E.
Morgan Massey may be 78 years old, but he's still
piloting his own private plane, and he'd just finished a
week of flight training when I caught up with him on the
phone a few weeks ago. Over his long career, he has
created more wealth than any but a handful of Virginia
entrepreneurs, and he did it in the brutally competitive
U.S. coal industry, battling geology, other coal
operators and the United Mine Workers of America. After
building the A.T. Massey Coal Company into one of the
largest coal mining enterprises in Central Appalachia,
he set about developing empires abroad, founding new
ventures to extract coal from Venezuela and China.
Everyone
knows that the Chinese economy is booming but
Massey worries that Americans do not fully appreciate,
as he has come to, the competitive threat that China
poses to the United States. China isn't satisfied with
its new-found role as the workshop of the world. It's
setting its sights upon supplanting the U.S. in science,
research and technology. Massey, who has witnessed
extraordinary changes in the decade or so that he's been
visiting his coal mines in Shanxi province, fears the
loss of America's economic primacy.
The
Chinese secondary school system is far ahead of
the U.S.', Massey asserts. U.S. universities are better,
but they're "losing ground fast." The Chinese
are graduating literally millions of students from
college every year now, and every one of them has
studied English, the lingua franca of the global
economy. What's more, while Americans dabble in
psychology and art history, the Chinese are mastering difficult disciplines
such as engineering and chemistry. India, he adds, is
following the same trajectory as China. "If we
don't get more technical people in industry," he
says, "we're going to be left behind India and
China very soon."
Massey knows
first-hand that -- to borrow the title of Thomas
Friedman's new book, "The World is Flat"
-- the globe is indeed taking on a horizontal aspect. A flat world is
Thomas Friedman's metaphor for the fact that technology
has leveled the playing field and the U.S. faces
unprecedented challenges to its economic superiority
from countries that it once wrote off as Third World
basket cases.
Massey
finds much truth in the book, as he should, because he
has been something of an economic rolling pin himself,
introducing state-of-the-art management practices in a
Chinese coal industry once marked by abysmal
productivity and a fatality rate not seen in the U.S.
for a century. In the Richmond area where I live, "The
World is Flat" is de rigeur reading
among the executives of multinational and other leading companies,
as it is, no doubt, across much of Virginia.
Unfortunately,
not one candidate for statewide office has demonstrated
in public statements even a passing familiarity with the
book or the economic trends that it documents. (Note:
See correction.) I've been
following Virginia politics for a long time. I remember
Jerry Baliles, the trade governor, George Allen and his
Silicon Dominion, Jim Gilmore and his fascination with
the IT sector, and Mark Warner, a financier of that very
same tech sector. Never have I seen a campaign so
relentlessly parochial in its concerns, so oblivious to
the global realities that shape the Commonwealth.
So
far, the biggest issue in the gubernatorial campaign has
been the "debate" debate -- whether Jerry
Kilgore would include independent Russ Potts on the
podium with Tim Kaine. We've heard about Jerry Kilgore's
accent and Tim Kaine's stint as a missionary. We've read
articles about poll results and fund raising. We've been
told that Kaine wants more "school resource
officers" in schools to help fight gangs, while
Kilgore wants to crack down on meth labs. Kaine tweaks
Kilgore because one of his contributors has been accused
of Medicaid fraud, while Kilgore paints Kaine as hostile
to guns. Through it all, the campaign machines of both
candidates crank out e-mail blasts in a never-ending
game of "gotcha," pointing out niggling
inconsistencies in the other's public record.
The
foolishness rages unabated, even though none of it seems
to resonate with the public. In a Rasmussen poll of
500 likely voters released last week, 28 percent said
that the economy was their No. 1 concern, more than any
other issue by far. But Virginia's candidates have all
but abandoned the elemental wisdom of Bill Clinton's
1992 election campaign and its watch words, "It's
the economy, stupid."
Virginia
candidates don't talk about the economy except in the
most superficial of terms. The economic development
platforms of both candidates are weak: ridden with
cliches and conventional wisdom. There is no analysis of
the competitive strengths and weaknesses of Virginia's
economy, much less any idea of what it takes -- beyond
such bromides as building a 21st-century transportation
system and preparing Virginians for 21st-century jobs --
to compete in a global arena.
What,
then, should the candidates be talking about? I don't
have the space to outline a detailed economic
development strategy here. What I hope to do is lay out
a framework for thinking clearly about Virginia's
economic strategy.
The
classical economists analyzed a nation's economic
development in terms of three inputs: land, labor and
capital. In recent decades, economists have added one
more: technology. These are helpful categories for
dissecting Virginia's economic competitiveness, and we
shall walk through them point by point.
Capital.
The major U.S. institutions regulating the flow of
capital reside at the federal level: The U.S. Treasury,
the Federal Reserve Board, the Securities Exchange
Commission, etc. There is only one thing that state and
local governments can
do to encourage or discourage the flow of capital into
their borders, and that is to set rates for business
taxes.
All
other things being equal, lower taxes are better for
economic growth than higher taxes. Low taxes help in two
ways. First, companies invest their capital where they
generate the highest return, and they most assuredly
take into account the impact of business taxes, not to
mention tax-like exactions such as contributions to
unemployment compensation and to worker's comp. Second,
businesses with lighter tax burdens generate higher
profits, which they can plow back into expansion, growth
and the funding of start-ups.
People
can make snide jokes about low taxes and Mississippi,
but the record is indisputable: Over the past 50
years, low-tax states have,
on average, displayed consistently higher rates of job
creation and income growth than
high-tax states (As an aside,
Mississippians' per capita income increased 12.3 percent
between 2001 and 2004, ranking it 8th in the
nation -- well ahead of Virginia's 9.0 percent
increase.)
