The Backwardness of RI Economic Development Policy

The silly season has begun on Smith Hill (home of the RI Capital Building) and we suffer from a string of pronouncements about what the RI legislature and governor will do to fix the economy and create jobs. These pronouncements, stated with all the pomp that politicians can muster, are exactly the same as these folks and their predecessors have been saying for all of the 20 years I have lived in Rhode Island, and they are still just plain wrongheaded and backwards.

The problem for Rhode Island, and many places around the country, is that economic policy as is currently practiced, is strictly a fact free zone. The ideology of the rich, give us more and more, seems to be the only directional signal Rhode Island politicians respond to despite the abundance of evidence that the only place it is leading us is over a cliff.

Here are some of the facts that seem to be ignored in RI as the politicians determine the economic development programs to push.
For brevity’s sake i will not provide references here, but they can be obtained by contacting me.

Inequality, social and economic, makes your economy worse. Thomas Piketty and many others have pointed this out.
Providence is the 5th most unequal economy in the country among cities. The metro region is the 14th most unequal. Policies being offered on Smith Hill are guaranteed to make inequality in Rhode Island worse. And we wonder why it does not work very well?

Tax breaks for “job creators” does not improve your economy and the data points out that providing millionaires with tax breaks and subsidies actually slows the economy. This definitely applies to real estate tax breaks which may do more to promote inequality than any other kind.

Business climate studies are a sham. There is no correlation between a state’s rank in any of the business climate indexes (and often they disagree on rankings) and economic performance. They are an ideological game rather than any scientific study of what it takes to make an economy work well.

Growth rates are determined buy the global economy, economic history, natural resources, labor and many other factors. Improving the “business climate” is a tiny sliver of what effects an economy, and the evidence points out that only one part of business climate rankings holds any water, taxation rates. The Kansas Inc study noted that lower tax rates may add up to 5% to your growth rate, an increase that is not noticeable on the street as it would mean going at most from a 1.7% growth rate to a 1.8% growth rate.

Taxes on the wealthy do not drive them out of the state, and often contribute to the improvements in infrastructure and public services that keep a community vibrant such as good roads, parks, cultural amenities, and schools. This has been noted for many years, but the myth keeps popping up as a way to beat the poor over the head.

There is no evidence what so ever that states that do a poor job of protecting the environment have stronger economies. In fact the data suggests that the reverse is true. If weak laws were good Mississippi would be an economic powerhouse and NY and California would be in the dumps.

If you want to eliminate poverty or at least reduce it dramatically, the most important thing is to make sure the economic assets of our low income communities end up in the hands of the lowest income folks, and especially low income women. This is of interest in our environmental justice communities as we redevelop brownfields. Gentrification lines the pockets of developers and displaces the community. It increases inequality. If our brownfields are to be an engine of prosperity the benefits need to stay in the community, not leak out.

Here are a few more things that probably do not rise to the level of facts, the research is not in, but have been much discussed by a number of prominent scholars as long term trends.

The era of rapid economic growth in the industrial west is long gone. Growth rates are going to continue to trend downwards.
Even in a recovery from the Great Recession the US has only had growth rates of 2.2 to 2.4% per year. Europe’s rates are lower. In the US old industrial cities lag behind the boomtowns of the south and west and the places destroying their water supplies with fracking.

Rapid growth is only likely in places experiencing rapid urbanization, with people leaving the farms and streaming into factories for low wage work. In other words if the US wanted rapid growth, we would have an open door for everyone who had the gumption to move here from Latin America, Africa, and Asia.

With more than half of China’s population now urbanized growth rates are slowing. The growth rate is still above that of the west, but the trend is clear. India is slightly behind in urbanization and industrialization so its growth rates, while never approaching the fastest growth years of the Chinese economy, may not trend downwards as fast. Propping up the real estate booms of Chinese cities only worked for a few years, and now the pigeons are coming home to roost.

Urbanization and rapid growth are highly dependent upon new sources of forest products. Chinese growth has emptied the forest of southern Asia and the Pacific basin. The planetary forest has now be reduced by MORE than 50%, which means that further growth will be affected by diminished opportunities to exploit new forests. In addition with our growing understanding that forests need to be preserved to protect the planet from rapid climate change, and that the best way to protect the forest and reduce poverty in forest communities is to keep the forest in the hands of the local community and not let it be stolen by outside forces, the growth of consumable forest products is slowing down and with it global economic growth.

Climate change will be a very important factor in our economic future. Creating clean renewable energy, eliminating fossil fuels, building soils and forests, moving people out of vulnerable places, and making sure the food supply is secure are going to be more important than real estate speculation for the people who live in Rhode island.

While specialty foods are accepted as part of the future of the RI economy by the political class, what they really seem to forget is that due to climate change and other factors, food security and even access to food, will become more difficult in Rhode Island. Especially for the poor.. A serious effort to make sure Rhode Island grows at least 20% of its food within the next 20 years provides food security when the next drought overwhelms the agricultural heartlands of the world like California, and creates jobs here.

It is absolutely impossible to have affordable healthcare if one of the main thrusts of economic development policy is to grow the medical industrial complex. The healthcare industry is already a drag on business development and is among the leading causes of bankruptcies as people already can not afford it. If the healthcare industry is to grow, especially if it is to grow faster than other sectors of the economy, then it is clearly impossible to hold down the costs on healthcare. There must be more money in the system each year, 5, 6, 8% more, and we have to take it out of our pockets, directly or indirectly, to pay for that. A few people get very high paying jobs, everyone else gets poorer.

While education is important, the education industry is another of the industries that is harming our communities more than helping as the price of education is growing much more rapidly than everything in the economy except health care costs. The high costs make it much less accessible to lower income people (increasing inequality) and coming out of school with huge debts gets in the way of people innovating.

Here are a few suggestions as to what might be done in Rhode Island to improve the economic health of our communities.

Stop fantasizing about rapid economic growth. It is not going to happen and all the things we do to chase the growth make things worse in many of our communities. Greater prosperity will be found in a steady state economy than in a growth economy that grows for the rich and makes everyone else poorer.

Do not build any more fossil fuel infrastructure. No more LNG compressors, no more pipelines, no more power plants. We need to reduce both the total amount of energy consumed and dramatically reduce the amount of fossil fuels we buy. Any money that would under the current system be spent on fossil fuel infrastructure should be spent on efficiency, insulation, solar power and wind power. Over the lang term that will create many more jobs than fossil fuels, and the money generated will stay here rather than going to places poisoning their water supplies or damaging the climate.

Grow more food. A lot more food. In the cities, in the suburbs, in the rural areas.

Single payer health care with a focus on community health. Sewers, clean water, and better nutrition have contributed far more to increases in life expectancy in the US (and around the world) than all the high tech medicine ever will.

Heal ecosystems. People eat from the ecosystem. If our soils and forests are healthier they hold more carbon and provide more food and fiber. Ocean ecosystems are very much overfished. Create refuges and stop all overfishing.

Create tax policies that reduce inequality. Tax capital gains and other wealth at higher rates. Put a price on carbon to reduce e carbon pollution and rebate some of those costs back to consumers, while using some of the money to reduce our carbon footprint.

Stop subsidizing the rich,. Stop giving tax breaks for real estate speculation. If the Rhode Island market will not see cranes in the sky without bankrupting the poor then we need a new strategy based on ecological healing and economic justice. One can not create a sustainable economy if it is based on ever more churning of real estate.

Get the money out of politics. As long as the rich call the tunes in politics and government, we shall continue to slide into anarchy and poverty.

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