United we stand, divided we fall?

• Author: Noland, Terrance
• Position: Regionalism in North Carolina - Includes related articles on business in the state - Cover Story

The state doesn't think so. But some say regionalism has diminished North Carolina's value as a brand name.

In August, after the General Assembly passed a slate of tax credits to entice new industry, the state Commerce Department sent 320 footballs plastered with North Carolina's name to site-selection consultants and companies around the country. "We're back in the game," read the accompanying letter from Commerce Secretary Dave Phillips.

The game, of course, is tackling new industry. North Carolina was once the champ. No more. As the late Bill Lee put it last July, "We're getting our clock cleaned." The lack of reliable numbers makes score-keeping tough (see page 11), but North Carolina has clearly slipped in recruiting, particularly of big projects. (Remember how those M&Ms - Motorola and Mercedes - melted in our hands.) There's more at stake than wall trophies. Bringing in new companies - along with expanding existing businesses - is at the heart of job creation and economic development.

So what's the problem? The easy answer, the one Commerce officials like to trot out, is incentives - the state's relative lack of them. That's played a role. As other states upped the ante, North Carolina could no longer rely solely on its business climate, ranked tops in the nation by Site Selection magazine four years running.

Now that the incentive package has been sweetened, Commerce officials say the state is back on track. "It's already paying off, paying off big-time," Gov. Jim Hunt told members of the North Carolina Economic Developers Association in late October. "We've already announced seven new companies - 1,600 jobs." One of those is a 600-employee Corning Inc. optical-fiber plant in Cabarrus County, which Phillips attributes directly to the new tax credits.

Though they will help, the incentives won't be a panacea. There are other problems, problems that run much deeper, that won't disappear with a few tax credits. Just ask the consultants who specialize in helping companies relocate. For starters, they say the state's shortage of qualified labor is a bigger factor than incentives (see page 26). Furthermore, some of the tax credits are heavily weighted toward distressed counties and offer little to companies that want to be near metro areas.

Perhaps most unnerving, though, is that some neighboring states have become much more aggressive in their recruiting - and not just in terms of incentives. They're simply doing a better job selling their states. "We're getting the hell beat out of us by Virginia and by South Carolina and others on our sales efforts," says a large private developer in North Carolina. "They are much better organized at the state level."

They're doing this at the same time North Carolina is shifting much of its marketing effort to its seven regional economic-development partnerships. Regionalism has plenty of proponents, but there has been grumbling since the state decentralized its marketing in 1993. Few will say so publicly, but some developers fear it dilutes the state's efforts, gives poorly developed places false hope and wastes money that could be better spent.

"Dave Phillips was determined to ram this regionalism down everybody's throats, and everybody's had to get on the bandwagon, more or less, because you're fighting city hall," says the developer, who asked not to be identified. "But all the professionals in the business, almost without exception, think it's one of the most horrible things that has ever been done, that it's actually counterproductive and that it's about destroyed the Commerce Department as a sales agency for the state."

That's a stretch. But the vehemence, if not the validity, reflects a real concern that North Carolina is stumbling after years of stepping high. "People are disappointed," says Alvah Ward, who from 1980 to 1993 was director of Commerce's Business/Industry Development Division, the lead recruitment agency. "It's kind of like seeing your old ball team getting its ass kicked."

Soon after textile executive Watts Carr III took over the division in early 1993, brought in by new secretary Phillips, he had "kind of a gut feeling" the state was slipping. He hired a consultant to do an analysis. "They used quotes like 'North Carolina is running on fumes.' They said we were living off our reputation and that we were no longer competitive in this new game being played with incentives."

North Carolina built its reputation over decades. In the late '50s, it was among the first to aggressively woo business away from other states. Touting cheap labor and land and offering to train workers for free through its community colleges, the state attracted a steady stream of manufacturers and other industries. Their coming created one of the Southeast's strongest economies.

Other states eventually got wise, some offering property-tax waivers and other inducements to counter any cost advantages North Carolina had. By the late '80s, the state's dominance in the Southeast was eroding. "The states we're competing with were funneling bigger and bigger chunks of money to their economic-development efforts," Carr says. "And North Carolina wasn't. It was almost as if we were resting on our laurels and saying, 'Who needs it? Things are going to come here anyway.'"

Phillips puts the blame squarely on incentives, which escalated in the '90s. "What we found over the last three years is that many companies were simply bypassing North Carolina...