The South's small-government, pro-business, boot-strap ideals are drawing jobs to states in the region. That economic model may hold appeal for Wisconsin's Scott Walker and other Northern GOP governors. But it also has a dark side.

Patrik Jonsson

Staff writer
March 1, 2011 at 3:51 pm EST Atlanta

If Gov. Scott Walker (R) has his way in the labor dispute that has rocked Wisconsin for two weeks, will his state in effect look a lot more like those in the South?

Their economies marked by weak unions, a business-friendly climate, a thin social safety net, and lower taxes, Southern states may be an inspiration to some Northern politicians looking to grow jobs and dig out of budgetary holes.

Governors around the United States are "really under tremendous pressure ... to transform their economies," said Bruce Katz, director of metropolitan policy at the Brookings Institution, at a recent symposium. Collectively, states' deficits for the next fiscal year add up to $125 billion, forcing at least 41 states to propose cuts in education. Help from the federal government is probably not on the way, either, with Congress having no appetite for another stimulus bill or a bailout.

That leaves financially strapped states looking around for other solutions, and their gaze may be fastening on what some economists call the South's "moonlight and magnolias" strategy. Under that economic construct, the focus is on creating a competitive place to locate businesses, so the premium is on investments in benefits for corporations and on keeping wages relatively low. Worker rights, social services, even education take a back seat to "job creators" under this model – which critics denounce as a race to the bottom.

"Members of the modern Republican Party, and the 'Tea Party movement' in particular, gravitate naturally toward models of growth that treat public programs and investments as mere obstacles in the path of dynamic corporate 'job creators,' '' writes Ed Kilgore, a fellow at the Progressive Policy Institute, in The New Republic this week. "Many look South in admiration." But "if Wisconsin and other states – not to mention the country as a whole – end up adopting these atavistic economic ideals," warns Mr. Kilgore, "they will simply begin to resemble the dysfunctional Old South societies that spawned them in the first place."

Others note, though, that people are voting with their feet. Northerners – including African-Americans – have decamped in a massive migration to the South during the past two decades, evidently perceiving that's where the jobs are going.

"When you talk about folks in New Jersey, Ohio, and Wisconsin, there's not a lot of optimism about the future right now," says David Woodard, a political scientist at Clemson University, in South Carolina. "They're not as optimistic as someone living in Atlanta."

Of the top 10 states with the smallest share of public employees eligible for collective bargaining, nine are in the South. In Wisconsin, Governor Walker is trying to curtail unions' collective bargaining rights; other states seek steep concessions in pay and benefits from public employee unions to close budget gaps and make their states more competitive.

The top 10 entrepreneurial states, moreover, are all in the South and the West – and all in so-called right-to-work states that ban closed union shops, according to the Kaufmann Index of Entrepreneurial Activity.

For many Southerners, the strategy is hardly a race to the bottom. Blacks on average now make more money in the South than they do in the North. Professor Woodard relates the story of a former South Carolina landscaper who used to drive a beat-up Chevy pickup truck but now works at the nonunion BMW plant in Greenville, S.C. He drives a new BMW, and "you couldn't convince him that he's worse off," says Woodard.

Wisconsin's Walker has said that stronger taxpayer representation in state governments will pave the way for economic recovery – and eventually more opportunity for all. But getting there means breaking a social compact that has been in place since the 1950s and that was strengthened in the 1990s boom years, when many public employee unions secured generous health and pension benefits in exchange for slightly lower pay scales.

Mississippi Gov. Haley Barbour (R), who has without much opposition cut pay and benefits for state workers in order to offer incentive packages for corporations, supports Walker's moves in Wisconsin. (A new Toyota plant is opening in Mississippi this year.)

"When they have collective bargaining in Wisconsin, on one side of the table there's state employee unions or the local employee unions. On the other side of the table are politicians that they paid for the election of those politicians," the potential presidential aspirant tells the Washington Post. "Now, who represents the taxpayers in that negotiation? Well, actually, nobody."

There is a darker side to the Southern model. Former slave states and territories have greater income disparities, receive more in federal subsidies than the tax dollars they send to Washington, and lag behind in educational achievement, especially for the poorest residents. Critics say that's what happens when economic policies put the "job creators" ahead of consumers of state services and benefits, including education.

Southern states receive more than their fair share of federal dollars per resident largely because they get a lot of farm and military subsidies, have fewer high-wage earners, and in effect outsource much of their indigent care to Washington. Obviously, the federal government could not long afford a situation in which a greater number of states get more federal dollars than they give. The US would need to cut entitlements and social programs much more than lawmakers in Congress – including GOP conservatives – are currently contemplating.

"Texas, for example, has a huge debt problem, and it's a state with no social safety net to begin with and they're now planning to cut services for the needy more deeply," says Norm Ornstein, a fellow with the nonpartisan American Enterprise Institute in Washington. "The great irony here is that people who are now most agitated about deficits and debt are the ones who not only want to keep $4 trillion in tax cuts, but want to have even more tax cuts."

That core idea – that tax-cut opportunity trumps tax-paid benefits – is built into the South's Jeffersonian society, which backs limits on federal power and promotes the state's role in safeguarding individual property and rights. It comes at a price. "By design, life is tougher in the South," concedes Clemson's Woodard.