The Little State That Could

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.