Farewell to Virginia’s Lost Decade

Click image to enlarge. Data source: 2018 State of the Commonwealth Report

by James A. Bacon

As we close out the decade of the 2010s, Virginians’ collective response could well be, “Good riddance.”

For all of the state’s assets, economic growth in the Old Dominion consistently lagged that of the nation between 2010 and 2018, according to data published by the 2019 State of the Commonwealth report. The lackluster performance, as measured by growth in Gross Domestic Product, could not be blamed on a single metro, or even upon the state’s moribund rural areas. The Compounded Annual Growth Rate (CAGR) of every single metropolitan area, large and small, under-performed the national economy.

Gross Domestic Product compounded annual growth rate (CAGR).

Virginia’s traditional growth champion, Northern Virginia, logged an uninspired 1.5% average growth rate compared to 2.2% nationally. The Richmond region performed just as lackadaisically, with 1.5%. Hampton Roads, Virginia’s second largest population center and economy, was an anchor on statewide growth, barely expanding at all, at 0.2%.

Only two metros came close to matching the national average — Charlottesville, which sported a 2.1% CAGR over the decade, and Blacksburg, with a 2.0% rate. The commonality: Both are home to Virginia’s two leading research universities, the University of Virginia and Virginia Tech.

These data don’t tell the whole story — they omit the year 2019. But the year we’re closing out is a mixed bag and not likely to change the big picture. As the State of the Commonwealth report notes, job growth this year accelerated in the small metros (excepting Blacksburg) but has slowed in Richmond, Hampton Roads and NoVa.

What’s Virginia’s problem?

Focusing on the short-term outlook, the State of the Commonwealth report doesn’t ask that question. Permit me to offer a few observations and prognostications. The key insight is that Virginia’s problems are long-term and structural.

Virginia has loads of tech talent, but the state generates only modest tech innovation. Virginia has the most tech-savvy workforce of any state in the country. But the Old Dominion’s economy is hostage to federal spending, in particular spending on defense, intelligence and homeland security. The procurement/ consulting mindset is very different from the product innovation mindset prevalent in other U.S. tech centers, Furthermore, neither of Virginia’s two leading research universities are located in the state’s two largest metros, hence, the innovation ecosystem of both regions are under-developed. One consequence is that NoVa punches beneath its weight in tech innovation, and Hampton Roads can barely swing a punch at all. Another consequence is that UVa and Tech, confined until recently to smaller metros, have not lived up to their potential as research centers.

Amazon to the rescue? The imminent arrival of Amazon may catalyze the rise of a dynamic innovation ecosystem in Northern Virginia. Amazon, of course, will be the key player. But equally important will be the suppliers, collaborators, and spin-offs lured by Amazon, the building of the new Virginia Tech innovation campus near the Amazon campus, and the cultivation of a product-innovation mindset in Virginia’s dominant tech community. Amazon has the potential to transform NoVa’s tech sector from one that serves a single customer, the federal government, into one that creates products that can be grown globally. Or so we can hope.

On the NoVa periphery… I don’t see much hope of Amazon transforming any other metropolitan economy in Virginia. Richmond, Charlottesville, Winchester, and Harrisonburg might benefit from their location on Northern Virginia’s periphery without actually being part of NoVa with its hideous traffic, unaffordable housing, and other quality-of-life deficiencies. As oases of livability, perhaps they can attract smart, educated, entrepreneurial refugees from NoVa who can add vigor to local economies. As the state’s third largest metro, Richmond will continue chugging along at a not-too-hot, not-too-cold pace. Blessed by UVa and a growing innovation ecosystem, Charlottesville has the potential to shine more brightly, but the metro is too small to have much impact on average statewide growth.

Hampton Roads as “sick man of Virginia”… Hampton Roads will benefit from increased defense spending in the next few years, particularly shipbuilding. But the region has huge infrastructure issues. Vulnerable to climate change, it will have to devote billions of dollars to protecting its sprawling, low-density development from increased flooding. On the tail end of the nation’s natural gas pipeline network, it is out of the running for energy-intensive industry. Sitting atop a fast-depleting aquifer, the region is also out of the running for water-intensive industry. Addressing traffic-congestion issues on Interstate 64 requires multi-billion-dollar  bridge and highway spending. Further, dominated by defense and shipbuilding, the region struggles to develop an innovation economy. Perhaps something other than the on-again, off-again defense sector will light a fire under the Hampton Roads economy, but I don’t see it.

