What's Next for Vermont's Economy?

Governor Jim Douglas was well on his way to a fourth term November 4 when the IBM microchip plant in Essex Junction announced it was laying off 100 contract workers.

The election-day purge brings to 280 the number of IBM workers let go in 2008. The total number of manufacturing jobs lost this year, including a series of layoffs by a half-dozen other Vermont companies, tops out at nearly 600.

Douglas and his main opponents, Democrat Gaye Symington and independent Anthony Pollina, all made economic development a centerpiece of their campaigns. Each articulated a vision that looked beyond Vermont’s traditional reliance on manufacturing and tourism toward an economy based on renewable-energy creation and the development of green businesses.

Douglas promises an “economic stimulus package” that includes tax credits for research and development, a “smart grid” energy network and green-growth zones in which businesses are created around renewable-energy ventures. He also announced a Vermont Innovation Challenge [1] that would bestow tax-exempt status on any new company that brings jobs into the state.

Less clear is what Vermonters would have to give up to pay for Douglas’ stimulus plan. The governor’s package is rich in “business incentives” — tax breaks and credits — but less generous in its commitment to new investments in affordable housing and infrastructure improvements.

Some will agree with that approach; others, no doubt, will not.

In the meantime, Seven Days asked 10 informed observers to set their own economic-development agendas for a post-IBM Vermont.

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Change Our “Perfect Little State” Culture
John McClaughry
Back in the 1950s, avid skier Tom Watson, the chairman of IBM, put a major manufacturing plant in sleepy Essex Junction. Besides the great skiing, the Burlington area offered a conscientious labor force, low land prices, low tax rates, few regulations and a hundred years of prudent, businesslike, Republican rule.

Before long, the IBM era in Chittenden County may dwindle to a close. That will bring to the fore the long-dreaded question: How will Vermont’s economy — and tax base — survive the loss?

No one expects another large manufacturing company to replace IBM in Essex Junction. Our hope is to attract and nurture small- to medium-sized companies that make high-value-added products and have the capacity to grow.

Our obstacles, in addition to location and a cold climate, are:

a) the lack of a first-rate science and engineering reputation;

b) a shortage of skilled, experienced and dependable employees (despite spending $13,500 per pupil in our public school system);

c) high rates of business and personal taxation;

d) a prevailing civic culture that views Vermont as the Perfect Little State, and insists that enterprise be located and operated in politically acceptable ways.

It is especially this last item, with its mandates, regulations, interminable paperwork and frequently bureaucratic hostility, combined with overwhelming liberal majorities in the legislature, that make Vermont a risky proposition for people hoping for a return on job-creating investment.

Change that culture, and Vermont may have at least a fighting chance.

John McClaughry is president of Vermont’s Ethan Allen Institute [2].

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Invest in Vermont
Will Raap
We are using hundreds of billions of our dollars to save insurance giant AIG, GM, Ford and Chrysler, dozens of banks and other bastions of capitalism that are “too big to fail.” These enterprises did fail to respond to market realities and/or were driven by fast and easy profits from complex global financial trading. They simply did the opposite of “make money the old way . . . by earning it.”

GM has been borrowing money for years to finance their interest payments on other GM debt. A friend of mine has been doing this, too, with his credit cards, but when economic reality catches up to him, he will not hurt millions of others. Where do these companies find their banks? Fortunately for us all, banks operating in Vermont would never support such irresponsible behavior. Now, we all will suffer from the failures of these large corporations.

Would superb state economic development help Vermont reduce our pain from this global economic collapse? Not much. But Vermont is still better off than most states because our economy is dominated by locally owned businesses rather than large corporations whose futures are decided elsewhere. The silver lining from the collapse is, we now know we must be rescued from, not by, the global economy. We now know real wealth comes from strong communities and healthy environments — not from stock markets and housing financed with reckless mortgages. We now know it’s smart to invest in local food production and energy generation so we can take care of basic needs no matter what OPEC is doing. We now know a petroleum-addicted economy and the climate change it is causing are problems we must solve. Plus, we now understand that investing in jobs that build on our inherent strengths, including human and natural capital, is the smartest economic development strategy.

Will Raap is founder and chairman of Gardener’s Supply Company [3] in Burlington.

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Encourage “Foreign Exchange”
William Gilbert
The sharing of domestic jobs in a family is important, but the jobs that ensure a family’s survival are the ones that bring in a salary from outside — call it “foreign exchange.”

As in a family, money spent in Vermont by people who earn it outside of Vermont enriches all Vermonters. If we want tax-supported necessities, good education, police, roads and human services, we must encourage jobs that bring in foreign exchange. If it is sold to the outside world, it is good for Vermont.

Buying locally produced products alone helps but does not support our Vermont family. For example, our tax disadvantage to New Hampshire will continue to drain hard-earned dollars and make Vermonters along the Connecticut less well off. Our Vermont dollars have become New Hampshire’s foreign exchange!

What jobs should we encourage?

Manufacturing — almost all of what Vermont manufactures is sold to the outside world: From IBM microchips to snowboards, maple syrup, cheese and granite, all are essential sources of foreign exchange. They should be taxed less and regulated strategically for growth, as they benefit us all.

