It is a great pleasure to be here today in Tennessee, and to become better acquainted with your famous and justly celebrated state. I value most highly my association in the United States Senate with two of the most able members of that body, Estes Kefauver and Albert Gore, with both of whom I had the pleasure of serving in the House of Representatives, and I can assure you that they have wasted no opportunity to tell me about the advantages and assets of the Volunteer State. I am also a long admirer of your Andrew Jackson, and have framed on my Senate office wall a letter of President Jackson in 1836 warning against "attempts to build up political power irresponsible to the will, or faithless to the trusts, of the majority."
Only a short time ago I had an opportunity to learn more details about Tennessee's industrial development in a special advertising supplement to the Sunday New York Times . I acquired a good many copies of that paper because it also contained an article by myself describing some of the problems currently facing New England, including southern competition. The Tennessee advertising section substantiated, rather than contradicted, many of the points in my article.
I would like to discuss with you today some of the issues which concern New England and the South with respect to this whole question of industrial development and migration.
Possibly you will say that you know of no instances where companies have abandoned their Massachusetts plants and simultaneously established the same operations in Tennessee. But the process of industrial migration is more subtle and indirect. More often, firms start by operating mills in both New England and the South, then abandon their northern plants in periods of decline and later expand their southern operations when prosperity returns. Beginning chiefly with cotton textiles over 25 years ago, this pattern of industrial migration has spread to other industries. Since 1946, in Massachusetts alone, 70 textile mills have been liquidated, generally for migration or disposition of their assets to plants in the South or other sections of the country. Besides textiles, there have been moves in the machinery, hosiery, apparel, electrical, paper, chemical and other important industries. Every month of the year some Massachusetts manufacturer is approached by public or private southern interests, including Tennessee, offering various inducements for migration southward. Other manufacturers warn their employees that they must take pay cuts to meet southern competition or face plant liquidations.
Why do our industries move to Tennessee and to the South, with all of the attendant consequences to their employees and community?
It would be unfair to imply that your natural advantages have not been responsible for a large share of this industrial migration. Perhaps most important of all, the South has a much larger supply of farm workers to draw upon for industrial employment, permitting wider selection of the most productive employees. Pure, fresh water; nearness to raw materials and production factors; greater space; a milder climate; and the hospitality shown new industries in new areas are also southern advantages which should not be denied. Nor should we deny or seek to hamper the rapid efforts of the South to obtain for itself some of New England's own many and well-known advantages, in skilled labor, research, markets and credit facilities.
However, it is an unfortunate fact that the southward migration of industry from New England has too frequently taken place for causes other than normal competition and natural advantages, which causes I shall detail in a moment. It is particularly unfortunate when one realizes the impact such industrial migration has upon New England. Although our states are far from depressed or undeveloped, and our citizens still enjoy a standard of living and per capita income above that of the nation as a whole, the lack of sufficient new industry to replace the old plants lost to the South has retarded New England's economic growth. Its industrialization, manufacturing employment, share in particular industries, and per capita income have not kept pace with increases in the rest of the country, even in 1953, one of our most prosperous years. What is true of New England generally is particularly true in Massachusetts, where we have been unusually dependent upon manufacturing as a source of employment and income.
In Tennessee, on the other hand, the trend has been in the opposite direction. Between 1939 and 1952, the number of manufacturing plants and wages in Tennessee more than tripled; the number of manufacturing employees nearly doubled; and the value of manufacturing output has increased by some 450%. Thousands of new industries, and billions of dollars in investment in plant expansion, have poured into this state. The same trend, of course, is true for the South as a whole. The 11 Southeastern states, for example, between 1929 and 1950 increased their per capita income 179%. The gain for the nation as a whole was 111%; for New England, 85%.
It would be wrong for New England to attempt to retard industrialization of the South. Although New England is at a locational disadvantage in reaching the rapidly expanding markets of the Southeast and the Southwest, New England, who must sell to the South, benefits from this tremendous increase in purchasing power. To the extent that locational advantages of southern industries offer real efficiency, New England consumers share the benefits of such efficiency with the entire nation.
