Meet the New Plan, Same as the Old Plan

ed_planby James A. Bacon

Last week Governor Terry McAuliffe published his strategic plan for economic development, which will provide a road map for legislative and executive policy for the remainder of his term. My quick-and-dirty analysis is that there’s nothing much new here — it checks all the usual boxes — but there’s nothing offensive either. This strategic plan, like those of previous administrations, represents the conventional wisdom of the usual stakeholders.

While the plan does acknowledge the necessity of emancipating Virginia’s economy from his dependence upon the federal government, it ignores the state’s slipping rating in a variety of national business climate rankings. Indeed, the report engages in delusional thinking. “From the robust economy to competitive taxes and incentives, Virginia’s pro-business climate has few, if any, peers,” states a passage describing Virginia’s economic development assets. I think Virginia is a great state and wouldn’t live anywhere else but, really, I know nonsense when I see it. Few peers? C’mon.

Virginia does have many strengths, which served the state well in a previous economic era dominated by corporate recruitment. Our building costs are eight to 22 percent lower than the national average. We have the second lowest workers’ compensation costs in the country. The state has maintained a AAA bond rating since 1938. Virginia can boast of “the greatest number of scientists and engineers of any state.” But the state is struggling to shift to an entrepreneurial, knowledge-based economy.

At least the authors of the report understand that such a transition must be made. As they note, thirteen of the state’s top 20 employers are either public-sector enterprises (U.S. Department of Defense, Fairfax County Public Schools) or private contractors dependent upon federal spending (Huntington Ingalls Industries, owner of the Newport News shipbuilding complex). But the situation is even worse than that. Of the top private sector employers, three are retailers (Walmart, Food Lion and Lowe’s Home Centers) and two (Sentara Healthcare and HCA Virginia Health System) are medical enterprises, none of which provide goods or services tradable outside the state. Only one company — Capital One Bank — creates products and services that it trades outside Virginia. That’s a sad commentary indeed.

The report correctly contends that the focus of economic development should be on building private companies that aren’t dependent upon government spending. To foster that growth, it sees government playing supporting role by being best in class in five areas: infrastructure; strategic growth sectors; overall business climate; entrepreneurism and innovation; and talent. The report also is realistic enough to know that in the current economically constrained environment, the commonwealth of Virginia is in no position to launch any big spending initiatives. The proposals described in the report are appropriately modest and focused.

The biggest void in the report is the lack of any connection between economic development and community development. Arguably, the biggest single challenge in economic development is not just developing a skilled and educated workforce but recruiting and retaining a workforce. It’s the old Richard Florida creative-class thesis. Corporations locate where the skilled labor is. Workers with education and skills tend to pick where they live, based on lifestyle amenities and cultural attitudes, not on where they can find a job. If a company can’t recruit workers to live in [name of your town here], it will suffer a competitive disadvantage. If young, skilled employees decamp for other metropolitan regions, the labor pool shrinks… and employers suffer a competitive advantage.

Our understanding of what mobile but highly desirable creative-class employees are looking for in their lives is still fairly primitive. We have some vague ideas — educated young people like walkable urbanism, bicycle lanes, cool food, a live music scene, etc. etc. — but no one is factoring that knowledge into a clearly articulated strategy that encompasses zoning policies, transportation improvements and public works investments. Until we do, every governor’s economic-development strategic plan will fall short.

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5 responses to “Meet the New Plan, Same as the Old Plan

  1. I think the best, most potent economic development initiative in Virginia is to substantially improve our education performance and standards.. so we have more kids growing up to be gainfully employed, not needing entitlements and a real draw as an educated workforce that industry is seeking.

    and I favor the tobacco commission being limited to spending on that purpose and creating health clinics in the areas of Virginia that have large numbers of uninsured folks.

    I think anything else is pompous and fruitless hand waving idiocy… from the elites and crony capitalists.. and rent-seekers.

    we need to get our heads screwed on straight as to what we really want to achieve and the current efforts are little more than thinly disguised bribery – as Jim points out all the time.

  2. What about SAIC or Booz Allen or Freddie Mac? These are all Virginia headquartered (in Tysons I would add) companies that do billions of work outside of Virginia.

    Beyond this, you discuss a phony statistic which is largest employer. Of course the largest employer of a state is going to public sector (teachers) considering every 20 children need 1 teacher minimum (let alone support staff of a school). Then you go on to retail. Well duh, yes retail needs lots of employees that has always been the case. And then health care, again a high population format of work.

    I’d assume 90% of states would have similar “largest employer” lists. Not sure what benefit is to be derived from pointing out that those industries have a large employed population vs output requirement.

    • yeah, I’m with TE on this – teachers, prisons, sheriff deputies, water/sewer, fire/ems, VDOT.. what’s the big surprise?

      Most employment is basically to serve rooftops – that pay taxes for those services.

      some jurisdictions are lucky enough to attract, keep businesses that sell products and services beyond the local rooftops – to the region, state, country or internationally but those jobs are not so easy to figure out what to do to attract them beyond direct bribes.

      Some of what attracts them- is GOOD schools – K-12 AND higher ED AND good community colleges/vocation schools. Over and over companies complain that the quality of employees with regard to education is lacking.

      The US military has to reject a good number, more than a third of applicants because they cannot read and understand weapons technical manuals and other 21st century job demands – even in the military.

      we continue to make excuses why we have truly dismal K-12 schools in some neighborhoods in Va… but even our “high grade” K-12 kids run as fast as they can away from things like AP Math… even in good schools.. even good students.. fear robust educations.

  3. I’m somewhere in the middle. I agree with TE that we really aren’t measuring the correct indicators. What we are discussing really doesn’t tell us much. But I cannot suggest other ones.

    Both RoVA and NoVA are heroin addicts. RoVA is addicted to money coming from NoVA, most especially from Fairfax County. NoVA, especially Fairfax County, is addicted to federal spending. And some of us are addicted to a large extent on federal regulation. The latter is not going away, but the former is not going to be anywhere as robust as it was. The gravy train is no longer running. Of course, all federal contracting money is never going to dry up completely.

    A good test of how viable Virginia companies are would be: What would the company look like with only one-half of its current federal contracting revenues?

    • and I agree with TMT. No one in the State with a grain of sense doesn’t know for a fact just how dependent NoVa and Hampton Roads are on Federal spending.

      and despite all the talk about entitlements killing the budget, the truth is that military spending is also and both must be cut and in doing so Virginia has chosen to take the hit on the military and not take the 2 billion on MedicAid which does NOT come from general revenues – which is where the budget deficit is and that 2 billion will go to other states.

      I would be like us paying gas taxes then refusing to take transportation dollars.

      With that money, not only could we compensate for the loss of other Federal dollars – we’d get our money back that we pay in earmarked taxes, we could build community health clinics which would not only take pressure off of rural ERs but provide local jobs for nurses and other medical para-professionals..

      like it or not – THAT’s economic development ALSO – and it’s not that different that taxes paid for teachers or police.. it’s local and community-based.

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