Higher education provides teaching and research jobs supported by out-of-state tuition. Many students stay and bring new ideas, resources and enterprise.

Some service jobs, such as health care, advertising, accounting, legal and finance, also bring in wealth. Fletcher Allen imports 25 percent of its revenue. The medical research at FAHC and the College of Medicine alone brings in over $100M from out of state, sustaining hundreds of jobs.

Retired Vermonters bring in foreign exchange, but, by overtaxing their pensions, we discourage them from staying here.

We must test any tax or spending proposal with a question: Will this help or hurt job creation, and will the jobs created bring in wealth from outside of Vermont? Those are the most important jobs.

William Gilbert, a South Burlington attorney, is a former executive vice president of Fletcher Allen Health Care. Prior to that, he served as assistant attorney general, deputy secretary of the Vermont Agency of Health and Human Services [4] and commissioner of the Department of Public Service [5].

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“Incentives” Don’t Work
Doug Hoffer
You can’t solve a problem using the wrong tools.

We spend $40 million annually on core economic development. Of the state’s share, the majority goes to tax “incentives” and subsidies for the tourist industry.

It is widely assumed that Vermont is antibusiness and uncompetitive. If so, then so are the other northeastern states, all of which have lost more than 20 percent of their manufacturing jobs since 2000.

The notion that we have to compete with other states by offering tax “incentives,” or reducing state taxes, is not supported by the evidence. State taxes are a very small part of business costs and the misleading talk about our relative “tax burden” has been debunked.

Also, the jobs impact of interstate business moves is a tiny portion of total job creation and destruction. We lose lots of jobs to off-shoring, but that’s about labor costs, which dwarf the impact of state taxes.

States cannot control major economic forces (e.g., federal budget, interest rates, trade agreements, etc.). Therefore, we should focus on the fundamentals that are within our control and make investments that reduce our vulnerability to outside forces.

But there’s only so much money. Dollars spent on misguided subsidies are not long-term investments. We should shift those funds to education and training, roads and bridges, telecom, affordable housing, child care (the labor market doesn’t work without it), energy efficiency, renewables and technical assistance for small businesses.

And, of course, there is health care. Nibbling at the edges will not solve the problem. We should acknowledge the failure of the current system and start over.

Doug Hoffer is an independent policy analyst. He authored the Job Gap Study commissioned by the Vermont Livable Wage Campaign [6] and Burlington’s Peace & Justice Center [7].

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Break Down Business Barriers
Adam Greshin
Vermont can move beyond dependence on any one company, or any one industry, by nurturing an environment conducive to entrepreneurship. We already enjoy many advantages: Our primary and secondary education systems consistently rank near the top of the charts relative to other states, and we run a very strong surplus in higher education (we take in more college students than we send out). Vermont’s air and water are clean, her landscapes uncluttered. Myriad recreational pursuits await the outdoor enthusiast. We have one of the highest-quality health-care systems in the country. Vermont has a terrific quality of life.

Our business climate could use some improvement. Begin with a regulatory framework that is transparent, timely and predictable. Make it reflect our values but also make it easy to navigate. Focus on business costs, notably workers’ compensation and health-care insurance. Vermont businesses face some of the highest payroll costs in the country, costs that hamper our ability to create jobs and handicap companies competing across state lines. Finally, continue to invest in infrastructure, particularly high-speed Internet access, universal cellphone coverage and, crucially, public transportation and low-cost housing. Workers must have comfortable and safe places to live and easy access to their jobs.

Economic development is not about cherry-picking the right companies or industries. It’s about creating a suitable business environment and enabling market forces to work their magic.

Adam Greshin is a partner in Summit Ventures NE [8], the company that owns Sugarbush Resort [9].

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Create Green Jobs
Jane Knodell
The U.S. and Vermont economies appear to be in a deepening economic recession, with rising job loss and falling confidence among consumers and firms alike. Left to its own devices, the private sector will spiral ever deeper into recession. The role of government is to arrest the decline and redirect the economy in a positive direction by increasing spending and reducing taxes.

This is much easier said than done for policy makers at the state level. Unlike the federal government, states have to balance their budgets. In a recession, state income tax revenues fall as personal and business incomes fall. This forces state government to cut its own spending, and/or increase taxes, in order to balance its budget, and both measures tend to make the recession worse.

Ultimately, only the federal government can provide the kind of economic stimulus that will contain the recession. In a climate of weak confidence, tax cuts won’t work — households and businesses will be less inclined to spend their tax savings. The U.S. Treasury should embark on a green public investment program: investment in transportation, water and wastewater systems, energy efficiency, and new energy technologies. Such investments will create jobs today, boost future productivity in the business sector, and increase after-energy income in the household sector.

At least part of the federal program should be done in conjunction with state and municipal governments. A green investment program would provide the short-term stimulus needed to prevent a deep recession, and the long-term industrial redirection needed to create a brighter economic future for us all.

Burlington City Councilor Jane Knodell is an associate professor of economics at the University of Vermont.

