Utah’s New Commonwealth Economy

Thomas G. Alexander
Utah, The Right Place

Utah suffered the stagflation (inflation and economic stagnation) and succeeding recession that began in 1979 during the Carter administration, which left the state with a rising unemployment rate that reached 9.2 percent in 1983. The Reagan reelection campaign undoubtedly benefited from the decline in unemployment to 6.5 percent in 1984. Thereafter, Utah’s unemployment rate continued to decline to 4.9 percent in 1989. Even during the national recession of 1991–92 Utah’s unemployment rate ranged consistently below 4.9 percent until late 1992, when it topped 5 percent. At the same time, the national unemployment level ranged consistently above 7 percent, reaching 7.7 percent in the summer of 1992 until it dropped below 7 percent, eventually reaching 5.9 percent in late 1994. By mid-1995, Utah’s unemployment rate ranged between 3 and 4 percent.

In large part, Utah’s vigorous economic performance resulted from a basic alteration in the structure of the economy. Between 1900, when the LDS church withdrew as a major force in Utah’s economic growth, and the 1930s, when the federal government began to invest heavily in Utah’s economy, the Beehive State’s colonial economy prospered at the sufferance of absentee—generally eastern—capitalists. During the 1930s and World War II, a second strain of colonialism infected Utah as the federal government became a major absentee employer. By 1950, Utah looked like the typical postwar colonial Rocky Mountain state. In 1950, Utah relied heavily on extractive industries such as mining and agriculture, as well as transportation and government.

By 1988, all of that had changed. Extractive industries such as agriculture and mining had declined in importance in the state. Mining had declined to 1.2 percent of the nonagricultural labor force. While still employing Utahns at a rate well above the national average, mining no longer dominated the economy as it had before 1950. Only government employment in the new colonial economy remained as a major vestige of the colonial pattern. But even by 1992, government employment in Utah had diminished to 20 percent, the same as the national average.

Utah’s economy changed like spring weather. During the 1950s, Utah depended heavily on the federal government, largely because of salaries at Utah’s bloated defense installations. During the late 1980s and early 1990s, Utah’s federal presence slimmed down as transfer payments, including Social Security and Medicare, became increasingly larger portions of federal outlays and as federal government reduced the size of the military. In 1987, Utah ranked in the middle of the states in volume of federal payments receiving $3,304 per capita, slightly less than the national average of $3,392. By 1949, Utah’s receipts from the federal government had shrunk relatively to $4,011 per capita, which placed it forty-fourth among the states.

During the late 1970s, a new commonwealth economy emerged from the essentially colonial economy of the 1950s and 1960s as Utah entrepreneurs generated much of the state’s growth internally. By the late 1980s, Utah had developed a postindustrial and postcolonial economy that others might have envied.

An analysis of the twenty-four largest employers in the state in 1992 reveal the dimensions of Utah’s neon-lit commonwealth. Of the top 24, three are federal installations—Hill Air Force Base, Internal Revenue Service Center, and Tooele Army Depot—representing the new colonial economy, with a total employment of 27,342. Of the remaining 21, however, only five firms—Thiokol, Delta Air Lines, US West, Kennecott, and Hercules—are controlled from outside Utah. They are the major vestiges of the old colonial economy. The other sixteen largest employers with a total of almost 100,000 workers are local, and they represent the new commonwealth economy.

Most significant has been the growth of a group of electronics and other high-tech firms in Wasatch Front cities. Provo plays host to 1983-founded Novell, which employed 1,200 in 1990 and which has become one of the nation’s major computer network developers and suppliers. Unisys of Salt Lake City employed nearly 2,300 in the development of hardware and software for mainframe computers and communications systems for the Defense department and other agencies. Evans and Sutherland of Salt Lake employed 300 people who design computer hardware and software for use in graphics applications and flight simulation. Iomega employed nearly 1,000 in 1990 at its plants in Roy, where it produced and supplied various types of computer hardware, especially its Bernoulli removable hard disks and tape backup systems.

