Down in the Valley: Hudson Loses Jobs, Sense of Security : Economy: As IBM slashes its work force, the region fights to cope. The battle mirrors California’s struggle.

Growing up in the placid Hudson Valley town of Wappinger, in an IBM family on an IBM block, Bill Steinhaus--like tens of thousands of others in this lovely semi-rural region--was enveloped in a security blanket as thick as the local forests.

But today, the IBM blanket is gone, shredded by years of mismanagement and technological change. A company that once promised lifetime employment at a good wage has slashed its local work force by more than half. Unemployment is at a record high. Stores are closing. Real estate values are plummeting.

And Steinhaus, now Dutchess County executive, is supposed to do something about it.

It’s a challenge similar to that facing community leaders in Southern California, Connecticut and other regions that have depended heavily on a few seemingly stable blue-chip corporations. All are grappling with an economic transformation that extends far beyond their own communities, one that threatens a permanent reduction in the number of secure and well-paying big-company jobs.

So what is Steinhaus to do?

Together with other public officials and local business leaders, he is taking all the obvious steps--developing action plans and talking up entrepreneurship. The county has hired an economic development czar and put together a job-creation strategy containing 70-odd recommendations.

Yet, Steinhaus readily concedes, “we can’t replace (IBM’s) payroll dollars that quickly or to that level. All of the Fortune 500 are shrinking. This is a national problem, a worldwide problem . . . and in terms of the impact, I don’t believe the worst is over.”

All up and down the Hudson River Valley, home to some of the earliest settlements in America, there are visible scars from dramatic economic upheavals that took place 50 and 100 and even 200 years ago. The great downsizing of the 1990s--at IBM and elsewhere--will surely leave its mark as well.

The only real question is how ugly a mark it will be.

“This place has the potential to be another Flint, Michigan,” mutters Emanuel Kustas, 49, as he smokes a cigarette outside a building at Poughkeepsie’s Marist College.

On a sweltering summer day, Kustas and some 200 others have come out for a seminar on starting a small business, one of a series of meetings organized by local officials. The emphasis on entrepreneurship is born of necessity: Few harbor any illusions that a big company is going to move in and create thousands of jobs.

“There’s no magic bullet out there,” says Stephen M. Saland, the state senator who represents the region. “The rebuilding is going to be a lot slower than the precipitous reductions.”

IBM’s decline surely has been steep. After dominating the computer industry for decades and establishing itself as a model corporate citizen, IBM proved too big and bureaucratic to cope with the revolution wrought by the personal computer and other new technologies in the 1980s. Deteriorating finances culminated in a stunning $8.9-billion loss for the second quarter of this year.

A payroll that topped 400,000 worldwide in 1986 has been cut to 250,000 through early retirement programs and layoffs, with an additional 35,000 jobs to go by the end of next year. IBM’s three massive Hudson Valley facilities, home to old-line mainframe computer and component operations, have been especially hard-hit. After reaching a peak of 30,700 in 1985, the local IBM head count is down to 13,800. Unemployment in Dutchess County, just 2.9% in 1990, stood at 9.4% in July.

One need not travel far in this region to find stark examples of how difficult such economic transitions can be. Downtown Poughkeepsie, on a bluff overlooking the half-mile-wide Hudson, is shabby and crime-ridden, its once-elegant merchant buildings housing a motley collection of low-end stores and food vendors. The waterfront, victimized by ill-conceived urban renewal projects in the 1960s, is all but abandoned.

In Newburgh, an old shipbuilding port and garment manufacturing center about 15 miles to the south, the decline is even more startling. On Broadway, the wide main drag that tumbles gently toward the river, many of the old buildings are abandoned. When it became uneconomical to build ships or sew pocketbooks in Newburgh--so much cheaper in South Korea--its core essentially disintegrated, turning into a mean and drug-ridden ghetto.

Both towns suffered from changing transportation patterns that rendered their ports superfluous, along with the post-World War II flight of a broad range of manufacturing businesses from the Rust Belt to the Sun Belt.

In part, though, it was the area’s skilled manufacturing work force and solid infrastructure that drew IBM in 1941, initially to make munitions for the military.

The IBM factory, just south of downtown Poughkeepsie on Route 9 (the centuries-old post road connecting New York City and Albany), eventually became the home of IBM’s most important product, the mainframe computer. Shopping malls and subdivisions replaced the dairy farms all along Route 9, draining commerce from downtown but providing classic suburban prosperity for thousands of families.

Similar growth took place to the north, in Kingston, and to the south, in East Fishkill, as IBM expanded at a breakneck pace through the 1960s and 1970s and the first half of the 1980s. While visitors might know the Hudson Valley for Franklin D. Roosevelt’s Hyde Park home and the other magnificent estates that line the east side of the river--or perhaps for the spectacular West Point academy on the opposite bank--it was IBM, either directly or indirectly, that provided a third of the jobs in the region.

It is certainly difficult to imagine that the computer giant’s declining fortunes could turn the residential neighborhoods of Dutchess, Orange and Ulster counties into anything resembling ghettos. In part because of the natural beauty of the area, in part because of its proximity to New York, many locals remain convinced that an economic rebound is inevitable, if not imminent.

Christopher C. Di Leo, owner of Zimario’s, an Italian restaurant across the street from IBM’s sprawling computer-chip complex in East Fishkill, says business dropped off 70% this spring when the biggest of the IBM cutbacks took place. Employment at the plant plunged from 9,200 to 5,200.

“It was a ghost town around here,” he says.

But business soon stabilized, Di Leo says, at about 40% below its peak. Now he’s getting more involved in the community, joining clubs and trying to generate a new clientele.

