Though New England as a whole did worse than the national average for job growth last year, Maine lagged behind the region, and this part of the state lagged behind the southern portion, making for a dismal report recently from the Federal Reserve Bank in Boston. Maine joined Louisiana as being the only states with a decline in economic activity last year – but Maine didn’t have the excuse of Hurricane Katrina.
It isn’t just high taxes or high health care costs that led to this predicament, and it isn’t just the rural nature of the state, the lack of a college-educated work force and lack of infrastructure or its traditional heavy reliance on manufacturing. It is all of these and more.
Though Maine’s economy has grown and begun to look a lot more like the rest of the nation’s, the state has gone through economic boom-and-bust cycles for a generation burdened by this combination of conditions and it has not responded sufficiently. The results in the Federal Reserve are confirmation of this inadequacy.
Even in the dry language of the Federal Reserve report, Maine looks hapless. “In accord with the lackluster employment measures,” the report reads, “[Maine’s] total per capita personal income rose 4.0 percent between 2004 and 2005. As it did the previous year, this rate fell short of the advance in every other New England state; it represents a deceleration for Maine’s own 2004 increase. … The state’s manufacturing workers who managed to keep their jobs saw little increase in pay: Hourly wages grew just 1.8 percent in nominal terms. With the length of the workweek unchanged, and inflation averaging over 3.0 percent, real take-home pay for these workers declined over 2005.”
The Colby Economic Outlook, under the direction of Associate Professor of Economics Michael Donihue, agreed with this weak forecast last winter. Its aggregate economic Colby Coincident Index – including manufacturing and nonmanufacturing employment, retail sales, turnpike traffic and real personal income – predicts only modest improvement to feeble growth for the next three years. “With only slight annual improvements in real personal income and nonmanufacturing employment, and continued losses in manufacturing employment,” it says, the CCI predicts the Maine economy to grow at just 0.7 percent for the rest of the year.
The following two years should be essentially the same, it says.
Gov. John Baldacci said in news stories that Maine’s tepid performance can be in part attributed to having been ambushed by the triple threat of fears of military base closings, the high price of energy and the merger of MBNA merger with Bank of America. Unfortunately, he’s probably right – though military bases were targeted nationwide, high-energy costs hit everywhere too and mergers are a fact of business life, when they strike Maine’s teetering economy, the effects are worse here.
In virtually every gubernatorial campaign in every state, political consultants are paid to reach the unsurprising conclusion that what voters really care about is the economy. In Maine in 2006, candidates for the Blaine House are going to talk a lot about the economy.
A forthright discussion would recognize that its weakened condition didn’t suddenly arise during the Baldacci administration and that the administration has not acted sufficiently to speed up Maine’s transition from primarily manufacturing to a knowledge-based economy.
The opportunity to make this case seriously and with specific commitments remains open.
To give just one example, the University of Maine’s Research Council last spring devised a competition-based model for generating hundreds of millions in R&D annually in four years. The plan would force research projects to compete for state money, providing successively larger grants to the most promising, job-creating projects and killing off the less successful.
Public funding for the plan is modest by national standards but ambitious for Maine. Where would the state funds – $60 million annually when fully operating – come from? That too gives candidates a new way to look at the $420 million in tax breaks the state
will hand out this year.
Maine is competing for its economic life, and its policies should reflect the challenges it faces. Candidates could not only line up behind such a plan but also use it as a template for other economic investments. But rather than a vigorous debate on a plan such as this one and then decisive action,
it remains on slow simmer as the economies in other states heat up.
The is unacceptable if the state wants to be described other than how the Federal Reserve had it, “Maine concluded 2005 no better than it began the year; in some areas, the situation worsened.”