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Comparing New Hampshire’s Recoveries

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Joshua Elliott-Traficante

June 2015

Summary: Despite a history of leading the region out of recessions, New Hampshire’s recent track record of job creation falls well short of that legacy. Only as of March 2015 has the state returned to prerecession levels of employment and jobs numbers. This paper compares the last three recoveries to the current one, detailing the state’s increasing difficulty in recovering from economic downturns.

Econ Chart 1

New Hampshire has a strong track record of economic growth, especially in the 1980s, 1990s and early 2000s. This economic prowess helped give birth to the phrase “The New Hampshire Advantage” and made the state the envy of the region. Since 2002 however, the stiff wind that once filled the state’s economy’s sails has become a gentle zephyr at best. The last thirteen years in particular have seen mediocre growth in both employment and jobs. The recovery from the latest recession has been particularly slow. More than 5 years after the bottom of the recession, the state has only just recently returned to prerecession employment levels and jobs numbers.

Definitions and Layout:

Though ‘employment’ and ‘jobs’ are often used interchangeably, the Bureau of Labor Statistics has distinct definitions for each term, which will be used in this paper. ‘Employment’ counts the number of people employed based on where they live. ‘Jobs’ counts the number of paid positions based on where they are located. The employment figure for New Hampshire counts every state resident that has a job, regardless of where the job is located, while the jobs figure for New Hampshire counts the number of jobs based here, regardless of who fills it. For example, someone who lives in New Hampshire, but works in Massachusetts, would show up in the New Hampshire employment number, but their job would be counted in the Massachusetts job number. It is important to note that the unemployment rate is calculated off of the employment numbers, and not jobs numbers.

For this analysis, roughly the first 5 years of each of the last four recoveries are examined. The starting point is the lowest point in the recession (in terms of employment and job numbers), continues through the first 65 months of the recovery for employment numbers, and 63 months of for jobs numbers. This time frame has not been chosen arbitrarily; the state is now 65 months into recovery in terms of employment number and 63 months into recovery in terms of jobs. Doing so, accurately compares how well New Hampshire has recovered from economic downturns in the past, versus today.

Click here to read a pdf verson of the full report

 

 

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Agreeing on the problem isn’t always enough

Charlie Arlinghaus

April 22, 2015

As originally published in the New Hampshire Union Leader

The political process often obscures truth and inhibits agreement. Too often each of us believes he or she knows what’s important but that the things you think are important are trivial and your insistence upon them is a sign of perfidy or cognitive dysfunction. On very rare occasions there is substantial agreement on a problem. This is good only because it allows us to attack someone else’s solution as near-sighted or disingenuous. It is inconceivable that an opponent might have a well intentioned idea that we simply think is a lower priority or might not work as well.

Increasingly politicians are realizing that there is no longer such thing as the grand mythological New Hampshire Advantage. Instead we live in the midst of economic stagnation that rarely hints at the former economic dynamism of our state. To their credit, most politicians fret every once in a while over this depressing economic reality. Most of them aren’t quite sure what to do but are pretty sure that what the other guy wants is wrong.

If you have the bad habit of reading this space with anything approaching regularity you know that I am continually harping on the remarkable growth of the 1980s and 1990s compared to the pathetic stagnation of the last fifteen years. The data are consistent across measurement categories but consider this one dramatic snapshot: Over the same number of months, the recovery of the 1980s created 118,000 jobs compared to 21,000 in the current recovery. This is not, as the poet says, your father’s Oldsmobile. Our economy used to hum and now it coughs.

Everyone tends to be critical of everyone else’s idea but at least people of all stripes and spots are now admitting that the status quo isn’t good enough. That, however, is where the agreement ends.

In general, I believe that anything that lowers the cost of doing business makes New Hampshire a more attractive state. That has traditionally been the way we do business. Some states (New York might be an example) amass large treasure chests and hand out loans and special tax statuses. This has not been New Hampshire’s way for two reasons. First, we can’t compete with the giant states in amassing war chests. New York has more tax burden to forgive and more coins in their fiscal couch than we tend to raise.

Second, we have had a historical preference for not picking winners and losers — which the government of any state tends to do poorly. If we have a program, we create criteria and allow any business which meets the criteria to apply. A notable current exception is the attempt to create programs and policies that apply only to one development in Dixville Notch. But that’s an exception based on romantic nostalgia that causes some to consider a proposal they would reject on principle were it located anywhere else.

