It’s pretty clear that there is now, and has been for many years, one prevailing narrative in the United States about how to grow the American economy. It says that what is needed is simply less taxation, less regulation, less government and less unionization. A number of people, including Governor Patrick and me, find this narrative troubling for at least two reasons. One, we don’t think that it is true. Two, it almost inevitably pits the success of the US economy as a whole against the success of working class and middle class families.
This prevailing narrative has become so successfully ingrained into people’s thinking that someone can not only make an unfounded assertion like this:
“For all the talk about the so-called 99% vs 1%, one of the largest reasons the disparities exist is due to government regulation of private capital markets. “
but they feel comfortable in doing so without even bothering to offer to provide a shred of supporting argument or evidence when they do. But it’s important to keep in mind that despite the casualness or even sloppiness that current purveyors of the prevailing narrative routinely demonstrate (like simply repeating that lower tax rates raise more revenue, which is clearly false), in fact the prevailing narrative got where it is today based on a tremendous amount of serious time and effort over many years, if not decades, including through the creation of the Heritage Foundation and other conservative think tanks.
A lesson to be learned from this experience is that we probably need to go beyond criticizing the prevailing narrative, and pointing out its many flaws, by developing with the same patience and effort a new, alternative narrative of what will make the American economy successful in a competitive global marketplace in the 21st century.
Governor Patrick and I and others in the Patrick-Murray Administration have been working to develop such a strategy for Massachusetts over the last five years and we think that what has been working for Massachusetts has relevance for the US as a whole. Our economic development strategy centers on making long-term investments in education, innovation and infrastructure. In education, that means maintaining our place as the national leader in K-12 education, even in a down economy, while addressing the continuing achievement gap between students in different communities. In innovation, it means providing support to our growing world-class clusters in the life sciences, clean energy and technology. In infrastructure, it means both fixing our deteriorating roads and bridges, but also extending reliable broadband internet service to every city and town in the state.
We have some credibility in telling this story because our Massachusetts economy has performed better than the rest of the country over the last five years (we didn’t fall as hard in the downtown and we have been recovering stronger and faster since), and we are especially outperforming many of the states that are true believers in the prevailing narrative.
But we are interested in what you are seeing and hearing. Have we begun to gain some traction with an economic development strategy based on education, innovation and infrastructure, or is this the first you are hearing of it? Are there others around the state or the country who are creating an alternative narrative in a powerful way? Let us know.
As well as a common sense post, and participating in the often rough and tumble world of BMG.
As a starter, though, leaving the Big Dig debt to cripple the MBTA, and the reality that the MBTA is in fact infrastructure that gets people to jobs and helps compensate for high housing costs, what is the administration willing to support to prevent service cuts and fare hikes on the MBTA? We both know that if even 10% of the tax expenditure budget was cleaned up, there would be no deficit, and if 20% of the corporate giveaways and over generous loopholes were removed we could rebuild our state.
The tax expenditure budget gives awayn 24 billion – our entire tax collection is 22 billion!
Over 100,000 jobs cannot be filed because Massachusetts is 47th in support for higher education, and we don’t provide an affordable opportunity to educate our young citizens for those tech and mid-level jobs. Education is infrastructure. 85% of the graduates of public higher education stay in Massachusetts. Not so the elite private schools!
So, how about getting rid of the ineffective and over generous film credit and instead paying the MBTA debt (which is really Big Dig Debt, 5.2 billion of it) while finding a way to “take the money off the back of the MBTA”
You make a number of good points, each of which deserves a separate reply, but here is a brief response.
It sounds like we are in agreement on the importance of investing in education and infrastructure. Even beyond the scarcity of public funds, we are seeing a reluctance to increasing those investments without a corresponding increase in cost-effectiveness and accountability (the common tag line is “reform before revenue”). So we have been pushing reforms in transportation and other areas (most recently, community college reform) as a way of addressing that concern.
We also share your concern about the effectiveness of our tax expenditures. That is why my colleague Jay Gonzalez, the Secretary of Administration and Finance, is currently heading a task force looking at all of our tax expenditures. Their report is due out next month.
