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United States

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Economic

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Rural

Development

Research

Report

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Helping Rural Manufacturers

Adjust to New Trade Rules:

Developing State Strategies

forthe Rural Apparel Industry

John M.Redman

David W. Sears

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Helping Rural Manufacturers Adjust to New Trade Rules: Developing

State Strategies for the Apparel Industry. By John M. Redman and David

W. Sears. Agriculture and Rural Economy Division, Economic Research

Service, U. S. Department of Agriculture. Rural Development Research Report

87.

Abstract

During the 1990's, apparel industry adjustment to foreign competition and

technological change will likely accelerate as the new North American Free

Trade Agreement (NAFTA) and the recently concluded General Agreement on

Tariffs and Trade (GATT) significantly expand foreign access to the U.S.

apparel market. To better cope with this adjustment, a State may wish to form

"apparel action teams" to review State economic development options vis a vis

the apparel industry. This report discusses 12 key questions a State might

usefully address in assembling such a team and defining the team's agenda.

The 12 questions fall into 3 major categories: (1) putting together the policy

team; (2) setting the ground rules for planning; and (3) setting the ground rules

for implementation. The "action team" approach suggested here should be

widely apphcable for use in many States' key manufacturing sectors.

Keywords: Economic development, rural manufacturing. State policy, action

team

Washington, DC 20005-4788 August 1994
Contents

Preface iii

Summary iv

Putting Together the Apparel Action Team 1

(1) Should a Team Include Members of Substate Public Organizations? . . 1

(2) Should a Team Include Private Sector Members? 2

(3) Should a Team Work With Other State Governments? 3

(4) Should Relationships Be Established With Federal Agencies? 4

Setting the Ground Rules for Planning 4

(5) How Specific Should a Statement of Goals and Objectives Be? 4

(6) Should the Program Be Strictly an"Apparel"Program? 8

(7) Should the Program be Strictly a"Rurar'Apparel Program? 11

(8) Should the Program Emphasize People or Places? 11

(9) Should the Program Be Comprehensive or Sequential? 12

Setting the Ground Rules for Implementation 13

(10) Should Program Resources Be Loosely or Tightly Targeted? .... 13

(11) What Type of Service Delivery System Should Be Used? 15

(12) How Tightly Should the Stäte Control Program Resources? 17

Conclusions 17

Appendix 18

Helping Rural Manufacturers / RDRR-87
Preface

This report has its roots in two different but parallel experiences. First, the

authors had the good fortune of participating in two recent (1990 and 1992)

Rural Development Policy Academies conducted by the Council of Governors'

Policy Advisors, an affiliate of the National Governors' Association. The

Academies were structured strategic planning exercises to assist States in

grappling with the vexing problem of how to improve individual and

community well-being in rural parts of their States. We were thus privileged to

watch—close-up, warts and all—teams from all over the country strive to

define and address organizational and substantive issues spanning the very

broad area of "rural development pohcy."

The second major activity was the primary author's research over the last 2

years on the U.S. textile and apparel industry. Two factors motivated this

research.

First, it appeared probable that significant trade liberalization would occur over

the next few years through either a North American Free Trade Agreement

(NAFTA), a General Agreement on Tariffs and Trade (GATT), or both. The

United States, Canada, and Mexico did, in fact, agree to a NAFTA during

1993. The Clinton administration has also "signed off on a new GATT

agreement, and this new accord appears likely to receive final Congressional

approval in 1994 or 1995. The effects of these agreements, coupled with

inexorable technological shifts over the next several years, will shape the

relatively labor-intensive apparel industry beyond the year 2000.

Second, the apparel industry is the mainstay of many Southeastern rural

communities' economic base. Liberalizing trade could thus exert a strong

effect on these rural areas, many among the poorest in the Nation. As

liberalization became more certain, then, it seemed likely that many States

would begin to consider how State policy could better help workers, firms, and

communities adapt to the change.

We offer this report as a framework within which State personnel might think

about what industry issues are important to address. It combines the insights

gained through our Academy experiences with our industry research. We do

not intend to be prescriptive but to help State officials focus on the core issues

they will address, explicitly or implicitly, when designing an apparel action

strategy.

This report will also be of interest to governmental or nonprofit officials

working in the field of economic development, policy analysts, and private

individuals or firms with an interest and/or stake in how well apparel-dependent

areas adjust. State policy teams developing programs to cope with change in

other industries will also find this report germane because their efforts will

confront many of the same key issues.

Helping Rural Manufacturers / RDRR-87
Summary

Many States, especially in the Southeast, have significant rural employment in

the apparel industry. In these States, as part of the process of reviewing

economic development options for the State's rural regions, policymakers may

wish to form an "apparel action team" to investigate the policy implications of

what is certain to be several years of continued, and probably accelerating,

apparel industry adjustment to foreign competition and technological change.

This report spells out 12 key questions a State will address in assembling an

apparel action team and defining the team's agenda. If the State does not

expHcitly answer each of these 12 questions, it will answer them imphcitly.

We have divided these 12 questions into 3 major categories: (1) putting

together the policy team; (2) setting the ground rules for planning; and (3)

setting the ground rules for implementation. Each question falls under one of

these three categories. A final decision never has to be made on any of these

12 choices. Each choice is subject to later réévaluation. Over time, it is likely

that a number of the choices made will be modified-some once, and some

several times.

For purposes of this study, we have defined the apparel sector broadly to

include: (1) the yam, fabric, and machinery sectors supplying the clothing

sector, (2) the clothing manufacturing sector, (3) the apparel distribution

network, most importantly the retail sector, and (4) the labor from households,

educational institutions, and training programs employed in all these sectors.

We use the term "apparel" to refer to these sectors collectively. We use the

term "clothing" to refer only to those activities that (1) cut whole fabric into

pieces, (2) assemble these pieces into a final garment, or (3) form yam directly

into a completed garment (e.g., hosiery) without first cutting pieces from fabric.

We use the term "textile" to refer collectively to yam production, fabric

production, and fabric finishing.

iv Helping Rural Manufacturers / RDRR-87
Helping Rural Manufacturers Adjust to

New Trade Rules

Developing State Strategies for the Rural Apparel Industry

John M. Redman

David W. Sears

Putting Together the Apparel Action

Team

The first general area a State will address is who,

specifically, it will actively involve in its effort to

develop an apparel strategy. Purely pohtical

considerations will, of course, heavily influence this

choice. State "team builders" will invite some

important public and private sector opinion leaders,

and representatives of key organizations, to join the

team in an effort to obtain the support of critical

constituencies for the team's policy package.

There are at least four other, more substantive,

questions that bear on whom to involve. At some

point, a State will have to answer each of these four

questions, either explicitly (through active,

straightforward consideration) or imphcitly (by

default).

The selection of team members is perhaps the most

critical decision a State must make. Without a strong

team, solid results are unlikely. Team builders should

therefore consider this activity with the greatest care.

1. Should a Team Include Members of

Substate Public Organizations?

For several reasons, State officials may determine that

a critical piece of their strategy is soliciting and

utilizing the input of local, regional, and tribal

governments and other substate public organizations

(private industry councils, community development

corporations, community colleges). A State may feel

that, within the public sector, useful information on

local industry and conditions resides at the local level.

Local or regional organizations might provide

particularly valuable input if they routinely work with

industry firms or employees.

Substate organizations also may have substantial

resources to help implement an apparel initiative and

perhaps expand its scope.

While many States will see active local participation

as beneficial, in some States the time, cost, and

logistical difficulty of involving many more players

may offset that advantage. State government itself

may have regional or local staff that can provide

much of the same information as local people. These

staff include State industrial extension engineers.

Extension Service specialists, university research

faculty, experts at Small Business Development

Centers or within the State's Economic Development

or Commerce Department, State or regional

employment and training program administrators, and

State legislators with longstanding interest in the

industry.

Despite a flurry of local capacity building activity

over the last decade, many localities still lack trained

leadership, have few additional resources to offer, or

have both deficiencies. Also, in the right political

climate, the State legislature may be able to pass

innovative apparel programs without explicit local

support, particularly if the legislative leadership has

actively participated in program development.

^ For example, a recent study of nonmetro self-development efforts could identify, nationwide, only 103 successful local self-help

projects. These results imply that the vast majority of rural communities have not put together the combination of local leadership and

local resources to create a self-development project. In addition,

most successful projects were not very large undertakings — the effect of the project on overall local economic performance was trivial. See Green et al., From the Grassroots: Results ofa National

Study ofRural Self-Development Projects, U.S. Dept. Agr., Econ.

Res. Serv., AGES 9325,1993.

Helping Rural Manufacturers / RDRR-87
Developing a State Rural Apparel Strategy:

12 Key Choices

Putting Together the Apparel Action Team

1. Should a team include members of substate public

organizations?

2. Should a team include private sector members?

3. Should a team work with other State governments?

4. Should relationships be established with Federal

agencies?

Setting the Ground Rules for Planning

5. How specific should a statement of goals and

objectives be?

6. Should the program be strictly an "apparel"

program?

7. Should the program be strictly a "rural" apparel

program?

8. Should the program emphasize people or places?

9. Should the program be comprehensive or

sequential?

Setting the Ground Rules for Implementation

10. Should program resources be loosely or tightly

targeted?

11. What type of service delivery system should be

used?

12. How tightly should the State control program

resources?

Extensive local participation may also dampen the

breadth and vision of the State's program: State

officials may so defer to local initiative/opinion that

the process fails to develop broader State or regional

goals to help inform and guide local actions. In the

absence of a broader strategic framework, local

officials may focus so heavily on the "tree" (for

example, how to save jobs at the local apparel plant)

that they fail to see the "forest" (how to address

longer term statewide industry problems and

opportunities).

2. Should a Team Include Private Sector

Members?

Heavy reliance on industry expertise within State

government is perhaps the easiest, fastest way to

create the apparel action team. Such a team might, of

course, supplement its knowledge with industry

analyses or with input from consultants. A different

approach would include, as full team members,

representatives of the private sector—most important,

representatives from apparel industry firms, trade

associations, and unions. A State might solicit active

private sector participation for several reasons.

First, the criteria governing team member selection

may screen out, even unintentionally, those pubUc

sector persons with the best knowledge of industry

conditions. This may happen for political reasons,

because the team builders are unaware of the full

range of existing public sector expertise, or because

work commitments preclude the best-informed public

sector experts from participating. Under these

conditions, strong participation from top private sector

experts can help offset this omission of top public

sector expertise.

Second, the team builders may consider "in-house"

public sector expertise inadequate to the task. This

would be particularly likely if State programs do not

put personnel in daily contact with a wide range of

apparel industry firms.

Whatever the State's "in-house" resources, a third

reason to solicit private sector participation is that

industry people may have more up-to-date

information about their own industry. For example, it

became clear during our recent (1992-93) study of the

U.S. apparel industry that few, if any. State

governments, even those with good instate apparel

expertise, had developed sufficient information to

realistically evaluate the potential effect of a North

American Free Trade Agreement (NAFTA) on their

apparel firms. States lacked collaborative

private/public mechanisms through which to obtain

systematic input from apparel company officials

responsible for investment decisions, who were in a

much better position to judge what NAFTA might

portend. This same problem existed at the Federal

level.

Finally, key private sector endorsement of an apparel

team's strategy enhances the credibility of the teams's

analysis and proposals. Critics will find it harder to

label the team's product amateurish or otherwise

unrealistic. In addition, a private sector stamp of

approval is important because the private sector will

Helping Rural Manufacturers / RDRR-87
be playing a critical, perhaps the most important, role

in the implementation of the State's apparel strategy.

Disadvantages to pursuing private sector participation

may also exist. First, as noted, few States have

estabhshed institutions to promote joint public/private

analysis of problems and opportunities in the apparel

industry. Therefore, a State may have to spend

considerable time and effort forming such a

cooperative public/private group.

