1995-02-05: Toward 2000: Virginia's Economic Prospects (missing audio)

Vol. III, No. VI

Transcription:

April Young. GMU
Roy Pearson, CWM
Music
Greeting
Toward 2000:
WITH GOOD REASON
Volume III, No. VI
Virginia's Economic Prospects
Virginia is recovering from the recent recession better than most
states but our recovery is slowing down. Next on With Good
Reason, Virginia's economic outlook. I'm Laura Womack.
Introduction
In the days of the recession, Virginian's, like most Americans
were staring at a stark future that included corporate downsizing
and the massive lay-offs that followed. Military cuts threatened
to gut the important Hampton Roads economy but according to the
Virginia Department of Economic Development, we aren't doing so
bad.
Unemployment is down and job creation in some sectors is up. The
rub is that most of the growth is from one-time spending bursts
that accompany a recovery. Virginian's, feeling more optimistic
about the future, bought more durable goods. People who delayed
buying a new home, went out and signed that mortgage agreement.
Here to sort through the indicators and talk about regional
efforts to adjust to new market demands is Roy Pearson. He is
director of the Bureau of Business Research at the College of
William & Mary and a member of the Governor's Advisory Board of
Economists since 1984. Also April Young joins us. She is a senior
fellow at George Mason University's Public Policy Institute and
former director of the Virginia Department of Economic
Development.
INTERVIEW
Womack
Roy Pearson. The Virginia Economy is doing better than it
was expected to do. And according to the Department of Economic
Development reports from 1993, the last year that the information
is available, it showed that Virginia and other southern states
added 788,000 new jobs. That's 1 of every 3 jobs added in 1993.
Why did Virginia add so many jobs when other states weren't doing
so well?
Pearson
Well, partly we were covered a little more slowly than the
nation from the last recession. And once we got moving, though
several forces came together. We had the recovery in housing,
which was a big stimulus. We also had a very good year in
tourism in 1993 with about a 10% growth. Our own people were
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traveling more and people around the nation were visiting
Virginia more. So our own local forces and constructions -- some
external forces such as tourism helped to really push us up where
we did better than the nation.
Young
One of the things that's fascinating is the European visitor
particularly, comes for a long time.
Pearson
Yes!
Young
It's not unusual for them to come for two or three weeks, or
even a month.
Womack
They have a great long vacation.
Young
Exactly.
Pearson
Canadians come down for two to three weeks, too, which is
great.
Young
That's right. So while you and I are going off for long
weekend in Williamsburg, you know the Germans are coming and
spending a week in Washington, a week in Williamsburg, and a week
touring the valley.
Pearson
We pick up some too because of the Civil War connection ...
Young
Oh, absolutely.
Pearson
which was the major place for the Civil War activity and
overseas you'd be surprised how many people are interested in
that period of our history.
Young
You know actually I had forgotten that, Roy, but one of the
wonderful things that we saw happened during the last year was a
Japanese tour operator who is offering what it amounts to a
"Scarlet O'Hara Tour". Where they trace the Civil War all
through the South and we obviously help with Petersburg,
Manassas, and a number of the other great battle fields, that's
right. It's an event which is very interesting to the Japanese.
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Womack
The Civil War documentary that was on PBS also inspired a
lot a interest in the Virginia history -- Virginia historical
sites. But the Tourism Department is reporting that they don't
expect that to really continue, and they are looking with
cautious optimism to the future for the tourist industry.
Young
I think that's reasonable. The Civil War has a core of very
loyal followers and students. But things ebb and flow.-attractions
ebb and flow. One of the reasons many of us were so
supportive of the Disney project is that -- Disney's ability to
attract a new group of visitors who were looking for a different.
kind of amusement experience that would have side benefits -- you
know, mom says, "If you'll come and see Manassas, you know I will
also take you to Disney's America". We found in our research and
it's been confirmed any number of times now that tourism is
actually a very good way to introduce our state to potential
business investors. That's not to say that tourism isn't
business. But people who do provide information technology or
manufacture items or provide other business services. That the
best predictor of a businessman's or businesswoman's decision to
locate a new facility in a state is their having visited that
place as a visitor, as a tourist rather than necessarily as a
business visitor. So that I felt that when I was running the
Department of Economic Development and still feel and have
continued to feel, that tourism is a very important way of
presenting ourselves to potential investors whether U.S. or
international.
Pearson
Well, cooperations, too, as you know are more interested in
the quality of life
Young
Absolutely!
