Category: Economic Development

The Decline of Coal and Eastern Kentucky

There was a news story in today’s paper discussing the continued decline in coal mining in Eastern Kentucky. [Kentucky Coal Jobs Decline] There are a number of reasons for the decline, and the paper notes most of them, which include a move to natural gas, competition from lower cost coal from other parts of the country, a reduction in the easiest to reach coal seams, and tougher environmental regulations.

This is devastating news to the people of the region, and some politicians, like Governor Steve Beshear and Representative Hal Rogers, are trying to address the issue in a reasonable and responsible manner. [Eastern Kentucky Economic Summit] But unfortunately other politicians are willing to use this economic hardship for political advantage. Far too many use it to whip up resentment of President Obama and what they deceptively call the war on coal. If there is a war on coal, the reality is that natural gas is winning.

I do not understand what politicians think they gain by giving people false hope. Employment in the coal fields will ebb and flow, but the overall decline will continue. The main problem is the low price of natural gas, and the environmental advantages of burning gas over coal. This reality is driving the move to gas, and not environmental laws. This trend is not likely to change, and it is unfortunate that many politicians are unwilling to tell people this. I think that leadership means being honest with people, not manipulating them for political gain.

There was one other issue addressed in the Herald Leader article on declining coal jobs, and that was the declining population of many eastern Kentucky counties. Leslie County Judge-Executive James Sizemore said that with the decline in coal jobs, many people will “have to leave to get work.”

I have no doubt that that is a gut wrenching decision for people, and for an elected leader in the region it must be an emotional blow. But the reality of the world is that, since the dawn of time, people have moved to find work. Most of the people in the United States are the descendants of people who left their homes and home countries seeking work, or better opportunities, in a new land. (The exceptions are the natives who were here first, and those brought here in bondage and against their will.) Westward expansion was driven by people looking for new and better opportunities. The move to the Sun Belt after World War Two was driven by people moving to find work, to find new opportunities, and to find a better life for themselves and their families. It is unfortunate that the people of Eastern Kentucky may have to move to find work, but it is a reality as old as human history.

The Importance of Government Funding of Scientific Research

There were two excellent essays in today’s Herald Leader describing the devastating impact of cuts to government funded scientific research as a result of the budget sequestration deal. One essay was by Sharon P. Turner the Dean of Oral Health at UK College of Dentistry, and the other was by George Ward, the executive director of the Coldstream research campus.

Federal Grants Crucial in Funding Innovation

Cutbacks Hurt Oral Health Care

Many people (read conservative Republicans) act as if government funding for scientific research pays for research into strange and esoteric things. Critics of government funding for research love to point to weird examples like mating habits of insects, but the reality is that most government funded research is very practical, and often directly tied to real world issues.

Dean Turner points research into oral health infections of pregnant women, and notes that these infections often relate to low birth weight babies. Curing these diseases results in substantial savings in neonatal costs. George Ward notes that government funded research at Coldstream has created dozens of businesses, which generate millions of dollars for the local economy.

Scientific research is the foundation of the industries, and business, of the future. Cutting funding to such research may save a few dollars today, but at the expense of the economic develop, and tax revenue, of tomorrow.

Budget Cuts and the Errosion of Basic Science

Here’s a story on today’s CNN Money web site describing layoffs among research scientists due to the budget cuts mandated by sequestration.

Budget Cuts Laying Off Scientists

Some people say that this money is just government largess. (Those people would be conservative politicians.) But the reality is that government funded research has produced numerous valuable discoveries that have led directly to the creation of new technologies, new industries, and new jobs. Government support for scientific research is the seed corn of future growth, it is an investment in the future. As I have said repeatedly, science is the foundation of the modern economy. If we degrade science we will degrade the economy.

The Growth of Wind Power

According to a new report by the U.S. Department of Energy, wind energy is the fasted growing source of power in the nation. In 2012, wind accounted for 43% of all new electric power production. According to wind sector sources, wind production employs over 80,000 American workers.

Wind production is not only clean, but it helps diversify the power grid. Many wind production facilities, meaning wind mills, turbines and distribution systems, are localized and on a small scale. This minimizes the impact of a power outage at a large facility, or a down major power distribution line.

