Little came easy this legislative session. And that goes for discussions about whether to extend it to handle unfinished business.
You'll remember that shortly after the clock ran out on the session, Gov. Gregoire said she'd call lawmakers back for a one-day session. (The link is to Adam Wilson's story in the Olympian.)
Details, like what were the must-dos and when must they be done, remained to be worked out. As time passed, urgency waned. Wilson reports that Tuesday the governor told Democratic leaders, "time's up." A decision needed to be made this week. The AP's Rachel La Corte summarizes the issues in a story the Everett Herald headlines "Gregoire may cancel special session." (Can you cancel something that's never been scheduled? Can you lose a friend you never had?) Briefly:
The three bills that have been discussed by the governor for a special session are:
A plan to reduce state spending on a program that benefits
"property-poor" schools, saving about $60 million, while allowing
school districts to collect more money from property tax levies. That
bill is seen as the biggest priority.
A measure to clear the way for illegal immigrants in state prisons to be deported, saving the state more than $8 million.
A criminal sentencing bill that expands the low and high end of the
sentencing range, allowing more discretion for judges when sentencing
offenders. This bill could save the state nearly $376,000 through 2011
because it is expected that sentences will be reduced.
But, she notes,
... House leaders have been lukewarm about rushing back to Olympia.
House Majority Leader is quoted as thinking September might be better, when legislators have to return to Olympia anyway.
Republicans, who seem to have little influence on the governor's decision, have been clear from the beginning that there's no hurry. That's particularly true for Sen. Joe Zarelli, who headlines his latest Budget Tid Bit "no special session to pass bad public policy." He's particularly opposed to the levy equalization measure. He desxribes
Engrossed Substitute House Bill 1776 [as]a "reverse Robin Hood bill" that would adversely impact the majority of school districts in the state while benefitting a select minority.
Disagreement on the bill tied up lawmakers in the waning hours of the session.
In addition to the aforementioned issues, swine flu could emerge as a special session topic, at least a reason to bump public health funding.
It's always a bad idea to make predictions just before decisions are likely to be announced. But here goes: I doubt they'll be back soon.
Practically the End of a Tough Legislative Session - Some Good Competitiveness Outcomes
Posted by Richard S. Davis on 4/27/2009 6:56:00 PM
About 11 hours after the 2009 legislative session adjourned, Gov. Gregoire announced her plans to call lawmakers back for a special session to clean up unfinished business. She'd like it to be short, a day or two, and limited to a handful of items necessary to implement the budget. Not everyone's enthusiastic.
It's important to take time to recognize that in a very difficult year, the Legislature accomplished some noteworthy things, foremost among them: balancing a budget without general tax increases. Critics may point at the heavy reliance on one-time money, including the federal stimulus cash, and the likelihood of another shortfall in the next budget. While that argument has validity, it's more important to note that lawmakers bought themselves - and us - another two years to transition to a sustainable spending level, we hope in a stronger economy. Tax hikes would have further hammered struggling families and businesses, delaying the recovery. Commend lawmakers for making the right budget decisions and avoiding new taxes.
Also, at the eleventh hour (literally), lawmakers adopted a clean unemployment insurance reform bill after the House receded from problematic amendments that would have led to a certain tax hike, particularly on mid-size Main Street businesses. Along with a balanced budget that did not rely on new taxes, UI reform has been a top WashACE priority. Thanks to all who contacted their legislators in the last few weeks!
The Employer Gag Rule (aka Worker Privacy Act) disappeared, at least for a while.
We'll have more on what did and didn't happen this session in the coming weeks. Facing considerable challenges, lawmakers were able to take meaningful steps to improve our economic competitiveness. That's no small accomplishment.
In Washington, Boeing faces higher unemployment insurance costs,
regulatory costs and labor strife four strikes in recent years with
202 days of lost work.
Brunell notes that this year's Legislature has not only failed to improve our competitive position, but in several cases threatens to take us backward.
Take unemployment insurance:
... the Deloitte study recommends reducing employers' unemployment
insurance costs to be more in line with competing states. State
lawmakers reformed unemployment insurance costs in 2003 to convince
Boeing to assemble the 787 in Washington, but later reneged on many of
those key reforms. Currently, Washington's unemployment insurance costs
are among the highest in the nation. But instead of lowering them, some
key lawmakers in Olympia are pushing bills backed by union leaders to
increase unemployment benefits and allow workers who voluntarily quit
their jobs to receive full benefits.
And workers' compensation:
For the past 100 years, workers' compensation claims have been handled
in an informal administrative process that doesn't involve trial
lawyers. The employer works with an employee's doctors to manage the
injured worker's treatment and eventual return to work. But the new law
bans employers from speaking to injured workers' doctors once an appeal
is filed. As a result, employers and often workers will be forced
to hire attorneys for the more formal and time-consuming process of
taking depositions, and as the delays drag on, legal costs pile up ...
Read the whole column.
Jerry Cornfield in the Herald of Everett reports that the House voted last night to approve an aerospace training institute but balked at endorsing the governor's proposed aerospace training council. If we get UI, workers' compensation, and labor relations wrong, last night's legislation won't make much difference in a cost-sensitive global competition to land good aerospace jobs.
Raha has increased the value of the monthly revenue collection reports, now billed as "economic and revenue updates," and justifies his cautious optimism with charts, data and analysis. No one expects an immediate or robust bounce. As he writes of the US recession,
The free-fall phase appears to be over, but the trough of the recession is still several months away.
But for Washington,
The state economy is likely to recover at the same time as the national economy. But, the early signs of recovery seen in the national data are not yet obvious in state data - mostly due to reporting lags, but also due to the type of data reported.
We expect the state economy to continue to lose jobs through the end of 2009, but at a diminishing rate.
It's difficult to preduct a turnaround, one of those things best identified in the rear-view mirror, after the fact. Given the uncertainty and fragility of the economy, legislators should resist calls for tax hikes. There's no excuse for adding to the burdens of struggling families and employers.
Posted by Richard S. Davis on 4/14/2009 1:54:00 PM
That's the question answered in this WashACE analysis of the economic impact of The Boeing Company and the aerospace cluster it anchors. Despite the state's economic diversification, aerospace continues to exert a powerful positive economic effect. To get an idea of how much the sector contributes, in this report we take a look at what the economy would look like without aerospace. It's a bleak picture. For example,
Since each Boeing job supports nearly three additional jobs in the state, the companys departure would mean a permanent reduction of 285,000 jobs.
Without the draw of aerospace employment, housing priceswould fall by as much as 6.5 percent by 2030.
Statewide personal income would decline by nearly 9 percent.
The analysis, conducted independently for us by the Washington Research Council, complements last week's release of Deloitte Consulting's assessment of Washington's aerospace competitiveness.
Read them both. And remind lawmakers that enhancing and maintaining Washington's economic competitiveness is the key to recovery.
Posted by Richard S. Davis on 4/11/2009 4:42:00 PM
April 9, somewhat ahead of schedule as Jerry Cornfield reports, Gov. Gregoire released the results of a study of Washington aerospace competitiveness conducted for the administration by Deloitte Consulting. Rich Roesler of the Spokesman-Review had an earlier link to the leak.
It's a good report, echoing earlier work by Deloitte Consulting. After establishing the importance of aerospace to the state economy, the analysts examine Washington's strengths and weaknesses compared to competitor states, including the Carolinas, Kansas, and Texas. Here's a key finding:
While Washington offers many advantages to aerospace companies, its disadvantages outweigh the advantages in attracting and retaining aerospace companies relative to other states."
Recommendations were clustered into five groups and scored in terms of "ease of implementation" and "importance to aerospace." At the risk of oversimplifying (download the report and make your own judgment), I think our problem is that the stuff that's easy to do (training/education, research and development, create an "office of aerospace and defense) tends to be of relatively lower importance to aerospace. The important stuff (reducing high UI taxes and workers' compensation, improving labor management) is more difficult to implement.
The larger problem, as evidenced by yesterday's House vote increasing UI costs, is that too many Washington legislators are unwilling to take even modest steps to improve our cost competitiveness. And the state labor council openly mocks the Deloitte report, which is, I suppose, easier than refuting it.
We'll look at the report in more detail and offer additional thoughts in the coming weeks. Right now, though, we encourage legislators to take seriously recommendations to bring the cost of doing business here more in line with those of competiting states.
Posted by Richard S. Davis on 4/11/2009 12:47:00 PM
Yesterday, the House passed an unacceptable version of unemployment insurance reform. Business groups, including members of WashACE, had urged lawmakers to passSenate Bill 5963 as it came from the Senate. The House Commerce and Labor Committee had taken that good legislation and tacked on amendments that increased UI benefits, assuring future tax increases for employers, and weakened language clarifying when workers who voluntarily quite their jobs could qualify for UI benefits. The legislation passed yesterday, after a flurry of amendments and heated floor speeches, reflects the committee's work.
"The irony is that the day after the governor rolls out
her plan to make Washington more competitive and improve the state's
business climate, her allies in the House decide to raise business taxes
and she's nowhere to be found," said Condotta.
The bill now goes back to the Senate, where Senators should insist on their original bill.
A couple of national studies of state business climates came out recently.
Chief Executive magazine's 2009 "Best and Worst States" for job growth and business survey that Texas, North Carolina and Florida are the top places. Bringing up the rear are California, New York and Michigan.
"Our survey, year-over-year proves
that those states with the worst records continue to practice the same
policies that alienate businesses," said JP Donlon, Editor-in-Chief of Chief Executive
magazine. "As the nations economic problems continue to snowball and
an increasing number of states experience budgetary problems, state
governments ought to take a hard look at their taxation and
unionization policies if they want to turn the page and attract new
businesses and capital to their provinces."
Washington ranked 40th; North Carolina was No. 1. The state ranking table is here.
The other study comes out of Ball State University and focuses on manufacturing and logistics. It grades the states on 7 factors: It does not calculate a GPA for the states and neighter did I. (If you choose to, let me know.)
Boosting the Business Climate by Delaying Cap-and-Trade
Posted by Richard S. Davis on 3/16/2009 2:58:00 PM
At this time, the governor's ambitious cap-and-trade legislation is headed nowhere, which counts as a victory for the business climate, whatever you might think of its dubious merits as a climate change vehicle. Warren Cornwall has a good story on the politics in the Seattle Times.
House Speaker Frank Chopp, D-Seattle, said many fellow Democrats
voiced concern about the economic toll new regulations could take on
businesses already shaken by the recession. He also has heard doubts
about a market for pollution permits.
"With what's happened in the last year, one would wonder about the
wisdom of the markets," Chopp said. "Remember energy deregulation?
Well, that didn't turn out so well."
A February WashACE report challenged the economic modeling relied on by cap-and-trade promoters and estimated the proposed system would have imposed nearly $3 billion in new costs on Washington businesses by 2020.
Cornwall quotes AWB's Grant Nelson:
"Especially given the economic crisis that is facing Washington, the
Legislature has shown leadership and understanding in moving forward
this session on climate-change legislation in a more responsible
manner," said Grant Nelson of the Association of Washington Business,
which opposed Gregoire's legislation.
Right. Seattle's two major dailies both argue that the state should have jumped the queue and passed legislation ahead of the national consensus.
If Washington's economy is perceived to be too vulnerable to move
ahead, the governor and legislative leaders need to say so. Is more
time needed to perfect a workable plan, or is this a big step backward?
Yes, the economy is too vulnerable. And yes, more time is needed to perfect a workable plan. Nope, not a step backward, just a responsible recognition of economic reality.
I wonder how this will affect the budget. After the governor scrapped the collective bargaining agreement, wisely, because it cost too much in these straitened times, the unions sued. The governor won. And now labor is back at the table.
[Senate Majority Leader Lisa] Brown told the Labor Council, Washington's largest union advocacy group, that its members will have to help lawmakers sell a tax package to the public ? a game plan that has become widely accepted in Olympia.
"We're going to need your help to put this thing forward in a productive and fair way," she said.
And in the PI story, Brown sets her sights on the state's Unemployment Insurance Trust Fund.
"Washington state has a healthy unemployment trust fund. We can utilize these funds to expand benefits and training," she said.
Nationally, the unemployment benefit provisions of the federal stimulus plan have been controversial. For a good overview of who's taking what, read this Stateline.org piece.
Don Brunell's column this week offers up another of what used to be called inconvenient truths, until Al Gore made it such a tired cliche we don't say it anymore. Brunell points out that coal will long be an essential element in our nation's energy supply.
..coal provides more than half of our nation?s electricity and will for at least the next 20 years. There won?t be enough alternative energy for decades ? if ever ? to replace it.
... is more easily found on the business pages than in Olympia. Dan Voelpel's column in The News Tribune is a must-read. He looks at the state's highest-in-the-nation-and-ever-escalating minimum wage, brought about by a labor-backed, voter-approved initiative in 1998 and concludes:
Somehow we have bought into the misconception that the minimum wage should equal a family wage.
