You Decide: North Carolina vs. South Carolina: Is There an Economic Winner?

Dr. Mike Walden

North Carolina Cooperative Extension

North Carolina and South Carolina were once one – one colony that is – prior our nation’s independence. Sometime around the late 1600s or early 1700s – historians differ on exactly when – the two colonies separated. Then, when the United States was formed, they become two states. There has been a rivalry ever since.

The competition between the two Carolinas is apparent in many aspects of daily life. The states compete over the best beaches, the best food, the best college teams and – I recently learned – even the best EMS (emergency medical service) squads!

Recently the really serious competition has been in economics. The governors of the two states often refer to the other when quoting job statistics, particularly if the numbers show the other Carolina on the losing end. The two Carolinas often vie for the same companies when recruiting new businesses, as we’ve seen this year when several auto manufacturing companies were searching for new locations.

So, is there an obvious winner for economic bragging rights between the two Carolinas? Let’s review some numbers to see if a champion can be determined.

First, let’s look at an economic overview of the two states. North Carolina is clearly the larger state, with twice the number of people and annual economic production 150 percent larger than its southern sister. People seem to prefer North Carolina to South Carolina as a destination when moving from their home states. North Carolina typically ranks 3^rd or 4^th and South Carolina 6^th or 7^th among all states in the number of people moving to the state compared to those leaving.

Long-run economic growth has also been more impressive in North Carolina than in South Carolina. Since 1997, annual economic production rose 46 percent in North Carolina versus 32 percent in South Carolina. Per capita (per person) income is also about $3000 higher in North Carolina than in South Carolina. However, both states increased their job numbers by 16.5 percent since the late ’90s.

So far it seems as if North Carolina has an edge on the economic scorecard. But there is one big difference in the two states’ economic paths – specifically in their strategy used to deal with economic change.

Both North and South Carolina have had to restructure their economies in recent decades. Traditional industries like farming and textile manufacturing no longer employ the number of workers they once did. To survive, states have had to scramble to develop new industries and new jobs.

South Carolina’s strategy has been to build a new economy around heavy manufacturing – particularly vehicle manufacturing. Several big name auto companies (BMW, Mercedes and Volvo) have constructed or are constructing factories in the state. The direct contribution of vehicle manufacturing to the South Carolina economy jumped more than 10-fold between 1990 and 2013. The state is now adding an aircraft assembly plant to its heavy manufacturing portfolio.

North Carolina’s economic re-make has been more diverse. Financial services, food processing, pharmaceuticals and technology are the leaders in the new North Carolina economy. Although the state has no vehicle assembly plant, it does have a sizable vehicle parts industry. Still, North Carolina’s parts industry pales in comparison to South Carolina’s giant car factories.

So has South Carolina won the race in developing an economy for the next generation? Certainly the state received enviable headlines when two car companies selected South Carolina this year for new assembly plants, leaving North Carolina again as an also-ran. But many analysts say there are two big disadvantages to South Carolina’s focus on heavy manufacturing.

One is that heavy manufacturing is very susceptible to the business cycle. This means when the economy is performing well and people are buying manufactured products – like vehicles – then states with a big investment in heavy manufacturing do well.

But the flip side occurs with the downside of the business cycle – recessions. Then households stop buying cars, appliances, computers and other long-lasting products, and so states reliant on those sectors suffer. We can see this in comparing job losses in the two Carolinas during the recession. Jobs were down more than 9 percent in South Carolina but off 8 percent in North Carolina. The peak unemployment rate in South Carolina was 11.7 percent; it was 11.3 percent in North Carolina.

There’s another potential downside to the South Carolina strategy. What if households’ use of vehicles dramatically drops in the future? Futurists see two possible reasons why this could happen. First, with more people living in cities, mass transit usage will increase and driving individual cars will decrease. Second, combining the sharing economy with driverless vehicles may result in more “on-demand” renting of vehicles and less ownership. Some say this could reduce the number of vehicles needed by more than half.

North Carolina and South Carolina are both wonderful states, but they have different economies and economic development strategies. It will likely be decades before we can decide which state is crowned the winner of the economic race!

Dr. Mike Walden is a William Neal Reynolds Distinguished Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of North Carolina State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks.

Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective