America’s Growth Corridors (walking away from CO2 regulation)

“Your right to vote is guaranteed. However, it seems voting with your feet is often more effective.”

The familiar Red State–Blue State map is a symbolic means of quickly communicating political preferences. The maps aren’t meant to be predictive of job, economic, or population trends, yet a recent think tank’s report suggests the metaphor may have broader significance.

The Manhattan Institute for Policy Research released in February America’s Growth Corridors: The Key to National Revival, which describes the future growth of our economy in terms of “growth corridors.”

The economic and population trends reported look remarkably like the iconic election night map with Blue States (my analogy, not the authors’) defined as strips along the Pacific and Northeast Atlantic coasts and along the shores of the Great Lakes. The Red States are those located along the “Third Coast” bordering the Caribbean, the Intermountain West, the Great Plains, and the Southeast Manufacturing Belt.

The report calls these four regions “America’s Growth Corridors,” representing 45% of the nation’s land mass and 30% of its population.

Diverging Directions

Conventional wisdom tells us businesses prefer regions with a sufficient labor pool, real estate, reasonable cost of living, relatively low taxes, and a regulatory climate conducive to business. Availability of low-cost energy has also jumped near the top of that list. It’s no surprise that recent data suggest employers uniformly favor the Red States over the Blue States when locating new businesses. However, that trend is indicative of a major economic shift now under way with the country, particularly with job creation and manufacturing of goods.

The energy industry has led the nation in job creation over the past decade. Oil and gas extraction jobs alone, predominately located in the Red States, have increased over 27% since early 2008, producing the highest number of jobs in that industry since late 1987. Moody’s Analytics reports that the oil and gas extraction industry created more than one million jobs since 2002, out of the 2.7 million jobs created across the entire country over the same period!

Conversely, Blue States generally eschew energy production businesses with the consequential loss in jobs and tax revenue. For example, New York Governor Andrew Cuomo’s moratorium on hydraulic fracking, if continued, will cost citizens about $11 billion in economic output, $1.4 billion in tax revenues, and perhaps up to 90,000 jobs, in a region of New York that has lost 48,000 jobs between 2000 and 2010.

Business leaders, particularly those producing goods, also favor the Red States. The report notes that 11 of the top 15 spots in Chief Executive magazine’s 2012 review of states with the best business climate were Corridor states. In fact, the Southeastern Industrial Belt recently grabbed 10 of the top 12 slots in Site Selection magazine’s 2012 list of best places to locate a new plant.

The Southeast Manufacturing Belt has become a very attractive location for many international manufacturing firms to relocate, particularly from Korea, Japan, and Germany. Boston Consulting Group termed this a “reallocation of global manufacturing” with auto, steel, aerospace, and petrochemical plants making the move to regions with low energy cost.

An additional attraction is lower taxes. Income taxes have steadily risen in Blue States (particularly California, Illinois, New York, and Massachusetts) while Red States, like Kansas and Louisiana, have lowered or eliminated state income taxes, like Florida and Texas.

Red State job growth, between 2001 and 2012, was between 7.9% and 9.6%, depending on the region, nearly 10 times that of Blue States (only the Southeastern Industrial Belt followed the national average). Energy industry jobs in the Great Plains and Intermountain West regions increased over 52% and 46%, respectively, since 2001, compared to an anemic 2.7% experienced by the remainder of the nation.

These jobs are not minimum wage jobs. The average annual wage in Los Angeles was $46,411 in 2012. In the Houston energy corridor, home to more than 230,000 energy workers, the average income was $75,256.

The emerging Latin American economies will further benefit the “Third Coast” ports of entry. Already, imports have increased 167% over the past decade. Were you aware that the widening of the Panama Canal should be completed in 2014? Ships from the Far East can deliver goods cheaper to market by offloading in Houston, New Orleans, and Tampa than by unloading in Los Angeles or San Francisco and then trucking to eastern destinations. The canal expansion will likely cause enormous job losses in the logistics industry along the West Coast and commensurate job gains along the Third Coast.

Voting Rights

The economic disunions within our country will continue to widen in the future. New York Times columnist Thomas Friedman rails against the “curse” of raw-material wealth and the dangers of using raw materials to spur economic growth, a distinctly Blue State view where limiting carbon dioxide production trumps all else. I don’t see a path out of the Blue State economic doldrums, even with a supportive administration, until business and jobs become the priority.

In Red States, global manufacturers are relocating to the Southern Manufacturing Belt, the Great Plains exported a record $135 billion of food product in 2011—the best since the 1980s, and the politics favoring energy extraction have produced the majority of new, well-paying jobs in our economy over the past decade.

Your right to vote is guaranteed. However, it seems voting with your feet is often more effective.

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This “Speaking of Power” op-ed was published this April 1 (no kidding) at POWER magazine where Dr. Peltier is editor-in-chief.