On November 2, Governor Mike Easley of North Carolina made headlines by handily defeating his Republican challenger, Patrick Ballantine, in a south as Republican as it's been since the end of Reconstruction. The victory garnered Easley some national attention and the occasional mention as a darkhorse candidate for the 2008 Democratic Presidential nomination.
The highlight of Easley's first term as governor was the deft manner in which he finessed a difficult fiscal crisis, a hangover from the go-go 90s, while weathering the brutal job losses North Carolina has faced in its agricultural and manufacturing sectors. Making good on his promises to help the state's unemployed will be one of his principle challenges in his second stint in the governor's mansion.
He's already gotten to work, it would seem. Days after the election, Easley announced he had signed a bill granting Dell a $242 million incentive package to build a manufacturing plant in the Triad region of the North Carolina Piedmont (made up of Winston-Salem, Greensboro, and High Point). Just last December, Easley encouraged the passage of a similar package designed to assist Merck, RJ Reynolds, and Phillip Morris. While some fiscal hawks are sour about the price tag, the overwhelming margin of victory for the Dell package bill speaks to the seriousness with which all North Carolinians take the economic problems of the poorer areas of the state, and, as a true-blue Democrat, I find myself feeling sympathy for those who've lost manufacturing jobs and satisfaction with the deal Easley was able to broker.
But as an economist, I am conflicted. During the gubernatorial election campaign, I often argued against the election of Easley's challenger based upon his cure-all for the ills of the state: tax cuts and more tax cuts. His commercials frequently made the point that North Carolina's tax burden was strangling fledgling business and killing entrepreneurship. Having just done some research on the subject, I made the point that the post-war south had bet its future on slashing tax rates and luring manufacturers with lavish incentive packages and cheap labor, only to find that the plants that came failed to generate sustained growth, and they left all too soon for even cheaper labor abroad. Meanwhile, North Carolina had spent generously on its impressive University system, a system which bore fruit by helping to draw high tech facilities to the Research Triangle Park, which has rocketed the Triangle Metropolitan area up the nation's population and income rankings (the Triangle is, naturally, Raleigh, Durham, and Chapel Hill). The Park did not grow, of course, without some publicly funded incentives, but the amounts were small, because the chief attraction was the concentrated talent the Universities of the Triangle provided.
Looking at the Dell deal from this perspective changes things, but it doesn't make them completely clear. What should Easley have done? In my recently completed master's dissertation I argue that public development efforts will only be successful if they take place in urban areas, or generate such agglomerations, and if they emphasize human capital. Based on this, the deal doesn't look good. Manufacturing is leaving the old factory towns of Piedmont North Carolina far faster than the government can fix with enticements, and the Dell jobs created aren't much different from the assembly line work Triad people are used to. I tend to feel that money might have been much better spent on primary and University education, and on infrastructure improvements that improve the ties of the struggling areas to the state's boomtowns, Charlotte and the Triangle.
But then 5,000 to 10,000 North Carolinians who might have had jobs for 15 years wouldn't. In a sense, the future was mortgaged to ease the pain of the present. Would it have been better to just give 8,000 people unemployment benefits and use the remaining cash to invest in some improvement projects? I don't know. Really, the Dell deal captures the essence of modern economic activity. Trade is good, but it creates losers. Those losers need to be compensated, but the way in which such compensation is made can generate large opportunity costs.
I like Mike Easley, and I don't second guess his decision. Politically, the deal was a block-buster, and easing the burden of the state's jobless might pave the way for needed investments in transportation and education, albeit with a tighter budget. What would have been nice, however, what would always be nice in trade discussions, is a bit more clarity regarding the issues on the table. Dell has costs beyond the incentive package, for people in North Carolina, other states, and other countries. And those burdens have received no public attention.