RALEIGH — As North Carolina struggles with one of the nation’s worst unemployment rates, Gov. Beverly Perdue plans an Asian trip based on the same misguided economic development policies that contributed to the state’s current economic woes. That’s the assessment of the John Locke Foundation’s chief budget analyst.
The N.C. Employment Security Commission’s latest report lists the state’s unemployment rate at 10.8 percent for August, down slightly from the adjusted July rate of 10.9 percent. The state has had double-digit unemployment for seven months. Matching the unemployment rates of Ohio and Tennessee this month, North Carolina now ranks No. 9 in the nation. The state’s unemployment rate peaked at 11.1 percent in May, according to the ESC.
“With more evidence of the state’s economic struggles, it’s especially disturbing to remember that the governor and her commerce secretary plan a two-week trip to Japan and China next month,” said Joseph Coletti, JLF Fiscal Policy Analyst. “Promoting trade is fine, but this type of junket fits with the ineffective policies that have helped lead to North Carolina’s ongoing economic slump. By chasing individual companies with sweetheart deals, the state’s leaders make North Carolina less competitive overall.”
Perdue, N.C. Secretary of Commerce Keith Crisco, and others fly to Tokyo starting Oct. 14. Their trip also includes meetings with trade and government officials in Beijing and Shanghai. “Supporters will bill this trip as a tool for securing new business and jobs for North Carolina, but that’s not the whole story.” Coletti said. “The trip also represents another opportunity for government leaders to choose economic winners and losers. Playing that game never ends well for North Carolina taxpayers, as the current unemployment numbers show again this month.”
The problem lies with targeted tax breaks and other incentives used as bait to entice companies to the Tar Heel state, Coletti said. “Here’s an example: The governor meets with a company executive who expresses interest in North Carolina,” he explained. “In an effort to ‘do something,’ state leaders slap together some sort of tax break to convince the executive to invest in North Carolina. Then Gov. Perdue, Commerce Department officials, and the legislators who end up approving the deal hold a ribbon-cutting ceremony and slap themselves on the back for a job well done.”
Those officials lose sight of the costs tied to their actions, Coletti said. “Any time the state is willing to give a new taxpayer a break, that means existing taxpayers are left holding the bag,” he said. “Other businesses and individuals in North Carolina are forced to pay higher tax bills so government leaders can feel good about their economic development schemes. There is a way to avoid this problem: Lower tax rates for everyone and get the government out of entrepreneurs’ way. The Asian companies Gov. Perdue is targeting should like this option. So will every other potential business owner and investor.”
Seasonally adjusted employment decreased by more than 8,300 workers to a total of 4.03 million, according to the ESC. Unemployment also decreased by 6,500 workers in the past month, with more than 488,000 workers now listed as unemployed. Unemployment has increased by more than 189,000 people in the past year. The state rate in August 2008 was 6.6 percent.
Changing national trade policy could create another unfortunate wrinkle for Perdue’s October trip, Coletti said. “The Obama administration has displayed less interest in free trade than other recent administrations, and that could prompt Gov. Perdue and her team to look for even more targeted breaks and deals to bring new business to North Carolina,” he said. “The more breaks a recruited company gets, the more the rest of us will have to pay to make up for those breaks.”
North Carolina needs to rethink its economic development policies, Coletti said. “We have one of the nation’s worst unemployment rates and the region’s highest marginal tax rates,” he said. “What the government has been doing isn’t working. Instead of chasing new targets with the same old policies, let’s fix the policies to make North Carolina more competitive. Lower tax rates, reduce the regulatory burden, and stop trying to pick economic winners and losers.”