Unsolicited Advice for Ohio’s Economic

Architects Mark Partridge

December 16, 2010Swank Chair in Rural-Urban Policy

(Partridge.27@osu.edu)Department of Agricultural, Environmental & Development

EconomicsOhio State University Extension

Introduction 2009 Title: “The Great Crisis: Will

Economic Recovery Look More Like the Crisis?” Unfortunately I was correct in my dim assessment even though the recession ‘officially’ ended in June 2009. From last year: “Finally we appear to be

entering the trough or bottom. Economic recovery is at hand(?).”

Since 1990—recessions have become structural as industries/firms downsize and the lost jobs permanently disappear. “Jobless recoveries”

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Introduction—Continued How Ohio recovers has

implications for its families and communities.

It also has implications for how its governments provide services and whether they will have sufficient revenue for investment. Schools, infrastructure, and basic government services that are necessary for Ohio to attract/retain population.

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Introduction—Continued This year, the state of the Ohio

economy is even more important: Biennium budget is due and it is perhaps $8 billion out of balance.

Set the stage to put the rural & agricultural economies into broader perspective.

Unsolicited advice related to policy.

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Outline1. Current economic situation2. Mr. Kasich’s strengths3. Advice to Ohio’s architects.

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Data—focus on job growth. Journalists love to report the

unemployment rate but it can be quite misleading or even useless. 5.5% OH unemployment rate in Aug 2006

9.7% OH unemployment rate in Oct 2010 2006 figure overstated the strength of

the economy because unemployed migrated to booming economies

2010—no migration so unemployment rate rises and can overstate the pain.12/16/2010 Policy & Outlook Program 6

Data—focus on job growth. North Dakota is held up today as

strong economy 3.8% unemployment rate (2.6% in 2001). Yet, ND’s long-term performance in terms of population is the worst in the country.

UR does not capture migration and differences in employment/population ratio.

Ultimately what drives OH’s or ND’s prosperity is job growth.

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Economic Recovery: Then and Now Economic Recoveries in Ohio have

been very slow. The decreasing relative size of manufacturing means OH recessions are not as severe as in the past (relative to country).

But OH recoveries are now slower because manufacturing picks up fast in initial recovery.

12/16/2010 8Policy & Outlook Program

1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960

90

95

100

105

110

1973.11-1975.3 1980.1-1980.7 1981.7-1982.11 1990.7-1991.32001.3-2001.11 2007.12-current

Ohio Non-farm Employment

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60 months after the onset of recession, seasonally adjusted, Month 0=100

Economic Recovery: Then and Now Since 1990—recessions have

become structural as industries/firms downsize and the lost jobs permanently disappear. “Jobless recoveries”

Bubbles since 1990 have taken years to work off after recession.

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Ohio’s Problem are even more endemic and structural Long-term perspective under

Democrats and Republicans is not pretty. This is a major structural problem that long pre-dates Gov. Strickland. Ohio has long underperformed the U.S.

Ohio is no longer a manufacturing economy

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1970

1971

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1990

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2000

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2002

2003

2004

2005

2006

2007

2008

2009

8090

100110120130140150160170180190200

U.S.OhioMichiganIllinoisIndianaWis-consin

Source: Bureau of Labor Statistics.

1970-2009 Nonfarm Employment Growth, US and Great Lake States: Benchmarked to 1970=100

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

86

88

90

92

94

96

98

100

102

104Nonfarm Employment January 2006 – October

2010 (benchmarked to January 2006=100)

U.S.OhioMichiganIllinoisIndianaWisconsin

Source: Bureau of Labor Statistics.

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

6065707580859095

100105110115120

U.S.OhioMichiganIllinoisIndianaWis-consin

Source: Bureau of Labor Statistics.

1990-2009 Manufacturing Employment Growth: Selected States, 1990=100

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

60

65

70

75

80

85

90

95

100

105 Change in Manufacturing Employment (benchmarked to Jan. 2006=100)

U.S.OhioMichiganIllinoisIndianaWis-consin

Source: Bureau of Labor Statistics.

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

-20.0-18.0-16.0-14.0-12.0-10.0-8.0-6.0-4.0-2.00.02.04.06.08.0 Annual Percent Change in Manufacturing

Employment, January 2006 - October 2010

non metro OHmetro OHOH - all counties

Source: U.S. Bureau of Labor Statistics,Non Metro is determined by taking the Ohio Total minus the Ohio Metropolitan Areas Employment.

Where are we as the economy recovers? Rural Ohio is faring better than

metropolitan Ohio. Among the 3 C’s, Cleveland is the

‘growth engine’ and Columbus has been the “engine that couldn’t”.

Smaller Ohio Metropolitan areas are showing some signs of life.

