Forecasting the Business Climate | 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     I see that some politicians and government officials are continuing to cite magazine rankings that paint North Carolina's business climate in a favorable light. [Sigh] I suppose it's worth taking another shot at clarifying the matter.

    First, I'll stipulate that some media organizations and advocacy groups have published rankings that portray North Carolina's tax and regulatory burdens as comparatively light. I'll do that as long as other observers will stipulate that other media organizations and advocacy groups have published rankings that portray North Carolina's tax and regulatory burdens as comparatively heavy, particularly with regard to entrepreneurs and small businesses.

    The fact is that there are so many rankings and evaluations out there that you can tell whatever story you like by choosing some and ignoring others. The rankings and evaluations are not consistent. They don't measure the same things in the same way. And some of them, such as Forbes magazine's ranking of state regulatory burdens, are statistical junk that should never be cited. The Forbes measurement isn't really of regulations, at all. It includes such factors as government credit ratings and infrastructure spending. It is mislabeled at best, and misinformed at worst.

    Second, by virtually every objective measurable, North Carolina's economy is performing poorly. Our unemployment rate is one of the highest in the United States, and has been significantly higher than the national average for years. Our rate of personal income growth is one of the weakest in the United States, and has trailed the national average for more than a decade.

    Given these facts, I can think of only three possible interpretations of the available data.

    1. The indexes that portray North Carolina's business climate favorably are correct, and federal measures of unemployment, income growth, and other economic trends are incorrect. We actually have one of the healthiest climates for business and job creation in the country, despite the evidence of our senses and the pronouncements of federal agencies. The indexes that rank North Carolina poorly are incorrect or irrelevant.

    2. The indexes that portray North Carolina's business climate unfavorably are correct, because they tend to confirm the state's actual experience in employment and income growth over the past few years. The indexes that rank North Carolina highly are incorrect or irrelevant. For example, they may credit the state for offering special incentives to reduce the effective tax burden for some businesses, but ignore the growth-retarding consequences of keeping marginal tax rates higher on other businesses.

    3. Because the various business-climate indexes are not in agreement, we shouldn't consider any of them to be valid. We should just look at direct economic measurements such as unemployment and income growth and draw our own conclusions.

    I submit that the first interpretation is the least likely. The second or third interpretations would better fit the facts. Unfortunately for defenders of the status quo, and for the gubernatorial campaign of Walter Dalton, those interpretations are not consistent with their political claims.

    Dalton would be better off granting that North Carolina's climate for business and job creation is lousy, and focusing on what he would do to improve the situation. Plenty of Democrats around the country, and left-of-center politicians in other countries, have espoused tax reforms that broaden the base, lower the marginal tax rate, and thus improve economic competitiveness. Plenty of Democrats and left-of-center politicians have also argued for and accomplished regulatory reform, most notably President Jimmy Carter in the 1970s with regard to airlines, trucking, and other industries.

    But to continue to deny the state's competitiveness problem is not a recipe for success - in politics or in economic growth.

    Hood is president of the John Locke Foundation and author of Our Best Foot Forward: An Investment Plan for North Carolina's Economic Recovery.