In with the new

As any reader (or employee) of The N&O can tell you, the economic news coming out of North Carolina has been pretty dismal. Unemployment hitting 7 percent. Home foreclosures way up. Tax revenues way down. Wachovia Bank bought out.

Clearly, it's easy to be bummed out about our economic future. The gloominess brings to mind a comment an economist friend made when I asked him what development strategy he would recommend to the people of Eastern North Carolina.

After thinking a bit, he responded, "A one-way bus ticket and a bologna sandwich." Now that's bleak.

In the face of such despair Michael L. Walden's new book, "North Carolina in the Connected Age," is welcome indeed.

A professor in the Department of Agricultural and Resource Economics at N.C. State University, Walden is no Pollyanna. But his historically based, data-rich assessment of our economic problems and possibilities is sufficient to generate a margin of hope, if not frissons of excitement about the state's prospects. It is enough, certainly, to encourage strategies that evoke more than highways and hoagies.

Walden does three basic things here, and he does each of them well.

First, he provides an in-depth discussion of the drastic (no other word will do) transformation of the North Carolina economy since the early 1970s.

Second, he makes these complex changes comprehensible by reorganizing the state's 100 counties into 21 "commuting zones." Then he separates these into seven types of economies, each of which he analyzes and offers some careful and modest predictions about.

Third, he takes on the big economic issues in North Carolina today, laying out the principal policy options available and offering judicious recommendations about which ones make the most sense.

As Walden notes, the state's economy long revolved around three major industries -- textiles, furniture and tobacco. As late as 1977, the "Big Three" accounted for 20 percent of the jobs, 22 percent of economic output and fully 64 percent of manufacturing output in the state. By 2005, these same industries accounted for only 4 percent of jobs in North Carolina, 7 percent of output, and 32 percent of manufacturing output.

Fortunately for North Carolina, five other industries -- information technology, chemicals (pharmaceuticals mainly), food processing, banking and vehicle parts -- rose to take their place. By 2005 these industries accounted for 10 percent of all jobs in the state, 17 percent of total output and 43 percent of manufacturing output. In other words, the positions of the Big Three and what we might call the Big Five were largely reversed.

Well, so what?

At this point many readers are probably wondering what's the big deal about the Big Three or Big Five in any case. After all, even taken together, they only account for a small proportion of the jobs in the state.

True enough. But jobs, especially good jobs such as many of those in the Big Five, help to create many other jobs in other industries. Big Five workers need houses, schools and grocery stores, and they want movie theatres, coffee bars and government services. Many of the jobs created through this multiplier effect may not be top end, but many of the people filling them aren't highly skilled either.

Although there were numerous reasons for the decline of the Big Three and the rise of the Big Five, the principal ones were related to technological change and globalization.

North Carolina's Big Three, by and large, were all mature, low-skill industries that produced generic commodities. Over the past 30 or 40 years, during what Walden calls the "Connected Age," new technologies and global opportunities meant that such industries could relocate to cheaper production sites. Why pay a textile worker $9 an hour in Gastonia when you could pay a Chinese factory girl the equivalent of 50 cents an hour for the same work in Guangzhou?

For the most part, North Carolina's emerging Big Five were different.

Although food processing (poultry and swine mainly) clearly isn't rocket science, the other four industries are characterized by either high value-added, high-skill manufacturing or by relatively sophisticated service activities -- software design, drug discovery, financial services and the like.

The new industries have their challenges. Routine software design and basic pharmaceutical research are increasingly being outsourced offshore, for example, and many nations are developing sophisticated auto parts industries.

New economic geography

But if the new industries aren't recession-proof or free of challenges, they are much better placed to survive or even thrive in our Connected Age than were the three that they have replaced.

Along with a new economic logic, the Connected Age also brought to North Carolina a new economic geography. Old manufacturing centers either have died, are dying or are trying to reinvent themselves. Meanwhile the challenge for "racehorse regions" such as Charlotte, communities in the Triangle, Asheville and Wilmington is to sustain or even rein in growth.

There are, of course, areas in between and, alas, seemingly hopeless places such as the Roanoke region, whose economic development "strategy"-- a dinner theater headlined by Randy Parton -- makes Greyhounds and lunch meat sound great.

Indeed, if one thing is clear from Walden's brisk economic survey of North Carolina, it is that there are shadows in the Sunbelt, and that the conditions even in the seemingly healthy regions are subject to change.

And here's where government fits in. In order for our state and its people to prosper in the years ahead, public policy makers will need to make substantial investments in education and infrastructure, enlightened decisions about taxing and spending, and, most difficult of all, tough decisions regarding the trade-offs between efficiency and equity, between Bulgari and bologna.

Michael Walden's fine book can help our political leaders to find their way.