RALEIGH – If taxes don’t affect a state’s economic competitiveness, what does?
The question is apt because so many North Carolina politicians and political activists deny that billions of dollars in tax increases enacted earlier this decade, by the General Assembly and a number of local governments, do not explain the state’s relatively weak economic performance afterward.
I disagree. But for the sake of argument, say that they’re right, that state and local taxes don’t take a large-enough bite of household and business income to wreak significant havoc on the economy. There are several other factors that, surveys show, matter a lot to economic decisionmakers. Let’s review them, and what North Carolina leaders have been doing about them in recent years.
Take energy prices. The cost of electricity, natural gas, or other energy sources is always a concern in any business operation, but for some industries – such as manufacturing – it can make the difference between an economic and uneconomical operation.
Over the past several years, the North Carolina General Assembly has had several occasions to make its views known about energy prices. A clear majority expressed its view that energy prices are too low. The Clean Smokestacks Bill and last year’s Senate Bill 3 both raised the price of electricity, purportedly to achieve environmental benefits. The benefits, if any, will be minuscule. As the Wilmington Star-News reported yesterday, Progress Energy has just filed a request for a 10 percent rate hike next year, much of it tied to complying with environmental laws it supported. The company received assurances that it could pass the higher costs through to consumers.
Okay, well, maybe neither taxes nor energy prices affect competitiveness. Let’s try something else. Most academic studies of state economic performance attribute the Southeast’s strong growth during the last quarter of the 20th century to lower labor costs. Companies found that by moving southward, they could find hard-working employees in right-to-work states where union bosses were prevented from creating official labor cartels to push wages above their market level.
North Carolina has one of the lowest rates of unionization in the United States. To many state policymakers, that’s a problem, not a selling point. They’ve endorsed formal collective-bargaining rights for the State Employees Association of NC and the NC Association of Educators – which would not only jack up the cost of public-sector labor but also create momentum for private-sector unionization. Many have also endorsed weakening or eliminating the right-to-work statute itself, and the passage of a federal bill – flippantly referred to as “card check,” but more accurately described as Big Labor’s “bully bill” – that would eliminate the secret ballot in union elections and replace it with a public card letting organizers know who has and has not voted to unionize.
We’ve seen the future of unionized firms pricing themselves out of the worldwide labor market. It’s call Detroit.
Wait, some defenders of the status quo might insist, it’s the quality of labor that really matters, not its price. North Carolina can afford to impose higher prices for energy, labor, and earning income in the state as long as we produce highly skilled workers who can fill the jobs of the future.
The problem is that few of the policies they advance to improve worker quality, such as across-the-board pay increases for teachers or massive subsidies for public universities, are aimed at the right targets. North Carolina’s average teacher pay is already generous by national standards (when accurately measured). Most future workers in North Carolina will not and need not be graduates of four-year colleges. The real solution is an education system that rewards individual achievement, for both students and teachers, while allowing a choice of multiple learning environments designed to meet their diverse needs, including job skills high-school graduates need to compete. As JLF’s Terry Stoops explained in a new Spotlight paper, North Carolina devotes relatively little to effective vocational and technical training.
“Given the demand for these workers, North Carolina’s public schools will need to offer more intensive and extensive programs in allied health, management, business, accounting, sales, food service, and various trades in order to meet the demands of the job market,” Stoops said. “Institutions of higher education will play a role, but elementary and secondary public schools will have, by far, the heaviest burden in preparing North Carolina’s future workforce.”
The state’s politicians keep saying they want to make North Carolina more competitive. They have a funny way of showing it.
Hood is president of the John Locke Foundation