It isn?t. The minimum wage is a work force entry wage, a wage paid for a supplemental income, a wage for someone in the job temporarily rather than a career.
It has consequences, as a restaurateur tells Voelpel.
Duke Moscrip, the owner of Duke?s Chowder House restaurants, says the latest 48-cent bump will cost his company $50,000 more a year in wages, not counting the additional taxes and benefits he must pay on the higher wage rate.
Moscrip also gets the last, painfully accurate, word in the column. I'll give it to him here, as well.
?People down in Olympia don?t seem to have any understanding of the business world. They think this money grows on trees and the employees should be getting everything. What they don?t realize is if they break the back of businesses, and especially restaurants, there won?t be any jobs.
Yesterday, Gov. Gregoire signed the legislation increasing unemployment insurance benefits, part of a package she introduced last month. We have objected, saying that UI trust fund may be needed in a lengthy recession.
Friday the governor added Bill McSherry to her team as a temporary (6 month) adviser on aerospace. Here's the PI Insider's brief story:
McSherry will be looking for "innovative and practical ways to address concerns and possible hurdles that Boeing and the Washington aerospace industry now face."
McSherry is on loan for six months from the Puget Sound Regional Council, where he is director of economic development -- a subject into which Boeing's status figures prominently.
I've known Bill for a number of years, beginning back when he was with the Seattle Chamber of Commerce. He's a good selection, knows the issues well, and understands the politics and the policy.
I can't resist adding that Boeing has been clear about several issues this year, including the deceptively-labeled Worker Privacy Act (HB 1528/SB 5446). A vote is scheduled in the House Commerce and Labor Committee Wednesday. Stopping this unconstitutional and unnecessary legislation early would be a win for the aerospace industry and every other business in the state.
Meanwhile, we wish Bill good fortune. Washington cannot afford to take aerospace for granted (see here and here).
Friday, the Seattle PI carried yet another editorial urging lawmakers to pass the governor's climate change cap-and-trade legislation. There are, of course, plenty of good reasons to delay. Yet, the PI says:
Smart policymakers will choose to confront what science is telling us about how global change will hurt the state.
The absolute certainty in science expressed there made this George Will column timely. He riffs on the "global ice age" predicted thirty years ago, citing a number of examples where environmental doomsayers have been, well, off the mark. Read the whole thing.
He also cites a rule with which I was unfamiliar.
...Gregg Easterbrook's "Law of Doomsaying": Predict catastrophe no sooner than five years hence but no later than 10 years away, soon enough to terrify but distant enough that people will forget if you are wrong.
Of course, if we pass economy-killing regulations based on flawed science, people are unlikely to forget in five, ten, or twenty years. However you feel about it, there's no reason for Washington to rush ahead of national policy.
As the recession intensifies, so does the competition to win jobs and investment from less business-friendly competitors. That's one of the reasons it's vital that lawmakers get things right in the 2009 session.
In the Wall Street journal, Stephanie Simon reports that several Western states have stepped up efforts to lure business from a vulnerable competitor. In this case, it's California.
Several Western states are launching aggressive efforts to poach jobs, talent and industry from California, sensing an opportunity to capitalize on the Golden State's current political and financial woes.
She focuses on some clever marketing ploys by Colorado. But Colorado isn't alone.
Right behind Colorado are Arizona, Nevada, Oregon and Utah -- all planning to make similar runs at luring corporate executives, venture capitalists and manufacturers who might be fed up with California's political gridlock or anxious about potential tax hikes and deep cuts to schools, parks and other services.
No mention of Washington. You're either the hunter or the prey in this game. And right now, Washington looks a little too vulnerable.
Host Austin Jenkins explores business and labor issues with Sen. Jeanne Kohl-Welles, D-Seattle, and Sen. Jan??a Holmquist, R-Moses Lake on the February 12 episode of TVW's Inside Olympia.
He brings up the Washington Alliance for a Competitive Economy in the clip below. Watch the whole thing.
We continue to urge the legislature to focus on these essential issues and not increase the risk of future UI tax hikes by dipping into the fund now. For background see this and this.
Gov. Gregoire's announcement yesterday of a comprehensive government reform campaign looks like an appropriate respond to the challenges of the time. Few of us would argue the the effort's three goals: reducing the bureaucracy, improving government service, and streamlining government operations? And it's encouraging to see the business-labor committee includes AWB president Don Brunell and Puget Sound Energy executive Phil Bussey.
As expected, she's cutting the number of state boards and commissions, something other governors have attempted with minimal success. Fifty of them disappear with a stroke of the gubernatorial pen. Not a bad start. (Link to disappearing groups here.)
Rich Roesler has more, including the governor's plan to restructure the Department of Community, Treade and Economic Development into a more focused Department of Commerce. Roesler also posts on Senate Democratic staff director's awarding the governor (on his personal blog) the Herbert Hoover for her decision to handle the budget challenge with cuts, not new taxes. (Looks like that post may have been taken down.) Roesler also links to my column in the Puget Sound Business Journal. (Thanks, Rich!)
It's good to see that the governor's plans include a statewide performance audit undertaken the direction of Brian Sonntag, state auditor.
Stimulating Business To Stay in Washington Should be Legislature's Priority
Posted by Richard Davis on 2/6/2009 3:20:00 PM
But, as I argue in the Puget Sound Business Journal today, an awful lot of what's being considered in Olympia seems designed to stimulate business departures.
Right now we need a long-term vision for the recovery. What we?re getting are recycled union and environmental initiatives that will deepen our recession and send jobs and investment out of state.
For example, with unemployment rising dramatically, the governor wants to divert money from the Unemployment Insurance Trust Fund. And with manufacturing layoffs piling up like pizza boxes after the Super Bowl party, lawmakers are considering job-threatening climate change regulations. They call this stimulus?
As well, they continue to impose paid family leave requirements on every business in the state. And unconstitutional, union-backed restrictions on employer free speech have gathered significant legislative support.
Provides for a temporary increase in unemployment benefits by adding $45 tothe weekly benefit amount, and making $155 the minimum amount payableweekly.
Expands eligibility for the training benefits program to low-wage workers,honorably discharged military personnel, and persons who are disabled.
Eliminates restrictions in the shared work program on the number of an employer's employees that must be enrolled, and the number of weeks thatsuch employees may receive benefits.
Provides for non-charging of the additional $45 and training benefits.
Unemployment filings have soared so high in recent months that seven states have already emptied their unemployment-insurance trust funds, which were supposed to see them through recessionary periods. Another 11 states are in jeopardy of depleting reserves by year's end, according to the National Conference of State Legislatures, which published a January report entitled "The Crisis in State Unemployment Trust Funds." So far, states have borrowed more than $2.3 billion in emergency funds from the federal government, money they are required to pay back.
Our trust fund is high, no doubt. But I thought that we got over that peculiar Washington exceptionalism ("we're not like other places") when the deficit projections reached $6 billion. You know, it can happen here.
The February revenue forecast shapes up as a bleak tune-up for the big show in March. Today's Wall Street Journal has a couple of stories assessing the January damage. Auto sales for the Detroit carmakers plunged, again.
The declines were steeper than anticipated and came against a backdrop of sluggish consumer spending for all types of goods...
Overall, auto makers industrywide sold 656,976 cars and light trucks in January, according to Autodata Corp., down 37% from January 2008. It was the lowest total since December 1981 -- and the first time U.S. sales were lower than in China, where about 790,000 cars were sold last month, according to GM.
Granted, those are national numbers, but we're over the illusion that Washington's immune. I doubt we'll look much different.
And the longer people look at the federal stimulus plans, the more troubled they appear to be. Bruce Ramsey raises some unwelcome and thoughtful concerns in his Seattle Times column this morning. Today's Rasmussen Reports reveals that half of America believe the package will make things worse.
Fifty percent (50%) of U.S. voters say the final economic recovery plan that emerges from Congress is at least somewhat likely to make things worse rather than better, but 39% say such an outcome is not likely.
It's beyond strange that with things looking this bleak lawmakers are giving serious consideration to any legislation that will drive up costs (climate change) or make Washington an outlier in labor relations (Worker Privacy Act).
New WashACE Brief on Economic Impact of Cap-and-Trade
Posted by Richard Davis on 2/2/2009 3:58:00 PM
Don't believe the Western Climate Initiative's promises of a cost-free cap-and-trade system. That's one of the important findings in anew Competitiveness Brief by the Washington Alliance for a Competitive Economy.
... the WCI?s conclusions about the cost of its proposed cap-and- trade system are wildly optimistic and are not justified by the incomplete modeling work.
The report includes some good estimates of the impacts cap-and-trade would have on Washington businesses.
Forecasts of emissions prepared for the state indicate that baseline 2020 greenhouse gas emissions (the level of emissions forecast absent the cap-and-trade system) would total 121.9 million metric tons, of which 113.4 million metric tons would be subject to the WCI cap. At the WCI predicted price of $24 per ton (which we believe understates the 2020 allowance price) allowances sufficient to cover the baseline emissions would cost state residents and businesses $2.7 billion.
Of this $707 million would be borne by the industrial sector; $295 million, by the commercial sector, $354 million, by the residential sector; and $1.4 billion, by the transportation sector (this includes personal automobiles). The cost of gasoline would rise by $698 million; the cost of diesel fuel, by $288 million.
The burden on manufacturing businesses would be significant. Emissions data from the Boeing Company indicate that at $24 per metric ton the annual cost would be $8.4 million. Emissions data from the Northwest Pulp and Paper Association indicate the annual cost to a large pulp and paper mill would be $1.8 million, while the cost to a medium sized mill would be $980,000.
Numbers like that put jobs at risk. And the economic modeling of the WCI falls far short of what's required to estimate the economic impact of this legislation on the state. With the Obama administration ready to implement a national climate change policy, Washington lawmakers should reject efforts to push us ahead unilaterally, with predictable negative impacts on our state's industry and long-term competitiveness.
Read the brief. And tell your legislator not to risk good jobs on flawed analysis.
Today's Wall Street Journal carried a front-page story about what states are doing to build their economies during the recession. Under the headline, More States Considering Tax Breaks to Woo Jobs, Stephanie Simon reports the intense jockeying for position as state governments compete for new investment and to retain the employers they have.
Rising unemployment has touched off a race among state governors to woo companies with tax breaks and financial incentives, even as budget shortfalls force cuts in education, health care and other services.
She notes that most states are counting on federal stimulus money, but
they're not convinced it will be enough. So they've laid out urgent calls to chase private-sector jobs with public money.
Why? This is what Missouri's Democratic Gov. Jay Nixon says:
"Everything stems from jobs," Mr. Nixon said. "Now is not the time to back off the field of economic development."
It's a good, balanced account of the current competitive landscape. And, it's a reminder that when we say "location is a choice" 49 other states are working to make themselves the right choice by reducing costs and uncertainty for employers.
One of the problems with plans to increase unemployment insurance benefits and temporarily cut the tax is that it increases uncertainty by raising the specter of higher costs in the future. With the economy still deteriorating, employers rightly fear reducing the trust fund when demand for benefits continues to rise.
Snohomish County Exec: "Eliminate Barriers to Competitiveness"
Posted by Richard Davis on 2/2/2009 12:27:00 PM
In his "State of the County" address last week, County Executive Aaron Reardon put economic competitiveness at the top of his agenda. And he framed the issues effectively, with a sobering assessment of the conditions facing Washington business, particularly his county's largest employer. There's a refreshing summons to action in Reardon's comments that doesn't yet seem to have hit Olympia.
Staying competitive in this global economy means continued vigilance...We must act with a sense of urgency to make our region more competitive and to shore-up investor confidence. But our most important short-term economic opportunity isn?t being discussed in the halls of Olympia and on the front page of our newspapers, or at the tables of the many good and decent associations and committees of government and business leaders.
Though times may be different, our key economic objective remains tied to the future of the Boeing Company in Washington State. We must do all that isnecessary as a region and state to make certain that the second line of the Boeing 787 is built here in the Puget Sound.
For the last five years, as our state reaped the benefits of our success in landing the 787, other states have made tremendous efforts to gain a competitive advantage. It is imperative that the second line of the 787 not be taken for granted...
It's not, of course, just about Boeing. It's about doing what's necessary to make this state the smart choice for business location. But as Reardon knows, a Boeing decision to move operations from Washington would be devasting to his county and the regional and state economies.
With more than 20,000 jobs disappearing in the last few weeks, there's nothing more urgent than keeping the jobs we have.
More on Using the Unemployment Insurance Trust Fund for Stimulus
Posted by Richard Davis on 1/23/2009 9:54:00 AM
In a Senate Labor, Commerce, and Consumer Protection Committee hearing, lawmakers heard public testimony on SB 5319, which taps the unemployment insurance trust fund to support "economic stimulus." It's part of the governor's stimulus package. Among business groups testifying against the proposal were AWB and the Washington Roundtable, founding WashACE members.
