Texas Needs A New Job Training Program The Texas Legislature established the Smart Jobs Fund (SJF) in 1993. Its purpose was to meet employer demand for highly skilled workers. The program was driven by the recognition that future expansion of high-growth technological industries required specialized, skilled workers.
Grants were awarded by SJF directly to employers for customized training with the desire of promoting the creation of new jobs and increasing the wages for existing employees. To obtain funding, employers had to provide at least a 10% match or in-kind contribution, and pay their trainees a higher salary after they completed training.
By 1999 the scope of the program had changed into a more general, broad-based training program designed to serve the needs of all sizes and types of businesses. The selection criteria was also expanded over time as well, encompassing factors (such as training former prison inmates) that, while certainly quite laudable, had little or nothing to do with promoting emerging growth sectors.
In short, the program completely lost its original focus and morphed into something akin to the Skills Development Fund (a general job-training program that is effectively administered by the Texas Workforce Commission) and the Self-Sufficiency Fund (a program to assist in the welfare-to-work transition that is now a part of federal policy). When that happened, the state lost a key part of its attractiveness for desirable site locations. Administrative difficulties further eroded the program, leading to its demise during the last legislative session.
Much of the problem with Smart Jobs was the result of an evolving, and at times, ill-defined missions; others were due to structural factors in its implementation. Additional problems were associated with frequent turnover in personnel. Some were simply bad management at various points in time.
So now that the program is gone, where are we? Although the Skills Development Fund works quite well, in reality, the Lone Star State is left with no effective employer-oriented initiative to support highly skilled occupational requirements.
While the Texas economy has recently outperformed the nation as a whole, the state is slipping in terms of new corporate locations. If the situation persists or deteriorates, future economic performance will be jeopardized. Moreover, the state cannot hope to be a part of the high-tech, high-growth world of the future—which will encompass not only electronics and communications but also biotechnology, alternative energy, nanotechnology, smart materials, and other areas not yet invented—if it cannot offer employers the capabilities of a skilled workforce.
The state’s workforce represents the single biggest potential benefit or threat to economic growth over the decades to come. With a relatively large number of persons in the right age groups, Texas has the opportunity to be the destination of choice for firms in the future. However, the skill level of the potential employee pool is a crucial component. Without proper workforce development, Texas is left with a situation of a growing population and a shrinking number of persons with the proper skills for tomorrow’s jobs.
Current programs leave a gap that a Smart Jobs-type program is needed to fill. Given its history, any new program should probably have a new name and a new administrative home.
Several states have job training programs that are proving highly successful in preparing workers for the future. Among the most effective are those in California, Georgia, Iowa, Michigan, New Jersey, North Carolina, Alabama, and Illinois, just to name a few.
Texas should emulate the best aspects of these states’ programs and create a new workforce training thrust that would substantially enhance overall economic development and prove greatly beneficial in bringing in new industries. Without such a program, the state stands at a significant, perhaps insurmountable, disadvantage in the arena of competition for quality corporate locations.
posted @ 07:59 AM CST [link]
Friday, November 22, 2002
A Challenge That Must Be Met Over the past year or so, there has been a notable slowdown in business activity. The causes are varied, of course, but clearly recognizable.
The domestic and global weakness dampened the demand for microelectronics, telecommunications equipment, and other manufactured goods. The terrorist activities on September 11 significantly affected airlines and tourism, as well as many additional sectors. Major disruptions were also caused by the dot-com collapse, the demise of several energy trading companies, corporate scandals, and an enduring drought of record proportions.
So now what do we do? There are many steps that can be taken to enhance the state’s economic status, and later on I’ll talk about more of them. But for now, let’s look at the importance of economic development incentives and marketing.
In a perfect world with perfect information, all economic activity would invariably gravitate to its optimal (least cost) location, and there would be no role for incentives or aggressive marketing programs. But there is no perfect world. Thus, in the “real” world, both are essential elements in the competition for expanded investment and job opportunities. In fact, a variety of factors have coalesced in recent years to make them even more important.
First, labor and capital mobility have greatly increased. Skilled workers in key growth sectors have shown willingness to relocate in response to potential opportunities, and today’s financial markets efficiently move capital and financial resources to their highest and best uses.
Second, the site selection process has become more sophisticated. Firms now recognize they have substantial “bargaining power” with state and local governments and are using it to effectively reduce overall costs.
Third, increasing globalization has brought greater attention to all aspects of costs. Companies, particularly those in growth-oriented manufacturing sectors, must offer a mix of output, innovation, and profits that is competitive on an international scale. Consequently, corporations are undertaking massive efforts to improve efficiency and reduce costs.