But while recognizing New England's gains from southern industrialization, and the natural advantages of southern industry, we must also recognize that the serious consequences of industrial migration are not all due to these natural advantages.
There are two other major reasons influencing this remarkable industrial development. The first has been the influence of Federal programs. The Tennessee Valley Authority, which I shall discuss in more detail in a moment, is only one of these. Tennessee has also received from the Federal Government a disproportionate share of government contracts, tax amortization certificates, federal construction projects, grants in aid, and similar aids to its economy in comparison with Massachusetts, partly due to our own uninterest. In 1952, Massachusetts, with 50% more population than Tennessee, received 1% of the value of federally financed construction projects; while Tennessee received nearly 15% of such contracts. Massachusetts, in fiscal 1952, contributed nearly 4 times as much as Tennessee to the Federal Government in taxes; but Tennessee received from the Federal Government 4 times as much as Massachusetts in expenditures for rivers, harbors, and flood control projects under the Army Engineers. The latest figures available show that, as of one year ago, tax amortization certificates had been awarded Tennessee valued at twice those awarded Massachusetts, despite the fact that Massachusetts deserved a larger proportion than Tennessee in terms of manufacturing capacity, defense contribution, proportion of industry, need for expansion, and so forth.
The second major reason – influencing industrial migration from New England to the South and the relative development of those two areas – is the cost differential resulting from practices or conditions permitted or provided by Federal law which are unfair or substandard by any criterion. An inadequate minimum wage permits industries moving South to pay wages below the subsistence level. A weakened Walsh-Healey Public Contracts Act permits them to bid for Federal contracts despite wage levels substantially below their northern competitors. A Labor Relations Act which has frozen unionization permits employers to run away from unions and particularly a union shop by moving to Tennessee or other southern states. Various tax loopholes encourage migration to take advantage of tax-free plants, charitable trusts, and other privileges. These are some of the Federal policies which unduly accentuate this cost differential and industrial migration.
Although time does not permit us to examine each of these aspects of the struggle for industry between New England and the South more closely, permit me to cite in contrast two examples of inducements which Tennessee offers to industry through the New York Times advertisement -the Tennessee Valley Authority, an example of a Federal program which has been greatly beneficial to Tennessee although Massachusetts and New England have no comparable program; and your tax-free plant and site program, an example of what I deem to be unfair competition.
First: There is no denying the fact that the low cost power made possible by the TVA is a consideration in the location and development of business. The man who wants to start a moderate sized industry with a demand of 500 kilowatts and a monthly use of 100,000 kilowatt hours finds his annual electric bill in Boston would be $26,800; in Chattanooga $11,000. There is not a single Federal hydro-electric project in the state of Massachusetts or indeed in the entire six-state New England area. There is not a single R.E.A. cooperative or utility district, such as you have in Tennessee, in the whole state of Massachusetts. We do have municipally-owned electrical plants in Massachusetts similar to yours; but they must purchase their power from the private utilities at rates nearly twice as high as those paid by your municipal system here. Interestingly enough the rates in these two regions were at approximately the same levels in 1932; but by 1948, the bills for 250 kilowatt hours a month had declined about 18% in New England and about 47% in Chattanooga.
It is my position, a position not shared by all segments of opinion in New England, that our answer to your power advantage in the struggle for industry should not be attempted dilution of power development in Tennessee; but instead the development of our resources in Massachusetts and New England. The TVA is not "creeping socialism" because it attracts industry which might otherwise locate, remain or expand in New England. It is a challenge to us to seek further utilization of our own natural resources. I do not want to see your electric bills for industrial power go up; I want to see our bills go down.
Perhaps Massachusetts will never enjoy the same advantages in the field of power as Tennessee. Our fuel costs are higher; we have fewer land areas which can suitably or profitably be flooded; and our river valleys are less adaptable to power and multi-purpose development. Nevertheless, the power potential of the rivers of Maine and other New England states, of a tidal project at Passamaquoddy, of the St. Lawrence and Niagara, have not yet been fully tapped. The current Federal Inter-Agency Survey of Water Resources has been continually hamstrung, and its conclusion postponed, by inadequate appropriations. If New England can see this comprehensive survey financed and completed, and obtain therefrom a comprehensive formula for its power development, we will be able to move ahead with definite knowledge and goals.
