North Carolina’s economy appearsto be undergoing a sea change.In fact, the ship of state seems to

have lost its economic moorings. But isthis actually the case? This articleexamines the state’s changing economy

P O P U L A R G O V E R N M E N T

and lays out a framework for thinkingabout economic development policy. Itdescribes traditional economic develop-ment policies and their achievements.Then it surveys innovative policies andprograms of the past decade. It con-cludes with a framework for integratingtraditional and innovative policies into amatrix for planning and action.

North Carolina’s ChangingEconomy

To many, the pillars of the North Caro-lina economy seem to be crumbling. Almost daily, the newspapers report

plant closings in the state’s big three:textiles, furniture, and tobacco. Indeed,the job losses in these sectors have beensubstantial and painful to the peopleand communities affected. Alarms arebeing sounded about the need for a newmodel of economic development for thestate, including major incentives forindustrial recruitment. However, thetale of North Carolina’s economy ismore complex than today’s headlinesmake it appear.

North Carolina participated in, andin some cases led, the boom of the Sun-belt. It also shared in the shadows.1 Inthe two decades leading up to the new

The author is director of the newly estab-lished Office of Economic and BusinessDevelopment at UNC at Chapel Hill andan adjunct professor in the School of Government. He is a former executivedirector of the Southern Growth PoliciesBoard and a former chair of the Appa-lachian Regional Commission. Contact him at jwhite@unc.edu.

2 p o p u l a r g ov e r n m e n t

Economic Development in North Carolina:Moving toward InnovationJesse L.White Jr.

s p r i n g / s u m m e r 2 0 0 4 3

millennium, the state’s population grewby about 30 percent, and the number ofjobs increased by almost 60 percent, out-pacing both the national and the southernrate of growth. By the late 1990s, NorthCarolina’s per capita income was morethan 91 percent of the national averageand one of the highest in the South. Muchof this growth was driven, not by thetraditional pillars of the economy, but bythe technology-intensive growth in theResearch Triangle Park and by banking

and other services sectors in Charlotte.The state also has been plagued, however,by persistent and growing differentialsbetween urban and rural areas andamong its various regions.2

North Carolina made the transitionfrom an agrarian state to a manufac-turing state long before most of theSouth. The transition was fueled in partby the migration of the textile industryfrom New England to the Carolinas andby the happy absence in North Carolinaof a power structure of plantationowners, which stifled economic changein other southern states. Manufacturingof furniture and other nondurable goods,

particularly tobacco products, joinedthe textile and apparel industries, butthe manufacturing jobs paid low wagesand were overwhelmingly nonunion. Infact, by the early 1960s, North Carolinawas among the states with the highestpercentages of their workforces in man-ufacturing, and among the states withthe lowest average manufacturing wages.Even today the state ranks in the topthree in the percentage of its nonfarmworkforce in manufacturing.3

In the 1960s and the1970s, however, a longdecline in manufac-turing employment be-gan in North Carolina.It occurred as a result of technology and theglobalization of pro-duction, the latter anemerging phenomenonthat severely weakened the cost-sensitivemanufacturing base of the South. Themedia and the public tend to focus onthe current loss of jobs in the textile andapparel industries. However, as far backas the 1970s and 1980s, North Carolina

was losing about 1,000 jobs per monthin these sectors. Between 1978 and1997, the state lost about 32 percent ofits textile manufacturing jobs and 40percent of its apparel jobs. From 1997through 2001, the losses were a further30 percent and 39 percent respectively.From 2000 to 2003, employment intextiles and apparel fell by another one-third. The state lost more than 80,000textile jobs alone in the past decade. Inthe last few years, the same industrial

restructuring began toaffect the furniture in-dustry, in which manu-facturing employmentfell by one-quarter.4

Likewise, employ-ment and wages fromfarming have plum-meted in North Caro-lina. In 1950 there were

about 300,000 farms in the state, andagriculture employed more than 25percent of the workforce. Today thenumber of farms has fallen to about50,000, employing about 2 percent ofthe workforce. Tobacco farming, once a

Alarms are being soundedabout the need for a newmodel of economicdevelopment for the state,including major incentivesfor industrial recruitment.

PHO

TOS

BYN

ORT

HC

ARO

LIN

AD

IVIS

ION

OF

TOU

RISM

, FIL

MA

ND

SPO

RTS

DEV

ELO

PMEN

T

Urban-rural contrast: Charlotte’sskyline by night and a familiar daytime

scene in rural North Carolina.

weekly wages of almost $700. For those in high-tech services, the wageswere much higher.6

The same wage differential holds for high-tech manufacturing employ-ment, which has grown impressivelyover the past two decades (although theabsolute number of jobs still is smallerthan that in traditional industries). The19,000 workers in the pharmaceuticalindustry made average weekly wages of more than $1,300 in 2001, and the58,000 workers in electronics and elec-trical equipment manufacturing madeaverage weekly wages of more than$900. By contrast, the 123,000 workersin textiles made average weekly wages

4 p o p u l a r g ov e r n m e n t

staple of income and employment inrural and small-town North Carolina,also has been in steep decline. In theUnited States, the number of tobaccofarms was cut in half from 1978 to1997. For the most recent year in NorthCarolina, receipts from tobacco trailedreceipts from hogs, chickens, and evengreenhouses (see Table 1).5

Like the rest of the United States,North Carolina began making thetransition to a service-based economy inthe last quarter of the century. (For dataon the employment sectors with thegreatest job gains and losses during thisperiod, see Table 2.) Again, the state wasahead of much of the South, particularly

in developing its powerful banking sec-tor. Almost 70 percent of North Carolina’s workforce is currentlyemployed in the services sector broadlydefined, and that sector has created70,000 new jobs in the state since 2000.However, much of that sector pays low wages. In travel and tourism, the80,000 people working in hotels andlodging and in amusement andrecreation had average weekly wages of $308 and $447 respectively in 2001.In the same year, the almost 700,000people working in retail made averageweekly wages of $346. At the other endof the services spectrum, some 263,000health care workers earned average

