MEASURES OF STAGNATION

Measures of Growth, the Maine Development Foundation’s annual rating of Maine’s economic condition, is meant to assess “Maine’s progress towards long-term, sustainable economic growth.” With the majority of the measures negative or stagnant, progress is an overstatement this year.

Aside from the environment, where the state got high marks for sustainable forestry and land conservation, MDF gave Maine star ratings in only two other areas: new business starts and health insurance coverage. Red flags, indicating a need for immediate attention, were given in five areas, none of them a surprise: personal income, cost of health care, cost of energy, state and local tax burden and transportation infrastructure. Overall, the state made progress in four areas, remained stagnant in 12 and slipped in eight.

First the good news. The high rating for business starts comes because nearly 4,500 new businesses were started in Maine in 2006, a 5.5 percent increase over the previous year. New business starts were down 3 percent in New England. A large caveat, though: The MDF numbers don’t account for business failures, so the net increase could be much smaller.

All other measures of business innovation were negative or stagnant, with stalled research and development support among the most troubling. The development foundation set a goal of Maine, by 2010, spending 3 percent of its gross domestic product on R&D, which has already proved to pay large dividends, in terms of jobs and attracting millions in research dollars. This would be a large increase, but still below the current New England average of more than 4 percent. Despite rising R&D expenditures in the ’90s, especially for research at the state’s universities and colleges, they began to decrease in 2002 and have since stagnated at just under 1 percent.

The report further notes that while the percentage of R&D performed at the state’s academic and nonprofit institutions surpasses national and New England averages, the percentage done by industry is much lower.

“When industry invests in and performs R&D in Maine, there is a greater chance of commercialization and spinoffs happening in Maine. This will lead to wealth and job creation, growing the Maine economy,” the report says.

Creating jobs and increasing wealth – mostly by raising wages – is a theme of the MDF assessment. For example, rising health care and energy costs stifle business development and take a growing bite out of wages. Further, low wages contribute to the state’s high tax burden. There have been many efforts to reduce taxes, but raising income would also lower the burden.

State lawmakers know this needs to be done, so the MDF report is not a set of new ideas, but rather a reminder of what direction Maine needs to move in. It is also a reminder that Maine’s strategy of thinly investing in hundreds of programs, rather than strategically investing in a few that really pay off, needs to be changed. The state’s budget problems heighten the need for that discussion.