The smaller metros… The economics of the Knowledge Economy confer immense advantages to larger metropolitan areas with deeper labor markets. Absent some economic miracle, the best that Roanoke, Lynchburg, Staunton, Bristol and Danville realistically can hope for is to maintain positive momentum — enough job and wealth creation to support a decent standard of living, strong communities, and a high quality of life.

Broadly speaking, Virginia needs to do four things to resume its stature as a national growth leader. It needs to invest in human capital, up its game in “economic development” (the recruitment of out-of-state investment), build its metropolitan innovation ecosystems, and address its transportation and housing growth bottlenecks — without raising taxes appreciably. Whether the commonwealth has the will, amidst intensifying culture wars, to focus on these priorities remains to be seen.

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23 responses to “Farewell to Virginia’s Lost Decade”

  1. LarrytheG Avatar

    One could take the view that it is the private sector that produces jobs and the real question is why the private sector is not doing that in Virginia especially since it is touted as a “business friendly” leader!

    The other thing – the Military and the Research Schools are prodigious incubators of technology. The military is on the “bleeding edge” of technology innovation because they’re willing to incorporate it without regard to a private sector ROI calculation. But soon after – such technology flows into the private sector – GPS, packet-switching networking (which is the guts of the cell network), AI, drones, lasers, etc.

    All of these technologies flow to the private sector so one would think that NoVa and Hampton would be chock full of technology companies adapting military technology to civilian uses…

    We poke fun at the LEFT Coast – California but they put Virginia to shame in terms of private sector technology businesses.

    Don’t count on Amazon – they’re going be like Sears Roebuck or Woolworth as competitors catch up and the more nimble find better and more efficient ways to do what Amazon is doing right now.

    They’re basically retailers.. it’s not rocket science. They’ve just optimized the logistics including AWS… even the CIA buys AWS stuff from Amazon!

  2. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    A very fine post indeed, Jim. I will have much more to say on it soon.

    For now, I suggest that one of the biggest challenges and obstacles to economic growth (and cure) of Northern Virginia in the future, will be overcoming the highly toxic and growing power of the Social Justice movement. Should that pernicious movement get its way, its first and foremost harm will be inflicted on the poor and disadvantaged folks that it falsely claims to champion. And the next aggrieved will be the middle class. As proof of this, we need look no further that Amazon’s failed effort to energize Long Island City, Queens, New York.

  3. Jane Twitmyer Avatar
    Jane Twitmyer

    And I would suggest the exact opposite of Reed …. while Virginians denigrate the liberal ways of CA, the CA economy just keeps getting stronger and stronger. The state has an incredibly diverse economy, with Hollywood, Silicon Valley, manufacturing, and agriculture all making significant contributions.
    With a population of more than 39 million people, the Golden State has the most people of any US state, and drives many of the nation’s cultural trends. I would suggest that the list below shows the results of significant and worthwhile state spending for things like the world class University system, the seaport, large agricultural and small business environments, as well as addressing Climate Change, in addition to those ‘cultural’ trends.