Second, some key private sector organizations may

prove difficult or impossible to get to the table. For

example, many large apparel companies have a

tradition of suspicion or outright animosity toward the

public sector. Other large firms may decline to

participate because they assume that whatever a State

might do will be of little or no consequence to their

own operations.

Third, many pubhc sector officials and public interest

groups may fear that the private companies that agree

to serve as apparel action team members do so only

to promote their own narrow, short-term,

profit-maximizing interests. Any public perception

that the team's recommendations promote private

interests quite different from the public interest will

diminish the credibility and value of the team's work.

Others would respond, however, that every industry

has some companies that would view participation on

a pohcy team as a pubhc service, and may, in fact,

feel flattered that the State places a value on their

knowledge and insights. Such firms may also

participate to compare their understanding of apparel

industry trends with the views of other companies and

informed industry observers.

Several States have worked (albeit on a temporary

basis) with apparel industry representatives to develop

what they beheve are sound, detailed analyses of

^ Ifselecting solid private sector team members and getting firm

participation commitments from tiiem is likely to be a time-consuming process, and the State has a considerable amount of "in-house"

expertise on the apparel sector, it may wish to use a two-stage process of team formation. In stage one, public sector team members

would take a "first crack" at a time- and labor-intensive review of

industry conditions and trends, and the public actions that actually

or potentially affect industry performance. (Strategic planning jargon labels this review the "environmental scan.") Simultaneously,

the team builders would recruit private sector representation. When

tiie stage-one team had completed a first draft of this background

analysis, private sector individuals would join the team for stage

two, in which all members would actively participate in both revising/updating the analysis and developing the full policy package.

(This option is clearly not viable for States with limited public sector expertise.)

industry trends. In 1992, for example, the Lehigh

Valley Industrial Resource Center, a regional office of

Pennsylvania's Industrial Extension Service,

coordinated a study of the northeastern Pennsylvania

apparel industry. This study enjoyed the active

participation of industry unions, two trade associations

representing local apparel contractors, and 50

individual firms, each of which agreed to indepth

interviews regarding their operations. Similarly, in

1992, the nonprofit Garment Industry Development

Council (GIDC) sponsored a sector study of the New

York City garment industry. The study was managed

by a leading industry consulting firm and included

interviews with 15 major retailers and 23 clothing

manufacturers and contractors.

Appointing private sector members to the apparel

action team is not, of course, the only way to get

industry participation. Frequently, public

organizations use public hearings, one-time reviews of

draft policy documents, or both, to solicit input from

the private sector. Such processes, while useful in

catching gross inaccuracies or in identifying some

additional themes, are often "hit or miss." In any

case, these one-shot doses of input fail to develop the

quality of understanding that results from long hours

of focused, face-to-face interaction between public

and private sector representatives.

Obtaining only occasional private sector input also

precludes longer term public/private relationships

useful in tracking industry changes, adjusting policy

strategies, and helping ensure strong private sector

cooperation when implementing the apparel team's

strategy. Since the State will implement the strategy

over many years, full "buy-in" to the team's strategy

by key private sector actors will be critical to its

success. Those on the team are the most likely to be

enthusiastic supporters of the strategy.

3. Should a Team Work With Other State

Governments?

When policy goals are industry-specific, there is a

strong argument for actively coordinating a State's

policy development effort with similar efforts in other

States. Rarely will only one State have a sole interest

in the health of a specific industry.^ Commercial

^ For example, if one examines maps of counties with 1,000 or

more employees in the knitting sector, substantial concentrations of

employment are found in Nortii Carolina, northeast South Carolina,

and along the northem half of the Georgia/Alabama State line. In

broadwoven fabric, large employer counties are found in North

Carolina, South Carolina, Georgia, and Alabama. In clothing, large

employer counties are found in all Southeastern States.

Helping Rural Manufacturers / RDRR-87
linkages among companies in different States will, in

fact, routinely exist. These interstate commonalities

and linkages suggest shared problems and

opportunities. Energetic interstate cooperation is one

way to identify joint actions to make policies more

effective, or to permit projects that one State alone

would not undertake.

For example, an effort to help establish Quick

Response partnerships among various firms may be

more effective if matching is done not only among

companies within a given State but regionally—across

several States. Or, regional cooperation may secure

funding for a specific research and development

project that no one State wished to fund at the scale

required for effectiveness. The Southern Growth

Policies Board and the Southern Technology Council

are examples of ongoing cooperative interstate

development efforts in the Southeast, but to our

knowledge no regional effort currently works to

develop multistate strategies for the apparel sector.

On the other hand, the time and energy devoted to

creating active interstate partnerships may sometimes

sap scarce resources and produce few benefits.

Cooperation among States is particularly difficult

because of frequent gubernatorial changes, and the

sensitivity of State budgets to the ebb and flow of

economic activity. In addition, the "coordinating

partners" ultimately may not be fully committed to

cooperation. In some cases, a State may believe the

severity of the apparel sector's problems does not

allow the lead time necessary to develop and use

interstate partnerships.

For many States, the best approach might be to first

"go it alone" in establishing a basic State rural

apparel strategy. The State might subsequently

reexamine its strategy carefully to identify one or two

poHcy niches where interstate cooperative efforts

might enhance program effectiveness.

4. Should Relationships Be Established With

Federal Agencies?

Several States participating in the federally stimulated

State Rural Development Council effort are hopeful

this coordination will facilitate reaching the State's

rural development goals. Such coordination can

supplement the State's limited resources. The State

can choose to focus on plugging those holes not

covered by Federal resources or the State can attempt

to pull (or push) Federal resources into specific areas

that it cannot handle.

Under this same effort. Federal agencies are

encouraged to coordinate with each other and with

State agencies. Anecdotal evidence of good

State-Federal cooperation from State Council

activities has surfaced. In South Dakota, for example,

the U.S. Army Corps of Engineers and the

Governor's Office have begun a face-to-face

discussion regarding the appropriate recreational use

of a dam-created lake. Prior to the

Council-stimulated conversations, all dialogue

between the parties had taken place in an adversarial

setting—the courts. Also, as an outgrowth of

discussions held during Maine State Council

meetings, the Maine State Housing Authority and the

Farmers Home Administration are working together

to improve multifamily housing affordability in rural

Maine.

The pros and cons of a high degree of coordination

with the Federal Government are similar to those just

discussed in terms of interstate coordination. One

additional drawback, however, is that the sharp

reduction of active Federal involvement in economic

development issues over the past decade has

de-emphasized industry-specific activities. As a

result, the Federal Government may have Hmited

expertise to offer a State's apparel action team.

Setting the Ground Rules for Planning

Once a State assembles its apparel action team, the

team will develop some basic ground rules to govern

its planning effort. The focus of this section is on

five choices relating to these rules. Again, a team

will either explicitly or implicitly answer these

questions during the course of its deliberations.

5. How Specific Should a Statement of Goals

and Objectives Be?

Developing a coherent apparel pohcy requires at least

four major steps: (1) an environmental scan, (2)

reaUstic goals and objectives, (3) strategies aimed at

achieving those goals and objectives, and (4)

programs to implement these strategies.

A thorough and frank environmental scan will help

the team quickly focus on candidate goals and

objectives that are both practical and promising. In

turn, the statement of goals and objectives will set the

strategy's basic direction and the general bounds for

discussion of programs. Ultimately, then, apparel

strategies and programs tie directly back into these

goals and objectives. In many cases, the detailing of

strategies and programs will seem relatively

Helping Rural Manufacturers / RDRR-87
A Vision of Rural Idaho

PEOPLE—We see a rural Idaho where: Human dignity is a priority, people are the focus and youth are a

particularly vital resource, services are available to meet lifelong basic human needs, and there are opportunities for all

individuals to thrive regardless of physical ability, income, race, or culture.

ENVIRONMENT—We see a rural Idaho where: Idaho's rugged beautiful land molds our character and our

economic and environmental needs are balanced through thoughtful, sustainable use of our national resources; we are

willing and able to share Idaho's recreational opportunities and cultural treasures with visitors; and there are untouched,

natural places where wildlife thrives and the human spirit is lifted.

ECONOMY—We see a rural Idaho where: The economy is vibrant and offers opportunities for agricultural, natural

resource, manufacturing and service industries; entrepreneurship is encouraged; ongoing success in the global

marketplace is supported by state-of-the-^t communications systems and technology; there is a well-maintained,

statewide transportation network; and there are meaningful jobs offering incomes to sustain a preferred standard of

living and quahty of life.

EDUCATION—We see a rural Idaho where: An educational system encourages and provides affordable and

accessible opportunities for lifelong learning; students of all ages are prepared to succeed in a global environment;

educational systems are responsive to diverse industry needs and community values; and the family is an active partner

in education.

GOVERNMENT—We see a rural Idaho where: Responsive govemment serves its citizens; citizens are informed

and passionately involved in decision making; leaders emerge from all walks of life and all segments of the community;

and effective public/private partnerships flourish.

VALUES—We see a rural Idaho where: Our values are revered and passed on to our children; we use our heritage

to create our future; we honor family and value cultural diversity; we encourage artistic expression; productivity is a

way of life; we view adversity as a challenge; and the responsibilities of citizenship are accepted by all, and the benefits

are accessible to all.

Source: State ofIdaho Policy Team, Rural Competitiveness Policy Academy, May 1992.

straightforward once the team develops (through the

environmental scan) a common understanding of

industry problems and opportunities and agrees on a

realistic set of goals and objectives.

As simple as the setting of goals and objectives might

appear to be, experience indicates that policy teams

can spend a great deal of time and energy trying to do

so, and often not successfully. It is difficult, and at

times impossible, for a diverse team to agree on a

single coherent goal statement. The difficulty of

reaching agreement increases as the desired specificity

of the statement increases.

An important question, then, is how hard to press for

a precise statement of goals and objectives. In all

probability, a team cannot answer this question at the

outset, but will have to address it at some point in its

deliberations. The clear preference of the Council of

Governors' Policy Advisors (CGPA) is that the

statement of goals and objectives be very specific."^

CGPA also believes that attaining the desired

specificity requires a prodigious effort.

CGPA suggests that, following the envu-onmental

scan (a task in and of itself), the team develop a

"vision" statement. An apparel action team vision

statement might describe a shared image of how the

team would like to see the State's rural apparel

industry evolve over the next 10-20 years. A good

vision statement must, of course, fully recognize the

constraints imposed by current conditions, trends and

problems, but will also bring to life important

opportunities.^

^ CGPA is an affiliate of the National Governors' Association. As

part of its services to members, over the past few years it has accumulated extensive experience working with State policy teams to

develop strategic plans for State action in a number of different policy areas, including economic development.

^During its second Rural Development Policy Academy, CGPA

provided this Stanford Business School definition of "vision":

Vision is the ability to see the potential in, or necessity of, opportunities right in front of you. And, just as important, it is the courage,

skills, passionate conviction and relentless persistence to actually

make it happen.... Vision isn't forecasting the future; it is creating

the future by taking action in the present.

(CGPA Policy Academy background documents, Aug. 1992)

Helping Rural Manufacturers / RDRR-87
To illustrate what visioning might produce, "A Vision

of Rural Idaho" (see box) contams one policy team's

"vision" for its State's rural areas. A "vision" might

often be a best case scenario. For example, the

Phoenix Scenario—described in a forthcoming

overview report on possibilities for the apparel

industry—is a vision of what the U.S. apparel

industry might become over the next 20-30 years

under propitious circumstances.^ (See Appendix for

summary of the Phoenix scenario.)

Visions can be much less optimistic than the Phoenix

scenario, but still foresee a positive future. For

example, one team's vision of the apparel industry in

the year 2005 might reflect a consensus that most of

the industry will move to Mexico or Southeast Asia.

