John Hood: Facts Must Come Before Explanations
RALEIGH — Who is to blame for North Carolina losing its industrial base over the past two decades? Misguided federal lawmakers who passed free-trade agreements? Foolish state policymakers who refused to invest in new infrastructure? Overzealous local regulators?
I’ve heard each of these explanations before. Perhaps you have, too. But none constitutes a valid explanation for North Carolina’s shrinking industrial base — because, contrary to popular belief, our industrial base hasn’t been shrinking!
In the latest year for which all the data are available, 2024, facilities in North Carolina produced nearly $104 billion worth of manufactured goods. Adjusted for inflation, our manufacturing output in 2004 was about $100 billion. If we broaden the scope to goods-producing industries — including not just manufacturing but agriculture, forestry, mining, and other resource extraction — North Carolina’s output in 2024 was $154 billion, up from $144 billion in 2004.
Of course, the state’s overall economy grew by far more than 7% during the period. Manufacturing made up 12% of North Carolina’s GDP in 2024, down from 21% in 2004. Goods production was 18%, down from 27%. When people claim we have “deindustrialized,” these are the statistics they cite, along with the undeniable truth that a smaller share of North Carolinians work in manufacturing and other goods production today than was true for past generations.
While these statistics are valid, the gloom-and-doom conclusions drawn from them are invalid. That manufacturers produce as much or more annual output with fewer workers indicates productivity gains, not sectoral declines. Indeed, the investment in plants, machines, hardware, software, and robotics required to be competitive in 21st-century manufacturing is pretty much the opposite of deindustrialization!
And when health care, finance, recreation, entertainment, and other services grow more rapidly than good-producing sectors, that doesn’t mean the latter are shrinking, or inadequate to supply what consumers demand.
When the vast majority of North Carolinians worked in farming, the vast majority were, by today’s standards, grindingly poor. This was no coincidence. As new techniques and devices revolutionized agriculture, producing much more food and fiber with much fewer human and natural resources, workers shifted to higher-value labor, including manufacturing. The process has continued throughout the 20th and 21st centuries, with the shift from goods to services accompanied by a rising standard of living.
I know the deindustrialization myth won’t go away anytime soon. In part, it reflects a fundamental insight from classical economics: that people often form conclusions based on what they personally witness, fail to recognize the significance of things they don’t, and then resist attempts to convince them otherwise.
In our state, factory closures have been readily apparent. Most of the furniture plants that employed my grandfather and great-grandfathers in Caldwell and Burke counties no longer exist. Neither do many factories that once produced textiles, apparel, and tobacco products. Indeed, the output of North Carolina’s non-durable manufacturing sector did shrink by 17% from 2004 to 2024.
During the same time, however, the manufacture of durable goods shot up 48%. We currently produce machine tools, appliances, buses, tractors, trucks, trains, planes, engines, and much else. These plants aren’t necessarily in the same communities where prior generations produced towels, socks, or cigarettes.
“Between a good and a bad economist this constitutes the whole difference,” wrote the French analyst Frédéric Bastiat, in that “the one takes account only of the visible effect [while] the other takes account of both the effects which are seen and those which it is necessary to foresee.”
Some accept these realities but argue that such economic changes have ruined the prospects for young men. This claim is also invalid. Women have enjoyed larger income gains than men, but most of the latter also gained. Scott Winship, a scholar at the American Enterprise Institute, estimates that median pre-tax earnings of men aged 25 to 29 rose 24% from 1973 to 2024. Their median post-tax compensation rose 40%.
I’m all for making North Carolina more hospitable to investment and industry. But let’s stick to the facts.
John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy with American history (FolkloreCycle.com).