    Here is a rundown of what’s happening in CA …
    • California has the largest economy of any US state. California was ranked the fourth-best US state economy by the personal finance website Wallet Hub.
    • If it were its own nation, California would have the fifth largest economy in the world. With a GDP of $2.9 trillion, California would slot between Germany and the United Kingdom in the world’s top economies.
    • There are 3.9 million small businesses in California, making up 99.8% of the state’s businesses. Those companies employ nearly 50% of the state’s workforce.
    • With nearly 5,000 wineries, California produces 81% of all US wine and sells 241 million cases of wine a year. California also brings in $1.53 billion from the wine it exports each year.
    • The two major university systems contribute more than $60 billion to the state’s economy. The University of California system, including UCLA and the University of California, contribute more than $46 billion yearly to the state’s economy. With 1.7 million living alumni, the University of California system has produced 61 noble laureates
    • Los Angeles County has the two largest seaports in the US. All told, international trade from LA County exceeds $400 billion each year.
    • The film industry added $49 billion to California’s economy in 2015.
    • California is trying to save $1.5 billion by requiring cities to use electric buses. The switch could save $1.5 billion in maintenance and fuel costs by 2050.
    • California is the only state with an overall average gas price above $4, while only five other states with prices average more than $3.
    • California’s professional sports have combined value of more than $33.5 billion. California has 19 sports teams in the five major professional North American sports leagues.
    • California experienced a 3.2% increase in its median home value since last year, and is now up to $548,700 as of this publication, according to Zillow. In San Francisco, the median home value is a sky-high $1.19 million, and it’s $629,900 in Los Angeles. Meanwhile, the national median home price is $226,300.
    • Rising sea levels are 10 times larger of a threat to California’s economy than fires or earthquakes
    • In 2016, California became the sixth US state to legalize recreational marijuana. The first legal sales in the state took place in 2018, and in one year, $2.5 billion worth of cannabis was sold.


    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Your comment reminds one of the Roman Empire before its collapse after the Diocletian rise (284), before Goth revolts starting in 376, the two civil wars ending in 395, when Theodosius I’s death left a collapsed Empire and culture that never recovered.

    2. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Or, Jane, to bring your nightmare up to date in modern times in California, consider this observation by Phil Gramm and Mike Solor found in Dec. 24. Wall Street Journal:

      “… After the weakest growth in seven decades following the recession of 2007-09, many young people have lost hope seeing their labor produce so little reward. Like George, they stagger drunkenly through a town they want to hate, pondering the economic suicide of socialism without any angel to foretell the nightmare that would result.

      They’re enticed by the political promise of a glorified Potterville, where their every need is met by an all-caring and protective government. They would willingly become the “suckers” paying rent to old Mr. Potter, subsisting as wards of a state that buys votes by taxing success. But when the rewards for working and sweating end, prosperity withers and freedom dies. …” End Quote

      For more see:

    3. Edward Gibbon would be proud to see Reed’s allusion. You are certainly both correct that (1) California is the exemplar of modern American success and modern American excess, and (2) the lack of confidence, the lack of will, elsewhere (the “failed effort to energize Long Island City”) illustrates the insularity of other areas, their preference for the comfortable benevolence of the government (“subsisting as wards of a state that buys votes by taxing success”). My preference would be to learn positive and negative lessons from both. Modern politicians seem to believe you both, and I, must choose one or the other in its entirety.

  4. johnrandolphofroanoke Avatar

    The key to understanding Virginia’s malaise is to examine small businesses. We used to be a gold standard state for small businesses. I can still remember the Dot Com craze of the 1990s. It would seem that Virginia has fallen from this mantle:

    “Bad news for Virginia entrepreneurs: The state has the second-highest rate of business failures in the nation. For every 100 new businesses founded in 2013, 114 businesses failed. In addition to few startups, Virginia has fewer small businesses per capita, and small businesses employ a smaller portion of the state’s residents (17.5 percent).
    Virginia’s small businesses also tend to have less access to financing, with just 43.7 loans per 1,000 small business employees. The state also charges higher-than-average business taxes and has a higher cost of living, which means businesses in this state face higher costs in general. Even with a higher-than-average GDP per capita and rate of college graduates in the state, Virginia’s poor climate for small businesses makes it the fifth-worst state for entrepreneurs.”

  5. Jane Twitmyer Avatar
    Jane Twitmyer

    Guess I should have been more direct …
    A good economy that spreads its benefits to its whole community is an economy that is built by all, each according to his ability to pay. Community costs money and doesn’t come about by skin flints who are unwilling to pay their fair share according to their ability to pay. A great community is not built by people who are only willing to pay for what they themselves use. Nor is it built by people who are not willing to do their share of the build. And finally, a great community is not built by corporations who are willing to offload as many costs as they can in order to enhance profits.
    Outstanding communities are created by all their citizens.