Table 2. Employment Sectors with the Greatest Job Gains and Losses, 1978–1997

N.C. Employment Percent N.C. Percent of AllChange, 1978–97 Change, N.C. Employment, 1997 N.C. Jobs, 1997

Sectors with Greatest Job Growth

Business services 223,457 400.3 279,281 6.1

State and local government 186,132 55.7 520,481 11.3

Health services 171,877 196.0 259,565 5.6

Eating and drinking establishments 146,962 156.4 240,953 5.2

Food stores 56,383 90.9 118,407 2.6

Social services 47,899 212.6 70,430 1.5

Amusement services 36,188 213.7 53,120 1.2

Personal services 32,809 67.4 81,523 1.8

Industrial machinery manufacturing 30,895 77.6 70,718 1.5

Trucking and warehousing 27,394 53.2 78,885 1.7

Sectors with Job Loss

Textile manufacturing – 80,711 – 31.5 175,839 3.8

Apparel manufacturing – 34,874 – 39.9 52,538 1.1

Tobacco products manufacturing – 9,504 – 35.9 16,972 0.4

Furniture and fixtures manufacturing – 6,111 – 7.3 77,346 1.7

Source: Adapted from STATE OF THE SOUTH 2000, at 95 (Chapel Hill, N.C.: MDC, Inc., Sept. 2000).

Table 1. Agriculture in North Carolina, 2001

Total agricultural receipts $8,061,862,000

Total crop receipts $3,086,554,000

Total livestock receipts $4,644,078,000

Hog receipts $1,709,794,000

Broiler chicken receipts $1,681,040,000

Tobacco receipts $685,799,000

Greenhouse receipts $986,637,000

Total farms 1987 59,284

Total farms 1997 49,406

Source: Data from North Carolina Rural Economic Dev. Ctr., Agriculture in North Carolina [data sheet], available at www.ncruralcenter.org /databank/datasheet.asp?topic=Agriculture (last updated Sept. 15, 2003).

s p r i n g / s u m m e r 2 0 0 4 5

decline in a decade, and even high-techmanufacturing employment declinedbetween 1999 and 2001.8

North Carolina has made severalmajor transitions in its economic base—from farming to manufacturing to ser-vices. One constant, however, has beenthe persistence of wage and income dif-ferentials and regional disparities. Alongwith most of the South, the state has experienced the “metropolitanization”of its economy. From 1978 to 1997, the state’s metropolitan areas added 1.3 million jobs, while the nonmetro-politan areas added just 330,000. So,although about 67 percent of the peoplelived in metropolitan areas, those areas

produced 80 percent of the job growth.Likewise, during the last decade, urbanareas increased almost 26 percent inpopulation, compared with 18 percentfor rural areas.9

As well as a general urban-rural dis-parity, there are large regional differences.For example, per capita income rangesfrom $30,400 in the Research TrianglePark (RTP) to $21,700 in the northeast.(For a breakdown of per capita incomeby regional partnership areas, see Table3. For a map identifying the variousareas, see Figure 1.)

Clearly the tale of North Carolina’seconomy is not a simple one. Tens ofthousands of jobs have been lost inmany traditional sectors of the econ-omy, while tens of thousands have beencreated in emerging sectors. If one wordcould describe the state’s economyduring the past two decades, it wouldbe “churning.” Although job loss oftenis the media story, the quieter story ofjob creation frequently remains untold.But therein lies the future of the NorthCarolina economy.

Economic Development Policies

“Economic development” is the inter-section of public policy and privatecommerce for the purpose of creatingjobs, businesses, prosperity, and wealth.The study of that intersection is “politi-cal economy,” a term once widely usedin political science and now making acomeback.

Both the nation and the states haveimplemented numerous economicdevelopment policies. Important federalones have been the land-grant collegesystem, subsidies to build the trans-continental railroads, the interstatehighway system, rural electrification,military and space research and devel-opment, small business programs,regional commissions like the TennesseeValley Authority and the AppalachianRegional Commission (ARC), andinvestments in all levels of public educa-tion. Although these programs often arenot explicitly characterized as economicdevelopment policies, they haveprofoundly affected the evolution of the American economy. State policieshave included the establishment of state departments of agriculture, state

Figure 1. North Carolina Department of Commerce Regional Partnerships

Source: From North Carolina Dep’t of Commerce, Business Recruitment, available at www.investnc.com/helping/partner.asp (last visited Mar. 29, 2004).

of $541, and the 30,000 workers in theapparel industry made $442.7

The recent recession hit hard. NorthCarolina’s per capita income figure slippedfrom a high of almost 92 percent of thenational average to about 90 percent in2003. The unemployment rate doubled,from 3.1 percent in December 1998 to6.7 percent at the end of 2002 and 6.1percent at the end of 2003. The changein the relative position of the state wasbreathtaking. In 1999, North Carolinaranked thirty-eighth in unemployment(first being the least desirable ranking),but last year it was in the top ten (it hassince improved to twenty-first). Retailsales have experienced their largest

Table 3. Per Capita Income in North Carolina, by Region, 2000

Percent of StatewideRegion Per Capita Income Per Capita Income

Research Triangle $30,400 113

Charlotte 29,900 111

Piedmont Triad 27,600 102

Statewide 26,900 100

Advantage West 23,900 89

Eastern 23,600 88

Southeast 22,600 84

Northeast 21,700 81

Source: Data from Frank Maley, Looking for Work, BUSINESS NORTH CAROLINA, Feb. 2003, at 1, availableat www.businessnc.com/archives/2003/02.

