AUGUSTA – Every election cycle, particularly when the governor’s office is on the ballot, the economy is always part of the campaign rhetoric. But several economists say the reality is that Maine’s economy is dominated by forces well beyond the control of a governor or Legislature.
“Angus King got all kinds of credit because he was governor in a time when the national economy boomed and the state economy boomed,” University of Southern Maine economics professor Michael Hillard said. “Anybody could have been governor, and the economy would still have boomed.”
Former Gov. King agrees. In an interview just before he left office, King said he was lucky to have been governor with a booming national economy that resulted in large state surpluses.
“Our economy operates on decisions made in the private sector,” he said. “For most of the time that I have been governor I have been lucky those decisions have led to a strong economy.”
Hillard said that only during World Wars I and II did the federal government actually control the economy. He said with those exceptions, the United States has had a private sector economy with individuals making business decisions independent of government control.
“Government can get in the way,” he said. “But there is not a lot, outside of the basics of building an infrastructure to support business, that government can do to affect those private sector decisions.”
Colby College economics professor Michael Donihue said state and local governments focus on what they can do to create incentives to attract new companies. But, he said, the reality is those in the business sector do not spend a lot of time looking at government incentives, nor do they weigh heavily in decisions to locate or expand.
“There is probably not a lot the administration or the Legislature can do to attract new people,” he said, “but they certainly can get in the way and create disincentives.”
Donihue said it is clear that government should invest in the broad areas of education and infrastructure to support businesses.
“We’re not talking about just the high-tech stuff of high-speed Internet access,” he said,” it’s keeping roads and bridges in good shape and the other parts of the infrastructure that businesses rely on.”
Donihue said Maine’s economy is increasingly affected by international economic factors, not just national factors. He said the “internationalization” of the United States economy has lessened state and local government influence on the economy.
Laurie LaChance, president of the Maine Development Foundation and former state economist, agrees with that assessment. She said studies have indicated what business owners look at in making their decisions, and state or local incentives do not rank high.
“Number one was the availability of labor, number two was access to highway infrastructure, and number three was particular training and skill sets of labor, ” she said, ” and then in number four and six you got into some tax issues, corporate tax rates and the cost of energy.”
LaChance said Maine really has several economies that are very dissimilar and that psychology plays a role in business decisions as company owners may perceive a situation that does not exist.
“If you are in an area where a company has closed and there have been a lot of layoffs, it’s hard for you to be convinced that, on average, the economy is growing,” she said. “And if you are in an area where the economy is booming, you don’t understand why other business owners are pessimistic when you can’t find enough qualified workers.”
LaChance said Maine’s overall business climate is far better than what many in the business community believe it to be.
“I sometimes think we are too hard on ourselves,” she said.
Dan Innis, dean of the College of Business, Public Policy and Health at the University of Maine, said many business owners are more concerned about other government issues, such as regulations that affect them, than in the tax incentives states and local governments offer to attract companies.
“States should be targeting their efforts on providing businesses what they see as most important, “he said, “an educated and capable work force and a public infrastructure that supports their ability to conduct business.”
Innis said an area where government can affect business growth and expansion is in the regulatory process. He said company owners can become frustrated with a slow and cumbersome permitting process and decide against an expansion or new facility because of government red tape.
“There are parts of the state that we are not going to be able to help,” he said, “Period. They are not worth investing in.”
Innis acknowledged that will be a hard sell politically, even though it is an economic reality.
But Hillard said with the public polling data continuing to show that Mainers rank the economy as their top concern, candidates will play to what voters want to hear: that they will make things better.
“But, that’s politics, not economics,” he said.
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