In that case, the team vision might focus on the

smooth movement of the State's apparel labor and

capital into other, higher paying industries.

Under CGPA's approach, the team, against the

backdrop of this vision, will next develop broad

expressions of policy intent and priorities—in short,

the team should unite around common goals. The

team must believe that these goals can gamer

substantial popular support, and that their

implementation is technically feasible.

If a team succeeds in establishing explicit goals, these

goals can serve, in turn, as the basis for defining a set

of more specific program objectives. Below we

present a hypothetical example of what an apparel

action team might choose as its goals and objectives.

This example is consistent with CGPA's guidelines

(see box, "CPGA Guidelines for Team Objectives").

All likely scenarios of the U.S. apparel industry

foresee diminished employment due to a combination

of continued/intensified foreign competition and

technological change.^ For most States, then, any

statement of goals might recognize the necessity of

adjusting to a persistent job loss in the State's apparel

industry. Therefore, goal-setting discussions might at

least consider whether a State should explicitly set a

goal such as:

^ See Appendix for a summary of this scenario. The companion

to this report, (Redman, John M., and William Amt, The Tsunami,

Phoenix, Tequila Sunset and FEDEX Scenarios: Thinking About

the Future ofthe Rural Apparel Industry, Washington, DC: Aspen

Institute, forthcoming 1994), contains a much fuller version of each

scenario, as well as extensive descriptive material on current apparel industry structure and trends over the last 30 years. Included

are data on real output, employment levels and geographic distribution, real investment, real capital stock, multifactor productivity

growth, and measures ofinternational competitive advantage.

^ See companion report, ibid.

CPGA Guidelines for Team Objectives

CGPA succinctly describes "a good strategic policy

objective" as one that:

• is logically related to a policy goal

• is as specific as possible

• specifies desired outcome(s) for people/clients, and

• is measurable.

A "good set of objectives" is one that:

• reflects relative priorities

• recognizes legitimate interests of affected parties

• is realistic about what can be achieved over the

given time period, and

• is realistic about the resources that may be available.

"Each substäte labor market will have the capability of

adjusting to the intensifying forces offoreign competition

and continued technological change with a minimum of

disruption to individualfamilies, businesses, and

communities. "

If a more positive, Phoenix-type scenario shapes the

apparel action team's vision, its goal statement might,

in addition to an adjustment goal, include other goals

emphasizing modernization and innovation. For

example:

"By the year 2005, the rural apparel industry will develop

a strategically well-positioned, highly innovative, and

flexible world-class production capability. Specific

characteristics ofthe industry will include extensive

horizontal and vertical linkages among segments ofthe

apparel production chain, and numerous long-term

partnerships with U.S., European, and Japanese retailers."

"Accompanying industry revitalization will be improved

labor-management relationships, substantially higher real

wages, and better working conditionsfor rural apparel

workers, "

Program objectives would follow from these goals.

For instance, because high turnover characterizes

most apparel plants, the team might want to focus

first on rapid reemployment of dislocated workers

within the same labor market area in order to

minimize disruption to families and communities.

Helping Rural Manufacturers / RDRR-87
Thus, a primary objective under its first,

adjustment-related, goal might be:

"To reemploy within 6 weeks, at apparel establishments

within commuting distance of workers' current residences,

60 percent of all experienced dislocated sewers who seek

immediate reemployment. "

If the team expects that overall economic activity in

the local economy will be expanding over the next

several years, a corollary objective for the remaining

group of dislocated workers might be:

"To place in other acceptable local employment within 4

months 75 percent ofthe dislocated workersfor which

placement into other area appareljobs is not a desired or

realistic alternative. "

A final objective might be:

"To assist the relocation of all displaced apparel workers

who wish to leave the area because jobsfor which they are

qualified, orfor which they might be trained, are not

locally available in either apparel or nonapparel

occupations. "

One overall thrust of adjustment assistance to

businesses might be:

"To facilitate movement of 50 midsized (employment levels

of 100-200) rural apparel operations into alternative

product lines, either into more sheltered apparel lines or

into less threatened nonapparel products. "

For example, a men's jacket manufacturer might

convert to the production of T-shirts; a producer of

nylon outerwear might convert to the production of

camping gear; or a firm producing work uniforms

might turn to the production of military uniforms for

the Department of Defense (which is actively seeking

to strengthen domestic production capacity and

promote Quick Response among its suppliers).

Given the ambitious nature of goals under a

Phoenix-type scenario, a related statement of

objectives might reasonably include both

short/medium-term and long-term objectives.

Examples of short- to medium-term objectives might

be:

"To increase by tenfold within 3 years the number of State

apparelfirms participating in true just-in-time Quick

Response networks. "

"To triple within 3 years the number ofsmall- and

medium-sized enterprises (SME's) receiving public or

private technical assistance in evaluating new technologies

(particularly modular manufacturing and unit production

systems). "

"To increase by 50 percent within 2 years the number of

State SME's that can produce small-lot, high-quality

apparelfabric on a short turnaround basisfor both U.S.

and European customers. "

Longer term objectives might include:

"To double within 5 years the number of State SME's

exporting at least $10 million of apparel to the EEC

annually. "

"To triple within 5 years the number ofinstate SME's that

create and sell their ovm product line. " (Such lines,

including dresses orjackets of original design, are better

insulated against the pressures of competition than less

unique products.)

"To promote a quadrupling within 5 years of national

research and development expenditure on made-to-measure

technology. "

"To develop within 5 years publicly accessible, instate

expertise on European apparel markets/trends, including

personalfamiliarity with buyers from each ofthe 20 largest

European apparel retailers. "

"To provide technical assistance over the next 5 years to

all instate apparel SME's wishing to implement the

management changes necessary to satisfy the EEC's new

ISO 9000 total quality management requirements. "

We go into such detail to emphasize the great deal of

team analysis, discussion, and cooperation needed to

develop goals and objectives as specific as those

listed above. Nonetheless, CGPA and others would

^ The ISO 9000 standard is "a unified, comprehensive quality

control method which is being implemented in response to the perceived need of the European Community to protect itself from substandard products and services.... All in all, the state of a

company's quality control program will ultimately determine the

time and expense required for certification. For some, this means a

complete overhaul of their quality control program.... Since few

companies are as yet certified, compliance can provide a temporary

competitive advantage. In the future, companies lacking ISO 9000

certification will probably become very conspicuous indeed."

(Turner, Tommy. 'The Implications of ISO 9000 for Small Firms,"

State International Policies, Research Triangle Park, NC: Southern

Growth Policies Board, Vol 2., No. 9, Oct./Nov. 1992)

Helping Rural Manufacturers / RDRR-87
argue that such specificity is necessary if the team is

to develop sound apparel strategies and programs.

One danger of insufficiently specific goals and

objectives is that it fosters an apparel program that is

little more than a laundry list of team members' pet

ideas, as the team, confronting time pressures, rushes

to closure by hastily stringing together a great number

of program proposals. These proposals may be only

the noncontroversial ones, or they may reflect the

preferences of the subset of team members

momentarily in control. In the worst case, the team

will include nearly everything suggested because most

members have lost interest and intend shortly to

dissociate themselves from the strategy-building

process.

The resulting laundry Hst of proposals will have no

clear sense of direction nor an explicit priority

structure. Many team members are likely to feel

unenthusiastic; the package will consequently lack a

shared sense of ownership and energy. Its program

content is also likely to extend wildly beyond that for

which resources are realistically available. Politically,

such packages are frequently "dead on arrival."

Many factors can contribute to a failure to agree upon

specific goals and objectives. Turf considerations,

concerns about the competency of a particular agency,

differing ideological orientations, political and

personal rivalries, and racial or ethnic divisions within

the team are obvious examples.

Lack of information on a specific aspect of the

apparel industry can, by itself, make it difficult to

reach broad agreement on goals and objectives.

Different team members may, for example, ardently

believe in contradictory "common wisdoms" about the

industry (for example "management is generally

progressive" or "management is generally out of

touch"). While empirical data may exist to

objectively resolve such differences, a lack of time,

resources, or knowledge of these data may preclude

their use. In addition, often there may be no clear

consensus about how best to measure progress toward

a given objective.

An apparel action team also may disagree on whether

its goals and objectives should emphasize substantive

targets (for example, improving the number or quality

of rural apparel jobs) or institutional targets (for

example, building institutional capacity).

Under the "substantive" approach, quantitative

benchmarks with which to track the effects of public

programs on actual industry performance would

follow from the goals statement (for example,

measuring the percentage increase in apparel exports

over the next 3 years). Under the institutional or

"process" approach, the team might define program

objectives in terms of how rapidly and how well

business assistance capacity evolved, without specific

reference to industry performance (for example,

tracking the number of apparel apprenticeship

programs initiated in State high schools over the next

3 years).

Another barrier inhibiting agreement on goals and

objectives is the intrastate heterogeneity of the apparel

industry itself. Some regions of the State may be

heavily invested in broadwoven fabric production,

others may rely on sewn clothing production, while

still others may depend on knit-from-yarn clothing

production (for example, hosiery, underwear). Each

of these sectors will have different characteristics and

needs; these differences may complicate reaching

agreement on goals and objectives. Intrasector

differences may arise, for example, over what types

of apparel research to fund, where to focus

modernization assistance, or what kinds of job

training to emphasize.

The great number of barriers to developing a specific

goal/objective statement, coupled with constraints on

time, energy, and patience, may force an apparel

action team to accept objectives that are left more

general, are less tied to quantifiable milestones, and

(in order to achieve consensus) address a relatively

narrow range of possible program areas. There is no

formula that can guide a team in making decisions on

the appropriate specificity of its goals and objectives.

These decisions will be shaped as much by the arts of

personal interaction and leadership as by the objective

standards of sound strategic planning.

We wish to stress, however, that whatever goals and

objectives a team agrees upon must provide a

platform upon which to build strategy and program

options, and, ultimately, a credible policy package

that people will take seriously. Failure to erect that

platform can leave the entire effort fatally flawed.

6. Should the Program Be Strictly an

"Apparel" Program?

An apparel action team can either focus specifically

on the apparel sector or seek increased assistance for

the apparel industry by supporting broader programs

of expanded assistance (for example, modernization)

to other industries as well.

Helping Rural Manufacturers / RDRR-87
Critics of a targeted apparel program possess at least

three arguments. First, to the extent that increased

business assistance to the apparel sector means

decreased assistance to nonapparel industries, a team

might well anticipate opposition to a targeted apparel

program from nonapparel industry groups.

Prospective budget diversion to the apparel industry

from programs other than business assistance (for

example, education or infrastructure programs) could

provoke even wider resistance.

Conversely, building a coalition with representatives

of other State industries to seek expanded business

assistance to a broad range of industries would

increase the team's political chances of securing such

assistance; some of this new assistance would

(presumably) help accomplish the apparel team's

objectives.

A second, parallel poHtical problem is that

organization of apparel contractors has proven very

difficult. The vast majority of rural southeastern

apparel contractors, for example, belong to no

industry association, and efforts over the last 10-15

years to develop such associations have proven

largely unsuccessful. Supporters of a distinct apparel

program may thus lack a sizeable, vocal industry

constituency to lobby for an apparel-specific program.

Third, many people believe that targeting resources on

a particular sector is not a sound approach to

development policy because it can interfere with the

(presumably superior) market allocation of investment

resources across industries. In this view, the sole

objective of State intervention should be to correct

market failure in whatever sector a failure exists.

Examples of programs intended to correct market

failures include programs to: (1) improve the

availability of market information; (2) increase the

availability of investment capital to small businesses;

and (3) train economically disadvantaged persons who

otherwise would have no access to training. This

functional approach (as opposed to a sector-based

approach) is the more traditional way of thinking

about development policy. Such traditions can

dampen the prospects of securing broad political

support for a new development program that focuses

heavily or solely on the apparel sector.

