News, notes, and observations from the James River Valley in northern South Dakota with special attention to reviewing the performance of the media--old and new. E-Mail to MinneKota@gmail.com

Wednesday, April 18, 2018

Aberdeen: a burner town

In the jargon of market analysts who characterize communities in regard to their economic development, Aberdeen is a burner town.  

A burner is something that is disposed of once it is used.  A non-contract cell phone which you can buy at Wal-Mart, activate some minutes of talking time, and throw away after using it--particularly if you want no record of the transactions you engage in--is called a burner.  A cheap car bought privately without any submission of paperwork,  used for some kind of shady task, or a demolition derby, and then disposed of, most effectively by burning, is called a burner.

Communities which are desperate for jobs and business activity but have little in the way of location and infrastructure to offer are called burners when they accrue a record of transient businesses passing through them.  The usual situation is one in which the local community offers some very significant financial incentives to prospective companies.  The state in which such communities are found are nearly always  "right-to-work" states, meaning they are anti-union and have legal codes which are pro-employer and anti-worker.  The pay level in such communities is so low that any enterprise that can offer slightly better wages will have no trouble recruiting employees.  Some otherwise legitimate businesses sometimes find  need to set up a quick, temporary operation, and they seek out such communities.  Such communities are also attractive to fly-by-night operations.  Low costs, minimal standards, and a tolerance for unethical and dishonest enterprises are are what such communities offer to attract potential businesses.

Aberdeen began and grew as a railroad hub, the source of its nickname  Hub City.  It was never a boom town, and it spawned few resident industries.    What growth it has experienced has been as a distribution center, the third largest city in South Dakota, about 200 miles away from the largest cities in the Dakotas, Sioux Falls and Fargo.  After the collapse of railroads during the 1970s, population growth in Aberdeen stagnated, actually experienced a slight decline: [1970-1980] -0.24 %/yr [1980-1990] -0.2 %/yr [1990-2000] -0.02 %/yr. 

During the late 1970s and early 1980s, the rather intricate web of railroad tracks that wove through Aberdeen connecting it with towns in all directions was dismantled and the rights of way turned into bicycle and jogging-hiking trails with many of them returned to farm land.  During that period, the 14-county area around Aberdeen led the nation in its rate of outmigration.  Without the rail connections, Aberdeen was isolated and hard to get to.  For a time Republic Airlines offered convenient air service with local direct flights between Sioux Falls, Fargo, Bismarck and the Twin-Cities.  But that service was not sustainable for long and service shrank to flights only to the Twin-Cities hub. Aberdeen is not easy to get to.

In 1989, Aberdeen was hit with a calamity when the Imprimis plant, a subsidiary of Control Data, the manufacturer of computer systems was closed.  Control Data was struggling to stay solvent in the swiftly evolving age of cybernetics  and was closing plants and laying off employees throughout the country.  However, when it closed the Aberdeen plant, it said the plant was too far away from its customers.  That reason emphasized the town's inconvenient location and sparse infrastructure.

Three electronics-related companies were recruited to occupy some of the space vacated by  Imprimis and over time provided about 300 jobs, but those companies, too, have left town.

For a  time some vacant buildings housed call centers which employed hundreds, but after a brief flourish, they, too, drifted away.  A locally grown business closed down 240 jobs in 2015, when the Wyndham hotel reservation system left town.  It was originally the Super 8 hotel reservation system, but was transformed into the Wyndham group after a series of mergers.