The $4 billion in the reserve account is held in trust to insure workers receive their benefits when they lose their jobs through no fault of their own. ?We need to learn from history. In 1982, our state?s unemployment rate rose to more than 12 percent, depleting the unemployment fund. If lawmakers divert funds from the UI trust account, the money may not be there when people need it, warned Brunell.
?Proposals may be well-intentioned, but we continue to worry about the long-term consequences if our economy continues to erode, Brunell said. ?We need to be cautious because we just don?t know how many jobs will be lost this year.
Also in The News Tribune's editorial page blog, Patrick O'Callahan makes a solid argument for not rushing to spend UI Trust Fund dollars to other purposes. Acknowledging that there's not nearly enough in the fund to jump-start the economy, he writes that the proposal may still do some good. More important:
Before approving [the legislation], lawmakers should give a hearing to the employers who?ve been on the hook to finance the trust fund.
...Its size is an argument for drawing it down some. But it?s also an argument for listening to employers who feel the state has been levying excessively high payroll taxes all along. They deserve a say before the Legislature changes the rules on how the money is spent.
And, as the business leaders said yesterday, the major Unemployment Insurance issue before the Legislature this year is getting back into compliance with federal policy.
Naturally, this would be the day that the Legislature takes up the euphemistically named "labor neutrality" bill, aka the employer gag rule. (For that matter, on the Washington State Labor Council site it also flies under the flags of "worker privacy" or "free speech in the workplace."
Here's the legislation: HB 1528 and companion SB 5446. Last year this stuff was shelved, as noted in this blog post by then-TNT editorial page editor David Seago.
Almost as if they want to give topspin to the rising unemployment rate.
Renewing Renewable Energy Incentives: New WashACE Competitiveness Brief
Posted by Richard Davis on 1/20/2009 4:04:00 PM
Our state's commitment to renewable energy generation enjoys substantial public support. In the last decade, the nascent industry has been nurtured and encouraged by a tax incentive exempting producers from local and state sales and use taxes for the purchase and installation of machinery and equipment used in generating electricity from wind, solar, landfill gases and fuel cells. The exemption is up for renewal this year.
This WashACE Competitiveness Brief, prepared for us by The Simeon Partnership, examines the role of renewable energy and the importance of maintaining the current tax exemptions. The bottom line:
Extending these tax exemptions will help Washington maintain its competitive advantage in energy pricing and, therefore, contribute to a competitive business climate.
It's hard to see how the state could meet the I-937 renewables targets without the exemptions in place.
They call it a "trust" for a reason. It's money held in trust so that it will be available to provide economic security for qualified unemployed workers. Remember Al Gore's Social Security "lockbox?" Same thing: Putting money away for a specific purpose and not dipping into it to fund other things, no matter how desirable.
Right now, Washington has a healthy Unemployment Insurance fund, better than many states have and a rare bright spot in our cloudy fiscal landscape . It's a tempting target for policymakers looking for money to tap for economic relief and economic stimulus.
The WashACE priority agenda includes reforming the state unemployment insurance system to prevent uncompetitive increases in employer costs. Several things drive that objective to the forefront. Here's how we say it on our one-page:
Washington?s unemployment insurance taxes are the second highest in the nation. Our workers? compensation benefits are third highest. The federal government has determined that our UI policies are out of compliance with U.S. policy. Further, the state Supreme Court tossed out the legislature?s carefully negotiated language establishing clear criteria for determining when workers who voluntarily leave employment qualify for UI benefits. We urge lawmakers to adopt unambiguous language reinstating the ?voluntary quits criteria and to achieve federal compliance without increasing UI taxes.
Dipping into the fund jeopardizes the fund's integrity and backs away from the reforms we're supporting.
Stimulus vies with Sustainability in Deficit-plagued Opening Week
Posted by Richard Davis on 1/16/2009 9:43:00 AM
It's a theme-setting time, the first week of a legislative session. Beyond the pomp and circumstance, lawmakers work to make sure we understand that they understand the direness of the times. Gov. Gregoire delivered her second inaugural address, acknowledging the severity of the state's economic and fiscal problems and telling us what she intends to do about it.
She echoes WashACE priorities with this:
...like our struggling families and businesses, we can and will tighten our belts, balance our budget and focus on basic needs ? protection of our children, our schools and colleges, our public safety, our environment and our economy.
And this:
When this recession ends, and it will end, we must be ready for a new economy. We need to preserve our education system to make sure we provide workers skilled in science, math, engineering and technology.
She also emphasized government reform, streamlining and rightsizing, promoting more effective use of technology and improving the state's competitiveness.
AWB president Don Brunell notes the major problem with that plan (stories here and here),
...Brunell warned it may set a dangerous precedent that could lead increased unemployment taxes in the long run.
... Brunell said his analysis showed that businesses could receive a tax break of about $40 each from the plan, an amount he called "pretty insignificant."
It's early and a lot of what we're seeing will evolve and, we hope, improve. There's still too much apparent confusion between relief and stimulus. At a time when we're seeing jobs disappear too rapidly, stimulating a new, gauzy green economy should take a back seat to retaining those good jobs that remain. (For a glimpse at the jobs picture, check out this frightening layoff ledger from the Seattle Times.)
Well, maybe not just yet. But with the economy tanking, a $6 billion revenue shortfall, and businesses across the state striving to find a way to survive the recession, it makes no sense to impose a new tax and mandate on employers. So, jettisoning the program would seem like an appropriate, practically inevitable. response to current conditions.
AWB's position on paid family leave has always recognized the employees' need for time off and the challenges inherent in balancing work and family. We've supported flexibilty, incentives for paid leave, and streamlining existing leave laws. But the unfunded mandate of paid family leave has now become a check the state can't afford to cash.
A new year, a new best places report. This week, U.S. News published its take on "the 7 best states to start a business." Washington came out on top. As you might suspect, the study does not rely on a survey of Washington business owners. Rather, it combines the results of a pair of reports produced by other groups. From the article:
U.S.News decided to look at two comprehensive studies that take completely different approaches to measuring the friendliness of the 50 states to entrepreneurs: the 2008 New State Economy Index, by the Kauffman Foundation and the Information Technology and Innovation Foundation, and the Small Business Survival Index 2008, by the Small Business and Entrepreneurship Council.
We've looked at these studies before. In November we put up a brief post about the New State Economy Index. Matthew Bandyk, who wrote the "7 best states" piece for U.S. News, also wrote this week about the index. He makes the right observation.
Robert Atkinson, lead author of the 2008 State New Economy Index and president of the Information Technology and Innovation Foundation, says that the index is not meant to measure economic performance?which is why rust belt Michigan can come in at 17th in states that have adapted to the new economy and Sun Belt North Carolina comes in at 24th. Instead, it is about which states have the economic structures in place that will allow their entrepreneurs to create long-term innovation: knowledge jobs, globalization, dynamism, and technology.
Fair enough. And for many business poised to capitalize on the technology infrastructure, Washington may look like a very good place to locate. But as we've noted previously, the New Economy Index is not a competitiveness index.Interestingly, Washington ranks 40th for "entrepreneurial activity," hardly what you'd expect of the best place to start a new business.
As for the Small Business Survival Index, we've written before on the heavy anti-income tax bias that accounts for Washington's high ranking on this tool. Although the methodology has changed some, the tax bias continues to skew heavily toward states without an income tax. Consider that the six highest-ranking states have no income tax.
Put the "7 best" article in the entertainment file. Combining a tech-centric index with a flawed small business measure does not yield anything like a "best place to start a new business."
Next week the Legislature convenes, with economic recovery the top agenda item. The fluffy "best places to start a business" story should not become a distraction.
UPDATE On his Eye on Olympia blog, Spokesman-Review reporter Richard Roesler has more on the rankings, including a nice link back to WashACE. Credit Roesler for reporting on the U.S. News story first. I should have.
Friday's Puget Sound Business Journal ran an excellent editorial by George Erb (subscription required). Erb concisely sets out a smart competitiveness agenda for the state, hitting themes similar to those of WashACE. Specifically, he commends the governor for shunning tax increases, encourages investment in the future (public works and higher education), and urges the state to nurture entrepreneurial activity. I encourage you to find a copy or read it on line.
I particularly like Erb's close, which reminds us to look beyond the recession.
The coming state and local budget cuts are unavoidable. They will be painful. But they don?t have to be debilitating, and we cannot let today?s harsh climate diminish our hopes for tomorrow.
Erb rightly cautions lawmakers not to fall into the trap of thinking their problems could be solved by closing "tax loopholes."
Too often, ?loophole is just a rhetorical term for an incentive that someone disagrees with. It?s better to judge incentives on how effectively they meet government policy objectives.
And on that score, Don Brunell's column in today's Columbian provides good support for one possible target, the manufacturing machinery and equipment sales tax exemption.
Research by John Urbanchuk, the nation?s foremost expert on tax incentives, projects that, between now and 2016, the M&E exemption will create 54,100 new jobs in Washington, expand our state?s economy by $49.3 billion, put $22 billion in the pockets of Washington families, increase tax revenues for state and local governments by $2 billion, prompt $4.4 billion in new investment, and spark $1.3 billion in construction spending and equipment purchases.
Gov. Gregoire will release her budget plan tomorrow. She's not hesitated to call it an "ugly" budget, reflecting the challenges associated with trimming a $5.2 - $6.0 billion shortfall for the 2009-2011 biennium. The announcement will be carried live on TVW at 9:30 a.m. At 2:30, the Seattle Times will provide streaming video of the governor's appearance with the Times' editorial board.
Plenty of other folks also wrote about the budget. In The News Tribune, Rep. Gary Alexander has a good op-ed on the importance of swift budget action.
If the Legislature and the governor pass a supplemental budget that shaves an easier-to-swallow $500 million off the current budget, we will remove $2 billion from our projected $5 billion deficit.
This is not a misprint: If we save $500 million now, immediately, we save $2 billion down the road.
Of course, it depends on the quality of the cuts, but he makes a persuasive argument.
Also in The News Tribune, Peter Callaghan notes that Washington has plenty of company in the budget quagmire. Here's the Stateline story he references.
For the first time in 25 years, states expect to see a decrease in spending in the current fiscal 2009 budget cycle, NGA and the National Association of State Budget Officers said in their latest "Fiscal Survey of States" released Dec. 15.
Thirty-one states will have to close nearly $30 billion in deficits from their current budgets before they even begin drafting new fiscal plans for the coming year, Five additional states also reported shortfalls, but didn?t include figures.
?As bad as the situation is for states right now, all indications are that the fiscal conditions for states will continue to deteriorate, NASBO Executive Director Scott Pattison said.
The recession continues to plague us. Unemployment is up again. Paul Nyhan in the Seattle PI has a comprehensive report. He quotes Seattle economist Dick Conway.
...the Puget Sound-area economy is finally succumbing to a recession, according to regional economist Dick Conway. It threatens to last until the end of next year and maybe longer, he added.
That means a tougher job market for the growing ranks of the unemployed.
Here's something that ought to concern us.
"Our economy held up well because of continued employment growth at Boeing and Microsoft," Conway said.
As we know, Boeing hiring as slowed down and layoffs are possible in 2009. And Microsoft is adding jobs faster outside Washington than it is here.
Ugly or not, the state budget will doubtless reflect current economic realities. The governor has rightly said that tax increases would impose greater hardships on families and employers. The legislature must now focus on streamlining, setting smart priorities, and positioning the state for a strong, sustainable recovery.
MORE I just read Kim Bradford's TNT editorial page blog. Seems the governor's interview with their ed board will be carried live at 11:30 a.m. tomorrow.
Faced with more and more job losses, Floridians now are more likely to support incentives for businesses to expand or relocate here, the survey found. Support for incentives rose to 63 percent, up 8 points since last year. Opposition to business incentives dropped to 21 percent from 32 percent last year.
"People say do not bring people here, but now Floridians are more interested in economic development," said USF professor Susan MacManus, the survey's academic adviser. "It's a shot in the arm for business."
I've not seen similar results here, though I imagine Washingtonians are as savvy as their counterparts in the Sunshine State. It's easy to assume incentives don't matter when the economy is strong and growth seems inevitable. When times get tougher, intuitively we know that jobs and investment grow where the return on that investment is greatest. Costs matter and tax incentives work.
In this new competitiveness brief, prepared for WashACE by the Washington Research Council, we examine several areas in which state policy may drive up labor costs. Citing several well-known studies of interstate competitiveness that find Washington a high-cost state, the brief examines unemployment insurance, workers' compensation, paid leave, and other issues that are likely to be considered in the coming legislative session.
The cost of doing business has many components, but labor costs make up the largest variable. And within the larger labor cost picture, it is employment taxes and mandated benefits that make the big difference from one state to another. Washington already has among the highest average wage rates in the country, so adding additional costs through taxes and regulation further threatens to let labor costs overwhelm the state?s competitive advantages.
