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Wheeler Conference Summary - The “Next” Economy: A Public Discussion on Job Creation And Innovation in Montana

April 26, 2010View for printing

Many thanks to those who were able to attend the most recent Wheeler Conference in Bozeman on “The Next Economy.” Please seethe Director’s comments and summary below. Our next conference will take place in late September, details tba.

Julie Hitchcock

Associate Director

Burton K Wheeler Center for Public Policy

Montana State University, Bozeman, MT 59717

406-994-0336 http://www.wheelercenter.org

"An informed people is the basis of, and a necessity for, successful democratic government. The people of the United States are entitled to hear all sides to a question..." - Burton K. Wheeler

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Summary The “Next” Economy: A Public Discussion on Job Creation And Innovation in Montana

The Burton K. Wheeler Center for Public Policy’s Spring 2010 Conference in Bozeman, underwritten by Exergy Development, NorthWestern Energy, the Dennis and Phyllis Washington Foundation and the Thomas and Teresa Quinn Family of the Whitefish Community Foundation, focused on entrepreneurialism and job creation in Montana.

Set against the backdrop of three years of significant unemployment, numerous business failures and diminished tax revenues, the conference opened with a presentation by Sarah Wilhelm of the Montana Budget and Policy Center. Wilhelm discussed the public and private sector spending funded by the American Recovery and Reinvestment Act stimulus funds, as well as the multiplier effect of those funds. Realizing a $1.78 in spending for every $1.00 of stimulus funds invested, the food stamps program has proven, not only to be the most effective spending stimulus within Montana but has served those most in need by providing food for those who can least afford it and jobs for those in the service industries related to the production, distribution, and sale of food products. Moving beyond reflection on the stimulus package, Ms. Wilhelm addressed the “economic scarring” that follows in the wake of those who are recently impoverished as well as those who have suffered economic deprivation for far longer than the past few years. This chain of events begins with a reduction in family income, which leads to poor nutrition, and poor health in children. These factors contribute directly to a decline in educational achievement and thus lower lifetime incomes. Unfortunately, statistics indicate that this is not a transitory condition but will actually lead to lower education achievement in the next generation and thus an inherited lower lifetime income potential. Thus a well-funded “safety net” of services for those caught in poverty and enhanced educational opportunities are needed if the impoverished of Montana are to actively participate in the job opportunities of Montana’s next economy.

Craig Barrett, PhD and former CEO/Chairman of the Board of Intel Corporation, further emphasized the importance of education but from a decidedly different perspective. Mr. Barrett opened by stating that we are in a period of worldwide economic transition and it is in transitions where market-shares are won and lost. To emerge from this transition period with an enhanced economy Montanans must first recognize that our competition is international. We are competing for jobs and incomes with Central and South America, Asia, China, India, and the nations of Eastern Europe in an environment in which every state, nation, and the vast majority of individuals want a growing economy, great jobs, and a great place to live. If we try to compete on the basis of low wages we will inevitably lose in this international competition. The only competitive advantage Montanans have the potential to realize is knowledge-based. With knowledge as the cornerstone of Montana’s next economy, added value through the extension of services and enrichment of products can make Montana not only competitive but can also result in more and higher paying jobs. To achieve this Barrett argued that three elements of Montana’s socio-economic condition must be invested in and rapidly enhanced:

• The availability of smart people

Montana’s educational system must be dramatically improved. Educational attainment must be the principal focus of public policy.

• Emphasis on new ideas

Montana must create an atmosphere of entrepreneurialism. Both in the public and private sector bright ideas must be encouraged and rewarded. Emphasis must be on engaging the future, not preserving the past.

• The right environment

Advanced communication systems including broadband wireless must be available throughout the state. Our transportation system must maximize the ability to move raw materials, products and people rapidly throughout the state and connect us to the nation and world. The corporate tax rate must be made competitive with international rates if we are to create an environment that attracts and retains corporations.

