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March 4, 2013

Costs And Burdens Still Hamper Mass. Growth

Mayer

Economic recovery is stalling in Massachusetts. MassBenchmarks estimates that gross state product grew at only a 1-percent annual rate in the last quarter of 2012, and warns it may be revised downward. Meanwhile, the unemployment rate is inching upward. And the Associated Industries of Massachusetts' (AIM) Business Confidence Index seems stuck in neutral (50.4 on a 100-point scale in January), and its rating for business conditions within the state is negative (47.2).

Yet, Massachusetts is doing relatively well. The U.S. economy closed 2012 with a quarter of no growth, and unemployment is running higher nationally; for all of 2012, Massachusetts appeared to surpass the U.S. in growth and job creation. In AIM's index, employers rate business conditions in the state as better than those of the U.S. throughout the current business cycle, in sharp contrast to the two prior recessions and recoveries.

There is considerable evidence, for example, from the real estate sector, that the recovery is consolidating into a foundation for renewed growth. But Massachusetts faces extraordinary short- and long-term challenges. The former may be summarized as "enemies foreign and domestic." A global economic slowdown, with key European markets in or near recession, is hurting manufacturers' international sales of capital goods. Here, upcoming federal budget cuts will hit our economy hard on both the defense (Massachusetts is No. 5 in Pentagon contracts) and non-defense (No. 1 in National Institutes of Health grants).

Our long-term challenges? High costs of living and doing business work against us when companies decide where to invest and people decide where to live, and make our products and services less competitive.

But Massachusetts has strengths. We're a world center of innovation, with a long history of invention and re-invention. We have the best-educated population in the nation, a world-class workforce in terms of skills and work ethic. And our economy is diversified — we do not have all our eggs in one basket, or even a few.

What should we do? The short-term challenges — the global economy and federal spending — are not under state control. But we can mitigate their impact by addressing long-term weaknesses we can control, such as costs and burdens that, in times of slow growth, especially disadvantage our businesses and drive away skilled young people.

To its credit, Beacon Hill has taken this approach over the past two legislative sessions. Lawmakers continued the phase-down of corporate taxes, enacted health care cost control legislation, and recently froze unemployment insurance rates once again. While near-term success requires us to grapple with long-term disadvantages, our commonwealth's longer-term future depends on reinforcing and building our strengths. The transportation infrastructure and systems that bring people to work and send our products to the rest of the world is the first priority. Beyond that, we'll have to focus on education at all levels — from pre-school to research and workforce training — with declining federal support perhaps raising the pressure. In these fields, "more money" cannot be the whole answer; the balance of demands and constraints will force us to rethink even what has been working well.

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André Mayer is senior vice president of communications & research at Associated Industries of Massachusetts.

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