A Competitiveness Warning and a Pair of New Reports
Posted by Richard Davis on 11/21/2008 5:38:00 PM
This morning, the Puget Sound Business Journal wrote out loud what a lot of folks had previously just been whispering. The aggressive courting of The Boeing Company by Southern states gained momentum with the recent machinists' strike. And the South has plenty to offer.
Right-to-work laws in Southern states ... would prevent such costly walkouts.
But the South has another compelling selling point: its industrial muscle. Increasingly, the nation?s aerospace center of gravity is shifting south, creating an extensive and growing base of hundreds of aerospace companies producing helicopters, aircraft assemblies ? even Boeing rockets.
The in-depth article by Steve Wilhelm includes solid comments by economic development pros in the South. As this quote by Gray Swoope, executive director of the Mississippi Development Authority, makes clear, the Southern strategy is comprehensive, looking for a long-term relationship that goes beyond the shop floor.
?We?re not just interested in manufacturing, we?re interested beyond that, and how do you build capacity, he said. ?We?re even more thrilled GE is going to be working with (Mississippi State University) to partner with them in building the next generation of aircraft.
Over the long run, the [aerospace] industry is surprisingly mobile. Just ask any old-timer in Long Island or Southern California. Both areas lost major aerospace manufacturers in the 1990s.
A similar aerospace retreat from Washington would be a severe blow. The industry accounts for about 17 percent of Washington?s gross state product, according to 2006 data gathered by Deloitte Development LLC.
He concisely inventories the factors putting Boeing and the aerospace cluster here at risk. And, he places them in the context exactly as we would.
Washington needs to improve its business climate and change its attitude.
Starting with the governor and the state Legislature, elected officials need to make Washington more competitive for all companies, including Boeing.
All Washington residents also need to stop taking the aerospace industry for granted. On this issue, the state?s biggest enemy may be its own complacency.
Read it all. And see earlier WashACE posts on the issue here, here, and here.
MORE About the "pair of new reports" in the header: Here they are.
The 2008 State New Economy Index came out earlier this week, ranking Washington No. 2. (Download the whole report here.) What's it mean? Here's what the authors say.
Rather than measuring state economic performance or state economic policies, the Index focuses more narrowly on a single question: To what degree does the structure of state economies match the ideal structure of the New Economy?
So it's something quite a bit less than a competitiveness index. Not a bad thing, certainly, and being posed to succeed in the "new economy" (I though that expression had been retired) doubtless gives a state an edge when the economy rebounds.
In addition to lower than expected tax collections over the next 2 and 1/2 years, demand on state spending also is on the rise. Last week, the state Caseload Forecast Council reported that it is raising its forecast for public school enrollment by an additional 10,000 students during the 2009-11 biennium because it expects at least 7,000 private school students to transfer to state schools in light of the recession.
The PI's Strange Bedfellows blog sees a wobbly commitment by Senate Democrats to the governor's no-new-taxes approach.
Democratic leaders were wary of making the same no-tax-hike promise as Gregoire Wednesday.
"That is something we will attempt to do to the best of our ability," said Sen. Craig Pridemore, D-Vancouver.
Revenue increases will likely be necessary. Economic theory suggests that contrary to conventional wisdom, tax increases would be preferable to spending cuts in terms of economic growth.
Boosting taxes to get out of the deficit is wrongheaded for three reasons.
First, it is not fair for state leaders to turn to working citizens and businesses that already shoulder a heavy tax burden and make them pay even more to fix Olympia?s budget mess.
Second, tax increases depress economic growth, so raising the sales tax would only make a dire situation worse.
Third, it doesn?t make sense to reward the very Olympia leaders who created the deficit by letting them ratchet up the state?s financial commitments.
As lawmakers here brace for more budget bad news tomorrow, the arguments against a federal bailout for the states appear to be gaining momentum. South Carolina Gov. Mark Sanford testified against federal funding in Congress recently. Jason Mercier has the best links here. The video is worth watching.
And in this morning's Wall Street Journal, the Manhattan Institute's Steve Malanga argues a federal bailout would just encourage more bad behavior.
In an interview with an AP reporter, Gregoire said she's taking immediate steps to free up millions in federal dollars that would subsidize energy costs, boost the salmon industry and spur the sluggish construction and housing markets.
... If these three specific spending plans can be called "economic stimulus," then just about anything that involves spending money can be labeled "economic stimulus."
And we suspect that's exactly what's going to happen over and over again. Calling a spending request an economic stimulus package provides political Teflon -- criticism doesn't seem to stick.
Clarity of purpose is the key. Relief may be justified, but when the distinctions between relief and stimulus are blurred, neither objective is likely to be achieved. Better, I think, are the governor's calls for spending control. By not increasing taxpayer costs, the governor and legislature will reduce the need for direct stimulus by mitigating the uncompetitive costs of excessive taxation.
Already, an overemphasis on relief risks stifling economic recovery. Michelle Singletary's syndicated column, published here in the Seattle P-I, provides a clear example. She calls for enhanced unemployment insurance benefits.
Amid all the hustle and bustle to fix the economy, there's one thing we can't forget to address: the extension of unemployment insurance benefits and a broadening of the program to provide benefits to more people.
She's writing nationally. Lawmakers here should be very clear that her comments have little applicabiity in Washington, one of the most generous - and highest cost - states in the nation.
Finally, while the governor has put out a call for public comments on ways to save state money, it's disheartening to see the Senate majority leader indicate that she's not prepared to accept a living-within-our-means state budget.
Senate Majority Leader Lisa Brown, D-Spokane, said she knows Gregoire is serious about a no-new-taxes budget. But Brown adds, "I think it's too soon to say whether I share that goal."
State Stimulus: Retaining and Attracting Jobs and Investment
Posted by Richard Davis on 11/16/2008 1:32:00 PM
As we posted yesterday, state governments, most of which are reeling from recessionary revenue downturns, are desperate to turn their economies around. Further discussion comes from the legislative analysts at StateNet. They make a strong case for a stimulus package targeted at state government.
...there are sound reasons why the next federal stimulus should give preference to the states ahead of individuals or favored industries. Traditionally, the objection to subsidizing states is that the money takes so long to work its way into the economy that mild recessions often end before the infusion has a substantial effect. This doesn't feel like a mild recession. Douglas W. Elmendorf of the Brookings Institution, a former economist with the Federal Reserve and the Clinton White House, wrote a paper last January opposing infrastructure spending because it was not fast-acting enough. Now, seeing a "prolonged downturn," Elmendorf has endorsed infrastructure spending.
And they provide report alignment between a couple of groups that don't always agree.
"Jobs are the key," said William Hauck, president of the California Business Roundtable. The U.S. economy has shed 1.2 million jobs this year, with the numbers certain to go far higher. The Economic Policy Institute, a liberal group, estimates that $75 billion in infrastructure spending will create a million jobs. That may be optimistic, but there is no question that infrastructure spending is a good economic value in a down economy.
While I'm not confident anything coming from Congress can be delivered without a larding of inefficient earmarks, the infrastructure case makes sense.
While waiting for Congress, though, we should be careful to preserve what we have here. Don Brunell's latest column looks at Boeing executive Scott Carson's speech and puts it in good perspective.
Boeing has the ability to command the attention of media and public officials. In reality, company officials are speaking on behalf of all private job-producing taxpaying employers in our state. Boeing has laid out the answer to our state?s economic dilemma. Hopefully, the right people are listening.
What we're seeing is the two-prongs of competitiveness strategy: One prong uses tax revenues to spur job creation through infrastructure investment; the other allows entrepreneurs to invest more of their own money by providing tax relief and maximizing the potential return on their investment. Public spending may provide necessary short-term stimulus. Long-term, it's essential we create an environment that encourages business to invest and create jobs here.
From Deficit to Stimulus: States Looking to Revive Economies
Posted by Richard Davis on 11/14/2008 2:58:00 PM
As they did in 2001-2002, state governments are again looking at "economic stimulus" packages to get their economies growing again. Stateline.org has a nice roundup of state efforts. Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments provides a frame for the efforts.
CanagaRetna said state stimulus packages need to be ?timely, targeted and temporary to be effective. That guarantees that money will be spent quickly and people will get work right away, he explained.
But the economic downturn is doubly troublesome for states. The states with economies most in need of reviving are also the ones with treasuries that are most likely to be empty ? too empty to be doling out stimulus packages.
...One way cash-strapped states are paying for stimulus packages is through bonding, said CanagaRetna.
The focus on economic growth is welcome. Until we see more details, however, it will be wise to withhold judgment. As important - arguably, more important - as a jump-start stimulus package is a long-term strategy for attracting and retaining jobs and investment. The WashACE four-point program shows how that can be done:
1. Develop a sustainable budget that preserves essential public services without raising taxes. 2. Target higher education investments to programs that contribute directly to economic growth and recommit to education accountability. 3. Emphasize timely completion of authorized transportation projects for which funding has been committed. 4. Reform the state unemployment and workers? compensation programs to prevent uncompetitive increases in employer costs.
New reports on state and municipal deficits underscore the urgency of recovery. The Christian Science Monitor quotes the Center on Budget and Policy Priorities as saying 41 states are or will experience deficits that could reach a combined total of $100 billion by 2010.
Here's what they're looking for.
If the states had their way, they would like Congress to give them help in four areas: help with the growing number of people applying for Medicaid, more funding for the rising unemployed, help with the growing number on food stamps, and an injection of funds to jump-start infrastructure projects that are ready to go.
"We're not asking for a stimulus package because it will fill budget gaps," says Michael Bird, federal affairs counsel of the National Conference of State Legislatures in Washington. "We think it will provide additional benefits for those most disadvantaged by the downturn and create economic activity through the infrastructure package."
Midst all the bleak economic news, it's encouraging to read in The Columbian of Seattle economics editor Michael Parks's optimism.
Despite declines, Washington?s economy remains above average, said Parks, editor and publisher of Marple?s Pacific Northwest Letter, a data-rich twice-monthly economic publication.
As of August, the state was sixth fastest-growing in population, ranked No. 1 in manufacturing job growth and No. 8 for total goods produced. The state?s above average profile, however, will be much less satisfying, Parks said, because those averages are declining...
And yet, he sees an upturn in the near future.
He shared his optimism that the worst of the recession could be over by the time President-elect Barack Obama takes office and that consumers could soon regain their footing.
?Americans love to spend and their confidence will return once housing values stop falling and their jobs become more secure, he said. ?It?s during times like these that entrepreneurs look for opportunities ? things start to bubble and gel.
We have a rough road ahead. Holding on to the optimism expressed by Parks will be important. We also must recognize that the policy foundation that we set down today will determine whether we're among the winners or the losers when the economy rebounds, as it surely will.
I've enjoyed reading Jeff Cornwall's Entrepreneurial Mind blog. Cornwall's a business professor at Belmont University and frequently posts on topics that are likely to interest WashACE readers.
Some earlier Cornwall posts relative to competitiveness include his link to NFIB's index of small business optimism and the four factors that may determine small business survival in this economy.
...a ranking of economic freedom in the 50 states. Published in association with Forbes, the Index scores states based on 143 variables, including regulatory and fiscal obstacles imposed on businesses and residents.
This year, Washington comes in at 37, meaning 36 states exhibit more economic freedom or, I guess, fewer "regulatory and fiscal obstacles." In 2004 Washington ranked 31st; in 1999, we were 40th. The top ranked states this year are South Dakota, Idaho, Colorado, Utah and Wyoming. (h/t to John LaPlante at the State Policy Blog.)
Having previously called into question the validity of "best places" rankings, I was pleased to see this response to critics by study author Lawrence J. McQullan,
Businesses locate based on many factors including land and housing costs, transportation and school systems, labor and energy costs, weather, proximity to distribution networks, and government rules and regs, what we call ?economic freedom. We measured only economic freedom, not the ?business climate generally, which is beyond the scope of our study. This explains why our results diverge from other indexes that measure concepts such as business climate or competitiveness. Apples must be compared to apples. The weight that a business (or an individual) places on any given factor can vary tremendously. Economic freedom might be important and determinant for one business, but not for another. Thanks to the U.S. Economic Freedom Index, however, researchers now have a yardstick by which to measure economic freedom across states and assess its impact on business and personal decisions.
Boeing Commercial Airplanes CEO Delivers A Competitiveness Agenda
Posted by Richard Davis on 11/8/2008 10:17:00 AM
Scott Carson, CEO of Boeing Commercial Airplanes, told about 800 of the Puget Sound region's business, civic and governmental leaders what they must do to assure the state's long-term competitiveness. His speech, delivered at the annual luncheon of the Prosperity Partnership (speech text here) provided a sober assessment of the challenges facing global businesses - all businesses, as he points out - in an intensely competitive marketplace.
I attended the luncheon and was struck by Carson's sincerity and obvious desire to see Boeing succeed in Washington state. There are, however, no guarantees.
"Location is a choice," he reminded the audience. And, reflecting on the often bitter rhetoric of the just-concluded campaign season, he acknowledged the "urgent sense of desperation" felt by Americans in this turbulent economic period.
