Login or signup
36

The Little State That Could

Rhode Island thinks it can, it thinks it can, it thinks it can.
Advertisement

Before J. Joseph Garrahy, Rhode Island's governor, announced the creation of a 20-member, independent commission to study the state's economic future last fall, John Boehnert, an attorney with one of Providence's top law firms, had a busy but regular practice providing corporate clients with legal advice. Since then, however, the 34-year-old lawyer's professional and family lives have assumed a much more frenetic pace. "There are days when I don't see either of my children awake," he confesses. "And there doesn't seem to be a lot of time for sleep."

With the backing of his colleagues, Boehnert holds his billable hours at the law firm to around 30 hours a week. For another 30 hours a week, he is a soldier in a highly dedicated army of 48 research volunteers who have been picking apart Rhode Island's economy from the inside out. The volunteers -- made up of other attorneys, bankers, union officials, and educators -- have collectively spent thousands of hours analyzing everything from the competitive positions of each of the state's existing industries to identifying the most promising investment areas for Rhode Island's future. While the recommendations -- and the steps to implement them -- won't be unveiled until sometime this fall, the overall goal, says Garrahy, a fourth-term Democrat, will be "to demonstrate to business that we want it to expand and grow here." As he puts it, "We've learned the hard way that we need a diverse economy to prosper. So the name of the game has to be investment."

Rhode Island's eagerness for change comes on the heels of years of industrial decline. Over the past couple of decades, the nation's smallest state has seen hundreds of its textile, jewelry-making, and metalworking companies either leave the state for lower-wage markets or simply go out of business. But, as tens of thousands of its jobs have evaporated, Rhode Island hasn't come anywhere near such states as Massachusetts in generating new employment, particularly in those areas that have promising futures. In recent years, moreover, the state's population of about 950,000 people hasn't grown at all.

This stagnant economic situation has fostered animosity between labor unions and management, a condition almost everyone now agrees has undermined opportunities for growth. "We've got to get away from the status quo," says state AFL-CIO president Ed McElroy, who has been n active voice on the year-old commision. "If we can figure out ways to create wealth and make businesses more successful, there will be larger slices of the pie for workers and everybody can be a winner."

Garrahy assembled the Rhode Island Strategic Development Commission -- made up of leaders from business, labor, education, and state and local government -- to draw up a detailed economic development road map for Rhode Island. But in contrast to highly publicized initiatives -- which are aimed exclusively at encouraging emerging high-technology industries -- launched recently by other states, the Rhode Island commission has been extremely skeptical about the wisdom of cultivating certain types of new jobs.

"We're not saying we wouldn't like a Digital Equipment plant," says J. Terrence Murray, chairman of the commission and of Fleet Financial Group, the state's largest bank. But he, for one, thinks Rhode Island should lie wary of the possible time bomb contained in unskilled assembly operations, no matter how glamorous they may seem. Murray points out that an increasingly global market would force computer manufacturing plants, for instance, to compete squarely against lower-wage foreign competitors, triggering dislocations down the line that could be every bit as crushing as New England's loss of textile plants in previous periods. "We need to target our efforts at leveraging the resources that are here," Murray says.

Although he concedes that the state's still-important textile and jewelry industries are both hurting, "that doesn't mean there aren't ways to make certain segments of them very competitive." In fact, Murray argues, the future prosperity of Rhode Islanders will depend to a large degree on whether it is possible to upgrade the old industries and their products and identify specialized, high-value markets for start-ups in such fields as medical technology.

Rhode Island's search for a new industrial identity is being heavily influenced by Ira C. Magaziner, president of Telesis Inc., an international business-strategy consulting firm headquartered in Providence. For the past year, the 35-year-old former Rhodes Scholar has been providing staff leadership to the commission and supervising what many policy experts around the country are calling the most detailed economic analysis any state has ever conducted. Magaziner and the army of volunteers under his direction have been using research methods derived from his firm's strategy studies for clients such as the governments of Sweden and Ireland and large companies including General Electric Co. and A. B. Volvo. They have analyzed the experiences of some 4,000 recently incorporated small businesses, including those that have already failed. In addition, the researchers, relying on first-hand interviews with principals, have probed into every business relocation or plant-closing decision over the past decade that has involved the loss of 50 jobs or more -- 148 companies in all.

