Nashville has become “a destination for technology, culture and business investment.” Could Birmingham have prospered similarly?
The Hoover Institution’s Innovative Alabama report raises this question and offers policy suggestions for growth involving the state’s universities and outdoor recreation.
Economics addresses such questions by visualizing alternative histories if we had done something differently in the past or alternative futures for choices today. The alternatives are called counterfactuals and much of economics involves constructing plausible counterfactuals.
To evaluate the suggestion, let’s start with population growth. In 1950, Birmingham ranked 5th among southern metropolitan statistical areas (MSAs), trailing only Dallas-Fort Worth, Houston, Atlanta, and New Orleans. By 2020, Birmingham ranked 19th among these 45 MSAs, having doubled in size to 1.1 million and 39th in population growth. Atlanta grew from 660,000 to 6.1 million, Charlotte from under 200,000 to 2.7 million, and Nashville from 320,000 to 2 million.
What forces drive population change and growth? Nationally the dominant feature has been migration from the north and east to the south and southwest. Empirical analysis of wages also finds that people must be paid more to live and work in cities with less sunshine and more snow.
Yet the evidence on economic factors like higher incomes or lower unemployment rates driving migration is mixed. Per capita personal income (PCPI) illustrates this. Despite the significant differences in population growth, 2020 PCPI was $55,000 in Birmingham, $57,000 in Charlotte, $59,000 in Atlanta and $62,000 in Nashville.
Job creation occurs when businesses are creating significant value. We can conclude, therefore, that Nashville, Charlotte and Atlanta have more dynamic economies than Birmingham. But because people move to take the jobs, income differences end up being relatively small.
Now let’s turn to Innovative Alabama’s specific suggestions. The first is increasing innovation from Alabama’s universities. Faculty at Alabama universities received over 600 patents between 2011 and 2019. The report suggests better leveraging university-created knowledge through an entity like the University of Wisconsin’s Alumni Research Foundation. Intellectual property is not an area of my expertise so I will defer here. Adopting best practices for technology transfer should be a relatively inexpensive way to boost innovation.
The report also contends that Alabama has failed to invest in outdoor recreation. Recreation affects the livability of a region; economists call such factors amenities. Businesses more easily attract and retain talent to regions with more and better amenities. Alternatively, businesses must pay more to attract workers to a place with few amenities. Individual businesses generally take amenities as given. This creates a potential role for government policy, although some amenities like weather are not determined by policymakers.
We benefit if people with great, visionary ideas choose to live in Alabama and if we can attract the workers needed by dynamic, growing businesses. Is Birmingham’s relative lack of job growth due to inadequate recreation? I am skeptical. The report shows that Tennessee generates far more revenue than Alabama but offers only aggregate stats on forest cover and surface water to suggest that Alabama possesses similar potential. They do not identify underdeveloped awesome recreation areas. No amount of public investment will allow Alabama to create its own Gatlinburg.
The number of potential investment opportunities makes inviting more government investment in amenities dangerous. Innovative Alabama also suggests possible public investment in large festivals (like Austin’s South by Southwest), professional sports, arts, entertainment, and urban green space. I have little confidence in the government making sound investments here as opposed to benefitting politically favored companies.
Extensive spending on amenities rules out low taxes as a growth strategy. Alabama ranks 39th on the Tax Foundation’s State Business Tax Climate Index, whereas Tennessee ranks 8th, North Carolina 11th, and Georgia 32nd; reducing taxes to make Alabama a great place to start a business is an option. Politicians might prefer to be active investors, but cutting taxes is a better approach to cutting ribbons at grand openings.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University. The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to Commentary@1819News.com.