An op ed by Bruce Lisman
This financial crisis is a game-changing event that has Darwinian implications. We’ve already seen enough to know that something big has happened. And, it’s not done happening. Events this big are hard to process, but one sure thing is, that changes are under way wherever we look.
Countries we loved to applaud such as Ireland or Spain have been sent to the back of the pack and their citizens given a prescription for a lower standard of living. Countries we never spoke of, such as Peru and Estonia have an act we now applaud. The front side of the crisis brought ruin to countries, businesses, and individuals. The backside of the crisis brings a reversal of cosmic economic themes and a changed order of things.
We face headwinds that are bad for economic growth, bad for certain asset values, bad for personal income growth and bad for public policy that doesn’t grasp the changes afoot. All of this creates fabulous opportunities for those people and institutions that can see the outline of the new order of things. And, the history of America and for much of the world is that things get better over the longer term, no matter the dangers in the near term.
Adjustments are under way just about everywhere. Listen, Spain, Portugal, Greece and others are in the midst of re-structuring themselves and are giving recognition to the simple fact that a decade of spending programs was supported by economic growth built on an overheated financial system, real estate, and debt. Or put differently, it was economic growth that now seems illusionary.
The United Kingdom has promised to eliminate its budget deficit by reducing spending (80 percent) and lifting taxes (20 percent), and it’s being presented to the public in an alarming fashion—with remarkable transparency; Denmark is shrinking its social safety net; so is France; Sweden already has. Each of these countries is risking their citizens’ standard of living now in order to be ready for the next upturn. They are reversing a decade or more of public policy because revenues are lower than expected, deficits are large, and revenue growth may remain below expectations because of the structural damage caused by the recession.
In America the drive to reduce our deficit is setting us on a course to reduce current spending and long term obligations and placing standards of living at risk. Change indeed!
How is all of this different from what our states are experiencing? In some ways, it isn’t different at all. The same pressures exist: Large deficits from the sudden reversal of fortunes, the prospect of a drawn out recovery, a restive and angry citizenry concerned about the economy, jobs, how we got here, and what happens next. There aren’t riots here; instead, our citizens are demanding substantive change and demanding a new and different type of government. Sure, the Tea Party is one version of protest; but, so are the approval ratings of our national government and both political parties, and many incumbents at the state level. It reflects anger at a government that has become distant to its own citizens.
If the decades of the late 1990s and 2000s favored the states as recipients of vast increases in federal funds, higher real estate related taxes, higher income taxes, and capital gains taxes–then the years ahead will be very bad for most states, including ours as those trends are reversed.
Still, in Vermont we aren’t flat-lining like California or Illinois; our government isn’t dysfunctional such as in New York. And, we didn’t suffer the steep economic decline that has hurt other states. That’s good, and not the only thing that’s good in Vermont. We have a very diversified and sophisticated economy, a pair of powerful economic clusters—our hospitals and higher education institutions are outsized in our economy. We have among the best public education systems in America and a brand that is distinctive and well known.
Those are the kinds of things that dreams of becoming a more powerful center for job and income creation can actually be built upon. The states, including our own, and the feds are pursuing short-term remedies for a sluggish economy; simultaneously, our federal government and many states are attempting drag baseline spending back to 2008 or even earlier levels.
We should seize this moment to think bigger and imagine a bolder strategy that moves Vermont on a path toward becoming an economic powerhouse, but one that does not abandon values we hold dear. We can and should marry those essential Vermont characteristics of pragmatism and caring for our neighbors in support of that that essential theme: prosperity.
Jobs are good, but economic prosperity not only sounds better, it is better. It requires a thought process that recognizes that things today are different and don’t resemble the recent past, and require public policy that has a different orientation.
Think about the value of economic prosperity; it’s the end product of a vibrant economy. All kind of jobs are created and it means rising incomes for our citizens. Of course we want jobs, but 94 percent of Vermont workers and 91 percent of American workers have jobs. Beneath the current malaise is a far more basic theme: We want a return to the security and insulating cushion that economic prosperity creates; and, the sense that tomorrow will always be better than today.
Economic prosperity is a magnet for workers—in our country, the labor force goes where the jobs are. Economic prosperity creates the ladder for the poor to reach economic health; it can supply jobs for those who want them and with that, we can imagine solving issues around crime, substance abuse and domestic violence, events that take place where jobs are absent. It’s a vibrant economy that provides the means to clean our lakes, train our unemployed and underemployed, protect those who need protection and give help to those that require it. It literally is the fuel for our “Social Contract.” There is overwhelming evidence that the quality of life correlates highly with measures of economic prosperity.
