"You can buy bodies cheaper down here than you can in the Midwest."
With that remark, Mississipi lawyer Wayne Drinkwater explained much of what is both good and bad about the economy of the South: lower wages than elsewhere in the nation.
Most of the states in the region--bounded by Louisiana and Arkansas on the west, Kentucky and Virginia on the north and stretching east and south to the Atlantic and the Gulf of Mexico--are part of the fast growing Sunbelt. Personal incomes in the area grew by 2 1/2 percent in real terms in 1980 and by 3 percent last year, according to Chase Econometrics, private economic forecasters, who put income growth in the nation as a whole for the two years at only 1.6 percent and 1.8 percent, respectively.
But despite this above-average growth, the South is still the poorest region in the nation. The low wages which help to attract industry also give its residents a lower standard of living than elsewhere. Incomes in 1980 averaged 15 percent less than in the nation as a whole. And although faster than average growth has helped to narrow the difference for some states, for the majority the gap has stayed as wide as ever in the past decade.
However, in much of the region there is still optimism about prospects for growth and development. It has many new manufacturing plants which, even though affected by the national slowdown, have a better chance of recovery. Even the textile industry, heavily concentrated in the area and with severe overseas competition, has managed to retool and modernize plants.
Chase projects that the South will continue to have faster than average income growth this year and next, although the recession will hurt in 1982, holding personal income growth below 2 percent.
Unemployment is still below the U.S average in much of the region, but some local experts believe that the unemployment figures, particularly in heavily rural states, paint too rosy a picture.
This is partly because there is more underemployment in this area. When jobs are hard to come by, people will eke out a living on the family farm and wait for the labor market to pick up rather than register as unemployed.
Ironically, the fastest growing Southern state--Florida--which "had no recession in 1980" and held up well last year, according to Donald Koch of the Atlanta Federal Reserve Bank, has had relatively high unemployment at 7.6 percent in November. North Carolina, Virginia, Georgia and Kentucky, on the other hand, have unemployment rates significantly below the national average, although there have been clear signs of recession.
There are significant differences in the economic structure and prospects of the 11 states in the region, with perhaps Florida and Mississippi at opposite ends of the scale.
Florida, the largest and richest, has experienced extraordinary growth in recent years as new inhabitants poured in from the North and Midwest. Although best known for the concentration of retired people, it also has many new, high-technology manufacturing plants, particularly in the central belt.
Economist Donald Ratajczak of Georgia State University in Atlanta ranked Louisiana after Florida. Oil- and gas-related industries are booming, and likely to go on doing so, he said, though there remain some very poor areas in the state. And New Orleans is not benefitting from the oil and gas business as much as other Southwest cities. The oil companies "just take the oil and gas out of the ground and deposit the checks in Houston," Ratajczak commented.
Georgia has gained a lot in the past decade from Florida's expansion. It is a distribution center, and transport hub, with Delta and Eastern airlines headquartered in Atlanta. The recession clearly took hold by late last year, but Ratajczak ranks the state's growth prospects with North Carolina after Florida and Louisiana.
South Carolina, which led the way for Southern states in seeking out foreign investors, has recently not performed so well. Both Carolinas and Virginia have a diversified manufacturing sector and still important agriculture. But Virginia, with a heavy concentration of federal government employes, has the highest per capital income in the region, and is influenced by its proximity to Washington.
Mississippi, Arkansas and Alabama are not faring as well as the more industrialized states in the region. They do not have a large and vital urban center comparable to Atlanta, nor much of the coastal development of Florida, nor large oil and gas development.
Alabama does have industry, but it is older, more traditional industry than in the Carolinas or Georgia, and "what is hurting Ohio is hurting Alabama," Ratajzcak said. Unemployment in Alabama was close to 10 percent last fall.
Kentucky and Eastern Tennessee have benefited less from the Sunbelt growth. They also have a large concentration of housing-related industries--from home appliances to some textiles--which are hurting.
But for many of the states farther South, "the dynamics of the region will outlast the cycle," predicted Donald Koch, director of research at the Federal Reserve Bank in Atlanta.
Apart from the availability of cheaper labor there are "very strong, structural characteristics that will transcend" the near-term recession, Koch says. He cited low unionization, a low incidence of work stoppages, and low taxes--with some special business tax incentives--as reasons to expect future expansion.
Koch and some others claim that the standard of living in the South is actually much better than official statistics show. Low taxes and a cheaper cost of living mean that the same salary can buy more, Koch says. Others agree that things are generally cheaper, but say the difference is not nearly large enough to offset the lower wages.
As Ratajczak said, the major industries providing local services are "unquestionably paying below national wage levels." For professionals who are not part of the lower-wage work force, lower taxes can be a strong incentive for moving South. But for those using state and local services--from public schools to welfare--the lower standards hurt.
President Reagan's budget cutting will likely make them hurt even more next year. Federal welfare payments are an important source of income for many people in the South. In Mississippi, for example, as much as 20 percent of the population is on food stamps. Cutbacks in this program will obviously affect this state much more than, for example, Connecticut, where only 5 1/2 percent depend on food stamps.
Virginia, with 150,000 federal government employes, will be hurt by cutbacks in government employment, and only small pay increases for civilian personnel. However, James Parthemos of the Richmond Federal Reserve Bank pointed out that the defense buildup should help Virginia, which has sizeable shipbuilding capacity and a large naval base at Norfolk.
For many of the Southern states, present budget surpluses may cushion the blow for a while, although the extreme fiscal conservatism of the region may work against that. Although, as Drinkwater says, "life for everybody here in Mississippi is better because of the New Deal programs," Mississippians "don't like the style and ideology of helping people," so they support Reagan.