The Rust Belt

How Akron, Ohio lost its luster

Before China entered the WTO in 2001 or the North American Free Trade Agreement came into affect in 1994, American manufacturing was already in decline. By the 1970s-1980s, the regionalism of East Asia & Europe was already eroding American firms’ market share.

When people talk about the “Rust Belt” they think of formerly booming Midwestern Cities like Akron, Ohio.

You can usually tell how booming a city is by its population growth. Akron was booming so fast it 5x’ed it’s population from around 50K to 250K in about 30 years.

In the early 1900s Akron was the fastest growing city in America. Notice how population peaked by 1960…

Akron quite literally was the “Rubber Capital” of the world because of the company Goodyear Tire & Rubber Company. Goodyear hired hundreds non-university educated people to assemble tires for cars, trucks, airplanes, blimps, military weapons, and etc. for great wages. Akron used to be the number one rubber manufacturer in the world, bar none. These were the halcyon days that a person can work after high school, assemble tires, support a family of four, and buy a house cheaply after being drafted into WW2. Americans were able to live a middle class life and golf on weekends because they barely had any competition.

During WW1,WW2, and Eisenhower’s creation of the interstate highway, Goodyear flourished providing military and passenger tires for their customers. By 1935, American firms controlled 80% of the globe’s tire market. But by 1970, six companies (Goodyear, Firestone, General Tire, U.S. Rubber, Uniroyal, and Goodrich) all founded in either Akron, Ohio and Naugatuck, Connecticut produced 60% of the World’s tire market.

But let’s ask ourselves this something. Why was America producing over half the world’s tires by from 1935-1970? Why was American market share decreasing?

The reason we ahead were so far ahead from WW2 to Vietnam War was:

1) America was unscathed from WW1 and WW2 , allowing America to leap frog Western Europe & Japan

2) America didn’t waste millions fighting stupid wars to prevent colonies from becoming independent (France’s war against Algeria, Vietnamese, Laos, and Cambodian Independence, Netherland’s war against Indonesian independence, Britain fighting Malaysia & Kenya, and etc.)

3) An entire bloc of nations were non global-trading, communist countries that advocated for self-sufficiency ( East Germany, Soviet Union, Maoist China)

4) There were a huge bloc of newly formed independent nations that had the age of a teenager-young adult. They were developing nations that were learning to develop beyond selling sugar, palm oil, or rice (Ghana, Malaysia, Sri Lanka).

5)There were countries that were focused on exporting raw commodities & food and were more or less an unstable, land-owning aristocracies that were continually interfered by America & Europe (Basically all of Latin America)

6. The nations were industrialized and untouched by WW2 but couldn't compete with America's scale of production due to lower population sizes. (Canada, Australia, New Zealand, Switzerland)

From Post WW2 to the Vietnam War, America had no equal. But even though America had a lead, the rest of the 40% of the world market was captured by countries that were gaining market share and recovering from WW2 by the late 50s and 60s: Japan, West Germany, and UK.

Tire manufacturing didn’t die in Ohio because China, in fact China wasn’t even part America’s “Most Favored Nation” for trade until the end of 2001. NAFTA wasn’t signed yet when manufacturing died in Ohio either, which was 1994. The last tire factory closed in Akron in 1982.

What happened?

Was it Reagan Financialization or Offshoring? Partly, that did happen, but I argue that America was outcompeted. Both the Western Europe and Japan were able to outcompete America by bringing their costs down by outsourcing manufacturing to their, at the time, much poorer, lower cost neighbors (Japan can use South Korea, Taiwan, China and for Germany, Netherlands, & France can use cheap labor from Italy.

As a result, West Germany and Japan were more cost friendly to American firms and were able to outbid American tire firms with cheaper products at higher quality.

Ultimately, American companies got complacent, while France’s tire firm Michelin developed a new radial technology in 1946 that let their tires outlast and outcompete those six American firms. Eventually, the rest of Western Europe and Japan used radial tires while during the 1970s-1980s, only 2% of American tired were radial. American firms didn’t want to invest the capital in a low margin product.

Who knew tires could have innovation?

These tires were just better and outcompeted for supplying tires to the global car, bike, and aviation market from 1970-1980s. By the late 1970s, Japanese tire firms like Bridgestone, Sumitomo, Toyo, and Yokohama dominated East Asia, meanwhile due the proto-European Union. The European Economic Community, France , UK, Italy, and West Germany had cooperating manufacturing supply chains. France’s Michelin, Italy’s Pirelli, West Germany’s Continental UK’s Dunlop, started to take market share and dominate in the European and American markets. Firms either made the decision to relocate labor to the South (where its cheaper) or sell their assets & businesses to the foreign competition.

By the 1980s, America was losing competition so bad that 75% of the American industry either had to restructure their debt and sell of assets or get acquired as a subsidiary of a Japanese or European firm. Part of this happened because America had very open markets, while Europe and Japan were way more protectionist to their firms. In addition, America had significantly stronger currencies than Japan, West Germany, and etc, making it easier for those countries to export to America, while making American products more expensive. This was so bad that during the Reagan administration in 1985, America more or less forced its allies to raise the value of their currencies.

American firms used to have around 60% of the market in 1970s. By 1993, Europe & Japan had over 60% and America had 17%….

The decimation of manufacturing happened before Americans moved jobs overseas or before free trade. Instead of thinking of free trade and offshoring as “corporate greed”, maybe we should think of those two phenomena as a response to global competition instead?