« How Fragile is China? | Main | Pin the Party Tale on the CEO (and it Won't Help to Wear the Armor...) »

Monday, January 02, 2006

Economic Development in Rural America

This is part of a much longer article on economic development in rural America. The full article has a lot more on the politics and economic incentives involved in the development of this area than I've included here:

Mining Coal Country for Tech Workers Economics, Politics Send Contractors Into Southwest Virginia, by Ellen McCarthy, Washington Post: In this town of 3,300 people, cow pastures encase the local high school, churches outnumber nightclubs 14 to zero and the unemployment rate is almost twice as high as the rest of the state. This is where government contractors CGI-AMS Inc. and Northrop Grumman Corp. will ... start building multimillion-dollar technology centers and hire hundreds of software engineers at salaries far above the region's average...

How the companies came to build here is a tale of the economic factors shaping Northern Virginia -- towering home prices and nightmare commutes that are making it hard to hire new workers at reasonable wages. But it's also a tale of Virginia politics ... Along with cutting their costs, the companies saw ... a way to improve their chances of winning state contracts, and -- in the case of CGI-AMS -- a way to turn the promise of jobs into millions of dollars in government concessions. ...

In fact, the tech companies that line the overflowing roads of Northern Virginia have thousands of open jobs they can't fill. The job market in Washington is so tight, companies regularly pay bonuses and inflated salaries to recruit employees with technical skills, even though the work required to develop new software programs has become increasingly routine. Banks and insurance firms long ago cut their software development costs by shipping the work to India and China, but legal restrictions and the politics of government procurement have prevented federal contractors from following suit.

So they are looking at rural America instead -- to places where rents are cheap, traffic is light and, instead of companies being forced to offer bonuses or poach employees from a competitor, résumés pour in by the dozen. The area turns out plenty of résumés that the companies want to see. Local officials drafted a study to show that 4,566 computer science degrees were awarded in the past five years by colleges within 100 miles of Lebanon, including Virginia Tech, Radford University and James Madison University. Area community colleges promised to tailor their courses to fit CGI-AMS's needs, and the county said it would build a new $5 million, 53,000-square-foot facility where the company could do relatively basic software development and troubleshooting. ...

The contractors' move to rural America echoes a strategy that commercial tech companies made in the early 1990s. Some of them moved basic software coding jobs to small towns before they began sending such jobs overseas. Though executive and sales offices are likely to remain in Washington and on-site systems integrators will need to stay near the agencies they work with, the move of software developers and some other more routine jobs "will be a growing pattern," said Anirban Basu, an economist and chief executive of the Sage Policy Group. "The Washington-area cost structure is pushing jobs out of the region." ...

Executives at government contracting companies say that the boost these jobs can give rural communities is significant but that the driving factor for them is money, not altruism. ...

For all of [the] optimism, the long-term impact on Southwest Virginia is uncertain. Stephan J. Goetz, a Pennsylvania State University economist who studies rural areas, said an immediate boost is likely as construction workers move in to build new homes and restaurants pop up to serve residents with more disposable income. Speculation about when a Starbucks will appear is rampant on the streets of Lebanon.

But the change will last, Goetz said, only if other companies and subcontractors settle around the two companies and stay there for years to come. "Whenever you have a stable source of income, that can really be a boon," Goetz said. "Things like this can really change the face of a community." But the companies have to stay. ...

    Posted by on Monday, January 2, 2006 at 12:06 AM in Economics | Permalink  TrackBack (0)  Comments (1)

    TrackBack

    TrackBack URL for this entry:
    https://www.typepad.com/services/trackback/6a00d83451b33869e200d83468fcdb53ef

    Listed below are links to weblogs that reference Economic Development in Rural America:


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.