December 1997

Is the notheast necessary ?

While the rest of America chooses freedom and prosperity,
from Washington, D.C. to Massachusetts to Maine, we see
blight, depression, and chronic leftism that would do Western
Europe proud. The surprise is that the Republican Party
hasn't written off this dying region once and for all.

BY STEPHEN MOORE

A few years ago a cheeky pollster asked Americans what one state would they most like to see secede. New Jersey won the contest -- with New York and Massachusetts not far behind. Of course, much as we might like them to, these states cannot formally secede from the rest of the United States. But not since the Civil War and Reconstruction has any one region been more culturally, economically, and politically isolated from the rest of the U.S. than the Northeast today.

At a time when most of the country has grown more conservative, more dismissive of big government command, and more prosperous, the heavily unionized, economically exhausted, industrial Northeast has edged ever further to the left. The result: an ever widening ideological Grand Canyon between what truly is now two Americas.

Michael Barone, compiler of the indispensable Almanac of American Politics, calls this peculiar region the "New England-Metroliner Corridor." It begins with Washington, D.C. -- the city with no manufacturing and no industry (besides influence-peddling); with an ex-convict mayor; with one of every three households receiving a government paycheck or welfare payment; and yet with a per capita income that has surged to among the highest of any metropolitan area. Washingtonians extract wealth, they don't create it.

Driving north from Washington along the Interstate 95 corridor, you first hit Maryland, which hasn't officially elected a single Republican to statewide office in twelve years (though Ellen Sauerbrey did have the governorship stolen from her in 1994). Then in succession you go through a modern-day rust belt: Delaware, eastern Pennsylvania, New Jersey, and New York. The shared experience of these states is oppressive tax rates, mindless and meddlesome regulation, obese social welfare programs, slumping real estate markets, and a steady stampede of outward migration -- and this is the politically conservative section of the region. The rest of this other America encompasses the New England states of Connecticut, Rhode Island, Massachusetts, Vermont and Maine, all of them systematically anti-free enterprise and culturally left-wing.

"On the values issues," writes Barone, "the New England states are not as secular and liberation-minded as post-Thatcher Britain, but they are getting there." Pro-abortion sentiment is so universal in New England, for instance, that even the Catholics are disdainful of the right to life. The prototypical politician of the region may very well be Bernie Sanders, the Harvard professor turned mayor of Burlington turned congressman -- and an avowed socialist.

Of course, New England is not the only left-wing stronghold in the U.S. Hollywood and San Francisco may be more left-leaning than Boston or New York City. In the Northwest Oregon and Washington are extremely liberal on non-economic issues, particularly the environment. But only the Northeast offers an agglomeration of states that share a common left-wing ideology virtually across the board.

In this sea of statism there is a tiny island of cultural normalcy and free markets: New Hampshire, "the Orange County of the East Coast," as the Wall Street Journal's John Fund calls it. Despite the diluting effect of a steady stream of tax-refugee yuppies from Boston, New Hampshire's cultural and political institutions remain mostly conservative and populist. With no state income tax or property tax, and the third-lowest per capita tax burden in the nation, New Hampshire has enjoyed the fastest growth rate in all New England. Thus all of the statistics used below to describe the maladies of the Northeast do not apply to New Hampshire -- an exclusion not likely to offend too many New Hampshirites, I suspect.

Source: U.S. Census Bureau, Various Reports.

Voting trends are perhaps the most obvious indicator of the region's separateness. Outside the Northeast, last year's presidential race was surprisingly competitive -- with Bill Clinton edging out Bob Dole by 3 percentage points. But inside the Northeast Clinton trounced Dole by 28 points (59-31)! In Massachusetts and Rhode Island only slightly more than one-in-four voters chose Dole -- paltry numbers normally reserved for third party candidates. Eighty-five percent of D.C. residents voted for Clinton and the remaining 15 percent for Dole -- presumably by mistake.

Yes, Dole was a lousy candidate. But the congressional vote was just as lopsided. In normal America Republicans won the House vote by a 51-47 percentage. The Northeast, by contrast, was an antiŠNewt Gingrich bloodbath. Democrats won the House vote 58 to 41 percent.

Republicans, in fact, are rapidly disappearing from the region. In all of New England, 19 of the 21 House seats are now held by Democrats (or Bernie Sanders). All ten Massachusetts House seats are now controlled by liberal Democrats like Joe Kennedy, Barney Frank, and Joe Moakley. In Boston, the state senate is dominated by the Democrats, 33-7, and the state house by a laughable ratio of 132 Democrats to 28 Republicans. Ideological purity has all but been achieved.