    1. LarrytheG Avatar

      yes Jane – but if you are an ardent Gloom & Doomer – some day it MUST fail and that’s THE message! 😉 😉 😉

      Otherwise how could California have the best economy in the country – it just mocks the Gloom & Doomers who claim that it’s electric grid is “failing”… yep – 5th best economy in the world – but it’s grid is failing because they do solar and wind!

      Fact is, the Left Coast “violates” just about every tenet of the Gloom & Doomers beliefs so it MUST “fail” – some day!


    2. Atlas Rand Avatar

      Jane is only a hop, skip, and jump away from “to each according to his needs, from each according to his ability”. Alternatively an outstanding community is created by shared cultural and moral values, complemented by the free association of willing participants.

      1. Jane Twitmyer Avatar
        Jane Twitmyer

        I can only hope that there is room in your vision of “shared cultural and moral values” for the respect for diversity while upholding a mutual respect for law. The US was designed for cultural diversity with its division of governmental powers and the belief that we could continue to make our society better as we went forward. We are not a community of a single culture.

        1. Jane, everyone who participates in this blog wants a society in which every member of society — of whatever race, ethnicity, or religion — has an opportunity at getting ahead in life. The question is how best to accomplish that goal. Do we create greater opportunities for African-Americans through a fetishistic obsession with race, grievance, and victimhood? Or do we create greater opportunities by instilling the virtues of industry, thrift, self-discipline, and deferral of gratification that has worked for every other group that has embraced them?

          1. Jane Twitmyer Avatar
            Jane Twitmyer


            While you seem to hear is a fixation on grievance, I hear a fixation on greed, spending taxpayer money that doesn’t benefit the individual taxpayer.
            California has shown us over the years that a successful state was one that “created an affordable, post-secondary educational system that became the envy of the world. It is the place that has led the way to tackle climate change and build a green economy.” In other words, government put money where it would enhance the state’s population with education and jobs and a clean environment. Their expenditures weren’t blocked out of the gate as ‘corrupt government’ and excessive taxation.

            We should be having a discussion about what works. Your post about the school innovation in SW was terrific. Would you conservatives be willing to finance the statewide adoption of that program? Can we all agree that children who come to school from disadvantaged home are unprepared to learn and succeed, and that lack of preparation follows most of them through their time in school? Maybe they get labeled as lacking the virtues you require. We can find a way to fix their bad start, not just turn them away because the fixing cost money. It is my belief that talk sinks to victim hood when we don’t bother.

            California does have the highest poverty rate if you include cost of living calculations, which has now created other problems. But it is also true that CA is publicly planning to address their worst poverty rate. the high number of children living in poverty. Where is Virginia’s willingness to address such things?

        2. Atlas Rand Avatar

          I said shared cultural values, not shared culture. If your culture supports say mass murder or oppression, then no there is no room for you here. If your culture values things like honesty, accountability, respect, self sufficiency, and honor then we’ll get along A-OK.

          1. Jane Twitmyer Avatar
            Jane Twitmyer

            Glad to hear that and sorry to have misread your point. However, moral and cultural values have been at issue for many years now … things like abortion, sexuality. Drawing the line an be difficult.

  6. This has been a disappointing decade. However, I would point to a few possibilities for the 2020s:

    1. Charlottesville and Richmond are probably the two best opportunities for growth outside of NoVa. I noticed that the recent rail announcement by the Governor includes the possibility of a Charlottesville-Richmond route. That could help the 2 areas start to build partnerships. The leadership in Albemarle County is doing very well when it comes to economic development, and I suspect that if the state were to make a concerted effort to make the Cville region grow, it could do very well.

    Richmond just feels like it’s stalled. I think that some of the problem is the annexation moratorium. It would be helpful to see political consolidation of some sort b/w Richmond, Henrico, and Chesterfield.

    2. NoVa seems to be on a decent pathway. I suspect that it will be fine going into the 2020s.

    3. The big problem really is south of 64. Numbers don’t lie. For all the grand pronouncements and press releases from VEDP….well…..it hasn’t amounted to much. And the big tell is Virginia Tech’s Amazon campus. It’s not much of a secret that VT is seeing more and more of its future in NoVa. The university understands that Blacksburg is a backwater, and it’s just not likely to ever turn into much more than a college town. Sands and company don’t want to find themselves stuck.

