Dayton, Ohio: Final Fortune 500 Company Abandons City

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Jon Talton - June 9th, 2009

At the turn of the last century, Dayton, Ohio, was something akin to the Silicon Valley of its day. It was the home to the Wright brothers, of course, as well as Charles Kettering, the automotive genius who would develop so many innovations that allowed General Motors to become the dominant player in a new industry. And the backbone of all this was the National Cash Register Co. (NCR), founded by John Henry Patterson.

Last week, NCR said it was leaving Dayton after 125 years, decamping its headquarters for what urban theorist James Howard Kunstler would dub one of the suburban “asteroid belts” around Atlanta. It marks the departure of the last of Dayton’s Fortune 500 companies and is in many ways the most vicious blow yet to this battered city.

Considering the future we face, of steadily rising temperatures and their effect on the South, and steadily rising energy prices and their consequences for long, single-occupancy vehicle commuting, this is a boneheaded executive decision. (It wouldn’t be the first: the temperamental Patterson drove away a young Thomas Watson, who went on to found IBM). Worse, it’s a stab in the back for a city that spent years catering to NCR’s every whim. Dayton wasn’t even allowed to compete to keep the headquarters.

But it’s a storm warning for America. There are many Daytons out there.

The conventional arguments will go like this. “NCR needs to align itself for future growth and drive the lowest cost structure in our industry,” as its chairman said. This stretches credulity considering the cost of living in the well-off Atlanta suburbs is higher than in Dayton. NCR will have a hard time attracting young talent to the dreary suburbia of its new home. And the company is hardly relocating to a major technology hub to avail itself of the synergies of ideas and innovations.

Another argument will say, this is creative destruction so deal with it. Unfortunately, Dayton and Ohio have supped for years at the table of destruction but have yet to taste creative feast (and we should remember that economist Joseph Schumpeter, who coined the term, argued that its consequences would harm capitalism, perhaps fatally).

Yet another excuse is that this is the payback for a Rust Belt that became lazy, complacent and uncompetitive. The trouble is, it’s just not true. I was the business editor of the Dayton Daily News in the 1980s and did another stint later at the Cincinnati Enquirer. In fact, after the shocks of the late 1970s and early 1980s, much of the Midwest worked hard to reinvent itself. By the mid-1990s, American manufacturing in the Midwest was as advanced and productive as any place in the world.

Dayton had to learn this lesson early when National Cash Register made the painful transition from mechanical cash registers to computers in the late 1970s. Some 30,000 factory jobs were killed in Dayton at a time when it was also losing the GM Frigidaire appliance plant that employed thousands more. But although blocks of factories owned by “the Cash” were demolished, NCR remained, building a new headquarters perched in a park above downtown. Local and state leaders also persuaded GM to turn the Frigidaire plant into a light-truck auto assembly. Such was the resilience of Dayton.

I’ve written about the city I encountered when I arrived there in 1986. It had been wounded by many of the same ills of older American cities, including suburban flight and poor race relations. But it was a real city, with major corporations, an airline hub, a busy downtown and a diverse economy that included both information-age startups (notably Lexis-Nexis) and good blue-collar jobs. It had more real universities than Phoenix, the nation’s fifth largest city. It was not Youngstown, mortally wounded by dependence on a single industry, decades of bad decisions and a culture of corruption. In many ways, Dayton was still the city of the Wrights and Kettering.

Now almost all those assets are gone. Despite huge subsidies over the years from state and local government, even the GM plant recently shut down. And, finally, the stab in the back from the executive successors to Patterson — a man who deployed his company to rescue the city during the great flood of 1913.

The root causes have little to do with Dayton.

Mergers that took away headquarters were driven by changes in public policy — tax rules encouraged deals whether they made “economic sense” or not; executives were highly compensated for selling “their” firms; Wall Street became much more powerful and made huge fees by pushing mergers, and the government stopped enforcing anti-trust laws, allowing for dangerous industry concentration. Significantly, finance overtook manufacturing as America’s largest economic sector in recent years.

These policies took away Dayton’s air hub, its corporate jewels, its local banks — and allowed NCR to be bought and cast aside by AT&T to land as a fickle vagabond. NCR is surely continually shopping itself on Wall Street even now.

A world trading system established by the United States has slipped its leash and no one can argue credibly any longer that most Americans will be net winners. Having cheap stuff from China will not replace stable jobs with good wages and benefits. As the manufacturing heart of America, the Midwest has felt this the worst. But the Carolinas have lost hundreds of thousands of jobs in textiles, apparel and furniture since China joined the WTO — and those workers have not retrained to be video game developers or stem-cell researchers. As a debtor dependent on China to finance its bailouts and military adventures, Washington is in a weak position to demand that Beijing trade fairly.

The grand malpractice that destroyed General Motors deserves its own treatment — here again, Dayton and Ohio did everything they could to help the automaker, and workers repeatedly made concessions. The changes in policy that tilted the balance so badly against working people and unions also played a role in killing the blue-collar middle class. But with the city and region bleeding companies, it’s not as if a college education will guarantee opportunity, either.

Perhaps the biggest driver is the rootless executive class that runs American business. Their loyalty is to hitting Wall Street’s quarterly numbers, nothing more. Some come in merely to sell a company — as happened with Seattle’s iconic Safeco Insurance. They are coddled, bowed-to and massively compensated. But they have no allegiance to any place or any country.

It’s a nice thought that Dayton can”get its competitive act together” — and I’m sure a small army of consultants will be well paid to offer advice, draft plans, hold summits. But Americans should think long and hard about the fate of Dayton and its kin. Dayton did not walk cluelessly into this calamity. It would be so comforting to believe that it did. That, with some different moves, it could have reinvented itself as a New Economy star.

The reality is that Dayton and Ohio made many right moves — spent decades worrying and acting to head off disaster. And in the end, it didn’t matter. The Reagan-Clinton-Bush era worshipped an abstract “free market” but not the values that either allowed Dayton to emerge as a powerhouse or to reinvent itself in the 1980s. Thus, a handful of metro areas are net winners. Many seemed to prosper in a bubble of house building and leverage — and now they have been brought to earth. Many more seem in permanent eclipse and one largely beyond their control. It is part of a broader national decline cloaked by the prosperity that was built in places like Dayton.

So Dayton watches NCR leave as President Obama is focused on saving the big banks and Wall Street, and, as far as I can see, pretty much trying to shore up the status quo. Those institutions, of course, are “too big to fail.”

What will be the cost of letting Dayton fail? I fear it is huge. We just don’t realize it yet.