headquarters. We'll survive without the second 787 assembly line and hopefully be prodded to reinvent ourselves for the 21st-century economy.

You may reach Jon Talton at jtalton@seattletimes.com.

Copyright © 2009 The Seattle Times Company

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About On the Economy

Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest
jtalton@yahoo.com

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