    The Roanoke numbers are bad, and how does Lynchburg average negative growth during a decade that saw steady, if unspectacular, growth nationwide? And think if Liberty wasn’t in Lynchburg…my guess is that number would be a CAGR of -1.5%!

    The author of this blog made an observation a few weeks ago that is probably the best idea: just manage the decline of South of 64. The state has put an enormous amount of resources in this region in the past 2 decades from the Tobacco Commission and VEDP. And there is literally nothing to show for it in terms of real numbers (as opposed to press releases). What if those resources had been pumped into RVA? At some point, the state’s going to have to stop telling itself lies and start figuring out how to manage the decline rather than constantly pumping resources into places that the 21st century market does not want to invest in.

    1. “The state has put an enormous amount of resources in this region in the past 2 decades from the Tobacco Commission and VEDP. And there is literally nothing to show for it in terms of real numbers (as opposed to press releases).”

      Do you mean that the announced projects haven’t come to fruition or that the announced projects collectively have not been enough to offset the huge job losses in coal, furniture, etc.? Or something else?

      1. I worked on a project in Danville this past year, and I got to know some residents. They made the following points, which after a little digging, seem factually true:

        Dan River Mills closed in 2006. Universal Leaf ceased its Danville operations at the same time. Those were the last 2 major “tobacco and textile” closings in the region.

        Since then, they’ve had press release after press release announcing “new jobs” for 13 years. And yet, the population and economic base continue to shrink. Something doesn’t add up to them (or me).

        I’m not a heartless human being. I have compassion for those in Danville and other parts of rural/small town Virginia. But let’s be honest: The market has decided that those places are not economically viable. So long as we live in a market-based economy, Virginia’s not going to be able to turn the tide by investing its precious economic development dollars into those regions.

        The reason that the state economy is not growing very well is that we’re investing our resources against market forces. Imagine that VEDP’s dollars had been invested in Richmond or Charlottesville or Norfolk during the past 2 decades and we had ignited some serious growth in places that the market wants to grow? Perhaps if we invested our economic development dollars more wisely, we would have a state growth rate at the national average.

  7. TooManyTaxes Avatar

    Do any searching and one will find that California has the highest poverty rate in the United States. Some sources indicate it’s tied with Louisiana and Florida. (Gee, how can we blame Mississippi?) Of course it has billionaires but a lot of the middle class has left the state.

    The billionaires have so much money that California’s high taxes and burdensome regulations cannot harm them. But it also looks like a lot of people in the middle are rejecting Jane’s argument that they need to help fund life for those on the bottom, most especially California’s untold numbers of illegal immigrants. A nation that cannot or will not control its borders is doomed to have huge economic and social programs. California’s public pension costs are also a huge but escapable burden.

    I still maintain that a big contributor to Virginia’s relatively weaker economy is its high concentration of risk-adverse business leaders. There are likely many Virginians addicted to opioid drugs but also many businesses addicted to government spending and contracts.

  8. “Richmond just feels like it’s stalled. I think that some of the problem is the annexation moratorium. It would be helpful to see political consolidation of some sort b/w Richmond, Henrico, and Chesterfield.” I strongly agree!

  9. Atlas Rand Avatar

    This makes great sense! Throw the poor people of Chesterfield and Henrico to the wolves by feeding their incomes to the vociferous hunger for funds of the city of Richmond. Make them suffer through the inept city management and watch their tax dollars be squandered away. Make them send their children to the worst school system in the state, where graduating seniors can’t read.

  10. TooManyTaxes Avatar

    Government is at least as corrupt as the Mafia, drug cartels or boiler room call centers in India. Forcing suburban counties to fund city corruption is terribly wrong.

    Fairfax County twice within the last decade or so has undertaken extensive reviews of all of its programs and operations (line of business reviews) but was unable to find anything to eliminate. When local government reaches this point, it is evil and corrupt. Judge Dillon was correct in the 19th Century and remains correct today.

  11. Japan had a lost decade and then has kept going with another decade and a half of stagnation. Let’s hope that’s not the case in Virginia.

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