In an effort to place today’s conditions in perspective, Professor Gordon Brittan provided a brief history of Montana’s economic circumstances since the 1950’s and the effects of various state policy initiatives intended to enhance the economy. Montana has vacillated between being among the nation’s strongest economies to among the lowest throughout the past 60 years. Why is this? Brittan suggested that the state has rarely taken responsibility for its own economic destiny. We exist in a vast landscape with a small population. Both coasts have traditionally dominated Montana’s commerce and today Montanans are faced with forces of even greater inaccessibility in the global economy. Because of these factors Montanans, and perhaps our legislative actions, have demonstrated a historic preference for jobs and happiness over income. In the politics of happiness Montanans have consistently sacrificed income for a job and the opportunity to stay in Montana to be a part of the landscape and the socio-cultural manifestations of the Northern Rockies. Does this tradition remain the consistent belief of Montanans or do we now seek to more rigorously promote the income potential of our people? Only our forthcoming actions will reveal the answer to this question but actions taken or not taken now will doubtless have a significant impact on future generations.

Four panel discussions followed these overarching introductory presentations. The first panel focused on agriculture, mining, power, and the timber industry, Montana’s traditional industries. The panelists were consistent in their advice:

• We must realize we are part of a global economy and be willing to compete in a global market if the traditional industries are to flourish.

• Business leaders must realize and adapt to the speed of change needed to be competitive in an international market.

• Traditional industries must apply inventive technologies and recognize that what was done yesterday may be obsolete today.

• Executives must create a culture of change and focus on retaining and rewarding those employees who demonstrate inventiveness, creativity, and adaptive behavior.

• Every Montana industry should promote as a competitive advantage Montana’s cultural values, which are nationally and internationally recognized as individualism, a strong work ethic, inventiveness, and self-motivation.

With regard to policy changes needed to make Montana more competitive the Traditional Industries Panel recommended two areas for reform. First the State must provide regulatory consistency. Consistency creates an environment of predictability, and predictability helps to minimize risk, which promotes investment, the key element in funding the new technologies needed to keep the traditional industries competitive. Additionally, Montana policy must support the development of new products. To do this policies must be developed that provide mechanisms to permit timely adoption of rules to guide and regulate the new rather than binding the new to old regulations created in response to past conditions and industries.

The second panel, representing “Montana’s Knowledge Sector,” consisted of four individuals who were self-described “serial entrepreneurs.” All had started several businesses and spoke to both the personality traits needed to be an entrepreneur and the type of environment that facilitates success. Members of the panel were unanimous in their belief that entrepreneurialism is a learned behavior derived from both an educational system that promotes inventiveness and a willingness to pursue success in spite of inevitable failures. Because of this Montana’s educational system is at the core of realizing the state’s entrepreneurial potential. Montana is isolated physically from both financial capital and large-scale markets, thus technically oriented, knowledge-based businesses have the greatest potential for successful development. Global communication systems, access to global delivery networks, and human capital are the key ingredients needed to ensure that Montana knowledge-based businesses can successfully compete today in the worldwide market place.

Montana’s cultural and physical landscapes attract the human capital necessary to build a knowledge economy but potential employees will seek a work environment that is nationally competitive. Not only does this require nationally competitive salaries, but also recognition of the values held by our most recent generation of graduates. The best and brightest desire intellectual ownership if they are to be enthusiastic participants in a business enterprise. They are result oriented, seeking rewards for accomplishments, not fixed time expectations. As an added benefit, individuals with these characteristics are also those who are most likely to open subsidiary businesses. Fostered in this manner the knowledge sector can have a multiplier effect in job creation. The initial business hires employees who are drawn by good salaries, a desirable landscape, and an excellent education system that not only meets their personal needs but is also engaged in productive research. Within this environment new knowledge will create the opportunity for new businesses and more jobs.

“Montana’s Service Sector” was the focus of the next panel. Like most of the United States, the service sector represents a major portion of the state’s economy. The panelists represented tourism, non-profits, the food industry, health care, and the Crow Nation. From extraordinarily diverse perspectives their message was remarkably consistent. The panelists were in agreement that all those involved in service industries must engage in developing a robust vision of the future and identifying the role the service sector can play in 21st century economic development. Those in the industry must realize that there is an ever-changing market with new local, national and international demographic profiles. Businesses must be inventive and responsive to the values of these potential clients. This requires excellent employees with unique professional qualifications. Here again the subject of education emerged as an important element in creating job opportunities for Montanans. The higher education system must be responsive not only to emerging scientific and technical education as well as research opportunities but to the major elements of our service economy including tourism, healthcare, local food production, and non-profit businesses.

