Ned Barnett

NC should invest in its own invention

When North Carolina’s lawmakers convene in Raleigh, most fail to see that they’re also gathered in the Research Triangle.

They’re debating not only in the Capital City amid its history, traditions and monuments to past wars. They’re at one point in a Triangle of three great research universities and a host of high-tech and life science companies, all linked by a stroke of governmental genius in 1959 – the creation of Research Triangle Park.

The legislators’ obliviousness is most apparent when they debate how to stimulate and grow the state economy. The Republican majority thinks the answer is corporate and personal income tax cuts and incentives to lure large established companies to relocate or expand into North Carolina. Mostly, these tactics are aimed at fulfilling every politician’s dream – to hold a golden shovel or cut a ribbon for a big new manufacturing plant that will provide hundreds of jobs and look good in a campaign ad.

These days that dream is only just that. Heavy manufacturing plants are unlikely to come here. And if a few do, they’ll be aberrations that have little effect on a state struggling with rising poverty and a shortage of jobs. What North Carolina needs to invest more in are invention and discovery – the very things happening throughout the Research Triangle.

As the legislature approves more corporate tax cuts and incentives for established and profitable companies without any notable effect, North Carolina’s entrepreneurial economy is taking off on its own. The News & Observer’s David Ranii reported this month that “North Carolina’s entrepreneurial companies raised $426.9 million in the first half of this year – up 71 percent from a year ago and more than double the total from two years ago.”

Joan Siefert Rose, president of North Carolina’s Council for Entrepreneurial Development, said investors are starting to take chances again and North Carolina is getting a heavy share of their investment

“Private equity in startups across the country is up 50 percent this year, but we are up 70 percent, so we seem to be outstripping the rest of the country,” she said.

The state should be doing more with dollars and policy to encourage the surge in high-tech and life science companies, especially those just starting out.

Rose said cutting taxes is “important for large companies, and some of our companies want to be large someday, but it doesn’t have much effect on companies that are in the pre-revenue stage.”

The state doesn’t ignore the high-tech and the life science economy. The state treasurer has an Innovation Fund devoted to investing in North Carolina companies. And the legislature this session approved “a venture multiplier fund” that will provide $40 million in matching funds to startups.

But overall the Republican-led approach of tax cuts and less spending is stifling North Carolina’s 21st century economy with 1980s notions of supply-side economics and bribing big companies with incentives. The foundation of the new economy is a well-educated workforce, but the legislature is cutting funding for K-12 education and the state’s universities.

Meanwhile, lawmakers have allowed the tax credits for research and development expenses and renewable energy investments to expire. There was an effort this session to gut funding for the N.C. Biotechnology Center, which gives grants and loans to new life science companies. Fortunately, the center survived in the state budget with $13.6 million in funding, though that’s down from more than $17 million a few years ago.

Doug Edgeton, the CEO of the Biotechnology Center, is grateful for the funding, but he said it’s well short of the demand from new companies with big ideas.

“What I’m hearing from every pocket of this state is what they need now is investment dollars,” Edgeton said. “We could easily double our budget and have a big impact on the state.”

Nichola Lowe, an associate professor of City and Regional Planning at the University of North Carolina at Chapel Hill, studies incentives as an economic development tool. Incentives are effective, she said, but only when used wisely.

Lowe said the state should boost spending on the Biotechnology Center. “We need to see more investment in those kinds of institutions that demonstrate their value by creating opportunities for a wide spectrum of workers in North Carolina,” she said.

Lowe added that incentives should be focused on companies, including large ones, that would bring an entrepreneurial culture. Often employees from such companies create spin-off companies.

High-tech and life science companies are not tangential to the economy. Increasingly, they are the economy.

North Carolina saw this economic engine early with the creation of RTP. It should be building on its lead, fostering bigger venture capital funds, adding tax exemptions and investing heavily in the state’s education systems and other elements that attract companies and encourage entrepreneurs to stay here if their enterprises succeed.

Instead, North Carolina’s legislative leaders are defying the trends of the new economy, ignoring the physical evidence of the Research Triangle and dreaming of smokestacks and ribbon cuttings.

Barnett: 919-829-4512, or nbarnett@newsobserver