Pearson
.... in the area where they are going to locate. And being a
tourist-oriented estate, we have more activities, more
restaurants, more golf courses than you would have just for the
resident population. So it does improve the quality of life.
Womack
And there's the motivation to keep it beautiful and to
preserve that aspect of it as well. Well, let's look again at
some more of this information from the Virginia Department of
Economic Development. Non-agricultural job creation in Virginia
is the highest it's been since 1989 and non-agricultural wage and
salary employment grew 2.5% and out-paced the nation as a whole.
Is that the effect as you are saying the sort of a delay, the lag
time in Virginia -- sort of catching up after the recession along
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with everyone else, Roy.
Pearson
Well, yes in our own cyclical upswing which continued into
1994. The fall of 1994, for example, the job growth was running
almost 3% compared to the prior year. Unfortunately, though that
job growth is going to slow down. We will be looking at around
2% job growth in 1995 and then probably a little under 2% for the
rest of the decade. So it's a nice growth rate right now,
unfortunately, it's a cyclical rate though that's not going to
continue for very long.
Womack
Why won't it continue?
Young
Well, I think interest rates are a big ...
Pearson
Interest rates are affecting it and even without the
increase and interest rates, though the housing recovery has
pretty much run its course. We will see a leveling off in
residential construction. We won't see a third large gain in
tourism. We expect some growth for 1995, but not like we saw for
1993 and 94. So some of the forces that gave us higher growth
than usual for 1993-94 will be leveling off in 1995-96.
Young
Seems to me the only real way of challenging that
significantly is, if we are able to identify and take advantage
of significant new components in the economy. I think the
defense dependent industries have demonstrated themselves, at
least in Northern Virginia where I'm more familiar, to be much
more adept at shifting to domestic or non-defense kinds of work.
Companies like BDM, and others that have been big employers who
were major Air Force and Navy contractors are now finding the
stuff they know how to do can be done for the FAA or the Health
and Human Services. But also for private clients. Northern
Virginia with the rest of Virginia has a lot of potential, I
think, the INTERNET, for example -- the NET, the big deal at
least at this part of the century is -- the INTERNET society is
headquartered in Northern Virginia. The people -- the NET itself
is one of its major hubs is in Northern Virginia. In addition
with Bell Atlantic, MCI, GE, Genie, and Prodigy and these big online
consolidators and program operators. I think offer us some
opportunity to build our employment base around what I see is the
economy of the next century. That is to decide whether we want
to do it, I think.
Womack
What about the shortfall and the Governor's proposed
cutbacks and some of the spending that we are looking at. Can we
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make all that balance?
Pearson
What we are really looking at for now essentially until the
year 2000, is no real growth in the state general funds available
for providing services to the localities. But we have some new
priorities and additional needs are in the prisons. So we will
have to cutback some on the services that we are now providing.
We won't be able to provide all them at least not at the same
level as we are now.
Young
The public safety needs, you know the legislatures made that
decision with, we are looking at very significant increases in
the prison system unless there are alternative strategies that we
are not familiar with. I mean we have made a number of decisions
at least at the moment that will make all of these services being
provided within what is currently available and projected to us
available. We are going to have to make some very tough choices.
Pearson
Yes, at the Federal level, we are not going to see a growth
in services for the individuals either. As you mentioned the
State, we don't expect to see a real growth in the services, so
we will have a growing population and a growing number of
households. So the point, Laura, you were making a minute ago -one
way to do it is to be very selective about who receives what
services. But the public pretty much nationwide has said, "We
want government to get out of some of these types of services -some
of these types of businesses".
Young
The obvious answer is the social sector, the non-profit
sector. That people in the form of contributions to non-profit
organizations will pick up that slack.
Pearson
Well, we can reexamine a lot of the services, one the
Department of Transportation is looking at, for instance, is that
do we really need to have car inspections? We could drop that as
a requirement -- shift those resources to something that is
needed by the public.
Womack
Well, in the Hampton Roads area where you are from Roy
Pearson, there has been a long time this fear that the economy is
changing from the traditional sorts of industries that have made
that area so prosperous. And there are numerous efforts in that
area to adapt existing businesses to some more commercially
prosperous competitive industries, right now. Tell us about some
of the efforts that are going on in the Hampton Roads area.
