Delaware

Delaware, the first state to ratify the Constitution, the second smallest state in area, and the sixth smallest in population, is a small corner of America but with some considerable claims on U.S. history. The mouth of the Delaware River was explored by Henry Hudson, and the Dutch and Swedes built settlements on the west bank in the 1630s. But the three counties of Delaware owe their separate existence to the politics of the proprietors of William Penn’s colony of Pennsylvania, and to Delawareans’ own speed in ratifying the Constitution, which made it literally the “First State.”

Throughout most of its history, Delaware has been unusually affluent. It had the nation’s highest income levels during the early 20th century and still has relatively high income levels. The many members of the du Pont clan occupy beautiful cobblestone mansions in its chateau country. Delaware’s racial and ethnic mix is not radically different from the rest of the nation’s; it is home to more African-Americans (20%) and fewer Hispanics (6%). It has a mixture of suburbs, old immigrant neighborhoods, urban black neighborhoods, attractive beach towns, and farmlands. Sussex County in southern Delaware is a world of its own. It produces more chickens than any other county in the country—chickens outnumber people 300-to-1 in Delaware—and also thousands of tons of processed chicken dung (or “broiler litter”). Its beach communities are bustling with growth, and there is a move toward historic preservation in the old, inland towns.

For much of the last two centuries, the central focus of Delaware’s economy was the business started by Eleuthère Irénée du Pont, the practical-minded son of a dreamy, idealistic French immigrant. He built a gunpowder mill on the banks of Brandywine Creek in 1802, which was the first enterprise of the du Pont family. Over time, it became one of America’s great munitions and chemical companies. It switched from gunpowder to dynamite in the 1880s, and the company grew especially rapidly during World War I, generating so much capital that it bought a large share of General Motors stock in the 1920s and controlled GM for 30 years, when GM was the country’s largest corporation. DuPont capital also financed what was arguably the world’s finest research and development program. In the years on either side of World War II, DuPont prospered by bringing to the consumer and industrial markets new synthetics and plastics such as rayon, nylon, synthetic dyes, cellophane, Lucite, Teflon, and Dacron: “Better Living Through Chemistry.”

Business trends in Delaware have had a big impact on national policy. In the late 19th century, the state passed pioneering laws of incorporation, giving more flexibility and power to managers and owners. Most companies in the Fortune 500 and on the New York Stock Exchange and the Nasdaq are incorporated in Delaware. Their legal births take place in a federal-style building near the Capitol in Dover, which means that much of the nation’s corporate law, especially on mergers and acquisitions, is made in Delaware’s Chancery Court. Delaware takes care in choosing judges and writing corporate law to produce a reliable legal environment. Recently, the Chancery Court’s jurisdiction has been extended to intellectual property, and the Wilmington bar has been boning up on corporate bankruptcy law. In the quarter-century boom starting in the early 1980s, Delaware fostered a new industry: credit cards. In 1981, Gov. Pete du Pont pushed through a law abolishing Delaware’s usury laws and lowering its bank franchise tax. Inflation was high, and banks were looking for a state with no limit on interest rates to locate their credit card operations. Although South Dakota abolished its usury law in 1980, the state didn’t have a labor force large enough to support many banks. Delaware did. MBNA moved there from Maryland in 1982 and invented the affinity card in 1983. It became the nation’s largest credit card issuer; its chief executive officer, Charles Cawley, replaced the du Pont family as Delaware’s most visible philanthropist and community leader. Cawley retired in 2003, and Bank of America acquired MBNA in 2005. The 2007 financial crisis hit the credit card business hard, helping to send Delaware into recession, and the troubles in the domestic auto industry reverberated in the state as well. More than 1,000 people lost their jobs when Chrysler closed its Dodge manufacturing plant in Newark at the end of 2008, and another 550 were laid off when General Motors shuttered its Wilmington plant in 2009. Still, DuPont is keeping the state on the cutting edge by developing alternative fuels, and life sciences businesses are growing. AstraZeneca has its U.S. headquarters in Delaware. The state’s economy may surge again from the rise of an industry as little anticipated now as the credit card business was in 1980.