Last year was no aberration. In 1994 northeasterners were all but immune from the national mood swing against big government. While the rest of the nation was electing a Republican Congress, Democrats carried the Northeast by 54-42.

But even the region's remaining Republicans are no bargain -- more akin to Rockefeller than Reagan in their beliefs. In 1995 the ADA's ratings of New England Republicans -- Jim Jeffords, John Chafee, Olympia Snowe, and the like -- was four times higher than its ratings for other Republicans in the Senate. Some of the most scathing critics of the Contract With America were northeastern Republicans. All last year Al D'Amato of New York whined about know-nothing "ayatollahs in the party" -- and he wasn't referring to himself.

Now it is true that in non-New England New Jersey, New York, and Pennsylvania Republicans fare better -- particularly in state and local elections. The New York state senate has long been controlled by Republicans. But these are not Republicans properly understood. Picture for a moment a legislative chamber filled with thirty-five D'Amato pork-barreling clones and you'll get the picture. In the 1980's and early 90's this same group routinely outspent Mario Cuomo.

Republicans seized control of the New Jersey legislature in 1993, but then went on to renege on most of their promises -- on budget cutting, term limits, referendum and initiative, and recall of elected officials. "We've learned that the only thing worse than the D's in New Jersey are the R's," laments former Reagan economist Larry Kudlow, a close adviser to Christie Whitman during her 1993 campaign for New Jersey governor.

The one positive political development in the Northeast has been the ascendancy of tax-cutting GOP governors like Whitman, New York's George Pataki, and Connecticut's John Rowland. Gone are the tax-and-spending likes of Michael Dukakis, Jim Florio, Lowell Weicker, and Mario Cuomo. Each had enacted highly touted progressive "shake down the rich" tax hikes to fund Robin Hood social programs, only to be repudiated by voters.

"There is one conservative issue that plays well in the Northeast these days," explains political strategist and 1982 Republican Senate candidate in New Jersey Jeff Bell, "and that is taxes." For good reason. Six of Money magazine's ten "tax hells" this year are in the Northeast: Maryland, Massachusetts, Maine, Rhode Island, Washington, D.C., and New York. A typical family of four living in Maryland, for example, can save close to $2,500 on its taxes by simply packing the U-Haul trailer and moving across the Potomac to Virginia. (I know, because I've made the move myself.)

The average tax premium for the privilege of living in New England is almost $3,000 per family -- for schools, police protection, and other state and municipal services that are arguably inferior to those elsewhere.

Throughout the region politically savvy Democrats like Vermont Gov. Howard Dean and Maryland Gov. Parris Glendening have co-opted the GOP tax agenda. In New Jersey Democratic gubernatorial candidate James McGreevey ran to the right of Christie Whitman on property taxes. Sounding like Jack Kemp, Glendening last year announced that "an income tax rate cut in Maryland is the single most important thing we can do to increase the competitiveness of our state." These pols understand, as Bell notes, that "once the tax issue is neutralized in their states, all other issues are overwhelmingly in favor of Democrats."

So it's not surprising that there is a free lunch quality to the sentiments of contemporary northeastern voters. They may gripe about overtaxation, but they're just as quick to condemn any effort at even modest budget restraint and join with the media, unions, and poverty industry in invoking visions of the apocalypse. Whenever a Dean or Glendening proposes expansive state-run health care systems, "free" child care centers, pay raises for teachers, government-subsidized sports stadiums, or some other gold-plated government scheme, northeasterners still salivate.

The governments in New England are already nearly one-third more expensive than in the rest of America -- $3,226 versus $2,483 per resident -- and the gap continues to widen. In fact, their welfare generosity rivals socialist Sweden's. In Massachusetts, Connecticut, Washington, D.C., New York, New Jersey, and Rhode Island, the after-tax value of all welfare benefits (including AFDC, public housing, food stamps, child nutrition payments, and Medicaid) exceeded a $12-per-hour, 40-hour-a-week job. In New York City welfare is worth as much as $30,700 a year, or $14.50 an hour -- more than a starting secretary or computer scientist earns. New York is now America's premier welfare mecca.

