Attitude Adjustment! The First Component of an Effective Economic Development Strategy During the oil boom of the 1970s and the tech boom of the early 1990s, the Lone Star State was a leader in securing new and expanded economic activity. In the last few years, however, Texas has fallen behind in a variety of objective measures, primarily because other states have adopted more aggressive initiatives.
Business today is more mobile, competition is more global, and the process for determining locations is more sophisticated. Just as changing technology and mobility have led to modifications in myriad areas of meeting public needs, similar adjustments are required in economic development.
Some people believe Texas has no reason to be actively involved in economic development and that state government should not commit extensive effort or fiscal resources to such purposes. After all, the state does have a long-standing Populist tradition with a general adherence to the concept of limited government. This philosophy shapes much of our public policy, and well it should. It must be recognized, however, that limited government does not mean no government at all, especially in cases where the public sector is the only effective means to achieve socially beneficial aims.
As examples, transportation, municipal services, education, and myriad other functions that promote economic well-being (among other things) are provided or subsidized by government because of their role as public goods; many of these services cannot be efficiently made available by private interests. Economic development as it operates today can be and properly should be viewed in precisely the same manner.
Perhaps the best and most straightforward way to conceptualize this phenomenon is as a market for economic development opportunities, with states and communities (as representatives of their citizenry) as sellers and firms locating in responding facilities as buyers.
Because the opportunities for quality corporate locations are nowhere near sufficient to satisfy the desires of all the areas in the country, much less the world, it becomes a “buyers’ market.” Areas, therefore, must induce firms to locate and, like any rational buyer, decisions will be driven by the buyers’ best prospects for profit.
Since Texas does not consistently provide the lowest cost site (certainly not by a margin significant enough to overcome inducements from other areas), incentives provided by government become a necessary element of being an effective market participant. Similarly, because many of the variable costs differentials adverse to Texas are related to fiscal matters (such as a disproportionate tax burden on capital-intensive facilities), public involvement is required.
Another aspect relates to the fact that other regions provide specific kinds of incentives tailored to the individual project, such as specialized job training or “deal closing” assistance. Such mechanisms become part of the information base and “price” (overall set of available incentives) in the marketplace. As a result, in order to compete, other sellers respond with comparable or more attractive incentives. Because buyers (locating firms) are seeking sellers (competing cities/regions/states) with differentiated terms, effective marketing is also valuable.
It is not practical or economically feasible for those receiving direct economic benefits, such as potential employees or suppliers, to organize the incentives required in the competitive process (just as individuals cannot realistically organize to build public roads). In such a context, it is a proper role of government—even limited government—to manage the process. Economic development is a public good because it brings “positive externalities” or benefits that extend beyond the immediate plant location.
In the same vein, government is not an isolated system; it is a part of the overall social complex. To treat it otherwise is the antithesis of Populism and a limited government philosophy. This concept, which is both traditional and enlightened, is the very essence of the rationale for an aggressive (though limited) role of government in ensuring a steady stream of economic development. The payoff must not be judged solely on the basis of today’s State revenue, but rather on securing prosperity for generations to come.
posted @ 07:54 AM CST [link]
Friday, December 13, 2002
Texas, Our Texas I’m proud to be a native Texan, and I have never lived anywhere else. I’ve passed up several professional opportunities without hesitation simply because they would require me to reside outside the Lone Star State. Suffice it to say, no matter how much some may wish it, I’m not leaving.
With a Texas birthright comes a host of privileges and responsibilities. Among my many privileges has been the honor of visiting all parts of this majestic state—urban, suburban, rural, border, North, South, East, and West—on a regular basis. In doing so, I have enjoyed talking with folks from all walks of life and discussing with them what makes our state so great and what can make it even better.
As an economist, I have the responsibility of sharing what I have learned through these experiences as well as from the myriad in-depth research endeavors in which I have been involved over the years.
Thus, it was with great excitement that I recently prepared a statewide economic development analysis for Texas Economic Development (TxED). This report, which ended up being more than 400 pages in two volumes, was a daunting and challenging task. Even so, it gave me a chance to bring to bear 25 years of experience in studying all facets of the Texas economy at such a critical juncture in our state’s history. I was also able to pull decades of public policy and economic development experience and extensive modeling systems into the effort.
Since I prepared the analysis on a pro bono basis and have no plans to seek public office, I had the great luxury of being candid in my assessments. We have big issues to confront in Texas, and there is no useful purpose served in ignoring or avoiding them.
I started the project with a blank canvas and attempted to paint a broad portrait. I sought to cover as many areas as possible, and I tried to be practical and provide meaningful context to properly frame major issues. In approaching the analysis, I maintained a deep respect for the principle of limited government, but recognized that there are some very real arenas in which the State must be involved to secure our economic prosperity and destiny.
Similarly, I conducted the analysis with a strong belief in the marvelous abilities and powers of markets, realizing of course that they do not do all things perfectly.
The study is entitled “Texas, Our Texas: An Assessment of Economic Development Programs and Prospects in the Lone Star State.” It’s available for review on two websites—www.tded.state.tx.us and www.perrymangroup.com.
It examines the economic development prospects of Texas from many viewpoints and provides frameworks that properly characterize the environment and requisite responses. Various issues facing Texas are discussed, and profiles and perspectives are included for all the state’s planning regions and metropolitan statistical areas. Target industry clusters appropriate for specific areas are suggested and detailed explanations regarding the advantages of these clusters are presented.
Recent economic weakness, coming on the heels of a decade of remarkable progress, has led to increased dialog and efforts to proactively promote expansion in Texas. I am not naïve enough to think that everything I suggested will occur overnight. Resource and cost constraints are a fact of life, and I dare say that some of my recommendations could prove a bit controversial. Nevertheless, if careful thought is given, vigorous debate occurs, and some of the items contained in the report are at least modestly put into motion, then much will have been accomplished for the place I call home.
posted @ 11:35 AM CST [link]
Friday, December 6, 2002
A Quiet Legend A couple of decades ago, one of my large corporate clients was in a real scrape, repeatedly taking it on the chin in the media. They were right in principle (which history ultimately reflected), and the numbers I ran overwhelming confirmed it. The client asked me to put together an editorial with our findings to try to turn the tide of public opinion. I did so, and was told that they loved it, but were going to have someone punch it up a bit.
I was young and quite full of myself (some would say only half of that statement is no longer true) and was offended that anyone would dare to suggest that some writer could improve upon my eloquent prose. An hour or so later, I received the edited version. I have to confess that I felt like a third-grader whose class report had been passed off to Shakespeare for revisions. Using the same information and essentially the same words, my mystery scribe had made the ideas jump up and dance off the page. I knew immediately that I had experienced a brush with greatness.
Later that day, I learned that my literary master was none other than George Christian. I had met him a couple of times before, but from that day forward we became fast friends and collaborators on a dozen projects. George is probably best known as Press Secretary for Lyndon Johnson and for running the offices of two Texas governors. He was a friend and confidant of several Presidents, including George W. Bush. I was pleased to chair the Texas Legislative Conference a few years back when he was named “Texan of the Year.” This past year, I pinch-hit for him as chairman as we dedicated the conference to him.
George left us this past week after an extended illness. Texas is much the worse for his absence. His resume was imposing, as was his intellect and ability. As a person, however, he was anything but. He was warm, friendly, and soft spoken. His quiet demeanor was often a calming influence in the intense battles that can grip the political arena at times.
Apart from his considerable kindness, wonderful sense of humor, and friendship, the thing we will miss most about George is his wisdom. Decades of experience at the highest levels, keen observation, a strong mind, and outstanding character combined to create the type of insight and counsel that is rare.
Much of George’s work in recent years has focused on the issue of judicial reform. He has steadfastly sought a system which brings proper assessment and resolution of legitimate disputes and fair compensation for legitimate losses, but which does not create an environment that discourages economic growth or unnecessarily increases insurance costs. A great deal was accomplished on his watch, but there is a lot left to do. We are entering a legislative session with serious concerns over the availability and cost of property/casualty and health insurance, with medical malpractice costs threatening the ability of many physicians to continue practicing. As these difficult issues are tackled in difficult times, we will surely miss the sage advice and strategic brilliance of George Christian. If we somehow manage to get it right, it will be of great benefit to millions of Texans and a fitting tribute to one of the best.
posted @ 07:55 AM CST [link]