North Carolina was once called the “Rip van Winkle State” because of its allegedly backward and lethargic approach to economic development and progress. More recently, our state has gained a different reputation: as a dynamic leader of the New South’s economy and culture.
And even more recently, as I have discussed in some earlier writing for Carolina Journal, North Carolina’s economy has fallen back into old habits, nodding off due to the narcotic effects of high tax rates, a heavy and worsening regulatory burden, crumbling infrastructure, and other problems. Naturally, my neo-Winkle thesis wasn’t popular among some of the state’s political class, whose fiscal stewardship was implicitly — OK, I admit it, explicitly — questioned in my articles. They pointed to positive rankings of North Carolina’s business climate by national magazines, to testimonials, to the state’s latest incentives legislation(!), and to signs of growth and job creation during 2003.
Well, I’ve just updated the economic scorecard for North Carolina since the start of 2001. And it is true that the state hasn’t been completely isolated from the rest of the nation as federal tax cuts, lessening international tensions after the campaign in Iraq, and other macro factors have spurred recovery. Unfortunately, North Carolina continues to be a laggard, and by some measures there was no job growth at all in the state during 2003.
In other words, if Rip van Winkle has finally awakened from his deep slumber, he sure looks groggy and discombobulated.
Using seasonally adjusted data on employment from the U.S. Bureau of Labor Statistics, I found that total employment in North Carolina fell by about 1,700 jobs from January to December of 2003. The Southern states as a whole had a net gain of about 160,000 jobs during the year, with Florida, Georgia, Virginia, and Tennessee setting the pace. If you exclude government employment from the mix, where North Carolina (of course) has posted fairly healthy growth, the jobs numbers look a lot worse. North Carolina’s net loss from January to December was 4,700 while Tennessee added 10,000, Virginia 27,000, and Georgia a whopping 60,000.
Something similarly depressing remains evident in the personal-income data reported by the U.S. Bureau of Economic Analysis. From the 1st quarter of 2001 to the third quarter of 2003 (the most recent available), North Carolina’s personal income grew by 5.6 percent, still the lowest rate of growth in the region. Even Arkansas (9.6 percent), Mississippi (10 percent) and Louisiana (10.7 percent) posted significantly better income-growth numbers. And because these numbers address the total personal income in each state, they capture both income effects and population effects. When I adjusted for population (somewhat roughly, since I couldn’t find the data broken out quarterly), North Carolina’s income growth looked even more anemic: a 3 percent rise in per-capita income during the period, less than half the regional average of 6.2 percent.
Pointing these facts out does not settle the tricky “why” questions, and I’ll be the first to admit that. The phemonenon has no single cause. Gov. Mike Easley blames virtually all of this economic languor on international trade and its impact on manufacturing jobs. Certainly competitive pressures have led to job losses and bankruptcies in traditional industries such as textiles and furniture. But as I pointed out in the previous column, this effect is present in a number of our neighboring states, too. North Carolina has lost a sizable share (19 percent) of its manufacturing jobs since January 2001, but so have Virginia (14 percent), Tennessee (13 percent), and Georgia (13 percent), among others. The decline in manufacturing employment cannot alone explain North Carolina’s economic daze, nor can trade policy alone explain the manufacturing experience, given that plant owners themselves also blame tax rates, regulations, insurance costs, and other factors, some under the control of state and local policymakers.
Furthermore, a key diffference is that the non-manufacturing sectors in those states have been more vibrant in recovery than North Carolina’s, thus serving to offset more of their manufacturing job losses. I computed, for example, that if North Carolina’s non-manufacturing industries had added jobs over the past three years at the Southern average rate, that would have represented nearly 37,000 additional jobs — which would have significantly reduced North Carolina’s unemployment rate (to 5.2 percent in December from 6.1 percent in the seasonally adjusted rate, if all of the new jobs had been filled by the currently unemployed) and numerically offset a good portion of the job losses in manufacturing.
So why are North Carolina’s non-manufacturing private employers not experiencing the level of economic recovery of their Southern peers? I’m sure someone will rush to tell me that it’s George W. Bush’s fault. And I’d have to agree in part, because the president hasn’t cut federal taxes enough to offset the damaging impact of state and local tax increases that our politicians keep foisting on us down here.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.