RHODE ISLAND'S ECONOMY IS MORE
1997 Book of Lists, January, 1997
What a difference a year makes. Just one year ago, we were told that Rhode Island was
in a recession - one that would not end in 1996. But, contrary to these predictions, Rhode
Island finds itself in unfamiliar territory: as 1996 comes to a close, it remains close to
full employment. Some of what we have witnessed in 1996 has been almost surreal: our
states unemployment rate has fallen from over 7 percent last year, well above the
national average, to 4.6 percent at one point this year. At the present time, monthly
unemployment rates are running a full two percentage points below their levels a year ago!
Income growth over the past two years has also been surprising. Last year, Rhode Island
led the nation in per-capita personal income growth. While we will not match that feat in
1996, our income growth will continue to exceed inflation.
Yet in spite of such surprising strength, one pattern has remained: Rhode Islands
manufacturing job base continues to decline. Some have interpreted this as evidence that
manufacturing in this state is dead. I disagree. Consider three facts. First, todays
economic climate is more complicated than it was just a few years ago. Declining
manufacturing employment does not necessarily indicate, as is so often presumed, that
either output itself is falling or that it is declining at the same rate as employment.
The manufacturing sector finds itself in the midst of a period of rapid technological
change. Adopting technological advances is a necessity, since survival in todays
manufacturing climate requires firms to constantly find newer and better ways of
organizing production. Much of the new technology is labor saving in nature, resulting in
ongoing layoffs. So, what is best for individual firms, increasing output with fewer
workers, causes a number of problems at the macroeconomic level, not the least of which is
long-term unemployment. Second, is Rhode Islands capability to manufacture actually
falling as the employment numbers seem to indicate? The current employment categories, or
SIC codes, restrict manufacturing to the production of goods. If we add "Business
Services" to manufacturing, employment in the production of goods and services has
actually been rising for several years. And, dont forget that the temp agency
employees placed in manufacturing jobs are classified as working in business services as
well. So, we dont even know how many jobs there are in manufacturing anyway.
Finally, much of our recent manufacturing declines have resulted from defense cutbacks,
something beyond our control.
In our globally-competitive world, manufacturing is, and will remain, challenged never to
remain the same. Like the technology that has redefined it, the one constant for
manufacturing will be change. Surviving firms will always need to redefine the niches for
their products and to constantly find ways of reducing costs. For Rhode Island and every
other state, maintaining a stable manufacturing employment base will forever be more
complicated, since layoffs have become a permanent fixture of the manufacturing climate.
Thus, sustaining a constant or slowly growing number of manufacturing firms in Rhode
Island, once a "satisfactory" situation, will today result in declining
manufacturing employment unless these firms continually expand the scope of their
Because of this, attracting new firms has become increasingly important to the future of
manufacturing in Rhode Island. In this environment, the business climate of a state and
the cost of doing business there are absolutely critical since they influence location
decisions. The bad news for Rhode Island is that in spite of numerous improvements in its
business climate over the years, we are still an above-average cost state. In the near
term, diverting our attention to attracting specific types of firms such as those in
Financial Services, while not developing a comprehensive plan for redefining our business
climate has quite possibly hurt more than helped. A recent article in Forbes magazine
(10/21/96) singled Rhode Island out as an example of what not to do. The article states:
in cutting special deals, Rhode Island may be cutting its own throat. It
hasnt improved its climate to nurture startups, and young companies have provided
most of the job growth in the past five years
by leaving a heavy tax burden on
existing businesses, the state encourages them to move elsewhere."
While one can argue with the articles methodology, it is now imperative for Rhode
Island to carefully define its economic niche instead of allowing others to define it for
us. We cant afford to wait any longer before instituting comprehensive changes in
our business climate. Hopefully, competitive business costs, education, training and
re-training will be the centerpieces of whatever plan emerges.
by Leonard Lardaro