I must say that I am not sure that I agree with the great (negative) emphasis being put on the film tax credit on this blog. The film tax credit has done some good things for this state. Last year, it amounted to about one-twentieth of one percent of our state budget. I would rather that we look at our tax expenditures as a whole, as Secretary Gonzalez is doing now. (I don’t know why this last paragraph is showing up as bold, but I can’t make it stop.)
Do what FDR did. When FDR ascended to the Presidency and implemented (primarily) Liberal policies, the US economy responded quickly. Unemployment dropped by something like 40% over his first term, and GDP grew by about 8% per year over the same period.
At the end of his first term FDR turned to austerity and the economy (temporarily) crashed again. A lesson there to be learned.
We need government to prime the pump. We need government to lead. While we have numerous instances where government pump-priming worked, I can’t think of a single instance where austerity led to any substantial improvements in a hurting economy.
One of the important things that FDR did was to get money into the hands of working Americans – as I’m sure that you know, working folks spend the dollars they get on goods and services that tend to create other jobs. Dollars given to the wealthy are more likely to be spent on things that don’t create jobs.
One thing that would likely help is to fix Massachusetts’ extremely regressive tax scheme. As BMG readers know, our state tax system highly favors the wealthiest – the top 1% pay only half as much in state taxes as do the poorest 20%, as a percentage of income:
MA Taxes: Less progressive than Mississippi.
Can you imagine how much money would be pumped into our economy if that ratio were reversed, and the wealthiest paid twice the percentage that the poorest do?
Having a world-class healthcare delivery system at a world-class cost in our state would be a huge boon. As I’m sure that you’re aware, US health care costs far more than health care anywhere else in the world, more than twice the average cost for industrialized countries. And our health care outcomes are no better than those experienced in other similar countries. Twice the cost for care that’s of average quality at best.
Think of the boon it would be for US employers if they could come to Massachusetts and pay 10% of wages for health care rather than 17% in other states? We’d practically have to put a fence around the Commonwealth to keep the new jobs out.
On a more personal note, I happen to work in a field where I have a front-row seat watching the commercialization of technology innovation. Commercialization of true innovation is pretty well dead in Massachusetts. The investment money here seems to all flow to folks who are working on refinements of established technologies rather than really innovative (and thus really speculative) stuff. West Coast money, by contrast, enthusiastically feeds innovation – which is in large portion why the Microsofts, Apples, Googles, Amazons, Facebooks, and most other big technology success of the past few decades have come from that coast. Here in Mass, we have the shells of buildings that once held DEC, Wang, Polaroid, and many other technology companies that were founded here back when the investment climate was different. It would be fantastic if we were able to foster an environment that encouraged the financing of serious innovation, instead of forcing innovators to move west to pursue their craft.
Good luck! I look forward to an even-better Massachusetts!
There’s a lot more true innovation here than you are giving us credit for, but I take your point. Some people describe the differences between East Coast money and West Coast money as “cultural”, by which I think they mean that there is not much that can be done about it (sort of like the weather). Do you agree with that? Is there something that can be done? What is it?
Actually, you’re mistaken. You’re making a casually sweeping statement without enough knowledge, and one of your own examples underscores it. I remember when I first joined Facebook, it was only available to people at a few Boston-area colleges (one of which I had attended) … because Facebook comes from *here*. So does reddit, one of the most successful social sites. So does Akamai – you may not know them, but if you use the web you’re probably using their stuff every day. So does ITA (where I work) – if you bought a plane ticket on the Internet, you probably used ITA’s flight search.
The Obama campaign’s internet infrastructure was created and run by Blue State Digital, in Boston. ActBlue is in Cambridge. NGP which developed and hosts the Democratic party’s voter database, targeting, phonebanking, etc., software, is in Somerville.
