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

YOU DECIDE:FROM HERE TO WHERE?

By Dr. Mike Walden
North Carolina Cooperative Extension Service

There's no question that North Carolina's economy is changing. Traditional industries are shrinking, new industries emerging and globalization and more world trade are shaking up the entire economy.

Sometimes it's valuable to ask how we got here and where we are going.

Two hundred years ago, North Carolina had little industry. Turpentine, tobacco and corn were the leading cash producers. A handful of textile mills sold primarily to local customers.

As agriculture mechanized, thousands of workers released from the farm formed a pool of low-cost labor. Gradually, Northern textile mills and furniture factories migrated south to exploit the inexpensive labor and access the region's forests and cotton crop. By the early 20th century, North Carolina was the leading textile- and furniture-manufacturing state.

Tobacco manufacturing, a homegrown North Carolina industry, began in the late-19th century when a machine for rolling tobacco into cigarettes was developed. Since the state already led in producing raw tobacco leaf, it made sense for cigarette-making entrepreneurs to build their factories here.

Throughout most of the 20th century, the "Big Three" - tobacco, textiles and furniture - dominated North Carolina's economy. By the 1960s, the Big Three directly accounted for 67 percent of manufacturing employment and provided more than 25 percent of the state's jobs.

However, by century's end, one of the key factors that helped build the Big Three in North Carolina, the availability of low-cost labor, began to undo their dominance. Decreasing worldwide transportation and communication costs and lower trade barriers between countries meant that even lower-cost labor in foreign countries could be accessed and used. To compete, American manufacturers had to rely on labor productivity improvements, meaning less labor was needed to produce the same output.

Consequently, the Big Three downsized. Employment in the three industries was cut by 60 percent between 1970 and 2004.

Fortunately, new industries emerged in North Carolina, centered on technology, pharmaceuticals, financial services, food processing and tourism - the "Big Five."

Both production and employment in the Big Five grew in the last third of the 20th century, just as the Big Three shrunk.

Yet as we survey the economic landscape in 2005, questions face both the traditional Big Three and the new Big Five. China's emergence as a world economic power accelerated job losses in textiles and furniture. The federal tobacco program's end was partially prompted by increasing imports of foreign-grown tobacco leaf.

The tech bubble's bursting in the late 1990s led to a 30 percent reduction in tech employment in the state. The financial services industry is restructuring, and some payrolls are being pared. Prices and safety are issues confronting the pharmaceutical industry, and environmental concerns are one of the big factors addressed by food processors. Finally, uncertainties over gas prices and soaring real estate prices have caused some to ask if the tourist industry in the state has peaked.

Economies always change over time, but it appears the pace of change has accelerated. Adaptability, openness and innovation have always been the strengths of the American economy, and it appears we'll have to rely on these characteristics again in getting from here to wherever there is. You decide if this will be enough!

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Dr. Mike Walden is a William Neal Reynolds Professor and extension
economist in the Department of Agricultural and Resource Economics of North
Carolina State University's College of Agriculture and Life Sciences. He
teaches and writes on personal finance, economic outlook and public policy.
His You Decide column is provided every two weeks by the Department of
Communication Services. Earlier You Decide columns are available on the Web
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