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You Decide: Is North Carolina’s Economic Shift Complete?

Aerial view of downtown Raleigh

By Dr. Mike Walden

In a few weeks I will celebrate the 40th anniversary of my job interview at North Carolina State University. I had left a snow-covered Ithaca, New York – home of Cornell University where I was finishing my Ph.D. degree – and exited the plane on the tarmac (yes, airline passengers did that in the good-ole-days) at RDU Airport. It was bright and sunny and 70 degrees. I thought to myself – I could get used to this!

And I have. Next to marrying my wife, I can’t think of a better decision I’ve made in my life.  The four decades I’ve been in North Carolina have been rewarding, exciting and just plain wonderful.

But forty years ago North Carolina was a different state, especially in its economy. In the 1970s three industries – tobacco, textiles and furniture – dominated the state, accounting for over 20 percent of both total state economic production and employment. In a book I wrote in 2008, I dubbed these industries the “Big Three”. They had been the prime movers of North Carolina’s economy for over fifty years.

Yet even then, change was beginning. Tobacco was being squeezed by concerns about the health effects of smoking as well as foreign competitors. Also, automation was beginning to be introduced into factories, meaning fewer workers were needed to produce the final output.

Then came to the impacts of the two international trade treaties of the late 20th century – NAFTA (North American Free Trade Agreement) and GATT (General Agreement on Tariffs and Trade).   Both treaties removed numerous trade barriers between countries and opened up textiles and furniture – in particular – to competition from foreign countries. Because production costs for textiles and furniture were often lower in foreign countries, production in those industries began to leave North Carolina.

The impacts can clearly be seen in the numbers. Between 1978 and 2005, tobacco product output in the state dropped 85 percent and textile production plunged by almost 50 percent. Furniture wasn’t impacted until GATT took effect in 2001, but by 2005 furniture production was down 25 percent.

Fortunately, something I call the “North Carolina Economic Miracle” happened. As the Big Three declined, a new “Big Five” emerged in the form of technology, pharmaceuticals, finance, vehicle parts and food processing.   At the farm level, tobacco was increasingly replaced by hog and poultry production. North Carolina turned into a high-tech, service based economy along with meat replacing crops in farming.

While this transformation has been miraculous for the state as a whole, it is the basis for the urban-rural divide we see today. Many of the industries of the new “Big Five” – notably technology, pharmaceuticals and finance – have developed in metropolitan areas. In contrast, much of the employment of the old “Big Three” – especially textiles – was in small towns. So the North Carolina economic miracle hasn’t occurred everywhere.

Still, we might take some solace if the shift from the old to the new North Carolina economy was complete. Unfortunately, this doesn’t appear to be the case. Since the Great Recession a decade ago, tobacco product, textile and furniture output combined has declined another 30 percent, taking 36,000 jobs with it. In 2017 alone, the major metro areas in the state added 64,000 jobs, while small towns and rural areas gained less than 1,000 jobs.   

So the new North Carolina economy is still being formed, and – unfortunately – it is creating winners and losers. Some futurists project that in the decades ahead, fully one-third of our state’s counties will lose both jobs and people. At the same time, our big metro regions could grow by between 50 percent to 75 percent.   

I’ve talked to many groups in the state about strategies for reviving small town and rural economies, centered on large and medium sized manufacturing plants, tourism, attracting out-of-state retirees and expanding meat production and processing. Although none is a “slam dunk” and each has challenges, rural areas have distinct advantages for these activities.

In my travels around the state, I’m often asked if the old economy could be revived by, for example, terminating the trade treaties of twenty years ago. It is conceivable that some of the lost production could return, but it’s unlikely many jobs would come with it. This is because manufacturing all over the world is rapidly moving to using machinery and technology rather than people for its production. It’s a new economic world!

If there’s one thing I’ve learned as a professional economist, it is that the future can be humbling.  Predicting the leading industries, the types of jobs and where economic activity will occur is a daunting, and largely impossible, task. The future doesn’t follow a straight line; instead, it weaves, curves and goes around corners we can’t see.

The best advice I can give both to people and places is to evaluate your strengths and weaknesses, try to improve the former and reduce the latter and watch for the shifting array of available opportunities.

Plus – if you’re lucky – maybe you’ll decide on something that turns out to be one of the best choices you or your community will ever make – like when I decided to come to North Carolina forty years ago!

Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook, and public policy.