A new economy for Maine

Maine’s economy is, in one word, bad. Most of us don’t need numbers to realize this, but for perspective, the Federal Reserve recently announced that Maine was one of only two states in the nation to experience negative economic growth in 2005. And to make matters worse, Maine’s lone companion was hurricane-ravaged Louisiana. They’ve got their excuse, what is ours?

Natural disaster it is not, but the blame for Maine’s poor economic showing rests on a typhoon of bad tax policies and economic misprioritizations. As our state clings to a dying advantage in the natural resources industries, the government simultaneously implements taxes that send potential businesses and entrepreneurs running to New Hampshire and beyond. The result is an average income in Maine over $3,000 below the nation’s and over $10,000 below New England’s.

What Maine needs is a fresh injection of small businesses. What Maine gets under current policy is dying industries with low wages and zero job security.

So why are the scales in our state so tipped against modernization? The answer is clear when one considers the veritable wall of taxes and regulations erected in the last decade looming over any consideration of new business or investment in Maine.

Unfortunately, of the 50 states, ours has built this figurative wall the highest. A recent study published by the Tax Foundation shows Maine having the single highest state-local tax burden in the nation. And if this isn’t enough to send potential business owners running screaming in the opposite direction, the Tax Foundation further ranked Maine as one of the five worst business tax climates in the country.

It is for obvious reasons then that small business has no great interest in Maine. And our alternative to a small business economy is Maine’s current agrarian system.

On a broad level the differences between a small business-based and natural resources-based economy are stability and sustainability. While small business is the backbone to a stable and healthy economy, an economy based on natural resources is unpredictable and insecure. Small business economies are flexible and lead to growth while natural resource economies rely on low wages, seasonal employment, and because they are usually exhaustible or replaceable, inevitably shrink.

So exactly how natural resource based are we, and what have the effects been thus far?

Nearly 10 percent of Mainers holding wage jobs are employed in agriculture or another natural resources industry. Incidentally, these men and women have an average income far below the state average. In the rural rim counties (Aroostook, Franklin, Oxford, Piscataquis, Somerset, and Washington) that account for much of the state’s agriculture, wages are 13 percent less on average than the rest of the state. It is a grim fact, then, that these low wages are often the only wages available.

In addition to low wages, the natural resource industries are unreliable employers at best. With today’s global economy, an entire factory can move halfway around the world overnight. The effect of global competition on our natural resource economy is clear, and not good. Maine’s own Department of Labor has predicted significant decreases in employment over the next decade in most of our natural resource sectors. This includes the logging and paper industries.

In the face of declining employment and a faltering economy, it simply does not make sense to cling to the industries in which we no longer hold an advantage. Maine needs a new economy not subject to the whims of world price; an economy that creates jobs and holds onto them. Small business is the key to this security.

Many argue that there is a tradeoff, that the taxes which hurt business are necessary to help Maine’s poorest. If this were true, the tradeoff would be debatable. But these taxes, by eliminating the economic benefits brought on by small business, are actually increasing inequality in the state. In the past 20 years, the bottom fifth of Maine’s wage earners saw only a 13.6 percent increase in income while Maine’s top fifth of wage earners saw an increase of 57.8 percent.

But would more business- friendly policies really help alleviate Maine’s inequalities? They certainly have in Alaska. With its low taxes (and in some areas no taxes) Alaska was ranked this past year as one of the three most business-friendly states in the nation. By opening the door for more small businesses and entrepreneurs Alaska created more and better-paying jobs. As a result, the state was the only one in the nation to see its wage gap decrease.

I propose that we follow the lead of states like Alaska and open up our arms to small business. Maine should not forget the importance of its natural resource industries, but our state should not be completely reliant on these industries either. Instead Maine needs to become a small business state focused on competition, development and sustainable growth.

Matthew Warner of Holden is a recent graduate of Boston University and was a summer policy fellow at Princeton University’s Woodrow Wilson School of Public and International Affairs.