Heading Into the Session: What to do About the Economy?

As we head into the upcoming legislative session, our state’s economy continues to be the single most important issue. It is the economy—and we know it.

But what to do about the economy? What not to do about the economy? How to think about it? And how best to develop, design and implement a strategy to get our economy moving again?

Last September, I gave a speech at the Journey Santa Fe meeting that took place immediately after Labor Day.

It’s worth remembering that talk and the strategy that I outlined in it as the legislature regroups to pass a budget, consider legislation and debate the best way for our state to move forward.

Take a look and let me know what you think.

Journey Santa Fe | September 6, 2015

Appearing here on the Sunday of Labor Day Weekend

Ought to be a celebration

But unfortunately there isn’t much to celebrate in New Mexico when it comes to jobs and the overall employment picture

For the last few months I’ve been traveling around New Mexico, from Silver City to Farmington and Gallup, Taos and ABQ.

The overwhelming concern is our economy—and it should be. Jobs or the lack of good jobs with good wages is an issue that colors everything else in our state. And the truth is, as hard as people are working to get the economy working, to improve the jobs picture in their own local communities and across the state, we don’t seem to be making much progress.

When I was here to introduce our State Auditor Tim Keller, I plugged “New Mexico 2050” the policy guide edited by Fred Harris.

Here’s what the chapter on New Mexico’s economy says:

“There has been little nonfarm payroll employment growth in New Mexico since the onset of the Great Recession in December 2007.  . . .From June 2009 when the National Bureau of Economic Research declared the national recession to be over, to December 2013, New Mexico was the only state without employment gains. New Mexico’s neighboring states have all outperformed New Mexico since the end of the Great Recession.”

We are the hole in the recovery donut.

On Labor Day, and every day, this has got to be the single most important, most critical issue for our state.

We should be talking about it every day, in every part of New Mexico. It should unite everyone in our state—business leaders and labor leaders, elected officials and entrepreneurs.

Until we get the state moving again, we will be very hard-pressed to address anything else of importance to our future.

After so many years of suffering from an under-performing economy—particularly when everyone around us not only has recovered but also started to thrive—we need to ask two questions: Why? And what can we do to change it?

Why?

Michigan example: people there genuinely believed that they were being punished for living too high on the hog—they were guilty of hubris and deserved their economic punishment.

I don’t think New Mexicans have that kind of Greek tragedy mind-set.

Our economic stagnation has much more practical causes—which means we can find practical solutions.

A number of factors:

1.       The politicization of the New Mexico economy
         Gov Martinez and the film and entertainment industry
         Waste of time debating Right to Work

It is very hard to get the economy moving when you’re using it as a ideological bargaining chip in a political game.

(Doesn’t have to be done that way: In Oregon, the transition from Tom McCall to Bob Straub gave that state 12 years of continuity in crafting an economic strategy that has served them well—still the foundation for Oregon’s way of doing business.)

2.       Bad management

Tim Keller pointed out when he was here that we have something like $4.5 billion in unspent capital outlay funds—allocated, but unspent—with no mechanism to re-capture the money or compel its expenditure.

He’s also pointed out that we don’t actually have an accurate accounting of what is in the state’s checkbook.

As a business man and entrepreneur, I can tell you that it’s very hard to construct a workable strategy if you don’t know what’s in your bank account.

3.       A Poverty mindset

Very simply, we have a permanent fund that most nations would envy as an investment vehicle.

But we don’t invest it—even when we know that the return on those investments would mean a substantial ROI in terms of financial capital and human capital.

4.       But I’m convinced that our biggest obstacle to economic progress and job growth is very simple: Bad Strategy.

In his 1988 book on economic growth and innovation at the state level, David Osborne writes about what happened in the mid-1970s when the country hit a serious recession:

“Most states responded with conventional medicine: they cut taxes and offered large firms in other states a host of tax and financial incentives to open new plants across state lines. The practice became known as smokestack chasing, and by the late seventies it was a spectacle to behold, as firms learned they could play one state off against another until they got their dream deal.

 “In reality, state taxes were too minor a factor to change the economics of many plant location decisions, as study after study would demonstrate.”

Smokestack chasing was a dismal failure, says Osborne.

For some reason, we didn’t get the memo.

And so we continue to waste time and money and energy in a failed strategy: we’re going to build our economy from the out-side in by offering tax breaks to out-of-state corporations.