Proponents of a targeted apparel program can offer a

number of counterpoints, however. First, targeted

approaches, they argue, do not violate the "market

failure" rule. A carefully targeted apparel strategy

can (and should) have the same basic intent as that of

the more traditional functional approach (that is, to

correct market failure), albeit solely within the apparel

sector. From this perspective, reducing the incidence

of market failure within the industry is the key to

helping the industry better respond to changing

market conditions. For example, improving the

access of an SME to good information on export

markets, information it would not otherwise have the

time or resources to gather, might significantly

enhance the firm's growth potential even as trade

liberalization intensifies foreign competition for the

domestic U.S. market.

Second, a targeted approach more adequately

recognizes the many technical aspects characterizing

each sector, including apparel. The typical functional

program, intended to address problems and

opportunities across a broad range of a State's

industries, simply cannot do so. For example,

general-purpose State industrial extension programs

may often lack staff engineers with the specific

apparel industry expertise to help apparel firms

increase efficiency and adjust product mix. Or, small

business loan programs may lack the detailed apparel

industry knowledge to judge how well-positioned

strategically an apparel firm applying for assistance

may be. Or, State export promotion personnel may

have little detailed knowledge of specific foreign

apparel markets. Traditional functional programs

often attempt to be all things to all sectors, and, as a

result, fail to develop the depth of industry-specific

experience and information needed to make the

program as credible, relevant, and effective as

possible.

Third, a functional approach can make it extremely

difficult for an apparel firm to identify the publicly

funded business assistance that is available. Many

States administer a bewildering array of functional

programs, only some of which are relevant to specific

apparel firms. A focus on the apparel industry will

enable apparel firms to more easily find useful

programs. Better coordination of relevant programs

also becomes more likely, and may result in

physically colocating personnel from different

programs.

Fourth, attempting to expand assistance to the apparel

industry through a broader program of modernization

assistance to all State manufacturing runs the risk of

(1) spreading available resources across too many

industries to make much difference in any of them;

(2) making it impossible to determine beforehand how

much assistance the apparel sector might receive; and

(3) making it more difficult to ensure targeting of

resources to achieve the team's objectives. The

Helping Rural Manufacturers / RDRR-87
extent of such risks depends on the total amount of

resources available for assistance programs, the types

of assistance activities those resources can fund, and

the criteria for selecting which firms or workers will

receive assistance. If, considering the existing State

political and economic environment, the apparel

action team believes a functional program will allow

it to accomplish few if any of its objectives, it is left

with little choice but to propose a more targeted

program.

From a pohtical perspective, resistance to a targeted

approach is not likely to be as strong in States with an

important apparel sector. In many States, a few large

industries dominate the economy; in response, State

business assistance programs frequently (and

naturally) target those key industries. Many States

have also explicitly promoted the growth of a few

industries in which they feel they have, or can

establish, a sustainable competitive advantage. In

general, at least in the short run, each State plays a

relatively fixed hand of strengths and weaknesses; a

sectoral strategy is an attempt to play this hand as

well as possible.

From this more strategic perspective, the apparel

sector is clearly a key industry in many substate areas,

particularly rural ones. Of 771 nonmetro counties in

10 Southeastern States, 209 (27 percent) had 20

percent or more of their 1987 private nonfarm

employment in SICs 22 and 23^, which consist

primarily of fabric and clothing production. Almost

half of the Southeastern nonmetro counties had 10

percent or more of employment in these sectors.

Within several States, the apparel employment rates

were much higher. For example, 56 percent of South

Carolina's nonmetro counties, 46 percent of

Alabama's, 43 percent of Georgia's, and 39 percent

of North Carolina's had more than 20 percent of

private nonfarm employment in SICs 22 and 23.

These high levels of employment concentration make

the apparel sector critical to rural economic vitahty in

communities throughout the rural Southeast. The

levels also indicate that a targeted apparel program

might enjoy considerable political support without

adding other sectors or activities. The many feverish

national battles over the last decade regarding

expanded protection for the apparel industry reflect, in

part, a broad regional concern for the sector's future.

A targeted approach advocate might also argue that

the apparel sector deserves special attention not only

because of its size, but because it is much more

vulnerable than most industries to shocks resulting

from imminent trade liberalization. Within the next

few years, the new NAFTA and GATT will produce

significant new challenges and opportunities for rural

apparel operations. At one extreme, many analysts

argue that the great majority of industry employment

will disappear in the years following trade

liberalization. The rapidity and agility with which a

State's industry responds to these events may thus be

critical to how a sizable portion of the State's rural

workers and communities fare during the late 1990's.

The apparel industry might further merit a targeted

program because it is much more fragmented than

most sectors subject to heavy foreign competition.

Consequently, to affect a significant portion of

industry output requires a much more aggressive and

broad-ranging effort than might be the case in other

manufacturing industries.

Finally, a targeted apparel program might better avert

the discouraging post-layoff experience of clothing

workers who lost their jobs during the 1980's. Recent

analyses suggest that dislocated clothing workers will

have a more difficult time (than the average

dislocated worker) in finding a new job at a

comparable level of pay, despite the fact that their

wages are much lower than the average

manufacturing wage.

These outcomes are undoubtedly associated to some

(unknown) extent with clothing worker demographics.

Compared with the average dislocated worker,

dislocated clothing workers had lower educational

levels, and were more Ukely to be older, female, and

members of minority groups. These are all

characteristics associated with greater labor market

difficulties. Also, the skills acquired in clothing

employment (sewing machine operation or fabric

cutting) are less readily transferable to a variety of

occupations than many other manufacturing skills.

From this human resource perspective, proponents of

an "apparel" policy might therefore argue for a

focused effort to: (1) minimize dislocations among

this group of especially vulnerable workers by

promoting apparel industry modernization, and (2)

provide clothing workers adjustment assistance

beyond that received by workers dislocated from

other manufacturing sectors.

^ The Standard Industrial Classification (SIC) system is used by

the Census to identify and group related industries.

10 Helping Rural Manufacturers / RDRR-87
7. Should the Program Be Strictly a "Rural"

Apparel Program?

State policymakers may choose to develop a separate

rural apparel strategy or a program serving both rural

and urban apparel firms and workers.

Critics of a separate rural apparel strategy can point to

at least two major disadvantages of a program that

operates only in rural areas. The first, and most

obvious, is that, in some States, a separate rural

strategy may not gamer support from urban or

suburban interests or legislators. Second, a unique

rural strategy may less readily recognize and build

upon the hnkages—which may often be of prime

importance—between the State's metro and nonmetro

economies. Washington State, for example, has

estabhshed a system of "brokers" to match rural

producers and urban firms needing those products; it

would be easier to strengthen these linkages under a

statewide approach.

From a practical standpoint, about two-thirds of

southeastem apparel employment is in rural areas.

Thus, the actual difference between a "rural" and a"

statewide" apparel strategy may not be large.

On the other hand, proponents of a separate rural

strategy can point to at least three clear disadvantages

of a program that does not differentiate between rural

and urban components of the apparel industry. First,

whatever the rural share of State employment,

resources will still be spread more thmly across the

entire State if both urban and rural areas are eligible

for assistance. Second, the negative effects of

industry contraction may fall most heavily on rural

areas since, in many of the key apparel States, rural

dependence on apparel is generally much higher than

urban dependence. Resources devoted only to rural

apparel firms and communities may thus have a much

greater proportional effect on local economic health

than devoting the same resources to metro areas.

Third, greater dependence also suggests that rural

areas will have a harder time adjusting to changing

competitive conditions. Unsuccessful rural adjustment

and subsequent worker outmigration would, in turn,

transfer unresolved problems of unemployment and

job skill deficiencies to regional urban centers.

Advocates of a rural focus could thus reasonably

argue that a rural apparel program can help minimize

future problems for urban areas.

A State could choose a compromise approach under

which it integrates major pieces of the State's apparel

program (for example, industrial extension) into an

overall statewide program, while other selected

initiatives (for example, outplacement or retraining

services for dislocated workers) might focus on rural

areas.

Idaho and Iowa have each employed this type of

selective combination. Idaho, in its recent 1991-95

economic agenda, devotes some effort to overall State

development but focuses special attention on the

tourism development and economic diversification

requirements of small rural towns. Iowa integrates

much rural development into the State's overall

development plan and service delivery system;

however, the State Government also encourages the

formation of "clusters" of small rural communities as

alternative delivery mechanisms in sparsely populated

areas. These clusters can, in a flexible manner,

provide or obtain shared services—such as job

development, housing, health care, child care, and

education—beyond the reach of any individual

member community.

8. Should the Program Emphasize People or

Places?

Apparel policy can emphasize people: "The problem

is that many rural families are dependent on apparel

employment, and apparel employment is in jeopardy.

Therefore, what can we do to improve the prospects

for these families?" Or, rural development can

emphasize place: "Many communities are in jeopardy

because of their dependence on apparel employment.

Therefore, what can we do to help save these

communities?"

Sometimes a rural development strategy that attempts

to improve prospects for people will also improve

prospects for places, but often these objectives

conflict. For example, an apparel policy that offers

skill upgrading to dislocated workers through

intensive retraining efforts will improve the

reemployment prospects for those workers, but as a

result £?/these improved prospects (that is, an ability

to qualify for more highly skilled and more highly

paid jobs), worker mobility, and therefore the

likelihood of outmigration from rural places, may

increase.

A people-oriented strategy might explicitly encourage

outmigration if better job opportunities exist

elsewhere. For example, a recent study of

Pennsylvania's machine tool industry indicated that

many highly paid, skilled machinists—most residing

in urban areas—are nearing retirement age, while far

fewer people are currently enrolled in apprenticeship

programs. A people-oriented program could take

Helping Rural Manufacturers / RDRR-87 11
advantage of such gross mismatches by providing

retraining and relocation assistance to displaced

apparel workers.

On the other hand, if a program emphasizes place, the

business establishment becomes a center of attention.

This is particularly true if (1) a few large

establishments dominate community employment,

and/or (2) a large number of local businesses depend

on one or two other (local or nonlocal) establishments

for markets or supplies (if, for example, local yam,

fabric, and/or trim operations sell primarily to one

large clothing assembly plant two counties away).

Unfortunately, just as intensive training programs may

lead to increased outmigration of people, increased

assistance to businesses may lead to decreased local

employment if productivity increases enough to

reduce labor demand. For example, replacement of

shuttle looms with shuttleless looms can increase

weaving speeds three to four times; but the labor

demanded by the modernizing weaving firm may well

decline, absent a very large increase in the demand

for its products.

Ideally, an apparel policy could be crafted that would

assist both local people and the local community. For

example, a technology extension program aimed at

helping local firms increase their Quick Response

capability might work hand in hand with a program

that trains dislocated workers for jobs in these

upgraded facilities; courses might cover modular

manufacturing techniques, total quality management,

or the use of computer-aided design and

manufacturing (CAD/CAM) software. To

complement this effort, the State might develop a job

search assistance program to place dislocated sewers

who wish immediate reemployment in sewing jobs at

other local apparel firms, most of which suffer

chronic shortages of experienced sewing operators.

Local apparel industry revitalization, under this

scenario, might expand local output and employment,

and improve the status of both local people and the

community.

The extent to which such complementarity exists will

depend, of course, on specific local conditions. If no

action is taken until a crisis is full blown, there may

be little choice but to emphasize assistance to people,

because firms will have little chance to adjust

overnight to the enormously changed environment.

The earlier assistance is initiated, then, the better the

chance of helping places.

9. Should the Program Be Comprehensive or

Sequential?