In their effort to attract business, promoters emphasize the low cost of doing business in the state,  and emphasize the very few workers who are union members.  A former colleague who was a labor economist remarked that the climate is great for businesses but a lousy place to work.   But he was quick to point out that South Dakota's low tax burden and anti-labor laws do not, in fact, attract stable, reputable businesses.  Such businesses do not mind paying taxes where there is a strong, reliable infrastructure to support their operations.  They consider taxes an investment in their operation.  But Aberdeen has not attracted the kind of businesses that create a stable and accomplished work force.  A sampling of business closings since Imprimis left town shows the burner pattern:

  • 1996:  Sheldahl closes, 125 jobs.
  • 2001:  Midcom closes, 190 jobs.
  • 2008:  K.O. Lee, a local tool manufacturer closes.
  • 2009:  Hub City, doesn't close but lays off 79 in Jan, and Feb.
  • 2012:  Wells Fargo Finance lays off 66.
  • 2012:  Molded Fiberglass  lays off 92.
  • 2012:  Verifications cuts 77 jobs.
  • 2013:  Northern Beef Packers lays off 108 in April, 260 in July, eventually closes.
  • 2015: Midstates Printing, cuts 55 jobs.
  • 2015:  Wyndham Hotels closes, 240  jobs.
The latest large-scale employer to leave town is Molded Fiber Glass Co. which announced its closure in December with the elimination of 409 jobs.  Its plant was a classic burner operation.  The plant was built solely to manufacture the huge blades for wind turbine generators.  It had only one customer:  General Electric.  Economic development people nattered away about the facility becoming a part of the Aberdeen business community,  but never broached the fact that the plant was created to make only one product for an order from one customer, and would likely be shut down when that order was filled.

When the announcement of the closure was made in December, neither company or economic development officials mentioned that a year ago  General Electric proudly announced:
As of April 2017, GE has completed the acquisition of LM Wind Power, a leading independent supplier of rotor blades to the wind industry. By in-sourcing wind turbine blade design and manufacturing for GE Renewable Energy, we improve our ability to increase energy output while reducing the cost of electricity to create more value for our customers.
GE had acquired its own manufacturer of wind turbine blades, a global company for $1.5  billion.   It no longer needed MFG Co.  LM Windpower was headquartered in Denmark with a plant in Grand Forks, ND, which employs about 650.

Aberdeen's shaky economic status is also reflected in the retail sector.  This year its Kmart was closed, and today it was announced that Herberger's, one of the original anchor stores in the Aberdeen Mall, was purchased by liquidators and will soon close.

Meanwhile, the community tries to attract more burner operations by boasting how cheap it is:
We have no state income tax, no corporation tax, low business and property costs, a great central US location, an expanding workforce, and a regulatory environment that consistently ranks high in the country. In fact, South Dakota is almost always at the top in nationwide studies of business friendliness for small business and entrepreneurship.
In the current frenzy to create jobs, there is little attention paid to those jobs largely filled  by immigrants, jobs that people actually fill out of desperation, not jobs they want to spend their lives doing.  Companies do not think much about  jobs that people can live with.  Folks like to talk about workforce development, but they are silent about job development that supports decent lifestyles and stability.  

Such  is life in a burner town. 





2 comments:

Anonymous said...

I remember Midcom with the owner based out of Watertown and that plant still going. It seemed like Midcom with a number of other companies would use up all their incentives which cost the community to sell themselves in competition and when those incentives would expire these companies would pick up and leave. The bulk of their production was shifted to Asia. Even then the line workers talked about wage collusion or limits to bring these companies here though denied by those in the community who were active in economic development.

What is happening in the state and how it sells itself seems magnified in Aberdeen. Selling yourself cheap never wins and is not sustainable. Go High! I'm thinking of Germany with their apprenticeship program where they promote it higher than the local University and Masters graduates and that is not to undermine higher education but rather focus on quality, precision and innovation. A story that highlighted all this was broadcast on NPR. Germany has no debt as a nation if memory serves me right. Very different approach in that country in how they treat & value their citizens than here in the US.

Does Hub City still have a Union? I remember maybe 30 years ago they had a strike out there.

David Newquist said...

Yes, International Association of Machinists and Aerospace Workers, District Lodge 5. Hub City responded to that strike by threatening to hire replacement workers (scabs) which state law enables.

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