Economic Boom : Once-Broke Northeast Rises Again
When millionaire Houston developer Edward Callan sadly dismissed 120 employees, folded his 9-year-old company and packed up his family to move to Boston early last year, his Texas friends figured he’d gone plumb loco.
“They thought I was crazy,” said Callan, a genial, well-fed man of 33. “But I had to leave. The boom was over. I was unemployed.”
No longer. Callan broke ground last fall on a $140-million office park outside Boston and plans another project even larger. He has tripled his business. His 25th-floor office overlooks busy bulldozers and construction cranes. “I think I’m riding the right horse now,” he said.
Texans Head North
And his friends? “All the Texas developers are up here now,” Callan said, flashing a grin as bright as his diamond-studded gold Rolex.
Indeed they are. Ten years after New England was dismissed as the new Appalachia--a dying Frost Belt region hopelessly hemorrhaging population, manufacturers and jobs--the North is rising again with a vengeance.
For the first time in decades, more people are moving into New England than leaving it. Personal income is now the nation’s highest--and fastest growing. New businesses, venture capital and foreign investment are rising at record paces. New home construction is growing at the fastest rate in the nation. Even agriculture is healthy. Only unemployment, once the country’s highest, is down--it is now the nation’s lowest, at 4.4%.
“The South isn’t taking the North to the cleaners anymore,” said David Birch, a Massachusetts Institute of Technology economist who has studied the historic shift. “It’s a much more balanced picture again.”
Poverty Pockets Persist
Although deep pockets of poverty persist, the evidence of New England’s comeback abounds across the region’s six states--Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire and Maine. The boom extends south into the mid-Atlantic region of New York, New Jersey and, to a lesser extent, Pennsylvania, which is the only Northeastern state to exceed the national unemployment average of 7.3%. By contrast, 10 of 19 Sun Belt states exceed the national rate.
Domino’s pizza pleads on Boston radio, offering up to $10 an hour for delivery boys, and a Burger King in Dedham offers scholarships to lure young workers. Workers break nearly frozen ground outside Burlington to build Vermont’s latest and largest shopping mall, while computer companies sprout in cow pastures nearby. Developers fight fishermen for space along the once-abandoned waterfront in Portland, Me., now among the nation’s fastest growing cities.
A grimy, 130-year-old former button factory in Waterbury, Conn., stamps out computer software, and a rundown red-brick machine mill in Pawtucket, R. I., is retooled for robotics. Factory outlets line the roads in Freeport, Me., and North Conway, N. H. “We Want You--All Shifts” begs a yellow sign outside a Wendy’s hamburger shop in Concord, N. H. “We’ve hired 20 people since September, but we need more,” assistant manager Sam Sanzone said.
“The biggest problem we have in the state today, and I get calls every day from businessmen who complain to me, is we can’t find enough people to work,” said New Hampshire Gov. John H. Sununu, who contends that his state has only 2.8% unemployment while its population has broken the 1 million mark for the first time.
New England is rebounding from the depths of one of the nation’s worst and longest depressions. The long slide began decades ago as the textile mills that started the Industrial Revolution moved to the South. Employment tumbled further after World War II, and bad turned to worse in the mid-1970s as a result of skyrocketing energy costs and post-Vietnam defense cuts.
Property Values Fell
In Boston, the region’s commercial hub, property values fell almost $500 million between 1930 and 1980, and the city’s population fell by one-third. Today, the city’s population has risen 7.3% in five years to over 600,000, and property values are up ninefold.
The revival exemplifies how the nation is shifting, painfully at times, from a smokestack, industrial economy to one increasingly dependent on services, high technology and information. Although New England’s explosive growth is expected to slow, economists predict that the region’s economy will continue to outpace the nation’s for the foreseeable future.
“We only had one textile industry to give,” William C. Apgar of the Joint Center for Housing Studies at Harvard and MIT explained. “We gave it. We’re done giving. We’re moving on. The Midwest, it’s got steel, auto, farming. It’s still giving.”
According to more than two dozen economists, government officials and business leaders, what made New England boom after decades of despair was a combination of luck, pluck and old-fashioned Yankee ingenuity.
First came the end of the energy crisis, which had pumped oil prices up tenfold between 1972 and 1981. Since 1981, oil prices have fallen by one-third, while New England’s dependence on oil also was falling.
‘Quality of Life’
Secondly, employers and employees alike began placing higher values on “quality of life”--open space, clean air and low crime. Young professionals wanted to live and work near Cape Cod beaches, Maine’s rocky coast and Vermont’s skiing. Skilled labor was willing and available.
