Michael Dukakis is blowing a golden opportunity to talk about the real reasons for Massachusetts's booming economy
It didn't have to happen this way. Governor Michael S. Dukakis did not have to allow his campaign to deteriorate into an argument over whether he is responsible for his state's economic boom, the Massachusetts Miracle. He had a much more potent message to deliver.
Dukakis has missed one of the best opportunities in recent history to elevate the level of debate about the nation's economic future. Based on what he has seen in his own state, he could have dawn attention to the new set of ingredients that create vitality in an economy increasingly dominated by entrepreneurship and to the proper role of government in that process. Instead, he has outlined a role for government that has never worked in the past, is unlikely to work in the future -- and that, paradoxically, has had little to do with the creation of a dynamic economy in his own state.
The Massachusetts Miracle is easy enough to measure statistically. Battered by the loss of manufacturing jobs, the state registered an unemployment rate of 12% in 1975, compared with the national average of 8.5%. The state was nearly broke, and taxes, already among the highest in the nation, were still rising. By March of this year, the state's unemployment rate had dropped to just 2.9%, far below the national average of 5.6%. The state's budget was in balance, and taxes had fallen substantially.
Certainly Dukakis contributed to the economic resurgence of the state, but his policies were of relatively minor importance. The real opportunity for the governor -- or for any other national politician, for that matter -- is to go beyond the statistics and the issue of who gets credit for what. It is to explain how the Massachusetts Miracle really happened and what lessons it teaches us for the future.
Massachusetts was certainly not alone in being hit hard by the decline of old-line manufacturing jobs. In fact, most metropolitan areas of the United States lose 7% to 8% of their job base each year. Some are able to more than replace those lost jobs, while others are not. Massachusetts performed well for a variety of reasons.
The most important is that the state was well positioned to take advantage of a major change in the national economy: the transition from an age of capital-intensive, large-scale industries to one in which thought-intensive businesses and entrepreneurial endeavors were the primary creators of wealth.
Massachusetts already had the right infrastructure in place to capitalize on this trend. It had a well-educated work force and good transportation and telecommunications facilities. Capital was plentiful. And the state claimed a disproportionate amount of research-and-development spending by the federal government for defense and electronics.
Because of its excellent colleges, including Harvard University and Massachusetts Institute of Technology, the state attracted some of the best faculty and students from around the country. Massachusetts ranked among the top five in the granting of engineering degrees, and its university R&D facilities were among the best in the world, continually spawning new technology with commercial applications. A strong tradition already existed for promising technology to move out of the laboratory and into new companies in Cambridge and along Massachusetts Route 128, the highway that loops around Boston.
It is these new companies that have been responsible for the strong job generation in Massachusetts. From 1983 to 1987, some 3,800 significant growth companies have emerged in Massachusetts, generating nearly 70% of the state's new jobs, according to studies by David L. Birch, president of Cognetics Inc. and director of MIT's Program on Neighborhood and Regional Change. A single East Cambridge plot of land less than a mile square, between 1980 and 1986, created more jobs than each of 13 states, including Pennsylvania and Illinois.
Looking at what happened in his own state, Dukakis could have carried a message to the voters that focused on the critical importance of a healthy infrastructure to the creation of an entrepreneurial economy. His message would have focused on improvements in education at all levels, especially in the sciences. Reinstatement of an attractive capital-gains tax to encourage capital formation. New initiatives to ease the transfer of government patents to the private sector. An increase in federal R&D, modernization of university science and engineering labs, and the permanent establishment of federal tax credits for corporate R&D.
Dukakis is among the best equipped of any politician of his generation to articulate this message. Perceived as antibusiness in the mid-1970s, Dukakis in the mid-1980s emerged as one of only a handful of American politicians who seemed to understand the central importance of new-company formation to the nation's long-term economic success.
Dukakis spent considerable time trying to understand the entrepreneurial boom in Massachusetts. As governor, he actively courted growth companies and spent many hours listening to such experts on job generation as MIT's Birch. Dukakis put a broad array of government programs into place to assist new companies and retrain workers, and he achieved notable success in spreading the economic boom from Route 128 to the state's moribund mill towns.
Yet a vast chasm exists between the economic promise and the economic reality of the Dukakis candidacy. The closest Dukakis comes to a detailed look at his state's success is Creating the Future, the book he wrote with Harvard Business School professor and management consultant Rosabeth Moss Kantor. Dukakis credits "innovation and opportunity" as the keys to the state's economic boom. When he turns his attention to he future, he insists that government must accelerate the creation of more hotbeds of technology companies: ". . . in today's highly competitive global economy, with other countries investing in their own Silicon Glens and Silicon Bogs," Dukakis writes, "we cannot afford to wait; we need to speed up the process of creating the conditions for concentrations of technology and business development to occur."
