Charlie Arlinghaus

June 25, 2014

As originally published in the New Hampshire Union Leader

When did New Hampshire stop being New Hampshire? Whether one describes New Hampshire’s economy as mediocre, stagnant, or lackluster there is no denying that the latest economic news shows that we are no longer leading any economic charges but instead content to hope some crumbs drop from the tables of others. Once the envy of our neighbors, we may now be stuck as an economic backwater, another nondescript pea in the New England pod.

A terrific piece from Ben Leubsdorf in the Wall Street Journal this week speaks of the uneven recovery. The country as a whole has technically recovered: total jobs have come back to where they were prior to the recession. But recoveries are uneven with some winner states and many loser states.

That economic reality is familiar to Granite Staters. We count on it. New Hampshire is typically said to lead the region out of the recession. We mean that when jobs return, they return here first and we end up with a growing economy at the expense of more lackluster states. But that’s the old reality.

Today, we are comfortably mediocre. Five years after the recession technically ended, jobs have finally reached their pre-recession level again. But in 17 winner states, jobs are actually much higher while in 33 mediocre and stagnant states jobs are still down from their peak. New Hampshire is a loser – not an aggressive job exporter like Michigan but lackluster and definitely in the loser category.

States like Texas are scooping up jobs – Texas didn’t just recover, they’re up about 900,000 jobs higher than their pre-recession peak. They recovered strongly at the expense of states like Michigan (down 566,000), Ohio (down 155,000), and New Jersey (down 157,000). This represents a long term transfer of people, energy, and economic wealth from loser states to winner states.

This competitive dynamic used to be our friend. Post-recession expansions grew New Hampshire and confirmed our economic strength and power. Now, we don’t even outpace our mediocre neighbors. New England as a whole is about even but the power has shifted in our region. Massachusetts is now up about 80,000 jobs from its pre-recession peak while the other five New England states are all still below  their pre-recession peaks by a combined total of about 80,000 jobs.

What a weird and wacky world we live in when Massachusetts thrives at our expense.

I think part of the problem is that New Hampshire has become complacent. It is part of the mythology of our state that we are competitive and that businesses will naturally want to come here. If we think that – and most policymakers do – real competition passes us by.

There are two paths to competitiveness. One is to try and buy friends: to use incentives and gimmicks to induce companies to locate here. This strategy is often pursued by the largest states. They create incentive packages which usually grant the new arrival special treatment or tax relief that is not available to other companies who have the misfortune to actually like our state and locate without the bribe. The theory is that special incentives will lead to so many jobs it is worth the cost and disparity.

We read about this every time an auto manufacturer wants to build a new plant and Georgia and North Carolina start falling all over themselves to shower BMW or whichever company with state largesse.

New Hampshire can not and should not compete this way. First, we can’t afford it. The largest state economies are 20 and 30 times our size. If we enter a bidding war, we’ll lose. In addition, such special treatment violates a long standing tradition of fair play – we treat all taxpayers the same regardless of whether the current government is particularly fond of them.

We have to acknowledge that we are a very tiny piece of the American economy. Companies must compete in giant markets like California and Texas. Even Massachusetts is the 12th largest state economy. Tiny little New Hampshire may be twice as large as Vermont (the nation’s tiniest economy) but we are less than one-half of 1% of the country’s economy. No one has to be here.

We are increasingly uncompetitive in multiple areas of tax policy (notably three categories of business taxation) with high health, labor, and energy costs. There are worse states but our goal shouldn’t be “not as bad as some.” No policy is half as important as admitting our failings and trying to again become the growth engine we were in the 1980s and 1990s.

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