The Northeast and the Midwest have undergone substantial distress in the last quarter century. In New England, shoes, textiles, and forest products have seen major job losses occasioned by capital flight and technology change. In the Midwest, the continuing decline of the domestic auto industry along with the emigration of other good paying manufacturing jobs have taken a devastating toll. Federal policies, including trade treaties, minimum wage standards, and labor laws have all played a role in this economic decline. State governments have been asked to slash taxes and "deregulate" in order to attract new business. There are, however, more humane and effective alternatives to the zero sum game of stealing business from other states.
Here in my home state of Maine, a group of civic and business leaders commissioned a Brookings Institution study, Charting Maine's Future. Both in its strengths and pitfalls, it has lessons upon which other states can draw. Its central claim has obvious implications for many states: "Few growth sectors will involve low skill mill jobs."
Brookings argues that Maine's economic future depends on preserving and promoting its "brand," the distinctive quality of life in Maine. The state must also increase social investment in education, research and development, and the funding of industry-led partnerships for workforce development, marketing, and network building. Other New England and Midwest states are pursuing similar strategies involving curbs on costly sprawl, R and D funding of key sectors, and efforts to build and market state and regional tourism.
State spending needs to be scrutinized to assure an adequate return in the form of goods and services on their tax dollars, but states should resist the siren song of low taxes as the primary key to economic growth. Low taxes and small government were not the key elements in the high tech explosion that conservatives celebrate. Computers and the internet, the very technologies that make telecommuting and information technology investments in rural communities viable, were themselves the product of major government R and D expenditures over a generation. Economic Policy Institute economist Jared Bernstein points out, "investments by governments to private firms are not only useful but also can be critically important. New industries often need seed capital that is not forthcoming from financial markets, especially when large infrastructure needs mean steep start-up costs: Think of the Internet, which began as a Department of Defense project. Because firms can't recoup all the benefits of their R&D investments, they tend to under-invest. If government took a pure hands-off approach, there would be less money put into medicine, technology, aviation and most other cutting-edge fields."
For Maine, Brookings identifies organic farming and specialty foods, cold water aquaculture, marine research, and biotechnology as some areas where state level research could become a major catalyst of private sector growth. The market for products in all of these areas is likely to expand, it will be difficult for any one producer to monopolize the market, and growing energy and transportation costs are likely to create strong and loyal local demand. Finally, preservation of a high quality environment that can attract good new jobs can even be enhanced by proper development of these industries.
State development strategies along these lines are not a zero sum game. States will have particular economic niches. Technology gains in one state can contribute to the economic growth of others. The emphasis on local and organic agriculture is a strategy many states can pursue with profit. Local agriculture creates jobs and recycles dollars in a home region, rather than shipping lot of dollars to distant oil companies and corporate profiteers. Washington Post columnist Neal Peirce recently cited new Michigan State University research findings that $1.9 billion of higher-value fresh fruits and vegetables consumed in Michigan comes from other states and countries -- even while 74% of Michigan fruits and 44% of its vegetables are sold at relatively low prices for canned, frozen or dried products. The study proposed state government investment to market fresh Michigan foods to Michiganders. The authors also advocated low interest loans for storage and packing equipment, and steps to get state and local government agencies to expand local food choice by school cafeterias, child care centers, universities and prisons.
Nonetheless, government subsidies, even for the most worthy ends, are not without their risks. Paradoxically, many of the steps Brookings and the Michigan State Study advocate are responses to US Department of Agriculture's virtually permanent subsidy to ecologically destructive agribusiness. Loans and subsidies along the lines Brookings advocates are more likely to succeed if they are of limited duration and subject to regular oversight by constituencies independent of the industries. In addition, as much as investment in these areas, most states need major upgrading of their transportation, internet, and energy infrastructure to reduce our dependence on fossil fuels.
Brookings also assumes that new jobs in the advanced fields it recommends will be high skill and high paying. It views broader access to post-secondary education as a key to this outcome. But mill jobs often were high paying jobs because organized labor protected the rights of workers and demanded that the high productivity of the workforce be rewarded accordingly.
The correlation between skill level and compensation actually is becoming weaker as more of the workforce becomes educated. Many new jobs are in sectors currently unprotected by unions. Nor is it a given that all corporate recipients of government support will necessarily value the education and input of their workers. When government agencies award grants, workforce relations should be a major criterion.
Economic development includes social as well as aesthetic and ecological components. Most US communities, even rural ones, have always had substantial gaps between rich and poor. But in the post-World-War-II period, government, unions, and even many private initiatives prevented gaps from becoming chasms. Unfortunately, in the last fifteen years the gap between low, middle, and high income earners has widened considerably. Economic development shouldn't lead to a world of gated communities, abject poverty, and a shrinking middle class. If prosperity is to be fully shared, public policy must find ways to protect the interests of workers even as it extends appropriate assistance to business.
John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email jbuell@prexar.com.
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