Fourth, firms are now held to higher levels of public scrutiny in debt and equity markets than has been the case historically. As a result, all costs receive a great amount of attention. Thus, in seeking new locations, lower tax rates and specific economic incentive packages become extremely important.
These forces pose a significant challenge for Texas since the tax structure of the State imposes disproportionate burdens on capital-intensive sectors relative to other areas. In addition, the state’s marketing and incentive programs are not as extensive or aggressive as those in other parts of the country and the world.
This situation has been exacerbated by two ongoing trends. The increasing technological component of production processes across a broad range of industries is resulting in much higher investment levels in plant and equipment as facilities are built, expanded, or modernized. In addition, there has been a definitive trend of late toward greater relative reliance on state and local governments to provide public services.
The percentage of total civilian services obtained at the state level has risen from 67.5% to 80.7% over the past three decades. Similarly, the portion of all government services, including defense, provided at the state and local level has risen from 50.1% to 73.0%. With the exception of defense and security priorities surfacing in the aftermath of 9/11, this pattern is projected to continue into the future as responsibilities are increasingly shifted away from the federal government.
In the early to mid-1990s, Texas was the undisputed leader in the race for new capital investments, job growth, and new and expanding facilities. More recently, the state’s position has dropped dramatically. Quite simply, Texas is falling behind. The state is getting a smaller absolute and relative share of a growing pool of manufacturers and other locations, and virtually all the big ones are getting away.
To reverse the trend, Texas needs to systematically examine its existing programs and implement an effective strategy for future competitiveness. Progress is being made in that direction, but much more remains to be done. It’s a challenge that must be met.
posted @ 09:27 AM CST [link]
Friday, November 15, 2002
Crossing the Goal Line Most football teams find it easier to get into the “red zone” (inside the 20-yard line) than to go through it and cross the goal line, which of course, is the basic objective. As is evident, the more times the ball crosses the goal line, the more victories result.
There is a similar analogy on the playing field of our state economy, and there are two elements of the team that are equally essential in achieving victories. They are not the traditional offense and defense one sees in gridiron battles; rather, they are both offense. I call these two essential facets of economic development “fundamental” and “incremental,” and to be effective they must work in tandem.
Similar to the daily conditioning and preparation a team needs in order to play its best, fundamental economic development represents what state government does on an ongoing basis to create an overall environment that is conducive to economic success.
The primary role of government in achieving business prosperity is to perform its traditional functions in an exemplary fashion. Involved in this “preparation phase” are the creation and support of outstanding public schools and higher education institutions, and the operation of an efficient administrative and regulatory process unencumbered by needless bureaucracy.
Additional prerequisites for growth in which the government plays important roles include the maintenance of effective infrastructure (such as highways, water resources, utilities, and telecommunications), a clean environment, and a judicial system that is balanced in its approach to compensation for legitimate harms and resolving disputes.
Another essential is a fiscal structure that meets public needs and provides expanding revenue to meet the requirements of increasing economic activity. Initiatives that positively impact the costs of doing business (such as workers’ compensation or unemployment insurance) or the quality of life (such as crime reductions or improved public health) also contribute to the overall climate for growth.
These “fundamentals” make the state a desirable place to be and create a business climate that is conducive to prosperity. In other words, these elements get the ball into the “red zone.” While such efforts are essential, they are not enough to achieve a score or “close the deal.” To do so, the “incremental” process is required. It’s like the top-notch receiver or tough running back; it’s tough to score without them.
This “incremental” economic development activity that can be undertaken by the public sector involves initiatives taking the form of either explicit marketing efforts aimed at increasing business activity or some type of incentive to encourage locations. Because incentive programs typically involve the transfer of public resources to private firms in one form or another, they are often controversial. But incentives are a fact of life in the marketplace.
Effective financial inducements, precisely targeted job training, and enhanced capital access can make the difference in site selection competition. As with any arena where participants have differentiated offerings, advertising and promotion are vital to the process. It’s not enough for the state to offer a great set of incremental inducements to firms; we must also get the word out to desirable potential recruits.
Naturally, when public or private resources are invested in future progress, they should be directed in a manner that maximizes returns. None of us wants to see taxpayer dollars funneled to corporations without appropriate returns to the state economy and, thus, all Texans.
The bottom line, however, is this: overall costs and other fundamental factors are often approximately equal across several potential sites. Consequently, although incremental incentives have their drawbacks, they are almost invariably the difference between being on the “short list” and winning.
If Texas is to win with some degree of consistency, the state must have an effective game plan. Fundamental policy will get the ball inside the 20-yard line; incremental development efforts will take it over the goal line.
posted @ 08:25 AM CST [link]
Friday, November 22, 2002
A Challenge That Must Be Met Over the past year or so, there has been a notable slowdown in business activity. The causes are varied, of course, but clearly recognizable.
