GOPideas... ideas done right

Indiana Governor Mitch Daniels is building a green economy the right way --- by focusing on recruiting viable companies (that happen to produce green technology) into his state --- instead of focusing on “green” government handouts. However, his willingness to combine an embrace of green technology with pragmatic policies ensures that the story is unlikely to be publicized by the MSM --- or conservatives. The MSM and environmentalists cannot bring themselves to admit the fact that a Republican governor who opposes climate change legislation is a leader in green technology. And, unfortunately, many conservatives display reactionary attitudes toward green technology and the economic incentives necessary to attract businesses.

The results of Indiana’s efforts are clear: under Governor Daniels, Indiana has achieved the fastest growth in wind power, approved clean coal plants, signed legislation to use the synthetic gas produced from coal to reduce energy bills, recruited the largest biodiesel plant in the world and is now in the process of building 12 biodiesel facilities. All of these initiatives have brought manufacturing jobs to Indiana --- a state that was disproportionately affected by manufacturing jobs leaving the United States.

Governor Daniels and his economic development team were able to accomplish this by executing on a proven strategy, using tactics competently and deferring to the market. (When asked how he is so omniscient as to predict industries of the future, the Governor did not take the bait, simply stating “the market is going to tell us” what the industries of the future will be --- and he was merely exercising his best judgment that green technology would be one of those industries.) The strategy employed by the state can be traced to a former Republican governor and a metropolitan area that was one of the first to intentionally grow an industry cluster based on future technology.

When Lamar Alexander was elected Governor of Tennessee in 1978, the state was near the bottom of per capita income statistics, ranking 44^th of 50 states (in 1980), by 1990 (he left office in 1987), the state was ranked 36^th. For those that believe that Tennessee may have risen for reasons outside of the Governor’s efforts (lack of unions, general growth of the south/Sun Belt), bear in mind that in the subsequent 17 years (1990-2006), Tennessee moved from 36^th to 35^th in per capita income. What propelled the state of Tennessee was a governor who understood what government could do for economic growth, a willingness to use government to promote economic growth, low taxes and the work ethic to get it done.

Without delving into too much detail on the success of Tennessee (Alexander’s book details some of it and this article states that by 2002 the state was the fourth largest automotive producer with 800 suppliers and 151,000 workers), a few key strategies appear:

• Geographic exploitation: Tennessee is in the middle of the country --- providing a central hub for any manufacturer, while limiting transportation costs (a large cost for heavy equipment manufacturers).
• Infrastructure development: Alexander supported a controversial gas tax to support building infrastructure to support manufacturers.
• Economic development incentives: Alexander was one of the first to use large-scale economic development incentives (tax rebates and abatements, dedicated infrastructure), when he attracted Nissan to Smyrna, Tennessee.

Most importantly, then-Governor Alexander was personally focused on economic development, famously stating that he spent more time in Tokyo than he did in Washington, DC.

In addition to the three pillars Governor Alexander used, Indiana is developing an industry cluster focused on electric cars. Industry clusters are geographic areas that contain a large number of interconnected organizations within the same industry (i.e. Silicon Valley is an industry cluster of high tech development). The theory (and practice) of industry clusters is that organizations linked to the same industry develop symbiotic relationships that allow for the participants to feed off of each others’ growth. Austin, Texas is home to a technology cluster that was created when business, government and academia collaborated to lure two large high tech manufacturing facilities to the area. This was done through a combination of tax incentives, an agreement to endow 32 chairs in computer science at the University of Texas-Austin and multiple smaller initiatives designed to improve the overall climate for success (job placements for spouses of those relocating to Austin, a government-assisted venture capital fund, low tax rates and technology commercialization programs).

Governor Daniels’ green economic development strategy draws on both of these strategies --- regardless of whether they fit into the narratives that the partisans wish to promote. First, Governor Daniels always emphasizes that he wants to assure potential companies that taxes are low (and the state is committed to keeping them low) and that regulation is kept at a minimum (Texas and Tennessee both have no personal income tax on wage income). Second, Daniels understood the need to develop the state’s infrastructure --- and also assure future businesses that the state would be investing in infrastructure in the future: he leased the Indiana Toll Road and used the proceeds to pay down debt, begin building roads and then endowed a fund for future infrastructure development. However, the governor also provided generous tax incentives to corporations that located in Indiana and also worked on a bipartisan basis with Democrats to bring jobs to Indiana. In fact, some states have accused Indiana of being too aggressive with tax incentives, to which Governor Daniels responds that he is sorry for the “sour grapes” displayed by those states that lose jobs to Indiana.

The results of Governor Daniels’ initiatives are obvious. The table below shows the change in the unemployment rate in Indiana, the states that border Indiana and the U.S. as a whole, between November 2008 and November 2009.

More importantly, as the Tennessee data shows, the effects of recruiting businesses appears in the data a year or two after the decisions are made --- companies need to build/retool factories, hire workers and begin production before the real economic benefits accrue to the state. Thus, the expectation should be that the Indiana unemployment rate should continue to drop. The Indiana Economic Development Corporation (established by Mitch Daniels) announced that in 2009, 160 companies pledged to bring 20,000 jobs to Indiana, along with $2 billion in capital investment (which will create additional jobs). What is even more impressive is that the jobs will pay wages higher than the average wage in the state. Thus, in a time of falling wages and cuts in capex, Indiana is attracting capital --- from companies that pay better wages than those currently in the state.

Hopefully governors from both parties will get the message: focus on growing the pie with high wage jobs, created by companies who understand that “sustainable” is a term that refers to the long-term economic viability of an organization --- not a lifestyle choice.