Testimony before the Assembly Standing Committee on Economic Development, Job Creation, Commerce and Industry and Assembly Committee on Small Business

May 11, 1999. The Upstate Economy: Testimony delivered by James Parrott, Deputy Director and Chief Economist, Fiscal Policy Institute, Albany, New York.

Thank you for the opportunity to testify on the economic development challenges facing Upstate New York. The lagging performance of the upstate economies is a serious issue. Weak job growth for an extended period in the 1990s has restrained income growth and the resulting lack of job opportunities has, unfortunately but not unexpectedly, led many people to give up entirely on New York and move elsewhere. Our state has the dubious distinction of leading the country in the rate of domestic out-migration of population in the 1990s. And last year, as the notice for this hearing indicated, we saw the labor force actually decline in many upstate metropolitan areas.

Concerted action to revitalize upstate economies is needed before this brain and skill drain worsens, putting a turnaround beyond reach. Given the powerful influence of national and international economic forces beyond the control of State government, it is imperative that the State judiciously plan how it will deploy its resources to improve, at the margins, regional and State economic performance. In recent years, the State has chosen to focus on massive tax cuts and a corporate retention approach geared to financial services. I would argue that these policies have had very little real impact on the state’s economy and have clearly failed to rejuvenate the upstate economy.

Earlier this year, the Fiscal Policy Institute included its analysis of the data on the state of the Upstate Economy in its briefing book on the 1999-2000 Executive Budget and we have attached that publication to our testimony for your reference. Also attached is a copy of the revenue section of this year’s Counterbudget, in which we set forth our analysis of why the Pataki tax cuts are not achieving the results which their advocates promised. In today’s testimony, we will not repeat these analyses. Rather we will focus on the important purpose of this hearing as stated so clearly in your hearing notice: “to examine proposals to improve the Upstate Economy.”

Without attempting to be definitive regarding a comprehensive State economic development strategy, I will discuss today two areas of economic development policy, industry clusters and high technology, that hold significant promise. The

Fiscal Policy Institute’s executive director, Frank Mauro, will be testifying at your Syracuse hearing on May 20 on the use of tax policy to stimulate the upstate economy and several related issues.

First, the Empire State Development Corporation’s Strategic Plan from February 1996 emphasizes the value of pursuing an industry clusters approach. Yet, this emphasis is not evident when the State implements its economic development priorities. Competitive advantage increasingly depends on developing and capitalizing on technologically-oriented workforce and entrepreneurial skills. In a global economy, those skills are the major assets of our State.

An industry clusters approach focuses attention on just those workforce and entrepreneurial skills and how to develop them further and address barriers to their development. To be effective, this strategy depends on the leadership of small and medium-sized firms coming together to discuss common concerns, identifying opportunities and working with government to address skills training or other infrastructure needs, regulatory issues, and joint marketing or strategic business partnerships. In practice, an outside party, which could be government or an academic or industry consultant, is often necessary to initiate the formation of an industry cluster self-help organization. In the late 1980s, the State sponsored the Strategic Industries Group Services program to encourage the creation of such industry groups.

In the 1980s, I was the representative of the International Ladies’ Garment Workers’ Union to the Garment Industry Development Corporation (GIDC) in New York City, an organization involving industry, labor and government that is often cited as one of the leading examples in the country of this sort of industry self-help organization. GIDC provides training programs for workers and management, assistance in identifying and introducing new technologies and tapping export markets, and is constantly seeking innovative ways to expand New York-based apparel production.

The second area I would like to discuss is high technology. I view high technology not so much as a specific group of industries such as biotech or electronics, but as the application of a variety of technologies and related skills needed to produce high value-added goods and services. In addition to helping facilitate greater investment in high technology industries, the State should support the development of high tech skills across the spectrum of export-oriented industries. In particular, it should substantially expand funding for employer-specific training through the community college system. If designed with business and labor input, employer-specific training can be, as a recent report from the State Comptroller indicates, “a powerful economic development tool”. (1) Such training is one of the most cost-effective investments that can be

made in increasing the technological proficiency of our existing workforce, raising the productivity and earnings of our workers and addressing business’ growing need for more skilled workers.

Other institutions that are critical in helping New York’s businesses in applying new technologies to maximum advantage in our workplaces are labor unions and technology extension programs. Consequently, I think that the State’s technology focus should include support for innovative labor-management partnerships fostering new workplace technologies. The State also should increase funding for the network of technology extension centers that assist small and medium-sized companies by providing a range of engineering and technical assistance that enhance their competitiveness. (2)

In closing, I would like to comment on the division of labor between the State and local levels in conducting economic development efforts. Creative and committed leadership at both levels is essential in the development and execution of a strategic plan. There needs to be overall coordination at the State level and the State should provide the lion’s share of the resources needed. Local leadership is critical for industry self-help partnerships and coordination with local governments and educational institutions. Needless to say, the legislature and the Comptroller’s Office have important oversight roles to ensure periodic evaluation and accountability.

For additional information contact:

Frank Mauro, Executive Director Fiscal Policy Institute One Lear Jet Lane Latham, NY 12110 phone: 518-786-3156 fax: 518-786-3146 e-mail: fpi@albany.net

James Parrott Deputy Director and Chief Economist Fiscal Policy Institute 218 W. 40th St., 3rd floor New York, NY 10018 Phone: 212-730-1551 fax: 212-819-0885 e-mail: jparrott@uniteunion.org

Notes

(1) New York’s Community Colleges: Cost-Effective Engines of Educational Access and Economic Development,” State Comptroller H. Carl McCall, March 1999.

(2) See James A. Parrott, “Labor Unions, Technological Change, and Economic Development in the New York Tri-State Region,” in Technology and Economic Development in the Tri-State Region, Collected Background Papers for the New York Academy of Sciences Roundtable Series, New York Academy of Sciences, 1997.