Advantage West Charlotte

Piedmont Triad Research

Triangle

Northeast

Eastern

Southeast

6 p o p u l a r g ov e r n m e n t

road systems, public education, com-munity college systems, and programsfor recruitment of branch plants ofmanufacturing firms.

North Carolina has embraced manyof these policies throughout its history.Although much is heard today abouttechnology transfer—as though it weresome new phenomenon—one of themost successful models in history ismore than a century old: the land-grantcolleges and the cooperative extensionservice. Under the land-grant collegesystem, North Carolina State Universitywas established in 1887, and NorthCarolina A&T in 1891. This systembenefited North Carolina mightily andhelped it become a state of small, suc-cessful farmers. The state created its ownDepartment of Agriculture in 1944.

To support both the manufacturingand the farming economy, for manyyears the state also has built roads andhighways to get goods from farm andfactory to market. In fact, as early as the1920s, at the time of the creation of theNorth Carolina Highway Commission,North Carolina was known as the“Good Roads State.” Today the stateranks second in the nation in terms oftotal highway miles under state controland maintenance.10

North Carolina also has investedhandsomely in postsecondary educationfor decades. Today it ranks sixth in thenation in expenditures on universities,colleges, and community colleges. Thesixteen campuses of The University ofNorth Carolina and the fifty-eight publiccommunity colleges represent tremen-dous economic development assets.11

The state has supported the tradi-tional pillars of its economy throughother policies. It has kept cigarette taxesamong the lowest in the country to sup-port tobacco farmers and cigarette manu-facturers. It also has enacted right-to-work legislation and other policies thatsupport low-wage, nonunion manufac-turing in textiles, apparel, and furniture.

North Carolina was slow to embracethe southern mania for incentive-basedindustrial recruitment. Beginning inMississippi in 1937, the policy was simple and successful: to recruit thebranch plants of labor-intensive, cost-sensitive manufacturing firms intocommunities on the basis of low-wage

and nonunion labor, low taxes, andsubsidies and incentives. These policiesspread across the region and did, in fact,industrialize the rural and small-townSouth. However, in branch plants con-trolled from outside, the fate of workersand communities was left in the handsof corporations often domiciled faraway. These branch-plant economies—while providing jobs—actually createdlittle wealth in the communities inwhich they operated.

North Carolina did not adopt thisstrategy until the passage of the WilliamS. Lee Quality Jobs and Business Expan-sion Act in 1996, although local incen-tives had been granted for some timeand were held to be constitutional in theMaready decision that same year.12 InDecember 2003 a special session of theGeneral Assembly enacted the JobGrowth and Infrastructure Act, author-izing about $230 million in incentives toMerck & Co. and R. J. Reynolds tocreate an estimated 1,200 new jobs inthe already successful areas of the RTPand the Piedmont Triad. This was anunprecedented andcontroversial action.

Although NorthCarolina has a largenumber of workers inbranch plants, it alsohas many workers inplants of home-growncompanies in tobacco,furniture, and textiles.In this sense NorthCarolina is differentfrom many othersouthern states. These home-grownplants, however, are subject to the samepressures of technology andglobalization as branch plants are.

One economic development policy in which North Carolina was ahead ofmuch of the rest of the South was thecreation of innovative institutions topromote technology. The most notableexample was the creation of RTP in1958. This was followed by the creationof the North Carolina Board of Scienceand Technology in 1963, the Micro-electronics Center of North Carolina in1980, and the North Carolina Biotech-nology Center in 1981. In RTP alone,more than 130 companies and organi-zations employ 45,000 workers, whose

average salary is $56,000. The totalpayroll in RTP is $2.7 billion.13

Other important state policies havebeen in financial services and rural de-velopment. For decades North Carolinawas unique in the South in allowingstatewide banking, which helped NorthCarolina banks grow and strengthenwhile restrictive banking laws in othersouthern states kept their banks smalland isolated. Working through theSouthern Growth Policies Board, thisstate was a leader in the 1980s in theinterstate banking movement, firstcreating a protected regional market fora limited period and then embracing na-tional interstate banking. As a result,North Carolina is one of the majorbanking centers of the United States.Two of the state’s banks—Bank ofAmerica (newly merged with Fleet First Boston) and Wachovia—areamong the five largest in the UnitedStates, employing approximately100,000 and 87,000 workers andholding assets worth $736 billion and$401 billion, respectively.14

In 1987, recognizingthe growing differentialsbetween the burgeoningmetropolitan economyof North Carolina andthe languishing ordeclining rural andsmall-town economies,the state created theNorth Carolina RuralEconomic DevelopmentCenter (hereafter theRural Center), prob-

ably the premier such institution in thenation. Its mission is to be an advocatefor and funder of the rural counties ofthe state, drawing its impressive budgetfrom state appropriations, foundations,and the private sector. The Rural Centerhas a large array of programs, includingresearch and development, water andsewer services targeted at rural areas,microenterprise, access to capital, aleadership institute, an agricultural ad-vancement consortium, a Rural InternetAccess Authority, and rural entrepre-neurship. A staff of nearly 40 profes-sionals manages an operating budget of almost $7 million dollars, whichincludes about $3 million in grants. TheRural Center has additional grants and

One economic developmentpolicy in which NorthCarolina was ahead of much of the rest of theSouth was the creation ofinnovative institutions topromote technology.

s p r i n g / s u m m e r 2 0 0 4 7

awards amounting to almost $80 million,pursuant to the state’s Clean Water BondFund. (These funds include those of theRural Internet Access Authority.)15 (Fora map of the state’s rural counties, seeFigure 2.)