Of
course, the need for low taxes must be balanced against
the need for government services such as education and
transportation. The trade-off between taxes and services
makes it imperative that Virginia strive continually for
ever-higher levels of efficiency in state and local
government. The task of restructuring government,
retiring outdated and ineffective programs, reforming
administrative processes and bolstering employee
productivity cannot be limited to periods of budget
crisis. It must be relentless and ongoing. To remain
attractive to corporate capital in a marketplace where
dollars can fly overseas with the blink of a cursor,
Virginia must make it the highest priority to drive down
the cost of government and reduce the burden of
taxation.
Labor.
In the knowledge economy, employees are valued for their
creative capabilities: their ability to imagine new
possibilities, to conceptualize new products and
services, to research new technologies, to invent new
business models and to solve complex problems. The
relevant measure of a state or region's labor assets is
not the size of the workforce, but the depth and scope
of skills that workers possess. Most politicians grasp
the connection between education and economic
prosperity, with the consequence that virtually every
one is willing to throw huge sums at education. But
there is more to building human capital than erecting
new schools and
colleges.
There
are three key elements to building human capital:
Development (education and training), recruitment and retention. It's
not sufficient simply to invest in education, as
states and regions experiencing brain drain can testify.
Increasingly, states and regions are competing for the
talented individuals -- be they artists, university
scientists, executive chieftains or start-up
entrepreneurs -- who create disproportionately to
innovation and wealth creation. Unfortunately, there is
little institutional knowledge in Virginia about what it
takes to induce these creative geniuses to relocate
here, and even less about what it takes to keep them.
We
can hazard a few guesses, but they are tentative. All
other things being equal, successful people like to keep
the money they earn; in other words, they prefer low tax
environments over high-tax environments. But there's
more to the picture than taxes. Creative people also value
quality of life, which may require an investment of
public resources in local amenities. Creative people
seek communities with a strong sense of history and
place, with an active arts and cultural scene --
populated by lots of other creative people. Unfortunately, state
government has barely taken the first steps to engage
with local governments in figuring out to measure, much
less build, Virginia's human capital.
Land.
In classical economics, land was rated according to its
fertility: its ability to yield an agricultural surplus.
Today, with a hyper-productive farm economy,
agricultural productivity is not a significant issue.
Cutting-edge economic thinking now focuses on the role
of land in spatially separating human activities. Over
the past 50 years, real estate development has been
scattered, disconnected and increasingly low density. The
costs of this inefficient pattern of land use are
so diffused that the public generally does not
perceive them. Yet inefficiencies are pervasive and deeply embedded in
the cost of delivering government services and
utilities, in the cost of providing mobility and access
(i.e. transportation), and in the cost of and access to
housing. By driving up taxes, increasing congestion and
running up the cost of housing, inefficient human
settlement patterns affect Virginia's competitive
posture at the most basic level.
Other
critical issues relate to the physical design of the
built environment. Some people find modern suburbia,
with its auto-centric streets, massive parking lots and
garish signs, to be intimidating and unattractive. In a
parallel critique, some find suburbia too fragmented and
disconnected to lend itself to the building of true
communities. Ugly, soulless places are ill equipped to
compete for top creative talent.
Technology.
In a global economy built upon continual innovation, it
is crucial that Virginia develop a strong technology
base. Funding Virginia's research universities is one
aspect of this challenge, but only one. Virginia also
needs to build an entrepreneurial culture, with
supporting institutions, capable of
taking breakthroughs from university labs into a global
marketplace. State officials have done some
productive thinking in this realm, though it would be
comforting to see indications that our candidates for
statewide office were conversant with it.
Most
Virginians, like most Americans, have come to regard
prosperity as their birthright. But as the devastation
of once-prominent industries such as textiles, shoes,
apparel and furniture have vividly demonstrated,
Virginians are no more resistant than anyone else to the
hurricane gusts of economic change. We may comfort
ourselves that our high-tech jobs will survive even if
our low-tech jobs did not. But if we look closely at
what's happening in India and China, we'll see how
fragile those hopes are.
We
must flex every muscle, tighten every sinew, to create a
culture of productivity and innovation. We must be
fanatical in our devotion, bending every sector of
government, every institution of learning, every
not-for-profit organization, to the cause of
competitiveness. For while we are sleeping, 1.3 billion
Chinese and one billion Indians most certainly are not.
And though they live on the other side of a very flat
world, they are getting closer every day.
--
September 19, 2005
Correction
Re
your comment about Tom Friedman’s book –
“Unfortunately, not one candidate for statewide
office has demonstrated in public statements even a
passing familiarity with the book or the economic
trends that it documents.”
Tim
Kaine read the book earlier this year, has mentioned
it in a number of speeches, and regularly talks about
the need to move our education policies beyond
competence to excellence because of the challenges of
the global economy and, specifically, the resources
countries such as India and China are devoting to
education – especially in science and math. He
talked specifically about the importance of education
in addressing competition from
Bangalore
and
Shanghai
in the Fairfax County Chamber of Commerce debate with
Jerry Kilgore. He also talks consistently about
the global links
Virginia
has (envied by other states) in
Dulles
Airport
(from where one can easily reach virtually every
continent) and the
Port
of
Hampton Roads
.
How
to keep
Virginia
’s economy strong in the face of global competition
and to take advantage of opportunities presented by
the global economy is a particular focus of Tim’s
and is woven throughout his policy proposals.
The results Tim achieved in
Richmond
to leverage the assets of institutions such as VCU and
MCV to create greater economic opportunity and make
the city one of Forbes Magazine’s Top 10 most
business friendly cities should give voters a sense of
what he can achieve with a statewide economy.
Hope
that gives you some greater hope about at least one of
the candidates for Governor.
Larry
Roberts
Chairman
Kaine
for Governor
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