March 26, 2012

The Rhode Island Economy and Change

Patrick Laverty

A recent Providence Journal article (Thanks Ted) remarked on the business economy in this state:

If the state did not develop new industries and revive old ones, future generations would have trouble making it in the Ocean State.
A heavy reliance on a single industry made the state “highly vulnerable to shifts in consumer demand and technological progress,” said economists at Brown University.
but wait, there's more:
[The state] suffered from a weak economy, a high unemployment rate, high unemployment compensation costs and an unstable job market made up of mostly low-skill and low-paying jobs
and yet more:
Generating jobs should be the state’s top priority, they said. The governor should rely on a group of economic advisers and make Rhode Island more attractive to industry through new laws. And business, labor and government officials should embrace a common goal.
Is any of this sounding familiar yet? Any of this sound like Rhode Island pundits of the last 5-10 years? Well, those quotes are as much as 65 years old. The first one, about not developing new industries, was uttered in 1947. The second was issued in the 1950s and the last one in 1972.

It appears that many of the leaders, while some were not even born yet when these statements were made, have not really learned from the past. What probably makes this even worse is it appears there was once a chance to re-make the Rhode Island economy, but it too was shot down:

In 1983, Gov. Joseph Garrahy led a campaign for the plan’s approval — a blueprint to create 60,000 jobs, improve wages and nurture high-tech industries such as robotics and medical devices. ... Voters, angry at politicians and wary of tax hikes, overwhelmingly rejected the plan.
Yet again today, when people are trying to create a new economy, such as in the Jewelry District (I just can't bring myself to call it the Knowledge District) it too is mocked as a bad idea.

It sure seems that in Rhode Island the old axiom, "Those who do not learn from history are doomed to repeat it" has never been more true.

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The "greenhouse compact" that was so overwhelmingly defeated was due to the understandably distrustful voters that knew, this being Rhode Island, that money would have merely been a slush fund for the politically connected. If anyone thinks that the government of RI could make honest decisions, void of corrupt union theft, with that kind of money, think again. Just look at how they've run everything else to date to get an idea of how they'd have run that. Pretty simple...intelligent choice by the voters in 1983.

Posted by: Mike Cappelli at March 26, 2012 8:21 PM

Right, because status quo has served RI so much better.

Posted by: Patrick at March 26, 2012 8:48 PM

I still have yet to hear a reason why Rhode Island couldn't set itself up as a low-tax business park between Boston and New York. In some alternate universe, a right-to-work, limited-government Rhode Island that eliminated its sales, income, and capital gains taxes like New Hampshire is leading the country in employment, standard of living, and small business growth on a balanced budget.

One thing is for certain - Rhode Island's problems aren't going to be solved through the central economic planning of some government-sponsored "Economic Development Corporation" or investment in a fad niche of the economy. Meanwhile, you can all look forward to government-sponsored 38 Studios going bust at the expense of $75 million in public tax dollars within 5-10 years. But when has that ever happened before:

Posted by: Dan at March 26, 2012 10:51 PM

"Right, because status quo has served RI so much better."

How's your memory Patrick? Remember Hillary's socialist guru Ira Magaziner? He's the guy who took over Brownshirt U. and demanded pass/fail grades. He was also the "genius" behind the Greenhouse Compact. It would have funneled $250 million to a select few to "stimulate" the economy. Kind of like Hussein Obama's Solyndra folly. How's that workin' for ya? It was rightly rejected by 80% of RI'ers. What may have been may have been much worse.

Posted by: ANTHONY at March 26, 2012 11:22 PM

Hey, something we can agree on! Of course when I say it, out come the fringe-right comments about centralized planning (as if having a coordinated state-wide plan for business development is inevitably the first step to Stalinism).

btw, get on board with the Knowlege District naming, otherwise we might was well still have the horse and buggy district somewhere.