Lastly, higher education was critical. New England boasts 260 colleges and universities, 65 in Boston alone. Just as Stanford and Caltech supplied Silicon Valley with engineers and entrepreneurs, graduates from MIT and Harvard helped forge the high-tech boom that has fueled the region’s growth.
“It’s often said, if the Pilgrims had landed on the West Coast instead of here, New England would be a national park today,” said Mark Baribeau, economist for the New England Council, a regional association of 1,300 businesses, “because we have no natural resources. Just rocks and pretty scenery. But the universities are the raw materials for high technology. And that’s why we did so well.”
The stories are now legend. Shanghai-born Harvard graduate An Wang founded Wang Laboratories in a Cambridge garage--and transformed a derelict town, Lowell, Mass., into an economic wonder. MIT researcher Kenneth Olsen started Digital Equipment Corp., and Northeastern University professor John Cullinane created Cullinet Software. Each firm begat others, and hundreds of such high-tech progeny flourish along Route 128, which rings Boston as the self-proclaimed “America’s Technology Highway.”
Just as Silicon Valley is suffering a slump, with more than 10,000 layoffs this year and rising unemployment, recent high-tech layoffs of about 6,000 around Boston are shaking the region’s confidence--but not very much.
Less Foreign Competition
“It’s mostly research and development in New England, compared to manufacturing in California, so there is less competition from cheap labor coming from overseas and taking jobs here,” said Farideh Mehran, senior regional economist with Data Resources Inc. of Lexington, Mass., the nation’s largest economic forecasting group.
In any case, jobless high-tech workers here have been finding other jobs. Massachusetts’ unemployment continued to fall last year, to 3.8%, the nation’s lowest, and is projected to reach 4.1% for 1985. State officials are gloating, even if they are unsure what has happened.
“Everyone’s first question about the high-tech shakeout is ‘how deep, how bad, how shaky?’ ” said Alden S. Raine, Massachusetts’ director of economic development. “We don’t know. We don’t have evidence it’s been devastating.”
Raine’s boss, Gov. Michael S. Dukakis, is more upbeat. He has traveled the state in recent weeks, promoting such far-flung futuristic fields as photovoltaics, plastics, microelectronics, biotechnology and marine science. And he argues that the prosperity is widely shared.
“I don’t think anyone is being left behind,” said Dukakis, who has seen welfare cases drop drastically since he first was elected in 1975, when nearly one-fifth the state’s 6.5 million people were receiving public assistance. “Minority unemployment has dropped in 2 1/2 years from 16% to less than 5%.”
Job-Training Programs
Outside of state government, it is hotly debated whether innovative state job-training and employment programs, together with property tax cuts and industrial revenue bonds, significantly helped spur the growth.
But federal policy clearly was critical. Ironically, a region known for its liberal, even radical, politics has been one of the chief beneficiaries of President Reagan’s defense buildup.
“We’re the most defense-spending dependent region of the country,” said Baribeau, the economist for the New England Council. “It accounts for 8% of personal income in the region.”
The Raytheon Co., which builds missiles, radar and communications gear, is the largest employer in Massachusetts, and it is not alone. The Army last month awarded a $4.3-billion contract to GTE Communications System Division, based in Needham, for battlefield communications equipment. Connecticut depends heavily on defense contractors United Technologies Corp., the state’s largest employer, and General Dynamics Corp., Pratt & Whitney Aircraft, Sikorski Aircraft and others. Rhode Island also relies on Navy contracts.
There’s another factor, adds James Howell, chief economist for First Bank of Boston. “Call it deviant behavior,” he said. “Massachusetts, California and Texas have societal values that just are different from the rest of the country. These areas encourage risk taking.”
Thousands of New Firms
Deviant or not, New England’s entrepreneurs started thousands of new companies and helped create 300,000 new jobs last year alone. With only 5% of the nation’s population, New England captured more than one-fifth of the $3.2 billion in venture capital invested in the United States. Those small, growing companies form a strong economic buffer, officials say.
“The backbone of Vermont is small business,” said John B. Trethaway, commissioner of economic development in a state that recorded 3.9% unemployment in October, lowest in 30 years. Adds aide Roberta Harold, “There isn’t that much in Vermont that is big enough to be swept up in recession.”
The good tidings clearly are not universal. Thousands of hungry and homeless flock to inner-city shelters in Boston, Hartford and Providence. Textiles--the region’s giant--already has tumbled, and other traditional New England industries are still vulnerable. Dozens of rural towns in northern Maine and Vermont saw shoe plants shut down this year, and Rhode Island has seen its traditional jewelry business hard hit by cheaper imports. Hundreds of jobs in paper, leather and apparel plants also were lost.
