Editor’s note: Thomas E. Vass is an investment advisor and Republican activist, who lives in Swift Creek, North Carolina. He is writing in response to a Guest Opinion piece by Noah Pickus, director of the Institute for Emerging Issues, about recommendations stemming from last week’s Emerging Issues forum. Also, LTW asked forum staff about funding for the events and the makeup of the speakers. While salaries for the Institute for Emerging Issues come through NCSU, the event is paid for by attendees and sponsors, the IEI said. Also, at least three speakers were Republicans and several panelists were Republicans.
SWIFT CREEK,There is something terribly wrong with North Carolina’s economy. Per capita disposable income growth rates have stagnated, showing no increase from $23,000 in 2000 to $23,000 in 2001. In comparison, Virginia’s per capita disposable income grew from $26,308, to $27,282 in the same time period.
The number of individuals living in poverty in North Carolina has increased in four years from 945,000 in 1995 to 967,000, in 1999. Manufacturing employment, thanks to (Bill) Clinton’s NAFTA, has dropped from 850,000 to under 750,000 in five years.
Nineteen counties in the state have chronically high unemployment rates over 8%, with the duration of unemployment now averaging over six months. The state now boasts both the highest marginal tax rates and highest unemployment rates in the Southeast.
Amid this economic catastrophe, created and delivered by the Democrats who managed the state’s economic policies for the past 100 years, Governor Jim Hunt has just held another one of his glitzy political shows in Raleigh, paid for at taxpayer’s expense. I estimate that his two-day political event, called the “Emerging Issues Forum” cost the taxpayers about $350,000. This is the 18th time he has pulled this trick, using taxpayer funding to provide an annual partisan platform for his ambitions, a grand total expenditure amounting to about $6.5 million.
The small news here, given the great financial suffering in the state, is that Governor Hunt continues to blithely convert public tax dollars to promote his partisan political purposes. The big news is what the Democrats have in mind now for a “new” economic plan for North Carolina, that Governor Hunt unveiled at his conference.
More centralized power
Having spent this state into oblivion and squandered the prospects for economic growth, their new plan calls for even greater levels of state sponsored socialism, centralized and controlled from Raleigh. Their new plan politicizes the University system, while further destroying local government’s ability to function. The essence of the plan is a dramatic increase in the centralized political powers of (UNC System President) Molly Broad’s office that involves her move from policy coordination to direct program operation on the 16 campuses.
Under the Democrats, local elected units of governments have been eviscerated in favor of funneling tax dollars and programs through shadow governments accountable to a very few politicians in Raleigh. All of the state’s so-called “regional partnerships,” the Rural Center, The Technological Development Authority, The Micro Electronics Center, Global TransPark, and the NC Biotech Center, all fit this model of Democratic political activists running shadow government agencies. Every tax dollar converted in this centralized scheme to these shadow governments is a dollar diverted from local governments.
As an example of this tax diversion, since 1996, the Democratic tax incentive “Bill Lee” Act has now exempted $90 million dollars of tax revenues that used to be paid by corporations. In addition to the $90 million not paid so far, the companies have deferred tax payments of another $325 million. It is no accident in math that the $400 million that Governor Easley illegally withholds from county and city governments is $400 million not paid by these private companies. The state government deficits were created by the Democrats by increased spending, in conjunction with decreased taxation of their corporate pets, but the local governments are paying the costs in terms of withheld tax receipts. Incidentally, according to a study by Dr. Mike Lugar, at UNC-CH, these were not “newly” recruited companies to North Carolina. These were existing tax paying companies, who had been in business over 20 years in the state, who now, thanks to the Democrats, avoid paying taxes on their income.
The new Democratic plan to politicize the University system is economically dangerous. The 17 “small business centers” envisioned in the plan will not be under the authority of either local universities or by local elected leaders, but controlled by politicians in Molly Broad’s office, and funded by the North Carolina Department of Commerce. The political activists who are slated to manage the centers are bureaucrats with zero connection to the private sector and zero track record in successfully generating private sector job growth.
