The Southeastern Growth Corridors

February 28, 2013

A little over two years ago in a New Geographer piece in Forbes, Joel Kotkin suggested that 2010 would be viewed by future historians as marking the end of the California era and the beginning of the Texas one.

This week Mr. Kotkin is in the Wall Street Journal extending his analysis beyond those two states and concluding that there are four “Red State Growth Corridors,” two of which are located in our region:

These trends point to a U.S. economic future dominated by four growth corridors that are generally less dense, more affordable, and markedly more conservative and pro-business: the Great Plains, the Intermountain West, the Third Coast (spanning the Gulf states from Texas to Florida), and the Southeastern industrial belt…  Historically, these regions were little more than resource colonies or low-wage labor sites for richer, more technically advanced areas. By promoting policies that encourage enterprise and spark economic growth, they’re catching up…

Cheap U.S. natural gas has some envisioning the Mississippi River between New Orleans and Baton Rouge as an “American Ruhr.”  Much of this growth, notes Eric Smith, associate director of the Tulane Energy Institute, will be financed by German and other European firms that are reeling from electricity costs now three times higher than in places like Louisiana.  Korean and Japanese firms are already swarming into South Carolina, Alabama and Tennessee. What the Boston Consulting Group calls a “reallocation of global manufacturing” is shifting production away from expensive East Asia and Europe and toward these lower-cost locales.

In the course of his article Kotkin cites Chief Executive magazine’s eighth annual survey of CEO opinion of Best and Worst States in which to do business.

The Top 10 looks familiar to us, as it constitutes most of the geography in which we have focused our investment efforts for over twenty years now.

In each of the survey’s 8 years, Texas has ranked #1 and California #50 (its “enduring place of perpetual decline“).

Not only does our Region dominate the ranking, it also boasts the most improved state: Louisiana.

Although often eclipsed by Texas, its next door neighbor, Louisiana, is the Cinderella of business improvement.

In 2006, it ranked 47th—where Massachusetts is today. And Katrina didn’t help matters. But since then it has climbed steadily up the ranks so that it is now 13th—up from 27th last year—the biggest leap in a single year of any state.

“In Louisiana there is an active government push to reduce taxes and regulation and to encourage new industry to relocate to the state,” commented one chairman. “This was valuable for one of our companies, which decided to make the state our headquarters.”

Other chiefs point to the big strides the state has made in workforce training and economic incentives. Its economic development office is also aggressive in luring disaffected businesses from the Northeast and California.

This is the most recent item in a long run of stories describing a geographic analog to the process of creative destruction.  Those states who spray “startupicide” on the economy –  suffocating regulations, inflated business taxes and fees, lawsuit-friendly legal environments, and political classes uninterested in business concerns, if not downright hostile to them – lose economic clout as people and capital migrate to other states with more favorable environments in which to work and live.

This migration of economic clout within the US has been more subtle than the California Gold Rush or Irish Potato Famine but is just as significant.  Some states are chasing away their earners, workers, and entrepreneurs; this is their tax base.

The growth corridors of the high-tech South would have a mercantile-like advantage but for the fact that employers can (and do!) simply move in order to thrive under our growth-oriented tax policieslower public sector debt burdensstronger job creation, excellent climate for entrepreneurs, and a superior overall business climate.  (The actual climate happens to be conducive to a great quality of life as well.)

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