Obviously the intersection betweenpublic policy and private commerce—

economic development—has had enor-mous impacts on North Carolina’s econ-omy. Although at times overwhelmedby national and global trends, economicdevelopment policies still are crucial tothe future of the state and its commu-nities. The question today is the same asit always has been: what is the best

model of economic development forNorth Carolina?

Traditional Approaches toEconomic Development

From an economic development perspec-tive, there are three traditional ways to create jobs, companies, and wealth: (1) recruiting plants or other facilities of companies domiciled outside the state;(2) strengthening and expanding exist-ing businesses and industries; and (3) promoting entrepreneurship, or creation of new, home-grown businesses.These are sometimes referred to as thethree legs of the economic developmentstool.

Most southern states have invested an overwhelming proportion of theireconomic development resources inindustrial recruitment. In fact, industrialrecruitment is the central mission of al-most all state departments of commerceor economic development. In NorthCarolina, state-funded incentives foreconomic development investments haveamounted to more than $200 million

Source: From North Carolina Rural Economic Dev. Ctr., Rural County Map, available at www.ncruralcenter.org/databank/rural_county_map.asp (last updated Jan. 2, 2002). Reprinted by permission.

Note: A rural county is one with a density of fewer than 200 people per square mile based on the 1990 U.S. Census [N.C. GENERAL STATUTE 143B-437.41].

Figure 2. North Carolina Rural and Urban Counties, 2002

HA

RRY

LYN

CH

/ NEW

S&

OBS

ERV

ER North Carolina’s Research Triangle has experienced phenomenal growth in the last forty-six years, spurred bydevelopments in biotechnology. Left, a production operator for a Raleigh-based company making medical adhe-sives pumps a product into a flask.

since 1996, when the William S. Lee Actwas passed. In December 2003 the JobGrowth and Infrastructure Act added$230 million to that figure, targeted atjust two companies.

This emphasis on recruitment showsin employment statistics. About one-thirdof Americans employed in branch plantsare in the South.16 In North Carolina,by the mid 1990s, almost 20 percent ofprivate-sector employment was in firmsowned by outside interests. Accordingto the Rural Center, in 2002 almost110,000 firms with fewer than 100 employees together employed about 2 million workers, while nearly 5,700firms with 100 or more employees em-ployed about 1.7 million workers. Inother words, the 110,000 small firms em-

ployed close to the same number of peo-ple as the 5,700 large firms did.17 Branchplants tend to be larger than home-grownbusinesses, so the figure for firms em-ploying 100 or more employees is aproxy for branch-plant employment.18

In the past two decades, almost allsouthern states have enacted programsaimed at strengthening existing industry.North Carolina extends its tax incen-tives to existing businesses that createnew jobs in distressed parts of the state.Other states have embraced this move.Also, the Department of Commerce hasestablished a Business and IndustryServiCenter to help businesses succeedand grow. This service isan innovative partner-ship among the De-partment of Commerce,the Small Business andTechnology Develop-ment Centers, the NorthCarolina CommunityCollege System, and theNorth Carolina Indus-trial Extension Service.19

Despite these initia-tives, however, only asmall fraction of thestate’s resources is spenton existing industryprograms. The RuralCenter estimates thatNorth Carolina spendsonly one dollar onstrengthening existingbusinesses for every sixdollars it spends onrecruitment, despite thefact that existing businesses account for about 60 percent of all new jobcreation and investment.20 The giganticexpenditure of funds on industrialrecruitment often is a source of bitternessto existing business.

In terms of creation of small busi-nesses, many southern states supportrevolving loan funds, loan guarantees,technical assistance, and business in-cubators. North Carolina has providedfunding to the Rural Center for its $1.7 million program of capital access.In addition, the Rural Center launcheda $2.9 million Institute for Rural Entre-preneurship in fall 2003 with a ten-partprogram to be funded, in part, by stateappropriations. (For more information

about the institute, see the sidebar onpage 32.) The state also has allocatedmore than $1 million of its ARC fundsfor entrepreneurship programs at theAdvantage West regional partnershipand the North Carolina Department ofCommerce. Further, the state fundsseventeen Small Business and Technol-ogy Development Centers across NorthCarolina to assist small business start-ups and expansions.21

Although the state has made effortsto support existing industry and crea-tion of small businesses, like the rest ofthe South, it overwhelmingly allocatesenergy and resources to the recruitment

leg of the economicdevelopment stool.However, the Southand North Carolinaalso have moved be-yond these traditionalapproaches and de-veloped innovativepolicies, programs, andpractices as the oldeconomy has begun to fade and the neweconomy has come tobe understood.

Innovations

The South began toexperience the turmoilof fundamental eco-nomic change in the1980s, and from thisdistress came policyinnovation. The

revolutions in communications andtransportation technology produced aprofound globalization of the economy.That, in turn, doomed the South’s eco-nomic base of labor-intensive, low-costmanufacturing. The region now wascompeting with cost structures in theThird World. As noted earlier, the inexorable loss of manufacturing jobsbegan. A path-breaking report of theSouthern Growth Policies Board in1985, entitled After the Factories, docu-mented for the first time this industrialrestructuring of the rural and small-town South.22

In response to this challenge, out ofthe Southern Growth Policies Board—and the remarkable group of southern

8 p o p u l a r g ov e r n m e n t

The South began toexperience the turmoil offundamental economicchange in the 1980s, andfrom this distress camepolicy innovation. The revo-lutions in communicationsand transportation tech-nology produced a profoundglobalization of the econ-omy. That, in turn, doomedthe South’s economic base of labor-intensive, low-costmanufacturing.

In November 2004, North Carolinianswill vote on a constitutional amend-ment allowing cities and counties touse a new tool for financing debt,called “project development financ-ing.” This tool permits a county or acity, without voter approval, to borrowmoney to construct public improve-ments intended to attract privateinvestment, and thereby to increasethe tax value of property in the vicinityof the improvements. That increaseprovides the principal security forrepayment of the borrowed money.

