RALEIGH – As is becoming evident, the national economic slowdown has not been an equal opportunity un-employer. Some regions and states are suffering more pain than others, North Carolina among them. That’s one reason why, a year after one of the largest tax increases in state history, we face another budget deficit approaching $1 billion.
There will be no shortage of potential explanations advanced for our state’s change of fortunes. Until recently, our low unemployment rate was the envy of the Southeast; now it tops the region and exceeds the national average for the first time since the 1980s.
Some will say that trial lawyers are to blame for suing the tobacco companies. Some will blame former politicians for wasting their time with trivialities like the Global TransPark and the North Carolina Information Superhighway (remember that?) Some will blame NAFTA (incorrectly, I might add). And some will cite our state’s burdensome tax and regulatory structure for discouraging the kind of new investment North Carolina needs to replace lagging industries with new ones.
The latter argument gains credibility when you compare North Carolina’s industry mix with that of our neighbors. Simply put, we have put too many eggs in a few baskets. Despite our reputation as home to some of the nation’s largest and most aggressive banks and investment firms, North Carolina political leaders haven’t learned the value of diversification.
According to U.S. Bureau of Economic Analysis data for 1999, North Carolina exceeded most states in the share of our state economy devoted to manufacturing. For years, state boosters have celebrated this fact, citing the higher average salaries of manufacturing workers vs. those in other areas (a gross oversimplification of reality, by the way, since supposedly low-paid service workers include the ranks of nurses, paralegals, and financial planners).
However, manufacturing tends to swing more wildly during recessions than other sectors do. Moreover, even within manufacturing, our state economy has built up a risky reliance on a few industries. In 1999, just over half of our manufacturing basis (51 percent) was devoted to just four top industries: chemicals, tobacco products, textile mill products, and electronic equipment. In Georgia, and Virginia, to take two examples, the comparable percentages are all in the low to mid 40s.
In order to diversify our economic portfolio, North Carolina will have to attract a variety of industries, both in manufacturing and in other sectors. We’ll have to do it not by central planning, which is foolish and unconstitutional, but by fostering entrepreneurship in addition to hunting for big industrial buffalo. And we can’t simultaneously seek entrepreneurship while chasing away entrepreneurs – who are wealthy or at least hoping to be in the future – with confiscatorytaxation, poor public services, and class warfare.