You know what else comes from here? Internet Email, invented at the same Cambridge company where much of the early development of packet switched networking happened (in cooperation with places in the UK and the west coast). The company that build and managed much of the early Internet. From the telephone and sewing machine to radar and strobe lights to computing and the Internet, Boston has been the innovation hub of the world for centuries. While there’s one place out there that’s ahead of us in Internet startups right now, that’s just one field (though a very important one) for a couple of decades, and it’s the *one* place that’s ahead of everywhere else in the world.
reddit moved to New York. Facebook moved to California. Google bought ITA (we’re still in Cambridge though). Compaq bought Digital. A lot of the ideas that start here do end up being developed elsewhere, or moving, or getting acquired. I’m not sure that’s just a bad thing, because it helps us remain an innovation engine, and protects us from becoming “eminent” with a bunch of stable large companies that leave less room for startups.
But when they move out early and young, as companies like Facebook and reddit (and DropBox, which also originated here) have done, it is a problem. The cause is lack of funding, not insufficient innovation. That’s what they west coast beats us at. We have *no problem* generating tech startups here; if what we’re worried about is keeping more of them here in their early stages, what we need to work on is quicker, easier, more risk-seeking early funding.
The “Massachusetts Model” of non-compete enforceability is single biggest reason why there’s little innovation in MA. In technology companies, employees have little ability to switch employers or to strike out on there own (while remaining within the state). Twice, in my career this has severely limited me from moving to more innovative opportunities and is the single biggest reason I operate as an independent software engineering consultant today.
http://articles.boston.com/2011-07-03/business/29733744_1_noncompete-video-game-harmonix-music-systems
Fact: As a tech employee (asubject to a typical non-compete agreement), even if you’re laid off, you usually must wait a full year before working for anyone else even remotely competing with your original employer within New England states (or “negotiate” with your former employer for release). What a freaking nightmare.
A book about the development of many popular video games. What struck me was the blinding speed of company formation and dissolution, with even managers, bosses and investors firing their developers and then setting them up in new companies to develop ground-breaking games. Or employees coding along and then getting dissatisfied and dragging friends with them to create games which destroyed their old companies. This could never happen in Massachusetts, first because of the non-compete and second because of the culture here, which is protective of the established rather than interested in growth and expansion.
Some people say that what you are describing (“blinding speed”, “destruction”) would be great, others say it would be horrible. Where are you on this?
If you want better games, it’s good. It’s important for growth to get the most capital applied to the best product as quickly and easily as possible. The market is the best way to identify the companies that hire the best managers and employees and get that money to them fast.
Look at companies as animals occupying an ecological niche. There is a reason human beings have the life-span we do, because it is optimal for our niche in the environment.
If you want to keep the old companies going then it’s bad. There are deep sea worms that live hundreds of years, lying dormant and coming out every 30 years or so to breed when conditions are right. Our old companies are like those worms, that don’t like it when more aggressive competitors come along to eat their lunch. They call it all kinds of things, but they really just don’t want the competition.
Just saying …
Several of the small investment firms in Boston have a Gentleman’s non-poach agreement between themselves. They will not hire a person from another firm without getting “permission” from their firm. It makes interviewing almost impossible without informing your current firm.
…as Apple, Google, Pixar, Intel, Adobe, etc are now finding out.
http://www.electronista.com/articles/12/01/27/apple.google.must.face.job.poaching.claims/
The aggregate damage to tech salaries is conservatively estimated to be in the hundreds of millions of dollars. One can only hope these sleazeballs do some serious jail time and face ruinous personal damages.
Although there’s a lot more innovation here than your comment allows, I have testified on behalf of the Administration in favor of limiting or eliminating the enforceability of non-competes in Massachusetts. There seems to be greater support for limiting their enforceability. What is your view?
…move to the California model. Regular employees shouldn’t be subject to non-compete agreements (in California non-competes are only enforceable in liquidating significant ownership interests, not employment).
Non-disclosure agreements are completely sufficient to protect employer interests after employment ends.
