Publisher's note: The author of this post is Dr. Roy Cordato, who is Vice President for Research and Resident Scholar at the John Locke Foundation and contributor to the Carolina Journal, John Hood Publisher.
RALEIGH This year's legislative session turned out to be an ideological struggle, not between Republicans and Democrats, but between two factions within the Republican Party. (The factions exist outside the GOP as well, but Republicans control the governor's office and hold supermajorities to make decisions in the N.C. General Assembly.)
This tension goes to the heart of one's belief in free markets as the most moral and efficient way to organize economic activity. It was exposed on a number of issues, all related to state government subsidies to business.
It reflected a tension
between those whose principled commitment to freedom and free enterprise leads them to oppose all such subsidies and those who in principle do not oppose them and believe that it is a legitimate role of government to manipulate economic outcomes centrally from Raleigh.
There were five big issues that exposed the ideological divide: tax credits for the solar energy industry; the state's renewable energy portfolio standard, RPS, which forces consumers to purchase renewable energy; film incentives; the economic development incentive program referred to as Job Development Investment Grants; and subsidies for preservation of historic buildings.
It should be noted that, except for the renewable energy tax credit that was eliminated as part of the overall state budget, none of these programs were even scaled back. (The JDIG program was changed to "NC Competes.") Several were expanded. In other words, those legislators who, along with the McCrory administration, see an important role for economic central planning, were the victors.
What was interesting was that, except for a few vocal free-market advocates, the fact that a legislator opposed a particular subsidy was not an indication of where he stood in the debate over ideology. This is because, without a steadfast commitment to the principles of free enterprise, one is left to pick and choose among favored business subsidy programs based purely on pragmatism.
Most legislators favored some subsidies and opposed others based on constituent and special-interest pressures. Further complicating matters was that some of these were voted on as part of the General Fund budget; it is not clear how a legislator might have felt about any particular item, including targeted business subsidies, in the budget. It's not unusual for people to vote for an overall budget even though they disagree with some of its particulars.
A clear picture of this divide can be constructed by comparing statements from the 2013 Republican Party platform to statements made more recently by representatives of the McCrory administration. The 2013 platform states that:
We oppose bailouts and corporate welfare. It is contrary to the free enterprise system to recruit or retain businesses with targeted tax incentives when other businesses bear the full burden of taxation. Higher tax rates on the many to provide preferential treatment for the few is unfair. The best way to promote economic growth is to reduce our overall tax burden.
The implication is clear; business subsidies should always and everywhere be opposed as being contrary to the principles of a free-market system. In 2014 this passage was inexplicably removed from the platform, possibly reflecting the ideological divide discussed here and foretelling the outcome of votes taken in 2015.
While there is no similar statement articulating the principles behind the pro-central planning position, which is rooted in what is known as corporate capitalism or sometimes simply corporatism, how this position plays out in terms of support for policy can be seen in the McCrory administration's stance on these issues.
The governor and his administration were strongly in favor of NC Competes (the renewal of JDIG) and opposed the renewal of tax credits for solar energy. But even with solar subsidies, the administration made it clear that it was not in principle against subsidies for energy.
It was strongly suggested by administration representatives that the governor ultimately wanted the subsidies going to solar power to be transferred to subsidies for other forms of energy. Both Commerce Secretary John Skvarla and Department of Environmental Quality Secretary Donald van der Vaart articulated this position.
In reference to tax credits for solar companies, Skvarla was quite explicit
I believe that ... we need to take those type credits and start looking at other forms of alternatives like biomass, animal waste, all of those things also can produce energy, and we need to start incentivizing other areas to grow to the stature that solar has achieved.
In defense of the JDIG/NC Competes incentives, Skvarla articulates
a broader argument that reflects the central planning philosophy:
"We need these incentives. ... [T]hey are targeted, discretionary, and represent a positive return on investment. ..."
Apart from the fact that this statement makes a claim that is unsubstantiated by any cost/benefit analysis, namely that the JDIG, or any other incentive program represents "a positive return or investment," there is an underlying philosophy of central planning at work. That is that it is important and necessary for government to take an interventionist role in advancing economic activity by "targeting" specific industries, companies, etc., for special favors. Without these interventions, central planners argue, economic growth will be less than it otherwise might be.
A comparison between the statement that once was part of the N.C. Republican Party platform and the statements articulated by administration officials highlight what is sure to be an ongoing tension within both the Republican Party and among the elected officials from that party who control the lawmaking process.
This not a minor public policy quibble. It is fundamental to how North Carolina's economy should be organized. There is no question that both economic analysis and basic principles of liberty support the free-market perspective represented by the 2013 platform.
But if the central planning mentality continues to win when it comes to casting actual votes, as it did this year, not only will the state's economy suffer but so will the political process. Central planning, by definition, puts politicians in the position of "targeting" winners and therefore creating losers, which ensures the presence of special interests and political cronies in the halls of the legislature.