Meanwhile, the Northeast is becoming increasingly inhospitable to employers. Labor costs here are about 30 percent above the national average. Of the nation's twenty-two right to work states, not one is northeastern. Other than taxes, this may be the single greatest impediment to the region's economic competitiveness. A Federal Reserve Bank of Minnesota study last year showed dramatic differences in job creation rates in right-to-work vs. forced-unionism states. Between 1990 and 1995 right-to-work states, mostly in the South and Sunbelt, snatched away 164,000 manufacturing jobs from non-right-to-work states -- mostly in the Northeast.

In isolation, none of these cock-eyed public policies would cripple a state's economic competitiveness. But in the Northeast each new piece of special-interest driven legislation is encrusted upon layers and layers of existing anti-business rules, regulations, edicts, and laws. The compounding effect has been to convert the entire region into a kind of businessman's purgatory. In November 1996 Financial World magazine published a comprehensive state-by-state Cost of Doing Business Index. Only Delaware escaped the bottom rungs (finishing 19th), while the rest of the Northeast ranged from Massachusetts (37th) to New York (46th) to Rhode Island (49th).

For years northeastern politicians and academics have responded to critics with a self-delusional mantra: Taxes don't matter. Regulatory costs don't matter. Minimum wage and pro-union laws don't matter. Workers and employers know better. But as Richard Vedder, economist at Ohio University, has found, "For twenty years now Americans have been voting with their feet against the high taxes and debilitating policies of the Northeast -- creating a massive brain drain from the region."

In the 1990's domestic flight from the Northeast into the sunbelt, southeastern, and mountain states has begun to resemble a stampede. Connecticut and Rhode Island are the only two states to have lost population since 1990, (The Providence Journal recently quipped: "Will the last person in Rhode Island please turn off the lights?") Maine, Massachusetts, New Jersey, New York, and Vermont have experienced practically no population growth -- and without an influx of foreign immigrants, they would be suffering population losses as well. The New England-Metroliner corridor has seen a piddling population gain of less than 1 million, or just 1.6 percent. The rest of the nation has grown by 15 million people, an increase of 6.9 percent. The ten largest cities of the Northeast, including Boston, Philadelphia, and New York, have lost a combined 1.6 million people in the past quarter-century.

Employers are abandoning the East Coast even faster than workers. A 1997 Dunn & Bradstreet study notes that so far in the 1990's New York has lost more businesses than any other state. From 1990 through 1995 the Northeast lost nearly half a million jobs -- mostly high-paying manufacturing slots -- while the rest of the states gained 8.5 million jobs. This is a long term trend. For the past quarter-century the non-northeastern states have gained new jobs at three times the pace of the northeastern states.

Northeasterners complain disdainfully of the "war between the states" for jobs and businesses. And for good reason. This is a war they cannot win. A Southern governor recently told me that his state had closed its economic development offices in Europe. "Why search for factories overseas when we can plunder high tax areas like Connecticut, and New York?" he reasons. Why indeed? Forty years ago the Northeast was the global capital of manufacturing. Today, the two states with the highest percentage of employment in manufacturing are North Carolina and Mississippi. Thousands of small and large factories have uprooted themselves from the north-Atlantic states. There's no surer way to infuriate a snobbish northeasterner than to remind him that the businesses in his state are trading up for Mississippi.

Other statistics only add to the depressing tale of regional sclerosis. Incomes in the Northeast have grown 20 percent slower than in the rest of the nation in the 1990's. Business start-up and bankruptcy rates in the Northeast reveal less vitality and investment in the region. Real estate values have plummeted 25 percent relative to the rest of the nation.

Nowhere is the economic corrosion from years of command and control governance more evident than in New York City. "Everyone who lives here is exposed to the failures of government on not a day-by-day or hour-by-hour, but minute by minute basis," complains Richard Emery, a prominent Manhattan lawyer and Democratic activist. "It stares you in the face at every curb, every subway stop, every building site." New York's tax system seems intentionally designed to repel the financial industries that made this city the most important center of capitalism in the world. The corporate tax rate is the highest anywhere in America. Result: thirty years ago 254 of the Fortune 500 companies were headquartered in the Big Apple. Today, the number has dwindled to 47. Although New York's greatest wealth-producing sector is Wall Street, residents pay the highest capital gains tax rate in North America. Fifteen years ago roughly 40 percent of the nation's security and commodity brokers were in New York, now only 27 percent are -- and the percentage shrinks each year. The city is a testament to George Gilder's adage that "high tax rates don't redistribute income, they redistribute people."