I’m sorry but the Massachusetts government has demonstrated that it is a terrible investor:
1. At its best it will be overly cautious and lose less than the market (your five-year recall)
2. In the middle it will put money into faddish industries (Evergreen) and then pass laws forcing the consumers to support these weak companies
3. At its worst it will miss new industries entirely or funnel money to golf buddies of government officials (Cognos)
Massachusetts had the weakest growth during Romney’s term in the country, because you raised investment taxes and those who wanted to innovate left the state. Now you claim you can be a better substitute. If you guys were great investors, you wouldn’t be working for the government.
It’s time for our government at all levels to get out of supporting a welfare/warfare economy and develop an innovation economy based on allowing the market to determine which products people want fastest and letting that happen, rather than stifling it at every turn, trying to take a cut for projects that by rights should be killed.
You may say “oh we tried that before”. Yeah and lots of people got jobs, and created products. You can’t just say it’s time to stop innovating because I got mine, but that’s what too many people in Massachusetts do. Life is about growth, expansion and replacement of what is not useful any more with new growth.
“If you guys were great investors, you wouldn’t be working for the government.”
In fact, many of the best and most talented people in Massachusetts work for the government, which is why we are kicking the stuffing out of places that follow the bankrupt and self-defeating ideology you espouse i.e. most red states.
Government is us, for better and for worse, and we rise and fall depending on the quality of people who work for it.
I don’t doubt it. The government and business establishment are too closely connected in Massachusetts. Businessmen with less ambition are happy to have the government steering them money rather than competing for it on the open market.
If our best people are in government, it’s probably because we drove the high achievers to Texas, Phoenix, Atlanta or Las Vegas.
You must end the corrosive tax increment financing program. It pits one community against another (firms moving from Cambridge to Boston with tax subsidies for example) and provides no added value for the Commonwealth. Your work to focus on enhancing the people of the Commonwealth are excellent and that should be the highest focus.
and no doubt Governor Patrick has done a *lot* to try to get us to walk the walk, getting us to at least raise some revenue and crafting very good budgets, given the circumstances, which has pushed the rest of Beacon Hill in the right direction.
However, I still think we have a long way to go. When it comes to walking the walk on this diary, the MBTA is going to be the canary in the coal mine. If Governor Patrick forces Beacon Hill to make a grown-up decision on the MBTA, for Beacon Hill to declare itself responsible for the Big Dig debt it saddled on the agency, then I think it’s safe to say our words match our walk.
As people on BMG have seen, I’ve been suggesting we use the money spent on the Film Tax Credit to save the MBTA. Patrick, last budget, sought a very reasonable compromise on the Film Tax Credit that would have saved the state millions and made the tax credit at least a little fairer, by capping the credit on salaries to no more than 25% on a million bucks. Will the Governor at least go that far, if not demand the repeal to pay for the MBTA?
If not, what will it do to raise the necessary revenue to help the MBTA address its Big Dig debts without massive fair hikes or draconian service cuts? About 1 in 6 people in this state, by the numbers, use the MBTA Monday through Friday. I could think of nothing more important to our economy at this moment than solving this MBTA crisis.
I don’t think the administration has a real plan. They just like talking about having a plan.
I don’t think that MA is that great for business, particularly for energy intensive industries like mine.
Philospohically I have trouble with the government as an investor, but I realize that is not the prevailing wisdom here.
Or is this just Fox News style bloviation? In other words, please put up.
My company uses a lot of energy, with very efficient equipment that can make us competitive with low wage countries, but if you drive the cost of energy sky high – we are not making it in Massachusetts.
I’ve very worried about Cape Wind driving manufacturing out of Massachusetts.
… the Government of Quebec.
So I don’t know what it is you are arguing… That government (in Quebec) can provide low prices, but government (in Massachusetts) cannot…?
Independent of a public power company or not – Quebec can offer cheap power because of their vast hydro resources. Cheap energy in Quebec gives a competitive advantage to businesses who locate there. Massachusetts does not have any energy resources and the state government is driving energy costs even higher though poor policy decisions like cape wind.
I conflated your arguments with those made by merrimackguy above, who said…
Not realizing two different persons were commenting I jump the gun. My apologies.
