Tuesday, May 16, 2017

Economic Development: Taking the Red State Low Road or the Blue State High Road

Arlie Russell Hochschild is a sociologist at the University of California at Berkeley who was determined to understand why people in deep red states voted the way they did and what it was that drove the reasoning they used in deciding how to vote.  She chose to study a region in Louisiana that is home to the oil and petrochemical industries because she was particularly interested in determining why a people who lived in an area made toxic by industry would be dead set against environmental regulation.

Hochschild visited with many Louisianans over a period of about five years trying to gain understanding.  She presented her findings in the book Strangers in Their Own Land: Anger and Mourning on the American Right.  What she learned about their Tea Party leanings has been discussed in Strangers in Their Own Land: Republican Voters in the South.  The attitudes toward industry, religion, and the environment have been discussed in Louisiana Turns Itself into an Industrial Sacrifice Zone.  Hochschild proposed that what she observed in Louisiana in terms of economic development was a consistent red state strategy—the low road—which could be compared with a blue state strategy—the high road.  This latter subject will be the topic here.

Many of the people Hochschild met had been residing in essentially the same area for generations.  The association with place—and environment—was very strong.  It was very important for them to continue to inhabit the area in which they had grown up.  For that to happen, it was essential that jobs be created.  In fact, they were willing, begrudgingly, to allow their environment to be plundered in order to obtain jobs. 

This is the reasoning Hochschild saw in play in Louisiana.

“The logic was this.  The more oil, the more jobs.  The more jobs, the more prosperity, and the less need for government aid.  And the less the people depend on government—local, state, or federal—the better off they will be.  So to attract more oil jobs, the state has to offer financial ‘incentives’ to oil companies to get them to come.  That incentive money will have to be drawn from the state budget, which may lead to the firing of public sector workers, which, painful as it might seem, reduces reliance on government and lowers taxes.  It is a red state tactic.  But the paradox is that it goes with being a poor state with a lot of problems.”

Hochschild discusses this paradox with Paul Templet “a PhD in chemical physics” who taught at Louisiana State University and for four years was head of the Louisiana Department of Environmental Quality.  Templet was asked if the welcoming of oil companies had reduced poverty.

“’No,’ he answers, Louisiana was poor before oil came, and we’re poor today—the second poorest in the U.S.’  In 1979, 19 percent of Louisianans lived below the poverty line; in 2014 it was 18 percent.  In addition, ill-schooled poor people of any race find it hard to get the kind of highly skilled permanent jobs oil brings in.  And oil hadn’t improved the schools—they are financed by local property taxes, which are higher in rich areas and lower in poor ones.”

But if the oil industry brings in high paying jobs, shouldn’t that lead to economic growth and higher income for residents?

“One defense of oil jobs was that they were highly paid and that salaries would ‘trickle down’ through consumption that increased jobs and wages of other workers.  But did it?  ‘Not much,’ Templet says.  That’s because oil wages don’t trickle down; they leak out.”

A number of factors lead to this leakage.  Most of the oil and petrochemical industries are either foreign owned or located elsewhere in the US.  Profits are then generally distributed elsewhere, with dividend recipients most likely enjoying the social amenities—such as good public schools and a healthy environment— provided by more advanced countries or those available in the blue states.  Just because an executive builds a chemical plant in a poor region of Louisiana, that does not mean she wishes to live there herself, or force many others to live there either.  Those who could bring real wealth into the state stay away. 

When a plant moves to Louisiana it generates a large number of jobs—temporarily.  Skilled craftsmen are required for the building of the plant, but because Louisiana does not provide those skilled workers, most of them are imported from outside the state, or outside the country.  Less-skilled workers are also needed, but companies prefer to use even lower paid workers than they can legally employ in the US if they can get away with it.  Most of the earnings of both classes of workers leave the state.

