Metro Memphis’s Economy Is Changing –
Again. Are We Ready?
Reid Dulberger, President & CEO of EDGE
Chief Economic Development Officer for Memphis & Shelby County
Ben Franklin said it best: When you’re finished changing, you’re finished.”
Memphis has seen its share of change over the years. From a small trading outpost in the 18th century to the commercial hub of the Delta in the 19th and 20th, from small-scale producer of cotton and hardwood products for local consumption to supplier to the world, Memphis has evolved to its present role as “America’s Distribution Center.” Through it all, we have relied on our location and superior transportation assets to attract industries to drive our local economy. But like those earlier eras, change is coming. The question is: Are we ready?
Globalization has changed where products are made, and e-commerce how they’re distributed and sold. Advances in industrial technology are continually reducing the number of workers required to produce the same level of output or move the same number of containers. Those who remain need more education and a different set of skills to operate today’s more advanced equipment. In fact, where once workers with the requisite skills could be relied upon to migrate to the jobs, in today’s environment companies make investment decisions based on where they can find talent. In this environment, low-skilled workers find their options for a comfortable life ever more limited.
Manufacturing and distribution facilities that wanted to be in this market once had to locate in the City of Memphis to find the workforce and infrastructure they needed, but over time the easy sites were filled; more and more facilities migrated away from the densely developed heart of the city in search of new, large-scale sites better suited to their growing footprint – first into the rest of Shelby County and then beyond. Today, new manufacturing and distribution facilities looking to invest in the “Memphis market” are as likely to locate in neighboring counties and states, as in Shelby County.
In addition to these national trends, Memphis and Shelby County find that our anchor industries have matured and no longer function as the job-creation engines they once were. Transportation and Wholesale Trade disproportionately drive the area economy, but employment in this critical sector is declining locally, as it is nationally.
Industries like Transportation/Warehousing/Wholesale Trade or Manufacturing that sell their products or services into regional, national or international markets are highly coveted by communities. These “traded sectors” or “export industries” pay for their local operations with dollars gained from sales that take place around the globe. They exert an outsized impact because they add dollars and thereby grow the local economy.
Other examples of export industries include corporate headquarters like FedEx, International Paper, AutoZone, ServiceMaster and Fred’s, whose local jobs, facilities and charitable/community investments are funded not by their local sales, but by revenues earned elsewhere. Other economic engines in our community also bring in a significant portion of what they spend locally from outside the area. For example, some education and health care institutions receive state and federal funds, and St. Jude Children’s Research Hospital draws on ALSAC’s global, private fundraising efforts.
“Local” or “non–traded” industries are responsible for about two-thirds of the jobs in Memphis and Shelby County today, but they simply recirculate dollars already here; therefore they have less impact on economic vitality.
Unfortunately, in recent years the number of jobs in some of our mature traded sectors have stagnated or declined, leading to slower overall job growth locally. Long-term economic vitality requires an ongoing process of finding, nurturing and growing export industries so the new can augment the old. That, too, is part of change.
These challenges aren’t unique to Memphis and Shelby County. Change is the constant for all local economies. It’s how we respond that matters.
Every day in Memphis and Shelby County, elected officials, businesses, non-profit groups and civic leaders struggle to find the right recipe for reigniting the local economy.
In today’s world, that recipe requires talent to start, retain, grow and attract the employers we want and need in our community. We must do the very best job possible of educating our youth the first time around; in Tennessee 75% of community college freshmen and 48% of university freshmen do not meet the criteria for college-readiness in math, reading and/or writing.[i] The added cost and disruption of remedial education is a significant burden. And for our entire workforce, we need a comprehensive and easily navigated system of targeted training and education opportunities so their skills remain aligned with what employers need.
Because those with the skills companies need can choose where they want to live, we must also compete for talent through good neighborhoods and amenities that appeal to every segment of the community. If we have the jobs they want and are a place they want to live, more people who have a choice will choose Memphis and Shelby County. Simply retaining more of our own youth after they complete their schooling or post-secondary training will be a significant start.
