DETROIT — The Midwest is doing a better job of avoiding a recession this year than anyone anticipated, and the region appears to have some unlikely benefactors to thank for its new-found economic stability--the Japanese.
Japanese corporations are making huge investments throughout the Midwest in manufacturing industries like steel and automobiles, rapidly upgrading and transforming the economic base of a region often known, until recently, as the "Rust Belt." As a result, Japanese companies are becoming key generators of new jobs in the heartland, offsetting losses at traditional American employers.
Now, just a decade after the first wave of Japanese companies set up shop in the region, the Japanese employ a total of 103,000 workers in Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. According to a new study by the Japanese consulate in Chicago, this employment figure marks a 66% increase from 1988, when Japanese firms employed 62,000 in the area.
Such massive job creation seems to be helping the region avoid a serious economic slump, despite the current woes of many of U.S. manufacturers based in the Midwest.
Many of Japan's Midwestern operations are so big they dominate the small towns and mid-size cities where they have been located.
Nippon Steel, for example, is pouring hundreds of millions of dollars into a $1 billion joint venture with Chicago-based Inland Steel to produce high-quality steel at a new mill in rural New Carlisle, Ind., that will use the latest in Japanese technology and eventually create 500 jobs.
Not far away in Lafayette, Ind., meanwhile, Subaru and Isuzu have spent $500 million on a new joint-venture assembly plant, employing more than 2,200 workers, to produce both cars and utility vehicles for the American market. In addition, Isuzu officials say at least 27 Japanese parts suppliers have opened smaller factories in Indiana, Kentucky and Ohio to supply the assembly plant.
Today, scores of Japanese companies have located in towns like New Carlisle and Lafayette throughout the upper Midwest, often bringing a cosmopolitan touch to communities that had not changed much for decades. The Japanese consulate's survey found that Japanese companies now operate a total of 1,048 factories and other offices in the region, a 20% gain over 1988.
"It's amazing how many Japanese companies have gone into these small towns," says Diane Swonk, an economist at First National Bank of Chicago. In fact, the local Japanese factory is becoming a small-town fixture, along with the grain elevator and the courthouse.
"New Carlisle is a town of only 1,400 people that hadn't changed much in many, many years," observes Town Council President Dave Swope. "So people were a little apprehensive when the Japanese first came. But I think people are starting to come around to realize the tremendous economic benefits that (the Nippon-Inland steel mill) is bringing."
More and more communities are finding the same thing.
"There is no doubt about the fact that investments like the Subaru-Isuzu plant are good for places like Lafayette," says Jack Riley, a senior vice president with American Isuzu.
Many observers believe that the massive Japanese investment in the region has helped offset the slump in the Detroit-based domestic auto industry. In past economic cycles, a sharp drop in domestic auto sales usually prompted a contraction throughout the Midwest. State officials in Ohio used to say that "when General Motors catches a cold, Ohio gets pneumonia."
No longer. Today, the biggest private employer in the Columbus area is Honda, with more than 9,000 workers; meanwhile, GM has closed one assembly plant in Cincinnati and is threatening to shutter another operation near Youngstown as well.
But even with production cutbacks by the Big Three auto makers throughout the region, Midwestern unemployment has remained remarkably low. "If the auto industry had gone into this kind of slump five or six years ago, this area would be in an outright recession," observes David Sowerby, an economist at Manufacturers National Bank of Detroit.
Yet in Illinois, for example, the jobless rate averaged just 5.9% in 1989; during the last recession in the early 1980s, it peaked at nearly 11.5%. Indiana's unemployment rate dipped below 5% this winter, after stagnating in the double digits from 1981 to 1983.
"Japanese investment has really helped us flatten out the business cycle here," says Rob Fowler, vice president for business development for the Indiana Chamber of Commerce.
Most of the big-ticket investments by Japanese firms in the Midwest have come in the auto industry, which has clustered its American facilities in the region. Indeed, they have largely offset the job losses at the Big Three; while the domestic auto makers closed nine assembly plants during the 1980s, the Japanese have opened eight, and seven of them are in the central United States.