I’ve been looking at North Carolina’s economy a lot recently. The state has a fascinating economic history that has gone through several transformations to bring us to where we are today.
Our recent history is a picture of pluses and minuses. On the plus side, North Carolina has grown faster, both totally and per person, than the nation in the last quarter century. We’ve moved closer to the national average in measures such as personal income, and some say we’re already there when our lower cost of living is factored in. We’ve seen industries such as technology, pharmaceuticals, and banking prosper and become leaders in the national marketplace.
But on the downside, the industries that carried North Carolina throughout most of the 20th century — tobacco, textiles, and furniture — are now contracting both in production and employment. Communities still relying on them are struggling to stay afloat.
With this picture, what’s North Carolina’s “ace in the hole” that will give us the winning hand in today’s global economic race? What is the major ingredient, or ingredients, that are growing the economic pie?
Answering such a question is incredibly complex, and to an economist like me it involves analyzing mountains of data and inter-relationships for many years. I won’t bore you with the details of my investigation, but instead will present the highlights of the results.
The winning card in North Carolina’s hand seems to be her people, and specifically the industriousness and efficiency of our workers. The key factor for businesses is not what workers cost, but what workers can produce in comparison to their costs. So a worker who is twice as expensive but creates three times as much output as a lower-cost worker is actually a bargain.
When measured by output produced per dollar of salary, North Carolina workers are 10 percent more valuable than their national counterparts. In my analysis of the North Carolina economy, I found worker productivity to be one of the key determinants of the state’s economic growth since the late 1970s.
Interestingly, however, the state’s edge in worker productivity appears to be a much more important factor for growth in the new industries of technology, pharmaceuticals, vehicle parts, and banking than in the traditional sectors of tobacco, textiles, and furniture.
What about international trade? Much has been written about the negative effects of globalization and trade deals on the North Carolina economy.
Here I found a clear split between the old and new North Carolina economies. Globalization, either in the form of lower tariffs or increased commerce with China, has adversely affected production and employment in tobacco, textiles, and furniture. But the expansion of world trade has actually enhanced production in several of our “new economy” industries.
Praise also should go to North Carolina’s efforts to improve educational outcomes. Various measures of educational performance, such as SAT scores and other nationally administered tests, have shown impressive gains for North Carolina’s students in the last 25 years. These efforts appeared to have paid off, in that I found a strong statistical link between economic and educational performance in the state.
In the end, my work reinforced a longstanding conclusion. The strength of an economy ultimately comes down to one factor — people. Well-trained, energetic, and high-performing workers are the key to a growing economy. People make the economy tick!
Michael L. Walden is a William Neal Reynolds distinguished professor at North Carolina State University and an adjunct scholar of the John Locke Foundation.