November 18, 2018
The Point Latest News | Poll Questions | High School Football | California Fires | Jason Moody

What stands out about LePage’s approach to the economy: A focus on industries of the past

George Danby | BDN
George Danby | BDN

When he first ran for governor, Paul LePage pledged to make Maine a competitive and cost-effective place in which to do business.

The governor has focused his energy on eliminating the state income tax, reducing energy costs and lightening regulations in hopes of reviving the state’s flagging manufacturing and natural resource industries and attracting businesses from out of state. But the results of these efforts have been mixed, according to economists.

“If you look at the economic traction we’ve had during his administration, it’s horrifying,” Alan Caron, president of Envision Maine, said. “Maine is creating a fraction of the jobs created elsewhere.”

Maine is among the states with the slowest growing economies, according to the latest report card from the U.S. Bureau of Economic Analysis. Maine’s economy grew by a sluggish 0.4 percent last year, lagging behind New England’s 1.3 percent growth rate and the nation’s 2.4 percent growth.

Maine also is among 10 states that haven’t recovered all the jobs they lost during the Great Recession.

One reason is that LePage relies heavily on the industries of the past — timber harvesting and mining, for example — as part of his growth strategy instead of focusing on growing, technology-driven enterprises.

The Maine economy already has transitioned from one based on extracting natural resources to a largely urban service economy much like the rest of the U.S., according to Charles Colgan, a retired professor of economics at the University of Southern Maine. The question is, how can Maine, with a relatively small economy, continue to develop?

Extract Maine’s way to prosperity

Few other sectors of the Maine economy get as much attention from the governor — and many other politicians — as those that revolve around natural resources, especially forest products. When LePage took office, he pledged to grow Maine’s economy by strengthening the state’s traditional industries.

“Through much of our history, fishing, farming and forestry have been Maine’s economic engine,” he said during his 2012 State of the State address. “We are committed to reviving these industries to get Maine working again.”

But a shrinking demand for paper and growing foreign competition have led to seismic changes in the state’s forest product industries, which have seen employment drop precipitously over the last two decades. Paper mills employed about 5,200 Mainers at the end of 2015, according to the Maine Department of Labor, down from more than 15,000 in 1990.

Just in the last three years, five paper mills across the state have closed.

“For a century, what made the paper industry so special was that it was a large number of jobs,” David Vail, an emeritus professor of economics at Bowdoin College, said. “What we’ve got is paper mills shutting down, and who can be confident that they ever will open up again?”

The mill closures have had a ripple effect throughout the forest product industries, including biomass energy production and logging. A study conducted after the closure of mills in Old Town and Lincoln last year concluded that at least an additional 563 jobs could be lost as a result across Penobscot, Piscataquis, Hancock and Waldo counties. Among those hardest hit would be the loggers who supplied the raw material to the mills.

Despite these trends, LePage hasn’t turned his focus away from logging. He has sought to increase timber harvesting on public lands and start a logger training program at Good Will-Hinckley.

He hasn’t let up on his as yet unsuccessful push to revise mining regulations and make way for a mine on Bald Mountain in Aroostook County, where deposits of copper, zinc and other metals were detected in the late 1970s.

Curse of natural resources

In spite of this downward trend plaguing Maine’s natural resource economy, LePage has taken few steps to transition the state toward an economy less dependent on extracting natural resources.

In the eyes of some Mainers, a proposal to create a national monument in the Katahdin region is what the interior of the state needs to reduce its dependence on the forest product industries while capitalizing on the state’s growing tourism industry.

LePage is among the monument’s most vocal opponents, arguing it will harm the state’s forest products industry. A monument designation in the Katahdin region is “ a growing threat to Maine workers” who work within the state’s natural resources economy, LePage wrote in a letter to Maine’s congressional delegation last August.

“A National Monument designation makes Maine timber off limits to the forest products industry,” he wrote.

But there’s no evidence that suggests a national monument would harm the state’s forest products industry, and there’s no indication that Elliotsville Plantation Inc., which is not cutting trees on the land, ever plans to turn the land into a working forest — even if it remains the owner in the absence of a monument designation. And research suggests a national monument and tourism can exist alongside the forest product industries.

Maine faces a dilemma common among economies long based on extracting natural resources. A 1997 Harvard University study found that countries with abundant natural resources experienced more sluggish economic growth than those with fewer natural resources to exploit between 1970 and 1990. Researchers have called this “ the curse of natural resources.” Among the explanations for this was that in economies with “easy riches” there was less incentive for workers to seek education to develop skills transferable to other industries.

“We keep trying to get the resource-based industries back into play, which isn’t going to happen. We’re not going to get new paper mills,” Colgan said. “Yet, our picture of the Maine economy among many if not most Mainers is still tied up in the natural resources sector.”

Make Maine competitive

LePage’s economic growth efforts haven’t been limited to propping up forest products and mining. In 2014, he offered a legislative proposal to create Open for Business zones in an effort to entice larger manufacturers from out of state to set up shop in Maine.

Under the proposal, businesses that locate in these zones, hire 1,500 workers and invest $50 million within two years would have no state income tax obligation for 10 years and a reduced rate for the next 10 years, among other perks. LePage also pitched that these zones would be covered by a right-to-work law, under which workers who don’t belong to a union would not be required to pay fees for union representation in collective bargaining.

“It’s an economic vision firmly grounded in the way we thought about regional economic development 60 years ago,” Colgan said.

The evidence on whether these “enterprise zones” spur job creation is mixed, according to a 2015 paper published by the Federal Reserve Bank of San Francisco.

A 2011 Brookings Institution report found that 95 percent of all job growth comes from businesses already within the state expanding and entrepreneurs launching new businesses, not luring businesses from out of state.

The public sector can support economic economic growth through investment in research and development. But Maine lags behind the rest of New England in R&D investments, which totaled 1 percent of the state’s GDP in 2011 compared with the regional average of 4.4 percent, according to Maine Economic Growth Council’s latest “Measures of Growth” report.

Investment in R&D yields a high return on investment and can contribute significantly to long-term economic growth, according to the report.

LePage, though, has a mixed track record on support for R&D investments. In 2012, he vetoed a $20 million bond that would have funded R&D investments in technologies developed by growing Maine companies through the Maine Technology Institute. In April, however, he signed a bill for a $50 million bond for R&D that will go before voters in June 2017.

“Get behind innovators, entrepreneurs, small startups all across the state in all sectors. Build the capacity to help the little guys grow,” Caron of Envision Maine said. “We will get more jobs by doing that than by trying to prop up old industries.”

 


Have feedback? Want to know more? Send us ideas for follow-up stories.

You may also like