His real hope, though, lies in a plan to turn the IBM complex into an industrial park. Di Leo points to the huge investments IBM made in the facility, which has dozens of buildings, its own power plant and a chemical-handling infrastructure so massive that it resembles an oil refinery.

The southern edge of Dutchess County, in particular, has much to recommend it. Just 90 minutes north of Manhattan, it’s already something of a bedroom community for neighboring Westchester County, which once was dominated by bedroom towns itself but now houses a heavy concentration of corporate headquarters--including IBM’s.

Commuter trains serve New York City. There’s the river for boating, the Catskills for skiing, good colleges and many other “quality of life” amenities. For years, Dutchess County had the lowest unemployment rate in the state; it climbed as high as 11th place in rankings of the nation’s most affluent areas.

But proximity to Westchester and New York City isn’t what it used to be, at least in terms of job creation. Corporate downsizing has hit Westchester’s white-collar sector hard, and New York City is managing only a modest recovery from a recession that has devastated its financial and real estate industries.

There’s also a noticeable absence of the kind of high-tech or manufacturing companies that might employ some of the ex-IBMers.

Kive Wengier, a 49-year-old engineer, is in many ways typical of the educated, accomplished workers who are finding life-after-IBM difficult indeed.

“Everything I learned at IBM is worthless,” says Wengier, sitting glumly in the waiting room of an IBM outplacement center in Poughkeepsie. “I’ll retrain, I’ll learn anything, but I can’t take a $5-an-hour job. I have to support my family.”

Wengier says he has sent out 400 resumes, to no avail.

If anything, prospects are even more difficult further up the Hudson Valley in Kingston. Once a booming river port, a transit point for Pennsylvania coal making its way to New York City and a major center of brick-making, bluestone mining and ice harvesting, Kingston’s century-long slide was well cushioned by the growth of the IBM factory, which employed over 7,000 workers at its peak.

Today, the plant has only about 2,400 employees, and rumors are rampant that IBM eventually will close it altogether and move the remaining work to Poughkeepsie.

It isn’t only IBM that’s cutting back in Kingston. Metropolitan Life, which leases some excess IBM space for a regional claims-processing center, recently laid off 60 workers. Duplex Products, a printer of business forms, shut its local plant, consolidating operations in North Carolina.

The impact of these cutbacks fall heavily, even beyond the factory gates.

For Mark Sanborn, whose family dry-cleaning business was just a stone’s throw from the Kingston plant, the falloff in business from IBM workers was too much to take. Early last month, working late yet again, he lit a scrap of cotton matting and threw it into a trash can. The fire left the dry-cleaning shop a charred ruin--and Sanborn, who confessed, facing felony arson charges.

For Kingston and some other parts of the Hudson Valley, it may be tourism, along with what might be called the second-home industry, that holds out the best hope for the short term.

Situated at the gateway to the Catskills, just a few miles from the retro-hippie town of Woodstock, Kingston has succeeded in reviving its old downtown port area with art galleries, restaurants and antique shops. Only two hours from Manhattan, the town is an ideal location for fax-equipped executives looking to spend more time in the countryside.

Yet tourism tends to provide seasonal jobs--low-paying ones at that. Frank Surdey, a state Labor Department economist, said manufacturing jobs such as those at IBM paid an average of $48,000 in the Hudson Valley, while service jobs pay only half as much.

In the long run, the region will depend far more on the success of people like Joann Ives, a former IBM facilities engineer who is trying to launch a business making fabric products, such as potholders and canvas bags.

With designs she initially used to make gifts for her family, Ives has found a manufacturer to produce some early samples. A small business development program at the community college has been very helpful, she said.

No matter what ultimately happens, Ives says, it’s been good for her to get out of IBM. “I was ready for something new. You can get very complacent in that environment.”

People here say complacency--on the part of individuals, communities and governments--was one of the bad habits that IBM bred. Just as the aerospace industry steeped Southern California in security, for decades there was little concern here about diversifying the economy or in any way protecting against possible problems at Big Blue.

Many Republican politicians and business leaders, advancing an argument that’s become familiar in California, also criticize the state government for not doing more to improve New York’s business climate.

“New York is near the top in promulgating regulations,” complains Saland, the state senator.

Yet in New York--as in California--the harsh reality is that it’s simply impossible to compete on cost with rural Southern and Western areas. Just as economic incentives would not have kept shipbuilding in Newburgh or brick-making in Kingston, they’re unlikely to persuade car manufacturers or computer companies to set up shop here.

And environmentalists fear that misguided attempts to improve the business climate will undermine longstanding--and in many cases successful--efforts to clean up the Hudson Valley.

Yet there are some encouraging precedents on the job front.

In Schenectady, an old industrial city west of Albany, the corporate downsizing crisis hit in the mid-1980s. Local giant General Electric slashed 4,600 jobs from a work force that already had shrunk dramatically from a high of nearly 30,000 in 1974.

Today, GE employs only about 10,000 people in Schenectady. But the unemployment rate is just 4.8%. Jobs in health care, insurance and plastics manufacturing have helped offset GE’s decline.

“We focused on the creation of new companies,” says George Robertson, head of the Schenectady Economic Development Corp.

Surdey of the state Labor Department says all the ingredients are in place for a similar boom in employment at small- and medium-size businesses in the Hudson Valley--if the national economy cooperates.

But the very uncertainty of economic adjustment makes it all the more treacherous for many area residents.

Ann Davis, a Marist College economist, believes the long-term effect of the IBM cutbacks has been underestimated.

Many ex-employees, she notes, still are living on unemployment and severance payments, which soon will end. Local governments are facing falling property and sales tax revenues, even as they’re being asked to do more. Small business owners who bet on a rapid recovery may be taking a big risk.

After all, even a region with many obvious advantages is vulnerable to economic forces far beyond its control. Just ask the residents of Newburgh. Or Los Angeles.