Economic Outlook – October 2006
25 years made a world of change for economy
Michael Walden has monitored changes in North Carolina’s economy since joining N.C. State University’s faculty in 1978. A professor in the Department of Agricultural and Resource Economics, he prepares The North Carolina Economic Outlook, a semiannual forecast. In 2008, the University of North Carolina Press will publish The Modern North Carolina Economy: Origins and Prospects, his analysis of how it has evolved over the last 30 years.
BNC: What was North Carolina’s economy like in 1981?
Walden: It was very much dominated by tobacco, textiles, apparel and furniture. They made up 20% to 25% of the state economy.
How has it changed since?
Globalization has been very important. Deregulation of the economy has been important. Physical labor has become less important. Brainpower has been more important. The big four maybe collectively account for 5% to 8% of the state economy now. Industries like technology, pharmaceuticals, banking, food processing, vehicle parts and tourism have risen to take their place.
When was the tipping point?
In 1994. That’s when the North American Free Trade Agreement took effect and the General Agreement on Tariffs and Trade was updated. They dramatically impacted the traditional North Carolina industries. The protection that a lot of those industries, particularly textiles, had from foreign competition eventually ended. That’s been responsible for a lot of the movement of those industries.
How was deregulation important?
When the regulations limiting banks — both geographically and in terms of the services they offer — were removed, that spurred a tremendous jump in bank mergers. North Carolina banks, which had enjoyed some freedom within the state to operate, were well positioned to take advantage of that.
What in your research surprised you?
Two things. The conventional wisdom has been that globalization has hurt the North Carolina economy. Clearly, globalization has hurt the old North Carolina economy — tobacco, textiles, apparel, furniture. But many of the new North Carolina industries appear either to have not been adversely impacted by globalization or may have been helped by it.
The other surprise?
How prominent some of these new industries are. Banking alone accounts for 8% of the state’s economy. That’s a tremendously high figure. Another that comes to mind is vehicle parts. The press puts emphasis on South Carolina, for example, attracting foreign vehicle-manufacturing companies. North Carolina has not won any of those, but we have seen growth in parts production.
Those assembly plants in South Carolina have helped. Vehicle makers, generally speaking, want parts producers to be close.
What’s the downside of the economy relying so heavily on banking?
What if big discount retailers like Wal-Mart and Costco get that barrier between banking and commerce removed so they can move into banking? Wal-Mart is trying to do that. That’s a potential threat to our banks.
Many of the “big four” jobs lost were in rural regions. Any bright spots there?
Food processing, poultry and hogs. Those two at the farm level exploded over this time period. And those slaughterhouses are primarily located in the rural areas.
What about immigration?
It has helped the private economy by providing low-wage workers in sectors where there was a demand for workers. It has helped moderate prices for products. But the immigrants have been using more public-sector resources than they’ve contributed in taxes. Altogether, there is a net benefit.
Aside from education, what tools can the state use to adapt its economy?
The tax system is becoming more important to look at because we are in such a competitive environment. Businesses are much more footloose. Is the system one that encourages entrepreneurship and business location? At the same time, we need a system that raises revenue adequate to provide services like roads and education that business needs.