Will The Federal Plant-closing Law Work? It Makes For Good Politics

Posted: August 11, 1988

From a historical perspective, the new federal plant-closing law marks the culmination of a decade-long process to restrict business mobility. During the last 10 years, several cities, including Philadelphia, and some states have imposed restrictions on business mobility. In other industrialized nations, advance notification of worker layoffs and plant closings is already a common practice.

This is not the first time that the federal government has legislated labor-management practices - consider, for example, the laws setting a minimum wage and worker health and safety rules.

From a regional perspective, the new law gives short-term stability to the economies of both the northern and southern industrial tiers. Regional economic differences have narrowed in the last 10 years, due in part to unrestricted business relocation. The North has lost its traditional stronghold on manufacturing to the rapidly developing Sunbelt states. Under the new law, the economic "wars between the states" will cool down.

In the long term, the fundamentals will prevail. Regions hospitable to sustained economic activity will prosper while others will pay a heavy toll in the form of slow growth and increased business failures.

A majority of the job losses that have occurred in the North are due to business failures rather than plant relocations. In other words, the relocation legislation makes for good politics, but it cannot buttress a poor economic environment. Regions that are inhospitable to economic activity should not expect much help from this new law.

From a local government perspective, there is a real danger that cities such as Philadelphia will be lulled into thinking that the new law will act as a panacea for their economic problems. In a free market system, different locations compete with each other to attract businesses. That competition has intensified during the last two decades, and some weak locations, notably Philadelphia, resorted to the plant-closing legislation as a way of defending themselves against their rivals.

Now those cities must gain a competitive advantage in other ways. In this respect, the uniform plant-closing law pressures local governments to search for creative ways of attracting new businesses and retaining the existing ones. Is Philadelphia really up to this?

Even persuading existing businesses to relocate in Philadelphia has proved very difficult. The new law will make that task even harder because it impedes business relocation nationwide.

The burden of economic development for the city must increasingly fall on the creation of new enterprises. The birth of new enterprise requires visionary leadership, a carefully crafted and coordinated business environment and a fiscally disciplined local government. Can Philadelphia provide these things?

The restricted mobility of business tends to create a new psychology both in City Hall and for organized labor. With a captive tax base, city government might be inclined to raise taxes more readily than ever before. Organized labor may succumb to the temptation to seek higher wages.

If these predictions turn out to be true, both the city and the unions may be handicapping the businesses as well as the general community. Can City Council and the labor unions resist these temptations?

Now that they have the same advance notice regulations, businesses throughout the country will have one less criterion to deal with in choosing one location over another. That being the case, the fundamentals about a location's attractiveness play a more important role than ever before.

Can the City of Philadelphia compete when it comes to a favorable tax base? Labor peace? Quality education? A well-trained work force? Safe, efficient public transportation?

As for existing Philadelphia businesses, they have been coping with the advance notice regulation for some time. That puts them ahead of their counterparts in other cities on the learning curve. Once the new law and its implications are digested, plant migration here might start all over again, unless Philadelphia becomes fundamentally attractive to economic growth.

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