I am of the mind that
the biggest issue facing the state right now is the sluggish economy. I
know many share this belief.
With that in mind, I will be focusing my
(unfortunately limited) time writing specifically on creative strategies to
improve Providence’s and the state’s economy, and thinking about it from the
perspective of the upcoming gubernatorial and Providence Mayoral campaigns
(i.e., what do the candidates have to say about what I write?).
Before I
delve into specific suggestions, I believe there are a few items relevant to
economic growth that need to be clarified at the outset.
Second, economic growth takes time, commitment, alignment on a vision, and
the autonomy to make things happen. It is unlikely to see
radically positive results in a few months or even a couple years.
Economic development is a decades-long strategy, that often requires
partnerships and long-term planning that are challenging for public officials,
policymakers, and civil service staff. While the pain of recessions,
joblessness, and foreclosures is real, there are often few options for state
and local officials to ease that pain.
Third, everything matters to economic development: education,
transportation, infrastructure, workforce, land-use, zoning, existing markets,
history, taxes, regulations, natural assets, etc. But each of these
matter to varying degrees depending on the industrial sector and individual businesses.
To assume that “lowering taxes” or “reducing regulations” is the most important
of considerations is foolish, ill-advised, offensive, and immeasurably
distracting from the various other issues that are generally much more
important for long-term economic success. While everything is important,
some things are more important than others.
Fourth, every strategy comes with trade-offs and there are
always winners and losers with any policy change. Typically, those with
wealth and power can influence policy to their benefit. And while this
may benefit them personally, or as a group, there are long-term consequences
for the economy that are generally ignored. The incremental policy
decisions that have been made in the past have led to our little state to lack
the sufficient resiliency to bounce back from the recent and ongoing
depression/recession. The economic conditions in which Rhode Island finds
itself will take many, many years to rectify.
Fifth, demand for goods and services drives the supply of goods and
services. If no one wants to buy stuff, stuff doesn’t get made,
and people lose their jobs. Most tools that are deployed by cities and
towns and the state try to stimulate the economy do not address economic
demand, and as such they are largely inefficient and/or ineffective.
Sixth, underlying
everything is an often ignored but crucial criterion: the importance of inclusive and dispersed economic growth.
The benefits of economic growth need to be broadly shared because the more
people who earn money, and the more money that they earn, the higher the level
of economic growth. When economic growth benefits a small (and shrinking)
number of people, aggregate demand declines and the economy suffers. When
a rising tide actually lifts all boats, something that the post-WWII economy
was notable for, everyone benefits. When a growing number of boats are
chained to the bottom of the ocean, as has been the experience from the
mid-1970s onward (with a notable exception during the 1990s), the economy flounders,
people fall deeper in debt to maintain their standard of living, and the
economy slows.
Seventh, the ONLY way
the state (or any state, region, city, etc.) can be successful in the long-run
is by improving its competitiveness in particular economic areas.
This can be done by increasing the productivity of existing businesses through
innovation or better trained employees or achieving higher workforce
participation rates, while ALSO supporting the high and rising wages and living
standards of Rhode Islanders. Period. This is hard to do, but not
impossible. The role the city and state can play is to lay the groundwork
for an iterative process of successive improvements to support
business productivity gains and assist with the dispersion of economic
benefits.
Eighth, when we
discuss economic development, it’s important to differentiate between
locally-traded clusters, sectors, and industries and those that are subject to
larger markets, regional, national, or global in scope. The first
group includes restaurants, local health services, residential housing
construction, etc. while the second group includes software
development, manufacturing, higher education, etc. The success of the
first group is largely dependent upon the success of the latter. To put
it another way, an economy can only grow by exporting lots of high-value goods
and services and bringing in money to the state from other parts of the country
/ world. The degree to which the economy is exposed to
and successfully competes in global markets is the single largest factor that
explains how successful its local economy is. This isn’t to say
that the local economy isn’t important, just that everyone selling hamburgers
to each other does not grow the economy.
Finally, businesses grow at various points over their lifecycle.
The only businesses that are guaranteed to have net positive job growth are new
businesses, for the obvious reason that they will employ at minimum the owner
of the business and they have no current employees to let go. Many
businesses grow to a certain size and stay there for their entire
existence. Many businesses have dramatic fluctuations in their employment
based on seasonal or market demand. Some businesses have limited but
sustained growth. And only a few businesses experience pronounced growth,
and that growth is generally limited to a short period of time.
All of
this is important when it comes to growing jobs because there are only limited
opportunities to identify and support existing businesses during their growth
phases. But the opportunities are innumerable to support new business
growth, and it is new business startups that have been responsible for net new
job growth in the past decade.
There are additional
factors that contribute or impede economic growth, but in my mind, the 9 above
are of paramount importance. Feel free to bookmark this post as I will
update it as I begin listing specific strategies to Rebuild Rhode Island!
Brian Hull received his Master's Degree in Public Policy
from the Kennedy School of Government at Harvard. He is Senior Consultant with
the leading research and strategy firm on U.S. inner city economies.
Professionally, he is lead advisor to municipalities and county governments on
key trends impacting inner city economies and businesses, works on urban-based
economic development projects for organizations and institutions across the
country, identifies how large institutions can better provide local economic
opportunities for low-income urban residents, and explores innovative workforce
development systems to create a more productive local labor force.