Defenders of the Northeast argue that the region is already in the process of healing itself. In Philadelphia, Mayor Ed Rendell's tough stance on public employee unions has cut municipal costs and made the city more livable. In New York, Gov. George Pataki and Mayor Rudy Giuliani have taken bold steps to stop the bleeding. The crime rate is down 30 percent in New York City under Giuliani; Manhattan is visibly cleaner and safer. The financial wreckage of Cuomo-ism has ended for now as tax rates and welfare rolls have finally started to decline. Pataki boasts, "We have discarded all the old liberal distractions of the previous era and are ready to move into the twentieth century."

But have they really? What about the liberal distraction of rent control? After a half-hearted attempt to overturn the law, Pataki and other Republican leaders essentially ratified it, despite compelling evidence uncovered by William Tucker, author of two books on rent control, that without the laws the city would have at least 300,000 more low-income housing units. Late last year Pataki pushed through an enormous $1.75 billion environmental bond act, while the legislature and teachers' unions are pushing a $2 billion school construction bond -- all in a state that already has one of the three worst credit ratings among the fifty states. Republicans and Democrats alike seem almost genetically incapable of learning to say "no" to the herds of special interests that roam the state. The prevailing attitude in New York City and Albany these days is: we're done reforming.

Even accounting for the celebrated tax cuts in the Atlantic states in the past three years, only Connecticut and Pennsylvania have top personal income tax rates below the national average of 5.5 percent. Every northeastern state has a corporate tax rate above the norm. As Dusty Rhodes, chairman of Change-NY, a taxpayer group, noted, "Governor Pataki inherited the most anti-competitive tax structure in the nation and even with his economic plan passed into law New York still has the nation's most anti-competitive taxes."

All the data, then, point to one conclusion: the Northeast is dying, victim of the same sclerosis now paralyzing most of welfare-state Europe. Republicans may very well have no choice but to write it off. With each passing day the region's shrinking conservative voting base is retreating to the more economically robust and culturally normal places like Georgia, North Carolina, Florida, and Texas. The GOP would do well just to hold on to its current few seats. Under normal circumstances domestic migration could mitigate the economic and ideological distinctions among various regions. But a different mix has been left behind here: welfare recipients, government workers, senior citizens, and university professors. "At some point, the political balance in New England will tip irretrievably in favor of the redistributionists, business-bashers, anti-growth preservationists, the swelling ranks of government employees, and retirees living on tax-exempt bonds," notes John McClaughry, president of the Ethan Allen Institute in Vermont. "These people, whose policies have driven out those who create wealth, will be permanently in charge."

But in charge of what? A region consisting almost solely of tax consumers sows the seeds of its own destruction.

The good news is that the left's monopoly is almost inconsequential. The political importance of the Northeast hit its high water mark long ago -- and with every year it recedes still further. The very demographic trends that are draining the region of economic energy are weakening its political clout. In the 1950's the northeastern states had 141 House seats. Now they are down to 115. In 1996 the Democrats proudly celebrated their pickup of six House seats in the Northeast. But all six and a few more will be gone after the 2000 redistricting: seats that will shift to the South and the West -- conservative country.

Would it be a great loss to the smaller-government movement if Republicans lost the Chris Shays, the John Chafees, the Jim Jeffords, the Al D'Amatos, and country club New Jersey and Long Island voters? In the short term, yes. It could cost the GOP its slim congressional majorities.

In the longer term, probably no. The effect of the northeastern Republicans in Congress is to constantly dilute what should be the party's unwavering populist and winning message -- more freedom, less government. It's less clear all the time whether northeastern Republicans in Congress are signed on to that message -- even in principle. As Kate O'Beirne of National Review points out, "New England Republicans advertise themselves as socially liberal and economically conservative, but the truth is they're almost never with us when push comes to shove on the economic issues either."

In the year 2000 the Northeast will be home to a smaller share of the U.S. population; it will have a smaller industrial base; and it will produce a smaller percentage of America's total value added than at any time in the nation's history. For the rest of the United States -- competitive, capitalist, and confident -- the Northeast is not so much unnecessary as it is irrelevant. Like every failing institution, the region now confronts a clear choice: change, or die. Either way, the rest of America wins.

Stephen Moore is director of fiscal policy studies at the Cato Institute.