Wednesday, July 3, 2013

RI's Economic Realities and the Reorganization of the EDC

This is an article I wrote in mid-May and submitted to The Providence Journal. They never  published it, which is unfortunate since the realities of the economic climate this state finds itself in have been entirely absent from the public discussion of potential changes to the EDC and any reorganizations that may occur.


In recent days we have seen competing legislative proposals that seek to improve Rhode Island's approach economic development. These are clearly welcome and something we have to do. While these proposals contain a number of potentially significant differences, what has yet to be done is to outline several critical considerations that any such plan for Rhode Island must ultimately include.

There are a number of general principles that such plan must acknowledge. First and foremost, Rhode Island is a post-manufacturing economy and has been so for over twenty-five years. In a post-manufacturing economy, when layoffs occur, those jobs are often eliminated, resulting in permanent job separation. Therefore, during recoveries, it is necessary to create new jobs from scratch, which is both more risky and costlier than it was during the manufacturing era when workers were largely able to return to their prior jobs. Therefore, layoffs occur in both good times and bad, so job loss consistently accompanies job gains. While Rhode Island has seen job loss drop sharply since The Great Recession, job gain has remained sluggish, even as our economy has improved.

Second, back when Rhode Island was a manufacturing-based economy, changes were largely cyclical in nature. The economy would therefore turn itself around as soon as cyclical forces corrected themselves and quickly began producing more jobs and output, resulting in strong recoveries. Today, the economy doesn't just turn itself around because structural changes routinely accompany cyclical factors. Perhaps the greatest challenge in this regard is technology-induced gains in labor productivity. In order for a state to grow more rapidly, it must therefore earn it through proactive and continual improvement in its economic climate.

In light of these general principles, Rhode Island will need to initiate three institutional changes. The first of these, as acknowledged by the different plans, is the creation of a Council of economic advisers (CEA). However, unlike what has been described thus far, the CEA should not be relegated to merely gathering and disseminating data. That task is far more effectively accomplished using existing agencies such as the DLT. Instead, the CEA should define the specific data that need to be gathered in order for it to conduct in-depth economic analyses and to make policy recommendations.

For example, at present, Rhode Island has no idea how large its non-defense tech employment is. The CEA as I envision it would therefore commission the ongoing collection of that data through time, by industry, and by firm size, analyze it, determine both Rhode Island's strengths and weaknesses in this area, and make policy recommendations for meaningful and ongoing improvements.

What will become of this analysis undertaken by the CEA and its recommendations? That should form the basis of Rhode Island's economic plan. It is apparent from existing discussions that the proposers don’t really comprehend what such a plan would ultimately be or what should go into that plan. Worse yet, they seem to believe you can somehow come up with a plan, abandon it for four years, then dust it off and start again. In a post manufacturing economy that will never do. Any plan must be an ongoing and primary vision for the state's future based on in-depth economic analysis.

Finally, Rhode Island must create in-house capability to perform due diligence. This is the necessary condition for enlightened decision making. Its absence has been at the heart of many of the problems we have experienced over the past decades.

This newly instituted due diligence capability should be performed exclusively by economists with advanced degrees who have documented experience in undertaking such research (which includes the use of economic impact software). Once a culture of due diligence has been created, we will quickly learn the economic variables that matter, their interactions, and the actual magnitudes of their impacts. This knowledge can then be disseminated in digital form as reference not only for persons in state government, but to citizens of the state as well. Perhaps most importantly, this capability would at long last equip Rhode Island with the tools needed to combat “the numbers” provided by the various special interest groups.

Let me conclude by noting that the greatest change required in all of this will be attitudinal: If Rhode Island is to become far better managed, the culture of denial so prevalent in the approach of our state's elected officials to economic matters must end. Most importantly, as a matter of practice, accuracy has to supersede tone. I can't emphasize this point enough.

Are Rhode Island's elected officials capable of such attitudinal and institutional changes? I certainly hope so, since Rhode Island's future economic viability is tied to this. It isn’t too late for us to adapt to the kind of world we have been living in for the last twenty-five years and to stop assuming, or should I say, hoping, that our state’s economy will turn itself around and everything will be fine.

No comments:

Post a Comment