A State might choose what we will term a

"comprehensive approach" to apparel policy. Under a

comprehensive approach, the apparel action team

would consider all State programs that might be

called upon to contribute to upgrading the State's

apparel industry. Such programs might cover a broad

array of areas including health care, education and

training, infrastructure, business financing,

technology diffusion, research and development, and

marketing assistance. The team would then meld

activities from these disparate programs into a single

coherent apparel industry strategy.

The alternative, "sequential" approach develops

separate pieces of an apparel poUcy independently

over time in response to emerging problems and

opportunities. The State might first design a worker

adjustment program in response to NAFTA and

GATT. In the following year, it might craft an export

marketing strategy to help firms develop markets in

the EEC. The State might, however, find no reason

to develop programs aimed at upgrading business

financing for the apparel sector or at expanding

apphed apparel research.

One shortcoming of this sequential approach is that it

may miss opportunities for resource pooling and

coordination across programs. For instance, a worker

adjustment strategy may miss an opportunity to mesh

total quality management (TQM) training for

dislocated workers with a State export promotion

program that encourages firm attainment of ISO 9000

requirements. Or, efforts to upgrade the productivity

of smaller textile firms may miss an opportunity to

develop high school apprenticeship programs to

address the rising skill requirements of new textile

technologies. Or, efforts to incubate new business

startups may fail to consider working with trade

adjustment and other job training programs in

developing new specialty apparel businesses owned

and operated by dislocated apparel workers. Under

the comprehensive approach, a team can work

through these types of interrelationships in a

systematic fashion, and thus more easily consider a

variety of ways to achieve policy objectives.

A focus on the comprehensive approach may even

suggest new and more appropriate institutional

arrangements. One option would be to unite program

personnel from various State agencies under one roof

to operate apparel-specific variants of more

generahzed State efforts. Such an office might

contain, for instance, an expert in loans to apparel

12 Helping Rural Manufacturers / RDRR-87
firms; educational personnel charged with developing

high school or community college apparel

apprenticeship programs; industrial extension

personnel specializing in engineering services for

apparel firms; export assistance personnel who

specialize in finding markets for traditional and new

apparel products; training speciahsts who provide

services to both employed and dislocated apparel

workers; university faculty engaged in applied apparel

research; an apparel demonstration or testing facility;

and a studio providing local designers access to

computer-aided design software. Much as the Honda

Corporation fosters better coordination and

cross-fertilization of ideas through assignment of all

upper-level management to desks in the same large,

open office area, such State apparel centers might

greatly enhance communication among program

personnel and, ultimately, the creativeness and

effectiveness of State service delivery to the industry.

Others might oppose this comprehensive approach,

however. They might argue that, for various reasons,

States often diffuse decisionmaking power across

many fairly autonomous fiefdoms. This dispersion

can make the comprehensive approach intellectually

satisfying, but politically frustrating and/or irrelevant.

For instance, some State agency heads report to an

independent board rather than to the governor, and

some agencies receive funding from a dedicated

revenue source that is outside the normal budget

process; the governor will have some difficulty in

directing such agencies to modify their activities so

that they mesh into a comprehensive industry strategy.

These types of problems compound the normal

bureaucratic barriers to coordination, making

crosscutting approaches to program development even

more difficult.

The specific political environment may make it more

difficult to enact a comprehensive program than a

sequential one. For example, it might be easier to sell

a majority of legislators on an adjustment program in

response to NAFTA/GATT and then, in the next

legislative session, an export promotion program to

take advantage of EEC unification, than it would be

to sell both programs as components of a

comprehensive apparel package. The pitch might be

difficult when the cost of the comprehensive program

is clearly higher; it is usually easier for legislators to

allocate small sums for small endeavors.

Even politically, however, the sequential approach

may not always be preferred. At times, the poHtical

winds push a problem much higher up everyone's hst

of priorities. In this case, a more comprehensive

package may not only be politically viable, but, in

fact, demanded. In this environment, opportunities

for far-reaching change exist. The apparel action

team should study the State's political environment

carefully to see if such an opportunity is at hand.

Setting the Ground Rules for

Implementation

A third set of guidelines governs how and to whom

program resources are allocated.

10. Should Program Resources Be Loosely or

Tightly Targeted?

Targeting involves allocating resources according to a

set of explicit priorities that favors certain localities,

types of recipients, or activities over others. Loosely

targeted approaches have relatively broad, more

inclusive criteria, both for allocating resources across

substate areas and for determining whether an

individual, firm, or region is eligible for assistance.

Tighter targeting is more exclusive and restrictive.

Many pubhc programs loosely target a substantial

portion of program resources to communities,

businesses, or individuals on the basis of such

demographic or economic characteristics as

population size, per capita income, or unemployment

rate. The needs of individuals or firms can be

compared along similar lines.^^

Within the context of a State apparel industry

program, a loosely targeted approach might, for

example, distribute resources for apparel

modernization to local areas in proportion to the

number of full-time apparel employees. Within a

given area, all firms with less than 500 employees

might be eligible for assistance on a "first come, first

served" basis. The size criterion, used in many State

programs, would serve to screen out larger firms,

which, as a class, are much less likely to suffer the

effects of market failure (for example, poor access to

up-to-date information, or an inability to finance

otherwise "bankable" projects) than are smaller ones.

Such a loosely targeted approach would provide some

resources to all substate regions and make the vast

majority of apparel firms ehgible for assistance.

A loosely targeted approach, its advocates might

argue, has several advantages over a more tightly

Resources can be distributed to individuals, Anns, or communities with strong opportunities as well as to those with strong needs.

The opportunity basis for allocation ofresources is discussed later.

Helping Rural Manufacturers / RDRR-87 13
targeted one. The first is a general appearance of

fairness, which helps insulate the program from

political criticism. For instance, if a State makes all

apparel SME's eligible for assistance on a "first

come, first served" basis, no SME could argue the

program is unfair, even if, due to limits on program

resources, some SME's desiring assistance receive it

while others do not.

A loosely targeted approach employing broad

eligibility criteria also may have the salutary effect of

bringing into the program only those apparel firms

interested in actively working with program

personnel. In contrast, tighter targeting might require

more proactive recruitment of eligible firms, some of

which might lack the enthusiasm of firms voluntarily

seeking assistance.

Another argument against tighter targeting is that

program designers would ultimately base more

restrictive eligibility criteria on informed speculation

or anecdotal evidence rather than on solid empirical

evidence of what works and what doesn't. In fact,

there has been so little rigorous evaluation of public

programs that we cannot even estimate the gross

effect of most public initiatives, much less the

differential effect of pursuing alternative targeting

approaches. Simply put, one can argue that we do not

know with a high degree of confidence how to target

the right firms, places, or persons.

Finally, tighter targeting often requires a greater

up-front effort than looser targeting to differentiate

between those firms that meet the targeting criteria

and those that do not. For example, targeting criteria

that require the attainment of specific performance

benchmarks by a firm prior to receiving assistance

may necessitate substantial efforts to determine

whether a given firm meets those benchmarks.

Advocates of more finely tuned targeting possess

some strong counterpoints. Most importantly, it may

be hard to justify the effort of designing a detailed

industry strategy without employing tight targeting.

By definition, a strategy sets priorities for action. If

implementation does not tightly tie resource use to

these priority activities, developing the strategy

becomes merely an academic exercise. From this

perspective, the targeting decision is not a choice

between targeting or not targeting, or even a choice

between loose and tight targeting. It is, rather, a

choice as to which set of detailed targeting criteria

will most tightly bind resource allocation to program

goals and objectives.

While a loosely targeted approach may, by chance,

mesh with the priorities established by the apparel

action team, it is much more likely to divert some (or

many) resources from higher priority activities. For

example, if the team has set export promotion as a

high priority, a loosely targeted, "first come, first

served" approach to eligibility is Ukely to divert

assistance from some export-ready apparel

manufacturers to firms with considerably less export

potential. At the extreme, a loosely targeted approach

could obscure a "de facto" targeting of financially

weak, poorly managed firms because these firms most

aggressively sought assistance. Many people,

including members of an apparel action team hoping

to promote faster export growth, would surely object

to any program that explicitly targeted assistance to

near-bankrupt operations.

Despite scant evidence of the effectiveness of

targeting, a team may reasonably believe that tighter

targeting increases the program's chances of

enhancing State industry performance. For example,

one targeting option would be to work with small and

medium-size firms who met, or were very close to

meeting, a set'of demanding performance benchmarks

(for example, very high quality, very quick

turnaround times, and independent design capability).

Since apparel wages in the EEC are now substantially

higher than in the United States, a State's better firms

may have great potential to grow through increased

clothing exports to Europe.^ Appropriate State

assistance to these firms, such as help in identifying

export opportunities, might so increase their export

growth that local employment prospects would

markedly improve.

These same firms would also be particularly well

positioned to increase their domestic market share,

and would be less likely to move offshore than would

branch plants of multinational firms located within the

State. And, from a political viewpoint, program

participation by the State's stronger SME's enhances

the chances that the program will produce significant

positive results.

Such an approach stands in stark contrast to a "first

come, first served" strategy, which might ultimately

enroll some world-class participants in the State

program, but is just as likely to enroll many firms

with much less growth potential (including some with

^ ^ For a review of the extensive system of publicly funded export

assistance programs available to European SME's, see Nothdurft,

William E., Going Global: How Europe Helps Small Firms Export,

Washington, DC: The German Marshall Fund, 1992.

14 Helping Rural Manufacturers / RDRR-87
poor management, some with desperate financial

problems, and some with both). Thus, when a team

compares loosely targeted approaches with more

finely targeted ones, the more carefully targeted

approach may prove intuitively more compelling,

despite the lack of strong empirical justification.

Some would argue that an approach that targets

resources on strong firms is wrongheaded. Rather, a

much different, yet still tightly targeted, approach

would focus on borderline firms whose survival may

well depend on the quality of their next few major

management decisions. One might term this approach

a "triage" strategy, so named after the battlefield

practice of attending first to those for whom

immediate intervention could make a great difference,

and only later turning to those with either minor

wounds or with wounds very likely to prove fatal.

Another type of tighter targeting would be differential

targeting—in which different types of products and

firms are the targets for different apparel programs.

For example, the State may wish to involve its best

producers of small-lot, high-quality apparel fabric in

cooperative R&D activities or demonstration projects.

These better managed, more innovative firms might

be more likely both to participate in such projects,

and to more readily incorporate the knowledge so

gained into their operations. Their participation is

also likely to improve the projects' prospects of

success. In contrast, the State might target industrial

engineering and worker training assistance to

borderline firms, to help them remain competitive

through increased productivity. Finally, firms

considered "highly vulnerable" might only be ehgible

for adjustment assistance.

In sum, we have identified several arguments in favor

of tighter targeting, and three of its many possible

variants: (1) the "strong is best" approach, (2) the

triage approach (focusing resources on "borderline"

firms, individuals, or regions), and (3) differential

targeting.

Even if substantive and political factors preclude the

broad application of a tightly targeted approach, an

apparel action team might usefully strive to identify

certain key program areas in which tighter targeting

would be both substantively important and politically

acceptable. For example, a program to work with a

group of SME's to provide Quick Response to a

major retailer would necessarily require limiting

participation to the State's best firms, since poor

initial performance would undoubtedly provoke the

retailer's withdrawal from the project.

11. What Type of Service Delivery System

Should Be Used?

Another key issue confronting an apparel action team

is how to best structure the delivery of services to the

apparel sector. A growing number of service delivery

models are emanating from the States. We present

four basic models here.

Most public programs rely on the first model—direct

service dehvery by a single designated public agency

(for example, job training by the State's employment

and training agency, onsite industrial engineering

assistance from the State's industrial extension

service). Under this model, the pubhc sector

maintains direct control over the quantity and quality

of services dehvered, whether it delivers services with

its own personnel or oversees the work of private

contractors. A second advantage of this direct service

model is clear accountability—cUents of programs

understand that the State government should receive

the credit for good service or the blame for poor

service.

