North Carolina's economic development strategy is at a crossroads. As a confidant of the Governor, it's up to you to make a key recommendation. Background Battle Economy Road Ahead Public Debate Your Task Your Dossier Navigating Where to Begin

Background The Battle IN EARLY 1996, North Carolina's economic development strategy was at a crossroads. At issue was the fundamental question of the state's role in shaping the economy's trajectory. The debate echoed within the Governor's office, in the chambers of the state legislature, the halls of city and county government, in board rooms and courtrooms across the state. Discussion in North Carolina's capital city, Raleigh, focused on whether and how the state should attempt to match or beat bids from other locales hungry for investment capital. Inter-state bidding wars had become increasingly common in the 1990s. States deployed an ever-increasing arsenal of economic development incentives to attract new businesses and lure existing ones away from other states. North Carolina watched as neighbors in the Southeast snared one major industrial project after another. [GO TO BRIEFINGS: THE ART OF THE DEAL.] Commerce officials kept a particularly keen ear on rumors about a rare "trophy" project that might be on the way. The rumors concerned what some believed to be among the last few large-scale auto-assembly plant possibilities, capping the end of a decade and a half of major investments in the Southeast by foreign-owned auto manufacturers. The Economy UNDERLYING THE DEBATE were fears about the future of the North Carolina economy. While North Carolina passed most economic fitness tests with high marks, signs foretelling its economic future appeared mixed and, to some, deeply troubling. [GO TO BRIEFINGS: BUSINESS AND THE ECONOMY.] Increased competition from neighboring states as well as countries around the globe threatened to dampen the momentum of an economy that had generated more jobs over a shorter time than almost any other state in the nation. Fears of stagnation led to visions of a polarized economy, split between fast-growing "urban corridors" and perpetually depressed rural outskirts. To ensure economic well-being, all agreed, North Carolina would need to undergo a second industrial revolution, transforming many of the low-wage, low-skill manufacturing jobs on which its prosperity had depended for more than three decades into jobs in newly-emerging sectors of the global economy that demanded higher levels of skill and brought higher wages.

The Road Ahead

BROAD AGREEMENT prevailed within North Carolina about the direction in which the economy should head, but little consensus existed about how to get there.

PROPONENTS OF INCENTIVES, including economic development professionals and officials in the Commerce Department, argued for expanding the state's toolbox of incentives to ensure that the state remain competitive.

In February 1996, the state's major economic development advisory board approved the report of a task force on the state's use of incentives that called for increased emphasis on tax credits to attract new investment capital. The Governor's chief economic policy advisor prepared the extensive analysis of the state's economy and competitive position that underlay the report's recommendations. The analysis, he believed, conclusively demonstrated that without an increased use of incentives, the state had little hope of attracting the kinds of investments that would serve as engines of growth into the 21st century. [GO TO BRIEFINGS: INCENTIVE POLICY.]

CRITICS OF INCENTIVES -- among them prominent legislators, business leaders, and policy analysts -- held the view that incentives were a distraction from state government's real task of fostering a healthy climate for all businesses over the long term. They reasoned the state still had strong positives that would continue to attract new investment capital while retaining and nurturing existing firms.

Moreover, some believed, incentives could do great harm, if recipient corporations were not in some way held accountable for their use of government funds. According to this view, industrial relocation incentives amount to a zero-sum game, with firms holding out the threat of passing over a site or relocating in exchange for concessions that could have negative consequences for a community's quality of life and workforce. Some argued that money spent on incentives was better put not in the pockets of individual businesses but towards bolstering the state's structural weaknesses, such as overhauling the state's educational system among other investments that would have more clearly-defined returns for the state's workers and taxpayers.

The Public Debate

THE ISSUE WAS MADE MORE POIGNANT in late 1995 and early 1996 by a court case that posed a challenge to a local government's use of public funds to attract private firms, with possible ramifications for the use of incentives throughout the state. Known as The Maready Case, the challenge made its way to North Carolina's Supreme Court in February 1996, two days after the Economic Development Board came forward with its recommended expansions.

The constitutionality of incentives was upheld in early March 1996. But the case appeared to reinvigorate a wider debate about the economic, social, and political ramifications of their use. Discussion of incentives promised to figure prominently in the 1996 session of North Carolina's legislature, due to begin in May, as well as the upcoming campaign for Governor through the summer and fall of the year.

