Best & Worst States For Business 2022: Inside The Heartland Revolution!

Long derided as ‘flyover country,’ the nation’s industrial core is again taking flight, thanks to chips and EVs, pragmatic politics, seismic shifts in manufacturing and a deep rethink of the global supply chain. China who?

The U.S. Capitol chamber of the House of Representatives has spotlighted dozens of distinguished guests for applause during presidents’ State of the Union addresses, including war heroes, scientists, civil-rights pioneers, athletes and entrepreneurs. But honoring CEOs has been rare in the 40 years since President Ronald Reagan started the tradition.

That’s why it was significant when Intel CEO Pat Gelsinger rose from his seat in the gallery at the behest of Joe Biden in March, as the president’s speech praised the company’s decision to invest at least $20 billion in a new microchip-making venture in central Ohio. “Just look around and you’ll see an amazing story,” Biden said, about “the revitalization of American manufacturing. Companies are choosing to build new factories here, when just a few years ago, they would have gone overseas.” 

And by “here,” he meant the nation’s midsection. Indeed, even as perennial CEO favorites Texas and Florida once again topped Chief Executive’s Best & Worst States for Business list this year, the president’s gesture was important recognition of a weighty new reality: The industrial heartland is coming back in a huge way, one that promises to tip the country’s long-term economic balance back toward so-called “flyover country,” with vast new high-tech factories for making everything from electric vehicles and their batteries to microchips. 

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“These are investments that are unprecedented in history,” says Ryan Maibach, CEO of Barton Malow, the Southfield, Michigan-based construction firm Ford has contracted to build its $5.6-billion BlueOval City EV plant near Stanton, Tennessee. “We’ve been part of some major programs in the past, but nothing comes close to this sort of size and complexity.”

Importantly, notes Darin Buelow, the national leader of Deloitte’s location practice, “The new announcements are happening in cutting-edge industries. And they’re not just going to pack up and shift overseas two years later. These are incredibly massive capital investments that require lots of support, so there will be decades and decades of jobs and profits coming out of these locations.”

As stunning as companies’ big new commitments to the heartland may seem, “Industry will go where it’s wanted,” says demographer Joel Kotkin, a fellow at Chapman University. “As we’ve allowed the Northeast and, increasingly, the West Coast to deindustrialize—and, given those states’ climate policies, there’s not anything else they can do on the current trajectory—it makes sense that chip and battery and EV plants are going to the middle of the country.”

Shaking Off The Rust

Even before the Intel news in February, Ohio had become a regular fixture near the top of the Best States & Worst States survey. Ohio ranked No. 7 this year, just like last year, right behind No. 6 Indiana, as the two continued to lead a relentless, years-long upward push by Midwestern states also including Iowa, Michigan, Wisconsin and Missouri.

Now, the Intel gambit could transform the region. Gelsinger said Intel’s footprint will create the single biggest center of semiconductor manufacturing in the world, what he called a “silicon heartland.” The company itself may eventually sink as much as $100 billion into an array of manufacturing plants there, while suppliers will proliferate as well. “Even the small supplier projects of $1 billion or $500 million each will be the sort of things most communities could never dream of,” says Gregg Wassmansdorf, senior managing director in consulting in Newmark’s global corporate services. 

To land one of the biggest economic-development plums in American history, Ohio government and business leaders followed a long-term strategy that started with the creation of innovative and reliable funding mechanisms years ago, leveraged the state’s inherent advantages and struck decisively at a moment when new dynamics in major industries, potent forces in the broader economy and Black Swan events converged to create a perfect storm of opportunity.

“You never know when you’ll get called into action,” says Kenny McDonald, president of One Columbus, the Ohio capital’s economic-development arm. “We couldn’t have predicted the events of the last two years, but we knew we had the capabilities.”

Those events, of course, included the pandemic and its snarling of supply chains from Asia that were more ruinous to microchip manufacturers—and their customers, such as the auto industry—than anyone else. U.S. manufacturers formed a line for decoupling from Asian sourcing.

“Businesses are seeing they have to be in the United States, so we’re seeing more reshoring and onshoring than ever before, for a long list of reasons,” says Alan Beaulieu, chief of ITR Economics, noting that the United States also is on pace this year for a record amount of direct foreign investment. “Patriotism is way down that list. But it’s all creating taxpayers and jobs and adding economic energy to the country.”

As Intel sought its own way to invest in more domestic chip production, Ohio came into view. “We had said to a previous client, ‘There are obvious locations,'” says Wassmansdorf, who notes that Intel wasn’t a client. “But what about pioneering opportunities, new locations where there isn’t a semiconductor presence today?”