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Pearson
Well, as April mentioned the high-tech fields are really
exciting, right now. We have some great initiatives in Hampton
Roads along that line CEBAF is going to be a major contributor to
technological innovations for that State as well as Hampton Roads
over the next decade. NASA Langley has tech-transfer programs
which are resulting in new types of products, new types of
services coming on-line. The whole Hampton Roads area is working
as a region now to define what some of the opportunities are and
some of the growth strategies to take advantage of them over the
next decade. Because back to what April was discussion earlier,
you look at the whole state even with no further defense cuts,
the defense-related industries are not going to be growth
industries, that's a minor understatement for the next decade.
So if Virginia is going to grow as fast as the nation, there are
only two choices either all of the non-defense industries have to
grow at above average rates or we have got to shift to some of
the high growth industries of the future, like the
telecommunications industries that April was mentioning.
Womack
I want to talk about some of the regional plans that are
being developed right now. But first of all, give us some
examples of some of this technology transfer that you are talking
about. How is CEBAF going to contribute to the economy? Tell us
a little bit, a real thumbnail sketch of what it is and how it's
going to contribute.
Pearson
Well, the major thing that they are working on right now is
a device called the free electron laser which will be about 100
to 1,000 times as powerful as most of your present commercial
lasers. This will have some enormous manufacturing capabilities
such as using it for manufacturing carpets, making materials
resistant to bacteria, or you may have a suit in the future that
would automatically kill any germs or bacteria or you may have
plastic wrappings for items in the grocery store that automatically
prevent any kind of bacteria from forming in the fruit.
Young
And you know the thing that makes this all so interesting
is, I think most of us don't even understand the implications of
this laser. Last night as I was going to sleep, I was leaping
through the, I guess I can say this, the "Sharper Image" catalog.
And there is a new radar detector and, I'm thinking -- well, you
can't have one in Virginia anyway, but it caught my eye because
evidently, new laser technology is now being used so that a state
policeman can actually measure your speed from behind you. I
don't know what good it does you, by the way, you've already
probably have been caught. In theory, what we see is these
incredible technologies finding their way into really what are
very prosaic applications. An exciting thing is that the basic
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research as well as some of the early applied research is being
done here. It speaks very well for the leadership in Hampton
Roads.
Pearson
We have it in place, we have corporations interested in the
applications that might come out of it. And so it's going to be
very exciting over about the next, well really decade, to see
what kinds of industrial applications we can develop.
Young
The challenge is really to figure out what the next CEBAF
ought to be and figure out how to get it done. CEBAF was, as I
recall it, a joint venture between the Southeastern University
Association; and the state's got some money in it.
Pearson
It was funded essentially half by the State and half by
Federal funds.
Young
Yes, by Federal funds.
Bridge
Womack
This is With Good Reason, I'm Laura Womack.
We're talking about Virginia's economic future with Roy Pearson,
director of the Bureau of Business Research at the College of
William and Mary and a member of the Governor's Advisory Board of
Economists since 1984.
Also with us is April Young. She is a senior fellow at George
Mason University's Public Policy Institute and former director of
the Virginia Department of Economic Development.
INTERVIEW
Womack
Let's look at some regional efforts to strengthen the
economy. In the Hampton Roads area, businesses and community
leaders have put together the "Region 2007 Plan". And it sets
some pretty impressive goals. I just want to read real quick
from one of their publications. They say they want to be the
premier port on the eastern seaboard, a model wellness community
in the eastern United States, and a globally competitive tourist
destination. Are these goals attainable given the tough time
that region is having converting their economy to one that's less
dependent on the Department of Defense? Is the plan realistic?
Pearson
I think it is in state goals, but in this particular case,
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we are talking about goals that are now shared by the
communities, the mayors and chairs of all the Hampton Roads
areas. And so they are very actively working on just how can we
achieve those goals -- working on it as a region rather than
looking at just what's my particular piece or how can I take
advantage of this. And it's a whole different perspective. The
regional commissions, for example, which the Governor had
appointed are showing that we need to be looking at the strengths
and weaknesses of the particular areas and working together as a
group of cities and counties rather than just working as one city
here and one county there.
Young
I think, to follow on Roy's point. Just specifically on the
global tourism destination. The opening of NAUTACUS -- the Air
and Space Museum, the stadium are all: things which together
create a fabric that makes it a global tourism destination. It's
interesting because it points up the traditional difficulties you
now have instead of having one airport. The problem with being a
global tourism destination, of course, is you need to be able to
bring people in, in other ways than highway. And with this sort
of dueling Newport News and Norfolk airports, you end up not
having a mass that's big enough, one that's big enough to demand
the kind of traffic that you might like. I'm sure no one wants
to touch this with a ten foot pole. But ...