The domestic and global weakness dampened the demand for microelectronics, telecommunications equipment, and other manufactured goods. The terrorist activities on September 11 significantly affected airlines and tourism, as well as many additional sectors. Major disruptions were also caused by the dot-com collapse, the demise of several energy trading companies, corporate scandals, and an enduring drought of record proportions.
So now what do we do? There are many steps that can be taken to enhance the state’s economic status, and later on I’ll talk about more of them. But for now, let’s look at the importance of economic development incentives and marketing.
In a perfect world with perfect information, all economic activity would invariably gravitate to its optimal (least cost) location, and there would be no role for incentives or aggressive marketing programs. But there is no perfect world. Thus, in the “real” world, both are essential elements in the competition for expanded investment and job opportunities. In fact, a variety of factors have coalesced in recent years to make them even more important.
First, labor and capital mobility have greatly increased. Skilled workers in key growth sectors have shown willingness to relocate in response to potential opportunities, and today’s financial markets efficiently move capital and financial resources to their highest and best uses.
Second, the site selection process has become more sophisticated. Firms now recognize they have substantial “bargaining power” with state and local governments and are using it to effectively reduce overall costs.
Third, increasing globalization has brought greater attention to all aspects of costs. Companies, particularly those in growth-oriented manufacturing sectors, must offer a mix of output, innovation, and profits that is competitive on an international scale. Consequently, corporations are undertaking massive efforts to improve efficiency and reduce costs.
Fourth, firms are now held to higher levels of public scrutiny in debt and equity markets than has been the case historically. As a result, all costs receive a great amount of attention. Thus, in seeking new locations, lower tax rates and specific economic incentive packages become extremely important.
These forces pose a significant challenge for Texas since the tax structure of the State imposes disproportionate burdens on capital-intensive sectors relative to other areas. In addition, the state’s marketing and incentive programs are not as extensive or aggressive as those in other parts of the country and the world.
This situation has been exacerbated by two ongoing trends. The increasing technological component of production processes across a broad range of industries is resulting in much higher investment levels in plant and equipment as facilities are built, expanded, or modernized. In addition, there has been a definitive trend of late toward greater relative reliance on state and local governments to provide public services.
The percentage of total civilian services obtained at the state level has risen from 67.5% to 80.7% over the past three decades. Similarly, the portion of all government services, including defense, provided at the state and local level has risen from 50.1% to 73.0%. With the exception of defense and security priorities surfacing in the aftermath of 9/11, this pattern is projected to continue into the future as responsibilities are increasingly shifted away from the federal government.
In the early to mid-1990s, Texas was the undisputed leader in the race for new capital investments, job growth, and new and expanding facilities. More recently, the state’s position has dropped dramatically. Quite simply, Texas is falling behind. The state is getting a smaller absolute and relative share of a growing pool of manufacturers and other locations, and virtually all the big ones are getting away.
To reverse the trend, Texas needs to systematically examine its existing programs and implement an effective strategy for future competitiveness. Progress is being made in that direction, but much more remains to be done. It’s a challenge that must be met.
posted @ 08:22 AM CST [link]
Friday, November 8, 2002
A Time to Govern Well, the long and brutal election season is finally over. It seemed that everyone who sought statewide office or congress (and, in some cases, even local positions) was portrayed as a thief, liar, murderer, drug kingpin, or some combination thereof with absolutely no regard whatsoever for morals, ethics, or the law. Of course, now that the antics are over, winners and losers alike are hailed as paragons of virtue and dedicated public servants (at least until the next election).
Now that we can get back to commercials about beer, cars, fast food, and shampoo, it is time to focus on matters at hand. There are plenty of them around, but I will follow my usual custom of sticking to things economic. At the national level, there has been some progress in restoring credibility of financial markets, but definitive leadership is needed. Job training, aggressive trade promotion, and support of research and development are essential to transforming the “jobless” recovery into a “jobful” recovery. A laundry list of very real business and human needs demands attention. Tax policy remains in a state of confusion, with strange and quirky formulas that can lead to bizarre incentives for private sector behavior (including making sure all of your rich relatives die in 2010). Tax increases are no way to grow an economy, but the present fiscal constraints and rising deficits leave little flexibility to meet enhanced security needs and other pressing concerns.
Speaking of fiscal constraints, there are more than a few challenges in Austin as well. For once, the shores of the Colorado aren’t all that much prettier than those along the Potomac (but our trees are taller). A multi-billion dollar shortfall in the State budget, an insurance crisis, healthcare access inadequacies, languishing economic development and competitiveness, a public school funding system that is not working, pressing issues in higher education, and expanding infrastructure needs are but a few of the issues confronting a new cadre of leaders. Some of the most significant of these were scarcely even hinted at during the campaign. Nobody wanted to say how the budget would be balanced for fear they would be asked to follow through.
