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State Will Keep the Change
By John Hood

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Oct. 20th, 2014

RALEIGH — In 1925, advertising executive and future Congressman Bruce Barton wrote the book that made his national reputation, The Man Nobody Knows. In it, he imagined what Jesus Christ would be like if he resided in the modern world. Barton drew lessons from his thought experiment about business, personal relationships, self-improvement, and charity.

“When you are through changing,” Barton once observed, “you are through.” By this standard, I would submit, North Carolina is far from through. We’re just getting started.

Two snapshots in time illustrate the point: 1963 and 2013. Over those five decades, North Carolina saw its population more than double, to 9.8 million people, and its per-capita income grow by 164 percent in inflation-adjusted terms, to nearly $39,000. Growth wasn’t the only form of change the state experienced. For example, North Carolina’s economy looks quite different today than it did a half-century ago.

In 1963, manufacturing accounted for about 40 percent of the state’s gross domestic product and a similar share of the state’s workforce. While North Carolinians produced some durable goods, especially furniture, most of their manufactures were nondurable goods such as tobacco products, textiles, and apparel.

Real estate, banking, insurance, and other financial services made up 10 percent of the state’s economy in 1963, while employing about 1.5 percent of the workforce. Government at all levels accounted for 12 percent of GDP, split almost evenly between federal spending and state/local spending. With regard to jobs, governments employed 14 percent of North Carolinians in 1963, the vast majority (11 percent) in state and local government. Although still a largely rural state, North Carolina had by 1963 already seen dramatic shrinkage in farming as a share of both economic output and employment.

Fifty years later, manufacturing now accounts for about half as much of North Carolina’s GDP (21 percent as of 2013) and just 11 percent of state employment. Real estate and financial services are now almost as consequential as manufacturing in terms of output (19 percent of GDP) and employ 4 percent of the workforce. More than two-thirds of our private economy today is made up of service industries rather than goods-producing industries. The two sectors were more comparable in 1963.

As for government, it’s also a bigger slice of our economy than before. It now accounts for 14 percent of North Carolina’s GDP and 18 percent of employees, the vast majority of whom (16 percent of the total) work in state agencies and localities.

Recognizing how much North Carolina has changed over the years, some politicians, journalists, and policy analysts draw the erroneous conclusion that there was something unique about our state that allowed for or produced these changes. It’s concept I like to call North Carolina Exceptionalism. As attractive as the theory may be, it is simply contrary to the facts. Other states experienced significant economic and social transformations over the past 50 years, too. Indeed, much of the Southeast underwent changes similar to those in North Carolina. In-migrations led to population explosions. Average incomes and living standards surged. Traditional industries faced increased competition and came to be displaced by new ones as major producers of employment and output.

From 1963 to 2013, average per-capita incomes in the Southeast rose by precisely the same rate — 164 percent — as in North Carolina. Other measures also show similar trends for our state and our region in the long run. Of course, statistical convergence in the long run doesn’t mean there weren’t fluctuations in the short run. Generally speaking, North Carolina’s economy lagged behind the rest of the Southeast during the 1960s and 1970s, outperformed the region during the 1980s and 1990s, and then lagged behind again during the first decade of the 21st century. Some of this was essentially happenstance. But some of it was caused by the good or bad decisions of generations of leaders in North Carolina and our neighboring states.

“Action and reaction, ebb and flow, trial and error, change — this is the rhythm of living,” Bruce Barton wrote. “Out of our overconfidence, fear; out of our fear, clearer vision, fresh hope. And out of hope, progress.”

John Hood is chairman of the John Locke Foundation.


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