The county or the city begins theprocess by establishing a “projectfinancing district,” which includes theproperties expected to increase in valuebecause of the public investment.Cities may establish such a district inredevelopment areas as defined by theurban redevelopment statutes. Citiesand counties may establish such a dis-trict in an area that is either (1) blighted,(2) appropriate for rehabilitation orconservation activities, or (3) appropri-ate for economic development. Acounty may establish such a districtonly in unincorporated areas.

A School of Government facultymember, David M. Lawrence, providesan extended explanation of projectdevelopment financing online atwww.sog.unc.edu/popgov/.

Project DevelopmentFinancing

s p r i n g / s u m m e r 2 0 0 4 9

Policy Program and the Rural EconomicPolicy Program (both of the AspenInstitute, headquartered in Washington,D.C.), the Corporation for EnterpriseDevelopment (located in Washington,D.C., and Durham, N.C.), the NationalGovernors Association, the Council ofState Policy Agencies, and the SouthernGrowth Policies Board’s Southern Tech-nology Council. In the 1990s a vigorousfocus on rural development emergedthrough the Rural Local Initiatives Sup-port Corporation, the Rural Policy Re-search Institute, the Center for the Studyof Rural America at the Kansas CityFederal Reserve Bank, the NorthwestArea Foundation, and the ARC.24

These innovations were reflected instate policies and programs across theSouth and throughout the nation. Thefollowing sections describe seven keyelements of this new approach to eco-nomic development.

1. Linking Human ResourceDevelopment to EconomicDevelopment

Perhaps the single most important development was that southern statesbegan to link quality education to eco-nomic development. Although southernstates had invested well in postsecondaryeducation for decades, they were at thebottom of the heap in expenditures onelementary and secondary education.An economy based on row-crop agri-culture, low-skill manufacturing, andextractive industries did not require ahighly educated or skilled workforce. In the new knowledge-based, globallycompetitive economy of the 1980s, theweakness of the labor force became analbatross on the South’s back.

As southern policy makers embracedthis understanding, a remarkable waveof education reform and funding began.The education reform movement thatbegan in Mississippi in 1982 swept acrossthe South, often promoted by southerngovernors on the basis of economicdevelopment. North Carolina fundedearly childhood education and develop-ment through Smart Start. Also, in sal-

Figure 3. Technology-IntensiveEmployment as a Percent ofTotal Employment

Figure 4. Number of Technology-Intensive Firms as a Percentof All Firms

12.0% –

10.0% –

8.0% –

6.0% –

4.0% –

2.0% –

0.0% – | |

1988 1997

� South � Rest of U.S.

7.0% –

6.0% –

5.0% –

4.0% –

3.0% –

2.0% –

1.0% –

0.0% – | |

1988 1997

� South � Rest of U.S.

Source: From Invented Here: Transforming the Southern Economy 15 (Research Triangle Park, N.C.:Southern Growth Policies Bd., June 2001). Reprinted by permission.

JOH

NL.

WH

ITE

/ NEW

S&

OBS

ERV

ER

Manufacturing associates work in a cell-culture room at Biogen Idec, a firmthat produces therapies for cancer andvaccines for hepatitis B.

governors whom it served—came a fer-ment of policy innovation. It was cap-tured first and perhaps most dramaticallyin the report of the 1986 Commissionon the Future of the South, entitledHalfway Home and a Long Way to Go.Given the charge of producing an eco-nomic development plan for the South,the commission set forth ten path-breaking objectives. The report broke

through the stovepipes of state and localgovernment programs and policies,integrating education, training, tech-nology, higher education, leadershipdevelopment, civic capacity, global com-petitiveness, and entrepreneurship into anew matrix of economic development.23

Other think tanks were undertakingsimilar innovative work in the 1980s:MDC, Inc. (of Chapel Hill), the State

aries for elementary and secondary schoolteachers, it moved from forty-third in1996 to twenty-third in 1999. Further,as noted earlier, the state now rankssixth in the nation in expenditures onpostsecondary education.25

2. Building Institutions to PromoteTechnology Development andDeployment

Beginning with the influential report ofthe Southern Technology Council in1989, entitled Turning to Technology,southern states began to create institu-tions formally to promote the diffusionof technology and innovation forpurposes of economic development.26

Examples include the Alabama Tech-nology Network, in which companiesincreased their sales by $28 million; theGeorgia Research Alliance, which overa decade invested more than $275 mil-lion in an infrastructure for innovation;and the Kentucky Innovation Act,which allocated more than $50 millionin technology initiatives and created aKentucky Innovation Commission.27

The leadership role that North Caro-lina exerted is noted earlier in thecreation of RTP, the MicroelectronicsCenter of North Carolina, the Biotech-nology Center, and the Board of Scienceand Technology.

Payoff from these investments can be seen in the growth of technology-intensive employment and firms (see

Figures 3 and 4, page 9). From 1989 to 1997, technology-intensive employ-ment as a percentage of total employ-ment grew by 34.3 percent in the South,from 1.46 million jobs to 1.96 million.In the same period, the number of tech-nology-intensive firms grew from45,000 to almost 77,000. On bothmeasures the South outpaced thenation. In North Carolina the growth of technology-intensive employmentwas 7.9 percent, roughly the southernaverage but lower than the nationalaverage of more than 10 percent. Tech-nology-intensive firms increased by 4.5percent, below the southern average of5 percent and the national average ofmore than 6 percent.28