According to some reports, nearly 90% of all wind turbines were made in America.

The full news release can be found here: Wind Energy Production

The report also included a link to an interactive map showing where wind generating facilities are located. The map can be found here: Wind Farm Growth

According to the map, there is a single wind production facility in Kentucky, near Ashland.

The Cost of Discrimination

A recent book, Sharing the Prize: The Economics of the Civil Rights Revolution in the American South, by Gavin Wright, argues that the civil rights movement not only gave blacks basic civil rights, but also has a major beneficial economic impact on the economy of the south.

(Note: I have not yet read the book. I am basic my comments on excerpts and reviews.)

Wright notes that, as barriers to participation for blacks fell away, the overall economy of the south improved.

What we see, in other words, is not a redistribution in the name of historical justice, but an integration of black workers into the regional economy. When we consider that the civil- rights movement opened the South to inflows of capital, creativity and new enterprises from around the world, it becomes clear that most white Southerners were also long-term beneficiaries of this revolution. From: http://www.bloomberg.com/news/2013-02-13/the-stunning-economic-impact-of-the-civil-rights-movement.html

If the removal of discrimination improved the economy then it seems likely that the imposition of discrimination harmed the economy. That should be painfully obvious to anyone who spends time thinking about it. There were obvious costs to Jim Crow. It cost money to install additional drinking fountains and rest rooms. Clearly businesses lost money by not serving black customers. And clearly it cost money to have a police force that spent time enforcing racial restrictions rather than dealing with crime. It cost time and money for state legislatures to debate and enact racially discriminatory bills.

Discrimination not only cost the subject of discrimination, but it costs those who discriminate. They spend time and money discriminating when they could spend that time and money on more productive things.

If discrimination is bad for an economy then it seems likely that the corollary is true: non-discrimination – openness, acceptance, tolerance – are good for the economy.

Income Mobility and Economic Development

Income mobility, or the ability of people to move up the socio-economic ladder is an important component of a successful economy. Economic mobility means that the child of a dishwasher can go to college and become a lawyer, or a laborer with a good idea can open his own company to make or sell a new product.

A new report has found that cities in the Northeast, West Coast, and some in the Great Plains, have the highest levels of economic mobility, while cities in the South and Midwest have the lowest levels of economic mobility.

An article in Salon describing these findings can be found here: Upward Mobility

The full report can be found here: Equality of Opportunity

 

 

The Market Has Spoken

The market has spoken: tolerance is good for business.

Most major corporations have strong anti-discrimination policies. Most have active minority recruitment and retention policies. And increasingly, many support providing benefits for domestic partners.

According to DiversityInc.com, most major companies are committed to diversity it the workplace, though they admit that many companies do fall short. Most try because they understand the importance of a diverse workforce. Virtually all companies, large and small, have anti-discrimination policies, and increasingly those policies cover discrimination based on gender or sexual orientation. According to the Equity Forum, in 2012, 483 of the Fortune 500 companies specifically included sexual orientation in their anti-discrimination policies. (www.equityforum.com/fortune500)

A significant majority of Fortune 500 Companies now provide domestic partner benefits. According to the Human Rights Campaign, in 2011, 291 of the 500 companies offered domestic partner benefits. [http://preview.hrc.org/issues/health/domestic_partner_benefits.htm]

As the twin cases dealing with Gay Marriage were at the Supreme Court, a group of businesses, which included Apple Inc., Broadcom Corp., Citigroup Inc., Facebook Inc., Johnson & Johnson, Marriott International Inc., Microsoft, Orbitz, Starbucks, Twitter and the Walt Disney Co., signed an amicus brief opposing the federal Defense Of Marriage Act (DOMA), and therefor supporting both gay marriage and domestic partner benefits. [The briefs can be found here: http://www.glad.org/doma/documents/]

Many prominent local and regional companies also provide domestic partnership benefits, including Proctor & Gamble in Cincinnati, Lexmark in Lexington, and Toyota in Georgetown.
Many companies are proudly outspoken about their anti-discrimination policies:

HP, for example, states that it has long been committed to fair employment practices, and strives for a diverse workforce.
HP believes that this diverse work force helps the company realize its full potential. Recognizing and developing the talents of each individual brings new ideas to HP. The company benefits from the creativity and innovation that results when HP people who have different experiences, perspectives and cultures work together. [See, http://www.hp.com/hpinfo/abouthp/diversity/nondisc.html]

Here’s is what HP says is its diversity philosophy:

HP’s Diversity and inclusion philosophy

• A diverse, high-achieving workforce is the sustainable competitive advantage that differentiates HP. It is essential to win in the marketplaces, workplaces and communities around the world.
• An inclusive, flexible work environment that values differences motivates employees to contribute their best.
• To better serve our customers, we must attract, develop, promote and retain a diverse workforce.
• Trust, mutual respect and dignity are fundamental beliefs that are reflected in our behavior and actions.
• Accountability for diversity and inclusion goals drives our success.

HP’s anti-disciminatin policy, which it calls its “Global Non-Discrimination Policy” provides that we do not discriminate against any employee or applicant for employment because of gender, color, race, ethnicity, national origin, religion, age, marital status, sexual orientation, gender identity and expression, disability, pregnancy, covered veteran status, protected genetic information and political affiliation. [Id.]

HP is far from alone. Walmart, America’s largest company has this non-discrimination policy:

The first of the three basic beliefs upon which Sam Walton founded our company is “respect for the individual.” Each of us is responsible for creating a culture of trust and respect that promotes a positive work environment. This means treating one another with fairness and courtesy in all of our interactions in the workplace.

We are committed to maintaining a diverse workforce and an inclusive work environment. Walmart will not tolerate discrimination in employment, employment-related decisions, or in business dealings on the basis of race, color, ancestry, age, sex, sexual orientation, religion, disability, ethnicity, national origin, veteran status, marital status, pregnancy, or any other legally protected status. We should provide an environment free of discrimination to our associates, customers, members, and suppliers.
[http://ethics.walmartstores.com/IntegrityIntheWorkplace/Nondiscrimination.aspx]

Major corporations do these things, not because of some weak-kneed liberalism, not out of a desire to be politically correct, or out of fear that they will be accused of not being politically correct. They do these things because it is good for business.

Companies know that they need to sell their goods and services to everyone to make money. In today’s highly competitive economic marketplace companies know that they can’t ignore any potential market. And they have found that the best way to compete in every market is to have employees that reflect every possible market. And so they actively recruit potential employees from every potential market, and once hired work hard to retain and promote that diverse workforce. Make no mistake, diversity is good for business. Make no mistake, tolerance is good for business.

Conservatives are fond of saying we should run government more like a business, and in this area at least, I agree.

Manufacturing Jobs Returning to the US

There have been a number of news stories recently about manufacturing jobs returning to the United States.

This was the cover story on Time Magazine a few weeks ago. Here’s a link, but it the full article is only available to paid subscribers: U.S. Manufacturing is staging a Comeback

And GE recently announced that it will expand production of appliances in the Appliance Park in Louisville. Here’s a link to the Lane Report article.

These articles note that manufacturing is returning to the US for a number of reasons, but all are based on the economics of production in the US. There are two major reasons for the move. The first is that this allows production to be much closer to product design, which allows the designers to quickly modify the product based on manufacturing experience, and also allows the manufacturers to work more closely with the designers to improve both the manufacturing process and the design of the product. The other major reason for the move is that the increase in shipping costs, particularly for large and heavy products, has greatly reduces the competitive advantage of producing in low wage countries like China.

This is extraordinarily good news for the American economy and for American workers. But one point that bears mentioning is that this seems to throw cold water on the idea often offered by conservative politicians that manufacturing left the US because of overly burdensome regulations. If anything, according to conservatives, regulation during the Obama years has only increased. [This is not really true, but is not the point of this post.] Despite this, manufacturing is returning to the US. If conservatives were right and production left because of burdensome regulation, how is it returning now, when regulation has only increased? Could it be that they were wrong?

It is worth noting that none of these articles mentioned the regulatory burden as a reason for leaving, or a reason for returning.