I have no doubt that our other-winged friends can’t imagine how the government can be an investor. That’s because they apparently can’t imagine (a) how it is possible to invest in any capacity other than in exchange for ownership and (b) how any motivation besides individual self-interest can drive successful investment.
The government invests in growth when it builds a sustainable transportation infrastructure — in Massachusetts, that demands investing in commuter rail and the MBTA. The government invests in growth when it builds (or at least stops dismantling) a world-class educational system. The government invests in growth when it funds basic scientific research in a variety of domains. The government invests in growth when it invests in providing affordable and accessible health care to every American. The government invests in growth when it invests in ensuring that our seniors can live comfortably, enabling younger generations to devote more of their energy making our economy strong and viable. The government invests in growth when it builds and strengthens (rather than dismantling) regulatory agencies that stop the handful of wealthy predators among us from plundering the prosperity of the rest of us. The government invests in growth when it punishes those who commit crimes against humanity (like kidnap, torture, rape, and murder) so that we aren’t forced to live in a nation that is a pariah in the civilized world. A populace that is frightened, hungry, ill, thirsty, cold, angry and depressed is much less able take the bold, creative, and innovative steps needed to thrive and prosper in the 21st century world.
The GOP opposes every action that a first-world nation does to promote sustainable growth in the twenty-first century.
A factor which would exclude casinos.
well said.
Gateway cities are ripe for redevelopment. They have the infrastructure in the form of housing, roads, railways, electricity, water/sewers, etc. Many have seen a loss of population over the years due to suburban flight and disinvestment.
The Commonwealth should review its policies that drive development to suburban locations – which really goes against infrastructure – and implement policies that centralize job development into urban areas that can handle it.
We have reformed many of our state policies over the last five years, including business incentives, infrastructure investments and housing support, in ways that encourage redevelopment, transit-oriented development and development in Gateway Cities.
Do we have policies that drive development to suburban locations, in your opinion? What are they?
at the expense of smart-growth cities. If you subsidize the former, you undercut all the good work for the latter.
Surely you know that the state’s largest transit authority is going broke. The T is weighing two options going forward, both entailing cuts in service. The only question on the table is, which is the lesser evil.
Why no option to improve service? Why is the T tasked with paying for environmental remediation for the Big Dig? Advantage suburbs.
Meanwhile, out in the ‘burbs, state fiscal policy has made smart growth a losing proposition if it involves housing for families. Families are fiscal losers for cities and towns, costing more in services than they pay in taxes.
One upon a time the Commonwealth made up the difference, but no longer. Today the ideal residential development is an assisted-living facility that will not send any kids to school.
It’s no wonder that revenue-starved communities lucky enough to live next to a superhighway favor shopping malls and office parks. Nonetheless these projects compete directly with efforts to redevelop cities and to create smart-growth density around transportation hubs.
They are furthermore pound-foolish ecological nightmares and are facilitated by state policies and practices.
I realize I am painting with a broad brush and there is a good deal more to say, but these policies are exactly what drive development to the suburbs. Sometimes I think we are so caught in our own clever constructions that we cannot see them for what they are.
… the jury remains in deliberation on the success of such endeavors: If the MBTA, which I consider ‘infrastructure’ is going to suffer greatly as a result of egregiously poor (and pre-reform) management practices and legislative handwaving, what have you accomplished with your reforms?
Can you connect the reforms with the future of the MBTA?
Can you tell us if the present dire situation at the MBTA is solely as a result of of past practices?
Or is it, in part, due to present reforms? And, if so, what does the future of the MBTA look like, in your vision, because of the reforms?
I am all about investing in infrastructue and human capital. It’s this stuff below I specifically have trouble with, yet another quasi-government agency lurking out there, doing something that should be done by the private sector.
The ETF received something on the order of $25 M this year. The FY2012 budget for Massachusetts totals $31.5 B/year. So we are talking about 0.08% of the state budget. I’m not saying that $25M is peanuts. I am suggesting that I’m not sure that it makes a measurable difference in the overall picture.