Womack
It's not just the airport, it;s the other infrastructure
issues as well.
Young
Sure!
Pearson
Well, on the regional side of tourism, too -- the City of
Norfolk now is advertising the Virginia Waterfront -- "Come to
the Virginia Waterfront for your Vacation". They don't really
care whether those people go to Virginia Beach, Williamsburg, or
Norfolk because they have found over half of their touristrelated
business comes from visitors to some other part of
Hampton Roads other than Norfolk.
Young
Absolutely!
Pearson
So they are realizing that we get a benefit from anyone who
visits Hampton Roads. So they are willing to advertise and
promote the area even though they may not be the prime tourist
destination -- Williamsburg or Virginia Beach would be more of
the direct destinations.
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Womack
Well, I was just wondering how these regional organizations
plan to attain those goals, sometimes as in the case of Hampton
Roads, they have some of what they need to attain those goals
anyway. But ...
Young
Most communities in these regions -- let me just say. You
see it all over the state, in fact, all over the nation. We have
political geography that doesn't really reflect the reality of
our communities which is to say, that instead of a central city
with a bunch of not very important suburbs, you now have a series
viable economic units. That if they will come together and
commonly invest in stuff, have a very significant amount of
dollars for public infrastructure. In Northern Virginia, we have
one what is considered to be the finest magnet high school for
technology among them in the country -- Thomas Jefferson. This
is a regional project -- yes, Fairfax is a big piece of it,
Fairfax is a big piece of Northern Virginia. But we share it
with Arlington, Prince William County, Loudoun, and others. You
can do things as a region that you can't do individually.
Womack
You need to have to political will to do that.
Young
Absolutely!
Womack
When you are talking about this, though I've heard you, Roy
say that to do these kinds of regional planning efforts, it's
going to take help from the State. And I assume you are talking
about money and Virginia is facing a budget shortfall and
debating tax cuts. Is this something that we can afford?
Pearson
Well, when you mentioned that the state is facing some
budget cuts, there was a study by one of the State Commissions a
couple of years ago, though that found the localities, too, are
short in meeting the infrastructure needs such as roads, water,
and sewer. The types of basic things you need for business as
well as your residence. That survey showed that they could meet
only about two-thirds of what they felt were critical needs over
the next five years. And so localities are short of funds, too.
Young
The interesting question for this, on that specifically is,
"Can we afford it?". I think what we are struggling with and
clearly what the Governor is laying out is a private good verses
public good kind of strategy. To what degree does the reduction
of income taxes and other kinds of taxes free the economy and the
Commonwealth citizens to make investments which ultimately
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generate more revenue which is then available. There is an
interesting side question in the current debate which is if
the state reduces its contributions, whether the regions
themselves are going to find alternative ways of paying for this.
If you look at the state's budget, my recollection is that 86% of
all of the state resources go to education, transportation,
public safety, and health. Of those, we have already made a
policy decision about public safety which has fairly significant
policy presumably financial implications. Medicaid is largely
determined by the federal government and in less some miracle
transpires, it will continue to rise at rate approximately twice
at what the state's tax collections are. Transportation lends
itself probably best of all of those to some kind of user-based
charge: gasoline tax, toll roads, whatever. The one that
worries me and it's not just because now I am a part of
educational institution -- is education. Because typically
education is funded by everybody, despite the fact that at any
given moment only 1 in 5 or fewer of our Commonwealth residents
have somebody in the educational system. Education doesn't,
particularly K-12 doesn't lend itself very well to user charges
or alternative forms. So I think both, obviously the
universities do what we have done which is we raise tuition and
look around for other things to do. But the K-12 system, I think
will then be particularly impacted. And I think it's going to be
within the context of these regional decisions. If you look
across the Commonwealth whether it's what we are trying to do in
Northern Virginia or the "Region 2007" the Roanoke plan, the
Lynchburg plan, all have a decor world-class education. And I
wonder how we are going to find within the contexts of those
regional deliberations, the resources that we need to support
reaching that standard.
Pearson
Well, then there is another side to this, too. By the year
2000 we are going to have about 3.6 million workers out there in
the State of Virginia. Over 3 million of those are already of
school and in the labor force. And they are the ones who have to
have to right skills and better skills by the year 2000 to make
Virginia competitive to be producing the kinds of products that
we need.