Ohio became an attractive option for several reasons, including ample water resources for the thirsty chip-manufacturing process, geologic stability and its central location in the country, as well as amid industries that are big chip users, ranging from automobiles to appliances to agricultural equipment. 

As Intel narrowed on the Columbus area, local research citadels, including Ohio State University and Battelle Memorial Institute, loomed large. “Ohio has got a background in chemicals and materials science, engineering capabilities and advanced manufacturing in automotive and aerospace,” Wassmansdorf says. “It just had never been mobilized around the semiconductor industry.”

In addition to lots of residents with relevant technology chops, greater Columbus could demonstrate a large pool of labor at various skill levels, staffing diverse existing enterprises ranging from Honda’s U.S. manufacturing complex to the headquarters of Nationwide Insurance and Cardinal Health, the regional office of JPMorgan Chase and major facilities for Google and Facebook.

The Columbus area had some stiff competition as Intel whittled its initial consideration of about 40 sites down to about a half-dozen. Southeastern Wisconsin, for instance, was “very much in the hunt,” says Melissa Hughes, head of the Wisconsin Economic Development Corp. Some experts say upstate New York, boasting an existing GlobalFoundries chip plant and some significant preparation by local economic-development officials over the past 20 years, might have been a finalist.

Powered by Foresight

But in the end, Ohio held a strong trump card: the foresight of governors, economic-development officials, utility executives and other corporate CEOs going back to the 1990s. That’s when the state deposited some of its settlement with tobacco makers into a jobs-creation fund. In 2011, the state permanently siphoned its liquor taxes into JobsOhio, a new agency for economic development. 

Seven years ago, a posse from Ohio toured the “Silicon Forest” area near Portland, Oregon, where Intel and several others make chips, “to find out what it takes to compete on a global level in this industry and come back and do our version,” says McDonald. Observes Chris Lloyd, chair of the Site Selectors Guild, Ohio “has been very methodical in positioning themselves for the long-term game.”

At the same time, Ohio’s foresighted players emphasized literal spadework by preparing potential big-factory sites—including the one in New Albany, in suburban Columbus, that Intel chose—and “stress-testing” them to prove they could handle demand. “It’s like walking into a state and saying, ‘Do you have a power plant or two lying around that you’re not using?’” says Wassmansdorf. “It was on that order of magnitude.”

And then last year, when state officials confidentially learned that Ohio was in the running for the Intel plant, the state legislature expanded its tax incentives, allowing megaprojects with more than $1 billion in investment to benefit from job-creation tax credits for up to 30 years, rather than the previous 15.

“You can’t overstate how transformative this is going to be for Ohio and Columbus,” Buelow says in the wake of Ohio’s win. “It’s an opportunity to leap forward into this value chain that they didn’t have prior to this, putting the state right on the cutting edge of technology and science and STEM careers.”

Meanwhile, other heartland states have been racking up their own major victories in landing portions of the new EV economy, including tens of billions of dollars of commitments by Ford in Kentucky as well as in Tennessee; General Motors in Michigan;Toyota in Indiana and West Virginia; Rivian in Georgia and Nissan in Mississippi. Tesla is already building its first pickup-truck plant near Austin.

Home Life in the Heartland

As in Ohio with Intel, thinking ahead has served these winning states well. Ford’s BlueOval City site has been ready for years, Buelow says. But making EVs requires about one-third less labor than making traditional vehicles. “That’s why it was more important for Ford to center and grow its high-end R&D, design and engineering in its new hub in Corktown,” where the company is rehabbing a giant old train station in Detroit, than to place another EV factory in the area, says John Austin, a senior fellow with the Brookings Institution. 

To extend regional momentum in capturing the jobs of the future, heartland states must be effective in leaning on some of their substantial advantages over the coasts.

Take the fact that 25 percent of the world’s top research universities are within 100 miles of one another in the Midwest, a regional concentration unmatched anywhere, according to Larry Gigerich, head of Ginovus economic-development consultants. They include many of the world’s top engineering schools.

Housing affordability continues to be a major edge for interior state, as home prices rise dramatically nearly everywhere across the country. “Where’s a family to go?” asks demographer Richard Florida, a professor at the University of Toronto. “It’s all about affordability. In Pittsburgh, Cleveland and Detroit, there are nice neighborhoods that are affordable and have good school districts. Where else can normal, average middle-class people live?”

And there’s water. “Compare the Midwest with the mountain states that have seen so much growth over the last 15 years: Denver, Salt Lake City, even Boise,” says Gigerich. “Now they’re seeing water supplies diminish while trying to serve millions more people than they had a decade ago.”

But transformation “won’t apply through the whole industrial heartland,” Clark says. “The revival of the old manufacturing model won’t happen. There’s still a lot of work to do.”