Submitted, but never appeared in the Providence Journal.
Is it beyond anyone's imagination to think of other reasons besides the tax code why Rhode Island's economy lags its neighbors?
In his opinion piece of June 4, 2001, Christopher Bergstrom, of the Economic Policy Council, sounds a strong chord for cutting our state's capital gain tax. But Mr. Bergstrom rests his arguments on a number of poor assumptions.
For one, he claims that we should have 12 percent of the high-tech industries, according to the size of our work force. But this assumes that high-tech industries are spread evenly across the Massachusetts landscape. But they are not. Framingham, Chelmsford, and Lexington are where the tech industry is, not in Worcester, Sharon, or Taunton. Nor is the concentration coincident with the workforce; that's why Rt 128 is a commuting nightmare. By Mr. Bergstrom's argument, we should expect that Seekonk would be an irresistible magnet for high-tech companies on the make. Is it?
Mr. Bergstrom goes on to say that Rhode Island doesn't attract its share of $200,000+ executives. But this imagines a vast reservoir of these people who choose where they settle by the tax code, not by the work and investment opportunities available, or the location of family. I know a few such people, and I can even think of one or two who moved somewhere because of the income tax code. But these are the exception, in my experience. The places people live are not commodities on an unregulated market. Just because you lower the price doesn't mean customers will flow your way. Ask yourself: why do you live where you live? Is it the tax code?
Mr. Bergstrom lists a number of reasons why we should be doing better. He says our location is strategic, our workforce fine, our quality of life wonderful and affordable. But this is the level of analysis we can expect from a real estate agent. Let's try for a moment to imagine that the reason our high-tech industry remains modest is not a failing of ours, or poor policy choices, and consider other possibilities.
Let's talk about location. Could it be that it's difficult to attract high-tech industry to Rhode Island just *because* we are within easy commuting distance to Massachusetts? Maybe it's easier to form an industrial cluster when you're distant from one that already exists. Could it be that the lessons of the North Carolina Research Triangle are simply not applicable to an area so close to Route 128?
And let's talk about our workforce. Rhode Island capitalists, reaching all the way back to Samuel Slater, have a history of investing in machines and not education, in low-wage industries, not in high-value markets. That's why we had so many costume jewelry, injection molding, and textile factories. These are not high-skill, high-pay industries, and part of the reason that Rhode Island has one of the most skewed income distributions in America's industrial belt. The legacy of this history is that we have a fair number of rich people, lots of poor ones, and many fewer in the middle than the national average. Once upon a time, we were the low-cost haven for manufacturers fleeing expensive Britain or New York. Now we are reaping the consequences, as those industries have moved on to cheaper pastures, leaving behind people whose career experience has been low-skill manufacturing jobs.
The quality of life? I'm happy here, and I feel lucky to live in a wonderful place. But I also know that it's an annual struggle for my town to pass its school budget, and that educational "frills" are mostly history. I know that failed suburban septic systems are ruining our bay and that there isn't a real state plan to do anything about it. I know that there's a rotting and rusting state bridge in my town that isn't even on DOT's list of projects that need attention. (And let's not even mention the extra bridge to Jamestown.) I know that health care costs drive my family's employment decisions as much as any other factor I can think of. And I know that not a single one of these issues will be addressed by lowering the capital gains tax.
Alternatives do exist. The conditions that got us where we are can be correctly identified and addressed. And one can make long lists of creative economic development policies used in other states and other nations that we don't do here. To the state's credit, we are starting to learn from some of those places. But there is so much more we could be doing, ranging from capital access programs, to promoting business succession planning, and from sponsoring business incubators to helping arrange employee buyouts.
Mr. Bergstrom and the rest of Rhode Island's economic-policy-making elite make a lot of unwarranted assumptions in their formulations of policy. But the most poisonous of all, is this: that our economic salvation will come -- can only come -- from outside. We assume that the only way to pull ourselves up is help from beyond our state's borders, and we spend huge amounts of time and money looking for that big strike -- a Fidelity, a Dow Chemical plant, a "world-class" port -- that will propel us into long-term prosperity. This belief, that salvation depends on angels and not on ourselves, is a toxic contribution to the debate over the state's economic policy. Like a fool investing his savings in Powerball tickets, it is irresponsible, short-sighted, and just plain dumb to imagine that there is another way out of our economic problems besides hard work, persistence, creativity and vision. In this case, redemption will come from within, or not at all.