3. Creating MultijurisdictionalInstitutions to Work on RegionalEconomic Development

As awareness grew that economies donot function according to artificialpolitical boundaries, states and localitiesbegan to create institutions for multi-jurisdictional planning and action.Some of these were federally createdregional planning districts formed underthe Economic Development Adminis-tration and the ARC in 1965. Othersissued from state legislative actions. Still others resulted from cities andcounties crafting their own instrumen-talities. Examples include the TennesseeResources Valley in the Knoxville–Oak

Ridge area, a sixteen-county economicdevelopment agency; the RegionalLeadership Council of Louisville, Kentucky, and southern Illinois, servingan interstate region of twenty-threecounties; the Greater Richmond Part-nership of Richmond, Virginia; and the Indianapolis Regional EconomicDevelopment Partnership.29 NorthCarolina created seven regional part-nerships for economic developmentunder the umbrella of the Departmentof Commerce (see Figure 1), in additionto its seventeen existing regional coun-cils of governments.30

4. Linking Community Development and Civic Capacity to EconomicDevelopment

As the South moved from a hierarchicalindustrial structure to a “flatter”services-sector economy, weaknesses inleadership and civic infrastructurebecame an impediment to growth anddevelopment. Again, the linkage wasfirst established in Halfway Home andA Long Way to Go, which had as one ofits ten objectives, “Develop PragmaticLeaders with a Global Vision.”31 Thisfocus on building leadership that is bothbroad and deep in communities hasgrown enormously in the past two de-cades. In fact, the Move the MountainLeadership Center estimates that leader-ship development is already a $1 billionindustry in the United States.32 All this

University of North Carolina 16Public Community College 58Private Senior College or University 35Private Junior College 3Theological Seminary 1Bible College 6

Total 119

Source: Adapted from NORTH CAROLINA ATLAS: PORTRAIT FOR A NEW CENTURY 362 (Douglas M. Orr Jr. & Alfred W. Stuart eds., Chapel Hill: University of N.C. Press, 2000).

10 p o p u l a r g ov e r n m e n t

Bible College 6

Total 119Figure 5. North Carolina Postsecondary Institutions, 1996 –1997

work and energy in building civic ca-pacity led the Southern Growth PoliciesBoard to create its Council on theSouthern Community, dedicated to thepromotion of model programs in capac-ity building in southern communities.33

There are literally hundreds of leader-ship development programs across theSouth and dozens in North Carolina,although many of them do not reach theneediest areas or serve the disadvantaged.Some, like Leadership North Carolina,are quite expensive, charging $2,500 fortuition. Since 1989 the Rural Center hasrun a leadership program expressly foreconomic development that costs only$495 and accepts thirty applicants peryear. Regional universities, like WesternCarolina University, also run programs.34

The linkage between leadership andcivic capacity and community develop-ment is explored in another article inthis issue, by Anita R. Brown-Grahamand Susan Austin (see page 14).

5.Working with Communities and Companies on Global-Competitiveness Strategies

Perhaps the most important impact oftechnology on the southern economyhas been the rapid globalization of it.The percentage of the U.S. gross domesticproduct accounted for by internationaltrade soared from about 13 percent in1970 to more than 30 percent today.The globalization of the production pro-cess and the adoption of free trade agree-ments have together destroyed tens ofthousands of old jobs and generatedtens of thousands of new ones, creatingin the process massive dislocations of the underskilled workforce of the Southin general and North Carolina in par-ticular.35 Further, the South still is anunderachiever in export sales. As CarolConway points out in her article in thisissue (see page 35), if southern busi-nesses exported at the national average,the South would have more than380,000 additional jobs. North Caro-lina would have about 56,000 of those.

Southern states have adopted pro-grams to help their communities andbusinesses become more globally com-petitive. Most have an internationalcomponent to their economic develop-ment departments, but it frequently isfocused on industrial recruitment. The

s p r i n g / s u m m e r 2 0 0 4 11

trade-promotion functions often aresmall and underfunded. World TradeCenters and programs at some univer-sities work with businesses and com-munities, and North Carolina has justlaunched a new World Trade Center onthe Centennial Campus of North Caro-lina State University. The effort is apartnership of the Community CollegeSystem and the university’s Office ofExtension and Engagement.36

6. Developing Programs to EnhanceEntrepreneurship

Regional organizations and states beganto develop more explicit and sophisticatedprograms to promote entrepreneurship,realizing that new and small businessescreate almost all the new jobs. In NorthCarolina, for example, according toRural Center estimates, firms with morethan 100 employees lost 42,000 jobs be-tween 1998 and 2002, while firms with50 or fewer employees created almost27,000 new jobs. Further, the latterfirms generated $14.5 billion in wagesannually and provided 614,000 jobs.37

Entrepreneurship programs varywidely from state to state. North Caro-lina is cited as a “model for entrepre-neurial infrastructure” in having the

university-based Small Business andTechnology Development Centers, thecommunity college–based Small BusinessDevelopment Centers, the programs of the Rural Center, a robust Rural Entrepreneurship through ActionLearning program in public schools,and the Self Help Credit Union, whichserved as the model for the federalCommunity Development FinancialInstitutions program.38

The most ambitious regional programis the ARC’s Entrepreneurship Initiative,now in its sixth year. The program hasinvested about $31 million of federalresources and leveraged another $45 million to help create an infrastruc-ture for entrepreneurship throughoutAppalachia. The initiative already hashelped create 1,200 new businesses andmore than 5,000 jobs. Most of theresults of the investments are yet to berealized. ARC funds helped establish theBlue Ridge Entrepreneurial Council inwestern North Carolina. During its first

Southern states have supported thecreation of small businesses, like the oneabove, and the strengthening of existingbusinesses but not to the extent that theyhave promoted industrial recruitment.

APP

ALA

CH

IAN

REG

ION

AL

CO

MM

ISSI

ON

Basic Approaches

Strengthening of Industrial Existing Creation of Recruitment Business New Business

InnovativeStrategies

CommunityStrategic Visioning

GlobalCompetitiveness

Cluster Development

Entrepreneurship

Deployment ofPostsecondaryEducation

year, it created a Blue Ridge Angel In-vestor Network, which raised more than$500,000 for one growing company. Italso hosted two conferences, one onbuilding entrepreneurial communitiesand another on venture capital andentrepreneurship. Further, the councilplans to raise $5 million for an angelinvestment fund.39

7. Deploying the Assets of Postsecondary Education

Another innovation was an expliciteffort to link postsecondary educationto economic development. Higher education already had proven the valueof this connection through the land-grant college system and cooperativeextension. Now it began to address thebroader range of development chal-lenges in the knowledge-based andtechnology-driven economy of thetwenty-first century. North Carolina wasa pioneer in deploying the strengths of its community colleges to train workersin manufacturing skills and technolo-gies. (These efforts are described in the article in this issue by Cynthia Lis-ton, Trent Williams, and Stuart Rosen-feld—see page 23.) Beyond training,Catawaba Community College hasworked with an industry cluster,through the Hosiery Technology Center,to make regional businesses more competitive. The center often is cited as a model.40 (For more about the cluster strategy and its use in CatawbaCounty, see the articlein this issue by Jona-than Q. Morgan, onpage 43.)

Connecting researchuniversities to the de-velopment needs ofstates and regions ledthe Southern GrowthPolicies Board topublish Innovation U:New University Roles in a KnowledgeEconomy in 2002. This book outlinesthe many potential roles for higher edu-cation in state and regional economicdevelopment. North Carolina StateUniversity is one of twelve universitiescited as a model for its work in industryresearch partnerships, technology trans-

fer, industrial extension and technicalassistance, and other programs.41

The infrastructure of higher educationis extensive in the Southand especially so inNorth Carolina. Thereis an institution ofhigher education in allbut twenty counties inNorth Carolina. In mostcases they can serve asa locus of action inareas that often sufferfrom weak institutionalcapacity. (For a mapshowing the extent ofpostsecondary educa-tion institutions across

North Carolina, see Figure 5, page 10).

The Innovation Matrix

It is a paradox that most expliciteconomic development funding goes tothe traditional approaches, especiallyindustrial recruitment, even though the

innovative practices and policies holdgreat promise for the future. As NorthCarolina ponders a new set of economicdevelopment policies and programs, thequestion arises: how can traditionalapproaches and innovative practices bemarried for the broadest and mosteffective development of this complexstate and its churning economy?

One way is by employing a matrixapproach to economic development.Across the top of the matrix are thetraditional approaches to economic de-velopment, and down the side are inno-vative strategies (see Figure 6).

The innovative strategies listed downthe left side are community visioning, global competitiveness, cluster develop-ment, entrepreneurship, and deploy-ment of postsecondary education—thesubjects of the other articles in thisissue. Other innovative practices couldbe included—tourism and retirementstrategies, telecommunication-basedstrategies, and regional cooperation, for example. In fact, any community

12 p o p u l a r g ov e r n m e n t

It is a paradox that mostexplicit economic develop-ment funding goes to thetraditional approaches,especially industrialrecruitment, even thoughthe innovative practicesand policies hold greatpromise for the future.

Figure 6. The Innovation Matrix

s p r i n g / s u m m e r 2 0 0 4 13

that is undertaking strategic planningand community visioning can tailor the matrix to its vision and strengthsand weaknesses.

The strength of the matrix is thatusing innovative strategies can enrichany of the traditional approaches toeconomic development. For example,industrial recruitment often can be moreeffective if it results from communityvisioning or is tied to existing businessclusters. Likewise, the existing industrybase often can be strengthened by de-ploying the assets of postsecondaryeducation institutions in a regionalcontext, relying on existing or emergingclusters. Also, business developmentstrategies can be more effective if tied totechnology or to explicit entrepreneur-ship programs.

Conclusion

The churning economy of North Caro-lina is filled with good news and bad. Theeconomy’s pillars are under enormousinternational stress, with no signs ofabatement. On the other hand, emergingsectors are strong and are creatingthousands of jobs, in part as a result ofthe state’s farsighted policies and invest-ments in technology and postsecondaryeducation. However, at the state level,the portfolio of programs needs rethink-ing and rebalancing among the threelegs of the economic development stool.

In thinking about new directions andnew policies for North Carolina, policymakers would be well advised to com-bine the traditional approaches to eco-nomic development with the innovationsthat this state helped launch and is con-tinuing to develop. By using the innova-tions matrix, the state and its commu-nities can move a long way toward trueglobal competitiveness in the twenty-first century.

Notes

1. See SHADOWS IN THE SUNBELT: DEVELOP-ING THE RURAL SOUTH IN AN ERA OF ECO-NOMIC CHANGE (Chapel Hill, N.C.: MDC,Inc., May 1986).

2. See STATE OF THE SOUTH 2000 (ChapelHill, N.C.: MDC, Inc., Sept. 2000).

3. Alfred W. Stuart, Manufacturing, inNORTH CAROLINA ATLAS: PORTRAIT FOR A

NEW CENTURY 177 (Douglas M. Orr Jr. &Alfred W. Stuart eds., Chapel Hill: Universityof N.C. Press, 2000).

4. NORTH CAROLINA RURAL ECONOMIC

DEVELOPMENT CENTER (hereafter RuralCenter), OCCASIONAL PAPERS (Raleigh: RuralCenter, 2003); 2 NORTH CAROLINA RURAL

ECONOMY (published by the Rural Center)no. 4, at 1 (2003).

5. Introduction, in Orr & Stuart, NORTH

CAROLINA ATLAS, at 1, 3; Rural Centerdatabase, available at www.ncruralcenter.org;TOBACCO AT A CROSSROADS, Report of aPresidential Commission 14 (Washington,D.C.: U.S. Dep’t of Agric., May 14, 2001).