Otherwise, job creation strategy falls into two camps. One group rejects that notion that businesses care about the cost of doing business and proposes instead to spend more government money. Their theory is that government “investment” is the key to stimulate our moribund economy. It would be wrong to say that all government spending has no effect but taking more in tax dollars and then doling them out does seem to presume that legislators have some superior knowledge base — a supposition somewhat short on evidence.

Others worry every time I suggest reducing our highest corporate tax rate. To them a quite modest cut isn’t enough to offset the beneficial results of increased government largesse. They’re quite right that the reduction is too small to have a dramatic effect but we’ll never lower the rate at all if we don’t start a little bit at a time.

One potential source of common ground is electricity. Some worry about high electric rates a little, others a lot. In January 2015, New Hampshire’s electric rates for all users were 65% higher than the national average. Much worse, for industrial users New Hampshire was 94% higher.

There is no worse signal we can send companies that use a lot of electricity like the high tech industry or manufacturers. With rates that ridiculous, if you tried to move your company to New Hampshire your board of directors can and should fire you for dereliction of duty.

At this point, electricity seems like more than a passing fad. Maybe we can agree 94% higher than the national average isn’t quite the right place to be.

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Stagnation Will be Permanent Unless We think Long Term

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Charlie Arlinghaus

March 18, 2014

As originally published in the New Hampshire Union Leader

All too often for politicians the big picture can get lost by paying too much attention to details. The state’s budget season is a poster child for not being able to see the forest for the trees. The difficulty for politicians is that we expect them to simultaneously focus on the big picture and to pay strict attention to the details that threaten to obscure the big picture. However, our future as a state depends less on the particular lines of a spreadsheet and more on long term changes that will affect our future.

The problems New Hampshire faces are well known though sometimes we don’t like to mention them. Once a thriving economy, New Hampshire has degenerated into stagnation. Our job growth has been flat not just since the recession but for the last fifteen years. Competitive states are thriving and adding lots of jobs. We are not.

One sign of our problem is migration. People have moved to New Hampshire for work for centuries. The large French-Canadian population of any mill town is a good example of this. We’ve reached the point where a majority of us are from away. New Hampshire is one of only eight states with a majority of its population born elsewhere and the only one in the Northeast.

For decades we had a significant migration of people coming here for jobs. That dried up and more people are leaving the state than coming here. We’ve seen people fleeing the state in six of the last seven years.

Our job market is and remains quite mediocre. According to the census, more than 106,000 New Hampshire workers commute out of state to their jobs. The lion’s share of them would much rather work in the same state in which they live but our stagnant economy offers them no such opportunity.

None of these trends are things that can be changed overnight. Nor does any one of them have an immediate effect on the budget. One tweak in law won’t reverse the floodgates and immediately create $23 million of budget breathing room.

Any long term change runs into naysayers who are focused only on the items right in front of them. The far-sighted politician wants to do more than just managed to get past the current budget discussion. He or she needs to ignore short term political gratification gains and focus on creating a competitive environment that brings back the jobs that will keep our children in state, change us from out-migration to in-migration, and give more residents the opportunity to work here rather than cross the border.

No politician can pick one item or make just one change to reverse a trend that has been building for more than a decade. There are at least a half dozen areas that hurt us. But let’s discuss the two most important to illustrate the trend.

Our business taxes are among the two or three highest in the country. When the corporate tax rate is 30% higher here than in the median state (Tennessee, which also has no income tax for those scoring at home), we struggle to convince relocating companies that we are a good, low tax state. Yet any tax change is castigated by the short-sighted.

A proposed change that would direct the natural economic increase into rate reductions finds objectors bemoaning the supposedly lost revenue. They would gladly sacrifice jobs in the long term for one or two percent more money in the short term. That’s precisely backwards. If we forsake competitiveness, no amount of money can stop us from degenerating into an economic backwater.

The energy sector is similar. Our electric rates are among the five highest in the country ensuring large electric users pay 40% more here for electricity than in an average state. This would be less of a problem if we didn’t want to attract the manufacturing and high tech companies that use a lot of electricity and pay their workers so well.

Yet the debate on electricity rarely focuses on how to lower rates or how to add more lower cost capacity into the market to put pressure on rates. Instead, most of the debate focus on objection after objection to building anything anywhere. If you want to live in a state with no jobs because no one wants to build anything, we have neighbor states who would welcome you. But for those of us who prefer employment, building things is necessary.

It’s easier to oppose change in the short term but that requires accepting stagnation. I’m not ready to give up yet.

