A Great Man—A Great Mind
My dear friend Walt Whitman Rostow left us recently after almost 90 years of life, well over half of which was spent on the world stage. I was stuck in Washington during the “Storm of the Century” when I began to hear the news from mutual friends. As National Security Advisor to Presidents Kennedy and Johnson, Walt sat at the table and participated in some of the most momentous days and decisions of the past 50 years.
Walt was also an economist and political thinker of notable achievement. I first encountered his work as a young graduate student fascinated by the dynamic forces which determined economic growth and development. Walt was a pioneer in this area, and his books remain a “must read” for any serious student of the subject. His eloquent exposition of the stages of growth has impacted not only our understanding of the progress of nations, but has broad applicability to the performance of firms, institutions, and even species. He also added cogent analysis of the role of politics, for better or worse, in the process. Walt was focused on the global economy and our interconnectedness decades before it was in vogue and at a time when textbooks and scholars alike were quite comfortable simply assuming away the seemingly inconsequential foreign sector.
Walt never won the Nobel Memorial Prize in Economics. In my opinion, he should have. During the years he would have been a likely choice, the selections were dominated by those who were extremely enamored with mathematics and those who sought to explain financial markets. The selection can also be somewhat political at times, and Walt’s views haven’t always been of the “proper” ilk. Suffice it to say that his most significant contributions have a much more profound impact on the way we understand and relate to things economic than those of many of the winners.
When I first met Walt about 20 years ago, he was already approaching 70, and I was less than half his age. I was appropriately awed, and he was most gracious and unassuming. We hit it off from the outset. In addition to being very nice to a young upstart, he exhibited a creative and facile mind, a broad sweep of knowledge that was profound, and combined these attributes with vast experience to yield uncommon wisdom. He was soft spoken, but uncompromising. His productivity and clarity of thought continued unabated for the remainder of his life. He wrote about 30 books over the course of his career, including one that is yet to be released.
He seemed to like my intensity and even the somewhat quirky and offbeat way I sometimes apply the premises of economics to gain insights into things. We shared an affinity for taking somewhat abstract concepts into the arena of real life. I remember very well one occasion when Elspeth, his wife and a person of remarkable accomplishment in her own right, introduced me to a woman’s conference group as “Walt’s favorite economist.” I recognized it as nothing more than a kind gesture, but it remains one of my most memorable introductions and perhaps the highest compliment I have ever been paid. (My other memorable introduction was when my friend, Roscoe Harrison, welcomed me to a large minority business conference. He said he knew me very well and that his mamma taught him if he couldn’t say something good about someone, he shouldn’t say anything at all. He then sat down.) In recent years, I have had the privilege of serving with Walt as research fellows in a university think tank.
I was never in his presence that I wasn’t the better for it. He taught me to dig deeper and take a broader perspective than I might have otherwise. He offered insights on current global issues, something he understood before others even recognized there was something to be understood, that were sorely needed. Fortunately, he left us an extensive and enduring legacy of his thoughts in writing. Unfortunately, he will not be able to add to it at a critical juncture, as he has so often done before. Most of all, however, we will miss the man. The world is a better place for the sojourn of Walt Whitman Rostow.
posted @ 08:08 AM CST [link]
Friday, February 21, 2003
Texas Tax Policy Should be Revamped
One of the most obvious ways states influence their overall business climate is through tax policy. Everyone recognizes that the cost of providing for schools, infrastructure, and public health and safety (as well as maintaining an effective regulatory framework and performing other essential government functions) must be recouped. In doing so, the objectives are to be fair and equitable in allocating fiscal burdens and to be prudent and efficient in the use of public resources.
Texas has a relatively low per capita tax burden. The state also prides itself on the absence of a personal income tax, which is viewed positively by firms seeking new locations (although it is perceived much more positively internally than externally).