12/16/2010 17Policy & Outlook Program

Jan-06Mar-

06

May-06

Jul-06Se

p-06Nov-

06Jan

-07Mar-

07

May-07

Jul-07Se

p-07Nov-

07Jan

-08Mar-

08

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Jul-08Se

p-08Nov-

08Jan

-09Mar-

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May-09

Jul-09Se

p-09Nov-

09Jan

-10Mar-

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May-10

Jul-10Se

p-10

-12.00

-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00Annual Percent Change in Nonfarm Employment,

January 2006 - October 2010

OH - all countiesmetro OHnon metro OH

Source: U.S. Bureau of Labor Statistics,Non Metro is determined by taking the Ohio Total minus the Ohio Metropolitan Areas Employment.

-12.00

-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00 Annual Percent Change in Nonfarm Employment, January 2006 - October 2010

OH - all countiesCincinnatiClevelandColumbus

Source: Bureau of Labor Statistics. Employment for metropolitan areas.

-12.00

-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00 Annual Percent Change in Nonfarm Employment, January 2006 - October 2010

OH - all countiesSanduskyLimaMansfield

Source: Bureau of Labor Statistics. Employment for metropolitan areas.

Advice for Ohio’s Policymakers

Governor Strickland did not cause this problem. Under both Dems and Reps, Ohio has struggled for well over 40 years.

I showed you that Ohio likely entered recession around July 2006 before he was elected.

He cannot control the national economy and Ohio did not fare so poorly in recession compared to the past

2112/16/2010 Policy & Outlook Program

Advice for Ohio’s Policymakers John Kasich has been vague on

what he would do. John Kasich has a strong sense

that business does better in a less restrictive regulatory environment.

John Kasich appears willing to make a more responsive government with less administrative overhead.

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Advice for Ohio’s Policymakers One strong feature is that John

Kasich says that small business is the underpinning of strong growth. Building our entrepreneurial capacity beats attracting outside firms with massive tax incentives.

Builds more diversified economy that outperforms ‘bribing’ outside firms with tax incentives.

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Advice for Ohio’s Policymakers

Mr. Kasich says he will move state economic development efforts from ODD to a private nonprofit agency. He has a point about bureaucracy and the need for a responsive agency.

If it has a limited ability to offer wasteful tax incentives and less political control, this would be a positive step

But is it same old policies under a new name? Then, what’s the point? Also what about conflict of interest?

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Advice for Ohio’s Policymakers Low taxes are a factor, but only

one factor. Productive economies need infrastructure and strong education. A challenge for Mr. Kasich is to appraise the tradeoffs between taxes and productive services.

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Advice for Ohio’s Policymakers

Listen to economists! They say what you need to hear. Too often, economic development is focus group driven or simplistic notions such as getting ‘smart’ people in the room.

Regionalism and effective governance—roughly 200 local gov’ts in Columbus. Dayton/Montgomery County is a leader.

OH has thousands of local gov’ts with high taxes. Newspapers report that 85% of expenditures is local gov’ts.

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Advice for Ohio’s Policymakers Bribing companies to come/stay

in Ohio has not worked. Building our entrepreneurial talent and retention. Economists view: Governments can’t pick winners

Losers know how to pick governments

I believe ‘communities’ should build an environment where:

The eventual ‘Winners’ pick your community.

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Advice for Ohio’s Policymakers Whether building the latest fads

such as “clusters,” bio-tech, creative class, clean energy, value-added, etc. etc. etc., politicians are quick to respond w/o any research basis by offering tax incentives.

Shifting money from taxpayers to a politician’s favored activity has opportunity costs.

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Advice for Ohio’s Policymakers Economists are very skeptical

that politicians, development ‘experts’, or bureaucrats (or regional economists or financial market titans) are good at picking sectors. E.g., weren’t financial derivatives based on housing mortgages the smart pick?

Random Walk down Wall Street.12/16/2010 Policy & Outlook Program 29

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Advice for Ohio’s Policymakers

Avoid faddy policies. It seems like all 50 states, 3,000+ counties, and about every advanced economy wants to be the leader of green/clean energy.

Very Very few will win. It is not strategic/creative to copy everyone else just because it is the latest fad.

Reminds me of how every place wanted to be the next Silicon Valley in the ‘80s and ‘90s.

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Advice for Ohio’s Policymakers Summary A slow recovery is taking hold.

Led in rural Ohio and its smaller cities.

Ohio has long faced economic challenges. Systemic change is needed but is Ohio’s economic architects willing to take risks or act smart?

Unfair to tag Gov. Strickland with Ohio’s woes, but what about the long-term?

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Advice for Ohio’s Policymakers

Mr. Kasich has a strong sense that efficient government goes a long way to economic success? Has he learned from past conservative leaders who did not succeed? Recall, both Dems and Reps have not fared well in the last 40+ years—not just a conservative issue.

Our architects need to be smart and not just copy everyone else or follow the latest fads.

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Mark PartridgeSwank Chair in Rural-Urban PolicyDept. Agricultural, Environmental &

Development EconomicsThe Ohio State UniversityGoogle “Partridge Swank” and you will get my website(614) 688-4907(partridge.27@osu.edu)

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