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Small Companies, Big Payoffs
Paul Millman
Vermont’s economic future shouldn’t be built around luring a company to relocate here with 5000 jobs. Vermont’s economically stable future will come from growing 100 companies that each employ 50 people in quality, well-paying jobs.

Chroma Technology is like many other Vermont companies: We’re a small company in a small state. We’re not the kind of company that states usually make great efforts to attract.

We’re not the kind of company that gets the big tax breaks and incentives that Tennessee and South Carolina used to attract Honda and BMW. We’re not the kind of company economic development departments — or governors — brag about to show what a great place their state is to locate a business.

What we are is a company that started small in a small Vermont town and now enjoys an international reputation. We employ 87 people in quality, well-paid jobs. We are a company founded by people who moved to Vermont just because it’s Vermont, a state that welcomes people who dance to a different beat.

States can spend a lot of time and money trying to attract big car companies. I’m told the cost of attracting those companies to the state is often in excess of $100,000 per job. Or a state can be the place that attracts people who create, at much lower costs, one job at a time and, eventually, two, three and four jobs at a time when their products or services increase in demand.

Paul Millman is co-founder and president of employee-owned Chroma Technology [10], one of the fastest-growing companies in Vermont.

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Survival Through Sustainability
Andrea Cohen
We immediately need to transition our economy to the reality of a post-carbon, post-peak-oil world. We especially need to develop our local food and energy sectors — we import about $3 billion worth of these products from out of state each year. There is tremendous opportunity to create jobs and keep (and multiply) more of those dollars in Vermont.

Vermont has a “green” brand advantage, but we lost our original “green economy” edge by not aggressively embracing and marketing that strength. Somehow, it got political when it really just made strategic sense to develop green jobs. We need to get right back out front on that, before we lose more ground.

Let’s also be honest about who we are and what we are good at. We should focus on developing smaller-scale businesses. We have strengths in the environmental, creative economy, wood products, information technology, and specialty and sustainable-food system sectors. We can create a diverse and geographically dispersed economy that is less vulnerable to decisions from outside our state.

We also need to help our businesses and their employees reduce cost burdens by reforming our ever-more expensive health-insurance system and by ensuring a strong transportation and telecommunication infrastructure. Investments in public structures benefit us all when we think long term.

Most importantly, we should support and develop businesses that are intrinsically linked to Vermont people, communities and values — businesses that understand that there are multiple bottom lines. These are the successful businesses of Vermont’s future.

Andrea Cohen manages a public policy program for Vermont Businesses for Social Responsibility [11]. Prior to that, she worked for 16 years at the Vermont Agency of Natural Resources [12].

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Develop Local Workforce
Howard Pierce
Beyond all the usual noise about the Vermont “brand” and its value in the marketplace, our most fundamental attribute is “smallness.” By this I mean the short distances between people with ideas, elected officials and people who finance and build things. We all know each other. Given the realities of smallness, and the current challenging times, we need to pick our battles carefully.

First, we need to avoid struggling with issues where the solution is, by definition, federal. Health care is a good example. While we need to advance our ideas and even experiment via federal initiatives, Vermont has to be realistic about the disregard that health problems have for state boundaries. The problem of affordable housing is slightly more accessible, but it is still primarily driven by macro-economic trends.

Devising strategies to add “best workforce” to the Vermont brand is within our reach. We will eventually settle on business sectors to “target” for economic development, and the most important organizing principle will be “small businesses with a technology or creative focus.”

The biggest challenge will be finding or growing the workforce. Let’s use our smallness to our advantage and connect the state’s educators with entrepreneurs trying to fill positions. Create a robust and accessible database of known job types, detailed educational requirements and a clear path through specific Vermont academic institutions to become qualified for each job. The high school junior worrying about a career will figure out how to use it. Our legislators and congressional leaders can figure out how to support this flexible and dynamic system with funding.

Howard Pierce is the CEO of PKC Corp. [13], which makes software for the health-care industry, in Burlington.

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“Manage Forward”
Bill Schubart
If we are not guided by a vision for the future, we end up managing the past. The problem with simply managing the past is that opportunities pass us by unrecognized like fish swimming by a hook with no bait on it. We see and feel the effects of inevitable change, and we try to manage them. But in failing to envision a future, we can’t manage towards it.

Vermont can have a rich future, but only if we act intelligently and manage forward. We are better off than many other states. Our deficit is manageable. We actually have a rainy-day fund. Our environmental footprint is light. Our schools are good, our communities strong, our environment relatively clean, and our crime rate relatively low. We have accessible, transparent government and no corruption. But those are all measurements of our past.

Vermont has great opportunities in emerging artisan agriculture; health care and wellness education; cultural heritage, eco-, sports and agri-tourism; light manufacturing, software and content development, energy management, lifelong learning in retirement. But none of that will come to pass without leadership willing to risk policy change on a collective vision for Vermont. It will also take smart regulation and a strategic tax code that supports and invigorates such a vision.

We can’t count on getting another great economic driver like IBM for reasons of scale, globalization and geography. A good leader will help us develop and harvest the myriad sector growth opportunities like those above.

Writer and businessman Bill Schubart is chairman and founder of Resolution Inc.