Nevada Governor Sandoval has a new plan for the state’s economic recovery, [LVSun] by which he hopes to add 50,000 new jobs by 2014.
“The state’s finalized plan was based on a 178-page report prepared by researchers with the Brookings Institution and SRI International. That plan identified seven areas for the state to focus on, based on the state’s strengths. That included a renewed focus on gaming technology and innovation, developing the private aerospace and defense industries, and renewable energy.” [LVSun]
The Brookings Report identified seven economic sectors and 30 “targets” which hold potential for growth: (1) Tourism, Gaming, Entertainment; (2) Health and Medical Services; (3) Business IT ecosystems; (4) Clean Energy; (5) Mining, Materials, Manufacturing; (6) Logistics and Operations; and, (7) Aerospace and Defense.
The report calls for rationalizing the state’s economic development structure, regionalizing it under a general umbrella of state planning, and (a) “bolstering capacity for innovation and commercialization,” (b) “expanding global engagement,” (exports/imports), and (c) “aligning higher education and workforce development resources for innovation and diversification.” The plan has several features to commend it.
As argued in yesterday’s post, it is far easier to build on existing economic sectors which have growth potential than it is to apply either a shot-gun approach wherein we attempt to attract “anything” that may come our way, or to attempt to dream up “new” areas of economic activity which may or may not fit Nevada’s existing economic situation.
Another feature which hold promise is the regionalization of economic development efforts. Not only because there are substantial differences between the economic bases in urban and rural Nevada, but also because there are, to some extent, differing interests in northern and southern Nevada.
The third feature which holds promise is that the Brookings Report, and the Governor’s adoption of its general outlines, calls for placing more emphasis on research and development with an eye toward commercializing the results. This recognizes a shift in focus described last March in a report from the Rockefeller Institute, SUNY:
“For much of the twentieth century, states’ economic development efforts centered on incentives, financial packages, cost comparisons, labor policy, permitting requirements, roads and water systems, and so on — things that state governments are comfortable working with, but that do not suffice to meet key challenges for the new economy. The twenty-first century paradigm, in contrast, is shifting toward putting knowledge first. For states, increasingly, that means connecting their higher education systems more closely to their economic development strategies.”
Nevada has definitely been attempting to function in the 21 century with that old 19th and 20th century approach, a reminder from yesterday:
The State advertises that we have no corporate income tax, no taxes on corporate shares, no franchise tax, no personal income tax, no nominal annual fees, no unitary tax, no franchise tax on income, and no tax on gifts or inheritances. We have no estate tax, and a minimal payroll tax. Promise to stay in Nevada for 5 years and we will give you a sales and use tax abatement, sales and use tax deferrals, personal property tax abatement, and a modified business tax abatement. If you are a qualified recycler we’ll toss in a 50% reduction in the recycling property tax. [LCB] [Desert Beacon]
For all intents and purposes, Nevada has been trying to balance its economic development on only one leg of the stool, on the vain and vague hope that “if you keep taxation low enough they will come.” This would be fine, except that it ignores the four main factors informing the decisions about business location: ” (1) workforce characteristics; (2) transportation infrastructure; (3) research facilities and expertise; and (4) market location.” [DB 12/14/10]
The NPRI seems equally intent on staking its claim to 19th-20th century solutions to 21st economic challenges. The reported response contains all the right conservative buzz words, without acknowledging the existence of any measures calculated to alleviate economic stagnation:
“It’s a statement of abandoning a belief in free market enterprise,” said Geoffrey Lawrence, deputy policy director for NPRI. He said new industries will be looking for subsidies to get off the ground instead of consumer demands.“Investments will be subject to political factors,” he said. “It’s going to become highly politicized.” He said the state economy is starting to recover, something the report starts out by acknowledging. “This is a big disappointment,” he said. “I think it’s a crony capitalist scheme.” [LVSun]
The Institute may not have heard the venerable line from Dr. Geoffrey Nicholson, the inventor of the now ubiquitous Post It Note, “Research is the transformation of money into knowledge. Innovation is the transformation of knowledge into money.” The entire idea is that the research results can be translated into innovation by discovering what works and what doesn’t. What does work is the basis for commercialization.
The Institute also repeats what is now becoming a common narrative in conservative circles — they’ve rediscovered Demand. Now, it’s “demand” that should inform all governmental decisions regarding business environment enhancement. The NPRI is essentially arguing that if there is no existing consumer demand for a product then there is no reason for governments to support basic and applied research. This is frankly absurd.
The Water Security Corporation commercialized water purification research from NASA, and since 2005 has been manufacturing purification equipment for homes around the world. [WSC] There was no “demand” for Face International’s Wireless Light Switch before engineers at the Langley developed a way to transform mechanical energy into electrical energy. There was no “demand” for memory foam mattresses and pillows before the foam was developed for the NASA program. [NASA] Someone is going to find a way to commercialize the “artificial leaf” developed at MIT which makes fuel from sunlight. [MIT]
If we adopt the posture of the NPRI then we’d have no modern home water purification systems, no wireless switches, no memory foam pillows, and no future commercial applications of that “artificial leaf.” We’d also be without a host of other popular commercial products, the results of university-business research partnerships. However, the NPRI isn’t through flame throwing:
“The plan calls for government officials to dole out direct state support and other subsidies in order to “incent entrepreneurship.” The incentive for genuine entrepreneurship is profit from serving the public. Unfortunately, what this plan would encourage is corporatist rent-seeking.”
What? So, government land grants didn’t help build the U.S. railway system? It was “corporatist rent seekers” (whoever they might be?) who received Small Business Administration loans to finance Greenville, South Carolina’s “Republic Locomotive,” a manufacturer of small industrial locomotives? “Nationally SBA-backed lending continued the upward trend we saw last year,” SBA Administrator Karen Mills said. “Due to the Small Business Jobs Act and a return to pre-recession lending levels, over 61,000 small businesses had access to capital. ” [SBA] My goodness! There are 61,000 little “crony capitalists” on the loose in the country — creating jobs? Oh, however will our free market economy last?
Should the NPRI release its fingers from its pearls, arise from the fainting couch, and join the rest of us in the 21st century, it would see that there is much to be commended in the Governor’s economic plans. If anything, the Governor’s proposal doesn’t quite go far enough toward developing the physical infrastructure necessary to facilitate commerce. We could do with even more construction and renovation in our air transportation system, and in regard to our wastewater treatment facilities as well. [DB] At least we’re making a start.
Recommended Reading: Shaffer & Wright, “A New Paradigm for Economic Development,” Nelson Rockefeller Institute of Government, SUNY-Albany, March 2011. PDF format. See also: Higher Education Alliance, Rock River (Northern Illinois), “The Role of Higher Education in Economic Development,” NIU Outreach 2005. PDF format.