NC recovery difficult as urban-rural divide deepens

By Michael Walden, William Neal Reynolds Professor, NC State University, in News and Observer "Point of View," July 12, 3013

North Carolina’s economy was slammed by the Great Recession, with statewide unemployment passing 11 percent and more than 300,000 jobs being lost between 2007 and 2010. In the last three years, the state’s economy has rebounded – 200,000 jobs have been added, and aggregate production of goods and services is now back to pre-recessionary levels. Still, the statewide jobless rate in mid-2013 was 8.8 percent, 1.2 percentage points higher than the national rate.

Though we can talk about a statewide economy, traditionally North Carolina has been composed of many regional economies. In particular, the economies of the large urban areas have followed a very different path from the economies of the state’s small towns and rural areas. Perhaps at no time have we seen these economic paths diverge more than in the last quarter-century.

Specifically, the state’s urban regions have prospered, while many small towns and rural regions have made few if any gains. For example, since 2001 North Carolina’s metropolitan counties have experienced a 23 percent increase in total output of goods and services (technically called “gross domestic product”), while nonmetropolitan areas (rural areas and small towns) have had a gain of only 6 percent.

Two factors are responsible for these divergent results: the development of information technology and the increase in foreign trade.

Information technology has spawned entire new industries and rendered many older industries obsolete and has replaced “brawn-power” with “brain-power” as the most significant worker characteristic. What’s more important now is how workers think, solve problems and create solutions. This means college-educated workers, particularly in the scientific, technological and management fields, are the hottest commodity for companies.

The information technology revolution has been a boon for urban areas for two reasons. First, this is where most colleges and universities are located, and it’s also where most young college grads want to be. So expanding companies in the new economy know they can get a ready supply of college graduates in big cities.

Second, many in the information technology field – such as program designers, web site developers and young workers – value social interaction and collective decision-making and problem-solving. By definition, these interactions are easier in highly dense urban areas.

At the same time, the second recent trend-setter – increased world trade – has worked to the disadvantage of many small town and rural areas. In North Carolina in most of the 20th century, the largest employer in small towns and rural areas was the textile and apparel industry. Also important were the forestry, furniture and – of course – tobacco industries.

These industries have each been adversely affected by the movement in the last quarter-century toward more free and open world trade. The North Carolina textile and apparel industry has lost 60 percent of its production since 1997, much of it to lower-cost foreign producers. The domestic tobacco, furniture and forestry industries also face stiffer foreign competition.

So North Carolina’s urban and rural areas have gone in different directions, and this can clearly be seen since the bottom of the Great Recession and the slow recovery. Since early 2010, the state’s “big three” metropolitan regions – the Triangle (Raleigh-Durham-Chapel Hill), Triad (Greensboro-Winston-Salem) and Charlotte have increased their jobs at a 7 percent rate, 40 percent faster than the national and state rates. These three areas alone have accounted for 70 percent of all job growth in the state.

Indeed, two of these metropolitan areas – the Triangle and Charlotte – now have employment totals above their pre-recessionary levels. In contrast, job growth since 2010 in North Carolina outside the “big three” metro areas has been a very slow 3 percent.

So a good case can be made that what ails North Carolina’s economy is the “hurt” that has been put on small town and rural areas from trends beyond their control over the past 25 years – and particularly in the past decade. While these trends have largely benefited urban areas, they have battered rural regions.

What’s also worrisome is that some development strategies may actually make the problem worse. Young people from rural areas who go off to urban colleges may never go home.

The urban/rural divide in North Carolina is not new, but it appears to have widened. It’s perhaps the greatest economic challenge facing our state.