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The Providence Business News, February, 1997

Over the past few years, I have spoken to many Rhode Islanders, some of whom hold important positions in state government, about the dramatic changes the Rhode Island economy has undergone in the last decade. I am always assured that the people of this state are well aware of the fact that Rhode Island is no longer a manufacturing economy and that it has become a service and information-based economy. This, of course, always leads me to question why I bother to have such discussions if everyone in this state is so well informed. Recent events reminded me of the reason for these discussions.

Once upon a time, it was possible and viable for state policy to focus largely on the "demand side" when planning for the future. Tax changes and various business incentives were all that were needed. Typically, comprehensive recommendations, which, in reality, were little more than a series of piecemeal policy prescriptions, resulted.

Back then, the "supply side" of the labor market seemed to be largely irrelevant, as the need to re-skill or continually enhance worker skills to sustain "minimal" productivity seemed like some bizarre futuristic vision. Maintaining a stable employment base meant keeping the same number of manufacturing firms or having some expansion by existing firms, since layoffs were a cyclical phenomenon. Our worst nightmare was the exit of existing manufacturing firms. Not only did this threaten to reduce our existing manufacturing "clusters," it would invoke negative employment multiplier effects as well.

All of this changed ten years ago, when Rhode Island became a service and information-based economy. In the information age, knowledge and information are major sources of wealth. Both of these are fundamental to the success of any businesses. Technology has profoundly influenced the location decisions of firms and redefined the prerequisites for profitability in a low-inflation climate such as ours. Layoffs occur regularly, even during recoveries. Maintaining a stable employment base depends far more on the expansion of existing firms and by new firms locating here than at any time in the past. With layoffs and downsizing, firms have also come to rely on permanently smaller labor forces. The existing skills persons acquire in their formal schooling and training are only part of the human capital "equation" that firms face. It is also critical that the persons hired be re-trainable, so that their skills can be continually enhanced as cost-saving technological improvements are incorporated into the workplace.

In today’s economic climate, the "demand side" continues to be important, but it is suicidal to ignore "supply side" of the labor market. The costs of doing business in a state still matter. The costs of hiring, training, and re-training workers are legitimate business costs, ones that are rising in relative importance. Recent discussions of what it will take to make Rhode Island a truly attractive place to do business have continued to focus almost exclusively on demand-side incentives (tax reductions and credits, etc.). Any recommendations about changes in our state’s educational system, we are told, will come at a later time.

If the persons making these recommendations truly understood the fact that Rhode Island is now a service and information based economy, they would know that demand side recommendations cannot and should not be separated from supply-side changes. So, while we are all saddened and even horrified by plant closings, when we hear about these, it is usually too late for us to alter the outcomes. Fortunately, this is not true for the recent report on the quality of Rhode Island’s primary and secondary education. Over the long term, major problems with our educational system will dwarf recent plant closing announcements in terms of economic significance. And, unlike plant closings, we have the power to do something about our educational deficiencies. I have heard how bad the recent SAT scores of Rhode Islanders were, yet beyond the conjecture that this probably has something to do with participation rates, I detect little, if anything, being done to determine the causes of this and to seek remedies. The same appears to be true of the educational "report card." Education Commissioner McWalters stated that the report was a fair assessment of our state’s performance Yet its content is already being forgotten. And, let’s not forget higher education and its lack of viable funding.

How can our leaders be so remiss about the critical role of education in today’s economy? To answer this, let me pose a strange question: "What do you get when you order a chicken sandwich, hold the chicken?" The answer is little more than bread, the element defining the outward appearance of a sandwich. In a similar way, our state leaders are now saying: "Information age, hold the information." They may think they are well aware of the fact that Rhode Island is no longer a manufacturing economy, but what they are really doing is paving the way toward future mediocrity by planning for the past. Actions speak louder than words!

by Leonard Lardaro


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