Your Task

YOU ARE AN OLD FRIEND AND CONFIDANT of North Carolina Governor Jim Hunt, with no official role in his administration. He is nearing the end of his current term and is soon to launch a re-election campaign. Gov. Hunt senses that his efforts in the realm of economic development policy have the potential to be hallmark acheivements of his administration.

Now that the Incentives Task Force has issued its report and the Maready case has been resolved, the legislature, the press, the business world, and ultimately the voters are waiting to see what the governor's position will be.

The Governor has asked for your advice. He has made available to you all the information and recommendations that have reached him on the issue of whether, how, and how aggressively to recruit business. You have agreed to distill your advice into a confidential, 600-word memo.

Your memo outlines the basic strategy he should pursue as he presents the legislature with his position on industrial recruitment. The memo should clearly articulate a rationale for that strategy, based on your understanding of North Carolina's economic situation, its competitive position with regard to neighboring states, and the state's historical use of incentives. Read the interviews, the newspaper articles and the other information you can find at this Web site and consider the issues. (See Dossier below.) Your memo must have a point of view and a conclusion, and it must make use of details that you can find at this Web site.

Your Dossier

Information in this Web-based case is available to you in three different ways: through the Roundtable, Briefings, and Guide pages.

• ROUNDTABLE gives you perspectives on state policy towards economic development incentives through the eyes of key figures in the debate. Each interview is linked with relevant documents and news articles.
  • Rick Carlisle, Economic Policy Advisor to the Governor
  • Gary Carlton, Director of Business and Industry Development, Department of Commerce
  • Daniel T. Blue, Jr. (D-Wake County), North Carolina House of Representatives
  • John Hood, President, The John Locke Foundation
  • The Editorial Page: Editorials and opinions about incentives from North Carolina's newspapers
    
    
• BRIEFINGS provides information on the issues through four special reports, each with a short narrative followed by a section of key links:
  • Incentive Policy - a brief sketch of the evolution of state-level policy towards incentives with links to the reports of the Incentives Task Force and news articles.
  • The Maready Case - an outline of the history of the Maready case with links to principal and amici briefs, as well as reportage.
  • The Art of the Deal - a view through news articles into the projects that make up the daily business of industrial recruitment.
  • Business and the Economy - links to key sources of information about the economy of North Carolina and the state's business climate.
    
    
• GUIDE to the issues and information includes:
  • an index of all of the pages and documents on the site, and
  • links to web-based resources about North Carolina and the Southeast.

Other important pages of this case include:

• CASE HOME, the current page, introduces the case, describes the situation facing the Governor, details the task facing you as the Governor's advisor, and sketches the structure of the case with hints about finding information efficiently.
  
  
• OUT-BOX provides an email link to the Case Program for comments and suggestions.

Navigating the Case

Links to all the above pages appear at the bottom of every page of the case, as well as along the top left-hand side of the case's major pages. You can reach this page through the Case Home link.

Where to Begin

The case is designed to be approached in several different ways. You should begin by reading the Backgroundsection above. You can then approach the case either through the Roundtable or Briefings.

If you go to the Roundtable, you might want to read the conversation with Rick Carlisle first. Carlisle, the Governor's chief economic policy advisor, paints a broad picture of the state's economy as well as the evolution of the state's use of incentives. Carlisle goes on to describe the recommendations of the Incentives Task Force. John Hood might then provide an interesting counterpoint. His view of state government's role in shaping the trajectory of the economy contrast with those of Carlisle and the findings of the Incentives Task Force.

Entering the issues through Briefings can also present a spectrum of thinking on the issues. Incentive Policy gives a quick sketch of the ways in which state policy towards economic development has evolved and provides specific insight into the situation in North Carolina. The Maready Case then probes fundamental questions in greater detail through a range of opinions expressed in the legal briefs prepared for the state's Supreme Court.

Click on the ROUNDTABLE or BRIEFINGS icon below to begin.

This case was written and developed by David Eddy Spicer of the John F. Kennedy School of Government Case Program under the direction of John D. Donahue, associate professor of public policy, Kennedy School of Government, and Case Program Director Howard Husock. Funding was provided by The Ford Foundation through Minnesota Public Radio's Civic Journalism Initiative.