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New Hampshire Must Stop Living in the Past

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Charlie Arlinghaus

January 25, 2014

As originally published in the New Hampshire Union Leader

What you think of New Hampshire is almost certainly wrong. Most of us are living in the past and think of this as a vibrant and competitive state. It isn’t. The truth is that, economically speaking, we are increasingly a mediocre backwater stuck with a stagnant economy and lacking the political will or self-awareness to do anything much to make ourselves more competitive. The future belongs to the bold and we live in the land of the timid.

Too many people in New Hampshire live in the past. Many of us remember the huge economic booms of the 1970s and 1980s and think reality is unchanged from then. For a long time, New Hampshire boomed as Massachusetts stagnated. But that was then, this is now. Our economy is not growing, it’s stagnant. We’re not competitive, we’re mediocre.

As recently as fifteen years ago, economists described New Hampshire as “the envy of its neighbors.” It was a common truism to say that New Hampshire led the region out of the recession. Jobs lost elsewhere were reopened here. But that dynamic is now true in Texas not New Hampshire.

Prof. Mark Perry writes my favorite economic blog, Carpe Diem (doesn’t everyone have a favorite economic blog?). He published a startling chart I now steal for all my presentations. In the last seven years, the state of Texas has seen 13% employment growth or 1.4 million jobs. The rest of the country combined is still 275,000 jobs short of their pre-recession peak.

New Hampshire used to be as vibrant as Texas. Our growth in the 1970s, 1980s, and even 1990s was faster or equal to Texas. But our graph lines have diverged. They’ve grown 1.4 million jobs, we’re still down from pre-recession levels. They’re vibrant, we’re pathetic.

The last fourteen years, the new century, we’ve deteriorated into a flat line – not even a pale imitation of our former selves. In the 1980s jobs grew 27%. In the 1990s they grew 18%. In the decade and a half since 2000, we’ve grown by just 5% — not enough to keep up with the population or to keep people in state.

Even Massachusetts has left us behind. They aren’t exactly thriving but while we have yet to get back to our pre-recession jobs, they’ve grown by almost 4% in the last seven years. That’s better than our zero in the same period but pales by comparison to Texas’s 13% boom.

No wonder 106,000 people commute from New Hampshire every day to their out of state jobs. In a distressing signal, this is a 12% increase from 20 years ago.

The problem is that most politicians live in the past. They speak nonsensically about some vague and ill-defined “New Hampshire Advantage” – a term coined for political campaigns of the 1990s – and apply it to every aspect of political debate.

To be sure, the Tax Foundation still ranks us in the top 10 in overall tax burden but largely on the basis of having neither a sales nor income tax. Those advantages attract and keep some businesses here but by themselves they aren’t enough to keep us from being left behind in the fight for jobs.

The total cost of doing business in New Hampshire is too high. There is not one thing to change but rather everything. Anything that increases costs helps us lose.

To change, we need to do something or resign ourselves to a future where we look like Vermont and Maine and encourage our kids to all move to Texas where they might actually find a job.

Uncompetitive business taxes are something we can start addressing immediately. Massachusetts cut

Its highest marginal rate to 8% while ours languishes at 8.5%. I believe it should be unconstitutional for our tax rate to be higher than Taxachusetts in anything. The median state (Tennessee which also has no income tax) is 6.5. To be in the top 10 we’d need to be at 5. It’s time to start moving in that direction or give up. By the way Texas has no business profits tax.

Similarly as we increasingly fret about building any energy infrastructure anywhere, our electric rates are shockingly high. Our average rate of 18.08 cents is 43% higher than the national average and 74% higher than our no-income-tax friends in Tennessee. We’re also 50% higher than Texas.

None of this is a problem unless we want to attract jobs that use electricity like manufacturers or high tech companies.

It’s time for us to get over ourselves and stop living in the past. There is no question that we are becoming a stagnant backwater. The only question is whether or not we want to do something about it.

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Stagnation Needn’t Be Our Destiny

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Charlie Arlinghaus

December 4, 2014

As originally published in the New Hampshire Union Leader

One of the problems for all of us is that we are living in the past. We think reality is the same as it was 15 years ago but in actuality we’ve been left behind and are in danger of becoming a museum piece. New Hampshire has been left behind and most politicians are reduced to talking about a previous reality that no longer exists except in their mind. Prosperity has been replaced by stagnation, dynamic growth by brackish backwater. This mediocrity is the problem of our time but too many don’t notice the problem or admit to the new rules we operate under.