After outlining a series of 21st Century business realities, he concluded with a concise list of legislative priorities. WashACE members will recognize them.
First, develop a sustainable budget that preserves essential public services without raising taxes. We need a budget we can all live with as we navigate through tough times and try to strengthen our economy for the long term.
Second, reform state unemployment and workers? compensation programs to prevent uncompetitive increases in employer costs. Such reforms are overdue.
Third, finish up all authorized transportation projects for which funding has been approved. Complete these projects on time?and preferably as soon as possible.
Fourth and finally, recommit to education accountability and target higher education investments to programs that contribute to economic growth. Let?s strive for an education system that supports a healthy, better economic future for our state.
The payoff from adopting the right policies can be, will be, tremendous.
If we can commit to and accomplish these four critical tasks?a sustainable budget, unemployment and workers? comp reform, transportation improvements and education investments?we?ll have a great start in getting Washington back on track. A friendlier, more supportive business climate will help insure that the Evergreen State has an evergreen economy led by healthy companies in robust competitive positions.
Our collective success will in turn continue to fuel the economic growth Washington needs. Growth to create more family wage jobs, to improve our education system, and to take care of our state?s most vulnerable citizens.
Carson hit the right tone for our times. As we face economic uncertainty and volatility, he offered a prescription for sustainable growth. No glib judgments about present conditions. No threats to pull up stakes tomorrow. And, most important, no assurance that vital businesses will remain here if conditions do not improve.
Excellent coverage in several of the regional papers. Read them all.
The Boeing Co. can remain as an essential part of Washington?s economy, but only if leaders here recognize that change is needed for this region to compete in a 21st century global economy.
Yesterday I briefly linked to November's Site Selection business climate issue. Today, I want to call attention to two features the magazine highlights.
First, this list of the factors corporate real estate executives consider important in their location decision making could be a good punch list for our state legislature.
Ease of permitting and regulatory procedures
Transportation infrastructure
Existing work-force skills
State and local tax scheme
Utility infrastructure
Land/building prices and supply
Workers' comp rates
Flexibility of incentives programs
Higher education resources
Availability of incentives
Excepting flexibility and availability of incentives programs, which are constitutionality limited here, each of the ten has been the subject of considerable legislative and business dialog. In Gov. Gary Locke's Competitiveness Council, which made frequent use of WashACE materials, transportation, regulation, and infrastructure became top priority issues. (Check out WashACE archives for competitiveness briefs on most of these topics.)
More work must be done. With Washington failing to reach the top 25, it's clear objective outsiders have taken a look at our state and found it wanting. Our top four legislative priorities track well with the Site Selection list.
1. Develop a sustainable budget that preserves essential public services without raising taxes. 2. Target higher education investments to programs that contribute directly to economic growth and recommit to education accountability. 3. Emphasize timely completion of authorized transportation projects for which funding has been committed. 4. Reform the state unemployment and workers? compensation programs to prevent uncompetitive increases in employer costs.
The second bit from the magazine I want to highlight is the value of the NASCAR analogy I glossed over yesterday. Here's how North Carolina Gov. Mike Easley (D) puts it in the article.
"NASCAR is a microcosm of the economy in the world today," says Easley. "It's all about competition, it's all about high tech and it's knowledge-based. The guys in the pit are not good-ol' grease monkeys. They are engineers, and their average salary is about $75,000. They have to get faster and better not just every week and every year, but in every race. They're making all these adjustments and as they do so, whoever can adjust their car the most, wherever the communication is best between the crew and the driver and the talent ? that car will win the race, absent bad luck.
"I use that analogy to explain to people that we have to be faster, smarter and stronger in America than we have ever been before," he adds.
With the election behind us, state leaders must immediate turn their attention to addressing the state's competitiveness challenges. That's the argument I make in The Herald of Everett this morning.
Part of the ranking criteria came from a survey of business executives, who graded the states. You won't find why Washington came up short. But you will see what made North Carolina No. 1: Growth of NASCAR, which makes its home there; a state grants fund that can underwrite corporate relocations in targeted, job-producing sectors; a massive reinvestment in higher education.
I'm guessing you can be a great state for business without NASCAR and maybe without the grants fund. But the higher education investment, plus these other factors surely make a big difference. From the magazine:
Great incentives. Low taxes. A receptive economic development department.
That's how one corporate site seeker described North Carolina in a survey of such respondents that makes up half of Site Selection's annual ranking of state business climates. Add a track record of consistently strong business expansion activity as tracked by the publication's proprietary New Plant database ? the other half of the ranking ? and a state has what it takes to land at the top of that ranking.
Check out the rankings. The top listings will be familiar to regular readers of this blog: North Carolina, Tennessee, Alabama. Texas, and Indiana.
When asked to rank specific business concerns that impact the competitiveness of their respective operations, the cost of health care, fuel, electricity, employment costs (unemployment insurance/ workers compensation), and state taxes all ranked as the areas of most concern. Issues such as costs of HR, labor laws and environmental regulations along with the quality of elementary and secondary education, transportation, workforce availability, local taxes, housing costs and global trade issues were also significant in the rankings.
I'm not singling Massachusetts out for special attention, although by any measure it's a state that Washington business leaders benchmark against for its strong tech sector and cluster of top academic institutions. Rather, I think it's important to recognize how business leaders across the country assess their competitive challenges. Health care, energy, employment and state taxes would surely top the list of a similar survey here.
The 2009 legislative session will be the most critical test of our commitment to a competitive economy in more than a decade. And the stakes are higher than ever before, with the increased mobility of labor and capital.
What Does the Strike Mean for Boeing's Future in Washington?
Posted by Richard Davis on 10/29/2008 12:12:00 PM
After the initial feelgood of a settlement, it's time for sober reflection on where Boeing goes from here. Take that literally ... because Boeing's going may be something we're confronted with unless things in Washington turn around quickly. The speculation is widespread.
Suppliers to The Boeing Co. rejoiced at the possible settlement of the Machinists' strike, in its 53rd day Tuesday, but several aircraft industry analysts said they view the strike more grimly.
They warned that, whether or not it ends soon, the strike will help drive Boeing's assembly plants out of Washington to states where unions have less power.
Ten years?
... the Machinists may have fatally damaged the employer-union relationship, said Richard Aboulafia, an aviation analyst with Teal Group Corp.
"This strike was the straw that broke the camel's back, and I think Boeing is out of here," he said. "Given its history of labor relations and the attraction of a right-to-work state, the likelihood of them moving out of state is 90, 95 percent in the next 10 years."
He said states where workers can't be required to join unions, particularly in the South, are making "tremendous efforts" to lure aerospace companies such as Boeing.
"They're going to provide the same tax breaks and incentives as Washington state and a much better labor environment," Aboulafia said. Modern aircraft manufacturing uses fewer people and lighter equipment, making it more portable, he said.
We cited Aboulafia in yesterday's post. Here's a copy of his October Letter for The Teal Group (my highlighting added). Compelling as I find his analysis to be, reporters seem have had little difficulty finding machinists' union members who dislike the settlement and sound prepared to dig in for longer. Granted, it's unlikely that the contract will be rejected, but quotes like these underscore the ongoing tension.
?This contract is not as good as the one that we rejected in September, said Ruth Edwards, who picketed outside Boeing?s Auburn parts plant Tuesday morning.
?For all the time we?ve spent out here, we should be getting something much better, said the 24-year Boeing veteran. ?It looks like the union leadership has just thrown us under the bus again.
... Tuesday afternoon, after reading the union's summary of the contract, many Machinists were inclined to reject the offer. That includes Rebecca Groves, her sister-in-law Jodi and her mother Pam, all materials handlers at Boeing. While the offer protects their jobs for the next four years, Pam Groves was worried about the future.
"I'd love to be back to work next week, but I just don't know yet," she said.
Even those inclined to vote for the contract sound dissatisfied. From The Seattle Times.
Joe Albanese, 44, who works as a parts deliverer in Everett, said he'll vote for the deal, if there are no surprises in the details, because the contract holds the line on parts outsourcing that could affect him directly.
"They want to get rid of us," he said. "At least we've stopped them for four years."
TNT editorial writers also wonder whether the game was worth the candle, and go on to consider the consequences.
But the frequency of these strikes ? they?ve been recurring roughly every five years ? bodes ill for the survival of aerospace manufacturing in this state.
We hope the leaders of both the Machinists and Boeing are approaching these these negotiations with the future in mind.
... Boeing, more than most companies, operates in a ruthlessly competitive global marketplace.
And the company has options. The strike may be over ... the competition continues.
As Don writes, passing the initiative did not end the push to steadily raise the wage floor.
Today, politicians are blending minimum wage into a living wage. That may prove to be counterproductive and actually decrease job opportunities during these economic times especially. While everyone wants to be paid more, the question which needs to be answered: "Is continually increasing the minimum wage actually reducing jobs?"
Why has the economic slowdown hurt teenage workers particularly hard? Economic theory predicts that the recent increases in the minimum wage disproportionately affect teen employment.
Minimum wage jobs are entry level positions for workers with little experience in the labor market, such as teenagers. Most minimum wage workers are between the ages of 16 and 24. Relatively, minimum wage workers are secondary earners in their families?the average family income of a minimum wage worker is over $50,000 a year. As they gain experience, such workers become more productive and earn a raise. Two-thirds of minimum wage workers earn a raise within a year.
Raising the minimum wage makes it more expensive to hire these unskilled workers. Employers will not pay a worker more than the value they add to the company...
Makes sense, doesn't it? Something to think about as the tenth anniversary approaches.
The agreement most likely will bring to an end the 53 day strike. Like all strikes, this one has had costly consequences for the company and many striking workers. Both sides express support for the new contract and expect union members to ratify it in the coming week.
The four-year deal looks pretty good for the union. John Gillie summarizes neatly for The News Tribune.
The union reportedly got more of nearly everything in return for a longer period of labor peace, four years, instead of the three the union had originally considered.
Among the reported concessions, the company withdrew what the union had called ?takeaways in the medical plan that in the original proposal would have added higher co-pays and fees to some of the medical plans it offers. The company also reportedly agreed to increase the pension formula from the $80 per year of service proposed in its September offer to $81 and then to $83 in the last year of the deal.
The previous proposal included a 11 percent pay increase over three years. The new deal reportedly includes a 15 percent increase over four years, but gives a higher increase, 5 percent, in the first year of the deal. In addition, the new agreement includes an enhanced ?signing bonus of $5,000 for the first year and two $1,500 payments in subsequent years.
"This is an outstanding offer that rewards employees for their contributions to our success while preserving our ability to compete," Scott Carson, president and CEO of Boeing Commercial Airplanes, said in a statement. "We recognize the hardship a strike creates for everyone -- our customers, suppliers, employees, community and our company -- and we look forward to having our entire team back."
While the end of the strike is something to celebrate, no one should assume that it also marks an end to the region's competitive challenges. Boeing's future here hinges on more than simply putting the strike behind them, as analyst Richard Aboulafia points out in today's Times.
Earlier Monday, before news of the contract agreement, respected aerospace analyst Richard Aboulafia predicted the Machinists strike ultimately would drive Boeing from the state.
"Aviation centers are almost impossible to create, but they can easily be destroyed. I think Seattle will be the next to go," Aboulafia wrote in his monthly newsletter. "This strike, following myriad others and with little hope of improved relations, will almost certainly precipitate a (Boeing Commercial Airplanes) exit."
"Almost certainly" does not mean inevitably. But if Washington wants a strong aerospace cluster in its future - and the picture of this state without aerospace is a bleak one - policymakers have to act quickly.
Massachusetts Tech Council Gives State Lawmakers an "F"
Posted by Richard Davis on 10/27/2008 2:14:00 PM
The Boston Business Journal reports that the Bay State's high tech council gives lawmakers a failing grade. Why does that matter here? Well, for a couple of reasons. Our high tech cluster represents a major growth sector and it's important to keep an eye on the competition. Further, what industry looks for does not vary a great deal from state to state. So, by considering the mistakes made by their counterparts in Massachusetts, our lawmakers can avoid doing similar damage here.
"The legislative scorecard is designed to create a better understanding of the technology sector?s priorities on Beacon Hill and to consistently remind legislators that their votes have an impact long after they have been cast," said Council President Christopher R. Anderson. ?While there were some positive developments in this legislative session, the MassTrack rankings show some severe backtracking on key areas of economic competitiveness."
Legislative passage of a nearly $500 million tax hike and an increased healthcare assessment were two issues that hurt the rankings of legislators who supported those measures, according to MassTrack. Anderson noted some positives from the session, including the passage of the $1 billion Life Sciences investment package and the Green Communities Act.
Additionally, legislators were afforded the opportunity to self-identify as supporters of the 2008 Unemployment Insurance rate freeze that, if not passed, would have resulted in a $153 million rate hike for Massachusetts employers. The UI rate freeze was a top priority of the Council and was approved by both branches without a roll call vote.
