Free Enterprise Staff  | June 25, 2015

Lessons in Success From a Comeback City

Over the course of this year, we’re exploring how entrepreneurs and businesses are faring in non-major U.S. cities, beginning with Des Moines, Iowa. We’ll be reporting on the ground from each city, talking with elected officials and business leaders about how they’re harnessing their unique resources and local talent to fuel economic growth and better compete against more established urban centers like San Francisco and New York City. This month, we’re taking a deep dive into Chattanooga, Tennessee.

If you’re like most people, then you probably think of infrastructure as it relates to your daily commute: When you hit a pothole that blows out your tire, it’s an inconvenience. Yet as Chattanooga, Tennessee, has demonstrated, when you approach infrastructure investment in a strategic way, you also build an economic foundation that allows all kinds of businesses to flourish.

That’s the thing about infrastructure that is easy to forget: Without well-built roads, bridges, and telecommunications equipment, businesses would grind to a halt. There is no industry that doesn’t rely on infrastructure as a critically important part of its success.

Officials and business leaders in Chattanooga recognized this fact and worked to create a metropolitan ecosystem that could exploit that pain point. By investing in and upgrading its infrastructure, the city accomplished something once considered impossible: It was able to roar back from the depths of a decades-long economic funk caused in large part by the decline of the U.S. manufacturing sector in Rust Belt states.

What’s arguably most interesting about Chattanooga is that business and government worked together to repurpose the city’s existing infrastructure. They didn’t simply build new roads, bridges, and factories—though that was part of the overall plan. They also focused attention on remaking long-idled factories, transforming them into modern facilities capable of attracting companies from various industries.

This strategy was particularly effective at luring carmakers, seeing a two-fold benefit in Chattanooga, which already had a skilled workforce and manufacturing facilities just waiting to be reimagined for the 21st century. That’s drawn a lot of foreign investment to the city, which has become something of a North American hub for Volkswagen.

The German automaker has had an outsized impact on the Tennessee city over the past few years. It operates a 1,400-acre manufacturing plant in Chattanooga, where it directly employs more than 3,200 workers. Its presence, moreover, is indirectly responsible for roughly 9,500 positions, and it has contributed more than $1.4 billion in tax revenue to Tennessee.

Yet what has local residents and public officials most excited about Volkswagen’s commitment to Chattanooga is the quality of jobs it has brought—and continues to bring—to the city. According to the Tennessean, Volkswagen has ratcheted up its investment there, announcing recently it would hire 200 engineers to staff its fledgling National Research and Development and Planning Center. It’s moves like this that are driving bullishness in the metro area’s manufacturing sector, according to Tom Brewer of the Tennessee Automotive Manufacturers Association.

“VW’s investment is a vote of confidence in Tennessee and the supply base,” explained Brewer, who acts as the association’s president. “It means more high-quality jobs at the plant in Chattanooga and more jobs for the growing supply base across the state.”

Also bolstering Chattanooga’s economy is the city’s super-fast Internet, which it designed and developed. The city’s ultra-speedy Internet connection times have, perhaps unsurprisingly, attracted entrepreneurs and other businesses looking to gain a comparative advantage on their competitors. As Chattanooga mayor Andy Berke told CNN Money, the city’s high-speed Internet has been a major boon for the entire metro area.

“It’s really altered how we think of ourselves as a city,” Berke told CNN. “We’re a midsized, southern city — for us to be at the front of the technological curve rather than at the tail end is a real achievement.”

As we’ve previously reported, these kinds of strategic investments are clearly paying off for Chattanooga: The Bureau of Labor Statistics pegged Chattanooga’s April unemployment rate at 5.2%—markedly lower than Tennessee’s 6% overall unemployment rate.

What else is Chattanooga doing to drive its economy forward? As with all of the cities we’ve featured in our #SiliconCitiesUSA series, it’s impossible to isolate any one factor. Yet as we’ve seen in city after city, the ones that are the most successful are those that are willing to confront their flaws and shortcomings. Chattanooga—like Sioux Falls, Des Moines, and Oklahoma City, among others—has an enthusiastic business community and a nimble government staffed by people who want to challenge the status quo and move forward. These cities aren’t looking to the past as a measure for success. Their gaze is confidently directed at the future, as they trail blaze a new path forward.