The 1970s, 1980s, and 1990s were heady times of rapid job growth in New Hampshire. Each decade featured a dynamic economy, an extraordinary competitive advantage over our neighbors that made New Hampshire a haven of in-migration and led to New Hampshire being called an island of prosperity surrounded by a sea of socialism.

New Hampshire seemed to be a haven for entrepreneurs and high tech companies, a dynamic new economy remaking itself time and again in the midst of candlelit old economies wedded to the old stagnation we associated with yesterday’s socialism.

At the end of those thirty years, the Federal Reserve Bank of Boston, not a traditional cheerleader for New Hampshire, referred to our state as the envy of its neighbors. But that was then, this is now.

At the height of the envy-causing boom, New Hampshire had 28% job growth in five years (1983-1989). The last eight years saw complete job stagnation – the same number of jobs in 2013 as 2005. No single economic statistic is more important to public policy than this.

We are no longer an island of economic dynamism. We are merely one more pebble in a stagnant economic gravel pit.

Yet too many politicians continue to refer to what was once called the New Hampshire Advantage – the competitive economic advantage we once enjoyed over our neighbors that no longer exists.

Our tax picture is broadly better than most. The Tax Foundation ranks us seventh largely because we have no income tax. But subcategories are troubling. Our business taxes are among the worst in the country and business recruiters report that the first thing they are asked about is tax rates.

Unemployment taxes, workers comp rates, the cost of health insurance (labor costs) are all among the highest in the country. Most troubling, and the biggest roadblock we currently face, are our highest in the nation energy costs.

So much of business relocation is psychological, and the psychology of measure after measure after measure being so high and out of range is that places like Texas and North Carolina look more and more attractive.

In the midst of splashing around in this brackish backwater we are treated to politicians talking about preserving some non-existent advantage.

It’s time to face reality. We are not competitive. College graduates of today do not remember a time when New Hampshire was a great place to look for a job. Their whole life has existed while New Hampshire was a place to be escaped to find a brighter future.

I have seen this film before and I don’t like how it ends. Growing up in Detroit, newsstands stocked the Dallas Morning News so people could read the Sunday want ads. It was more useful to them in finding their next job than the local papers could be. I would hate to see people trade in their Union Leader subscription for the Chattanooga Times.

But our die has not been cast. We have not crossed a Rubicon. Instead we have sat still and stillness can be cured by action. We should not resign ourselves to business as usual and the fate of being the third pea in a Northern New England pod of stagnation.

The dynamism of the past may be gone but we can work to tear down walls to competitiveness. Admit that our advantage is gone and we can fight to get it back. We are still a small state and somewhat more nimble than many would be competitors. We have not gambled millions on giveaways and irreversible programs.

Every action taken in the next legislature should be judged by whether it raises or lowers the price of doing business in New Hampshire, whether it makes us more or less competitive. Stagnation needn’t be our destiny.

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Don’t do Something, Just Get Out of The Way

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October 22, 2014

As originally published in the New Hampshire Union Leader

To help create jobs, politicians regular have to decide whether to do something or get out of the way. New Hampshire can do more by doing less and try to stay out of the way of people who know what they’re doing. We can’t compete with big states in an expensive and unfair bidding war to lure jobs to the state. Our best strategy is to create a climate in which job creators can flourish and avoid the managers looking for handouts and subsidies.

Regularly we read about some large auto company or other concern who gets states to bid millions of dollars in handouts of money and soon-to-be “forgiven” loans – money those politicians take from other taxpayers in their state in the hope of landing some high profile press release factory.

New Hampshire’s history is to avoid such politically driven games. We don’t enter bidding wars with money taken from other taxpayers to transfer to a chosen few.

The state’s long standing philosophy was summed up quite well by one of the government’s most senior economic development professionals. Michael Bergeron of the state’s Division of Economic Development talked to Sarah Palermo of the Concord Monitor about jobs that moved from Concord to Connecticut.

Connecticut had offered a million dollars of “loan forgiveness” (which sounds better than a cash handout which is what it really is) and New Hampshire had no similar program of cash handouts.

Bergeron said “a lot of companies will shop around to find the best deal. Some states will give away the bank. The law of physics says the money comes from somewhere, and it’s the taxpayers.”

This lesson is often forgotten when people think “the government should do more.” Any subsidies that we hand out to lure businesses to the state are paid for with dollars taken from other businesses – businesses already here and creating jobs, employment, revenue, and economic activity. In essence we would be taxing existing business to transfer their money to the relocating business. We would penalize a company for being here already and being a good corporate citizen.