One way Delaware thrives is by “exporting taxes.” Journalist Jonathan Chait, irritated at the $2 tolls and the traffic jams at the tollbooths on the Delaware Turnpike, wrote in the New Republic: “The organizing principle of Delaware government is to subsidize its people at the rest of the country’s expense.” State government gets 3% of its operating budget from the turnpike tolls, 22% from corporate and franchise taxes, and 8% from slot machines. A 1993 U.S. Supreme Court decision sanctioned Delaware’s tax on unclaimed property from other states. Exporting taxes has allowed Delaware to be one of the five states with no sales tax (Maryland’s tax is 6%). And it has lowered its income tax several times in recent years, first under du Pont, then under Republican Gov. Michael Castle and Democratic Gov. Thomas Carper. Property taxes are low, with no reassessments since 1974 in Sussex County, since 1983 in New Castle County, and since 1987 in Kent County. The Census Bureau reports that Delaware’s state government has the fifth-highest revenue per capita of any state, and the Tax Foundation found that Delaware has the fourth-lowest tax burden on its residents. Delaware boosters can argue that its state policies have enabled America’s industrial economy to grow robustly, have provided credit to millions of people and businesses, and have led the nation in a virtuous cycle of lowering taxes. Certainly Delaware has done well. Its population grew 18% in the 1990s, and another 12% from 2000 to 2008—faster than any other state in the East or Midwest.

Delaware is on both sides of the Mason-Dixon line. It was a slave state with many emancipation sympathizers. On his Wilmington stop during his train ride to Washington in January 2009, President-elect Obama, joined by Vice President-elect Biden, paid tribute to Delaware’s Underground Railroad. They did not mention that Abraham Lincoln, during his 1861 train ride to Washington, decided not to risk a stop in slaveholding Delaware. Delaware also has immigrant communities in the Wilmington area, and it has Southern-accented farmers in Kent and Sussex counties (plus Latino migrants working in its chicken plants). Its New Castle County suburbs range from very affluent to not-so-affluent. Well-preserved 18th-century buildings line the streets of New Castle, the capital from 1704 to 1777. Newark has grown from a country crossroads to a small city as the University of Delaware has expanded.

From the 1950s through the 1980s, the state’s considerable variety produced a robust two-party politics in which tiny Delaware’s vote mirrored that of the nation’s. But in the 1990s, Delaware, like many of America’s largest metro areas, trended toward the Democrats. Now it is virtually a one-party state. Democrats hold both U.S. Senate seats: Thomas Carper won his by beating incumbent Republican William Roth in 2000, and Edward Kaufman, a longtime Biden aide, was appointed to Biden’s seat in January 2009. After 16 years of Democratic governors, Delaware elected another one. Treasurer Jack Markell won 68%-32%, after he defeated Lt. Gov. John Carney in the September primary. Democrats increased their lead in the state Senate to 16-5, while the state House, formerly 22-19 Republican, is now 24-17 Democratic. The major exception to Democratic rule is Republican Rep. Michael Castle, who was elected to the state’s lone House seat in 1992 after two terms as governor. He was re-elected 61%-38% in 2008. Delaware’s big race in 2010 will be for the remaining four years of Biden’s Senate term. A likely candidate is his son, Beau Biden, the state attorney general who as a member of the Delaware National Guard served in Iraq in 2008. The biggest question mark at press time in July 2009 was whether Castle would seek the seat.

Delaware elections are not bitter contests. Thanks to the state’s small size, politics remain intimate. Personal campaigning is important, and voters are not at all surprised to run into their senators in the supermarket. Successful Delaware politicians are almost always nice people; they couldn’t get elected otherwise. Then there is Delaware’s unique custom, dating back to 1792, of “Return Day.” On the Thursday after an election, winning and losing candidates go to the Sussex County seat of Georgetown and ride together in carriages to receive the bipartisan cheers of the voters and, literally, bury a hatchet in a box of Lewes Beach sand. Not a bad example for the other 49 states.