Economies of Maine, India share many traits

Query: What do the economies of Maine and India have in common? Answer: They both are enjoying economic growth, and, in both cases, the growth has not been due to highly visible or dramatic events. The lack of drama, in Maine’s case, may explain why many people have overlooked its economic success.

For several decades before the early 1990s, India had steady, unspectacular growth. But, after 1991, the growth rate of output per capita shot up from 2 percent a year to a remarkable 5 percent. At the same time, the proportion of people living in extreme poverty began a steady decline, though – as I easily saw on a recent trip to India – poverty is still widespread.

Maine, too, is an economic success story, though a less remarkable one. Personal income per capita has risen steadily, from 82 percent of the national average in 1969 to 89 percent of a much higher national average in 2006. Maine’s unemployment rate was 8.5 percent in 1976, higher than the U.S. average, but it has fallen steadily to only 4.5 percent last month, the same as the national average.

The factors underlying the economic success of both India and Maine might surprise you. Rapid growth is often believed to require certain highly visible developments: massive capital investment, rapid growth of manufacturing output, a favorable natural resource endowment, or major technological innovation. Or, perhaps, the presence of highly visible, technologically advanced companies like Microsoft, Intel and Toyota.

In Maine and India, such dramatic advantages have not been the major spurs to economic growth. On the contrary, their absence, or near absence, has handicapped growth – so the economic progress of the two areas is all the more impressive.

In India, the contribution of capital investment to recent economic growth was much lower than in China, while India’s productivity growth in industry was much slower than in its service sector, according to a 2007 National Bureau of Economic Research study. And India lacks the abundant natural resources of other big countries such as Russia, the United States and Canada.

In India, growth has resulted from many small successes, mostly in small firms in the service industries, rather than from large-scale successes. Key advantages for India have been its energetic entrepreneurs and a large, well-educated middle class, millions of whom speak English.

Maine’s growth, like India’s, has arisen from the cumulative effect of many small successes, also mostly in services. While employment in manufacturing is steadily falling, it is rising in both consumer and business services, especially in health care, professional services and the management of companies. Maine, like India, has energetic entrepreneurs. And it has the advantages of a well-educated work force, skilled craft workers, and growing tourism.

Maine and India have no Microsoft, Intel, or Toyota. Small and medium companies are responsible for Maine’s growth – firms with fewer than 20 employees now account for 24 percent of Maine employment, the seventh-highest percentage among the 50 states.

This good news might appear to be offset by the news that Maine and India suffer from a brain drain. Well over a million Indians, including many highly educated people, have left the country, and many Maine college graduates work outside the state. The advocates of the Opportunity Maine legislation just approved by lawmakers argue that Maine’s brain drain is an economic handicap.

Still, sometimes brain drains have hidden advantages. Many Indian emigrants have returned home and founded new high-technology firms. Indian employees of U.S. firms helped start India’s thriving software industry by encouraging their employers to establish operations in Bangalore and to out-source contracts to firms there.

Similarly, data in a recent University of Southern Maine study suggest that most graduates of both in-state and out-of-state colleges were living in Maine five years after graduation. And many Mainers who do work outside the state eventually return, bringing back useful new skills, while others, who spend their careers outside the state, return to Maine to retire – and to spend their pension incomes.

I would be the first to admit that the Indian and Maine economies differ, sometimes profoundly. India still has 400 million people living in extreme poverty, and aside from schools serving the urban middle class, the quality of its education is low.

Nor do I mean to suggest that the Maine economy needs no improvement. We should not be satisfied with incomes per person below the national average, a fairly small high-technology sector, or an unemployment rate that is merely no worse than the national average. The state still has a long way to go.

But it also has come a long way. Maine’s progress has been substantial, despite the serious handicaps just noted, and we should not overlook it. While economic policy changes may be needed, they should build on the sources of this progress.

Edwin Dean, an economist and seasonal resident of Vinalhaven, writes monthly about economic issues.