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YOU DECIDE: How is North Carolina's economy changing?

July 13, 2007

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

Dr. Mike Walden
Media representatives: For a black-and-white or color copy of this photo, call 919.513.3127 or e-mail dave_caldwell@ncsu.edu.

Two recent announcements signaled the continuing change in North Carolina's economy.

The first was that the giant Philip Morris cigarette factory near Charlotte was closing. Then, just days later, Hanes, an apparel manufacturer, announced major job cutbacks. Both reductions will result in several thousand fewer manufacturing jobs in two of the state's traditional industries.

But these were only the latest blows to tobacco and textiles.

Throughout most of the 20th century, North Carolina's "Big Three" -- tobacco, textiles (including apparel) and furniture (including lumber and paper) -- dominated the state's economy. As recently as the late 1970s, the Big Three accounted for 22 percent of the state's economic production and two-thirds of all manufacturing production.

Today, output from the Big Three is only 7 percent of the state's total output and 25 percent of manufacturing production. Plus, the industries have cut 300,000 jobs in the last three decades.

The reasons are familiar: international competition, cheaper foreign labor, lower trade barriers and fewer people using tobacco. However, the job losses in textiles started before globalization, when the industry introduced more machinery and technology to boost labor productivity.

And as indicated by the impending downsizing at Philip Morris and Hanes, the reductions aren't over. Industry observers expect more production and job cuts in the Big Three at least over the next decade. The Big Three's share of the state economy will shrink to 4 percent, and these industries will eliminate another 50,000 jobs.

Yet the industries won't disappear. There will likely always be smokers in the country to supply. The textile industry is seeing growth in non-clothing products related to residential and commercial construction, and more apparel production will be focused on high-end styles as well as high-tech specialty clothing for military and business buyers. Domestic furniture factories will cater to smaller niche markets and emphasize delivery speed and service after the sale.

However, if the Big Three carried North Carolina's economy for much of the last century, and if those companies are now disappearing, what has this meant for the overall state economy? Are we floundering and falling behind? It would be understandable if the answer were "yes."

The answer, though, is "no." In the last 30 years North Carolina's economy has actually grown faster than the national economy, and income per person has approached the nationwide average. Of course, the progress hasn't been in a straight line, but over the long haul, North Carolina's economy did not fall, but rose.

The reason: North Carolina's economy was totally remade over three decades. The Big Three -- tobacco, textiles, furniture -- were replaced by the Big Five -- technology, pharmaceuticals, banking, food processing and vehicle parts.

Thirty years ago, Big Five industries were a minor part of the state's economy, making up less than 10 percent of production; today, the Big Five share has almost doubled to 17 percent. "Tobacco Road" has been replaced by highways leading to computers, medicines, banks, meat products and car accessories.

Unfortunately, the transformation hasn't been smooth or without issues.

One problem is that workers let go by the Big Three don't necessarily have the training and skills required by positions in the new Big Five. Unless the displaced workers go back to school for retraining, their employment options may mean a lower living standard.

The second issue is that the transformation has not occurred in every region of the state. Most new income and jobs created by the Big Five were in urbanized counties along the I-40/I-85 corridor stretching from Wilmington to the Research Triangle to the Piedmont Triad and on south to Charlotte. Many of the state's rural and small town communities were left out of the new economy and still rely on the Big Three.

To paraphrase an old car ad: "This is not your father's North Carolina." Our economy today is very different than it was 30, 40 and 50 years ago. With changes have come challenges, disappointments and opportunities.

One thing is for sure: The clock won't be turned back.

Therefore, we all have to decide how to live in the new economy and the new world of the Big Five.

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ces.ncsu.edu/depts/agcomm/writing/walden/index.html

Posted by Dave at July 13, 2007 09:22 AM