It’s a theme of transcendent importance—it literally towers over everything else that we can imagine. It isn’t equal to a quality education system; it doesn’t share the spotlight with affordable housing or saving dairy farmers, or promoting alternative energy. Without economic prosperity we’ll be hard pressed to afford any of those very good “wants.” But, economic prosperity is a theme that is virtually unknown to states and scary to governors and legislators more comfortable with near term goals and decisions sometimes made without full context or without a way to measure those decisions.
Is it worth pursuing this theme of economic vibrancy? Of gathering a consensus that draws citizens and its government to a common cause? It is if you believe that the consequences of financial crisis can be both great and well, deadly. So, imagine then, our state choosing this moment, at the very edge of an unknown future to embark on a bold path that says with clarity of purpose and mission that we will pursue economic prosperity on behalf of our citizens, but in so doing we will not abandon our values! In doing so, we will also dispense with those arguments from the right that would decry the social benefits created by our economy and the left for decrying the value of the economic machine that produces those social benefits.
Let’s choose a new path that recognizes our strengths and values. And, let’s choose it because we can’t afford the old.
Getting on the path to prosperity:
• Build a strong consensus in our state for pursuing economic prosperity, a transcendent theme central to our long term health. No creaky planning sessions, please. This is the moment that requires gifted leadership and an enlightened and enthused legislative body.
• Support that theme by building a different kind of government. One that offers maximum transparency of its budget. It would show where the money is spent, how it is spent, and what we expect to accomplish. But, it would also tell us how well it is spent and compare goals with results. Move to a budget logic that measures results, puts accountability into the mix, and declares how well we serve our citizens. Transparency and accountability will neutralize the high tax burden that is likely to remain; it would re-enfranchise those who pay the lion’s share of taxes, inevitably it will create efficiencies, and improve the quality of our government. Structure abhors change; accountability undermines structure.
• Let’s focus on the elements of our Social Contract. It’s a capital S and C. We believe in it. It matters to us. It defines us. However, we can’t measure its size, its quality, or its results. If it matters so much, then we should understand it and take pride not in its size, but in the quality of its work. Protecting “vulnerable Vermonters” is a good cause, but a poor defense of spending when we are ignorant of its results.
• Let’s build an economic environment—the platform upon which our businesses operate—that is welcoming to employers of all kind. Give up the notion of choosing favored businesses or attempting to see a future we’ve already proven we can’t predict. Let’s not merge social policy with economic development, nor pursue legislation that has unknown consequences to our economy.
• Let’s focus on the full mosaic of what a strong economic platform includes. Tax structure and affordability matter a lot. So do 15 other items that include predictability of regulation, the quality of transportation systems, access to broadband, access to arts, public education, availability of a well trained workforce, to name some.
• Recast Economic Development as the Department for Economic Prosperity. Recharge it with a higher calling, redevelop it as a consultative service to our businesses and give it goals that support economic prosperity.
• Capital availability marks the limits to growth; make our sponsored capital providers—VEDA and VEGI—more robust and broaden their mandate. Eliminate ‘Corporate Welfare’ from our official vocabulary and replace it with ‘Corporate Accountability.’
• New products created from R&D pack a powerful punch; expand VCET’s capacity and make it Vermont’s incubator by opening in Southern Vermont.
• Move to a principled based regulatory framework that declares what the regulation is attempting accomplish and than provide bright line interpretation so that the purpose is not compromised, even as we provide clear paths for applicants.
• The quality of the workforce is the fuel for economic growth; re-cast job training by consolidating and streamlining the myriad of programs. Offer training to anyone receiving state funds so they can upgrade their skill sets. Get them (and us) ready for the next up cycle.
• If tax structure is so important—it’s not only the plumbing for the government it is the biggest long term influence on its citizens—how can we have a ‘Blue Ribbon Commission on Taxes” without a grand theme underpinning it? Who provided context? Direction? A strategic aim? A purpose? This is a “are you kidding me moment.” This is planning without context; it ignores the interconnected nature of decisions and the importance of … well, purpose. Three very smart and passionate people can’t overcome a bad planning exercise. Recharge that committee with a growth orientation and send them back to focus on property taxes.
• Let’s look at the hospitals and higher education institutions with new perspective—sure, as economic stabilizers, but also economic engines.
Accept these concepts and you accept the notion that we need a strategic calling in our state. It’s a calling that recognizes the interconnected nature of decisions and one that dispenses with shallow arguments that are a call to meetings but little action.
Israel wanted to be an economic powerhouse; it is. Indiana chose to become their version of an economic powerhouse; it is. America chose to rebound from 9/11, a divided country in the 1960s and 1970s, and a Great Depression. It did.
So can Vermont.
Bruce Lisman, retired chairman of the JP Morgan Global Equity Division. He previously served as a senior managing director of Bear Stearns Companies from 1984 to June 2008. He is native of Burlington.