Bergeron went on to summarize our less controlling philosophy: “instead of taking money away from you and giving some of it back some of the time, why don’t you keep it and use it as you see fit for your company.”

Without question, New Hampshire’s strategy makes us unable to compete for those companies that demand handouts before they ever expand. Yet, no one business development plan will attract 100% of all companies. We choose not to try and pursue those companies who demand greater and more expensive handouts. That allows us, however, to compete for those companies that have a philosophy more suited to our own.

Many companies are not interested in the gamesmanship of new programs. Instead they want a climate like the one Bergeron describes. They want a stable climate where government is not constantly picking winners and losers. They don’t want to compete to be this year’s favorite of the current crop of government planners. Instead they want to run a business in the way think makes most sense, the way that provides the greatest number of jobs and return on investment.

In Bergeron’s terms, they aren’t seeking to pay into a kitty and try and get the government to pick them as this week’s winner. They want to keep the money and use it as they see fit for their companies.

This is New Hampshire’s traditional philosophy. We compete on climate not unusual events.

Unfortunately, our climate needs some work. Our business taxes are the highest in the country. In an historical oddity that would have seemed impossible years ago, our Business Profits Tax is higher than even Massachusetts. That and a series of smaller taxes must become more competitive.

If we aren’t competing through government handouts – and we shouldn’t be – we have to do everything we can to create a very competitive environment not just kind of competitive.

Activist politicians often speak of “investing” in this program or that. But lowering our highest in the region tax rates is a better investment. We don’t rely on hoping that government planners have managed to see the right trends. We get out of the way and let entrepreneurs risk their own capital to fail and succeed.

Our government’s best action is to do less and get out of the way more.

 

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The State’s Job Problem Can’t Be Fixed By Changing Just One Thing

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Charlie Arlinghaus

September 17, 2014

As originally published in the New Hampshire Union Leader

The biggest problem with the anemic job growth New Hampshire has been saddled with for the last decade is not the lack of jobs but the forlorn hope of policymakers that there is one silver bullet that will fix everything.

It used to be true (and is no longer) that New Hampshire grew faster than most states when the economy was strong and came back from recessions before other states and more aggressively than other states. The explosive growth of jobs in the 1970s, the 1980s, and at least to some extent the 1990s was something we took for granted and defined what we perceived as the dynamic economic character of the state.

In the 1980s, New Hampshire’s economy went through an explosive boom cycle. At our job creation peak there were more jobs than available workers – we were the North Dakota of our time. For example, from 1983 to 1989 the number of jobs in New Hampshire increased by 28% in just six years.

That kind of an explosive jobs boom will create opportunities for entry level workers, improve the chances for good workers to move to better jobs faster and more regularly, and makes for a generally comfortable society.

Even booms didn’t make us immune from recessions and we went through a slow time. Our growth in the 1990s after the early decade recessions was 14% over six years – about half of the boom 1980s but still quite strong.

The policy challenge of recent times has been that even that more mature growth has not returned. We had the same number of jobs at the end of 2013 as we had eight years earlier despite a growing population. Two recessions over the last fifteen years have hurt but we no longer experience strong growth coming out of the recession. No one writes anymore that “New Hampshire led New England out of the recession.”

That frightening job situation leads policymakers to routinely ask “what’s the one thing you would do, the one change you would make, to promote job growth?” The right answer is to tell them it’s the wrong question. The one thing I would do is to try and convince lawmakers that there isn’t one thing.

Anyone who says cut this tax, pave this road, fund this program and all will be well is naïve. New Hampshire has become less and less competitive but not by making one big change that can be reversed. Nor do businesses locate on the basis of one factor alone. A business looking to compete with other businesses looks at dozens of factors and their cumulative fiscal and psychological effect. Our state government needs to be the same.

It is true without question that business taxes have gotten to a troublesome place. The Tax Foundation finds New Hampshire among the worst states in the country in the business tax component of their competitiveness index. That means that businesses making tax burden a significant consideration will frown on us. The bad news is that economic development professionals will almost uniformly tell you that the first question any potential business they are recruiting asks is about taxes.

But it isn’t just business taxes. Our unemployment taxes are quite high. The workers compensation rates that businesses are required to pay are among the highest in the country here. The cumulative effect of seeing each of those things on a spreadsheet is that New Hampshire begins to lose a bit of the “low-tax New Hampshire” reputation that defined our brand in the 1980s and 1990s. The psychological effect of that reputation goes well beyond the totals and averages of any particular spreadsheet.

