How Did We Get Here?

Winston-Salem is the hardest city in the United States in which to escape child poverty, with the exception of a few Indian Reservations.¹ Nearly everyone is shocked when they first learn this startling fact, and some don’t believe it. “What about Chicago, or the Bronx, or Appalachia?” they ask. “Winston-Salem cannot possibly be a more damaging environment than Oakland or South L.A. or Harlem!” Yet it is.

This week we want to share 1) what this statistic does and does not mean and 2) the history and factors that make Winston-Salem one of the most detrimental environments for low income children in America.

When people say that Winston-Salem is the hardest city in which to escape child poverty in the United States, they are referring to a 2015 Harvard study conducted by a scholar named Dr. Raj Chetty. Dr. Chetty specializes in identifying economic trends in the United States, determining their causes, and communicating this information to policy makers and the general public.

Dr. Chetty’s research has pointed to a phenomenon he calls “the fading American dream,” in which people’s economic fortunes vary tremendously based upon where in the United States they are raised. While growing up in certain communities provides children with a long term economic boost, other neighborhoods can leave them at a lasting financial disadvantage.

In 2015, Dr. Chetty and his colleagues undertook a study of nearly every county in the United States, analyzing longitudinal data to determine the effect that being raised in a given county had on upon various socioeconomic groups (this study can be found in the footnotes).²

According to the data, children born to impoverished parents in Forsyth County, North Carolina (whose income falls within the 25th percentile of the national mean)—in the Winston-Salem commuting zone—lose 1.1% average adult income for every year they remain in Forsyth. No other county in the United States had this negative of an impact on impoverished children (outside of a few Indian reservations). This means that children born in poverty in Forsyth have the lowest rates of upward mobility of any non-Indian reservation county in the United States (Out of the 2,875 assessed). This does not mean that Winston-Salem has the highest rates of poverty in the United States, or that it is the worst place in the country for the poor to live. What it does mean, however, is that (taking into account the noted exceptions) children born and raised in poverty in Forsyth County, North Carolina have the highest chances of remaining in poverty all of their lives as compared to any other county in America.

How did this happen?

While there are several factors at play, this alarming statistic can be most broadly attributed to the collapse of Winston-Salem’s low skill labor market in the second half of the 20th century. Soon after Winston-Salem was established in 1913, it was a national powerhouse of manufacturing and business. By the mid 1920’s, Winston-Salem led the nation in the production of several everyday items, and held the title of North Carolina’s largest and most prosperous city. Due to the massive amounts of raw materials needed to fuel its growing industry, Winston-Salem became the 7th largest port of entry in the United States. Times were good in the Twin City, and there was no entity more to thank than R.J. Reynolds Tobacco Company. In the early 20th century, Reynolds introduced the Camel cigarette, which became an instant national sensation. In the year 1921, Camels accounted for half of all cigarette sales within the United States, and by 1924 RJR Tobacco was making $23.8 million in annual profits. This is the equivalent of over $345 million in constant 2018 dollars, and RJR’s new wealth further fueled Winston-Salem’s already robust economy.³

John Wayne advertising for Camel Cigarettes in Reynolds’ heyday

Funds from RJR greatly enriched the rising Wachovia Bank and Trust, and helped begin local companies such as Hanes Knitting and Piedmont Airlines (which soon became one of the largest carriers in the United States). World War II and its subsequent economic boom further enriched Winston-Salem, attracting big business and wealthy entrepreneurs to a city that had received a financial windfall from wartime production. Reynolds became the largest tobacco company on earth in 1958, adding an exclamation mark to decades of prosperity for the city. There was, however, turmoil lurking just over the seemingly hope-filled horizon. Unbeknownst to most of those celebrating Reynolds’ new status, nearly a half century of economic bleeding had already begun.⁴

RJ Reynolds became king of tobacco in 1958; the same decade that it became clear smoking causes lung cancer. If the adage “uneasy lies the head that wears the crown” could ever be applied, it rang true for tobacco’s new industry leader. Starting in the 1950’s, Reynolds found itself inundated with wrongful death lawsuits which continued for decades. This legal trouble, combined with new market pressure from Philip Morris and the Marlboro brand, began years of decline for Reynolds. In an effort to raise profit margins with more efficient production, Reynolds planned to open a series of massive, modern factories in and around Winston-Salem. When the first of these factories was complete in 1986, plans for all of the other factories had to be placed on hold due to Reynolds continued financial decline. With the opening of the new plant, Reynolds’ remaining employees faced yet another hurdle; working with technology. Reynolds had to pay many of its employees to go to Forsyth Technical Community College so that they could learn how to do their jobs alongside computers. As the push toward modern production continued, the leadership of Reynolds realized that many of its long-time employees did not even know how to read and write. Times were changing, and Winston-Salem was struggling to keep up.