But if we are to pursue these objectives, we need the help of the South. I am hopeful that southern Congressmen and Senators will not attack any such program, as some of them have attacked appropriations for this Inter-Agency Survey; and still more have opposed other programs to bolster the economy of New England - including Defense Manpower Policy 4 assisting labor surplus areas to get defense contracts, and the Walsh-Healey Act, to which they attached the restrictions of the Fulbright Amendment - as "Federal interference with the forces of free competition." For, as I have previously pointed out, the South has long recognized more than any other region the tremendous importance that the Federal Government can play in developing the resources of an area. Moreover, so inter-dependent is the economy of the United States that any increase in tempo in New England from the development of its power potential or other aids will stimulate industry in the South.
Let us turn now from the TVA, which incidentally I will be touring this week, to the Tennessee Industrial Revenue Bond Building Act of 1951. It is my understanding that this Act, as amended in 1953, authorizes all incorporated municipalities and counties to erect buildings and acquire sites, as inducements to new industry, through the issuance of revenue bonds. The New York Times advertisement goes on to proclaim proudly:
"Since the bonds are exempt from state and federal taxation, and most materials used in the building are also tax exempt, it is possible for local governments to provide factory space at a lower financial outlay in most cases than would be possible for such space to be provided by private financing.''
This constitutes, in my opinion, unfair competition to the private companies which must pay higher interest rates to finance taxable bonds for a new plant. Indeed, in effect, the taxpayers of Massachusetts and every other state are handing a subsidy to Tennessee and the industry moving into Tennessee and other southern states to take advantage of this subsidy. Textile, apparel, machine, leather, abrasive, paper and other important industries have been lured to these states at least partly through the use of industrial development revenue bonds. I understand that last year the city of Elizabethton, Tennessee, approved a 6 million dollar bond issue to finance the erection of a plant for Textron, Inc., once a major source of employment in New England. Although this particular deal apparently fell through, Textron has located many of its southern plants through the use of various tax loopholes, including charitable trusts. I am also told that the city of Lawrenceburg, Tennessee, planned to build a 4.5 million dollar plant for the Wamsutta Mills, a New Bedford, Massachusetts, firm. Again, this was one arrangement which did not work out, partly because investment bankers are increasingly reluctant to handle such bonds. But I am sure you know of many more successful examples, not only in Pulaski and Merryville, Tennessee, but other parts of the South, involving firms from New England and elsewhere.
Why are such securities exempted from federal income taxes when they are issued for a proprietary rather than for a public purpose? The U. S. Chamber of Commerce, the Investment Bankers Association, the Municipal Finance Officers Association, the American Bar Association's Section of Municipal Law and others have all condemned this practice.
I am hopeful that southern spokesmen and statesmen, including your able Representatives in Congress from Tennessee, will assist me in my efforts to plug up this federal tax loophole. In the long run, fair competition is just as important to the South as it is to any other section. There are areas in Tennessee and the Southeast which already share New England's troubles of surplus labor areas, a declining textile industry, one-industry towns, and the out-migration of industries to take advantage of unfair inducements elsewhere. These are all problems, in fact, that exist now in many parts of the country and which will multiply as the economies of those regions mature; and which will particularly trouble the Southeast because of your dependence on textiles, already hit by the impact of synthetic fibers, foreign competition and migration. Chattanooga, Knoxville, Memphis and Nashville have all experienced some labor surplus.
Moreover, tax subsidies are no foundation on which to build stable industries. Virginia repealed its tax exemption law in 1946, on grounds that it meant unstable industry and an unstable tax base. It was unfair to existing business, said one Virginia spokesman, for "someone has to pay in the long run." Although 6 southern states besides Tennessee have statutes offering tax exemptions to new industries, the others do not. The Southeastern States Tax Officials Association has condemned the practice of tax-free municipal plants as "inequitable and unfair to industry in the state and detrimental to the taxpayers of the state because what is given away must be paid for by other businesses and individuals, ultimately, thereby creating an unhealthy social and economic condition."