Problems with this direct service delivery approach

include bureaucratic inflexibility and inefficiency.

Such problems plague all large organizations, but

often are much more visible when they occur in

public agencies.

Some States have pursued a second model—^placing

control of resources in the hands of those receiving

the service, while introducing greater competition

among service providers. For example, Michigan

developed the concept of a State-funded educational

"credit card," which can be used by the recipient for

training at a variety of both pubhc and private

institutions. Several years ago, Minnesota began a

choice program for its K-12 schools. Under this

effort, educational funding travels with the student to

the public school he or she chooses.

The major assumption underlying this second

("competitive") model is that efficiency and user

satisfaction can be enhanced by making providers

more demand-responsive because of the need to

compete. Further, if the service delivery mechanisms

appropriate for rural areas are different from those

commonly used in urban areas, the competitive model

may be more likely to respond to such differences.

For example, an industrial extension service may hire

engineers with backgrounds in industries important to

the State's metro areas, with lower priority assigned

to the needs of rural business. If, instead, vouchers to

pay for private services were issued, rural businesses

Helping Rural Manufacturers / RDRR-87 15
would have more freedom to acquire carefully

tailored expertise.

Because States have only recently introduced these

competitive efforts, little empirical evidence exists

regarding their effectiveness. The competitive model

may also be particularly weak in rural areas, where

low population density reduces the intensity of service

demand (relative to metro areas). Consequently, very

few contractors may be on hand to provide services in

rural settings. In the absence of local providers, rural

apparel firms must identify, evaluate, and work with

out-of-town providers.

During the 1970's, a third service deUvery model

emerged. This model stretches public resources by

requiring matching private funds. For example, the

State might establish an apparel modernization

revolving loan fund that requires recipient apparel

firms to match State dollars. Michigan instituted a

sophisticated variant of this matching model with its

Capital Access program, creating an incentive for

commercial banks to undertake higher risk loans.

Under this program, not only was service delivery

undertaken by private organizations (the banks), but

public support became available only after private

actors had committed resources.

Strong arguments favoring this approach are (1) it

leverages private money to help achieve public goals;

(2) program managers have greater confidence that

the public activity is responding to private market

signals; and (3) the participating private sector actors

can provide political support for the service. On the

other hand, this approach is hampered by resource

constraints (though the problem is not as severe as

with the first two models); thus, many ehgible and

interested clients (for example, of job training) may

not receive the service.

A fourth model removes the State from direct service

delivery after an initial effort to build self-sustaining

private institutional capacity. Probably the most

frequently cited state-level example of this model

involves the creation of flexible manufacturing

networks. Here, the State orchestrates the founding of

a network of several small and medium-sized firms

within an industry; the intent of this network is to

permit and encourage cooperative activities no firm

could undertake by itself (for example, joint product

development and manufacturing, joint bids on large

contracts that no one firm would be able to handle

itself, joint equipment purchasing/sharing, joint

marketing efforts). After such a network is

established, the State withdraws its involvement and

the network functions independently. Membership in

a flexible manufacturing network is likely to be

especially advantageous to a rural firm, which may be

physically remote from similar firms, from its

suppliers and customers, and from sources of

technical information or financing.

A flexible manufacturing network of apparel SME's

is a particularly interesting idea for several reasons.

First, the marketplace will increasingly demand use of

automated CAD/CAM systems because of both the

higher quality and greater flexibility these systems

provide. These CAD/CAM systems, however, are

extremely expensive and demand around-the-clock

utihzation in order to be efficiently employed. A

network of small fabric and clothing firms centered

around a shared CAD/CAM facility might overcome

this cost obstacle.

The network could also enable apparel firms to

cooperatively enter into long-term Quick Response

partnerships with major retail accounts that no small

firm could service alone. Collectively, the network

could also allow small apparel firms to offer retailers

total packaging capability, which few small firms can

easily provide for a single item and which no small

firm can provide for a full line of garments.

Washington, Michigan, Ohio, and Iowa have created

flexible manufacturing networks in a number of

industries. Others are under development in Oregon

and in several Southeastern States.

Manufacturing networks are not the only "institution

building" activity that States have undertaken. Other

examples include Washington's recent creation of a

secondary financial market for small business equity

issues; the establishment of the Southern

Development Bancorporation in Arkansas; and

traditional Extension Service support for grower

cooperatives, home-based business associations, farm

management clubs, and marketing associations. All

of these models might suggest apparel-specific

variants.

Building effective, self-sustaining, private or

quasi-private institutions to accomplish pubHc goals

(for example, the creation of flexible manufacturing

networks to enhance the competitiveness of a State's

apparel industry) is an appealing solution to the

service delivery dilemma. This approach can, if so

chosen, limit public assistance to initial institution

building while ultimately affecting many more firms

than the State could directly assist "one on one" for

the same amount of resources. It is yet unclear.

16 Helping Rural Manufacturers / RDRR-87
however, how difficult it is to build such institutions,

and how their effectiveness might vary from situation

to situation.

The four service delivery models should not be

viewed as mutually exclusive options. Many hybrid

possibilities exist. For example, an apparel network

would offer a single point of entry for providing a

group of firms state-delivered training in modular

manufacturing techniques. Or, the State could finance

a market research voucher, which could be used by

members of a flexible manufacturing network to

obtain expert but privately held information on

international apparel market conditions and trends.

12. How Tightly Should the State Control

Program Resources?

The State government will have a variety of resources

available to promote whatever apparel strategy it

develops. These resources will include some financial

resources to purchase goods and services, as well as

some expert assistance.

The State government can maintain tight or loose

control over these resources. Under tight control, the

State will make detailed decisions about how

resources will be allocated. For example, job training

activities supportive of an apparel strategy might be

implemented through the State's statutory authority to

define local training agendas under the Job Training

Partnership Act (JTPA). Or, the State may have

sufficient institutional capacity to deliver industry

services to apparel firms with no local involvement

(for example, Georgia's direct delivery of

modernization services by the State's industrial

extension regional program offices).

Under loose control, the State would permit local

entities (for example, communities or consortia of

apparel manufacturing firms) considerable discretion

in allocating resources within general guidelines set

by the State's strategic plan for the apparel industry.

In many States, the JTPA training program employs

such a structure; multicounty, Private Industry

Councils (PIC's) define the mix of training activities

they believe most appropriate to local conditions.

A middle-of-the-road compromise is the

"smorgasbord" approach, where the State designs an

array of apparel programs, each of which is useful to

some firms or communities. Then, each firm or

locality chooses from this menu of programs,

probably limited by a State-determined cap on the

total amount of State resources available to the

firms/localities. Canada uses this smorgasbord

approach in its Community Futures Program, which

enables rural regions to create economic development

plans and then offers them a menu of five different

programs.

For a State that knows what's needed for upgrading

the apparel industry, tight control minimizes the

potential for firm or local action mconsistent with

State priorities. The benefit of loose control is that

those closest to the action—the firms or localities—will

have much broader discretion to meet program

priorities in ways they believe most appropriate to

local circumstances. This, in turn, can give them

greater incentive to actively participate in the program.

The smorgasbord approach confers all wisdom on

neither the State nor the firm/locality, but permits

both to offer useful insights on the best way to

implement the apparel action team's strategy.

A disadvantage of the smorgasbord approach is that

the relative demand for the various apparel programs

that are made available to firms and localities may be

both difficult to predict and subject to substantial

year-to-year shifts. Such uncertainties in demand can

make program planning difficult. A second

disadvantage is that the program options made

available by the State may not mesh well with a given

firm's or locality's strategy.

Conclusions

We hope that this report will prove useful to an

apparel action team as it begins to develop its action

plan and weigh alternative answers to questions of

strategy and implementation. We also hope that any

State wishing to focus greater energy on improving

the prospects of any key rural industry will come

away from this discussion with something useful.

However, a far more important resource to team

members is a seasoned understanding of industry

conditions and the State's political environment.

Even talented teams will find it challenging to

understand the technology and trade-related

transformations underway, much less devise effective

ways to address the problems and opportunities they

present. Nonetheless, the program produced by a

hard-working and thoughtful industry-specific action

team can ultimately have an enormous positive effect

on the lives of many very vulnerable rural famiUes

and communities.

Helping Rural Manufacturers / RDRR-87 17
Appendix: The U.S. Apparel

Industry—Four Scenarios of the Future

The United States, Canada, and Mexico agreed to a

NAFTA during 1993. The Clinton administration has

also "signed off on a new GATT agreement, and this

new accord appears Hkely to receive final

Congressional approval in 1994 or 1995. The effects

of these agreements, coupled with inexorable

technological shifts over the next several years, will

shape the relatively labor-intensive apparel industry

beyond the year 2000.

We have suggested that any State apparel action team

will want to conduct an environmental scan, a

detailed look at the State's apparel sector. As an aid

to developing an environmental scan, Redman and

Amt (1994) present two types of background

analysis. The first is descriptive material on current

apparel industry structure and trends over the last 30

years. Included are data on real output, employment

levels and geographic distribution, real investment,

real capital stock, and multifactor productivity growth.

The second type of background analysis is a set of

four scenarios of how the apparel sector might evolve

over the next 10-20 years. These scenarios are

composites of (1) statements and positions published

by industry groups, trade journalists, government

agencies and academics; (2) interviews with

knowledgeable personnel inside and outside the

industry; and (3) information developed from our own

data analysis.

We have titled these scenarios: (1) the Tsunami (or

Great Asian Tidal Wave) scenario, (2) the Phoenix

scenario, (3) the Tequila Sunset scenario, and (4) the

FEDEX scenario. Under each scenario, we have

assumed some degree of trade liberalization in light of

NAFTA and GATT. Either agreement will

substantially reduce the level of protection currently

enjoyed by the U.S. apparel sector.

We offer these scenarios as an entry point for

engaging in the work of identifying key apparel

industry problems and opportunities, and, ultimately,

policy goals, objectives, strategies, and programs.

The most appropriate working scenario for the apparel

action team may include elements from each of these

scenarios, as well as elements not treated here.

Within each scenario, important uncertainties exist,

including their state-specific application. For

^^ See companion report, ibid.

example, many Southeastern rural areas have

persistent shortages of (and therefore opportunities

for) sewing operators; however, national evidence

suggests dislocated garment workers suffer

particularly difficult post-displacement experiences.

Possible answers to this seeming contradiction include

(1) shortages in the rural Southeast are not as

widespread as they appear from the available

evidence; (2) displacement outcomes vary

substantially between the rural Southeast and

elsewhere; and (3) connections between displaced

Southeastern rural workers and labor-short firms are

not being made.

Similarly, the lure of Mexican-based operation will

vary from firm to firm and product to product. Gross

generalities regarding how NAFTA will affect a

State's industry should thus be treated with

skepticism.

In brief, the sectorwide scenarios should be thoughtprovoking for the State's apparel action team, but

these scenarios do not reflect the specific detail that a

team can—and should—^put together about the State's

apparel industry. Consequently, the gathering of

state-specific information on supply/demand balances

in local labor markets, and on how firms operating

within the State expect to respond strategically to

NAFTA, is important to adequately profile industry

problems and opportunities. Without a solid profile,

intuition and common wisdom, rather than hard fact

and informed, up-to-date opinion, will shape pohcy

discussions and greatly increase the risk that policy

proposals will prove either irrelevant or

counterproductive.

The Tsunami (Great Asian Tidal Wave)

Scenario

The scenario in brief: A GATT agreement is

concluded that eliminates quotas under the Multifiber

Agreement (MFA) and reduces tariffs on apparel

imported into the United States. In response, an array

of competitors (particularly Asian) move strongly into

the U.S. market, forcing many U.S. apparel firms to

downsize or close domestic operations.