These changes coincided with the bankruptcy of Mclean Trucking. When McLean declared bankruptcy, it was the 5th largest trucking company in the country, and boasted 10,000 employees, 1000 of whom worked at its headquarters on Waughtown Street in Winston-Salem. The next year, the leadership of RJ Reynolds Tobacco Company, now “RJR Nabisco,” was ceded to an outsider in the largest corporate takeover in American History. The new boss, F. Ross Johnson, moved Reynolds’ headquarters from Winston-Salem to Atlanta. In 1987, RJR Nabisco lost 2000 more jobs as a part of a leveraged buyout, and would go on to shed another 5000 jobs over the next 3 years. This constituted a tremendous moral blow to Winston-Salem, a city now facing both economic and identity crises.

JOHNSON’S ACTIONS LANDED HIM ON THE COVER OF TIME MAGAZINE, BRINGING NATIONAL ATTENTION TO WINSTON-SALEM’S GROWING CALAMITY.

This misfortune was followed by the buyout of Piedmont Airlines, resulting in the loss of 5000 jobs, the closure of North Carolina Works, a company which once employed 13,000 in Winston-Salem, and the failure of Pilot Freight Carriers, a local company that laid off 2,600 employees. Within a few short years, Winston-Salem’s business empire had collapsed. Many of the city’s residents now found themselves abruptly unemployed, stifling the local economy. Much of Winston-Salem’s less educated workforce now found it increasingly difficult to find quality work. Computers and automated production were here to stay, and the low skill labor market was shrinking. Severance packages were exhausted, and families began to fall out of the middle class. Winston-Salem continued to shed thousands of entry level jobs as the years progressed, losing an additional 10,000 manufacturing jobs from 2006 – 2014. For the first time in the 20th century, Winston-Salem was not a city of prosperity for all. This had been a town in which those with little or no education could maintain a respectable standard of living; stories were told of an executive vice president at Reynolds who had started at the company as a janitor out of high school. These days were passed, and the stage was now set for Winston-Salem to become the worst urban area in which to be born into poverty in the United States.⁵

Compounding the negative effects of Winston-Salem’s economic collapse are five factors which Dr. Raj Chetty claims contribute to low economic mobility, namely:

1. High levels of segregation
2. Substantial income inequality
3. Quality of public schools
4. Strength of social networks
5. Fraction of single parent households⁶

We are planning to write a future article about how each of these factors manifest themselves in this city, but for now suffice to say that Winston-Salem underperforms in each category.

As you have read, it took years for Winston-Salem to find itself at the bottom of the social mobility spectrum, and it will take years for it to climb out. As we shared in last week’s article, the Piedmont Renewal Network exists to stand in the gap, and create equality of opportunity in the American city that needs it the most. It is a fantasy to think that we can fight poverty in Winston-Salem by resuscitating the low skill labor market. Technological progress is both inevitable and good, and we can no more restore last century’s economy than we can bring back yesterday’s sunset. There is, however, a way for Winston-Salem’s emerging industries to bring prosperity to the communities that need it most. We may not be able to lower the level of education required to participate in the high skill workforce, but we can lift the young people of our city to that required level of education. Through education, we can seize the moment and equip Winston-Salem’s new economy with qualified workers from the city’s disenfranchised neighborhoods. We must make a concerted effort to prepare the marginalized youth of our city for the higher education that they desperately need to compete. We must be relentless in our efforts to equip the least fortunate students of today to fill the most rewarding jobs of tomorrow. This is possible, and it is the work of the Piedmont Renewal Network.

¹ Chetty, Raj, and Nathaniel Hendren. “Data from Chetty and Hendren (2015): Causal Effects, Mobility Estimates and Covariates by County, CZ and Birth Cohort.” Equality of Opportunity, Harvard University. 2015, http://www.equality-of-opportunity.org/index.php/data

² Ibid.

³ “CPI Inflation Calculator,” Bureau of Labor and Statistics, accessed February 6th, 2019, https://www.bls.gov/data/inflation_calculator.htm.

⁴ Ibid 3-4.

⁵ Ibid, 5.

⁶ Chetty, R., Hendren, N., Kline, P., Saez, E. (2014). Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States. Equality of Opportunity Project.