By their own standards, Republican economic policy has failed. For years, Raleigh conservatives droned on about the imperative of tax cuts for staying “competitive” with surrounding states. Last week, Site Selection magazine dropped us to number two in business climate after–you guessed it–neighboring Georgia. Site Selection’s surveys came after a well publicized tax cutting campaign, so Republicans cannot blame their failure on timing.
The decline was predictable, based on extensive evidence. A widely quoted study found state income tax cuts do not effectively boost job creation. The same effect has held true at the international level, where countries that cut top rates didn’t achieve greater growth than their industrialized peers. More crudely, “blue states” are almost always wealthier than “red states.” Scandinavia is a better model than Guatemala.
Regaining our edge requires a more accurate understanding of “competition.” States are arbitrary political units. To the extent that places compete, the contests happen between cities with similar economies. For example, no company thinks, “I’m dying to invest in the Southeast, so I’ll locate my insurance software operation in Cary or Spartanburg, wherever taxes are lower.” The choice is more likely to be between Cary and Boston, because both cities have skilled insurance and technology employees.
Given this reality, any “competitiveness” approach must be anchored in local circumstances. Just comparing state tax rates tells us nothing about which industries succeed where. Instead, Raleigh could serve as the hub of the wheel, constantly communicating with the spokes. Thus, defunding local development agencies deprived policymakers of crucial sources of information. We need monitors on the ground.
And it’s not just Republicans who need an updated policy agenda. Too many Democrats think education and “recruitment” alone suffice for job creation. Yet previous Democrats pursued those policies successfully, and failed to create enough jobs to track workforce growth. Finding additional solutions isn’t easy, but we need them.
Finally, maybe ridicule won’t scare off every last investor. History shows, however, that reputation matters, especially in this region. When President Eisenhower deployed the 101st Airborne to Little Rock, Arkansans lamented that they just ceded business to North Carolina. A decade later, the Coca Cola co. basically blackmailed Atlanta into respecting Dr. King, subtly threatening to relocate if the “embarrassment” of segregation went on.
It’s time to get our act together.