While these sorts of analyses have been providing the commission with mountains of historical data on what has happened to Rhode Island businesses, there are other components of the study that are offering broad insights into what kinds of activity should be encouraged for the future. A fundamental rule, says Magaziner, co-author of Minding America's Business, a treatise on industrial decline in the United States, published in 1982, is that businesses that are involved in exporting goods and services out of the state-are vital because "they're the ones that bring in the wealth." Since the lion's share of wealth-creating jobs are in manufacturing industries and those jobs, in turn, generate roughly twice as many other types of jobs, he says, "it's critical to focus on those [export-oriented] jobs, or the best you can have is stagnant employment." He adds: "If we can't keep manufacturing companies healthy, we'll find the sand running out from under our feet." To identify ways to encourage more activity, Magaziner's researchers have examined the cost structures, investment histories, and competitive positions (on a confidential basis) of nearly every company in the state involved in trade outside of Rhode Island.

Not all of the analysis, however, has teen directed at the state's existing industries. According to Magaziner, volunteers and staff consultants on loan from his 50-employee firm have done a complete inventory of what is happening within research laboratories throughout the state. They have looked at more than 200 research projects at each of the state's universities and medical centers in hopes of identifying activities that may be commercially viable and, in turn, capable of generating well-paying jobs. Although some of the most promising projects, he notes, are in such broad industrial categories as defense, materials, and marine electronics, the idea would be to select a handful of narrow market segments within these categories where the odds seem favorable for becoming national or international leaders. "We'd be looking to compete in highly focused niches within those areas," says Magaziner. "We'd be trying to do things that would enhance their capabilities and speed the process of commercialization."

The specific actions the Rhode Island commission would be proposing were not yet announced at press time, but the goal, says Magaziner, will be to create an integrated series of incentives and mechanisms aimed at targeted problem areas and opportunities identified in the study. Most of the funds required for new programs would depend on private investment, he notes, but it is likely that a significant commitment of public money will also be required.

The scope of these actions is expected to vary all over the lot. To improve the competitive abilities of energy-intensive textile and metalworking companies, for example, the commission's answer might be fuel-bill subsidies. The boat-building industry, on the other hand, might benefit most from exemptions from some state sales taxes -- a different sort of incentive entirely. By contrast, the panel may recommend research grants along with other incentives to spur private investment in selected new ventures and to stimulate new product development within existing companies. "It's a mistake to do things across the board," says Magaziner, who criticizes the Reagan Administration's economic policies for being too vague. If you're looking for the most highly leveraged way to help, you have to design things differently for each activity."

The success of Rhode Island's effort will, of course, depend first on whether or not business and labor groups are able to rally behind the recommendations. Chairman Murray says the dozen or so recommendations coming out of the year-long study will be presented as an integrated package -- in essence, an economic development "compact" -- which must be accepted in its entirety by the different constituencies. In exchange for commitments by private industry to invest in long-term growth and employment, for example, labor may be expected to bend on such sensitive issues as strike benefits and workers' compensation. To persuade interest groups of the need to bite the bullet and fulfill their necessary roles, Murray and Magaziner have been seizing opportunities to speak at union and business-group meetings throughout the state, sometimes three or four times a week. "There's going to be a certain amount of choking all around," predicts Murray. "But if we're going to move forward into the next decade with half a chance of outperforming the rest of the country, we're going to have to take some bold steps. If we have negatives, we have to address them."

The real impact of whatever actions may be taken by Rhode Island won't be apparent for some time. But as increasing national attention is focused on the need for a more clearly defined U.S. industrial policy -- particularly during the 1984 Presidential campaign -- the trail-blazing efforts of the nation's smallest state could make it an early showcase. Magaziner, for his part, is optimistic that within a year or two after the new programs are adopted it will be possible to link the higher level of investment in Rhode Island to a growing number of of new jobs in the state relative to other states. In particular, he believes they will be jobs in which the value-added per employee is high, allowing for higher wages. But such ambitions, as Magaziner is the first to admit, may never be fulfilled unless Rhode Islanders, such as John Boehnert, are prepared to devote as much time and effort to implementing and maintaining the new mechanisms as they have been to doing the research. "This absolutely has to be an ongoing effort," agrees Norton L. Berman, the state's new economic development director. "If it's treated as just another report, I'll guarantee you that the exercise will fail."

Last updated: Oct 1, 1983




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Comment and share features
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: