Interesting New York Times Sunday Magazine article on the Ohio economy and politics. The article is primarily about the intersection between the state’s economy and the presidential election. What is of more interest to me is three insights about the long-term success of the state’s economy. Each matter to Michigan as well as Ohio.
First the analysis of what will drive the state’s economy forward in the future. And where that growth will take place. Matt Bai, the article’s author, writes: “… as important as autos and factories and shale deposits are in creating a diverse stream of jobs and revenue, Ohio’s economic future will be largely tied to the new economy that Columbus and Cincinnati represent — banking and insurance and management consulting, state-of-the-art medical facilities, high-tech manufacturing and research. These industries thrive on the kinds of major investments in infrastructure and quality of life that only government can make, in schools and transportation and fiber optics and parkland. How politicians think about these kinds of investments, and how they intend to pay for them, would probably make for a more relevant debate this year than arguing over who created 1,000 new jobs in Canton last May, or whether the guy who sold you your Malibu can really be classified as an autoworker.”
Exactly right! The political debate may be about who better has and/or can bring back manufacturing and mining jobs but future growth is going to be increasingly knowledge-based and centered in big metros. And that there are public investments that matter to the growth of the knowledge-economy. That holds true for Michigan as well as Ohio.
Second the Columbus story. Columbus––both the city and region––has a stronger economy than the state. The city has dealt with the contraction of funding caused by the Great Recession with a combination of spending cuts and a voter approved income tax increase. The Times reports: “Concerned that businesses would begin to flee the city once its services began to disappear, he (Columbus Mayor Michael Coleman) went to the business leaders and persuaded them that the city needed to raise its income tax by half a percentage point at the height of the recession. They agreed to finance the campaign for a pro-tax ballot initiative … and the voters ultimately approved it. Most of the additional $100 million a year or so in revenue went to restoring services and improving infrastructure, like resurfacing streets and buying new police cars. But it also enabled the city to continue making planned investments in capital projects like its riverfront restoration.”
You read that right: a business supported tax increase to build the economy! Why? The article continues: “… when it came to the recovery in Columbus, Coleman credited the way local businesses had come together around the idea that raising revenue could stave off cuts and preserve investments. “They understand that part of selling a local economy is selling the quality of life in that local economy,” he said. “So if you don’t have good streets and good parks, if you don’t have a strong safety force and a strong fire department, if you don’t have the ability to grow the economy locally, businesses will not locate there. They’ll shrink and go somewhere else, because the quality of life is so bad. There are a lot of Ohio cities where that has happened, and it hasn’t happened in Columbus.” ”
Third the article delves into the role state policy plays in economic growth. The bottom line: in the short term not much. Bai interviewed Treasury Secretary Timothy Geithner for the article. Bai reports: “Was he suggesting, I asked, that individual governors didn’t really have much impact on the economic recoveries in their states?“No, very little impact,” Geithner replied. He wanted me to understand that he wasn’t trying to denigrate Kasich, whom he doesn’t know, nor was he suggesting that governors couldn’t do some very important things to affect the quality of life in their states. But he noted that there are limits to the power of the office. “States generally don’t affect whether their banks fail or not,” Geithner said. “They don’t affect whether their banks lend or not. They can’t affect whether a national industry like the automobile industry survives or not. None of them have the ability to provide tax cuts on the scale that we provided them. They can’t have any material effect on the price at which people can borrow, the interest rate people have to pay to finance a car or a home in Ohio.”
By contrast, Geithner said, the levers that Washington policy makers had been able to pull were the only ones consequential enough to change the direction of Ohio’s economy. He reached for the graph again. “You know, unemployment in the country would have gone like that everywhere,” Geithner said, making an ominous upward sweep with his finger along the y-axis. “To be able to stabilize it so that it starts to turn down — that was overwhelmingly the choices that the president made and that the Fed made.” ”
Bai concludes: “It’s probably true, as Geithner says, that states rise and fall with the national economy. But it’s also true that a state or a city can make choices that enable it to ride out the economic lows and then take advantage when times get better.” This is a lesson we need to learn here in Michigan. That the levers available to states (and local governments) to impact the economy is limited and far more important long term than short term. And that the policies that matter most are infrastructure and quality of life public investments.
As Mayor Coleman said: “So if you don’t have good streets and good parks, if you don’t have a strong safety force and a strong fire department, if you don’t have the ability to grow the economy locally, businesses will not locate there. They’ll shrink and go somewhere else, because the quality of life is so bad. And as Bai writes: These industries (knowledge-based) thrive on the kinds of major investments in infrastructure and quality of life that only government can make, in schools and transportation and fiber optics and parkland.