New Democrat Update - March 2007
GOVERNOR RITTER’S “NEW POLITICS”
Governor Bill Ritter took a courageous step last month when he vetoed a measure (HB 1072) which would have allowed unions to negotiate all-union agreements without requiring an employee vote. As detailed in last month’s New Democrat Update, the debate was much ado about nothing and everything about the politics of division.
Nonetheless, the overly-heated politics presented a tough dilemma to a governor who has consistently emphasized economic opportunity and bringing Coloradans together. Initially, strangely enough, it seemed that either signing or rejecting the bill would be bad for the state.
Signing it could have caused a deep and potentially irreconcilable divide between two important Democratic constituencies - business and labor. Approval could have easily prevented both of them from working together on the state’s many other much more important challenges. Future collaboration, similar to their very effective partnership on Referendum C (the 2005 bipartisan ballot measure that addressed the state’s fiscal crisis), may have become impossible for the foreseeable future.
A signature would have also sent a powerful, first-impression message that the governor and his party will be just like Republicans when they controlled both branches of state government - my way or the highway. That would only have worsened another divide in state politics - excessive and unnecessary partisanship.
In the end, the governor found a way to get his administration - and the state - started on the right foot. Standing up to his party and a constituency group, he vetoed the bill with an accompanying strong message that could represent the first step toward transforming the nature of the state’s often divisive politics. This paragraph from his message is especially important:
“From the beginning, this was a bitter, divisive and partisan battle. Opposite sides dug in, refusing to consider reasonable compromises. It demonstrated precisely why so many people have grown so cynical about American politics. The bill's proponents made no effort to open a dialogue with the opponents. At times, the opponents were neither respectful nor civil. It was overheated politics at its worst.”
In other words, the governor kept possibly his most important promise of the campaign - Colorado’s policymakers must dramatically change the way they do business. The state’s new politics must be one that thrives on collaboration, not reflexively bent on confrontation.
The governor may have turned a lemon into lemonade. If his leadership, with the help of many others, can move us in that direction, there will be no problems that Coloradans - together - cannot solve.
INCREASING FAMILY INCOMES
During the debate mentioned above, a number of Republicans, along with some in the business and economic development communities, contended that HB 1072 would make it difficult to persuade other companies to relocate to Colorado. In addition to the overly exaggerated impact of the bill by both sides (again, see last month’s New Democrat Update), that argument widely misses the mark on a number of other important fronts.
It effectively advocates that, to be competitive, Colorado’s economic development strategy should focus on increasing the number of jobs and keeping wages low. To achieve such a goal, according to this view, the state should be persuading large, out-of-state companies to come to Colorado. All of which is exactly the wrong approach.
Rather than just focusing on job creation, the state should instead nurture a business climate that generates high-quality employment opportunities and increases the incomes of families. With stagnating middle-class incomes but a relatively low state unemployment rate of only four percent, the emphasis should be on boosting the quality of jobs, not adding more - whenever, wherever, whatever. Spending time and money on creating below-average-wage jobs - a “race to the bottom” - does not make sense.
That is why Kansas reformed its approach to business incentives by granting its corporate income tax credit only to businesses that pay wages above the industry average. Rhode Island likewise ties investment tax credits to company wage levels, and Minnesota denies any incentives to companies paying below a predetermined wage floor.
The other aspect of the misguided approach mentioned during the debate on 1072 - getting companies to move their operations to Colorado - is just as flawed. Years ago, a major business site selection consulting firm estimated that 10,000 economic development-related agencies across the country were chasing a mere 2,000 relocations a year. Not surprisingly, such outdated "smokestack chasing" has a low batting average and consumes valuable resources.
Colorado should not compete with, or imitate the strategy of, Mississippi in the 1940's and 1950's. With an economy overly dependent on agriculture, the Magnolia state's leadership decided to recruit out-of-state companies with tax giveaways, state loans and other freebies.
The results were less than satisfying. Most of the jobs from the program were low-paying and offered employees little chance for advancement. To this day, Mississippi has one of the highest poverty rates in the country.
Recruiting large, out-of-state companies is like fishing in a very small pond with few to catch. Nearly half of U.S. employees work for businesses with a payroll of less than 20.
Respected economist David Birch has estimated that 99 percent of new jobs come from the expansion of existing business and new startups. Thus, economic success will be determined by how effectively Colorado’s private and public sectors can spur home-grown technological innovation and entrepreneurship. As the federal Small Business Administration has described,
“Birch classified businesses in Wild Kingdom terms. The large, publicly traded firms that have shed millions of jobs over the past two decades are elephants. Small Main Street businesses that create jobs when they start up but then grow very little are mice. And fast-growing businesses that start small, then double in size and double again, are the gazelles. For the past 25 years, the most effective job creators have been the gazelles and the mice. And of those, the gazelles have been the prolific: some 350,000 of these fast-growing companies have created as many jobs in the recent past as the mice, which number in the millions.”
Finally, the economic downturns of the 1980s and 1990s also demonstrate that smaller firms perform significantly better in recessions than large firms do. While big companies often react with huge layoffs, small firms are expanding because they adjusted earlier and more quickly. Most importantly, they account for more of the true source of economic growth - new product and service innovations.
These basic principles and realities can focus the state's future efforts, maximize the benefits from precious taxpayer dollars and generate vital support from the public and business community. “Big-hit industrial recruitment" efforts and lower- wage strategies must no longer be substitutes for one focused on higher family incomes.