The New World Economy

The world economy is in the midst of dramatic changes, driven largely by technology. Automation is replacing industrial workers, and now computer technology is starting to replace many office workers.

This will have a dramatic impact on the world and the American economy, and on the lives and opportunities of many Americans.

Politicians argue about debt limits and tax rates, but those will only have a small impact on the economy. The real impact is technology.

The Associate Press is running a series of articles on the impact of technology on the world’s economy. A link can be found here: Recession, Tech Kill Middle-Class Jobs.

The link is to a Windstream news feed and I can’t guarantee its usefulness.

Here are three key quotes that neatly sum up the report:

  • For more than three decades, technology has reduced the number of jobs in manufacturing. Robots and other machines controlled by computer programs work faster and make fewer mistakes than humans. Now, that same efficiency is being unleashed in the service economy, which employs more than two-thirds of the workforce in developed countries. Technology is eliminating jobs in office buildings, retail establishments and other businesses consumers deal with every day.
  •  Thanks to technology, companies in the Standard & Poor’s 500 stock index reported one-third more profit the past year than they earned the year before the Great Recession. They’ve also expanded their businesses, but total employment, at 21.1 million, has declined by a half-million.
  • Technology is replacing workers in developed countries regardless of their politics, policies and laws. Union rules and labor laws may slow the dismissal of employees, but no country is attempting to prohibit organizations from using technology that allows them to operate more efficiently — and with fewer employees.

Bumper Sticker Logic

I saw this on a bumper sticker not long ago:

“The Bigger the Government, the Smaller the Citizen.”

I didn’t get a chance to talk to the driver to find out what he thought it meant, but my presumption is that it in line with the conservative idea of limited government. The more limited the government, the more rights for the citizens; and conversely the larger and more pervasive the government, the fewer rights of the citizens. Hence: the bigger the government, the smaller the citizen.

But let’s think about that in the real world. First, let’s think about those countries with little or no government, places like Somalia or Mali. Where there is no government there is not maximum freedom for the citizens, but chaos.

Second, let’s think about those countries that are rich and have high standards of living.  The United Nations has what they call the Human Development Index, which ranks countries according to a number of factors, including life expectancy, education, and wealth as measured by the gross domestic product per capital. (This is published annually in the UN Human Development Report.) [http://hdr.undp.org/en/reports/]

The list for 2011 is here. 

The top five countries are Norway, Australia, Netherlands, US, and New Zealand. All of the top countries are nations with modern regulatory governments with strong social welfare programs. If you go to the bottom of the report you will notice that all of the counties at the bottom, which the UN says are nations with “Low Human Development”, are countries with minimal or failing governments, like Afghanistan and Sierra Leone.

But overall wealth and a high standard of living doesn’t necessarily equate to “liberty” and “freedom.” Perhaps the people of Mali are more free than the citizens of Norway.

Of course one argument is that the people of Mali live in endemic poverty, and so even if they are less burdened by the heavy hand of government, they don’t have the financial wherewithal to exercise those freedoms.

So let’s look at the other side, and consider Norway. Norway is a near socialistic state, with universal health care, a strong welfare system, and a high degree of government regulation of the economy. So are the citizens of Norway veritable serfs? Actually they seem pretty free to me. They seem able to do almost anything they want. In fact we in the US might consider their society rather licentious.

In fact, if you look at the countries on the top of the list (which includes the US, Canada, Australia, New Zealand, Japan and most of Europe) you see countries with a relatively high degree of government regulation of the economy, and countries with pretty generous welfare programs. And are the citizens of these wealthy nations serfs? In any real sense they are the freest in the world. They have open cultures and successful liberal democracies. They have strong economies (as compared to the rest of the world, even considering the recent world-wide recession) and their citizens are generally fairly wealthy and have a very good standard of living. As a result they have the financial ability to pursue a wide variety of educational and leisure options. They are what is commonly referred to as free.

So if one was to consider the real world, and not the logic of a bumper sticker, one would conclude that the reality is that the smaller the government, the poorer the citizen. And since poverty can stunt your growth: the smaller the government, the smaller the citizen.