RALEIGH – Politicians and policy analysts across the ideological spectrum say that they want North Carolina to be a more attractive place for small business and entrepreneurship. If they are serious about that goal, I have a to-do list for them.
It is based on the seemingly radical notion that if you want entrepreneurs to hang around with you, you should stop punching them in the face. Don’t confiscate a higher percentage of their income than competing states do. Don’t talk a good game about small business while taxing them punitively and exempting big business from the tax base through government subsidies and targeted tax breaks. If you want investors and entrepreneurs to help you create jobs and economic opportunities, don’t recycle old Marxist claptrap about class exploitation, old Keynesian claptrap about the superiority of consumption over saving, or flat-earth thinking about trade and commerce.
Those are some don’ts. Let’s be positive and focus on the dos.
1. Do make a concerted effort to improve the quality of North Carolina education. That means setting higher standards for the public schools, measuring progress with reliable independent tests rather than the state’s pathetic approximations. That means spending fewer tax dollars on policies that have no proven success in boosting academic performance – such as teacher assistants, Smart Start, class-size reductions in upper grades, and big pay raises to teachers based simply on longevity or accumulating credentials. That means spending more tax dollars on policies likely to make a meaningful difference in outcomes – such as merit pay for excellent teachers, class-size reductions in kindergarten and first grade, targeted interventions for desperately poor and neglected preschoolers, and school-choice programs.
2. Do address North Carolina’s traffic-congestion crisis. That means focusing scarce transportation dollars first on communities and corridors where the investment is likely to generate the greatest returns in highway safety, saved time, and economic dynamism. That means reforming the Department of Transportation’s policies, organization, and governance. That means forgoing wasteful and outdated rail-transit projects in favor of transportation alternatives that many North Carolinians will actually use (including sensible bus transit and telecommuting). That means telling powerful rural lawmakers no when they try to tap the Highway Fund and Highway Trust Fund for wasteful projects designed to attract traffic where little exists. Tackle current and projected traffic first.
3. Do reform the way North Carolina agencies issue and enforce regulations. Good intentions aren’t enough. There must be a reasonable expectation of net public benefit. Recent regulations such as the Clean Smokestacks Bill did not come close to meeting such a test, nor would proposed state policies regarding climate change. Moreover, use regulations to protect public health and safety, particularly in the commons (air and water) where property rights are difficult to define and enforce, rather than to advance the lifestyle preferences of a small but vocal Smart Growth elite at war with clear consumer preferences and human nature.
If North Carolina state and local government agencies do their proper jobs well, at an economical cost, we will be an attractive place for entrepreneurs and investors to create new business enterprises. Don’t take my word for it. Two economists, Noel Campbell of the University of Central Arkansas and Tammy Rogers of North Georgia, recently studied state-by-state variations in new business formation. In a paper published in the current issue of Cato Journal, Campbell and Rogers concluded that economic freedom – measured with an index that included data on government size, tax rates, and regulation – was highly correlated with entrepreneurship. An increase of one standard deviation in the economic-freedom index was associated with a 20 percent increase in the share of net new firms within a state economy. “We conclude that the effects of increasing economic freedom in a state trump any other effect we discovered,” they wrote.
This study in just the latest addition to an impressive body of research connecting the health of a state’s economy with the extent to which its government limits itself to basic functions and keeps its tax and regulatory costs low. North Carolina leaders can continue to attempt to fool others, and perhaps even themselves, about our recent economic performance. Or they can starting working their way down the to-do list.
Hood is president of the John Locke Foundation.