Posted by: Russ at March 27, 2012 9:00 AM

Are you seriously suggesting that the "greenhouse compact" funds would have been handled in any manner other than the "status quo"? What could possibly make you think that would have been any different?

Posted by: Mike Cappelli at March 27, 2012 9:06 AM

I do know who Ira Magaziner is and I'm aware of his familiarity with the Clintons. However are some willing to say that the Democrats in this state can do nothing at all right? Zero?

I was not around for the compact that Garrahy suggested so I can't say what would have happened. I just think it's interesting that all these same complaints have been happening in this state for 60+ years, and then in the 80s when someone tries to do something for the RI economy, people complain. Then when nothing is done, people complain.

After 10 years in this state, I think I'm finally getting a read on Rhode Islanders.

Posted by: Patrick at March 27, 2012 9:34 AM

As bad as you think it is now, it was far worse then. Remember the time frame this was all being floated - prior to the internet, with back room deals galore. The problems plaguing RI today were borne of this time period.
That money would have been thrown out the window. Now, would that have been a good idea in another state? - absolutely. But you need to recall what and who you are dealing with here in RI. It should surprise nobody that this state is a basket case.
Just look at ProCap, Providence Housing, City of Prov under Ciccilline; Ruggerio hiring Ianazzi's kid, etc, etc, etc. That is today; imagine 30 years ago!
Make no mistake about it Patrick, that money was gone!

Posted by: Mike Cappelli at March 27, 2012 10:01 AM

I have no doubt that, as bad as things are today in relatively corrupt states like Rhode Island and Massachusetts, things were far worse decades ago before the modern media, cell phone cameras, and the internet. I've read historical accounts that there were "bag men" on staff in the state house who accompanied many state-level politicians back in the 1950's and 1960's. The politicians were collecting cash donations, "service fees," bribes, personal "loans," and other funds with such frequency and in such amounts that it was necessary to have a "bag man" to collect and record it all, as well as to provide an insulating layer of plausible deniability, of course. The current power brokers are disciples of that time - refined for the modern era, but they are really just remnants of the vast criminal network that once ran the state openly and with impunity.

Posted by: Dan at March 27, 2012 11:05 AM

I've often wondered why businesses that wish to locate in Rhode Island are allowed to negotiate individual tax breaks and deals rather than having everybody play on the same field. When I hear about RI being 47, 48, 49 or fifty on the worst places to do business I wonder if those numbers take into account all of the special deals we give to places like Providence Place, American Express, 38 Studios and I can only imagine who else.

Posted by: michael at March 27, 2012 1:38 PM

"I still have yet to hear a reason why Rhode Island couldn't set itself up as a low-tax business park between Boston and New York."

Oh baby that would be an "alternate universe" for sure.
Now go back to work-the cronies, maggots, retired 40 year olds and illegal aliens are depending on you.

Posted by: Tommy Cranston at March 27, 2012 1:59 PM

Michael - Your question may be rhetorical, but I can explain why. As you note, legitimate states, such as New Hampshire and Virginia, do not need to "buy off" businesses with tax credits and public loans to entice them because the terms they offer are attractive at face value.

The reason why Rhode Island engages in this unhealthy behavior is two-fold: 1)The misguided "progressive" theory that markets are inefficient and government experts can pick winners and losers, and 2)The desire of politicians for the control that such options afford them. In other words, businesses relocating to Rhode Island now have to kiss the ring of political class and negotiate special deals to stay competitive. Cross those politicians at any future time and the insider deals that allow your business to survive will quickly dry up. Even-playing-field state economies offer no such control.

Posted by: Dan at March 27, 2012 2:39 PM

"why Rhode Island couldn't set itself up as a low-tax business park between Boston and New York."

Actually, there are hard limits on why. Rhode Island has the highest proportion of people in cities in the nation, virtually none of the 'natural resources' that generate steady income (farming, mining, energy), and it's too dense to host some industries (nuclear, aerospace, etc.).

