Northam’s Economic-Development Legacy

Governor Ralph Northam

by James A. Bacon

Business Facilities magazine has ranked Virginia first in the nation for its overall business climate, while Tennessee and Massachusetts snagged top spots for business dealmaking and the best workforce/education system, respectively. The site-selection publication cited Virginia’s location adjacent to Washington, D.C., its pro-business work environment, and its strong workforce and educational system.

Not surprisingly, Governor Ralph Northam cited the ranking as a vindication of his economic development policies. “I am proud of the work our administration has done to create the strongest business-friendly environment in the nation. During my term, we’ve attracted more than $80 billion in economic development, creating more than 100,000 jobs — a record for any governor. Virginia has set a new standard for all other states.”

It is a fact that Virginia has reclaimed the top spot in economic-development rankings. However, Virginians might legitimately ask if these plaudits make a difference in the real world. Are Northam’s self-congratulations warranted? Has Virginia really “set the standard” for other states?

As luck would have it, Old Dominion University’s just-published “2021 State of the Commonwealth Report” (cited extensively on this blog yesterday) has some numbers to help us make that judgment. The best single metric of economic growth is Gross Domestic Product (GDP). Here is how Virginia’s GDP growth compares to that of the United States as a whole between 2018 (the year Northam took office) and 2020 (the last year of full-year data):

During Northam’s first two years in office, Virginia lagged the nation’s economic growth. In 2020, the Commonwealth’s economy shrank, but at a slower rate than the nation as a whole. This was predicted — indeed, Virginia Economic Development Partnership President Stephen Moret predicted it here in Bacon’s Rebellion — on the grounds that Virginia’s industry mix is more knowledge-intensive, more amenable to working at home, and thus less vulnerable to COVID shutdowns.

However, Virginia’s economy has snapped back from the 2020 COVID-induced recession more slowly. In the 1st quarter of 2021, Virginia’s economy grew at a 1.4% annualized rate, compared to 6.3% for the U.S. In the 2nd quarter, Virginia grew 5.8% compared to 6.7% for the U.S. (I’m using ODU’s figures for Virginia and Statista figures for the U.S.)

Here’s what many people miss: it is possible to have a successful “economic development” program, in which Virginia successfully competes for out-of-state corporate investment in new manufacturing plants, call centers, and office operations, while still having a run-of-the-mill economy. Virginia excels in economic-development projects because it has top-notch economic-development leadership and infrastructure. But these projects constitute only a fraction of the investment and job creation that occurs, most of it below the radar screen. Economic development projects do not include capital raised through angel networks, venture capital firms, initial public offerings, or private equity funds. They do not reflect capital expenditures and hiring that existing businesses engage in as a routine course of business. They tell us nothing about innovation, new-business formation, and the creation of fast-growth enterprises.

In sum, there is a vast iceberg of capital expenditure and job creation that occurs beneath the surface. When we consider the whole economy, Virginia is a laggard, and it has been for the past decade. The proof is in the sub-par numbers for GDP growth, job growth and net domestic population out-migration.

Virginia began losing its economic mojo long before Northam took office, so it would be unfair to single him out for blame. But it would be fair to say that he has done nothing to reverse the trend, so it is absurd to posture himself as a national exemplar. The sole thing that I would credit Northam for is enforcing less economically destructive COVID shutdown policies than his fellow Democratic governors in other states.

On the other hand, Northam has signed numerous pieces of business-unfriendly legislation, the effects of which have yet to be felt. Most visibly, Northam has presided over the most dramatic meltdown in K-12 educational achievement since the state began measuring it through Standards of Learning (SOL) exams. Virginians will be paying the economic price for the retrogression in learning for years, perhaps decades, to come.