A geographic analog to the process of creative destruction

August 6, 2014

The growth corridors of the high-tech South enjoy several advantages familiar to NVSE readers: growth-oriented tax policieslower public sector debt burdens, stronger job creation, the best climate for entrepreneurs, and a superior overall business climate.  (The actual climate happens to be conducive to a great quality of life as well.)

Additional proof now comes courtesy of the CATO Institute:  millions of Americans and trillions of annual income have migrated among the states, to the benefit of our region.

 

10556536_10152282703854077_4818338020141150512_n

Money walks because opportunity talks.

 

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.

Daniel Mitchell (of CATO) picks one example (California) from the Tax Foundation’s map and concludes it’s a “slow-motion economic suicide.”

Voting for a tax hike isn’t akin to jumping off the Golden Gate bridge. Instead, by further penalizing success and expanding the burden of government, California is engaging in the economic equivalent of smoking four packs of cigarettes every day instead of three and one-half packs… In the long run, though, people can move, reorganize their finances, and take other steps to reduce their exposure to the greed of the political class.  In other words, people can vote with their feet … and with their money…

The state is going to become the France of America—assuming Illinois doesn’t get there first.  California has some natural advantages that make it very desirable. And I suspect that the state’s politicians could get away with above-average taxes simply because certain people will pay some sort of premium to enjoy the climate and geography.

But the number of people willing to pay will shrink as the premium rises.

In The Spread of Start-up America and the Rise of the High-tech South, Richard Florida, senior editor of The Atlantic combined Joseph Schumpeter‘s theory of creative destruction with Mancur Olson‘s theory for the rise and decline of nations and concludes that the Southeast would have a mercantile-like advantage but for the fact that employers can (and do!) simply move and join its attractive business climate:

Leading nations as well as leading regions, he (Olson) concluded, decline as a result of one overwhelming factor that he dubbed “organizational sclerosis” — a hardening of institutional, economic, and cultural arteries that leaves them incapable of dealing with a new and rapidly changing economic environment. Sound familiar? Practices, patterns, and norms of organizing and doing business that once worked so well become a constraint, a fetter, an obstacle to further progress. Decline sets in as once-dominant places get locked into the past and are unable to adapt to new circumstances, new technologies, and new conditions. A geographic analog to the process of creative destruction takes hold as new technologies, new business models, new values and norms, new industries and ultimately new institutions, and new ways of organizing economic activity shift to new places.

In Olson’s view the United States was fortunate, because it is a big country. While previous epochs of economic and geographic change tended to jump from country to country — moving, say, from Holland to England and later from England to the United States — America is so large that this process of rebirth and remaking can occur within its own boundaries.

Related stories:

© 2017 Ballast Point Ventures. All rights reserved.