Unsolicited Advice for Ohio’s Economic Architects Mark Partridge December 16, 2010 Swank Chair in Rural-Urban Policy Department of Agricultural, Environmental & Development Economics Ohio State University Extension

Introduction  2009 Title: “The Great Crisis: Will Economic Recovery Look More Like the Crisis?”  Unfortunately I was correct in my dim assessment even though the recession ‘officially’ ended in June  From last year: “Finally we appear to be entering the trough or bottom. Economic recovery is at hand(?).”  Since 1990—recessions have become structural as industries/firms downsize and the lost jobs permanently disappear. “Jobless recoveries” 12/16/2010 Policy & Outlook Program 2

Introduction—Continued  How Ohio recovers has implications for its families and communities.  It also has implications for how its governments provide services and whether they will have sufficient revenue for investment.  Schools, infrastructure, and basic government services that are necessary for Ohio to attract/retain population. 12/16/2010 Policy & Outlook Program 3

Introduction—Continued  This year, the state of the Ohio economy is even more important:  Biennium budget is due and it is perhaps $8 billion out of balance.  Set the stage to put the rural & agricultural economies into broader perspective.  Unsolicited advice related to policy. 12/16/2010 Policy & Outlook Program 4

Outline 1. Current economic situation 2. Mr. Kasich’s strengths 3. Advice to Ohio’s architects. 12/16/2010 Policy & Outlook Program 5

Data—focus on job growth.  Journalists love to report the unemployment rate but it can be quite misleading or even useless.  5.5% OH unemployment rate in Aug 2006  9.7% OH unemployment rate in Oct 2010  2006 figure overstated the strength of the economy because unemployed migrated to booming economies  2010—no migration so unemployment rate rises and can overstate the pain. 12/16/2010 Policy & Outlook Program 6

Data—focus on job growth.  North Dakota is held up today as strong economy 3.8% unemployment rate (2.6% in 2001). Yet, ND’s long- term performance in terms of population is the worst in the country.  UR does not capture migration and differences in employment/population ratio.  Ultimately what drives OH’s or ND’s prosperity is job growth. 12/16/2010 Policy & Outlook Program 7

Economic Recovery: Then and Now  Economic Recoveries in Ohio have been very slow.  The decreasing relative size of manufacturing means OH recessions are not as severe as in the past (relative to country).  But OH recoveries are now slower because manufacturing picks up fast in initial recovery. 12/16/ Policy & Outlook Program

Ohio Non-farm Employment 12/16/2010 Policy & Outlook Program 9 60 months after the onset of recession, seasonally adjusted, Month 0=100

Economic Recovery: Then and Now  Since 1990—recessions have become structural as industries/firms downsize and the lost jobs permanently disappear.  “Jobless recoveries”  Bubbles since 1990 have taken years to work off after recession. 12/16/2010 Policy & Outlook Program 10

Ohio’s Problem are even more endemic and structural  Long-term perspective under Democrats and Republicans is not pretty. This is a major structural problem that long pre-dates Gov. Strickland.  Ohio has long underperformed the U.S.  Ohio is no longer a manufacturing economy 12/16/2010 Policy & Outlook Program 11

Source: U.S. Bureau of Labor Statistics, Non Metro is determined by taking the Ohio Total minus the Ohio Metropolitan Areas Employment.

Where are we as the economy recovers?  Rural Ohio is faring better than metropolitan Ohio.  Among the 3 C’s, Cleveland is the ‘growth engine’ and Columbus has been the “engine that couldn’t”.  Smaller Ohio Metropolitan areas are showing some signs of life. 12/16/ Policy & Outlook Program

Source: Bureau of Labor Statistics. Employment for metropolitan areas.