It is probably safe to say that the first Republican house in more than a century will not pass a major tax bill. Myriad promises to “scrub the budget” abounded during election season, but it is much easier said than done. Clearly, there are some inefficiencies and nonessential items in any enterprise, public or private, of the size of State government in Texas. On the other hand, we are Populist by tradition and have historically practiced limited government in comparison to most other areas. There are few places to find substantial dollars without inflicting real pain. The ones that do exist primarily involve consolidating and possibly outsourcing major functions (such as human resource management or procurement). There is serious money in such measures, but they face enormous resistance and require a type of political courage that is rare in today’s world. Most prior efforts of this nature have died in committee for lack of interest, but there are some new folks in town.
Elections are always somewhat melancholy for those of us who are privileged to be actively involved in public policy, and this one was particularly so. A lot of folks who have served the nation and state well for many years are leaving the stage, some voluntarily and some otherwise. I, for one, will miss all of them, including those with whom I often differed on economic issues (which, fortunately, rarely gets in the way of friendship, fun, and fellowship). In these days, I have great respect for anyone who will endure the rigors of modern politics in order to serve. Almost without exception, those I have been blessed with knowing, from the knighted to the indicted, have had the best intent of those they serve at heart. We might disagree on the methods, but almost never on the purpose.
But, alas, eras pass and new ones emerge. The tough issues we face call for leadership, creativity, and vision. The time for puffing, preening, fussing, and fighting is mercifully behind us, at least for the time being. Now is the time to govern.
posted @ 07:53 AM CST [link]
Friday, November 1, 2002
Timing is Everything As we approach the Christmas season, it’s a good idea to look in on consumers. They are the driving force in our economy, representing approximately two-thirds of all activity. Their mood in November and December often makes or breaks the fortunes of retailers for the entire year.
We get two indirect peeks at buyers’ spirits each month. Both the University of Michigan and the Conference Board provide us with measures of consumer confidence (or sentiment). We get more direct views from other data related to retail sales, housing activity, and consumer spending. As a general precept, you would think the attitudes and actions would be highly correlated. In reality, while they are certainly related, their movements do not coincide nearly as much as other aspects of the economy. More importantly, these sentiment measures are no better than dozens of variables (and worse than some) in foretelling future patterns in the economy. What consumers do is critical; predicting it accurately is quite another matter.
One of the reasons that surveys of our perceptions don’t always match our purchasing activity is a simple case of timing. We saw this phenomenon graphically illustrated over the past weeks. The Conference Board’s Index of Consumer Sentiment plummeted from 93 to 79 (against an arbitrary benchmark of 100), the lowest level in many years. Wall Street immediately wrote off any thought of strength in Christmas shopping and major indices dutifully fell precipitously. Fortunately, it thought better of this notion as the day wore on, and essentially reversed the losses by the end of the day. The market, which can’t resist the temptation to overreact to these things (and a lot of other things these days), finally got it right later in the day.
The paradox that we may feel bad and act good (or vice versa) may well be the result of the fact that (1) the surveys are collected in a period prior to the time of their release, and (2) we tend to base our expectations on very recent information (a conclusion from modern psychology that is informative to economics, sociology, political science, and several other disciplines). At the time the survey was taken, the stock market was in a seemingly endless free fall, the talk of war with Iraq was at its peak, a dock strike on the West Coast threatened to stall the fledgling economic recovery and delay holiday deliveries, and we were obsessed with sniper attackers who were threatening the Washington, DC area and stirring our collective anxiety in a post-9/11 world.
By the release date, the universe seemed far different. Corporate earnings had been generally positive, and the market was 1,000 points higher; the war issue remained unresolved but was receiving less general media coverage; ships were being unloaded as the supply chain was being restored; and the alleged snipers had been apprehended. Thus, while I don’t want to totally dismiss this report, its ability to tell us anything about “real” consumer feelings as we knock at the door of the holiday season is highly suspect. In fact, the merciful end to an almost endless election cycle will eliminate still another aspect of uncertainty in the minds of consumers, with the nature of the outcome being far less important than having one.
That is not to say Christmas of 2002 will go down as one of bountiful prosperity and spending run amok. Our spirits understandably remain somewhat in check. Nonetheless, the dismal sentiment index value must be placed in proper context. It is likely that it will be a season of modest growth in consumer spending; not enough to get retailers too excited, but more than ample to build momentum into 2003. Whatever happens, don’t lose sight of the opportunity to enjoy family, friends, and peaceful festivities.
posted @ 08:23 AM CST [link]