Discussion: The prospects for the post-MFA U.S.

apparel industry are at best gloomy; at worst,

terminal. A number of competitors enjoy wages a

fraction of U.S. levels, produce a quality (often higher

quality) product at a much lower price, and routinely

offer a fuller package of services to customers than do

most U.S. producers. Only an extensive set of quotas

and tariffs limits these lower-wage competitors'

penetration of the U.S. market. Even with this system

18 Helping Rural Manufacturers / RDRR-87
in place, the apparel trade deficit rose dramatically

during the 1980's. On a quantity basis, imports now

account for half or more of U.S. consumption in

many product areas.

Most firms in the U.S. clothing industry operate well

below "best-practice" levels, in part because the rate

of technology diffusion within the clothing industry is

slow, and domestic R&D is almost nonexistent. Firm

managers are most frequently members of the family

that owns the firm. They generally lack any formal

training; expect a very short payback period on any

new investment; and have little access to capital or to

sources of good, objective information on technology,

markets, and management practices.

Only a small percentage of firms operate

internationally, and most SME's have no direct

channels to either export or domestic markets. They

thus lack the flexibility needed to successfully adjust

to changing market conditions.

The industry is unlikely to benefit anytime soon from

a breakthrough in technology to automate the

labor-intensive garment assembly process. Even if

one did occur, the rate of technology diffusion in the

industry would be so slow, or the breakthrough so

capital-intensive, or both, that the vast majority of the

industry's firms could still not survive the rapid

growth of imports following liberalization.

Domestic clothing operations also suffer from the

U.S. fabric industry's reluctance to produce a wide

variety of apparel fabric in small lot sizes. This

compromises the ability of domestic clothing

producers to meet the requirements of an increasingly

fragmented clothing market. The quahty of both

fabric and finished garments is also spotty.

Severe human resource problems plague the industry;

these will become worse during the 1990's. In the

rural Southeast, for example, the typical annual labor

turnover in clothing plants is 40-50 percent, with

many firms experiencing much higher levels.

Reasons for this problem include low and declining

real wages; relatively meager or nonexistent benefit

packages; poor, often hostile, labor/management

relations; an almost total lack of formal training;

austere working environments; and work tasks that

are repetitive yet demanding.

On a different but directly related note, a cultural

taboo in many rural areas keeps men from working as

sewing operators. Thus, high unemployment among

men within a given labor market can coexist with

large, persistent shortages of sewing operators.

The public sector has few programs in place to

address these issues. At best, it provides a fraction of

the support received by SME's in other industriahzed

competitor nations.

In short, the apparel industry is very vulnerable to an

opening of trade. Most U.S. firms will not survive if

they attempt to remain in the United States.

However, appropriate adjustment strategies can

substantially reduce the costs of industry downsizing

to dislocated workers. Ultimately, workers could

pursue, with public sector cooperation and support,

higher paying, more personally satisfying work under

better working conditions in other sectors. This

benefits not only the individual worker, but also the

Nation, because it moves resources into higher value

activities. It would also save consumers billions of

dollars in apparel costs now associated with tariff and

quota costs. This would particularly benefit lower

income famiUes who must spend a higher percentage

of their budgets on basics such as apparel.

The Phoenix Scenario

The scenario in brief: A GATT agreement is

concluded that eliminates quotas under the Multifiber

Agreement (MFA) and reduces tariffs on apparel

imported into the United States. In response to this

new competitive challenge, the U.S. apparel industry

revitahzes itself through major technological and

organizational advances and reemerges as a vibrant

industrial sector.

Discussion: The black-and-white Tsunami scenario is

grossly oversimplified and dangerously misleading.

Although the industry clearly suffers important

shortcomings, and will face both intensified foreign

competition and continued technological change,

apparel prospects are not nearly as bleak as that

scenario portrays.

In fact, apparel markets and technology are changing

in ways that portend well for the post-MFA viability

of a large U.S. industry. These forces could, in fact,

produce vigorous renewal if necessary industry

changes occur. If the Tsunami scenario insists on

depicting a U.S. industry in ashes, the Phoenix

scenario postulates its reemergence from those ashes

in revitalized form over the next 20 years.

Proponents of the Tsunami scenario greatly

exaggerate the degree of protection provided the

Helping Rural Manufacturers / RDRR-87 19
industry by the MFA. For example, the latest

published estimates by the U.S. International Trade

Commission indicate that eliminating all quotas and

all tariffs from all countries would produce a loss of

U.S. textile and clothing employment of just 13-16

percent.

While the clothing trade deficit did increase

dramatically during the 1980's, trade deficits in many

other manufacturing sectors also hit record levels as

well. This is because the dollar appreciated to

unsustainably high levels during the mid-1980's.

Since then, however, the dollar has devalued

significantly, and the apparel trade deficit over the

1987-91 period has been very stable.

Also contributing to the apparel import surge was a

shifting of U.S. imports from Hong Kong, Taiwan,

and South Korea to other low-wage nations, as

producers evaded the effect of quota constraints by

shifting production to countries not constrained by

quotas. Experienced producers can accomplish these

shifts rapidly because garment operations are

extremely mobile, and can be established from scratch

within a few months, if not weeks.

Foreign producers also upgraded product quality to

obtain higher unit prices (for example, they moved

from simple cotton dresses to designer fashion

dresses) or shifted to product lines for which no

quotas yet existed.

In short, the MFA system is not blocking a tidal wave

of imports from inundating domestic producers. In

this regard, the Tsunami scenario is much too alarmist.

Use of quantity-based measures to gauge import

penetration also sends overly alarmist signals. While

import penetration based on quantity runs 50 percent

or more in many product lines, import penetration

falls to less than 30 percent in clothing and about 11

percent in textiles if defined in terms of dollar value.

One important reason is that imports are still

generally more "lower end" than the products U. S.

firms produce.

Labor content is relatively low in many product lines,

and, overall, has decreased substantially over the last

20 years. Several components of the apparel

complex, including yammaking, fabric production,

clothing design/patternmaking, and fabric cutting are

now highly automated. Overall productivity growth

in clothing (relative to other manufacturing industries)

has also been better than common wisdom would

hold.

Wage trends during the 1980's have favored U.S.

producers over those in East Asia, Europe, and Japan.

This trend has reinforced the positive effect on U.S.

competitiveness of declining labor content, and

enhances the prospects of significantly increasing U.S.

exports to other industrialized countries.

U.S. producers can also compete in many markets

where better quality and styhng can offset moderate

cost disadvantages (for example, in markets for

fashion or otherwise unique goods). In these types of

product lines, overall value, rather than price, is the

key determinant of competitiveness.

Furthermore, the recently concluded GATT agreement

maintains substantial tariff protection for U.S.

producers. These tariffs go a long way toward

offsetting the U.S. wage disadvantage.

Tsunami proponents also ignore the industry's

exciting long-term prospects. First, the "new

economics" of just-in-time Quick Response

production will dramatically increase the competitive

strength of the U.S. apparel industry by making

physical proximity to domestic retailers much more

important. Recent consolidation in the retail sector

has greatly increased the dominance of a very small

number of retail firms; this consolidation means

Quick Response can rapidly affect a significant

portion of U.S. sales.

In addition, in 10-15 years if not sooner, the U.S.

industry will make clothing customized to fit an

individual's precise body measurements at "off the

rack" prices with a 48-hour turnaround time between

the initial (electronic) body measurement and dehvery

to the customer's home. This new capability will

open huge new market opportunities for domestic

producers.

Microelectronics is likely to revolutionize the industry

within the next decade or two by also permitting

automated assembly. This development will round

out what will be a highly automated production chain,

and dramatically reshuffle competitive advantage

among nations.

In sum, the industry will not inevitably "sunset."

Particularly with continued tariff protection, U.S.

producers are competitive in many product lines, and

future changes in market conditions and technologies

promise to strengthen future competitiveness.

From a policy standpoint, a broad array of options can

help accelerate improvement in the U.S. competitive

20 Helping Rural Manufacturers / RDRR-87
position. For example, a basic State/Federal public

program composed of research, development,

demonstration, and diffusion activities already exists.

With more aggressive public support and more active

cooperation with the private sector, this structure

could serve as a powerful tool for increasing the rate

of innovation and the quality of U.S.-based

production. Another option is to build networks of

U.S.-based SME's so they can collectively provide a

full line of world-class products and services to major

retailers on a true Quick Response basis.

While increasing productivity and increased trade

liberalization will continue to exert downward

pressure on employment, downsizing will be

circumscribed by improved competitiveness. Real

apparel wages would be expected to rise with the

general U.S wage level, as apparel industry skill

requirements, productivity, and competitiveness all

increase. Thus, for those who, for whatever reason,

have difficulty competing for better paying

employment, an apparel job, though still relatively

low paid by manufacturing standards, will provide a

considerably higher absolute standard of living than

many service jobs they might otherwise obtain.

The Tequila Sunset Scenario

The scenario in brief: Mexico and the United States

conclude a NAFTA that eliminates both quotas and

tariffs on apparel imported into the United States from

Mexico. In response, the Mexican apparel industry

booms and many U.S. firms must close or reduce

domestic operations. An indirect consequence of

NAFTA will be political pressure that leads to

comparable agreements with other countries in the

Western Hemisphere; thus, while Mexico will lead the

way, intensified competition from many other Latin

American and Caribbean nations will result in rapid

contraction of the U.S. industry over the next 10-15

years.

Discussion: Under a quota-free trade regime, an

optimist might concede that U.S. industry could

compete against overseas (most importantly East

Asian) competitors in (1) Quick Response rapid

replenishment functions for both seasonal and

standardized goods; (2) less price-sensitive product

lines such as mid- to upper-range fashion goods; (3)

made-to-measure or, in some other way, unique

goods. This assumes the U.S. industry develops

extensive, true Quick Response networks, improves

domestic quality and styling, progressively automates,

and amehorates its human resource problems. These

are challenging objectives, but ones that are

(arguably) attainable.

However, a NAFTA with Mexico extinguishes any

competitive advantages U.S. producers might develop

under the Phoenix scenario. Not only will this accord

open trade with Mexico but, in short order, with other

Central and South American countries as well. States

should thus prepare for significant and potentially

rapid industry dislocations.

In the short to medium term, NAFTA will stimulate

massive new apparel investment in Mexico by U.S.

multinational operations. A confluence of factors will

produce this outcome.

Most fundamentally, NAFTA will alter the investment

paradigm U.S. companies use in assessing Mexican

investment opportunities by codifying in treaty form

the new, free market "rules of the game" that the

Mexican Government has been putting in place over

the last several years. These new rules enhance

investment safeguards, and facilitate commercial

transactions both within Mexico, and between Mexico

and the United States.

New rules of the game would have much less effect

were not Mexican wages much lower than those

prevailing in the United States and in Hong Kong,

Taiwan, and South Korea. Recent estimates place

1991 wages in the Mexican clothing industry at $1.17

an hour, about one-fifth current U.S. levels, and about

one-third to one-half levels in the three East Asian

nations. At the same time, workers in Mexican plants

managed by U.S. multinationals routinely achieve

productivity levels comparable to those in U.S. plants.

From a labor force perspective, labor availability will

not be as constraining a factor in Mexico as it is in

many U.S. and East Asian areas. Beyond the

tremendous potential labor pool of unemployed or

underemployed labor already in Mexico, the majority

of the country's population has yet to enter prime

childbearing age.

NAFTA will also eliminate the uncertainty associated

with U.S. quota policy, as well as all U.S. duties on

imports from Mexico. These tariff reductions will

make an important difference at the margin in many

clothing lines.