The recipe also requires growing industries that draw on local strengths. The recently announced expansions of local health care institutions and corporate offices, and the strength of our colleges and universities, highlight a local competitive advantage. Like most large urban economies, Shelby County is seeing growth in these sectors. The movement to organize the collective strength of the anchor institutions in the Memphis Medical Center is one example of how the community can leverage new growth from existing entities. And while some of this growth will be tied to the local market, the opportunity to increase the flow of funds to Shelby County from state, national or international sources is very real.
There are also opportunities to increase industrial jobs, including:
· Orthopedic and other medical device manufacturers have seen great success in Shelby County. Medical equipment, surgical appliances and medical supplies manufacturing combined to employ 11,915 people in 2015. This is up 68% from 7,075 in 2008 and 148% from 4,812 in 2001. Employment at medical device manufacturers ranges from assembly work, averaging $27,000 a year, to industrial engineering ($75,000) to sales representatives ($93,000 and higher).
· Machinery manufacturing in Shelby County has grown by 9% since 2001 and currently has 3,869 employees. This is one of metro Memphis’s top five exports ($1.2 billion in 2015). Memphis-area machinists earn on average $45,000 and can enter their careers with only a high-school diploma.
· Agriculture-related jobs are a relatively small sector but still viable in Shelby County. At 1,488 employees, grain and oilseed milling has grown by 57% since 2001. Exports of chemicals and other agriculture-related products from metro Memphis to global markets are significant.
Identifying opportunities is just one piece of the puzzle; we also need high-quality locations that meet the varying needs of the organizations we are trying to start, retain, grow or attract. Fortunately, good sites exist throughout Shelby County for new office, institutional, commercial or industrial growth, though some areas are in need of pubic investment to maintain their appeal.
The lack of modern, large-scale industrial parks has been a challenge. So too, the lack of speculative (“spec”) industrial buildings – buildings constructed by a developer for lease to one or more tenants, without having any signed leases before beginning construction. Modern industrial parks are prized by some firms looking for a prestige location. Spec buildings are appealing to firms that need to move quickly. Shelby County benefited from both in great abundance during the 1990s and early 2000s, but since then most of the new activity has gone elsewhere in the region where a combination of readily available large-scale sites and aggressive tenant incentives made the investment more appealing.
Recent discussions indicate that spec industrial construction may return to Shelby County, but finding locations for modern, large-scale industrial parks will be more difficult. While Shelby County has a number of large-scale sites that could potentially be new business or industrial parks, these sites are privately owned and typically lack some or all of the necessary – and costly – infrastructure. But if the owners are interested, work to ready one or two good candidates must begin.
In addition, the community also has a number of brownfield sites – former commercial or industrial locations that carry the risk of environmental contamination. Given their location, not all of these sites would be suitable for commercial or industrial use today, even if they could be redeveloped; and those that are may appeal to a limited audience, Furthermore, redeveloping brownfields can be costly. Given that good “greenfield” industrial sites in the mid-south region are still relatively inexpensive, significant subsidies are required for brownfields to be competitive. Nonetheless, a smart, well-formulated approach to brownfield redevelopment can be an important part of the community’s overall development strategy.
In its 2016 Strategic Plan, EDGE identified the need to help developers and communities bring new industrial sites online and provide the incentives necessary to compete for new investment.
We know, however, that despite our best efforts some firms will choose to locate in the Memphis region, but outside City and County boundaries. And while we will compete to bring every good project to Shelby County, it is better they locate near us, where the entire region benefits, than in some other metropolitan area entirely. The three-state, nine-county Memphis MSA is a region. We don’t always act like we have common interests, but we do. Even more rarely do we work together to capitalize on those common interests. The EDGE Strategic Plan recognizes that we need to begin addressing that, as well.
The work outlined above is necessary to position Memphis and Shelby County to better compete for economic growth in our changing world. It will not be easy. It will not be inexpensive. But as Ben Franklin warned, we must change with the times.
[i] College Readiness of Tennessee Students. Controller of the Treasury Board of Regents, January 2016.