North Carolina's Climate Improves | Eastern North Carolina Now

   Publisher's note: The article below appeared in John Hood's daily column in his publication, the Carolina Journal, which, because of Author / Publisher Hood, is inextricably linked to the John Locke Foundation.

    RALEIGH     Progressives make a point that conservatives ought to take to heart: taxes are far from the only factors that households and businesses take into consideration when deciding where to live, work, invest, shop, or create new businesses.

    In other words, you can't explain the performance of any economy simply on the basis of the prevailing tax rate. Some states and nations with above-average taxes have above-average growth rates. Some states and nations with below-average taxes have below-average growth rates.

    However, progressives need to take something to heart, as well: raising the cost of doing business rarely results in more business being done. Tax rates, energy prices, transportation costs, commodity prices, labor costs - these can all be critical factors in deciding where and how specific firms operate, depending on what they produce and for which markets.

    Many on the Left dismiss business cost as an outdated concern. What matters now, they say, isn't the cost of doing business in a community but the availability of amenities such as arts and entertainment, restaurants, recreational facilities, and educational institutions.

    Sure, these factors can be important, again depending on specific cases. But as a whole, you will more successfully predict economic performance with business-cost measures than with quality-of-life measures. That's largely because higher-cost places aren't necessarily higher-value places. They don't get enough bang to justify the extra buck.

    In North Carolina, we can see this dynamic in play when it comes to government spending on education. Per-pupil spending on K-12 education is lower than the national average in North Carolina, but our K-12 performance matches or exceeds the national average by several measures. On the other hand, North Carolina is one of the most generous funders of higher education in the nation, yet our state lags the national average in measures such as college attainment. Productivity is what matters, not the sheer amount of money put into an enterprise.

    Outside of fiscal policy, state government affects the cost of doing business in many ways. The new leaders of the North Carolina General Assembly understand this, which is why they addressed several pressing issues during the 2011 legislative session, including:

    • Tort Reform. The legislature enacted two bills to reduce the cost of frivolous litigation in North Carolina, including a rewrite of the state's medical-malpractice laws. The state's second-largest insurer of medical practices has just announced a 7.4 percent reduction in premiums for 2012, attributing part of the rate drop to the malpractice reforms. More generally, it is likely that these changes will reduce legal, insurance, and medical expenses in North Carolina, improving our climate for business starts or expansions.

    • Workers Compensation. Premiums for insuring employees against injury can be a major driver of labor costs, particularly in industries with higher-than-average accident rates such as construction and distribution. Last year Rep. Dale Folwell, a Forsyth County Republican, was the primary sponsor of a bill that strengthened relationships between employers and medical providers, adjusted benefit formulas, and increased protection against fraudulent claims, among other provisions. It passed both chambers overwhelmingly and was signed into law by Gov. Beverly Perdue last summer. During the subsequent six months, workers' comp claims were down 9 percent vs. the same period in 2010, although it would be premature to attribute all of that to the new law. Still, it is likely that workers' comp premiums, and thus the cost of hiring new workers, will decline as a result.

    • Regulatory Reform. After lawmakers introduced several bills to alleviate North Carolina's regulatory burden, the General Assembly ended up with a compromise, the Regulatory Reform Act, that Gov. Perdue vetoed on spurious constitutional grounds. A bipartisan coalition overrode her veto in both chambers, creating a new process that promises to limit future rulemaking to high-priority threats to public health and safety while junking outdated regulations that bring far more costs than benefits.

    These initiatives will make North Carolina more competitive. Progressives either don't understand or don't like them. Conservatives ought to be talking about them a lot more - and planning to build on them in future sessions.