By Hunter Wallace
It has been a few years since I engaged this issue, but I went back and reread Melissa Walker and James C. Cobb’s The New Encyclopedia of Southern Culture: Agriculture & Industry in order to refresh my memory on the history of Southern industrialization.
This is an excellent and authoritative reference work which contains 50 thematic entries and profiles of the South’s leading industries, corporations and businessmen from the top scholars in their field. It is the best place to start researching the origins and evolution of the South’s economy. Right now, I want to focus on industrialization, but I will review the agriculture section in a separate article.
Here’s a brief sketch of the South’s industrialization which took place in roughly four stages:
In 1861, the 11 Confederate states had less industry than Pennsylvania alone. It is an understatement to say the Old South was a heavily rural world with an economy driven by plantation-based export agriculture. The South’s wealth was overwhelmingly concentrated in land and slaves. The dominance of agriculture in the Old South shaped the nature of commerce and industry in the region.
In Gone With The Wind, Scarlett O’Hara was exaggerating when she said she “had never seen a factory,” but there is a kernal of truth in this. Generally speaking, the planter class was hostile to industrialization out of the fear that it would undermine slavery by competing with their labor force and introducing bourgeois values. There were some notable exceptions like James D.B. De Bow, William Pratt, and William Gregg, but as a rule, the South followed Thomas Jefferson* and preferred to free-trade their cotton for British and Northern manufactured goods.
Insofar as industry existed in the Old South, it had some peculiar characteristics: it tended to rely on slave-labor, it was concentrated in extraction and processing of raw materials, and it was often due to non-Southerners like Daniel Pratt. The only heavy industry that existed in the Old South was concentrated in the South’s most industrialized state, Virginia. The Tredegar Iron Works in Richmond (named after its counterpart in Wales) played a key role in sustaining the Confederate war effort. It is worth noting here that the railroad network which fed Tredegar and created the market for its products had been financed by the Virginia Board of Public Works.
Elsewhere, the railroads and small towns in the South were built around the plantation complex and tended to funnel its products to the coast. New Orleans, a major port, was the South’s largest city. Because there are so many navigable rivers that connect to the coast in the Gulf and Atlantic Coastal Plains, the South had fewer needs for railroads than the North as planters could ship their tobacco and cotton to the coast for export without relying on rail transport.
Ultimately, the Old South’s failure to industrialize was a product of its conservatism. Slavery was profitable, familiar, and was the gateway to social status. Industrialization was suspect in a Jeffersonian culture. There were few legal obstacles to industrialization and protective tariffs encouraged industrialization, but the entrepreneur chose to respond by investing ever more wealth in land and slaves.
The Founding Fathers of the Confederacy banned internal improvements and protective tariffs in the Confederate Constitution. They wanted to continue to perfect the evolving Southern plantation model of the antebellum era, but without Yankee interference.
Reality soon crashed down on the South when the Yankees refused to recognize Confederate independence. The outbreak of the War Between the States and especially the Northern naval blockade did the same thing to the Confederacy that had happened to New England during the War of 1812. It had the effect of imposing a massive protective tariff and ISI program (import subsistution industrialization) on the Confederacy that spurred Southern industrialization.
Forced by the necessities of war, the South industrialized faster between 1860-1864 that at any point before or since:
“Southern planters sponsored a thoroughgoing, non-democratic, state-controlled form of industrialization through confiscation and government investment in order to build a war machine. Under the auspices of the Confederate States of America, the South rapidly built iron yards, shipyards, textile mills, coal and iron mines, machine shops, clothing and food-processing plants, and munitions factories. The South lost the war but acquired significant industrial experience.”
It took the War Between the States to finally block the retarding influence of the Invisible Hand and spur industrialization, but it was too little, too late. The Confederate Leviathan was outmatched by the Union war machine which had a significant head start in industrialization and was even more stimulated by the Union war effort.
Nevertheless, the Confederate achievement during the war was impressive. The fledgling Confederate Navy’s use of submarines and ironclads in war put the CSA on the cutting edge of naval technology. Unfortunately, antebellum dependence on foreign shipping, which continued during the war when the CSA commissioned ironclads in Britain, was too great an obstacle to overcome.
The New South
The New South was built on the ruins of the Confederacy which shaped everything about it that followed.
The destruction of the Confederacy devastated the South’s infrastructure, killed 1 out of 4 Southern White men, and obliterated the vast majority of its wealth that had been invested in land and slaves. The free-labor system was imposed on the emancipated slaves with equally devastating consequences for Southern agriculture.
In the wake of this, Southerners set out to build a New South that would have an industrialized economy. Since there was so little capital left in the defeated South this meant three things: courting northern investment, racial moderation, and sectional reconciliation. In order to court Northern investment, Southern boosters emphasized the region’s vast natural resources, cheap and abundant labor, and low-taxes. This began to attract labor intensive industries to the South.
