Reindustrialized Heartland Points Way to Better Times : Economy: Growth abounds in Midwest, study shows. Grand Rapids’ diversification helps ensure stability, jobs.

It seemed so out of character for Mike Pelton, a tight-fisted factory worker and cautious family man. Amid a national recession in 1991, he spent thousands of dollars to put a new addition on his house.

Pelton had always hunkered down during other tough times--and for good reason. In the severe economic slumps of the 1980s when the Midwest became known as the Rust Belt, he was laid off twice for several months at a time.

“You didn’t want to buy a house,” recalled Pelton, now 40. “You didn’t want to buy a car.”

Today, job fears are far from his mind. The reason: His company, which makes fuel injectors for big trucks, is booming. Its sales have doubled in four years and it has added 300 new jobs. More expansions are on the horizon.

Pelton’s story is not unusual in the Midwest. The painful restructuring of the 1980s is a fading memory and the nation’s industrial heartland is again a competitive global force.

The evidence abounds from Cleveland, Columbus and Dayton in Ohio to Ft. Wayne and Indianapolis in Indiana. There has been a “remarkable turnaround of America’s industrial heartland” that provides a model for solving the nation’s economic ills, according to Richard Florida, a management and public policy professor at Carnegie Mellon University in Pittsburgh, Pa.

A recent study directed by Florida concluded that a “new high-performance economy” has emerged in the Great Lakes states. This “reindustrialized region” is thriving thanks to export growth, foreign direct investment, new management techniques and economic development partnerships between business and government, the study said.

The study’s conclusions spring to life in Grand Rapids, where factories are being modernized and computerized at a dizzying pace. Local executives talk in the jargon of management gurus--lean production, total quality management, continuous improvement, synchronous manufacturing.

Once known mainly as a furniture capital and home of former President Gerald R. Ford, Grand Rapids now sports a highly diversified economy. Hub of a bustling western Michigan economy, the city has revitalized its downtown, attracted foreign firms and investment, modernized aging factories, retrained its work force and sought out new markets abroad.

Grand Rapids’ 5.2% unemployment rate is far below the jobless rates of the state and the nation, and its metropolitan population swelled nearly 15% to almost 700,000 between 1980 and 1990.

Grand Rapids has long benefited from a stable work force and an evolving furniture industry that has been an economic pillar for more than 100 years. It also has benefited in recent years from an unusual cooperation between its major employers and local government.

Not that the city is without problems. The recent recession has hurt its office furniture business, forcing some layoffs and plant closings. The area’s growing dependence on exports--which support 42.5% of its manufacturing jobs--leaves it vulnerable to currency fluctuations and economic slumps abroad.

Western Michigan, which attracted large numbers of German, Dutch, Polish and Irish immigrants in the 1800s, initially thrived on lumber, mining and farming. With a strong Calvinist tradition, its people were conservative and hard-working--traits still evident.

By the nation’s centennial in 1876, Grand Rapids had emerged as the foremost residential furniture maker in the United States. When that industry moved to the South in search of new forests, the area developed a strong office furniture business.

Today Steelcase Inc., the world’s leading producer of office furniture systems, is the area’s biggest employer with 8,300 local workers.

Unlike other areas of Michigan, however, Grand Rapids has never been a one-horse town.

While Detroit and Flint became dependent on Fords or Buicks, Battle Creek on Kellogg’s cereal and Benton Harbor on Whirlpool appliances, Grand Rapids attracted a wide range of manufacturers, from makers of leather goods and food processors to auto-parts suppliers and cosmetics producers.

“We never got that dependent on one industry,” said Mayor John H. Logie, an attorney whose Scottish and German ancestors settled in western Michigan 125 years ago.

Still the back-to-back recessions of the early 1980s left an indelible mark on the city. Grand Rapids fared better than many Rust Belt towns, but the pain was palpable. The unemployment rate reached double digits, business failures rose and factories closed. Ringed by deteriorating warehouses, its downtown was listless.

John Dewey felt the hardship. As a worker in a General Motors parts plant, he was laid off three times during the recessions of the 1980s.

“You wouldn’t know one month to the next if you had a job or not,” said the 33-year-old Dewey, who has three children.

The uncertainty prompted many economic soothsayers to write off the Midwest as a dinosaur. The future, they said, was a post-industrial economy geared to high-technology, finance and services. As the East and West Coasts boomed and foreign competition surged, the Midwest developed an inferiority complex.

It was in the midst of this gloom that a new Grand Rapids emerged. At the nadir of the 1980s slump, local business and government leaders were planning for the next upturn.

One of the early visible efforts came in redeveloping downtown. The magnet became the Amway Grand Plaza Hotel, a 682-room facility overlooking the Grand River. It combines the historic Pantlind Hotel, built in 1913 during the lumber baron era, with a modern 28-story tower.

Amway founders Rich DeVos and Jay Van Andel spent $67 million on the hotel. It is connected by a skywalk to the Grand Center, the city’s convention and exhibition hall, where Amway holds its annual sellers’ meeting.

“We believed that a community that is healthy needs to be healthy from the core out,” said Dick DeVos, president of Amway and son of the founder, explaining the decision to invest in downtown.

In 1981, the same year the refurbished Pantlind wing of Grand Plaza opened, the Gerald R. Ford Museum was completed. Built with private and public funds, the presidential museum attracts more than 80,000 visitors a year.