NAFTA is, in addition, a publicity bonanza for

Mexico. Thousands of media quotes referring to the

"competitive threat" from Mexico, coupled with

intensified coverage of U.S. investments in Mexico,

have created, and will continue to foster, a climate

that encourages producers to examine (or re-examine)

this option.

Helping Rural Manufacturers / RDRR-87 21
Mexican sourcing can also reduce the difficulty U.S.

retailers face in obtaining reliable just-in-time Quick

Response from low-wage overseas producers.

Overland transit by truck or rail from Mexico will

supplant the 2-3 month sea voyage now routinely

used to ship garments to U.S. markets from Asian

locations. Mexican operations would also be more

convenient to monitor than those in more distant parts

of the world.

NAFTA will further stimulate a shifting of U.S.

production southward by improving the access of U.S.

firms to the Mexican apparel market. If U.S. firms

wish to be cost-competitive in the Mexican market,

they will have to utilize the much lower cost Mexican

labor. If they must consequently establish operations

in Mexico, there would be little reason to maintain

most of their higher cost U.S. operations. To do so

would deny the company not only the advantage of

lower Mexican wages, but the economies of scale

from consolidating production in Mexico.

A final, and critical, factor that makes NAFTA

extremely timely is GATT. U.S .-based producers now

recognize that continued quota protection through

congressional action is most unlikely, and that they

will have to adjust to a quota-less operating

environment. NAFTA provides a U.S. firm a perfect

opportunity not only to improve competitive position

vis a vis other U.S. rivals, but to respond strategically

to this change. It offers, in fact, the best opportunity

U.S. producers have ever had to win back production

from East Asian competitors, competitors who, under

the new GATT, will still pay substantial U.S. tariff

duties if they produce in their home countries.

Displacement of U.S. production will be rapid. U.S.

multinationals have been operating in Latin America

for a decade under the 807 program of the Caribbean

Basin Initiative. This accumulated experience will

permit rapid expansion of production. Furthermore,

those companies moving quickly will be in a better

position to capture "early mover" advantages than

will their less aggressive U.S. competitors.

Given lower Mexican wages, greater Mexican labor

availabihty, an ehmination of U.S. quotas and tariffs,

easy overland access to the U.S. market, improved

access to the Mexican market, and major new

investment by U.S. firms, NAFTA will also trigger

significant capital movements into Mexico from East

Asian and European nations. The experience of many

East Asian firms both in producing high-quality fabric

and in providing total packaging will further facilitate

a sourcing shift to Mexico. Significant amounts of

both East Asian and European capital have moved

into the Caribbean area over the last 10 years.

Investments in Mexico would simply continue this

trend.

NAFTA will also create great pressure on the U.S.

Government to permit other Caribbean and Latin

American nations to cosign the treaty. Extension of

cosignatory status would completely open the U.S.

market to an array of low-wage producers, many with

wages even lower than those in Mexico.

The loss of U.S. employment will be much more

rapid than that directly attributable to a change in

investment patterns by U.S .-based multinationals.

Many small and medium-sized U.S. firms are heavily

dependent on one or two larger multinationals for

survival. This work will instead be done in the

Caribbean or Latin America, either in companyowned establishments or in plants owned by local

contractors.

For reasons detailed under the Tsunami scenario, most

of these SME's simply cannot compete on their own.

They will succumb to withering competition from a

legion of sophisticated multinational firms with the

financial resources to make extensive investment in

new plants, capital equipment, and worker training,

and with the expertise to employ the most up-to-date

production systems—all while paying wages a

fraction of what remaining U.S. SME's must pay.

In short, the Phoenix scenario cannot survive a

NAFTA. Even if the U.S. Congress fails to approve

the new GATT (a very remote possibility), and,

consequently, MFA quotas continue to constrain

low-wage producers outside the Americas, much of

the U.S. apparel industry will be lost over the next

10-20 years. Substantial dislocations will occur within

3-10 years.

The FEDEX Scenario

The scenario in brief: The United States and other

nations conclude a GATT agreement. U.S.-based

producers rapidly establish true Quick Response

partnerships and accelerate development of

made-to-measure capabilities. To counter this

competitive threat. East Asian and other foreign

producers make increasing use of telecommunications

and air freight to provide almost as rapid a turnaround

as U.S. producers in all but the most standardized

product lines. The United States consequently loses

many of its "last, great hope" market niches, and

three-quarters of its domestic industry employment

within 15 years of a new GATT accord.

22 Helping Rural Manufacturers / RDRR-87
Discussion: Industry conditions are constantly in flux,

and one rapidly changing factor is the feasibility of

Quick Response by overseas producers through

utiUzation of CAD/CAM technology and air freight.

These advances further erode faith in the Phoenix

scenario's presumption that market proximity will

greatly benefit domestic producers.

An ironic twist of increased automation in design and

cutting, which would seem at first to favor

industrialized countries, is that it facilitates offshore

sourcing of production. CAD systems permit

cooperative development of precise design

specifications by designers, garment producers, and

fabric producers. These specifications can then drive

the same software and production equipment available

to the U.S. industry for pattern making, grading, and

automated cutting. The ability of foreign apparel

firms to produce high-quality merchandise that

precisely matches the specifications of U.S.

manufacturers and retailers is greatly enhanced

through the use of such CAD/CAM systems.

The Quick Response demands of major U.S. retailers

call, however, for both consistently high-quality goods

and the delivery of those goods within a few days.

Shipments to the United States from Asia by sea

would clearly not meet these requirements. But such

a sea voyage is no longer necessary given the

improved economics of air freight. Aheady, such

large U.S .-based companies as Liz Claibome, The

Gap, and M.A.S.T. Industries routinely use air freight

from the Far East. Overall, air freight now accounts

for almost a third of total apparel imports.

Telecommunication of body measurements,

apphcation of CAD/CAM technologies, and use of air

freight could also combine to meet the hyper-quick

turnaround requirements of the "made-to-measure"

vision. For example, information from Federal

Express on shipping times and rates indicates that a

producer in Hong Kong could obtain express delivery

of a finished garment from the plant's back door to a

U.S. retail outlet or an individual's home about as fast

and as cheaply as a producer in Georgia.

Shipment of apparel via air often makes sense

because the weight and bulk of many garments are

low relative to the fmal value. This is true even of

relatively low-value, standardized commodities such

as blue jeans, which The Gap routinely brings mto the

United States by air from Hong Kong.

Ultimately, however, CAD/CAM and air freight may

best serve apparel firms in the Caribbean and South

America which, under a NAFTA, would be able to

couple tariff-free and quota-free access to the U.S.

market with much shorter (than from Asia) flight

times.

Helping Rural Manufacturers / RDRR-87 23
U.S. Department of Agriculture

Economic Research Service

SUMMARY OF REPORT SB-882

Scaled-Back Farm Credit System Rebounds

From 1980's Farm Crisis May 1994

Contact: Bob Collender/Audrae Erickson, 202-219-0893

The U.S. Farm Credit System sustained some of

the largest losses, during the 1980's, among institutions lending to agriculture. But it has now regained financial strength because of rebounding land

values, wider net interest margins, and a significant decline in nonaccrual loan rates {net interest margins are

the difference between interest paid to account holders

and interest collected on loans; nonaccrualloansare

loans for which payment is uncertain because of lapses

in payments or loan security).

The Farm Credit System is an important lender to agriculture, providing over a fourth of total farm debt and a

third of farm real estate debt in 1991. The system's recovery to financial health is documented in a series of financial statistics compiled in Farm Credit System Bank

and Association Operating Statistics, 1986-91, recently

published by the U.S. Department of Agriculture's Economic Research Service. The statistics also reveal differences in financial stress and recovery by geographic

area and by type of institution.

Total lending through the Farm Credit Banks and

their related associations (excluding the Banks for Cooperatives) dropped from $50.5 billion in 1986 to $40 billion in 1988 (and stabilized at that level through 1991),

while nonaccrual loans shrank as a percent of loans outstanding from 13.9 percent in 1986 to 5.5 percent in

1991. Short and intermediate-term loans made up 26.6

percent of total FCS loans in 1991, up from 20.5 percent

in 1986. Short-term or production loans are made for periods up to one year and are generally used to finance a

crop or livestock production cycle. Intermediate-term

loans have maturities up to 10 years and are used to finance machinery, equipment, some buildings, and

breeding stock. The share of long-term farm mortgages, traditionally the mainstay of the FCS portfolio, by

contrast, declined from 68.9 percent to 66.7 percent of

total FCS loans. The Farm Credit System's rate of return on equity improved from -11.5 percent in 1986

(weighted average for direct-lending associations, that

is, those that make loans) to 8.6 percent in 1991.

FCS Weighted-average return on equity

as a percentage of assets

15

10

(5)

(10)

(15)

-

-

&{>,

k":""

m-

-

1 1 1 1 1

1986 1987 1988 1989 1990 1991

To Order This Report...

The information presented here is excerpted

from Farm Credit System Bank and Association Operating Statistics, 1986-91, SB-882, byRobert N. Collender, Audrae Erickson. and Mark

A. Adams.The cost is $12.00 ($15 for foreign addresses, including Canada).

To order, dial 1-800-999-6779 (toll free in the

United States and Canada).

Charge to VISA or MasterCard. Or send a

check (made payable to ERS-NASS) to:

ERS-NASS

341 Victory Drive

Herndon. VA 22070.
U.S. Department of Agriculture

Economic Research Service

SUMMARY OF REPORT #RDRR-86

Nonmetro elderly report poorer health, but

use fewer health care services September 1993

The majority of Americans aged 60 years and older

are, and perceive themselves to be, in good

health. Health status differs by place of residence, with a higher proportion of nonmetro elders reporting their health as fair or poor (35 percent) than

metro elders (29 percent). The nonmetro elderiy are

also more likely to have certain chronic conditions, such

as arthritis, that are clearly associated with poorer physical functioning. Differences in elders' self-assessments

of health and physical functioning remain evident by residence when other factors, such as age, race, social support networks, income, and education are held constant.

Health Status and Use of Health Care Services by

the Older Population: A Residential Comparison, from

USDA's Economic Research Service, uses data from

the 1984 Supplement on Aging to the National Health Interview Survey by the National Center for Health Statistics. This data set is the latest available and the most

appropriate because it provides a large enough sample

size to study differences in the elderiy's health and other

characteristics separately by residence. The report describes the nature and magnitude of differences in

health status and use of health care services by the elderiy, by place of residence.

Socioeconomic status, as measured by education

and income, is important to the health status of the elderiy. with higher socioeconomic status associated with

better health. This effect is magnified in nonmetro areas, where the elderiy are generally less educated and

more financially disadvantaged. Social support networks are strong in nonmetro areas, but their beneficial

effect on health status is not enough to overcome the effects of the nonmetro elderiy's lower socioeconomic

status.

The nonmetro elderly are less likely to use formal

health care services, defined as physician visits, hospital stays, and nursing home care. The nonmetro elderiy's poorer health and lower socioeconomic status,

combined with lower use of services, suggests that a

gap exists between the nonmetro elderiy's need for care

and the availability of services to meet this need.

Contact: Carolyn Rogers, 202/219-0536

Elderly persons reporting fair or poor health

Percent

40 T

Total U.S. Metro Central

city

Suburb Nonmetro

To Order This Report...

The information presented here is excerpted

from Health Status and Use of Health Care Services by the Older Population: A Residential

Comparison, RDRR-86. by Carolyn Rogers. The

cost is $9.00.

To order, dial 1-800-999-6779 (toll free in the

United States and Canada) and ask for the report

by title.

Please add 25 percent to foreign addresses

(including Canada). Charge to VISA or MasterCard. Or send a check (made payable to ERSNASS) to:

ERS-NASS

341 Victory Drive

Herndon, VA 22070.