Because we're so 'urban', we have high GDP, but also high expenses. The nature of cities is expensive, it's true across the globe.

So drop the idea that RI can compete with Massachusetts or Connecticut on the same playing field; we can't. We can't 'grow outwards' like other states, and when we do, we only dig our hole deeper. We need to 'grow upwards' by focusing on the cities and leveling the tax revenue playing field between our own communities.

If you want small government and low taxes, consider moving. I think we need to embrace what's good about ideas from the left, and apply what we know from the right to make them tenable.

An example: Most of those twentysomethings you see in bars in Providence? They're college educated, many working two or three part-time jobs with no insurance. No insurance and student loans mean that they need to move to better pastures and can't buy property here. If we came up with a way to do provide baseline health coverage statewide, they could buy homes and stay. It might be 'bigger government' and it might 'raise taxes', but if it keeps the 'human resources' we've already invested in here, then it could be a net win.

Posted by: mangeek at March 27, 2012 2:51 PM

I don't understand why population density would be a problem. It's not like the state is literally so full of people and buildings that there is no room left for anything else. There is plenty of open space in any state, and especially in Rhode Island since it has been losing population and businesses in recent years. More relevant to the issue, I think, would be the price of land and property taxes. Government can control the second factor directly and the first indirectly through policy. I don't see any reason why Rhode Island's population density makes it ineligible to compete in high tech industries - plenty of relatively population-dense areas in California, New York, and other states host those types of businesses.

I reject that young professionals are leaving or never coming to Rhode Island due to health insurance and student loan expenses, which are universal problems and have not deterred young professionals from living in even more expensive areas, like New York City and Los Angeles, where there are jobs. The number one reason I have witnessed is the low availability of competitive private sector jobs in Rhode Island, and the corrupt nature of so many public jobs. There are no progressive shortcuts in achieving growth in private sector jobs - you have to give businesses incentives to locate themselves in Rhode Island to create those jobs, and I'm not talking about this business or that type of business - I'm talking about all types of businesses, as New Hampshire and Virginia have done through low taxes and stable public policies.

Posted by: Dan at March 27, 2012 3:51 PM

"...why Rhode Island's population density makes it ineligible to compete in high tech industries"

It's not ineligible at all for 'high tech', especially the kind that happens inside warehouses, on drydocks, or in offices.

There are a LOT of things we could do to 'make things attractive for all business' that aren't just 'lower taxes'. We'll never be able to have taxes lower than MA or CT if they want to fight over it. There are plenty of ways to sweeten the pot, though. We could have simpler/fewer regulations, streamline the taxation and paperwork process for businesses, we could even do the healthcare thing I mentioned, which would unburden employers to the tune of 20% of their personnel costs and 10% of their administrative overhead.

Posted by: mangeek at March 27, 2012 4:16 PM

I'm all for thinking outside the box, but the whole reason why health insurance is tied to employment in the United States in the first place is because there are huge Federal tax incentives for employers to offer employees health insurance benefits in lieu of more traditional forms of compensation. I don't see how Rhode Island, as a state, could change those incentives, even if it established some sort of baseline health insurance on its own.

We're likely to keep disagreeing on the taxation issue. In my view, the reason taxes are so high in the first place is because of out-of-control public employee compensation packages, waste, and far-too-generous welfare/disability/unemployment benefits, not because people are living in cities. It's a complicated issue because of state assistance, but there are denser cities in other states that are running at lower expense than Providence. For example, I don't see any legitimate reason based on population-density why cost-per-student is so much higher in Rhode Island than in other states and cities.

Posted by: Dan at March 27, 2012 4:35 PM

"out-of-control public employee compensation packages, waste, and far-too-generous welfare/disability/unemployment benefits, not because people are living in cities."

That's where we have common ground. We COULD lower costs dramatically in our cities, and we should, but we won't be able to compete against our neighbors in the Low Tax Game in the long run.

Posted by: mangeek at March 28, 2012 4:29 PM
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