What will be the next North Carolina economy?

North Carolina has gone through two major economic overhauls in the last 150 years.   The first was the shift from a largely agrarian economy to an economy focused on manufacturing products using home-grown farm outputs.  The so-called “Big Three” were cigarettes made from North Carolina tobacco, textile and apparel products manufactured from cotton, and furniture and paper products using North Carolina trees and lumber.  Much of this “Big Three” economy was located in small towns and rural areas in the State.

The second transformation occurred in the late 20^th century.  This was when globalization of the economy expanded.  Two major trade agreements involving the US occurred.  The first was the North American Free Trade Agreement between the US, Mexico, and Canda.  The agreement lowered trade barriers between the three countries and shifted manufacturing within North America. The second event occurred when the World Trade Organization, which included the US, admitted China as a member.  This allowed Chinese companies to access foreign markets – the most important being the US – on more favorable terms.

Two of the three “Big Three” industries – textiles/apparel and furniture – were massively impacted by these trade agreements, and not in a good way.  Foreign competitors, especially China, used lower cost labor to underprice North Carolina manufacturers and capture a large part of the US market. At the same time, the tobacco industry was hard hit by declining use of tobacco products, especially cigarettes.  As a result, jobs in the North Carolina “Big Three” plunged. Rural economies in the State were especially hurt.

Fortunately, North Carolina was able to re-make its economy over several decades around industries I have named the new “Big Five.”  The “Big Five” includes technology, pharmaceuticals, food processing, transportation production, and banking. Each industry grew for different reasons.  Technology, primarily related to information technology, was attracted to the foresightful Research Triangle Park in the Raleigh-Durham region and the top universities located in the region. Pharmaceuticals developed for the same reasons, but in addition for its link to the State’s agriculture sector through bioscience.  Food processing - mainly meat processing – was tied to the State’s farm sector shift to meat as it’s largest output. Transportation manufacturers, including parts and final products, took advantage of North Carolina’s competitive business costs and location in the expanding South. Lastly, banking has always been important to Charlotte with its location straddling the two Carolinas.  When nationwide banking was authorized in the late 20^th century, Charlotte became the second largest banking center in the country.

Now let’s look ahead for North Carolina.  Many futurists expect emerging new technology like artificial intelligence (AI)  will lead to a big shake-up in the economy, including in North Carolina.  Will we have another transition to a new North Carolina economy?  Here are my thoughts.

Rather than a new economy being created, I expect AI and related technologies will “transform” our existing economy rather than transition it to something brand new.  Indeed, some of our older industries may be revived in the future.

For the “Big Three” of tobacco, textiles/apparel, and furniture, tobacco related firms will likely continue to contract.  This is because the incidence of smoking is still dropping, particularly among young people who are the consumers of the future.

However, the future may be the opposite for textiles/apparel.  Some experts think the application of AI to textile/apparel production could significantly improve productivity for domestic manufacturers and consequently reduce the cost advantage of foreign competitors.  Some think the same could occur for furniture manufacturing, but to a lesser degree.

For the “Big Five,” continued growth is expected for technology, pharmaceuticals, food processing, and transportation manufacturing.  The one exception is banking, where there is uncertainty about how digital banking and banking alternatives could impact the financial sector.

There are other sectors in North Carolina that could emerge as much more significant to the economy in coming decades.  One is mining and quarrying. Pure silicon is a key component of computer chips, and North Carolina has one of the world’s largest pure silicon mines in Mitchell County.  Also, batteries are important to the continuing energy transition, especially for electric vehicles.  Two minerals used for batteries are lithium and phosphate, and North Carolina has significant supplies of both.

Tourism is a multi-billion industry in North Carolina.  With the State’s marvelous beaches, spectacular mountains, hundreds of golf courses, and multi-faceted large cities, the tourism industry will likely become more important to the State economy in the future.

Predictions about the future economy always have to be tentative and speculative.  I see the future North Carolina economy growing, with some of our traditional industries prospering, but with others facing challenges. There will also be a third group of lesser known economic sectors who will be ‘up and comers” in the future. 

Sound about right?  You decide.

Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.