Two Economies, or One with Exceptions?

Is it the bull or the bear for Rhode Island?  Is the state’s economy about to grow, or are we facing more stagnation and decline?

Asking such questions in recent years, one would hear from time to time (mostly from progressives and others interested in defending the state’s political status quo) that Rhode Island’s high proportion of lagging blue-collar sectors are disguising the hopeful signs in burgeoning industries.  The Knowledge Economy.  Underlying the suggestion is the insinuation that the evaporating jobs are less desirable than the “high-paying jobs” the state is hoping to develop.

In today’s Saturday column, Ted Nesi wonders if the bifurcation isn’t so defined as to constitute “two economies”:

That’s what I was thinking after a bit of whiplash on Friday. In the morning, we got the state’s latest dismal employment report, with the jobless rate up to 11.1% more than half a decade after the downturn began. But just a little later, Neil Steinberg and Allan Tear showed up at our studios to talk about The Rhode Island Foundation’s new innovation fellowships. Tear and his startup incubator Betaspring are symbols of Rhode Island’s burgeoning, much-discussed knowledge economy.

The deterioration of “the old industrial economy” is a regional problem, he says, offering a couple of nearby examples of struggling areas.  “We just don’t have a wealthy hub like Boston or Fairfield County that’s large enough to mask it.”

Anecdotal evidence, such as the testimony of high-profile entrepreneurs claiming big-dollar grants is worth considering, but the question that keeps nagging at me is, where are the numbers?  Home sales don’t seem to indicate two emerging economies. And as I’ve been going through the unemployment data for Rhode Island cities and towns, the story is pretty consistently one of decreasing population combined with increasing labor force, but stagnant or declining employment.  If the declining sectors of Rhode Island’s economy are swamping the advancing ones, it’s not a matter of area, but of will-o’-the-wisps deep in a marsh.

Consider this map of New England city and town unemployment rates (averaged from March 2011 to February 2012) produced by the U.S. Bureau of Labor Statistics:

New England Unemployment - March 2011 to February 2012

Clearly, rural areas in Northern Maine are struggling, and there are speckles of bad news throughout the rest of New England, but it looks like the single greatest predictor of high unemployment rates in Massachusetts and Connecticut is proximity to Rhode Island.  We can call that a “region,” if we want, but it’s still the Greater Providence region.  The two economies thesis would expect more purple and black across Massachusetts, with lighter hues around Boston.  Instead, it’s clear that most of Southern New England outperforms the U.S. average, in unemployment… except Rhode Island.

So what about our “innovation fellows”?  What’s most striking is that, for bright spots, blue-state Rhode Island is diving full-philosophy into a very tightly-drawn trickle-down economics.  Sure, there’s plenty of wealth around, and when government and private non-profits open the spigots of their kerosene kegs a bit, people with talent and some degree of vision are going to step forward to soak it up.  And some of them will manage to keep the fires going, perhaps long enough for a multipage success story in the Providence Journal.

The problem is that the fuel supplies are limited, and in the case of government, they have to come from somewhere else.  Moreover, they carry the inherent restrictions of top-down funding.  The RI Foundation’s Innovation Fellowships are designed to go to innovators whose projects promise the “greatest good for the greatest number.”  Well, that’s determined by the foundation’s selection panel according to its own internal perspectives and biases.

A free-marketer might suggest that any business of any sort maximizes good when it meets any number of consumer and employee financial needs as efficiently as possible with the population that Rhode Island actually has.

If Rhode Island is to cease to be a drag on its region, the model has to be quite different than that promoted by its leadership.  We need talented, motivated people to have an environment conducive to their own self advancement.  We need entrepreneurs of all sizes working in cutting-edge industries and old standbys alike.

With its tax addiction and regulatory compulsion, Rhode Island expects those few who emerge from its education system prepared for adulthood to get the flames of their careers going with scarce kindling on damp ground.

That’s not two economies.  It’s two castes.  Moreover, with the ruling class’s glacial reaction to calamity, it means continued decline and, ultimately, darkness.