For a Change, Japanese Firms Buoy Rust Belt : Midwest: Japan’s investment in autos and steel adds a coat of rust-proofing to the industrial heartland.

DETROIT —  The Midwest is doing a better job of avoiding a recession this year than anyone anticipated, and the region appears to have some unlikely benefactors to thank for its new-found economic stability--the Japanese.

Japanese corporations are making huge investments throughout the Midwest in manufacturing industries like steel and automobiles, rapidly upgrading and transforming the economic base of a region often known, until recently, as the “Rust Belt.” As a result, Japanese companies are becoming key generators of new jobs in the heartland, offsetting losses at traditional American employers.

Now, just a decade after the first wave of Japanese companies set up shop in the region, the Japanese employ a total of 103,000 workers in Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. According to a new study by the Japanese consulate in Chicago, this employment figure marks a 66% increase from 1988, when Japanese firms employed 62,000 in the area.

Such massive job creation seems to be helping the region avoid a serious economic slump, despite the current woes of many of U.S. manufacturers based in the Midwest.

Many of Japan’s Midwestern operations are so big they dominate the small towns and mid-size cities where they have been located.

Nippon Steel, for example, is pouring hundreds of millions of dollars into a $1 billion joint venture with Chicago-based Inland Steel to produce high-quality steel at a new mill in rural New Carlisle, Ind., that will use the latest in Japanese technology and eventually create 500 jobs.

Not far away in Lafayette, Ind., meanwhile, Subaru and Isuzu have spent $500 million on a new joint-venture assembly plant, employing more than 2,200 workers, to produce both cars and utility vehicles for the American market. In addition, Isuzu officials say at least 27 Japanese parts suppliers have opened smaller factories in Indiana, Kentucky and Ohio to supply the assembly plant.

Today, scores of Japanese companies have located in towns like New Carlisle and Lafayette throughout the upper Midwest, often bringing a cosmopolitan touch to communities that had not changed much for decades. The Japanese consulate’s survey found that Japanese companies now operate a total of 1,048 factories and other offices in the region, a 20% gain over 1988.

“It’s amazing how many Japanese companies have gone into these small towns,” says Diane Swonk, an economist at First National Bank of Chicago. In fact, the local Japanese factory is becoming a small-town fixture, along with the grain elevator and the courthouse.

“New Carlisle is a town of only 1,400 people that hadn’t changed much in many, many years,” observes Town Council President Dave Swope. “So people were a little apprehensive when the Japanese first came. But I think people are starting to come around to realize the tremendous economic benefits that (the Nippon-Inland steel mill) is bringing.”

More and more communities are finding the same thing.

“There is no doubt about the fact that investments like the Subaru-Isuzu plant are good for places like Lafayette,” says Jack Riley, a senior vice president with American Isuzu.

Many observers believe that the massive Japanese investment in the region has helped offset the slump in the Detroit-based domestic auto industry. In past economic cycles, a sharp drop in domestic auto sales usually prompted a contraction throughout the Midwest. State officials in Ohio used to say that “when General Motors catches a cold, Ohio gets pneumonia.”

No longer. Today, the biggest private employer in the Columbus area is Honda, with more than 9,000 workers; meanwhile, GM has closed one assembly plant in Cincinnati and is threatening to shutter another operation near Youngstown as well.

But even with production cutbacks by the Big Three auto makers throughout the region, Midwestern unemployment has remained remarkably low. “If the auto industry had gone into this kind of slump five or six years ago, this area would be in an outright recession,” observes David Sowerby, an economist at Manufacturers National Bank of Detroit.

Yet in Illinois, for example, the jobless rate averaged just 5.9% in 1989; during the last recession in the early 1980s, it peaked at nearly 11.5%. Indiana’s unemployment rate dipped below 5% this winter, after stagnating in the double digits from 1981 to 1983.

“Japanese investment has really helped us flatten out the business cycle here,” says Rob Fowler, vice president for business development for the Indiana Chamber of Commerce.

Most of the big-ticket investments by Japanese firms in the Midwest have come in the auto industry, which has clustered its American facilities in the region. Indeed, they have largely offset the job losses at the Big Three; while the domestic auto makers closed nine assembly plants during the 1980s, the Japanese have opened eight, and seven of them are in the central United States.

“The Japanese certainly have softened the blow from autos,” says economist Swonk. “Ohio has been below the national average in unemployment lately, and Honda is a big factor in that,” she adds.

But Japanese steelmakers have become big players in the region as well. In addition to the Nippon-Inland joint venture, the best example may be the case of National Steel, which has been rapidly modernizing its sprawling Great Lakes Steel operation in Ecorse, Mich., outside Detroit, in order to supply higher quality steel to the auto industry. National is a joint venture between Nippon Kokan Steel of Japan and Pittsburgh’s National Intergroup.

“Virtually all of the Japanese investment in the American steel industry is in the Midwest,” observes Bernard Lashinsky, an economist at Inland Steel.

In fact, the Midwest is apparently benefitting from Japanese investment more than almost any other region of the nation. A February survey of Japanese companies by the Japan External Trade Organization found that Illinois, Ohio and Michigan all ranked in the top five states in the country in terms of the number of Japanese factories or other facilities they have attracted.

While California, which traditionally has been a favorite location for Japanese firms, still ranks first with 202 plants, the survey found that Ohio and Illinois have had the greatest growth in new Japanese factories since 1985.

JAPANESE IN THE MIDWEST

Employment at Japanese-owned facilities in six Midwestern states.

Employee origin Ill. Ind. Mich. Minn. Ohio Wis. Total Assigned from Japan 2,087 522 1,526 23 1,086 43 5,287 Local staff 33,703 8,164 22,517 2,234 30,539 409 97,566 Total 35,790 8,686 24,043 2,257 31,625 452 102,855

Japanese facilities (offices, factories, etc.) in six Midwestern states, by industry and state.

Industry type Ill. Ind. Mich. Minn. Ohio Wis. Agriculture, 1 0 0 0 2 0 forestry, fisheries Construction 5 2 1 1 2 0 Manufacturing 212 64 206 21 109 16 Transportation, 33 1 12 5 13 1 warehouse Services (restaurant, 67 0 6 1 2 1 travel, etc.) Commercial trade 148 7 24 3 21 1 (sales, retail, etc.) Finance, insurance, 36 0 3 1 1 0 real estate Miscellaneous 11 0 6 0 1 1 (economic organizations, etc.)

Source: “Japanese Direct Investment in the Midwest: 1989 Survey” by the Consulate General of Japan at Chicago