Dukakis runs into problems when he tries to outline how he would foster the creation of new hot spots. Here he deviates substantially from the role government can play by providing better education and more incentives for capital formation. Instead, the governor proposes a form of national economic planning: he would set up a "national network of Center of Excellence" that would, like a gardener forcing a tulip bulb to bloom in winter, try to create a seedbed of entrepreneurship by dint of sheer will. "These guys think you can create a Silicon Valley the way you build the Hoover Dam," observed one former Dukakis aide. "They see everything as a public-works program built in places according to the governor's electoral needs."
Of course, entrepreneurial hot spots don't emerge unless the local conditions are right, and there isn't much the federal government can do to force the bulb to bloom in the location of the government's own choosing. Since the location of a Center of Excellence would naturally be a political choice, it would be used, as is any other pork-barrel project, to reward friends and punish enemies.
In fact, this seems to be exactly what Dukakis's aides have in mind. The governor's chief of operations, John DeVillars, revealed something of the highly politicized ways in which the Dukakis government would select certain regions to become the next Silicon Valleys. Selection would be based on several political criteria, including economic need and the ability of a region to "reflect the perspectives" of the local labor, corporate, and academic institutions. Using such standards, for instance, St. Louis, with fine biomedical institutions but no large-scale entrepreneurial development to date, might be selected as the national biomedical Center of Excellence, aided by tax and other incentives.
Such an approach might be considered unfair by biomedical entrepreneurs in Los Angeles, Boston, and Philadelphia, which are emerging as natural centers of this industry. But DeVillars downplays these concerns. "Anything that helps St. Louis," he says ecumenically, "is good for Orange County, too."
Some campaign insiders cite the removal last fall of longtime chief political aide John Sasso, who represented the closest thing to a broad-brush strategist within the Dukakis organization, as the reason Dukakis has failed to heed the lessons of his own state. "Sasso understood that the aspirations of people to own and run their own businesses was a growing political concern," points out one campaign insider. "While the condition of the country requires a new and more entrepreneurial economic policy, the people around the governor are offering the same old interventionist thing we've been giving the public for 50 years."
Much of the problem, this aide argues, is that Sasso's removal has left the candidate dependent on intellectual direction from Harvard Business School and John F. Kennedy School of Government. As a former lecturer at the Kennedy School, it was natural that Dukakis would seek assistance there. But today, the top advisory positions in his camp are filled by people with Harvard connections. Few members of his inner circle have experience in, or special sensitivity to, emerging growth companies.
Ever since John Kenneth Galbraith began advancing his theories about the inevitable triumph of giant business, labor, and government institutions, Harvard's intellectuals have tended to view entrepreneurs with something ranging between mild bemusement and thinly veiled contempt. Perhaps as much as anything else, this turn away from emerging growth companies reflects the considerable influence of Robert B. Reich, the Kennedy School academic who has become a major economic adviser not only for Dukakis but for much of the nation's liberal establishment as well.
Reich epitomizes the traditional Galbraithian faith in giant institutions over individual efforts. And like many liberal intellectuals, Reich sees the economic model for America coming not from hot spots like Route 128 but from such European nations as West Germany. There, cooperation among big government, big labor, and big business has long been at the heart of economic development. Indeed, references to West Germany have appeared in some of Dukakis's speeches.
The cooperation of government, business, and labor is not unimportant, but it has little to do with the creation of new enterprises, which is the primary engine of job generation not only in the United States but in most other countries. Neither Reich nor Dukakis seems to be aware that the very government-labor-business cooperation so central to Germany has also helped stifle its entrepreneurial environment and helped boost its unemployment rate in recent years to about 10%, the highest level since the early 1950s. Whereas Germany's unemployment rate used to be well below that of the United States, now their positions have been reversed.
If he were talking about Route 128 rather than the Ruhr Valley, Dukakis would be elevating the campaign with a proprietary message about America's economic future. That he hasn't done so seems eerily familiar. Five years ago, another Democratic Presidential hopeful visited growth companies in such dynamic economies as Silicon Valley and Route 128.
But as the race for the nomination came closer, this candidate, like Michael Dukakis today, seemed somehow to lose interest in the reasons behind the explosion in company formation. Instead came the familiar messages calculated to appeal to the institutional interests that have long dominated the Democratic Party -- a call for an increased government intervention in the economy, trade protection, and higher taxes. That candidate's name was Walter Mondale.