Other development followed. Another downtown hotel was completed in 1987, Grand Valley State University opened a center-city campus in 1988 and a 32-story housing project--the East Bank Waterfront Towers--was finished in 1991.

Five office buildings have been erected since 1980. Today, construction cranes are working on Bridgewater Place, a 17-story, $100-million office tower on the west side of the river.

But there have been disappointments. Two attempts to re-establish a vibrant retail center downtown have fallen flat. Boarded up businesses have marred Monroe Center mall and the City Centre retail project.

While the downtown skyline was being transformed, less visible--but perhaps more crucial--changes were underfoot in the executive meeting rooms, factory floors, government offices and college classrooms of Grand Rapids.

The local Chamber of Commerce became the catalyst for change. Recognizing that Grand Rapids was losing businesses to other areas, the group formed an economic development arm in 1985.

“Business retention is our biggest job,” said Birgit M. Klohs, president of the Right Place, the chamber’s economic development unit. “We fight, first and foremost, to keep what we have.”

It is not an easy job. Every week, recruiters from other states visit Grand Rapids in search of businesses looking to expand or relocate. Klohs often hears about the incentives these states offer.

“I have this file of the propaganda from other areas, Louisiana, Nevada, wherever,” she said, displaying a six-inch file with out-of-state proposals. “The average citizen has little understanding of how tough the competition is for jobs. We can’t let up the effort.”

Those efforts are multifaceted. If a business needs a zoning approval, the Right Place may serve as its liaison to the local board. If a business seeks a tax abatement, the agency may act as its advocate.

The Right Place stood up for Amway when it was looking last year for a site for a new catalogue distribution warehouse. The company, a direct marketer of household products, conducted a nationwide search and considered 20 sites.

It came down to two locations: Cartersville, Ga., or Ada Township, outside Grand Rapids. At stake was a $40-million project and 400 jobs--300 existing and 100 new ones.

Privately held and locally grown, Amway had emotional reasons to build in Grand Rapids, but on pure economics the Georgia offer was better. That was until a lobbying effort that went to the doorstep of Gov. John Engler kicked in.

Soon Amway obtained a crucial rezoning--which was approved by voters in a special election--for a parcel it owned next to its Ada manufacturing plant. In January, it was granted a 12-year, 50% tax abatement worth $3.1 million. The state kicked in $800,000 to train Amway’s workers on the new, automated equipment.

Not all of Grand Rapids’ economic development efforts are with local firms. The city also has focused on marketing itself to specific industries, such as plastics producers, and abroad, particularly Germany. The sales job focuses on the area’s business growth and diversity, skilled work force, educational system, low housing costs and quality of life.

The fact that no industry dominates Grand Rapids is a plus, making the area resistent to severe downturns. The area’s 10 largest employers represent nine industries. The two largest sectors--fabricated metals and furniture--account for only about 6% of total jobs each. More than 90% of the area’s 12,500 businesses have fewer than 50 workers.

Employment growth has been steady. From 1980 to 1990, the metro area added 91,700 jobs, a 35% increase.

Manufacturing has been shrinking as a percentage of total employment but it still dominates the economy, accounting for nearly one-third of all jobs. Growth in manufacturing has slowed recently because of a slump in office furniture, a result of white-collar layoffs of the last recession. The growing service sector, however, has taken up the slack.

Average per-capita income was $18,674 in 1990, comparable to national levels. At the same time housing prices remain relatively low. The average sales price of a single-family home in Grand Rapids was $83,372 in 1992, 7.6% less than the state average.

Such factors were not lost on the Behr Group, a German-based maker of interior trim for luxury cars. The company in 1990 decided to build a $20-million, 100,000-square-foot plant in Grand Rapids employing 180 workers.

The relocation ended a four-year wooing by local officials in which Behr looked at 26 sites in 10 states. Heinz Etzel, president of Behr Industries Corp., said the deciding factor was the skilled and motivated labor force.

Indeed, the largely non-union labor force is one of the area’s main bragging points. The strong work ethic translates into lower absenteeism and fewer workers’ compensation claims, officials say.

But at the same time, local business officials complain about the quality of the area’s unskilled work force, particularly those coming directly out of high school and into the job market.

The issue has prompted the formation of several programs linking high schools and colleges with local businesses to provide advanced technical training and design training programs for specific manufacturing needs.

Derek Kaufman, the 41-year-old chief executive of Diesel Technology Inc. and a member of the council, embodies the young Turks now running medium-size manufacturing operations in Grand Rapids. He came to DTI in 1988 after Indy race car owner Roger Penske acquired the company from GM’s AC Rochester division.

The company leases a portion of the huge GM facility, with only a 10-foot wall separating the two companies. It might as well be the old Berlin Wall because vastly different cultures reside on each side of the barrier.

“There are different ideals, different attitudes over here,” said Pelton, a former GM employee who works at DTI as a machine operator. “Over here, the decision-making process is right here. If I want this machine out, it’s out.”

The company has adopted scores of employee ideas to improve productivity and the work environment. It uses just-in-time production to speed delivery to the customer and has instituted techniques to improve product flow.

The result is an efficient, growing operation.

Kaufman, who moved to Grand Rapids from Oregon, recalls when Penske called him and asked how he would like to move to the Rust Belt. He never regrets his decision.

“I keep looking for the Rust Belt,” he said. “And I still don’t know where it is.”