Despite these positive attributes, the Texas tax structure is typically ranked near or below the middle among all states in attractiveness for new business activity and is not particularly well regarded by site selection consultants. Moreover, while low taxes are generally regarded favorably, it is also important to ensure sufficient revenue to meet the needs of a growing economy through funding mechanisms that expand in accordance with requirements.
Currently, there is notable concern within the state regarding both the adequacy of the public school finance system and the mechanism by which school funding is achieved. Because this segment of state and local government budgets is large in absolute and relative magnitude, alternatives can only be explored within the context of overall fiscal reforms. A budget crisis leads inevitably to patching things together, but should also compel us to focus on fundamentally new approaches.
Texas currently relies of such mechanisms as (1) a property tax, (2) a sales tax that applies primarily to goods at a time when consumption is shifting more toward services (and Internet purchases), (3) a franchise tax partially based on the capital stock of firms, and (4) an oil and gas severance tax in an era of gradually declining production. Thus, the current tax structure is not well suited to increase in line with either the expansion of the economy or the accompanying revenue requests.
Another problem with the Texas tax structure is the fact that it places a greater relative burden on capital-intensive firms than those in competing areas. Approximately 60% of state and local taxes in the Lone Star State are paid by businesses, whereas most competing states have roughly an equal division between businesses and households.
By far, the most significant segment of this imbalance occurs as a result of the heavy reliance on property taxes to fund much of the county, municipal, and (especially) school district activity. Almost half of the state and local taxes are based in some manner on the value of assets, with the burden thus being weighted toward firms with large, expensive facilities. Although manufacturing and utilities represent only about 26% of gross state product, these sectors pay well over half of all business property taxes. As a further complication, the fact that the Texas franchise tax is partially levied on the capital assets of a company creates substantial liabilities for capital-intensive enterprises irrespective of their economic performance.
The bottom line is that the tax consequences of locating a large facility in Texas have material adverse effects. Among the 10 most populous states in the US, only Florida (which also lags in the number of selections for new business sites) collects a comparably disproportionate percentage of taxes from the corporate sector.
As we focus on the immediate concerns of a massive budget shortfall, options that could enhance the overall equity, efficiency, and ability to respond to increasing fiscal needs are clearly worthy of further exploration and discussion. The only way we can ultimately resolve our fiscal imbalances in a sustainable manner is with comprehensive tax restructuring.
posted @ 12:07 PM CST [link]
Friday, February 14, 2003
Sushi and Enchiladas This past week, Toyota made it official that it was locating a new truck plant in San Antonio. Although I was already in Washington and several projects down the road by the time the press conference was held, it was a great privilege to play a small role in the process. The effort involved state and community leaders working together, solving problems, and making the deal work. The final incentive package totaled about $133 million in state and local incentives, less than one-third of the average Mississippi and Alabama have used in luring three past automobile facilities. The “payback” period is only a couple of years.
This location was a huge win for Texas on several fronts. My firm estimated the statewide economic impact of Phase One operations to be $1.612 billion in annual spending, $560.1 million in gross product, $367.9 million in personal income, and almost 8,900 permanent jobs. That’s besides a $1.065 billion construction impact, and Phase II more than doubles these numbers. While certainly impressive, these facts and figures don’t begin to tell the whole story.
The project was the first big new plant location for Texas since the mid-1990s, and it was long overdue. We fell behind many states in our development programs in recent years, and the cost in terms of new activity has been enormous. The learning curve that took place during the negotiations also helped to inform state leaders about what it takes to capture a gorilla these days. The result is likely to be greater momentum toward revamping our economic development efforts in productive ways. The combination of a high profile site selection and a competitive program moving forward will once again put Texas on the radar screen for future locations. There is a lot of reason for optimism.
The impact on San Antonio is also quite substantial. The Alamo City along the river has long been known for tourism, military operations, and an excellent healthcare complex. Now, it has a notable foothold in manufacturing with thousands of well-compensated jobs redefining local opportunities. With the expectation of dozens of smaller facilities to serve Toyota and a nascent biotechnology sector, the area is poised to write a new chapter in its long, colorful, and generally prosperous economic saga. The future is bright indeed.