Tax hikes, rising healthcare assessments, and UI costs - sounds pretty similar to the competitiveness threats we're looking at here. Let's work to make sure Olympia does a better job than Boston did.
Bleak Economic News Continues, Underscoring Need for Better Business Climate
Posted by Richard Davis on 10/27/2008 12:47:00 PM
Some Monday mornings are bleaker than others. Nothing says gloom like this Arthur Laffer op-ed in the Wall Street Journal proclaiming "the Age of Prosperity is Over." It's a thoughtful recitation of missteps that he believes have damaged the nation's economy for the forseeable future. A lot of it has to do with bad decisions made in crisis.
These issues aren't Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren't <snip> Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity.
That seems unjustifiably bleak, denying both the resilience of the economy and the ingenuity and determination of investors, business owners, and other job creators. Nonetheless, the current economic news underscores the challenges ahead.
...Puget Sound-region chief executives and chief financial officers say business conditions are, for the moment, not that bad...
But ask those same executives what they're expecting for the next 12 months, and far more caution and concern show up in their assessment of local and national business conditions.
In fact, the quarterly business confidence index was the lowest since Hebert began doing the survey in 1990, lower even than the post- 9/11 dip in the regional economy.
The toll on state revenue collections provides too much opportunity to trigger the panic tax-hike response in state capitols that could severely damage chances for recovery. Stateline.org has another useful roundup of fiscal conditions. And the Wall Street Journal shows Washington as an unhappy winner in the biggest loser competition.
The state reporting the biggest decline in tax revenue was Washington, which had an inflation-adjusted drop of 11.3%.
The major challenge of 2009 will be reigniting economic growth without imposing recovery-killing cost increases on business here.
Today's announcement that the state unemployment rate has dropped from 6 percent to 5.8 percent looks like good news, but there's a dark cloud over the silver lining. A closer read of the report indicates that our economy continues to slump. Although the rate dropped, the state lost jobs.
A large reduction in government jobs contributed to a seasonally adjusted loss of 18,200 nonfarm jobs in Washington in September 2008, down to 2,968,000. The decline comes after a revised gain of 13,900 jobs in July and 1,400 jobs in August.
So how does the unemployment rate decline even as jobs are disappearing. There are several explanations: people may be leaving the workforce faster than the labor market is shedding jobs; and, the data sources are different.
The job numbers are based on a survey of some 7,000 employers, while the unemployment rate is based on a smaller survey of households. Mary Ayala, chief economist for the Washington State Employment Security Department, said the surveys last month presented somewhat differing results, probably due to error rates that are inherent in telephone surveys.
The employer survey is undoubtedly more reliable. The Employment Services Department, which released the data, expects revisions.
... given the recent financial crisis that jolted every sector of the national economy, a revision to the September 5.8 percent is likely to occur. Therefore, the longer term estimates of Washington?s unemployment levels are more informative at this time. Washington?s employment level increased by 1.0 percent year-over-year, while the U.S. realized a loss of 0.7 percent. Similarly, Washington?s unemployment rate continues to lag behind the U.S. rate of 6.1 percent, suggesting that Washington?s economy is in relatively better shape at the moment than the rest of the nation.
Here are some highlights (lowlights?) on the job market. Key sectors continue to shed employment.
Employment in the goods-producing sector shed another 3,600 (-0.71 percent) jobs in September, after losing 2,800 jobs in August. Among industries that fared better than others, aerospace industries added 200 jobs (+0.23 percent), after remaining unchanged in August, and other food manufacturing gained 200 jobs (+0.81 percent).
The construction sector shed another 2,200 jobs (-1.1 percent) in September, following a series of consecutive monthly job losses that began in January 2008. The cuts primarily affected commercial construction; employment in residential construction exhibited no change from the prior month.
Employment in the manufacturing sector declined by 1,400 jobs (-4.7 percent) in September, with most of the losses (-1,000) concentrated in the manufacture of durable goods.
Despite the drop in the unemployment rate, it's much too early to mark a turnaround.
And a Belmont University professor has some taxing thoughts from yesterday's presidential debate.
With the likelihood of a growing federal tax burden, watch for more entrepreneurs to choose lower tax states for their businesses.
Good advice for lawmakers considering how to close a budget gap. Tax hikes will shrink the tax base by driving entrepreneurs and other investors to more favorable climes.
"It's ironic that I'm speaking at a conference entitled 'Cleared for Takeoff' when at the moment we are grounded," said Fred Kiga, Boeing vice president for government and community relations, at the Governor's Annual Aerospace Summit.
At the Summit link you can find material presented at the summit. For sure, this region doesn't thrive unless the industry is again cleared for takeoff.
The Seattle Times, Seattle PI and the Herald of Everett report on a lengthy memo from Boeing CEO James McNerney. (The link to the memo is from the PI"s James Wallace's blog, which also provides the union response and good reporting.) McNerney starkly frames the conditions facing the company: turmoil in the financial markets, emerging global competitors, invigorated old competitors, and more. He specifically focuses on the strike.
The crux:
Preserving our competitiveness has never been more important--or urgent. The ongoing turmoil in the financial markets provides a timely reminder of why it would be gravely unwise for Boeing to agree to terms in any contract that would fundamentally restrict our ability to manage our business. Markets and business conditions can change quickly and dramatically. And we need to be able to react just as fast.
U.S. auto companies, for one, all but fatally wounded themselves years ago by promising unsustainable wage and benefit levels and by agreeing to contract conditions (including job guarantees) that limited their flexibility to run their businesses in the face of intense global competition. Today, their market shares continue to fall, and their layoffs have grown by the thousands.
The unrelenting reality is this: Jobs in today's global economy are created and sustained only through increasing productivity and customer-focused innovation.
I wrote on the strike earlier. It's making ugly times uglier.
A bleak prediction, from the PI story.
"The odds are heavy against the next new Boeing jet (after the 787) being built in the Seattle area," said Richard Aboulafia, vice president of analysis for the Teal Group, an industry consulting firm near Washington, D.C.
Boeing came close to picking Alabama or North Carolina as the final assembly site for the 787 Dreamliner before deciding to build the plane in Everett. Boeing's history of bad blood with its biggest union was one of the issues that weighed on Boeing leaders at the time.
"It is highly questionable if there will be any Boeing jets built in Seattle in 10 years," Aboulafia said.
..."For any union to feel enthusiastic about striking now, they have to have zero contact with the outside world," Aboulafia said. "On the other hand, they are the last union with any real power in this country."
Quite a lot, i think. Richard Florida's Creative Class blog points to a new study by the Institute for Competitiveness and Prosperity, a Canadian group, that takes a comprehensive look at the question. Read the study here. Sadly, it's an important question for our state these days. Here's the ICP bottom line:
Our research supports the importance of an economic environment that both drives innovation and creativity by Canadian firms to propel their global expansion and makes Canada a compelling destination for investment. Our economic policies need to support the vibrant growth of our city regions and the continued development of skilled human capital.
In a virtuous circle, this supports the success of head offices which in turn enhances our human capital thereby increasing the vibrancy of Canadian cities and the country as a whole.
You can sum up much of 20th century history by saying that in the 1930s Americans decided that markets didn't work and government did, and that in the 1970s Americans decided that government didn't work and markets did.
The protracted and painful experiences of those decades changed basic public attitudes on the balance between government and markets, between regulation and enterprise, between government aid programs and self-reliance. The breadlines and depression of the 1930s moved Americans in one direction; the gas lines and stagflation of the 1970s moved them in the other.
Which raises the question of whether the financial ructions of 2007-08 (09?) will move them back again.
He goes on to examine the passage of time has blunted collective memory, setting the stage for a pendular swing back to the 30s. Here's what's at stake.
Reviewing the long course of history, I think it's obvious that market capitalism, together with the rule of law, hard currency and regulations that ensure transparency and accountability, has produced bounteous growth and the resources to address problems that require government action, like defending the nation and protecting the environment.
Last week, we released the 2009 WashACE Competitiveness Redbook, a comprehensive guide to key indicators of the state's business climate. This year's edition includes 53 data tables, providing national and statewide comparisons on a diverse set of factors, including higher education enrollment, energy costs, state and local government employment, union membership and ... well, too many to list here.
With the EDS acquisition, H-P, the world's second largest tech-services provider, has taken aim at International Business Machines Corp., which is No. 1. But Wall Street analysts have expressed concern that too many EDS employees are based in the U.S. at a time when competitors are cutting costs by sending jobs offshore.
H-P's layoff announcement shows the company is addressing those concerns, said Shebly Seyrafi, an analyst at Calyon Securities. "They're basically replacing more expensive U.S. employees with overseas employees" who will work for less, he said.
Bemoaning brutal competition doesn't make it go away. While Seyrafi doesn't mention per worker productivity, winning that competition will be the key to retaining jobs here.
Milken Institute Ranks Tacoma, Olympia in Top 10 "Best Performing Cities"
Posted by Richard Davis on 9/11/2008 4:43:00 PM
Congratulations to our friends in Tacoma and Olympia. The two cities came in No. 8 and No. 9, respectively, on the Milken Institute 2008 Best Performing Cities Index. The Seattle-Bellevue-Everett metro area ranked No. 17. All three Washington metros improved on their 2007 rankings.
We'll take a closer look at the methods later. Right now, it's enough to say, well done.
In the Everett Herald this morning, I considered the IAM strike and its implications for Boeing and our economic competitiveness. Elsewhere in the Herald, the AP looks at the "pluses and minuses" of the strike.
Second Thoughts in NY (family leave) and Wisconsin (health care)
Posted by Richard Davis on 8/26/2008 5:07:00 PM
At Olympia Business Watch Don Brunell takes note of the New York legislature's adjournment without passing paid family leave. It was a matter of dollars and sense.
There were many versions of the paid leave circulating around Albany. They were all very costly. Here is a sample of the proposals:
One would impose 12 weeks of disability insurance benefits for family leave on ALL businesses for employees of newborns, families adopting children and caregivers of sick parents, spouses and children.
Another would provide 13 weeks of leave and would have increased the maximum disability benefit from $170 to $550 per week by 2010 and would have permanently indexed the benefit to one-half of the state's average monthly wage.
As for the proposal to pay for it. Workers would have to pay a mandatory 45 cents per week payroll tax...
In Wisconsin, support for the so-called "Healthy Wisconsin" program proposed last legislative session also seems to be waning. The State Policy Blog reports candidates are in "full retreat" on the pricey "universal health care" plan. Dollars and sense again. The blog links to this story in the Wisconsin State Journal.
"The issue is money and right now, not many legislative candidates are talking about big, broad programs simply because we all understand that practically speaking, there's no money," said Jim Holperin, a new Democratic Senate candidate who praised the Healthy Wisconsin plan but said his focus was on reviving the economy.
Few would deny the importance of improving health care access and affordability, or for helping employees work through difficult times, but the lessons being learned in Wisconsin and New York (they're not the only places) should be heeded here.
WashACE readers will recognize many of the reports cited, but both articles are worth a full read.
Corvin blends data with interviews.
Don Brunell, president of the Association of Washington Business, says there is little room for comfort in competing with other, lowercost states. And the cost of doing business in the state could go up in a number of new ways, he says, including by way of the Paid Family Leave Act...
Additionally, Brunell doesn't see the state's advantage in low electricity costs lasting for long: Initiative 937, approved by voters statewide in 2006, requires utilities to increase their use of renewable energy. But pre-existing hydropower, which provides about two-thirds of the state's electricity, doesn't count.
And this.
Scott Carson, CEO of Boeing Commercial Airplanes, says high unemployment and workers' compensation rates, coupled with rising taxes and energy costs and problems with traffic and education, "make it increasingly difficult for Washington state businesses to compete." No one should assume "Boeing or any other company will remain here just because of history," he says, which makes it imperative to control costs.
Corvin does a great job of touching on all the points business leaders we talk to cite regularly: business taxes, energy costs, regulation, workforce (especially engineers, scientists, and skilled tradespeople), and more. It's good to see the WashACE 2008 Competitiveness Redbok used as a data-rich source to back up the anecdotal evidence.
Gipson's op-ed reviews the data from several studies and does a good job of sorting through the disparate tax ratings. And he asks the right question:
In 2007 the state's business community paid almost $15 billion in taxes - an increase of 36 percent since 2002. At what point does the business community look for better, cheaper options and friendlier states?
I'm glad to see leading business publications giving competitiveness this much attention. It's timely.
H.S. Graduation Standards, Higher Education, and Gaining the Competitive Advantage
Posted by Richard Davis on 8/14/2008 1:25:00 PM
A couple of recent reports link several themes relevant to the competitiveness of our state and nation.
Education Week (free registration required) reports that states that have tied their accountability standards to high school graduation face increased calls to relax the requirement.
Though 26 states have adopted such mandates?most of them since 2000?that number has remained static since last year, according to a report scheduled for release this week by the Center on Education Policy, a Washington-based research and advocacy organization that has tracked the trend for the past seven years.
