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Road map to recovery(The News-Star)Louisiana rebuilding efforts should include priorities such as education, research As Louisiana governments, businesses and individuals plan and execute responses to the natural disasters that hit us so hard this fall, we must make our decisions based on priorities that will foster an environment for economic prosperity and high quality of life in the 21st century economy. These priorities form the basic profile of a region that enables individuals, families and businesses to prosper. As I write these words, the state Legislature is in special session to address the state's crisis and attempt to plug the $1 billion hole in the state budget. The current discussion is focused primarily on using tax and fiscal policy to aid the business community in leading the recovery effort. In particular, there is a debate about whether to extend business tax incentives and exemptions beyond the actual hurricane affected areas. Almost all of the burden of the state's financial crisis is currently expected to fall on education and health care. At a time like this, it might be useful to review some of the evidence for what our top priorities should be. This evidence consists of reports and commentaries released in recent months from a variety of impeccable sources on the topic of economic growth, development and community quality of life. Raul Romer, professor of economics at Stanford University and the leading economist in the field of New Growth Theory, makes clear that "as the world becomes more and more closely integrated, the feature that will increasingly differentiate one geographic area from another will be the quality of public institutions. The most successful areas will be the ones with the most competent and effective mechanisms for supporting collective interests, especially in the production of new ideas." It is these public institutions that create the environment for private entities to prosper. And they do this not just by getting out of the way, but by being proactive, innovative and effective in the public services they provide and the investments they make. So, according to Romer, to foster an environment for economic prosperity and high quality of life in the 21st century economy, our priorities should be to provide high quality public services at the local and state level (from police and fire to education and health care) and support communitywide interests, particularly in the area of innovation and entrepreneurship. Does anyone agree with him? In fact, they do. Romer's perspective is further strengthened by the findings of the Committee on Prosperity in the Global Economy of the 21st Century recently organized by the National Academy of Sciences. The committee was asked to respond to the following request: What are the top 10 actions, in priority order, that policy-makers can take to enhance the science and technology enterprise so that we can successfully compete, prosper and be secure in the global community of the 21st century? The committee - consisting of individuals from an array of industries, as well as education and economic development - used its own expertise and the input of experts from all over the country to develop its recommendations. They could have made recommendations in any area they desired. They chose four priority areas: 1) K-12 education; 2) research; 3) higher education; and 4) incentives for innovation. These findings provide some specifics to Romer's argument about the central importance "public institutions." There's more. A recent report on Knowledge Clusters and Entrepreneurship from the University of Minnesota further supports the findings of the National Academy committee. The Minnesota report identified innovation, entrepreneurship and public support for both as the primary keys to regional economic development. Now it's not obvious what the connection is between innovation in economic development and the practical policy decisions of the current state budget crisis. Let me cite one other piece of evidence, then I'll make it clear. A newly released survey from the Council on Competitiveness and New Economy Strategies asked leading corporate executives to share their views on the changing nature of innovation. The survey uncovered some fascinating results. For example, when asked to rank the most important factors in their firm's ability to innovate, corporate leaders cited access to a science and engineering talent pool, entrepreneurial managers and a good communications infrastructure. When asked to identify factors that would disqualify a region for new corporate investments, a talent shortfall, poor communications infrastructure, poor K-12 education and low quality of life were cited as impediments to outside investment. So what does all this have to do with our current budget crisis? From a policy perspective, all of these critical areas - education, health care, research, innovation, public infrastructure - depend on our willingness to invest our tax dollars in these priorities. As we weaken the ability by cutting state revenues to maintain and improve these priority areas, we inhibit development of the things needed to prosper. So if our top priorities - stemming from the central importance of innovation and entrepreneurship - are education, research, technology infrastructure and health care, we must protect those priorities and renew our commitment to them in times of crisis. A region's competitiveness is increasingly dependent on its people, technologies and knowledge that can be adapted to high-value economic activity. These people, technologies and knowledge all require substantial commitment through public investment. If our efforts to promote recovery, rebuilding and growth are primarily focused on using reactive tax policy to lower the cost of doing business, they will detract from our ability to support an environment that is fundamental to enhanced economic prosperity. Providing relief to distressed business is important. But tax policy, in general, is too blunt an instrument to efficiently rebuild a specific area that was hurt by the storms. We should be thinking about the specifics of what we need to rebuild, rather than simply enacting tax breaks that may or may not accomplish our needs, but will weaken our ability to improve on the priorities outlined above. If we are to move from disaster to prosperity, we must do it without proactive public investments in those priorities that enhance the viability and profitability of innovative businesses and improve the quality of life for residents. DAVY NORRIS is an assistant professor of economic research at Louisiana Tech University in Ruston. He may be reached at [email protected]. |