Georgia’s diversified economy is a new strength  

Longtime readers of this column know that I put a heavy emphasis on Georgia’s economic development efforts. These tell us a lot about who we are as a state, and more importantly, who we’re going to be.  

A half century ago Georgia was the banking center of the South. Atlanta was expanding at a rate that growth was an industry unto itself. Airline consolidation and the emergence of Hartsfield Jackson airport as the world’s largest and busiest air hub gave us an edge in the transportation and logistics industry.

Almost two decades ago much of that changed, quickly. The housing crisis stopped residential construction cold.  One quarter of Georgia’s banks failed in the aftermath, while many of the former larger banks had already seen their headquarters move to other states during the 1990’s industry consolidation. Delta airlines had a round trip through bankruptcy.  

Prior to these events, it was widely accepted as fact that Georgia was well insulated from recessions.  We weren’t a manufacturing center, and thus the ebbs and flows of the business cycle were not as prominent when factories went through periodic layoffs.  When the employment centers of the rust belt caught the flu, we merely had a cold.

The era of the housing and banking crisis changed the script. Our recession was deeper and longer than most in the country experienced.  Governor Nathan Deal set to change that, and to rebuild Georgia’s economy by incentivizing growing industries around Georgia’s natural assets.

Governor Kemp expanded on this platform by shifting the focus toward rural Georgia. Many of the success stories are manufacturers, the largest being new automotive assembly plants.  Hyundai is now fully operational in Bryan County outside of Savannah. East of Atlanta, Rivian is again putting together its construction schedule for a delayed but still in progress factory near Social Circle Georgia.

The importance of landing these plants has been telegraphed to all who would listen. Pat Wilson, the state’s Commissioner of Economic Development, is on record of stating this isn’t just about the jobs of tomorrow’s automotive industry, but about keeping the tens of thousands of Georgians who currently work in the auto supply chain employed. 

Partially because of federal incentives and changes to the regulatory structure that put a heavy hand on the scales to strongly encourage – some would say force – consumers to purchase EV’s, the entire industry is now viewed by many in partisan terms.  It is entirely possible to support the emerging technology for those who decide an EV is right for them while rejecting the notion that taxpayers should subsidize upper income consumers who buy luxury cars or EPA emission targets that are virtually impossible for internal combustion powered cars to meet.

Too many are cheering for these projects to fail.  Some of them will.  And a lot of it has more to do with basic capitalism than shifting political winds.  

Take the case of FREYR battery.  The Norwegian company had planned a $2.6 billion battery plant to be built southwest of Atlanta in Coweta County. Last month they notified the county and state they no longer wish to move forward with their plans. The site will now go back into inventory for a future employer.

They made it clear all levels of government “provided extraordinary assistance and support” but the economic climate no longer justifies the investment and its associated risk.  So what happened here.

Economists speak in terms of economic profits.  Unlike when accountants speak of profits, which are clearly measured revenues in excess of specific costs, economic profits are returns to capital and/or labor that are in excess of expected returns for similar investments.  

New and high growth industries often provide economic profits…for a while. These profits tend to attract surplus capital, with new firms seeking to get these same positive returns for their owners.  The new entrants then compete against each other, driving down prices until profits return to normal.  If profits keep going down, firms will leave the space entirely and re-allocate their capital until things are somewhat normal, or what economists call “equilibrium”.  

When Tesla became the world’s most valuable car company while only producing a fraction of what the larger companies produce, investors took notice. Capital flowed freely into the industry for would be competitors and their suppliers.  Georgia captured many of them and their capital expenditure dollars.  

Not all of them will make it.  This is a necessary part of capitalism.  Some firms will thrive while others fail.  We need to accept that this means the market is healthy, not that someone somewhere made a bad decision.

We’re also going to have to accept that the future will always be different than the present. We’ve successfully diversified our employment base beyond banking, real estate, and logistics.  

A decade of being the number one state to do business has paid dividends with entirely new industries.  Each of these new industries comes with their own boom and bust cycles, each having their own ebbs and flows.  

We’ll need to understand we’ll hurt when each one has the low point of their natural business cycles.  We need to pray that each doesn’t have the low point at the same time so that the strong can carry the struggling in order to keep Georgia working.