Still Against Targeted Economic Development
Here’s a good illustration of why I oppose targeted economic development in lieu of a broad improvement of the general business environment in Rhode Island:
For years, the financial-services sector has been one of the few growing industries in the state’s sputtering economy, generating consistent job growth and high wages. Employment in financial services has risen every year since 1996, up 31 percent in all. The average salary for the state’s finance workers — including real estate agents, stockbrokers and analysts — is $67,349, almost 60 percent above the average income.
But Rhode Island’s housing meltdown and Wall Street’s unraveling have not spared the pride and joy of this state’s economy. Total jobs in financial services fell in 2007, and by last November, employment was down to 33,000, nearly 2,000 below the 2007 level.
If the financial sector had developed here of its own accord, that would be one thing, but this “pride and joy” has been specifically nurtured:
State officials rolled out corporate and personal tax breaks and other incentives to lure Fidelity, expand Bank of America’s footprint and keep local firms from skipping town. Those moves have paid off, with the sector producing $1.5 billion in wages.
Increased wages are wonderful, but nothing comes without cost. What might have happened had the same resources that went to a preferred industry been redirected more broadly, we can’t say. This significant “nor” leads to an important possibility, however:
Nor are all financial-services companies suffering. Having largely avoided the subprime mortgage plague, the state’s credit unions have not crumbled like some of their larger counterparts. Smaller lenders are not immune to rising delinquency rates, as out-of-work borrowers fail to repay their debts. But as of last September, full-time employment at Rhode Island credit unions had dropped less than 1 percent compared to a year ago.
Local credit unions are the sort of businesses that people open because they are driven to improve their financial situation, not because the government has provided narrow perks. (Although the industry that entrepreneurs enter is surely affected by such factors.) If the powers who be in Rhode Island were less tempted toward steering the state and more inclined to remove barriers that limit its motion all around, there would be more businesses founded on the individual interests and talents of Rhode Islanders, being run with do-or-die care, the lack of which led national and international financial firms down the path of poisoned profits.