Advice for Ohio’s Policymakers  Governor Strickland did not cause this problem.  Under both Dems and Reps, Ohio has struggled for well over 40 years.  I showed you that Ohio likely entered recession around July 2006 before he was elected.  He cannot control the national economy and Ohio did not fare so poorly in recession compared to the past 21 12/16/2010 Policy & Outlook Program

Advice for Ohio’s Policymakers  John Kasich has been vague on what he would do.  John Kasich has a strong sense that business does better in a less restrictive regulatory environment.  John Kasich appears willing to make a more responsive government with less administrative overhead. 12/16/2010 Policy & Outlook Program 22

Advice for Ohio’s Policymakers  One strong feature is that John Kasich says that small business is the underpinning of strong growth.  Building our entrepreneurial capacity beats attracting outside firms with massive tax incentives.  Builds more diversified economy that outperforms ‘bribing’ outside firms with tax incentives. 12/16/2010 Policy & Outlook Program 23

Advice for Ohio’s Policymakers  Mr. Kasich says he will move state economic development efforts from ODD to a private nonprofit agency.  He has a point about bureaucracy and the need for a responsive agency.  If it has a limited ability to offer wasteful tax incentives and less political control, this would be a positive step  But is it same old policies under a new name? Then, what’s the point? Also what about conflict of interest? 12/16/2010 Policy & Outlook Program 24

Advice for Ohio’s Policymakers  Low taxes are a factor, but only one factor. Productive economies need infrastructure and strong education.  A challenge for Mr. Kasich is to appraise the tradeoffs between taxes and productive services. 12/16/2010 Policy & Outlook Program 25

Advice for Ohio’s Policymakers  Listen to economists! They say what you need to hear. Too often, economic development is focus group driven or simplistic notions such as getting ‘smart’ people in the room.  Regionalism and effective governance— roughly 200 local gov’ts in Columbus.  Dayton/Montgomery County is a leader.  OH has thousands of local gov’ts with high taxes. Newspapers report that 85% of expenditures is local gov’ts. 12/16/2010 Policy & Outlook Program 26

Advice for Ohio’s Policymakers  Bribing companies to come/stay in Ohio has not worked. Building our entrepreneurial talent and retention.  Economists view:  Governments can’t pick winners  Losers know how to pick governments  I believe ‘communities’ should build an environment where:  The eventual ‘Winners’ pick your community. 12/16/2010 Policy & Outlook Program 27

Advice for Ohio’s Policymakers  Whether building the latest fads such as “clusters,” bio-tech, creative class, clean energy, value-added, etc. etc. etc., politicians are quick to respond w/o any research basis by offering tax incentives.  Shifting money from taxpayers to a politician’s favored activity has opportunity costs. 12/16/2010 Policy & Outlook Program 28

Advice for Ohio’s Policymakers  Economists are very skeptical that politicians, development ‘experts’, or bureaucrats (or regional economists or financial market titans) are good at picking sectors. E.g., weren’t financial derivatives based on housing mortgages the smart pick?  Random Walk down Wall Street. 12/16/2010 Policy & Outlook Program 29

12/16/ Policy & Outlook Program

Advice for Ohio’s Policymakers  Avoid faddy policies.  It seems like all 50 states, 3,000+ counties, and about every advanced economy wants to be the leader of green/clean energy.  Very Very few will win. It is not strategic/creative to copy everyone else just because it is the latest fad.  Reminds me of how every place wanted to be the next Silicon Valley in the ‘80s and ‘90s. 12/16/2010 Policy & Outlook Program 32

Advice for Ohio’s Policymakers  Summary  A slow recovery is taking hold.  Led in rural Ohio and its smaller cities.  Ohio has long faced economic challenges. Systemic change is needed but is Ohio’s economic architects willing to take risks or act smart?  Unfair to tag Gov. Strickland with Ohio’s woes, but what about the long- term? 12/16/2010 Policy & Outlook Program 33

Advice for Ohio’s Policymakers  Mr. Kasich has a strong sense that efficient government goes a long way to economic success? Has he learned from past conservative leaders who did not succeed?  Recall, both Dems and Reps have not fared well in the last 40+ years—not just a conservative issue.  Our architects need to be smart and not just copy everyone else or follow the latest fads. 12/16/2010 Policy & Outlook Program 34

Mark Partridge Swank Chair in Rural-Urban Policy Dept. Agricultural, Environmental & Development Economics The Ohio State University Google “Partridge Swank” and you will get my website (614) /16/2010 Policy & Outlook Program 35