“The industry is highly automated.  To build a petrochemical plant, you need many construction workers for a temporary period, and then their job is over.  To run a petrochemical plant, you need a small number of highly trained engineers, chemists, and operators to keep watch over panels of gauges and to know what to do when there’s trouble.  Then you need a few repairmen…”

“But a fracking boom was on, and maybe that meant more jobs coming in.  According to the 2014….Southwest Louisiana Regional Impact Study, some 18,000 jobs, a small portion of them permanent, would open up by 2018.  But seven out of ten of these jobs would be filled, the report said, by workers from outside southwest Louisiana.  Many companies would recruit professionals from around the world.  Construction workers building the ‘man camps’—barracks within enclosed encampments—were Mexican, people said.  The man camps would house 5,000 pipefitters, an undisclosed number of them Filipinos on temporary visas.  Filipino workers have worked for over a decade on oil platforms in the Gulf.”

What Hochschild saw in Louisiana is an example of what is referred to as a low-road strategy, one that is common in red states.  It involves eliminating union representation of workers as much as possible, keeping wages and taxes low, and removing any regulations and procedures that might be inhibit businesses from doing exactly what they would like to do.  This strategy has worked well over the years throughout the South as a means of luring industries away from other parts of the country.  But for it to continue to work, wages must be kept lower than other regions in a kind of race to the bottom.  And in feeding incentives to industries, the states necessarily cut back on social benefits for its citizens.  The state is in effect weakening itself and becoming more submissive to the will of the corporations.

Hochschild’s source, Templet, provides this perspective on Louisiana..

“As companies squeeze favors out of the state, he argued, the more urgent its citizens’ needs for good schools and hospitals, the less the poor are able to use what opportunities exist, and the more atrophied become other sectors of the economy—which further concentrates power in the hands of oil.”

If this is the low-road, red-state strategy, what might be the high-road, blue-state strategy?

“The ‘high road’ strategy….is to stimulate new jobs by creating an attractive public sector, as California did in Silicon Valley and Washington State did in Seattle.”

This implies a strategy that keeps wages high enough that people can live without public income support, investing in good public schools, healthcare, a healthy environment, and effective infrastructure.  These things of course are all expensive and require significant revenue from taxes.  They also come with a host of regulatory constraints on businesses.

It is difficult to conjure up two more diametrically opposed views of the path to economic development.  How well do they work?  Hochschild provides us with some data.

Let’s begin with some big picture considerations.

“Across the country, red states are poorer and have more teen mothers, more divorce, worse health, more obesity, more trauma-related deaths, more low-birth-weight babies, and lower school enrollment.  On average, people in red states die five years earlier than people in blue states.  Indeed, the gap in life expectancy between Louisiana (75.7) and Connecticut (80.8) is the same as that between the United States and Nicaragua.  Red states suffer more in another highly important but little-known way, one that speaks to the very biological self-interest in health and life: industrial pollution.”

The willingness to tolerate pollution in the name of economic development was not a Louisiana attribute; it was a true red state  marker.

“….a startling 2012 study by sociologist Arthur O’Connor that showed that residents of red states suffer higher rates of industrial pollution than do residents of blue states.  Voters in the twenty-two states that voted Republican in the five presidential elections between 1992 and 2008—and generally call for less government regulation of business—lived in more polluted environments.  Residents in the twenty-two Democratic states that generally favor stricter regulation, he found, live in cleaner environments.”

This is what one might expect from attitudes about government regulation.  But how has this affected economic development.

“A 1993 study that compared states’ ratings on strictness of environmental protection with indicators of economic health (overall growth, employment growth, construction growth) over twenty years found that stronger environmental standards have not limited the relative pace of economic growth.”

“In a 2001 study of new air-quality regulations for manufacturing plants in the Los Angeles area, researchers reported no evidence that local air-quality regulation, among the strictest in the nation, substantially reduced employment.”

“A 2002 study also analyzed the impact of environmental regulations on four industries that generate significant pollution—and might therefore be expected to suffer losses from the effects of environmental regulation.  In two of the four industries researchers studied (plastics and petroleum), the net employment impact of the environmental regulations was small but positive, while in the other two industries (pulp and paper, and iron and steel) there was no statistically significant impact.”