And for nearly a dozen states, compliance deadlines that once seemed far off have begun to bite, leading Arizona, Alabama, Maryland, and Washington, among others, to soften their mandates by offering alternative paths to a diploma, or by also weighing factors such as a student?s grade point average.
Chester Finn, a supporter of standards-based accountability, aptly frames the challenge.
Mr. Finn, the Fordham Institute president and an assistant U.S. education secretary in the Reagan administration, said the struggle for states is to strike a balance between enforcing a rigorous policy and understanding students? needs.
?I really do think a kid shouldn?t have his entire life blighted because he can?t do well on a particular kind of test, Mr. Finn said. ?Yet at the same time, you allow too many alternative paths and too many exemptions and you dilute the meaning of having a graduation test.
It's a good overview of the national debate, a debate mirrored in this year's OSPI campaign.
Three valuable reports by AeA underscore the value of education to our state's economic competitiveness.
Cyberstates, an annual state-by-state overview of the high tech industry, looks at the contributions of technology to state economies. Washington regularly ranks near the top, led by software publishing.
"Washington?s tech industry remains strong, experiencing it's third year of job growth with average wages that are more than double those of the private sector, said J.D. Hammerly, Vice President, Energy Infrastructure. "While many people associate Washington state with the software industry, they may not realize how fast it continues to grow. This growth runs on the knowledge and intellectual capital of some of the smartest and most skilled workers in the world. Washington's challenge is that we are not graduating enough scientists and engineers to maintain this growth. All you have to do is look at the websites of our technology companies ? large and small ? and you?ll find thousands of positions going unfilled."
"Our Evergreen state needs to do more to prepare our workforce for careers in the tech industry, from the K-12 system to our universities, continued Hammerly.
Cybercities, the metro area equivalent, reports Seattle is now the ninth largest "cybercity" in the nation by employment. Again, Hammerly cites the education challenge.
"... future growth depends on our ability to make high-tech careers attractive to our children. We need to spark more excitement and enthusiasm for technology, sciences, and math. These skills are critical to prepare young students for an increasingly technical world, providing them with the foundation to become highly paid tech workers.
The United States trails other countries in the number of people graduating with bachelor degrees in engineering. While the United States is the largest economy in the world and the third most populous nation, it only ranks seventh in the number of bachelor degrees awarded in engineering. China graduates almost six times as many engineers as the United States, according to the most reliable data available. Japan, with less than half the population of the United States, graduates 60 percent more engineers. ?
On a country-by-country basis, the United States still leads in the number of science and engineering (S&E) doctoral degrees granted by a wide margin. But significant portions of these are awarded to foreign nationals who increasingly cannot or choose not to stay in the United States after graduation. Between 2001 and 2005, U.S. S&E doctorates awarded to foreign nationals increased by 25 percent and comprised nearly all of the overall growth in S&E doctorates awarded over this time period.
While our state - like many states - faces a significant budget shortfall, technology has been the key to our strong economic performance during these tough times. We cannot afford to see our position erode because of a failure to adhere to standards and make critical investments in higher education a priority, even during these straitened days.
More Questions About Rankings: Universities This Time
Posted by Richard Davis on 8/14/2008 9:41:00 AM
I hadn't planned on writing again so soon about rankings studies, but this Instapundit post intrigued me. He linked to a longer post by University of Wisconsin law professor Ann Althouse questioning Forbes methodology.
Good questions. And relevant to our "best states" discussions. (Read the comments - some clever stuff there.)
We get a lot of questions about the business climate, how Washington compares with other states, and the different rankings offered by various organizations, including news magazines, research outfits, and economic development consultants.
In my column in today's Herald (Everett), I peg off the Olympics to offer some thoughts.
When we started WashACE back in 2000, some of us considered attempting to construct our own version of the "best states" rankings. We quickly realized that, for reasons including these, such rankings were inherently flawed, as they fail to recognize the diversity within the business world.
Instead, we came up with the Competitiveness Redbook, a set of indicators addressing business costs, labor quality and availability, housing affordability, education, and many more. The 2008 edition includes 54 tables. Next month, we'll be releasing the 2009 edition, with even more information.
Better than any single ranking table, the Redbook allows analysts, business owners, to consider the factors that are important to them and evaluate how our state competes on those criteria.
It's not as cool as a headline, but it's a lot more useful.
That said, because I know everyone likes these things, here's a ranking study I missed earlier this year. This one's a January 2008 report from Chief Executive magazine, based on a survey of 605 top executives. Texas, Nevada, North Carolina, Virginia, and Arizona are the top five. Washington ranks 30th.
Washington added an estimated 3,300 non-agricultural jobs in July, after June?s employment was revised from the previous report of no change to a seasonally adjusted decline of 1,800 jobs.
Here;s one explanation.
?More and more people in Washington have decided to look for work, said Employment Security Commissioner Karen Lee, to explain why the unemployment rate increased even though the number of jobs went up. ?With fuel prices and other costs rising, families are looking for ways to increase their income.
A quick survey of coverage by state newspapers shows the diverse impact.
Snohomish County added 700 new jobs last month and still saw its unemployment rate rise, the state Department of Employment Security reported Tuesday.
...The jobless rate hit 4.7 percent last month, an increase of three tenths of a percentage point from June.
In Spokane, the Spokesman-Review notes a smaller uptick, 0.1 percent, but an unemployment rate of 6.1 percent. ESD regional economist Doug Tweedy notes the county numbers are not seasonally adjusted - the state numbers are - and says they reflect "downtime " for area teachers. Otherwise, he sees slight employment gain.
Yakima hits 6.9 percent unemployment, up 1.4 percent for the same month last year. The Yakima Herald-Republic ties it to the ag economy, particularly a sluggish cherry season.
And Clark County hit 7.0 percent. The Columbian reports it's the highest July unemployment rate since 2004.
Washington now has the same jobless rate as the United States as a whole, after 13 straight months of outperforming the nation. What growth there is is concentrated in the four-county Puget Sound region ? King, Snohomish, Pierce and Kitsap counties ? which provides nearly two-thirds of all payroll jobs in the state. The region gained 8,800 jobs in July, more than offsetting the 5,500 lost in the rest of Washington.
After adjusting for seasonal variations in the labor force, the unemployment rate in King and Snohomish counties did rise to 4.3 percent last month from 3.9 percent in June. Though 1,800 more people reported they were working, a total 8,500 people entered the local labor force in July.
Ask the candidates what they plan to do to improve economic conditions and address the budget shortfall. And check out their responses on our candidate questionnaire. If you don't see your candidate's response on our site, encourage them to fill it out and return it now.
Excellent Editorial on the Economics of Tax Incentives
Posted by Richard Davis on 8/7/2008 9:13:00 AM
In the Wenatchee World. Editorial page editor Tracy Warner makes the sensible observation that "you can't tax what isn't there. The issue involves server farms and the state sales and use tax credit for manufacturing facilities, an issue in the last legislative session. Although a bill appeared headed for passage, it didn't happen.
Legislation was required after the attorney general determined that data centers did not qualify for the existing rural manufacturing credit. As Warner points out,
...manufacturing is not what it was, and the products are not what we imagined. What these big, international companies "make," in our narrow mid-20th-century minds, is quite intangible. ...But it exists ...
The product is made in massive factories called server farms.
Loss of the credit increased the cost to construct and equip the facilities by 7.9 percent. Warner explains what that means.
Kevin Timmons, vice president of operations for Yahoo, visited last week to explain that his company has grown very fond of this part of Washington. It has invested many millions here, to build a massive server farm at Quincy and a small facility in Wenatchee...
Yahoo would like to do more ? expand at Quincy and build a large facility somewhere near Wenatchee. They are serious. But with all the state's taxes, they won't. "It just doesn't make economic sense," Timmons said, shaking his head in regret.
Warner thinks that it will be tough to get the 2009 legislature to extend the breaks, given that they failed to do so last session, when they had a little more cash available. And then, he identifies what's wrong with that thinking.
... all the estimates that say if every company that wants to build a tax-exempt server farm does, the state will lose $33 million soon and more later...
But, those are taxes that without the server farms the state will never collect. Those few jobs ? hundreds in construction, dozens afterward ? will come to be in some other state, some other nation. The power that could be used locally will go elsewhere, perhaps far away. The local sales and property taxes, in massive amounts, will never be paid.
And the long-suffering rural areas will return to their accustomed condition, standing ready with the tax breaks not often used, for the "manufacturing" not here.
The way the state estimates the "costs" of these exemptions assumes the economic activity would occur without the incentive plan. As the server farm experience demonstrates, the credits and exemptions often are the key to landing investment and jobs. As it stands now, the companies are exploring their options. There's interest here and here, for example.
This latest version of the judicial scorecard looks at 26 different business climate cases across six areas -- labor and employment, land use and environmental, tax & fiscal policy, torts and insurance, workers' compensation and safety, and general business issues. AWB participated as a friend of the court in many of the cases evaluated, arguing for a pro-business outcome.
The top 3 "pro-business" scores in 2008 went to Justice Jim Johnson, whose decisions we agreed with 92% of the time; Justice Richard Sanders at 76%, and Chief Justice Gerry Alexander at 58%. Down at the bottom end were Justice Tom Chambers, at 40%, and Justices Mary Fairhurst and Susan Owens at 38% and 35% respectively.
Washington ranked 39th in overall performance and cost-effectiveness. In last year?s rankings, Washington ranked 32nd overall. Washington is 24th in urban interstate congestion, with 42.76 percent congested. The state ranks 42nd in rural interstate condition and 45th in urban interstate condition. Washington ranks 32nd in deficient bridges?26.18 percent of the state?s bridges are deemed structurally deficient or functionally obsolete. Washington is 13th in the nation in fatality rates per 100 million vehicle miles traveled.
Although we've made progress, infrastucture investment in the state remains well below documented needs. High gas prices, which have reduced gas tax revenues and boosted the costs of asphalt and other construction materials, have guaranteed that there will not be enough money to cover projects already approved by the voters and lawmakers.
Ball State University's Bureau of Business Researchrecently published its 2008 Manufacturing and Logistics Report Card. The one-pager ranks states on a typical set of indices, including share of population with high school and BA degrees, crime, higher education, health care premiums, workers' comp rates, R&D, manufacturing share of the economy, UI costs, and several tax factors.
Washington gets a "C," ranking 25th among the states. We fare well on most of the education factors, naturally share top billing with other no-income-tax states on that factor and come in last on sales tax. Problem areas for Washington show up with health care premiums (38th), fringe benefits share of wages (49th), and the UI tax index (36th).
Top states were Missouri, Utah, Floriday, Alabama, South Dakota, and Indiana, all of which received "A"s. Failing grades were assigned to New York, Kentucky, New Jersey, Vermont, Rhode Island, Maine, and West Virginia.
Again, not all of the detail is readily accessible from the web site. A related manufacturing study by the group, focusing on Indiana, provides additional information.
New "Best States for Business" Ranking: Forbes Pegs WA as No. 3
Posted by Richard Davis on 8/1/2008 10:20:00 AM
Yesterday, Forbes released its annual "Best States for Business" report, ranking Washington No. 3 in the nation, behind Virginia and Utah. (Here's the table with the ranks for the six ranking components.)
Last year, Washington placed fifth. Although Forbes doesn't provide details of its evaluation methods, they appear to have changed little, if at all, from last year, when Virginia and Utah also ranked first and second, respectively.
Our state's high ranking appears to stem primarily from two factors, on which WA ranked No. 2: labor rank. based on "educational attainment, net migration and projected population growth," and growth prospects, based on "projected job, income, and gross state projects as well as business openings/closing and venture capital investment."
According to the story,
Our rankings measure states on six main areas of importance: business costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. Business costs are weighted the most... We look at a total of 32 data points to compile rankings of the six main categories.
Again, business costs raise concerns here. Washington ranks 28th on that measure; last year we ranked 33nd. Our other low mark comes in quality of life, where we rank 25th, up from last year's 32nd.
The regulatory environment, where we rank 6th, consists of an odd amalgam of "regulatory and tort climate, incentives, transportation and bond ratings."
As we've written before, there's no "the business climate" and no definitive source. Each list involves a mix of subjectivity and data, as the evaluators judge what they deem to be most important. And that varies from industry to industry, even from entrepreneur to entrepreneur. But when you're engaged in competition, and we all are, it's good to be high on the list of best places. This is good news.
MORE Carl Gipson at the Washington Policy Center has a nice rankings round-up.
Best Cities for Taxes - Seattle's Not High on the List
Posted by Richard Davis on 8/1/2008 9:51:00 AM
As the Puget Sound Business Journal highlighted, business taxes in the Seattle region rank among the highest among major metro areas globally, according to this KPMG study.
DCI asked about how executives got information about a state's business climate, what they considered important, what marketing strategies were most effective, and other factors relevant to economic development strategies. It's interesting and worth a look.
But in the "best states" competition, there's no surprise.