And it’s still a dismal failure.

Kurt Lewin, who is the known as the father of modern social psychology once said, “There is nothing more practical than a good theory.”

I’m going to offer a good theory about a different way to think about New Mexico’s economic future—and a good example of how to put that good theory into practical, applied use.

Seven Steps Toward Thinking Differently About New Mexico’s Economic Future

One: Stop doing what doesn’t work. (In “Good to Great” Jim Collins says every CEO always has a “to do” list—when what they really need is a “stop doing” list. We need to stop doing what doesn’t work.)

Two: Concentrate on growing our economy and creating jobs from the inside and grass-roots up.

Three: Focus on what makes New Mexico unique—what gives us competitive advantage.

(Jerry Garcia as management thinker: “We don’t want to be the best rock and roll band that does what we do—we want to be the only rock and roll band that does what we do.”) Don’t copy Texas or Arizona—leverage our unique advantages—history, culture, location, livability, sustainability—our way of life.

Four: Recognize that the game has changed.

David Osborne on what it takes to compete: “Government’s primary role is to nourish the elements that make innovation possible: a vibrant intellectual infrastructure; a skilled, educated work force; an attractive quality of life; an entrepreneurial climate; a sufficient supply of risk capital; a healthy market for new products and processes; a commitment to industrial modernization; an industrial culture built on cooperation and flexibility; and a social system that supports innovation and change.”

Five: Investments in hardware and software

           Early childhood education

           Higher education/vocational training/community colleges

           High-speed internet state-wide

           Better air access and transportation links

Six: A willingness to be opportunistic—agility and nimbleness in adapting to changing opportunities that present themselves.

Seven: A fundamental re-framing of the way we think about our state’s economic future: Don’t think of the “New Mexico economy”—think of the “New Mexico micro-economies”—the nine or ten small economic sectors that make up our state’s eco-system.

Then invest in them and leverage them so they help and support each other—look for ways that an investment in one area helps two or three more areas.

Let me give you an example of what this looks like when you put it into practice.

Imagine New Mexico jumping into a wide-open industry with a market potential of more than $500 million dollars.

An industry that we could grow from the grass-roots up, that would involve no out of state corporations.

An industry that needs what we have: plenty of land and sunshine—and doesn’t need what is scarce: water.

An industry that would work in virtually every part of our state. It would help revive rural New Mexico and support entrepreneurs and small manufacturers in our cities and towns.

An industry that would draw on skills that are deeply rooted in New Mexico culture.

An industry that would yield products that we could brand as “Made in New Mexico.”

I’m talking about industrial hemp.

It’s a small example. It’s not a cure-all for our state’s lack of jobs.

But it is a textbook case study of what we can and should do to grow our own economy.

Hemp isn’t marijuana.

Federal farm bill of 2014 allows states to grow it as an experimental cash crop.

22 other states are doing just that.

It’s in more than 25,000 products—and the biggest retailers of hemp-based products are Walmart and Whole Foods.

It’s a market worth almost 1/2 billion dollars—and we important all the industrial hemp we use for clothes and food and paper and cosmetics and construction materials from Canada and China.

History of hemp legislation in New Mexico.

8 years, 2012 study committee found New Mexico “uniquely positioned” to win in the hemp competition

SB 94—bipartisan support.

Passed Senate 33-8

Passed House 54-12

NMSU supported it; Dept of Ag supported it.

Governor vetoed it.

Just one example of a clear opportunity—a chance for New Mexico to be entrepreneurial—to invest in one area of our economy—agribusiness—and have a ripple effect in other areas: small manufacturing, food, even alternative energy production—all from using our unique strengths to best advantage.

We need jobs.

Our whole state is hurting. Bill Clinton once said, “The best social program in the world is a good job.”

We can address our other social issues much more effectively, optimistically, energetically once we have the economy moving again.

To do that, we need to think differently about what’s possible—and act differently to seize on our opportunities.

I’ve said before that New Mexico’s future is hiding in plain sight. Having traveled all over the state, I can tell you it’s true.

But not if we continue to chase smokestacks, politicize the economy, and waste our time and money on failed strategies.

People, talent, resources—everything we need to create jobs, build on existing opportunities, help small and medium size businesses grow, support entrepreneurs, encourage farmers and ranchers.