“The prognosis is poor for the old industries,” said Gary Ciminero, senior vice president and chief economist at Fleet Financial Group in Providence, R. I. “They still are being left behind. The common denominator is foreign competition.”
Housing Expensive
The growth has brought growing pains. Boston now has the fastest growing housing market in the country and the third most expensive in the nation, after Orange County and San Francisco. Resale prices of single-family homes in the Boston area soared more than 30% this year, for the third year in a row, pricing many buyers out of the market.
“We don’t have anywhere near enough affordable housing,” said John P. LaWare, chairman of Shawmut Bank of Boston. The same is true in southern New Hampshire, said J. Michael Hickey, head of the New Hampshire division of economic development. “Available housing is at a premium and prices are spiraling.”
And, although housing starts in the Northeast were up 29% in the first six months of 1985, the only region in the country to show an increase, such comparisons can be taken only so far.
“Three-fourths of all building is still in the South and West,” said Harvard’s Apgar. “All of Massachusetts is equal to Phoenix. All of New England is less than Florida. Even Texas in decline is faster than New England in growth. It’s great improvement on a very weak base.”
In rural areas, the problems--from traffic jams to clogged sewers--can be severe. Two Vermont environmental boards recently cited state water pollution laws to deny sewage permits for ever-expanding condominium complexes in Sherburne, home of the mammoth Killington ski resort, the East’s largest. Skiing interests now are trying to get the law changed, arguing that the rulings could halt expansion at other ski areas.
In tiny Wells, on the coast of Maine, voters last month rejected a Florida developer’s proposal to build a 150-room motel, convention center and shopping complex.
Growth Overwhelms Town
And the 1,100 residents in Lincoln, a former New Hampshire logging town nestled in the rugged White Mountains, are complaining that more than 800 new condominiums and town houses have been built amid their bucolic valley’s birches and evergreens. The sudden growth, unrestricted by any zoning or building codes, has overwhelmed the town’s sewage, water, waste disposal, fire and police departments.
“Right now, the town has 2,000 requests for water and sewer connections they cannot fill,” said Rick Barber, New England director for The Satter Companies, a Florida-based developer that has built 200 homes in Lincoln.
Lincoln is now considering zoning restrictions for the first time, said Roger Stewart, head of the town’s Board of Selectmen. Walking out on his snow-covered porch, Stewart pointed to three unfinished three-story, multi-unit condominiums that have appeared in recent months between the neat two-story homes on his tree-lined street. “It scares you what could happen without control,” he said.
The boom has also bewildered residents of nearby Woodstock, N. H. The town’s traditional white-steeple church now nurtures a neon art gallery instead. The rustic red-brick school has gone condo. Developers plan to build several dozen homes near Fadden’s General Store, a cluttered, 90-year-old purveyor of most anything where signs proclaim, “If we don’t have it, you don’t want it.”
“All the things people come here to get away from, they bring up here,” said a shopkeeper who asked not to be identified. “None of our systems are equipped to handle what’s going on. If McDonalds wants to put in a 47-foot sign, we can’t stop them.”
Growth May Slow
Most economists expect New England’s explosive growth to slow next year. The high-tech slump may yet take a greater toll, and a growing trade deficit reflects decreased exports. In addition, a labor shortage and high housing costs could hamper growth around Boston and southern New Hampshire, Katherine Bradbury, economist for the Federal Reserve Bank in Boston, said.
“In the U.S., the labor force is growing faster than employment,” she said. “Whereas, in New England, employment is growing faster than the labor force.”
“Its an enviable position to be in, but there are gray clouds on the horizon,” agreed Hans J. Wentrup, president of New Hampshire Econometrics, a private financial forecasting firm in Manchester. “We’re slowing down.”
But the future looks rosy to Callan, the transplanted Texan who saw Houston’s oil boom turn to bust. In early 1984, he sold 16 of 18 commercial properties in Houston and dumped his 3-year-old, $470,000 house for $260,000. He moved to Winchester, a well-heeled 17th-Century Boston suburb, and went to work.
Less than two years later, Callan’s new company is building a $140-million, 1-million-square-foot office park on the banks of the Saugus River in Wakefield. Next spring, it will start a $180-million office park. Callan says that, unlike in Texas, he now spends three to four nights a week at local planning board and town meetings, defending his plans to demanding local residents.
No Zoning in Houston
“One tough waitress can butcher you and swing the town’s vote,” he said, shaking his head. “I never did this in Houston. We don’t even have zoning there.”
Callan admits to only one regret. He lifts one leg and scowls at what he calls his “Eastern shoes,” scuffed black loafers with tiny brass buckles.
“I quit wearing cowboy boots,” he said sadly. “That was a big sacrifice. I miss those old alligator boots.”
