RALEIGH – North Carolina businesses compete with businesses in other states and countries for capital, labor, and customers. That means that the fate of North Carolinians seeking to gain and hold jobs in our state is bound up in the competitiveness of North Carolina’s economy.
In other words, the cost and quality of such business inputs as labor, land, infrastructure, and raw materials aren’t just important issues for business executives or investors to consider. They have a direct bearing on the ability of North Carolinians to pay their bills and improve their lot.
In some measures, North Carolina remains attractive for business start-ups and expansions. Our right-to-work law keeps unions from coercing workers into costly labor cartels. The condition of our highway system has improved somewhat in recent years. And land prices remain relatively low in North Carolina, at least compared with states of similar size and amenities.
On the other hand, we suffer from comparison to other states and nations on such measures as government cost, entrepreneurship, and educational attainment (on educational achievement, measured by test scores, we are about average). Partly as a result, North Carolina’s economic performance remains a laggard, not a leader.
As I have previously observed, Democratic Gov. Beverly Perdue and the Republican-led General Assembly can’t afford to make public policy decisions – on issues such as the state budget gap and Medicaid, for example – without paying attention to what is going on elsewhere.
North Carolina is not an island insulated from competitors by a large ocean, or even a castle protected from competitors by a small moat. We are a market town on a wide open plain, a place where people are free to come and go as they please – carting their ideas, their earnings potential, and their money with them.
North Carolina can’t build walls to keep people from leaving. Within the United States, such trade restrictions are prohibited by the interstate commerce clause of the U.S. Constitution (that’s what it originally meant). On the international scene, attempts to protect North Carolina companies and workers from competition would be doomed to failure if not counterproductive.
Several recent stories in the Wall Street Journal illustrate why North Carolina’s leaders must pay attention to trends outside our borders if they want to maximize our potential for economic growth and job creation. More than half of state governments, for example, are currently petitioning the Obama administration to grant them waivers to fix their fast-growing Medicaid programs. Previous laws already limited the flexibility of governors and legislators to reform Medicaid, and last year’s ObamaCare legislation freezes current policies in place in a “maintenance of effort” requirement.
Essentially, if states want to save money in Medicaid, they can cut a few optional services and tweak reimbursement rates. But they can’t adjust eligibility rules or make fundamental changes in the structure of the program. Just about every Republican governor has publicly requested relief from these constraints, according to the Journal, and several Democratic governors have done the same thing, albeit quietly.
Unfortunately, Gov. Perdue does not appear to be one of those governors.
In another area, however, Perdue is keeping North Carolina in the mix: cutting corporate income taxes. Her budget plan would slice the state’s rate to 4.9 percent over two years, down from 6.9 percent. That would be most welcome, from a tax-policy perspective, but other states are being even more aggressive. Florida and South Carolina, for example, are considering proposals to phase out their corporate income taxes entirely.
The national media continue to report, as recently as last week, that North Carolina has one of the largest projected budget deficits in the United States. The statistic is outdated – and was always a bit questionable – but nevertheless North Carolina lost its reputation for fiscal restraint long ago.
Restoring that reputation would be a tremendous boost to the state’s economic competitiveness. It can be done, as long as our leaders exhibit courage and diligence over the next four months.
Hood is president of the John Locke Foundation.