When asked to select the most favorable business climates among the 50 states, respondents gave Texas, North Carolina and Georgia the highest tally (in order of selection). California, New York and Michigan were selected as the three states with the least favorable business climates.
More detail is available in Appendix B. Texas was ranked most favorable by 41 percent of respondents, North Carolina by 30 percent and Georgia by 20 percent. Florida and Tennessee tied for 4th place with 15 percent of the tally.
Washington was picked as best by 2 percent, coming in 29th in a 4-way tie. On the flip side, the state garnered 7.1 percent of the votes for worst climate, in a tie with Louisiana for 8th place. Coming in first in the worst, California grabbed 72 percent of the vote.
Does it all mean much? I don't think so, other than the strong consensus around the top states. As we've noted before, Texas, N. Carolina, Georgia, Florida and Tennessee tend to cluster near the top.
That the evaluators rank Labor (availability, quality, cost) and Overall Operating Costs as the two top factors in business location decisions (followed by efficient transportation systems and business-friendly government) might have something to do with it.
For the second year, Forbes.com ranked the country's 40 biggest metros on economic opportunity for up-and-coming young professionals to gauge which cities are attracting the next generation of top business talent.
They looked at where graduates from elite universities landed. Then, they were able to use a couple of other Forbes lists to shape this one.
We then combine those rankings with the locations of Forbes' 400 best big companies and 200 best small companies; these are rated by revenue and high rankings for corporate practices, as well as long- and short-term sales, earnings growth and stock market performance.
And some other stuff, including salaries, cost of living, number of young adults and their marital status.
Finally, for today's list wrap-up (with a h/t to Kate Riley on the Seattle Times Blog), we have Reason Magazine's list of best and worst cities for personal freedom - Riley more accurately pegs it as a nanny list. Seattle ranks as the nation's second most nannyish, behind Chicago. Do the young professionals know this?
Although, for our friends at the Economic Opportunity Institute, there may be no bad times to talk about taxing the rich. Marilyn Watkins, acting EOI executive director, argues the case in this Everett Herald column that did double-duty as a PI op-ed today. After acknowledging the state's coming budget shortfall, she offers a modest solution to the problem.
Here are small steps next year's Legislature could take that would make a big difference. It could institute a new "high incomes tax" that exempts the first $200,000 of family income, starts at 3 percent and jumps to 5 percent on incomes over $1 million. Couple that with a reduction in the property tax, and most families would see their tax bills decline. Only four percent would pay the new tax, and it would be those whose incomes grew fastest and for whom federal taxes fell the most in the past decade.
Revenue from the new tax could be dedicated to our highest priorities: education and health care.
Well, our highest priorities - education and health care - also happen to be where most of the state budget currently is spent. So she wants a new dedicated tax to go to traditional general fund programs. Not much targeting there.
The larger problem, which never seems to bother EOI, is that the "high incomes" tax introduces considerable volatililty to our tax system, particularly when you cut the remarkably stable, if unpopular property tax. Even the Tax Structure Study Committee chaired by Bill Gates, Sr., not a group hostile to income taxes, concluded that the
Graduated personal income tax is more volatile than sales tax or property tax. It is also more volatile than a flat rate personal income tax.
There's history of such shenanigans with EOI, a group that earlier championed the latte tax in Seattle (rejected by the voters), paid family leave (adopted and unfunded by the Legislature), the family and business punishing estate tax, and touted a cigarette tax hike to fund health care (declining revenue base mismatched with rising health care costs).
The common element unifying these schemes: promises of a pain-free way to substantially increase public spending. The proposed revenue hikes never cover the costs of expanded entitlements.
Paul Guppy, with the Washington Policy Center, writes about the income tax scheme here, pointing out that the federal income tax originally appled to only the richest 2 percent of the population. We know how that worked out.
And you just want to be careful with tax hikes proposed by folks who treat lattes as luxury items indulged in by the rich.
Yesterday Don Brunell sent me a copy of a data-rich presentation by Jock Finlayson, executive vice president, policy, of the Business Council of British Columbia (like a state chamber of commerce). Finlayson made his presentation during a panel discussion that Don moderated at this year's Pacific NorthWest Economic Region (PNWER) conference in Vancouver, BC.
A couple of points stand out. Overall, the region - the US Pacific Northwest (Alaska, Idaho, Montana, Oregon and Washington) and Western Canada (Alberta, British Columbia and Yukon) - has shown stronger population and GDP growth than the rest of Canada and the US. PNWER states and provinces remain heavily trade dependent, with markedly increasing exports, with China as the dominant trading partner.
Although there are clear differences among the states and provinces that make regional identity sometimes difficult to grasp, common themes emerge. In particular, Finlayson's list of "medium term economic development issues" in BC could have been the focus of any conference on Washington state competitiveness in the last five years:
Labor scarcity, skill shortages
Investing in infrastructure (esp. transportation, energy, communications)
Understanding both urban and regional development opportunities
Climate change
Good stuff. Click through the slides and see for yourself.
Another "best places" list: Money Magazine ranks the "best places to live." Surprisingly, Bellevue is the only Washington city to crack the top 100, coming in at 42nd.
Texas took top honors with 13 cities making the list. New Jersey came in second with 9. Money is candid about the criteria, and the website allows you to slice-and-dice among cities, states, and data with abandon.
As I've said before, these things are always a bit gimmicky. But the real benefit that comes from them can be seen in this report from No. 10 Fishers, Indiana.
Town Council President Scott Faultless, in a news conference Monday that included business owners, community leaders and local government officials, was obviously pleased.
"We finally cracked the top 10 list," he said. "This is great recognition to everyone in the community. For the schools, volunteers, service organizations, parks and recreation, Chamber of Commerce and the rest of the community, this is widespread recognition."
(And how cool is it to have a "Faultless" town council president?)
It's better to be on the list than off it. Congratulations, Bellevue!
Coming in No. 14 overall, Tacoma came in first among Washington cities, followed by Bellingham (18), the Tri-Cities (23), Olympia (27), Seattle-Bellevue-Everett (54), Spokane (55), Bremerton-Silverdale (115), and Yakima (146).
Bragging rights go to Texas, as the cover story by Joel Kotkin and Michael Shires makes clear.
In many ways Texas has become the new Florida, dominating the top of the list. Among the largest metro areas, a remarkable five of the top 12 best places to do business are from the Lone Star State, ranging from Austin (No. 2) and Houston (No. 4) to Ft. Worth (No. 9) and Dallas (No. 12). Among the small cities, Midland, now ranks No. 1, up 10 places from last year. Odessa and Longview, both big gainers, round out the Texas stronghold on the top portion of the list.
Texas' boom reflects solid growth in a variety of industries, from energy and agriculture to manufacturing and trade. "The big difference for Texas is we did not rely on the real estate bubble," suggests Bill Gilmer, a Houston-based economist for the Federal Reserve. "Our gains are based on jobs elsewhere and that has insulated us pretty well."
There's some good news for the Evergreen State, however.
Seattle continued its strong growth, notes economist Paul Sommers, due largely to the success of two companies -- Microsoft and Boeing. These companies have been expanding, providing high-wage jobs, and attracting skilled talent to the area. Another key advantage in this high energy cost environment: the Northwest's prodigious supplies of cheap and clean hydroelectric power. This helps everyone, from people building airplane parts to dot-com firms sucking copious amounts of electricity to run their servers.
Along with the good news, then, come two notes of caution: the continued reliance on the two pillars of the regional economy (aerospace and software) and the eroding energy advantage. As noted earlier, Washington has become less competitive for aerospace since 2003. And maintaining what's left of our energy advantages may depend on whether I-937 can be amended to allow clean and abundant hydro to meet the increased energy demand.
The Inc. rankings amount to a sophisticated look in the rear-view mirror. Places do well on the rankings because they've shown growth in recent years. The ranking methods are nicely summarized this way.
The index is calculated from a normalized, weighted summary of: 1) recent growth trend: the current and prior year's employment growth rates, with the current year emphasized (two points); 2) mid-term growth: the average annual 2002-2007 growth rate (two points); 3) long-term trend: the sum of the 2002-2007 and 1996-2001 employment growth rates multiplied by the ratio of the 1996-2001 growth rate over the 2002-2007 growth rate (two points); and 4) current year growth (one point).
No pesky public policy considerations to complicate the assessment. Nonetheless, you can infer some clues from the fact that most of the "best cities" are in states that typically show well on other lists that explicitly consider costs, workforce, transportation, and education.
Best States for Business, CNBC Edition: WA Tied for 18th
Posted by Richard Davis on 7/15/2008 2:01:00 PM
Here's another of the annual business climate scorecards. CNBC's "America's Top States for Business" puts Washington in a tie with New Jersey for 18th place.
The Top 5? Texas, Virginia, Utah, Idaho, and Colorado.
CNBC lays out its criteria fairly well, unlike some other mediareports. The analysts look at ten categories: cost of doing business, workforce, economy, education, quality of life, technology & innovation, transportation, cost of living, business friendliness, and access to capital. Washington cracks the top 5 in only one category. We rank fourth in access to capital. The state does, however, do well in technology and innovation (6th) and quality of life (9th).
Of continuing concern, Washington ranks near the bottom on four critically important criteria: cost of doing business (35th), workforce (37th), cost of living (36th), and business friendliness (34th).
As we've said, these rankings vary some and no single study should be considered the last word. But our high business costs have consistently placed us at a competitive disadvantage in national rankings. That's a major reason Washington business leaders look at a looming budget deficit, paid family leave, unemployment insurance issues, and the potential impacts of regional cap-and-trade legislation with concern.
The conference runs for nearly two hours, a long time to watch on your computer. But take the time to watch the nine-minute vide Kirsch to kick off his presentation. It comes on at about 17:58. Even those of us who've grown weary of "perfect storm" analogies will have to agree that the folks at ETS didn't overstate.
The challenges identified are real. They're here. And they're eroding our competitiveness.
Richard Florida recently linked to a good Wall Street Journal piece by Zachary Karabell. Karabell's opinion piece does a neat job of explaining why the "macro data and big picture statistics" we use to get a handle on the economy fail to help us understand how the various econmies - his point: there is no "the economy" - work.
Here's Florida's useful summary and conclusion:
the economy is a composite of many different industries and sectors that perform at varied levels and even more importantly very different regions.
...Much of the data we need simply do not exist, especially when trying to make meaningful comparisons on a global scale - a pressing need for research and policy.
And Karabell's point:
The world is composed of hundreds of economies that interact with one another in unpredictable and unexpected ways. We cling to the notion of one economy because it creates an illusion of shared experiences. As comforting as that illusion is, it will not restore a simplicity that no longer exists, and clinging to it will not lead to viable solutions for pressing problems.
When it comes to competitiveness and the business climate, many of the same points are real. That's why magazine pieces claiming to rank states as "best for business" obscure more than they illuminate. I tried to address the issue in this column a few years ago.
The state business climate increasingly can be divided into microclimates, with some conditions better suiting one industry than another.
That doesn't mean there aren't uniform policies that can "lift all boats," to borrow John F. Kennedy's observation about the rising tide of a strong economy. But it is to suggest that policymakers can be easily misled when their heads are turned by the latest "best states" rating or the stellar performance of the latest "hot" industry.
Aerospace Competitiveness Slipping ... and Not Just Aerospace
Posted by Richard Davis on 7/2/2008 2:02:00 PM
Last week, the Aerospace Futures Alliance hosted a briefing on the, well, future of aerospace in our state. About sixty folks attended - industry representatives, economic development leaders, consultants - but, as I say in today's column in the Herald of Everett, the critical attendees were the dozen or so members of the legislature's aerospace task force. (Other coverage of the day here and heree.)
The briefing was informative and sobering. For me the stark news, coming in a presentation by Deloitte's Tom Captain, was this (from the column):
Since the 2003 success, Washington has been out of the running in five site selection contests. In 2006, South Carolina landed Global Aeronautica, a 787 supplier. This year Bombardier opened a major plant in Mexico that will eventually employ 1,000, Spirit Aerospace unveiled a new composite plant in North Carolina and Rolls Royce agreed to site a new jet engine plant in Virginia. And, although we're tempted to move it from the loss column, the Air Force tanker deal remains up for grabs.
As technology replaces labor, airplane manufacturing becomes increasingly mobile. And the costs of production -- including compensation, living costs, transportation, purchased parts and supplier reliability -- matter more.
We've lost our competitive edge and the world is after the business. Too quickly, our leaders grow complacent - a dangerous indulgence in a competitive world.
Linda Lanham, head of the AFA, put together an extroardinary program, underscoring the need for Washington's political leadership again to make competitiveness a priority. Lanham has placed Captain's presentation and an excellent overview of Boeing's prospects by Boeing VP Mike Bair on the AFA website.
?Our review of the record led us to conclude that the Air Force had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman. We therefore sustained Boeing?s protest, said Michael R. Golden, the GAO?s managing associate general counsel for procurement law.
