Is North Carolina losing its once-lofty perch?

Question becomes key in race for governor

jstancill@newsobserver.comSeptember 15, 2012 

In the latter half of the 20th century, North Carolina rose above much of the South, becoming a beacon of educational and economic opportunity that fueled new prosperity in a traditionally poor, agrarian state.

Now, as North Carolina slowly wakes up from the Great Recession, unemployment is stubbornly high at 9.6 percent, income levels are down and the poverty rate has spiked since 2000. Some are asking the inevitable question: Have we slipped?

The debate is under way in every corner of the state as election season builds to a conclusion. It is central in the campaign for governor.

Republican frontrunner Pat McCrory offers himself up as a lower-tax alternative to what he calls “the good ol’ boy, good ol’ girl” network that has run the state in the last decade.

North Carolina, McCrory says, has been resting on its laurels.

“We seem to be living in the past,” the former Charlotte mayor says. “Often what I say across the state and what I hear from businesses is that we’re living off of our past brand – a very positive brand – but the brand has gotten old and stale, and it hasn’t been updated with a new vision.”

McCrory says people are shocked when he tells them North Carolina has the fifth-highest unemployment rate in the country. “That’s a broken economy and broken government,” he says.

Lt. Gov. Walter Dalton, the Democratic nominee, takes issue with that gloomy declaration. National rankings continue to laud North Carolina as a top-five state when it comes to business climate because of its workforce training and the overall low cost of operating in the state, particularly when compared to states that have both higher tax burdens and large numbers of unionized workers.

If the state is losing its edge, Dalton says, it’s due to decisions by the Republican-led legislature in the past two years to cut funding for economic recruiting and the state’s universities. Continuing on that path, he adds, will erode the accomplishments of past visionaries such as former Gov. Terry Sanford, who oversaw the creation of the state’s large community college system.

“If we tear down our foundation, it’s going to be harder to get back our edge,” Dalton says. “It takes longer to build back than it does to tear down.”

Some 6,000 university students lost their state financial aid last year because of cuts, Dalton points out.

“That is against the DNA of North Carolina,” he says.

Forward thinking

Measures of the state’s well-being paint a mixed picture, say experts who’ve studied North Carolina’s past and current conditions.

“The state is on an up escalator and a down escalator simultaneously,” says Ferrel Guillory, director of UNC Chapel Hill’s Program on Public Life.

On the up side, the state’s spending on higher education and targeted programs in public schools such as pre-kindergarten and early college have boosted educational levels of North Carolina’s people. Nearly 85 percent of adults have at least a high school diploma, and the high school graduation rate hit an all-time high this year.

North Carolina’s well-regarded public universities and community colleges helped give birth to new sectors in the state’s economy – pharmaceuticals, biotechnology and computer technology. Video game development is a hot new focus.

Gov. Bev Perdue says North Carolina created Research Triangle Park half a century ago when no other state dared to try such a thing.

“You had leaders from the public and the private sector who could dream a bigger dream for North Carolina,” she says. “They had those audacious ideas for this state, and they put their money together and took some long-term risk. ...We transformed the economy around people with big, bold ideas.”

That kind of thinking is still happening, Perdue says.

She cites the state’s virtual public school, the second-largest in the country, and the technology advances made with the recent Race to the Top federal education grants.

Today, the state has a AAA bond rating, its metro areas have boomed and the economy has diversified after years of decline in the manufacturing mainstays of textiles and furniture.

Outsiders are seeing good things ahead.

In June, TD Bank, in a national economic forecast, singled out North Carolina, saying the state is about to flex its economic muscle. New high-tech manufacturing jobs are on the rise, providing better opportunities for those who have the skills.

“North Carolina’s economy is already outperforming the nation and it is well poised to widen that margin in 2012 and 2013,” the report says. “The engines of state growth are in high-value sectors like manufacturing, finance and professional and business services. The dominant influence of these sectors in fueling state growth reinforces North Carolina’s industrial transition towards becoming an innovation-based economy.”

Rural areas suffer

Yet trouble persists. North Carolina has been slow to recover from the national banking and housing crisis that plunged the nation into recession at the end of 2007.

Even as the state’s economy faltered, waves of people from other states kept coming, perhaps drawn by the perennial “best place” rankings by national magazines. But the jobs had dried up.

North Carolina, in effect, was importing unemployment, only worsening its predicament.

“We have almost 20 percent more people than we had in the state in 2000 and we’ve created 0.3 percent more jobs,” says Peter Coclanis, a UNC history professor and director of the Global Research Institute. “That’s a pretty stunning indicator.”

The remaining jobs aren’t the ones of the past that provided a pathway to the middle class for marginally educated citizens. Those good factory jobs have vanished. In their place are minimum-wage service jobs, or no jobs at all.

Big forces are also changing North Carolina’s prospects. The state has an aging workforce, and its young people include a much larger share of minorities. Globalization and technology are transforming the workplace, requiring more education and training beyond high school.

New opportunities spring up, but workers need to prepare for them, says Mike Walden, an economist at N.C. State University.

“We need more education; we need people getting more education; we need people acquiring skills, because you really need that to function in this kind of economy,” Walden says. “If you have not done those things, you are going to probably end up classified as poor.”

North Carolina did a lot right in previous generations, Coclanis says. “We’ve been strategic in betting on high-growth industries that have succeeded. We’ve had good public policy in terms of education. We’ve done a lot of innovation, even in rural areas. And we’re still where we are. It’s a very tough time.”

North Carolina had the largest economy in the Southeast in the mid-1950s, Coclanis says, and now the state is fourth behind Florida, Georgia and Virginia.

Other states are hitting the accelerator. North Carolina, which had been a “first mover” on many innovations, now finds itself at a disadvantage, Coclanis says.

“We were first in the South in a lot of things. But others have noticed this and are investing in some of the kinds of policies that we had, at the same time that we’re in danger of losing what had made us somewhat distinctive. That’s a problem.”

McCrory says governors of surrounding states are making aggressive moves while North Carolina is stagnating. He advocates cutting taxes and regulation to spur economic growth. Dalton touts investment in education that matches business demands for the jobs of the future.

The challenges are significant, especially in rural North Carolina.

“I think the situation is very bleak for much of the population of the state and many areas of the state,” Coclanis says. “I’m not sure that either party has the will to do much about that.”

Stancill: 919-829-4559

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