6. See BUSINESS NORTH CAROLINA, Feb.2003, at 1, available at www.businessnc.com/archives/2003/02; STATE OF THE SOUTH 2000.

7. BUSINESS NORTH CAROLINA, Feb. 2003,at 1; STATE OF THE SOUTH 2000.

8. See BUSINESS NORTH CAROLINA, Feb.2003, at 1; STATE OF THE SOUTH 2000; Bureauof Labor Statistics.

9. STATE OF THE SOUTH 2000.10. See NC 20/20, at 162 (Raleigh: North

Carolina Progress Bd., Dec. 2001).11. Id. at 60.12. See DAVID M. LAWRENCE, ECONOMIC

DEVELOPMENT LAW FOR NORTH CAROLINA

LOCAL GOVERNMENT ch. 1 (Chapel Hill: Insti-tute of Gov’t, U. of N.C. at Chapel Hill, 2000).

13. See Research Triangle Park website, atwww.rtp.org.

14. Bank of America and Wachovia Bankwebsites, at www.bankofamerica.com,www.wachovia.com.

15. Rural Center website, at www.ncruralcenter.org.

16. AMY GLASMEIER ET AL., BRANCH PLANTS

AND RURAL DEVELOPMENT IN THE AGE OF

GLOBALIZATION 12–13 (Washington, D.C.:Aspen Inst., 1995).

17. RURAL CENTER, NORTH CAROLINA

BUSINESS DATA SOURCEBOOK 210–11 (Raleigh,N.C.: Rural Center, Oct. 2003).

18. DAVID TOMASKOVIC-DEWEY & JACQUELINE

JOHNSON, SOUTHERN RURAL ECONOMIC

DEVELOPMENT: THE BRANCH PLANT/LOCAL

FIRM DEVELOPMENT OPTIONS 2, 7 (Raleigh:North Carolina State Univ., June 1996).

19. North Carolina Dep’t of Commercewebsite, at www.nccommerce.com.

20. RURAL CENTER, INSTITUTE FOR RURAL

ENTREPRENEURSHIP, Occasional Paper(Raleigh, N.C.: Rural Center, 2003).

21. See Rural Center and Small Businessand Technology Development Centerswebsites, at www.ncruralcenter.org, www.sbtdc.org. A map locating the Small Businessand Technology Development Centers isavailable on the latter website.

22. See STUART ROSENFELD ET AL., AFTER THE

FACTORIES: CHANGING EMPLOYMENT PATTERNS

IN THE RURAL SOUTH (Research Triangle Park,N.C.: Southern Growth Policies Bd., 1985).

23. See HALFWAY HOME AND A LONG

WAY TO GO, Report of the 1986 Commission on the Future of the South (Research Triangle Park, N.C.: Southern GrowthPolicies Bd., 1986).

24. See the organizations’ websites, atwww.mdcinc.org, www.aspeninstitute.org,www.cfed.org, www.nga.org, www.southern.org, www.ruralisc.org, www.rupri.org,www.kc.frb.org/RuralCenter, www.nwaf.org,www.arc.gov. The Council of State PolicyAgencies no longer exists.

25. See Quality Education for All, in NC20/20, at 59.

26. SOUTHERN GROWTH POLICIES BOARD,TURNING TO TECHNOLOGY (Research TrianglePark, N.C.: the Board, 1989).

27. See SOUTHERN GROWTH POLICIES

BOARD, INVENTED HERE: TRANSFORMING THE

SOUTHERN ECONOMY (Research Triangle Park,N.C.: the Board, June 2001).

28. Id. at 15, 60.29. See the organizations’ websites, at

www.trv.org; www.greaterlouisville.com/city/gl_spanning.asp; www.grpva.com;www.iredp.com.

30. See North Carolina Dep’t of Commercewebsite, at www.nccommerce.com.

31. HALFWAY HOME AND A LONG WAY TO GO.32. See SOUTHERN GROWTH POLICIES

BOARD, REINVENTING THE WHEEL (ResearchTriangle Park, N.C.: the Board, 2003).

33. Id.; Southern Growth Policies Bd. andAppalachian Regional Comm’n websites, atwww.southern.org, www.arc.gov.

34. SOUTHERN GROWTH POLICIES BD.,REINVENTING THE WHEEL; Southern Growth Policies Bd., Appalachian RegionalComm’n, and Rural Center websites, atwww.southern.org, www.arc.gov, www.ncruralcenter.org.

35. Evaluating International Trade in theSouth, 4 SOUTHERN GROWTH (published bySouthern Growth Policies Bd.) no. 1 (1997).

36. North Carolina World Trade Org.website, at www.ncwta.org.

37. RURAL CENTER, PRESS RELEASE (Raleigh,N.C.: the Center, Oct. 23, 2003).

38. Brian Dabson, Supporting RuralEntrepreneurship, in EXPLORING POLICY

OPTIONS FOR A NEW RURAL AMERICA 35(Kansas City, Mo.: Center for the Study ofRural America, Federal Reserve Bank ofKansas City, Sept. 2001).

39. See Appalachian Regional Comm’n andBlue Ridge Entrepreneurial Council websites,at www.arc.gov, www.ncmtns.biz.

40. See INTERNATIONAL ECONOMIC DEVEL-OPMENT COUNCIL, ECONOMIC DEVELOPMENT

NOW (Washington, D.C.: the Council, July2002).

41. LOU G.TORNATZKY ET AL., INNOVATION

U: NEW UNIVERSITY ROLES IN A KNOWLEDGE

ECONOMY (Research Triangle Park, N.C.:Southern Growth Policies Bd., 2002).