If we are to believe government experts and liberal academics, Americans must accept high unemployment and slow economic growth “for the foreseeable future.” Fortunately, many states are experimenting with economic policies and strategies designed to create jobs and raise economic activity by strengthening the private sector and targeting investment and resources to make labor markets function more smoothly.
What are some of these policy initiatives that conservative governors across the country are supporting?
First, and most obvious, states must restore fiscal discipline to their budgeting and tax policies. Numbers don’t lie. States with high rates of taxation and large public sectors (New York, New Jersey, California) tend to have lower growth rates than the national average.
States that are addressing high taxation rates and bloated public sectors seem poised for a brighter future. Govs. Mitch Daniels of Indiana, Tim Pawlenty of Minnesota and Haley Barbour of Mississippi have been particularly focused on creating business-friendly environments that stress holding the line on state taxes and spending, reducing state regulatory burdens on firms and scaling back “junk lawsuits” by enacting tort reform.
Newly elected New Jersey Gov. Chris Christie campaigned on a promise to make New Jersey’s business cost structure more competitive and has already imposed a freeze on new state spending in the Garden State. Mr. Christie is also challenging the enormous power wielded by the state’s public employee unions, which benefit disproportionately from ever-higher taxes and spending.
Second, successful governors are focusing on strategies involving business diversification as a way to expand their states’ economies. These efforts involve support for in-state industries where there is local comparative advantage (agriculture in the Plains, energy in the Southwest). These also include creating the proper incentives to attract so-called “industries of the future” such as technology companies, financial services, biotech industries and firms that focus on alternative energy research and production.
In Virginia, for example, newly elected Gov. Robert F. McDonnell is looking to develop his state’s offshore oil reserves. Gov. Rick Perry in Texas is hoping to attract biotech and life science companies. Connecticut Gov. Jodi Rell has launched a major initiative to secure green jobs for her state.
Many other governors are also seeking green energy sources of wind, solar and biodiesel with the hope they will produce future jobs and economic development. Governors have learned the lesson of Michigan: States that wait too long to diversify are especially vulnerable to an economic downturn hitting their prime industry.
Third, conservative governors recognize the key role played by small businesses in generating new jobs. Several states offer assistance to small businesses including access to working capital (Gov. Mike Rounds of South Dakota) and technical assistance (Gov. Bob Riley of Alabama). Unlike Washington, which is increasing taxes and regulatory burdens on small firms, conservative governors are encouraging individual men and women to achieve their full potential through risk taking and entrepreneurship.
Fourth, a key initiative in attracting jobs to their states, conservative governors realize that this involves supporting measures that allow labor markets to function smoothly and efficiently. Job markets function best when firms have easy and timely access to capital and labor.
States whose research and development programs and educational systems are geared to producing a pool of qualified and well-trained workers are well ahead of the game. In Louisiana, for instance, Gov. Bobby Jindal launched an ambitious program to strengthen community and technical colleges, which recruits and trains workers to fill available jobs. Gov. Sonny Perdue of Georgia has begun a joint effort with the private sector to provide technology training to displaced workers.
States with inflexible labor laws that make hiring more difficult and expensive are at a strong competitive disadvantage. Chief among such measures is so called “card check” legislation that would eliminate the secret ballot in union organizing elections. It is no surprise, for instance, that new auto plants being built in America are located in states with flexible work rules and labor markets.
Federal fiscal and monetary policy is by far the main driver in job creation and economic growth because of its enormous resources and ability to run huge deficits. However, intelligent, free-market policies pursued at the state level can enhance a state’s competitive advantage when competing for jobs in an increasingly mobile and fast-changing national and international landscape.
• Frank Donatelli is chairman of GOPAC, a center for training and electing the next generation of Republican leaders.