Industries thus attracted are migrants, not new enterprises. Their home offices are generally not in Tennessee, but in New York, Boston or elsewhere. Once having accepted your tax benefits and a few years of heavy profits, they may again move, leaving your community as well with empty buildings, stranded workers and a heavy bond issue. As such use of public credit spreads, no community can be sure of the stability of the enterprises on which its citizens depend for their livelihood. I am told that your town of Elizabethton, with only l0,000 people, had $26 million in municipal bonds for private industrial plants in February 1952, and was planning another issue to bring this total to $51 million, or an additional debt load of more than $5,000 plus interest for every man, woman, and child in the town! What happens when their new-found benefactors leave for another bargain elsewhere?
I intend to work for the elimination of unfair competition of this character in Congress, and urge the South to support this move for its own benefit. This is not an issue between North and South, but one concerning the stability and integrity of our entire national economy. The competitive struggle for industry will and must go on, but it must be a fair struggle based on natural advantages and natural resources, not exploiting conditions and circumstances that tend to depress rather than elevate the economic welfare of the nation.
Contrast, if you will, your TVA with your program of tax-exempt factories. The one utilizes the vast resources of the Federal Government to develop publicly the natural, human, and material resources of an area; the other robs the Federal Government of its tax dollars by utilizing a public advantage for private gain. The one contributes immeasurably to the economic progress of our nation and all of its citizens; the other abuses a federal tax policy in order to benefit one section of the country at the expense of another. The one sets a standard for all the nation to admire and emulate; the other offers a path which is eventually self-destroying for those who follow it.
New England's answer to the South lies neither in prohibiting federal power and other programs aiding the South; nor, as some have maintained, in cutting wages or social benefits in New England or meeting subsidy with more subsidies; for in the end all of us are harmed and our problems remain unsolved. Instead positive action is required. For this reason I presented to the Senate in May of 1953 a comprehensive program calling for federal legislation aimed at the correction of these abuses.
I called for action to aid the expansion and diversification of industry in our older areas to replace the traditional industries lost through migration. Such aid would include providing loans and assistance to small business, retraining unemployed industrial workers, tax amortization benefits for industries expanding in areas of chronic unemployment, developing natural resources, and aiding local industrial development agencies. I further called for more adequate security for the jobless and aged who are the victims of industrial dislocation. But that is not enough. The Minimum Wage, Walsh-Healy, Taft-Hartley, Unemployment Compensation and Social Security Laws must be improved to prevent the use of substandard wages, anti-union policies and inadequate social benefits as lures to industrial migration. Tax loopholes must be closed, and equal consideration given to all areas in the administration of policies dealing with tax write-offs, transportation rates or government contracts and projects; for these should not properly be factors inducing plant migration.
These are some of the policies within the jurisdiction of the Federal Government affecting New England's economic status. At no time did I suggest in this program that any solution of New England's difficulties must be at the expense of the economic well-being of the South. I was anxious that the program be studied not as a political or regional issue, with heated arguments and oversimplified solutions, but rather as a program of mutual benefit for all, based upon the inter-dependent economies of New England, the South and the nation. It was not my intention to absolve New England itself from all responsibility for its economic ills, or to make the South our whipping-boy in an appeal to the emotions of the man on the street. This is a problem upon which inter-regional cooperation, not political antagonisms, is needed. It calls, not for a single simple solution, but many steps consistent with the approach I have outlined.
The South, instead of fighting such a program, should welcome it for the stability that it promises and the safeguards that it assures to the South's new and proud industrialization. It is a common goal that lies ahead of us – the expansion and prosperity of every section of the nation, not the ephemeral aggrandizement of one at the expense of another through the exploitation of impermanent and ultimately self-destroying values. In checking such practices, the alliance of both South and North is needed if we would carry out our common pledge "to promote the general welfare and to secure the blessings of liberty to ourselves and our posterity."
Source: Papers of John F. Kennedy. Pre-Presidential Papers. Senate Files, Box 893a, "Chattanooga, Tennessee, 10 December 1953." John F. Kennedy Presidential Library.