Perhaps Conrad Stewart expressed the panel members’ sentiments best in his concluding remarks when he said that to be engaged in service we must develop a vision of the future and have a commitment to change based on promises to ourselves and future generations. Our first priority must be serving each other and in so doing we can serve others throughout the nation and the world.

The final panel described the funding opportunities available to Montanans as we emerge from the recession. Angel funds are generally the only source available to entrepreneurs who are seeking start-up funds and have no credit but a well conceived business plan with foreseeable profits. Institutional lenders simply cannot serve those with no viable assets. The question most often asked of these lenders related to the availability of money to loan. Banks and other lending institutions have adequate funds available but are faced with a unique circumstance linked to the breadth, depth, and cause of the recession. Those businesses that have survived did so by being very conservative and accumulating cash. They do not need to borrow nor desire to take on debt if they seek to expand in the near future. These are the clients that offer the lending institutions the safest investments particularly in light of emerging regulatory reform. On the other hand those who are in need of loans today have the least amount of capital to operate with and have a significant risk of failure, thus they represent the greatest risk to the institutional lender and therefore are the least likely to receive a loan. For entrepreneurial businesses in need of funds to expand but which do not meet the regulatory criteria or investment goals of the institutional lenders, there remains a significant pool of money available via equity capital sources, some of which is explicitly aimed at Montana business investments. In this regard Montana lags behind, not because of the availability of funds, but simply, due to the fact that very few entrepreneurial businesses, requiring investment capital to expand, are located in Montana. Why is this? This question was of course a principal issue of the conference. In response we must ask ourselves what policies are required to maximize job creation and innovation in Montana?

One common theme permeated the conference, the necessity of a highly educated population. Whether to alleviate the economic scarring of impoverishment or to support innovation in technology and services, access to an affordable world-class education from kindergarten through lifelong learning is the most critical element in Montana’s economic future. Are the citizens of Montana willing to make the commitment to policy changes that will ensure such an education for future generations? To achieve a world-class education accessible to every citizen in Montana requires a world-class communication system that provides access to the greatest depth and breadth of educational opportunities and will thus also support international business development. The quality and distribution of communication systems are within the domain of public policy. What policies will ensure a world-class system available to every citizen and business within the state? In addition to the education and infrastructure reforms there was unanimity in a call for public policy revisions that support capital investment in contemporary business models and create a tax structure that draws businesses to Montana. Here again we have a complex public policy issue. It is the government’s role to find an appropriate balance between the avarice of capitalism and the needs of the citizenry. How is that balance to be achieved?

In summarizing his views, Bill Bryan said that today Montana businesses must focus on “people, planet, and profit.” These three words concisely summarize the principal strategies that must be recognized for Montanans to create “the next economy”:

• Every business must hire good people and create an environment in which they can flourish and be well rewarded. Of equal importance is the necessity to pay close attention and be responsive to the people the business serves.

• Today Montana operates in a global economy. The entire planet is the source of both our competition and opportunities. To be competitive we must recognize the strengths we have at hand, the limits of our environment, and the potential of the planet’s resources and clientele.

• Ultimately every business has to make a profit. It is only via the by-product of that profit that more jobs can be created and public services provided. Montana’s future social, cultural, economic, and environmental conditions all hinge on public policy that ensures a balance among these interrelated elements.

The Burton K. Wheeler Center wishes to thank all of the individuals who spoke and/or attended the conference. All contributed thoughtfully to the dialogue. In addition to the Burton K. Wheeler Center Underwriters, we owe special thanks to conference sponsors The College of Business at Montana State University and PPL Montana. Without their generous contributions the conference would not have been possible.


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Reprinted under the Fair Use doctrine of international copyright law. Full copyright retained by the original publication. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.


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