A MUST-DO CHECKLIST FOR RHODE ISLAND

The Providence Journal, Commentary Page, May, 1999

Rhode Island now finds itself in the economic environment we were dreaming of back in 1992 when our recovery was difficult to distinguish from the prior recession. Today, our state's economy continues to perform at its best levels this decade. The pessimism and negativism that was so pervasive earlier in this recovery (recall I used to raise the question: "What if you had a recovery, but nobody knew about it?") have now been replaced. By what? Relief about how much economic conditions here have improved and a willingness to tolerate some potential problems as long as improvement continues. Let's face it: Rhode Island has been through a lot in this decade. We clearly paid our dues. So, our recent strong economy comes as a very welcome relief.

In a previous forecast report (May 1998), I examined the underpinnings of Rhode Island's economy as we move into the next millennium (the "stylized facts"). While there are clearly areas of strength, we also have some fundamental weaknesses that will very likely come back to haunt us when the pace of national and regional economic activity slows. For now, at least, "all's quiet on the southern New England front."

In my view, Rhode Island's ability to strengthen and improve its economy in the next millennium will be largely determined by how quickly (and if) it is able to accomplish the following goals that I consider to be a checklist of "must do" items.

• Define Rhode Island's dominant niche in the information age and take appropriate actions to implement this

• Improve our underlying economic fundamentals so that we can survive and prosper without having to rely on large development projects

• Make our economy less cyclically sensitive

• Reduce our reliance on neighboring states for Rhode Islanders to be able to secure jobs

• Continue to make inroads into reducing long-term unemployment

• Substantially reduce our chronic net out-migration

• Provide a long-term funding mechanism for educational quality improvement (implementation of Article 31) that is as immune as possible to the business cycle

• Alter the "state of the art" basis for fiscal policy here, which has focused on treating symptoms and not problems, the short-term instead of the long-term, and all too often fails to favor investment-oriented expenditure over consumption-oriented spending

Quite a list, isn't it? Are these unreasonable requests? On the contrary, these are precisely the things we should be tending to as we enjoy this wonderful window of opportunity before the next downturn occurs. In other words, we should be using our current economic climate as an opportunity to be proactive about our future, so that we can enter the next millennium with far less of the reactive fiscal policy practices than have become our norm.

To the untrained eye, this "wish list" might seem like little more than a set of unrelated items. Persons familiar with basic economic principles will quickly recognize that just the opposite is true. Defining our niche and pursuing it will allow us to function without as great a reliance on large projects, creating more jobs here that Rhode Islanders can work at, reducing out-migration from our state, and providing a "margin of error" for fiscal policy so it can be more effective, treating problems and focusing on the long-term.

What will our dominant economic niche look like? No politician in this state has touched this question with a proverbial "ten foot pole" since I posed it several years ago. Every scenario I can conceive of has one common element: quality education that raises the productivity of our labor force and lowers the cost of doing business in this state. I will argue that this is the necessary condition for Rhode Island to really begin moving through the checklist. Sufficient conditions abound, the most familiar of which are the large projects that by default are labeled as "grand slam home runs."

Our continued failure to define a dominant niche, which keeps us far too tied to our past manufacturing basis, has cost us a good deal of what should have been internally generated economic momentum. To make an analogy, this is like the situation for a person with a great deal of debt who has had to forego investing in the present stock market boom due to a lack of funds. Neither we nor the frustrated investor can change the past. We can, however, alter our future course.

by Leonard Lardaro