These developments have benefited from the location of four of Utah’s other major employers—Brigham Young University, the University of Utah, Utah State University, and Weber State University—each with excellent computer science, scientific, and engineering programs. The universities provide a faculty of consultants educated at some of the major institutions of the world.

Responding to changes in the economy represented by these high-tech businesses, the composition of manufacturing employment changed dramatically. Although the percentage of those employed in manufacturing remained at about the same level over the forty years from 1950 to 1990, the type of manufacturing changed strikingly. In 1950, where virtually all major manufacturing resided in the colonial economy consisting principally of the primary processing of metals and agricultural products, electronic and aerospace manufacturing came to predominate by 1990. Processing of food products declined from 16.7 percent of manufacturing earning in 1960 to 8.4 percent in 1989. Primary metals manufacturing dropped over the same period from 24.2 percent to 7.7 percent of earnings. In their place the production of electronic equipment expanded from 1.8 percent to 13.2 percent of manufacturing earnings. At the same time the manufacture of transportation equipment—largely aerospace related—expanded from 14.6 percent to 21.3 percent of manufacturing earnings. Much of the aerospace manufacturing has been carried on by two colonial companies at plants in Box Elder and Salt Lake Counties: Hercules, near West Valley City, and Thiokol, a major contractor on the space shuttle.

Some of the heavy manufacturing previously dominated by outsiders has closed or has been acquired by local entrepreneurs. Many of Salt Lake County’s smelters have closed. Geneva Steel, owned by USX until 1987, was purchased by a group of Utah natives headed by Brigham Young University graduate and former Environmental Protection Agency (EPA) executive Joseph Cannon. Although the company’s stock is traded on the New York Stock Exchange, its management remains local rather than colonial.

Moreover, instead of increasing Utah’s dependence on outside colonialists, even those companies that have moved sizable operations to the Beehive State in recent years while contrasting with the emerging commonwealth economy have contributed to its independence. Until the 1970s, people could fly anywhere in the world from Salt Lake City as long as they changed planes in Denver, a United Airlines hub. Then, Atlanta-based Delta Air Lines, one of the world’s major carriers, acquired Western Airlines and located one of its national hubs in Salt Lake City. This decision, together with service by a large number of national and regional carriers, has increased the accessibility of Utah’s Wasatch Front market to business and tourist travelers. Aggressive cut-rate marketing by Morris Air, locally owned until its acquisition by discount-competitor Southwest in 1994, has helped to hold down airfares out of Salt Lake International Airport as well.

Significantly, a number of Utah-based businesses have followed the pattern of previous colonial enterprises to become colonialist themselves. Examples include Huntsman Chemical Corporation, headquartered in Salt Lake City, with business interests throughout the world; Mrs. Fields’ Cookies, with corporate offices in Park City and sales outlets in malls everywhere; Nu Skin International, an aggressive cosmetics firm headquartered in Provo; and Iomega, with subsidiaries in Connecticut and elsewhere.

At the same time, these developments have spawned a host of locally owned companies providing services to other Utah businesses and households. Particularly significant has been the expansion of finance, insurance, and real estate, which grew from 3.4 percent of nonagricultural employment in 1950 to 5.1 percent in 1988. Led by First Security Corporation, under the direction of Utah native Spencer F. Eccles and one of the state’s largest employers, these locally managed sources of financing have expanded since World War II.

A second—and clearly important—change has been the rapid growth of services that expanded from 10.9 percent of the nonagricultural labor force in 1950 to 23.6 percent in 1988. Although it may be fashionable to ridicule the growth of service industries as creating minimum-wage jobs by flipping hamburgers at McDonalds and changing sheets at Holiday Inn, the conditions of Utah’s new commonwealth economy reveal a much different pattern. A survey of change in the service sector between 1977 and 1982 showed that instead of fast-food employees, the major growth had taken place in engineering, architectural, and surveying services; legal services; and accounting.