Deal Flow/Opinion

Putting climate resilience over business climate as an economic priority

The perils of trying to improve “business climate” based on depletion of natural resources

Chart prepared by Greg Gerritt

Comparing the states with the best and worst business climates.

By Greg Gerritt
Posted 1/30/23
At a time when the General Assembly is entering what could be called the “deal flow” stage of budget deliberations, the metrics by which the state defines economic prosperity need to focus more on climate urgency, not business climate, argues Greg Gerritt.
What is the cost of delaying regular primary care visits to overall health outcomes in Rhode Island, given the continuing health care workforce crisis in the state? What are the metrics to measure return on investment in preventing lead poisoning of children in Rhode Island in terms of future economic outcomes? How do investments in women’s health care, paid leave, and childcare improve the quality of the workforce in Rhode Island? How soon will the pilot harm reduction center planned for the state become operational? When will the relationship between the fossil fuel industry and plastics manufacturing become more visible?
Under the radar screen
Encouraging signs: Harvard Medical School has added climate urgency to its curriculum, and thanks to Sen. Whitehouse, the Providence Resilience Partnership secured $1 million to assess the climate vulnerability of the Fox Point Hurricane Barrier.
There was much political hoopla made when the new Central Falls/Pawtucket train station officially opened on Monday, Jan. 23., with the Governor, the Congressional delegation and other elected officials arriving by train for the gathering.
But there are changes on the ground in Central Falls that promise to improve the economic outlook on the ground, related to health care outreach. Beyond greater enforcement of lead regulations by the city, and the planned development of new affordable housing in collaboration with ONE Neighborhood Builders at the former police station, a new bilingual mental health counselor is scheduled to begin work next month, along with a dedicated women’s health practice. A new, school-based clinic in collaboration with a learning community is under discussion. And, the Cover All Kids program has resulted in nearly 500 children now being able to receive health care, changing health outcomes for the better.

PROVIDENCE – The modern concept of Gross Domestic Product was developed by Simon Kuznet in 1934. He opined that the measure was not a good proxy for the health of the economy, but by 1944, it was widely adopted and its use as a key measure of economic health continues to this day.

The U.S. has an entire government agency, the Bureau of Economic Analysis, devoted to studying economic growth and GDP, which is where most of the data .cited in this essay was found.

Despite its widespread usage and acceptance as a key measure of the economy, there is a school of thought in economics that agrees with Kuznet and believes that GDP is a very distorted measure, because it has no way to distinguish between spending that contributes to the health and prosperity of the community and what harms a community.

• The economy is a wholly owned subsidiary of the environment, not the reverse. – Herman Daly

• Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist. – Kenneth Boulding

Herman Daly considers harmful spending to be illth, as opposed to wealth, and that at this point most of what we are calling growth is simply depletion of natural resources, and much of the rest is overwhelmed by the cost of cleaning up the messes we keep making.

The key factors that determine the rate of economic growth in any political unit are: the availability of resources, location and trade patterns, the education and skills of the people in the community, its population dynamics, and its history, economic history, and history of government. These factor account for all variability in economic growth rates.

The business climate
The rich are often searching for an advantage, and they have many ways to bend the government to their will. The current obsession is called the business climate. Right-wing think tanks and media rank states by how much they are willing to enact low taxes on the rich and loosen regulation of business. Supposedly, if a state does what is necessary to get a good ranking, it will increase its rate of economic growth.

Rhode Island almost always ranks in the bottom 10 in our business climate but somewhere close to the middle in performance, according to Bureau of Economic Affairs data. Rhode Island public officials and the elite of the private sector argue that if we emulated the high-ranking states, we would get a growth rate that is above average.

But does a better business climate bring faster growth? The data says no, that all of the variation in growth is accounted for by all of the other factors listed above.

Also, note that the per capita incomes are, for the most part, higher in the lower business climate-ranking states.

It makes you think they may be on to something that an extractive economy is not yet grappling with, and that maybe Rhode Island should not be taking the advice of oilmen about how to achieve prosperity in the age of climate catastrophes.

The table includes data from 20 states, the 10 states with the highest rankings in a recent Forbes ranking, and the 10 states with the lowest rankings. I left out the middle to make things clearer. [See chart above.]

There is a slight tendency for higher ranked states to have slightly higher growth rates, but nearly all of the increase is due to things that harm the community. There are five states that have relatively large mining sectors, above the national average of 2.5 percent of a state’s GDP generated by mining or drilling.

And, every one of them has a good business climate ranking, as miners seem to demand a right to produce dirty water with no legal liability.

They sometimes have fast growth rates. But, what about dirty water, high cancer rates, and extinctions? Are they really gaining or just eating the seed corn?

States with relatively large commercial agriculture sectors show the same tendency. North Carolina ranks No. 1 for business and it is infamous for its huge pig farms that pollute whole counties when they flood.

There is no evidence that deregulating the environment improves growth rates. Most studies find a small but real improvement in the economies of states that do a better job of protecting clean water, clean air, and public health, for obvious reasons.

The overall picture is that business climates add no value, and your growth rate is determined more by your economic history than anything else.

The lesson for Rhode Island is: do not get sucked into adopting an economic development strategy developed in places that are run by polluters and patriarchs as it is unlikely to bring us prosperity. Remember: clean beaches are too important, rising seas are an existential crisis, and women hold up half the sky.

Greg Gerritt is an occasional contributor to ConvergenceRI on economic and environmental issues.

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