In 2008, Greek company Titan Cement announced tentative plans to build a plant on the banks of the Cape Fear River. Since, the company has been met with considerable resistance from the community, both from individuals and environmental organizations who oppose the plant due environmental concerns. Claims that it would destroy thousands of acres of wetlands, contaminate the aquifer, and emit toxic chemicals into the local atmosphere top the list.
Despite opposition, in April 2008 New Hanover County Commissioners voted to offer a $4.2 million incentive package to Titan. Their argument, primarily economical, cited the need for tax revenue and job provisions the plant would create. The county garnered their information from an Economic Impact Analysis (EIA) released the same year, which claimed if Titan indeed built a plant on the Cape Fear shores, the plant’s 160 announced jobs could pyramid into 720 new jobs and bring upwards of $235.7 million dollars into the area.
But something was very wrong with the analysis. For starters, the study only used INPLAN, an economic computer modeling software, to attain the figures and ignored real-world data. The analysis was also potentially performed on the wrong industry—cement mixing rather than cement manufacturing. The study failed to look at any of the negative effects associated with the plant, environmental or otherwise, and was only a half of a page long.
“It didn’t pass the ‘sniff test’,” Craig Galbraith, Cameron School of Business professor at UNCW, says. “In other words, how can a firm with 160 employees create 720 jobs in a small county?”
Last Tuesday, Galbraith gave a presentation titled “The Impact of Cement Manufacturing on Economic Growth in New Hanover County” at the WHQR gallery. Sponsored by the Cape Fear Economic Development Council, the lecture sought to clarify several issues arising from the previous study, to frame the plant’s proposed arrival in an economic context, and to present Galbraith’s own findings.
EIAs are poorly understood, especially by elected officials, claims Galbraith. Most of the studies are seriously flawed. They tend to be highly political in nature and vastly overestimate the positive impacts. They’re typically based on the “multiplier effect,” or the belief that jobs in the region will create more jobs in the region. Unfortunately, this is not true; not all jobs create jobs. Many are a result of the larger economic system not a cause, and as such don’t result in economic growth.
Most industries are “embedded” in the economy and don’t significantly contribute to economic development, even if they have significant employment. For example, he says, adding another gas station, food store or taxi service doesn’t create growth; it only shifts the economic activity that already exists here. Economists call this misconception the “Sin of Exaggerated Sectoral Impacts,” and Galbraith says these types of “growth” may actually hurt the local economy, leeching on to the existing activity in a region like an economic cancer.
Another aspect consider, especially in the Titan argument, is whether or not the activity would create any negative impacts, or externalities, which could hurt the community—the “bad” of business activity, the actions that could injure existing commerce or extinguish it altogether. Potential externalities include pollution and environmental degradation, infrastructure congestion, increase on input prices, actions which are not compatible with the long-term vision of the community, and actions that might decrease the beauty of a community.
“Now I’m not saying that Titan has all these, but these are kind of the general sort of things you might want to consider,” Galbraith says.
The study Galbraith co-authored was funded by the NC Coastal Federation and presents a significantly different picture than the county study painted in 2008. Galbraith’s study used three different approaches, more recent data, and had a better understanding of the assumptions and limitations of traditional independent studies. He presented three models, two more realistic INPLAN models and one based on real data gathered from an empirical study of new manufacturing plants in Georgia.
The first model was a traditional input-output analysis, which generally overestimates real impact. It predicted an increase of 410 to 545 jobs, including the 160 announced by Titan, in the Wilmington Metropolitan Statistical Area (MSA). The second model was a Net Impact Analysis which took into account that many of Titan’s supplier industries were: A) not currently located in Wilmington and B) unlikely to move here after the plant opens. This model predicted an increase of 366 jobs, including the 160 announced by Titan, in the Wilmington MSA.
Yet, the third model is the one Galbraith hangs his hat on. Unlike traditional EIAs, which cannot account for ways the cement plant might actually repel existing establishments or new entrants, this model incorporated potential spillover effects and continuous externalities. It predicts a net increase of only 110 jobs in the Wilmington MSA. In other words, 50 non-Titan jobs will leave. In New Hanover County, the net increase of jobs would come to only 48.
Galbraith is unsure if a strong amenity/hospitality based, “clean” economy like the one we currently have would be able to coexist with a heavily manufacturing economy such as Titan’s in our relatively small geographical area. The potential for negative externalities is also probably greater than average for the heavily polluting plant. Galbraith says that potential economic damage might be caused by the perception—rather than the actual presence—of pollution or environmental disaster.
Additionally, firms such as Titan tend to hire fewer people than they announce and may pay less than announced as well. Studies suggest they typically hire 13.8 percent fewer employees, bringing the count down to only 138 hired by the plant, and data collected in Florida imply that salaries would more likely be around $63,000 a year instead of the $75,000 announced. Taking these factors into account, “the impact is probably lower than even model three suggests—perhaps even negative,” Galbraith notes.
The next meeting of Wilmington’s very own Stop Titan Action Network will take place December 13th from 6:30 p.m. to 7:30 p.m. at the Church of the Servant, 4925 Oriole Drive. They will present grassroots lobbying training, serve hot apple cider and homemade cookies. Contact Zak Keith at email@example.com or 321-356-6603 for more information about the organization.