The Wrong Way to Economic Development


Ed Fitzpatrick’s review of opinions about Democrat Governor Gina Raimondo’s first year in office is pretty much what one would expect.  Insiders tend to like her (with an asterisk for pension reform), her political opposition does not, and centrists who focus on areas in which she’s left reason for worry are worried.  It says a great deal that, when listing her accomplishments for the year, the governor promotes a settlement that actually reduced the effectiveness of the 2011 pension reform that brought her national fame.

When a legal settlement that failed to answer the critical question of pensions’ legal standing while costing taxpayers $1.3 billion over the next couple of decades is one of your big successes, folks would be justified in thinking there must not be much else to tout.

The economic development promotions are the most objectionable, though, inasmuch as they follow a path based on insider connections and faith in those insiders to pick winners and tell people what to do, economically:

Raimondo said she has tried to change the overall business climate by, for example, eliminating the sales tax on commercial energy use. “But separately you need an active, pro-active economic development team, which Rhode Island has lacked for a long time,” she said. “And the tax incentives that the legislature passed are just basic tools in our tool box that pretty much every other state has.” Boston used tax incentives to bring life-science firms to the South Street Seaport, and now that area enjoys critical mass, she said. In Rhode Island, “those first few deals   — real estate deals or company deals — they will be expensive, they will take tax incentives,” she said. “But that is the position we are in.”

Representative Patricia Morgan (R, Coventry, Warwick, West Warwick) is right when she tells Fitzpatrick that “we shouldn’t have to pay people to come to Rhode Island.”  Not only is that the right answer on principle, but (I’d argue) it accords with the real problems that the evidence suggests Rhode Island has.

For another reason, this morning, I reviewed some of my previous writing on Rhode Island’s economic woes, including a four-post series from early this year (one, two, three, and four).  The biggest span of broken rungs on the Ocean State’s economic ladder isn’t job creation through new businesses, but in job maintenance as businesses become established.  The data takes interpretation, to be sure, but the problem appears to come when businesses start to really establish themselves and discover they can’t overcome our regulatory and tax obstacles.

Picking favorites among who’s here or bringing in big players from out of state who are interdependent with state government — with the businesses reliant on government subsidies and the government politically dependent on the businesses’ continuation — merely solidifies the role of elites making centralized decisions that are more and more difficult for innovators and hard workers to get around.

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