“….a 2008 study found that investments in environmental protection create some jobs and displace others, but that the net effect on employment is positive.  In fact, environmental protection is itself a major sales-generating, job-creating industry.”

Environmental protection depends on the development of new technologies.  The states that invest in education and encourage technology development will be the places that benefit from environmental regulation, while the states that promote low wages at the expense of educational development will lose.  It seems the red states acquiesce to a program of accepting the pollution needed to produce the objects blue states desire and then paying the blue states to provide them the technology with which to mitigate that pollution.

Environmental pollution is not the only issue related to strategies for encouraging economic development.  It seems the red-state strategy of providing incentives to industry has generally been counterproductive. 

“A 2010 study, based on analysis of national surveys of 700 to 1,000 local governments from 1994, 1999, and 2004 that tracked the use of business incentives over time, found that governments that rely most heavily on incentives may face more intergovernmental competition, stagnating or declining economies, and lower tax bases.  For such governments, business incentives may contribute to a cycle of destructive competition.”

The decision to provide incentives to industry means that funds will have to be withdrawn from some other areas.  This sets up competition between education and other social services for diminishing resources.  Couple this with a willingness to allow industry to set low wage scales and you have created a situation where workers will have an increased need for those diminished services—a kind of race to the bottom.

Several studies have demonstrated that the blue-state strategy of demanding “living” wages and providing the educational opportunities to make workers skillful enough to justify those wages is the appropriate path to follow.  Consider this study of the construction industry: The Economic, Fiscal, and Social Impacts of State Prevailing Wage Laws: Choosing Between the High Road and the Low Road in the Construction Industry.  It provided these conclusions.

“Prevailing wage legislation is part of a broader set of interrelated institutional arrangements that promote a strong construction industry and a thriving middle class, including a stronger emphasis on apprenticeship training, skilled workmanship, workplace safety, increased access to health insurance and retirement security.  Prevailing wage laws support a high road economy by establishing the underlying legal framework for a construction industry that provides the skills needed to build quality infrastructure for a growing, technologically-sophisticated, and competitive economy. By fostering an economy with a strong middle class, prevailing wages promote sound public sector budgets at all levels of government.”

“Legislators have a choice between this construction industry high road and the low road that leads to less training, lower quality workmanship, more waste and inefficiency at the worksite, higher levels of poverty, increased taxpayer burdens, and reduced economic activity.”

A study by the International Economic Development Council, Creating Quality Jobs: Transforming the Economic Development Landscape, examines case studies of places that attempted to improve local economic development.  The locations were as varied as Tupelo, Mississippi and San Jose, California.  The conclusion was that the high road is the path to pursue.  A skilled work force is the basis for job development and economic growth.

“The conclusion that emerges from an assessment of these cases is simple (with complex solutions)—a more volatile and dynamic economy is driven increasingly by the skills of people. The cases indicate that indeed aligning skills and jobs is now sine qua non for economic development. This is the heart of the transforming landscape of economic development.”

Hochschild is drawn to the conclusion that the red and blue states, taken together, form a cooperative industrial ecology—but one that benefits the blue states more.

“As sociologist Richard Florida notes, ‘Blue state knowledge economies run on red state energy.  Red state energy economies, in their turn, depend on dense coastal cities and metro areas, not just as markets and sources of migrants, but for the technology and talent they supply.”

“Indeed, Louisianans are sacrificial lambs to the entire American industrial system.  Left or right, we all happily use plastic combs, toothbrushes, cell phones and cars, but we don’t all pay for it with high pollution.  As research for this book shows, red states pay for it more—partly through their own votes for easier regulation and partly through their exposure to a social terrain of politics, industry, television channels, and a pulpit that invites them to do so.  In one way, people in blue states have their cake and eat it too, while many in red states have neither.”

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