MAZZE

During the second half of 2008, the total number of people employed in Rhode Island will decline due to the large number of state personnel retiring, additional layoffs and terminations needed to balance state and local municipal budgets and the effects of the recession on industries such as financial services and construction. An earlier forecast showing 370 net new jobs a month for the second half of this year has been revised to no new net jobs.

Assuming Rhode Island gets out of the recession in early next year and the state does not need to revise its budget in November, the economic forecast for Rhode Island next year projects a one-percent increase in employment or 400 net new jobs a month. The employment sectors projected to grow are construction, information services, professional and business services, education and health services, and leisure and hospitality.

Rhode Island consistently ranks last or near the bottom of states when it comes to most economic measures that affect job creation. The real issue may be not too few jobs but too few people with the skills needed for the employment sectors having growth potential.

There are a number of myths that have been accepted as truisms concerning job creation. Many Rhode Islanders believe that business as usual makes good business sense. We need to debunk these myths.

First, without financial incentives or tax subsidies companies will not relocate to Rhode Island or stay in the state. Research has shown that subsidies and tax allowances never raise economic activity by the same percentage as the incentive. In deciding where to do business, companies look at many factors such as availability of a trained work force, space available for expansion, location of critical suppliers, nearness to markets, education systems, affordable housing, recreational facilities, taxes and incentives. Taxes and incentives are important if they fit into a plan that targets specific geographic areas, population groups and industries for economic growth. Incentives without a skilled work force will not bring a company to Rhode Island. When incentives are provided, we need to assure Rhode Islanders that the companies receiving these financial incentives are providing meaningful economic and social returns for their public, taxpayer-based financial incentives and outright gifts. We need to move from Rhode Island being the “let’s make a deal” state to the right climate for business to succeed state.

Second, we need to have infrastructure for economic development. Research has shown that the infrastructure develops as a result of economic progress. The state’s current budget situation makes it difficult to fund infrastructure projects to the extent needed. The American Society of Civil Engineers reported that more than half of Rhode Island’s major roads are in poor condition, more than half of Rhode Island’s bridges are structurally deficient or functionally obsolete, many school buildings have inadequate building features and environmental problems, and the drinking water and wastewater infrastructures will need more than $2 billion over the next 20 years. Schools, housing, transportation systems and utilities also have their problems. We need to rethink our priorities and make sure that infrastructure investments receive top priority from the governor and legislature. Infrastructure work creates immediate jobs.

Third, the unions make it impossible to do business in Rhode Island. Unions are the greatest supporter of economic development since it leads to jobs. Unions support training for their members to maintain skills and prepare them with the skills needed for future jobs. It is difficult to do business in Rhode Island because of political and bureaucratic obstacles. Legislation is often introduced that adds new rules, regulations and fees for businesses without any real cost-benefit analysis taking place. If the state were a business, it would be out of business. The state needs to make tough decisions regarding the consolidation of services and departments and restructuring education, police, fire and other services on a county basis. A state with a little more than 1 million population cannot afford the state and local government structure in place.

Fourth, projects that create large numbers of jobs such as the expansion of the airport, the location of a port and the building of a resort casino are not the types of jobs Rhode Islanders need. We need high-paying jobs. It is difficult to argue with that lofty objective. However, the state is losing jobs and there are few new jobs for graduates of high schools and colleges. These graduates are leaving the state and it is doubtful they will return. How can we create high-paying jobs when we rank so low in the factors that help prepare people for these jobs, namely, higher education?

Fifth, economic development is a government responsibility. To be successful, economic development needs the support of business, unions, education, public utilities, financial institutions and transportation companies. Our ability to develop strengths in various industry sectors starts with the business or education community identifying opportunities. Government should play a supporting role. If you look at the states and cities in other regions of the United States who have been successful in economic development, they have one thing in common — business people took the lead.

Rhode Island’s next five years will continue to be bleak if we operate as we have in the past. We will find a number of our towns and cities in serious financial trouble as a result of decreasing tax revenues, increasing government expenditures, rising interest rates on debt, unaffordable public labor contracts, decreasing property values and the inability to attract investment. Moving forward we need a plan that helps us determine what we need to invest to have a better economic future for Rhode Islanders. We need to look at all options objectively.

Edward M. Mazze is distinguished university professor of business administration at the University of Rhode Island.