Of these, five industries deserve special mention – coal mining in Appalachia, timber in Appalachia and the Pine Belt near the coasts, textiles in the Piedmont, iron and steel in Appalachia, and oil in Texas. 4 out of 5 came to be dominated by Northern investors. Coal, timber, iron and steel and textiles were extractive industries that depended on “a good bidness climate” – low-wages, low-taxes, low-investment and low-regulation. As the largest industry in the region, textiles became the model for Southern industrialization moving forward.
By the 1930s, the beggar-thy-neighbor strategy – the New South’s economic development strategy – was being criticized by the Southern Agrarians and the writers of the Southern Renaissance. New South industrialization had failed to live up to expectations largely due to the fact that the South was effectively a colony of the North and the labor intensive industries that the beggar-thy-neighbor strategy had attracted here were Northern-owned and controlled.
In the heyday of laissez-faire, free-market economics, the South was still a rural region with few large cities and a stagnant agricultural economy, which was growing poorer as economic growth failed to keep up with population growth. Then came three outside shocks.
The first shock that brought down the New South was the arrival of the boll weevil which chewed its way through the Cotton Kingdom. The second was the Great Depression and the New Deal. The third and most important was the Second World War.
FDR’s presidency from 1933 to 1945 was the watershed moment in Southern industrialization. No American president had a greater and more positive impact on the Southern economy than Roosevelt. FDR won every Southern state in landslide elections four times because his policies began to put an end to the crippling poverty that had haunted the South since Appomattox.
The Great Depression had the effect of discrediting free-market economics in the United States. Under FDR, it opened the floodgates to a tidal wave of government intervention and investment in the South’s backward economy. Farmers were paid not to grow cotton and used the money to invest in the technology that finally mechanized Southern agriculture and ended sharecropping and tenancy. There were widespread infrastructure projects that built roads and bridges and brought electricity to rural areas. The military spending was the most important:
“The war’s greatest contribution consisted of a huge helping of federal money for a traditionally capital-starved region. More than $4 billion went into military facilities and perhaps as much as $5 billion into defense plants. The result was a 40 percent increase in the South’s industrial capacity. Per capita income tripled during the 1940s leaving Southerners with enough disposable income, at long last, to make them attractive potential customers for a number of market-owned industries that had previously found the South’s consuming capacity too puny to justify locating a production or distribution facility in the region. Automobile assembly and parts plants, for example, began to spring up in the Atlanta vicinity as executives realized the growing potential of the southeastern market.”
It was government spending during the New Deal and Second World War, which was sustained for decades by the Cold War, not the free-market, that industrialized Dixie:
“World War II ushered in a degree of industrialization long dreamed of by southern promoters. Between 1939 and 1972, the number of factories grew by more than 160 percent and the number of workers in them by more than 200 percent. Prosperity accompanied the expansion of industry, as per capita income in the South increased by 500 percent between 1955 and 1975 – a rate 300 percent higher than that of the nation as a whole.”
This explains the odd contradiction between free-market theorists who advocate a laissez-faire industrial policy while simultaneously cheerleading for gargantuan levels of military spending:
“Figures from the Cold War years are revealing. Southerners in the armed forces throughout the world fueled the southern economy with allotment checks deposited in local banks …
The impact of military expenditures on the southern economy during the Cold War was immense. A total of 39.5 percent of all Department of Defense dollars ($50,091,677,000 of a total budget of $127,135,626,000) was spent in the South in the fiscal year 1980.”
By itself, the New South’s “good bidness climate” strategy had failed.
Between 1940 and 1960, the South shifted from an agricultural to industrialized economy, and from a rural to a predominantly urban population in large part due to a big assist from the federal government. The explosion in industry and commerce set off a prolonged economic boom that developed other sectors of the Southern economy like banking and insurance which had been retarded for centuries by the South’s lack of a middle class and large cities.
This is the Sunbelt South that exists today which is a far cry from the New South of the 1930s. It is careful to always pair the “good bidness climate” with “strong defense.” The federal government, which continues to invest taxpayer dollars in the Southern economy, makes up for the shortcomings in areas like education, infrastructure and healthcare which are critical to economic growth. The state governments are also careful to shelve free-market economics and laissez-faire industrial policy when it comes to spending a billion dollars on a ThyssenKrupp steel plant or hundreds of millions of dollars on Hyundai and KIA automobile plants.
Foreign industry has a large presence in the Sunbelt South now thanks to an updated version of the New South’s “good bidness climate” strategy that uses massive subsidies and the infrastructure built during the Cold War to attract foreign investment and poach Northern businesses. The limits of this strategy, however, are being exposed thanks to free-trade as Mexico and China have an even better “good bidness climate.”
While I could speculate about the future of the South’s industrial economy, it would be beyond the scope of this review.
* In the weeks ahead we will explore Jefferson’s views on this subject which were influenced by British and French classical liberal economists.