by Lowman S. Henry | April 24, 2005

Current approach to improving PA’s economy is not working

There is an old saying that madness is doing the same thing over and over again while expecting a different result. That adage aptly sums up Pennsylvania’s approach to improving our chronically underperforming economy.

Through both Republican and Democrat administrations the focus has been on economic development. In Pennsylvania, economic development is defined as taxing everyone and then taking a portion of the proceeds (less government’s administrative costs) and giving it to a few businesses in the hopes they will stay or move here and create a few more jobs.

Such a micro approach to Pennsylvania’s economic woes has fallen short. It is not that we aren’t happy when businesses large or small move here. Or that we don’t appreciate the jobs they create. It is just that you can’t tax or borrow, and spend your way into economic prosperity. It has never worked, anywhere, ever.

And, it is not working here. At least that is the word from the people who ought to know – the state’s business owners and employers.

Twice each year for the past ten years the Lincoln Institute of Public Opinion Research has conducted a survey of Pennsylvania employers to take a snapshot of the economy from the people who actually make it run. From 2000 through last October our state’s employers had consistently reported in each survey that the Pennsylvania economy was getting worse. The October 2004 survey found a short-lived burst of optimism, as 29% said they felt business conditions were improving, while 21% thought they had gotten worse. The rest felt conditions had stayed about the same.

The picture turned pessimistic again in the March 2005 survey. Only 17% of the employers surveyed said that, in general, business conditions had improved during the preceding six months, while nearly double that number, 33% said the state’s economy had gotten worse.

To make matters worse, Pennsylvania employers are deeply skeptical about business conditions improving over the coming six months. Such pessimism is unusual in that the Keystone Business Climate Survey found 32% of the companies saw their sales increase over the past six months, while 27% experienced declining sales. Further, 48% say they expect improved sales during the coming six months, while just 10% forecast declining sales.

While some of the negative views of Pennsylvania’s economy can be blamed on larger economic factors, such as record high oil prices and rising interest rates, various national studies confirm the poll’s findings that the commonwealth has in place a wide range of state-level economic policies that discourage business formation and retard the creation of new jobs.

Over the years, employers responding to the Lincoln Institute’s poll have consistently cited high taxes, an unfair system of real property taxation, lack of worker freedom in the absence of a Right to Work law, and strangling regulations, as reasons why Pennsylvania is not competitive with other states, let alone other nations.

Yet despite all the compelling evidence that what we are doing in Pennsylvania is not causing our overall economic climate to improve – and the fact the business community consistently tells us what the real problems are, state government continues to offer up more of the same.

But there is some hope. Several weeks ago a group of legislators introduced the Open Workforce Initiative which is designed to bring about real, structural reform. The legislation addresses many of the concerns raised by employers for decades. State Representative Michael Turzai (R-Allegheny) is one of the prime movers behind the package of legislation. He correctly points out that “it is vital to enact pro-growth measures” to ensure the ability of business to stay here and to create jobs.

Among the key provisions contained within the Open Workforce Initiative are bills to reduce the corporate net income tax, which – at 9.99% – is one of the highest in the nation; another would restart the phase-out of the Capital Stock and Franchise Tax. There is legislation aimed at making health care more affordable, tort reform, workers’ compensation reform, unemployment compensation reform, and regulatory reform.

These issues represent the root causes of Pennsylvania’s poor economic performance. Until now, state government as a collective unit has been unable or unwilling to address such problems head on. The Open Workforce Initiative puts concrete legislation before the General Assembly. Let us hope this time they do something that will actually make a difference.