But any business will tell you that there are other factors like the cost of doing business. New Hampshire ranks 49th in the cost of health insurance. Only Massachusetts is higher. Family coverage here is about 20% higher than in average states – states we compete with for jobs.

More troublesome are our electric rates. A lot of the high tech and manufacturing jobs we want to attract use a lot of electricity. It’s not clear why any concern which uses a lot of electricity would even consider New Hampshire. Our rates for industrial users are more than double what the 10 or 15 most competitive states charge and higher than all but a handful of neighbors.

No one thing will change our competitiveness nor are the handful of things I’ve mentioned the only ones that matter. But if we want jobs for our kids we need to pay attention to many details or just tell them to move to Texas.

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Helping Businesses Make a Rational Choice For New Hampshire

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Charlie Arlinghaus

July 3, 2014

As originally published in the New Hampshire Union Leader

Please forgive me for returning once again -on the heels of last week’s column with the epic headline-to the subject of jobs in the Granite State, but the issue of jobs is more important than any other issue we face and is an area in which we continue to fail. No one wants a future in which New Hampshire is a lackluster economic backwater but that’s the track we’re on. A true economic recovery plan depends not on rhetoric or gimmicks, one bold idea, nor government “investment.” Recovery rather requires a comprehensive commitment to developing the right climate.

I’m regularly asked “what’s the one thing you would do to improve our economic competitiveness?” The first thing I would do is to try and get people to stop thinking that way. There isn’t one thing standing in our way. No governor or legislator will come up with the one silver bullet. Climates and reputations don’t come from doing everything just like everyone but with one magic tweak.

Businesses make rational decisions. As a state we can influence those decisions through reputation but most of all through competitive advantages. Historically, New Hampshire had a reputation for being business-friendly, fair, and economically quite competitive. That reputation is significantly diminished on nearly every count.

Before any business location professional got around to doing spreadsheets, they each started with the notion in their mind that New Hampshire was “an island of economic freedom in a Northeast sea of socialism.” No doubt this was an exaggeration but we had been able to build a reputation contrasting a low-tax reputation with our neighbor known throughout the country as Taxachusetts.

In both the 1980s and 1990s we were seen as using economic growth to lower the Business Profits Tax – the most obvious signal to potential businesses of our attitude. Three reductions in the 1980s lowered the tax from a high of 9.56% down to 8%. The 1990s reform that included the Business Enterprise Tax was a net tax cut and lowered the marginal rate again in two steps down to 7%. Both periods of cutting were followed by periods of extraordinary economic growth – more jobs, more higher paying jobs, more economic opportunity.

Recall that the late 1990s and turn of the century is when our stagnation began. We tripled the low rate of the Business Enterprise Tax and passed two separate increases in the profits tax. Today our tax is 8.5% while the tax in so-called Taxachusetts in only 8%.

However, it is important to note that tax changes are not the only thing that matters. Businesses want lower costs and lower taxes but they also care about regulation and the general attitude toward business issues.

New Hampshire is not unfriendly toward business but we do currently have a reputation for being not quite the same state we were. Regulations and fees are seen to be nickel and diming businesses. Recall the late 2000s when more than 100 different fees were raised. None was particularly burdensome in and of itself but they lent themselves to a reputation.

I’ve spoken for a couple years about creating, perhaps within the governor’s office, a council on competitiveness. So much of the administration is charged with enforcing the administrative regulations that have accumulated over time. It would be sensible to have a task force charged with comparing and contrasting regulatory structures of ours and other states, examining the precise ways in which businesses are forced to interact with the government and its regulations.

In Kansas, the governor created something like this and called it the Office of the Repealer. Rather than new programs or new ideas, Governor Brownback found laws and regulations to eliminate.

There is no reason we shouldn’t examine every business cost, find the ones in which we aren’t competitive and act specifically to change that. Two big examples illustrate the point. Our electric rates are double what they are in the lowest cost states. No high electric use business should currently consider New Hampshire. Yet electricity policy discussions rarely focus on reducing rates by 40% or 50%. It’s as if we concede those businesses to other states.

States can put out a welcome mat for new business and expansions by showering the potential business with gifts or creating an inviting climate and a friendly reputation. Economic development professionals will tell you the first question every potential business asks is about taxes with regulation and reputation following closely. We have to work harder but we can be nimble, frugal, and accommodating to restore the economic growth that once did and will again define our economy.

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New Hampshire is Comfortably Mediocre

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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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