It is a politically dangerous plan because it does not derive its authority in any measure from the consent of the governed. It serves to further eviscerate the legitimate authority of locally elected governments by creating another centrally controlled bureaucracy that will eat local tax dollars. Just like the Lee Act, and the politically-tainted Golden Leaf Foundation, the Democrats have never built in any accounting of the tax dollars spent, performance evaluations of their schemes to convert tax money to partisan uses, or political accountability to the citizens. Their shadow governments operate in secret.
Republican alternatives
A Republican alternative to the Democratic plan of state sponsored socialism has four components. The goal of the plan is to create hundreds and hundreds of home-grown new ventures in each of North Carolina’s 10 metropolitan economic regions. In order to reach this goal, a Republican strategy sees the local elected governments as the legitimate partners to manage government economic programs. The goal of a Republican plan is to provide local elected officials with the tools and resources that they need to execute their duties to the citizens who live in their regions.
Second, a Republican economic strategy seeks the mechanism of the private market to create the conditions of prosperity and job growth. A Republican approach is to create private regional capital markets and private regional mutual funds that direct capital to private new ventures created within the region. If the University system is to be engaged in this enterprise, it should be engaged as a junior partner to private sector entities and free market initiatives to commercialize technology.
This second Republican policy component, aimed at improving capital market infrastructure, must correct the weakness caused by the Democratic policy of recruiting low-wage branch manufacturing plants, who in turn, exported their profits. As a result of profit-exporting, the state’s small businesses have never had an adequate source of local capital to invest in their new ventures. The source of capital should have been profits from existing companies, but under the Democrat’s low-wage industrial recruitment schemes, all the profits were exported to the out-of-state headquarters of the multi-national corporations. This Democratic scheme of continually recruiting outside industry also made North Carolina’s economy wildly over-dependent on manufacturing employment, the most vulnerable sector to the unemployment effects of NAFTA.
The new Democrat Plan, to overcome their self-induced capital gap, is to use tax dollars to fund politicized venture capital funds, like BioVista, which is headed by Democratic partisans, and funded by Democratic activists at the Golden Leaf Foundation. Of course, these investment selections will be hopelessly doomed to failure because the selections will be based upon the politics. Politics, not business judgment, or commercial merit, will rule.
Third, a Republican strategy would address the education and training needs of workers, as a priority, not the needs of each newly-recruited company. The greatest wealth and prosperity for individual workers comes from gaining multiple skills that they can use to compete in the free market. A Republican plan would authorize locally elected leaders to coordinate publicly-funded skill training in their regions, targeted to creating the highest level of skills for citizens. The Democratic plan, in a chilling, collectivist vision, states that workers should only be “paid a living wage.” Rather than the socialist Democrat idea of trying to command and control what constitutes a “living wage,” or trying to fit each worker to a set of non-transferable company-specific job skills, a Republican vision attempts to free workers to obtain, for themselves, the maximum value for their skills.
Fourth, and most importantly, a Republican strategy would deliberately and purposefully de-fund the huge centralized Democratic bureaucracy. Governor Hunt was a master at packing government agencies and non-profits, with leftists, who owe their allegiance to the Hunt political machine. That beast must be killed, and income and sales taxes in the State must be reduced, in order for private sector initiatives to work.
New government bureaucracies in the University system will not create economic wealth, and Democrat controlled venture capital funds will continue to waste precious investment capital. The Democrat’s new idea to further politicize the University system, under the guise of fostering “entrepreneurial energy” in small business centers run by leftists is laughable. Their new idea to create more partisan tax-funded venture capital pools is both economically backwards and dangerous to North Carolina’s economic health.
The Democrats are directly responsible for creating the economic disaster in North Carolina. Republicans, and local elected leaders throughout this state, must band together in this “de-funding-the-left” enterprise, in favor of re-funding local governments and re-powering free enterprise. Otherwise, North Carolina’s economy will continue on its Democrat socialist trajectory of looking just like any other failed third-world socialist regime in the world.
To read the Pickus Guest Opinion, go here:
www.localtechwire.com/article.cfm?u=3353
Vass is an investment advisor and Republican activist, who lives in Swift Creek, NC. You can read more about his thoughts on North Carolina economics, politics and history at his web site:
