Can a region’s politics affect its entrepreneurship?
Conservatives and libertarians promise that tax cuts and de-regulation will lead to job creation, while liberals point to the glut of startups in San Francisco, Seattle, Cambridge and other progressive bastions.
That question is being debated now in the Research Triangle in North Carolina, a state whose politics have recently taken a sharp turn for the conservative.
For decades, North Carolina had a reputation as a relatively progressive (at least by Southern standards), business-friendly state. Barack Obama won the state in 2008; the General Assembly was in Democrat hands and women Democrats held the governor’s office and one of two U.S. Senate seats.
Since then, conservative billionaire Art Pope organized a successful campaign to recapture the state for the GOP. Republicans now have a supermajority in the legislature and hold the governor’s office. Pope was named state budget director, a position he recently resigned. This month, moderate Democrat Kay Hagan lost her U.S. Senate seat to Republican Thom Tillis.
Since coming to power, the legislature has implemented a conservative agenda, including deep cuts to education funding, lower income and business tax rates, reduced unemployment benefits and environmental regulations, voter photo I.D. laws and a constitutional ban on gay marriage.
The changes have been met with alarm by many in the Triangle, which is wealthier, better-educated and more liberal than the rest of North Carolina. Opponents say cuts to education funding will hurt business and conservative social policies will make it harder to attract and retain entrepreneurs. Supporters say lower taxes and less regulation will boost entrepreneurship and the state’s lagging economy.
There is little research on how local politics affects entrepreneurship or even how much attention entrepreneurs pay to politics. Inc. magazine recently surveyed entrepreneurs and found that 47 percent identified as Republican, 36 percent as Independent and 17 percent as Democrat. Fifty-nine percent labeled themselves as moderate, compared to 31 percent conservative and 10 percent liberal.
To discuss the issue, ID8 Nation hosted a roundtable with John Hood, president of the John Locke Foundation, a free-market think tank founded in Raleigh in 1989 and supported by Pope; James and Michael Goodmon of Capitol Broadcasting, a Raleigh media company that owns TV and radio stations in the Triangle, as well as the American Underground co-working spaces in Raleigh and Durham; and Thom Ruhe, publisher of ID8 Nation and former vice president of entrepreneurship at the Kauffman Foundation. The discussion was in late 2013, but we are reposting it because the issues are likely to become even more contentious.
ID8: Do entrepreneurs fit a political profile?
Hood: I don’t think they distribute across the political spectrum in a predictable fashion. They do have common interests and I think there are certain public policies that most entrepreneurs prefer, but you could be a Republican entrepreneur or a Democratic entrepreneur or an Independent entrepreneur and have similar concerns.
Ruhe: I think you will find entrepreneurs on each end of the political spectrum. Where I find them a little bit more unified is in specific policy areas. I think they’re more independently minded in saying whatever the policies are, as long as they’re enforced equally across state lines to all parties, they can agree on that.
M. Goodmon: Entrepreneurs are solution-oriented. They’re doers. They want to figure out what’s going on and they want to go work on it. And they don’t feel like that’s what’s happening. So if I had to put them in a party I would call it the Disenchanted Party because I do believe they’re very much disenchanted by the political system, both local and national.
ID8: Do they have separate views of political and social issues?
Ruhe: I’ve seen the full spectrum. There’s this creature out there called the social entrepreneur, who is definitely more queued toward social issues because that’s the underpinning of whatever entrepreneurial pursuit they’re following. There are also the other factions, typically more in manufacturing and capital-intensive industries, that will be more toward economic interests because it has a direct impact on the businesses they’re managing.
M. Goodmon: The interesting thing about entrepreneurs is they are socially liberal.
J. Goodmon: You might say entrepreneurs are conservative, but what that means is they believe in investment, they believe in return on investment, which is a very conservative principle.
Hood: I know entrepreneurs who are very socially or culturally conservative, who think about religious values when making business decisions. And I also know entrepreneurs who are entirely secular. And so I think that entrepreneurship is a bundle of characteristics and actions and I think that they respond more to opportunities and their backgrounds than to any particular religious or ethical world view.
ID8: What is entrepreneurs’ general attitude toward government?
Hood: Most entrepreneurs want two big things from the political system. No. 1 – they want to be left alone. No. 2 – they want to receive valuable public services. So, just like the rest of us, there’s some tension between the two things that they’re looking for. They tend to be people of action and they get frustrated with the public sector because things appear to move so slowly.
Ruhe: You have to look at a Congress known for gridlock and partisan opposition. Entrepreneurs don’t have time for that kind of nonsense. There activities hurt their efforts and for that reason they’re going to completely disengage (from politics) and hope that some outside force will eventually effect change for the better.
ID8: Entrepreneurs are more mobile than ever; are political and business climates important factors in where they decide to locate?
J. Goodmon: Of all the recruitment we’ve done to America Underground, nobody’s ever asked me what the unemployment tax rate is or even what the corporate income tax rate is. I’m not saying you can have the highest taxes in the country. I’m saying as long as we’re in the middle, that’s not even on the list. What’s on the list is: Do we want to live here? Do we want to raise our family here? What are the community assets? That’s why I’m trying to say to everybody, if you think that we’re going to grow this economy by reducing taxes and you don’t invest in our school system, you can hang it up.
M. Goodmon: There was one recruiter we talked to about how site selection and he said they look at two things: childhood obesity and the strength of your public radio station. Childhood obesity is a gauge of how well you take care of the least among you. And the public radio question is one of educational advancement and attainment in the community.
Hood: My reading of the empirical evidence suggests that political and governmental factors are an important part of the decision. Tax rates, all other factors being equal, do influence the propensity of people to create businesses. The same can be said about regulation. The other side of the coin is amenities. When government spends money on schools, roads, museums, recreational and cultural facilities, perhaps that has a pull effect. Perhaps high taxes and regulations have a push away effect. I don’t see a consistent relationship at all between spending on those amenities and entrepreneurship or economic growth more generally.
Ruhe: The tax question is a wonderful raging debate right now. I don’t think there’s any conclusive data. We do not live in a net neutral budget basis. So if you are giving up revenue on income tax you have to take that from somewhere else. In North Carolina, in order to finance the reduction of taxes, they’re cutting education. At some point entrepreneurs who are running companies have to employ people that have quality of life issues and that becomes a big, big factor. So, a state might boast that it doesn’t have an income tax. But that same state might wind up 42nd in the nation for student academic achievement.
ID8: North Carolina has made deep cuts to education funding. How will that affect entrepreneurship?
J. Goodmon: There is an almost universal concern in the entrepreneurial community about education. Many of these people come out of the university system here and the whole idea of a lack of emphasis on investment in education is something they don’t understand because that’s the horsepower behind the entrepreneurial community.
Ruhe: I have traveled all over the United States and one common refrain I’m hearing everywhere is there’s not enough of the right or properly educated workforce out there. We have tons of vacancies and we just don’t have the individuals with the requisite skills to fill the vacant jobs. If that’s true, de-funding education is one hell of a counterintuitive strategy to address that problem.
Hood: I’m always entertained by how frequently that argument is made by people who work at public universities. I have looked at the empirical data and people really want to will something into reality, but it isn’t there. States that spend higher levels of public dollars on universities do not grow faster than states that spend lower amounts. North Carolina is a good example of that. We had one of the highest subsidies for public universities in the country and we had a horrible recession. I think the better argument has to do with elementary and secondary because that’s an area where North Carolina has not been high in spending. Average in performance, but below average in spending.
ID8: North Carolina has lowered tax rates, restricted environmental regulations and made other changes sought by the business community. How will that affect entrepreneurship?
Ruhe: I do not think there’s anything positive. Let’s take the anti-regulatory claim. “Come to North Carolina if you want to pollute our environment because we’ve unfunded the agency that would prevent you from doing it.” That message is flat out silly. Is it pro-business to see your green spaces depleted and turned over for industrial use? Are you really chasing smokestacks in this day and age? That’s 50-years-ago, industrial-level thinking for a 21st century economy. I don’t think you could be more misapplied if you tried.
Hood: If you look at the data since 2011, North Carolina has been one of the nation’s fastest-growing economies. It’s certainly the case that the policies that North Carolina have adopted have not resulted in hindering economic growth, as some opponents of the Republican leadership have said. And it is also likely that the policies have helped propel this fairly strong recent recovery.
J. Goodmon: I don’t know what “economic development” is. The whole idea is community development. The notion that we’re going to lower taxes and all the sudden businesses are going to sprout up here . . . anybody that has that idea has never recruited businesses. The whole idea is how strong the community is and whether or not they want to live here.
ID8: The legislature also has passed a conservative social agenda, including photo voter ID laws, a constitutional ban on gay marriage and restrictions on abortion. Will that affect entrepreneurship?
Hood: The argument was these policies will discourage entrepreneurs from moving to North Carolina. I’ve never
found a lot of data for it. That’s the kind of claim I want to see some evidence for. The (effect) probably is not going to be huge and, most likely, states and localities that focus on bread-and-butter issues are going to prosper, regardless of what else is going on.
M. Goodmon: The gay marriage ban is a slap in the face of our university system because those are the kids who really care about openness and diversity. This is a human rights issue. You have college towns that are being weakened and you have entrepreneurs who don’t understand why they want to run their company here and be a part of this community when it’s not open to the things they care about.
Ruhe: If you say our social norms and values are pro-life and anti-gay and you’re imposing in a very strong way a social norm, you’re communicating to the rest of the country this is how we see ourselves. So people who are better educated, those that have more to add to the economy, those people have mobility, they’ll stay out. What you’re doing is narrowing the pool from which you can hire people that you need.
ID8: Until recently, North Carolina had a reputation as a politically and socially progressive state. Has publicity about the implementation of the conservative agenda affected the state’s reputation?
J. Goodmon: I believe that’s going to be very detrimental long-term, particularly when it comes to recruiting outside companies. I can’t remember a relocation magazine or organization that hasn’t rated us among the top five states in which to do business. So we elect a governor who announces the state is broken, that we have a bad brand and he’s going to fix it. I don’t know what to do with that.
Hood: It depends on your definition of the term progressive. I think a lot of this is hype and it’s not informed by a lot of actual data. Now, if progressive doesn’t mean more liberal or more Democratic and what it means is problem solving or embracing new ideas, then, yes, I think North Carolina has had that reputation, still has that reputation, and deserves it.
ID8: Any last thoughts on how to encourage entrepreneurship in North Carolina?
Hood: If there was an obvious recipe for fostering entrepreneurship and any state or locality could use the recipe, then we would know it. But it’s clearly much messier than that and it changes constantly and the things that made entrepreneurs succeed in 1979 are very different than the things that made entrepreneurs succeed in 2009. And I assume it will be very different in 2019 and 2029, so I think the best thing the public sector can do for entrepreneurs is deliver the basic services in the most economical way possible and otherwise get out of their hair.
J. Goodmon: I believe you can be a “conservative” and base that upon return on investment and also believe that the key to economic development is the health of the community, starting with its education system. That is how you get economic development. And the notion that we grow business by reducing taxes and reducing regulation and all that stuff is nonsensical.