Edward Lotterman

A modest business on the east side of St. Paul exemplifies the knotty dilemmas faced by dozens of U.S. cities. It is an iron foundry, a shop where molten iron is poured into molds formed in sand to form useful objects in a process called casting.

The basic technology dates back more than 3,000 years. And we all own, or have owned, cast iron objects ranging from frying pans to engine blocks at one time or another.

This particular foundry produces a range of products, but specializes in ones needing a precise control of cooling temperatures to produce items that require toughness to absorb impacts and resist abrasion, such as teeth for soil-engaging agricultural implements.

A foundry of one sort or another has done business at this particular location for well over a century, although the current installation has more modern equipment.

It is in the news, and we’re discussing it here, because the Minnesota Pollution Control Agency ruled the business was not complying with the air pollution limits in its permit. The foundry has been ordered to limit production to less than half of capacity.

The owners have justifiable concerns about staying in business. The 100 employees worry about losing their jobs. Neighbors feel they have endured health-threatening emissions for too many years. They want strict enforcement of the law. City officials want viable businesses offering good jobs for blue-collar workers. No one wants large swathes of our city to be industrial wastelands.

There are no villains here. Economics tells us that producing products to meet human needs and wants often creates external costs to others, including air or water pollution or noise. Technologies change and so do standards. Outcomes acceptable in 1910 no longer are. Possible controls have improved, but are costly. People need jobs. Families need places to live free of health hazards. Cities need sources of tax revenue. Businesses need sites that are workable for their processes.

A facility such as this eventually being shut down is a frequent outcome of this situation. Its production capacity may be replaced by a new one on a greenfield site in an industrial park in some suburb. But to do this, the owners must eat substantial losses on their investment in the current site. Yet considering all angles, it often is more cost effective to start from scratch than to retrofit an existing facility.

A century ago raw materials arrived by train. Finished products left the same way. Workers arrived and went by streetcar. Parking or truck access was not an issue. Pollution was deemed unavoidable.

Compared to the 38-acre Koppers plant that produced metallurgical coke and other products by distilling coal in St. Paul’s north Midway area, this foundry was a tiny source of pollution. The sprawling American Hoist crane factory, once just across the river from downtown St. Paul, had its own foundry many times larger than this one, as well as furnaces to heat steel for massive forges that hammered out winch and hoist components. The Como shops of the Northern Pacific Railway also had a larger foundry than this stand-alone shop and a forge in addition to boiler cleaning facilities that belched soot and dumped caustic chemicals.

Then there was the enormous and noxious meat-packing complex a few miles downriver, not to mention tens of thousands of houses and shops heated with coal.

All of this is gone. Koppers became Energy Park. The NP shops now are Bandana Square. American Hoist became a set of modern office buildings and parking lots. Most heating uses natural gas. Except for large areas of unused land remaining in South St. Paul, most of the 19th century industrial sites currently are occupied by prospering businesses. These employ thousands of people, most of whom earn more than the national average.

St. Paul as a whole is an economic success, unlike countless cities around the Great Lakes or in the Ohio River valley that lost plants 20 to 40 years ago and have yet to recover. But nearly all the jobs are white collar. Most require some level of post-secondary education. The holy grail of “good jobs at good wages” for manual workers remains hard to attain.

What role, if any, is there for government outside of enforcement of existing laws? Libertarian-leaning people may see this as a situation where market forces are impelling a process of “creative destruction” in which an economy adapts to changed circumstances without government intervention. Others will see “information problems” in which a lack of data or insights keep self-satisfying people and businesses from seeing opportunities. And there are large “transaction costs” in transforming a 19th century industrial site into one for the 21st century.

For better or worse, states, and particularly cities, compete with each other in securing businesses and jobs. Thus some assume part of the costs of existing businesses meeting pollution, health and safety regulations. More frequently, cities absorb the large costs of clearing away abandoned facilities, cleaning up toxic waste, assembling multiple small tracts into ones large enough to serve modern industries and installing infrastructure like streets, wastewater handling, surface drainage, rail and road access and utilities.

This is usually done through quasi-government entities like the “port authorities” found even in landlocked desert cities. These entities are structured to avoid many of the statutory limitations on local governments per se, especially in terms of taxation and financing. Some are true economic successes. Many others achieve visible results with murky underlying finances. Some are fiscal dud bombs like those in German cities that may explode without warning decades later.

One feature of U.S. local government is the multiplicity of small municipalities and sundry units of government-like watershed districts. These allow businesses to play one city off against others, even in the same metro area, in terms of the amount of public money spent or put at risk in the redevelopment of existing land. There are economies of scale in all this. Larger suburbs can steamroll tiny ones. Economists and good-government political scientists are aghast, but no one has a viable way to change the status quo. It is a prisoner’s dilemma. Any unit of government that does not play the “economic development” or “industrial re-development” games gets steamrolled by those that do.

Is there any upshot to all this other than platitudes? Perhaps not. Econ profs may point out “external costs,” “imperfect information,” “economies and diseconomies of scale,” “transaction costs” and many more concepts in their discipline. State regulators have to make hard decisions on how to meet their statutorily mandated duties, balancing the needs and wants of business and residents. Business owners must decide whether to stay or go based on details in either alternative.

Finally, it is yet another situation in which those with most at risk, blue-collar jobholders or neighbors facing unhealthful environments, are from the poorest and most disadvantaged groups in society.

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St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.