Perhaps most important of all, the Toyota facility validates an important concept. For many years, we have been touting the advantages of linking production facilities in Texas and Mexico to create meaningful synergies. As it turns out, what was most attractive to Toyota from the outset was the prospect of working closely with suppliers in Mexico. That desire for proximity is what allowed us to effectively compete against several states offering several times the incentive packages that we provided.
Thus, we now have a much needed “real world” verification of the notion of the benefits of the Texas-Mexico linkage and the value it can create. Properly marketed, this initial success can be a springboard to many more. It took longer than we hoped, but the idea is finally catching on. Once again, a notable fire of optimism is ignited.
In short, this location doesn’t make us competitive; it doesn’t revive the sagging electronics and telecommunications sectors; it doesn’t make up for all the recent job losses; and it doesn’t balance the state budget. Nonetheless, it is a cause for celebration, a bold exclamation point on our economic future. Let’s revel in the moment, and show our friends from the Orient what Texas hospitality is all about.
posted @ 08:19 AM CST [link]
Friday, February 7, 2003
Water Resources Vital to Economic Advantage Texas history is replete with examples of squabbles over water rights. Such situations probably led to the old adage that “Whiskey is for drinkin’; water is for fightin’.” The validity of that statement may be questionable, but the fact that water scarcity and quality are among the major issues facing all Texans cannot be ignored.
Within the Lone Star State, there are 3,879 square miles of Gulf water with a 6,214-mile coastline. Furthermore, Texas has 1.7 million acres of coastal wetlands and more than six million acres of inland wetlands. In addition, there are an estimated 191,228 miles of streams and rivers.
Caddo Lake is the only natural lake in the state. However, there are about 6,700 lakes constructed as reservoirs totaling some three million acres of water across Texas. The most important function of the reservoirs is to provide the majority of surface water used in Texas. Many of the larger reservoirs also serve as catalysts for substantial recreational and tourism activity, which naturally benefits nearby local economies.
Additionally, groundwater is found in the nine primary aquifers and 20 minor aquifers scattered throughout the state. Estimates indicate that reliance on groundwater has dropped in recent years—from 70% of water consumed in 1974 to 56% in 1996.
The Texas Water Development Board is responsible for planning and allocating funds to ensure that Texas maintains adequate water supplies to meet its demands. Managing water resources involves the river authorities that administer the major watersheds in the state, and local governments are actively engaged in the process.
The Board has divided Texas into 16 regional water planning areas. There is much disparity in the availability of water among the various regions of the state. These differences reflect both geological and climatological factors and the level of resource management that has occurred in the past. Moreover, the development of new water resources typically has some level of conflict with environmental interests, as it almost invariably involves a restructuring of land use and habitats.
It is currently projected that there will be sufficient water supply to meet future municipal and industrial demands assuming that Texas continues to take steps to improve water development and conservation. However, if present trends continue, the Texas water supply will fall short of irrigation demands. Thus, creative and innovative approaches must be explored and implemented on an ongoing basis.
Water quality is, of course, a parallel concern, and it’s difficult to determine the quality of water across the state. The Texas Department of Environmental Quality administers the Safe Drinking Water Act by monitoring our drinking water quality. The agency also determines the water quality of all rivers, lakes, reservoirs, bays, and other bodies of water in Texas. Recently, some water that Texans formerly relied on from reservoirs failed to meet federal standards for use, leading to a decline in the quantity of water available.
A clean and adequate water supply is necessary for economic development and maintaining quality of life standards in Texas. Effective planning and achieving a reasonable and fair balance of interests are critical in enabling water to be a vital element of economic advantage. Failure to adhere to proper guidelines or to meet basic quality standards can have both disastrous economic and human health consequences.
posted @ 08:39 AM CST [link]