Last week, the Rhode Island Public Expenditure Council (RIPEC) published a report that recommended changes to Rhode Island government intended to foster business growth. Rhode Island Governor Lincoln Chafee commissioned the report in response to the collapse of 38 Studios, a video game company founded by former Red Sox pitcher Curt Schilling. The company was given a $75 million loan from the Rhode Island Economic Development Corporation (EDC), a quasi-state agency.
Rhode Island is in rough economic shape. The state’s unemployment rate in August was 10.7%, second worst in the nation. The average unemployment rate in the six New England states (including Rhode Island) is 7.4%, and the national rate is 8.1%. A July report from CNBC ranked the state last in a list of the top states for business in 2012. The top ten states in the CNBC ranking had an average unemployment rate of 6.3% in August.
It’s clear that action is needed. RIPEC advised creating an executive office of commerce, with a secretary who would report to the governor and oversee state economic policy. The EDC would stay a quasi-state agency, but be rebranded as the Rhode Island Commerce Corporation, and would fall under the new executive commerce department. Governor Chafee has not yet committed to any aspects of the RIPEC plan.
How much can the government really affect commerce? Conservative politicians like to argue that government cannot create jobs, but also like to claim credit for any jobs created on their watch. This irony extends to conservative Curt Schilling, who was happy to take a government loan after years spent decrying the excesses of government. This American Life devoted an entire show to the subject of job creation, and the conclusions were ambiguous. It’s extremely hard for states to promote job creation in the short-term, and any short-term measures come at the expense of long-term concerns (such as the improvement of infrastructure and education). Economic development at the state level consists mostly of stealing companies and jobs from other states.
Another frequent refrain is that government regulations destroy jobs. This is probably the rationale for RIPEC’s recommendation to move the Department of Environmental Management (DEM) under the new commerce secretary. There is evidence that government regulation does not play a large role in the job market. As the Washington Post reports:
In 2010, 0.3 percent of the people who lost their jobs in layoffs were let go because of “government regulations/intervention.” By comparison, 25 percent were laid off because of a drop in business demand.
While it’s logical to assess the economic impact of new regulations, making environmental protection subservient to commercial interests is a troubling move.
This seems like a no-win scenario: Rhode Island needs jobs but the government can’t do much about it. In fact, the best way for the Rhode Island economy to improve is probably to wait for the national economy to get rolling. But Rhode Island’s unusually high unemployment rate suggests there are systemic problems with state. Rhode Island is known as a corrupt, one-party state, and this stereotype is proven correct with disheartening regularity. Pointing out the problem is easy, finding a lasting solution is difficult. Rhode Island needs to change something fundamental, like how the state holds elections. A nonpartisan blanket primary system, in which all the candidates from all parties run in one primary, with the top two candidates advancing to the general election, could lead to more competition and allow moderate Republicans to emerge as a political force (or it could lead to general elections filled with only Democrats). Even if fundamental change proves elusive, Rhode Island should focus on improving the aspects of the state that already stand out, such as tourism and education. Regardless, I doubt that reorganizing how the state administers commerce is the real solution to Rhode Island’s economic troubles. RIPEC’s recommendations may be beneficial, but deeper reform is needed.