Meanwhile, do you have evidence that the ETF is performing badly in comparison to the private sector? I’m not sure that Evergreen was an ETF recipient, and I’m not sure that Evergreen is representative of companies that Massachusetts has invested in. The investment climate in Massachusetts sucks, and (as has been observed above) the things that make it bad have nothing whatsoever to do with the ETF or, for that matter, any part of the GOP political agenda.
The best way to improve the Massachusetts business climate is to restore Massachusetts to the status of first-world state. Our painfully decrepit public transportation is a great place to start. We need to raise taxes on our wealthiest residents, remove the Big Dig debt from the shoulders of the MBTA, and demonstrate a willingness to pay for the civilization that we all want.
A local culture that squanders hundreds of millions per year on one baseball team and fills the town next to its stadium with million-dollar-plus homes is a culture that is more than able to pay the taxes needed to sustain our society.
Merrimack, I actually have a lot of sympathy for some elements of your argument. The problem is you flat world everything: $25 M invested in the Speaker of the House’s new garage, even if such a think were to happen, is not the point, as grotesque as the corruption on Beacon Hill may be. The point is: why is the Massachusetts economy outperforming most others, and how can that advantage be accelerated. Tom’s points are far more reality-based with respect to the bottom line, which suggests that his whole ideology is closer to the truth than one that relies on straws located few and far between.
or maybe it’s not doing as well by some measures.
I read an Atlantic article that the signal biggest factor in an innovation economy was the number of highly educated people, and that is why certain areas outperformed others. MA has had this advantage for some time, and Harvard and MIT and other private institutions probably don’t assign their success to MA government actions.
I was only agreeing with earlier posters in my first comment. If you’d like me to add to their comments I would be happy to.
As to the magnitude of my one example, it was one I could put up with mimimum effort. It took be about a minute to Google and cut and paste. The Globe and others have been all over all these quasi-government agencies. Even the governor wants to rein them in.
When it’s not investing directly, it’s subsidizing, when it’s not that it’s tax credits. Soon the government is making all the business decisions. If you’re okay with that, fine. I happen to believe it’s not efficient. We’re not in an open debate here. There’s no point in my spending most of my day arguing here because I’m changing zero minds.
PS If you want another example of the failure of MA state investment beside Evergreen look up Beacon Power.
The entire Chapter V of the MA state constitution was devoted to helping Harvard.
At least try to obtain a glancing familiarity with your own state.
MIT is a so-called “land grant university“, which means that although it is private today, it was created using public funds from federal land sales. Just like UMass Amherst.
In general, I’m in agreement with this statement. In specific terms, however, I object to words new> and alternate.
You make a strong case that the ‘prevailing narrative’ breaks significantly from the past as well as from reality, and I agree. However, rather than seeking ‘new’ and ‘alternate’, as though those things, by their very ‘newness’ and ‘alternative’ nature, can provide for us, why not just reach into the past for those demonstrably efficacious policies and narratives and use those.
You say:
Yes. So why can we not say “more taxation. better regulation. better government and more unionization”.
Seems pretty straightforward to me… Let us say it.
More importantly (and props to Secretary BIalecki and the Honorable Deval Patrick) let us go forth and do it.
I guess my point is that I don’t think it will be enough to “just reach into the past for those demonstrably efficacious policies and narratives and use those.”
I think we need to more affirmatively make the case for what will work best today (or re-make the case where we believe prior policies are best).
to let go of the old narrative? I see that he spent the day yesterday beating the “less regulation” drum.
We believe that one important way to defend the benefits of government regulation in protecting workers, consumers and the environment is to demonstrate that we accept the responsibility for reducing/modifying/eliminating regulations that are unnecessary or duplicative.
Does that sound right to you?
Is it important to our commonwealth that hair and nail salons had to be shut down before the business could be transferred to a new owner? We don’t think so, and we think we owe it to the public to be able to defend the value of the regulations we do choose to keep on the books and to enforce.
and talk about the MA constitution as well. Who cares?
Oh I forgot, no one every made any money ever without the help of the government.
(( Paddy swipes from a Party Neocomrade who does business over to WhightGuard HQ as “Critical Dan.” ))
Happy days.
–JHM