Womack
We've been talking a lot about Northern Virginia and Hampton
Roads ar~a and particularly with this idea falling on the
education discussion and remembering the technology discussion.
What about the southwest Virginia, an area that underdeveloped
and has serious problems? What's the forecast for that area?
Are they going to get better?
Young
Well, I think telecommunications boasts very very nicely for
Southwest. The toughest part for Southwest, it has been a steady
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loss of its educated population. I think virtually every
political leader will tell you that kids are born, they go to K-
12 schools which have been pretty good, they yet go to the
wonderful Virginia state universities and they can't come home
because there is no work -- so they move out. I think that we
will find in this telecommunications revolution which I think is
really much more significant than we fully understand at this
point.
Pearson
The information highway and the telecommunications can help
to level the opportunities, make them available across the state
not just in the major urban areas.
Womack
They are the ideal telecommuters there.
Pearson
Yeah!
Young
They really are! And in fact, the two sort of most recent
non-manufacturing installations in the far southwest has been in
the coal field economic development authorities areas have been
AT&T and Bell Atlantic(old C&P telephone) who have put relay and
other kinds stations.
Womack
Well, we just have a few minutes left and I would like to go
down through a couple of different industries and just give a
real quick forecast, if you will on those. In the manufacturing
area employment was down in 1993, it was the fifth year of
decline since 1989 -- automation and contracting services out has
sort of seen the unemployment increase there and they are using
more over-time.
Young
It's going to continue.
Pearson
You will see real growth of output in the manufacturing
sector about the same as you will see in the service sector. But
because of the increasing productivity you won't see any growth
in manufacturing jobs for the rest of the century.
Womack
The value of Virginia manufacturing shipments has remained
stable or better at the same time they are losing jobs.
Young
This is true all over the country. I mean there are no ups
and downs. I mean the auto industry is doing a little better, is
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doing a lot better but we are moving people off the factory floor
just as we moved them off of the farms. We are substituting
capitol and machinery for human labor. It's the nature of a
developed economy, unfortunately.
Womack
Port activity, the overall tonage volumes are down, although
the Virginia ports apparently didn't loose market shares just
partly due to coal as I understand it.
Pearson
Yes, but the exports of manufactured goods, for example, are
picking up and that is a real bright spot for the future. We are
looking at double digit growth and our export of manufactured
goods world-wide.
Young
You support a barrel or bushel or however they measure coal,
carload of coal, you replace that with computer chips or software
or engineering skills. Yeah, I'm sure the tonnage is going to
drop.
Pearson
Well, with GATT we are looking, too, at a better market for
our processed foods. Processed foods are a big industry in
Virginia.
Womack
What about the textile industries in furniture
manufacturing? How are they looking?
Young
Well, it was this small company that opened a facility in
Hampton Roads when I was in Richmond. It was an interesting
example. The guy made plastic wallets and things that you put in
these plastic briefcases. And I asked him -- why are you doing
this he.re? -- why not in Korea or Taiwan? And he said because
our technology and the quality of our workforce is such that to
both run the technology and the availability of the technology -they
could compete with much lower wage workers. And I think
that we are seeing that in manufacturing and I think textiles are
a part of manufacturing.
Womack
If I'm a parent with a kid who is sort of looking at their
long-term career or if I'm an older person who is thinking about
switching careers mid-life which we are hearing more and more
about. Where should I be looking at getting training for what
kinds of job? Is it telecommunications, or is it something in
the health industries?
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Pearson
Well, health services will be one of the major job growth
sectors for a long time to come. Most jobs will be in private
services and retail over the next decade. Although, I would
encourage people if they have a special interest in a high tech
or exotic field to explore that. That these may be taking fairly
small numbers of jobs, but it is crucial to have and to train
people available -- the people with the skills.
Young
A futurist that I see periodically was saying that the
future is in hyphens. So that you have electromechanical
engineers or hydroelectric, I don't know, something or other.
What you see is people who are finding the bringing to the
coalescing of two or more fields. So that in information
services it's often people who are working both in computers and
in processed technologies if you will.
Womack
That's interesting, so we are getting away from the extreme
specialization.
Young
Yeah
Pearson
Well, having the hyphens as you mentioned there, too. For
instance, a person who could probably name their own salary right
now would be a genetic engineer with a MBA.
Young
Exactly!
Womack
Well, Roy since you are so well-known for your forecast,
would you give us one on With Good Reason for Virginia.
Pearson
Well, a great year for 1994, nearly as good a year for 1995
and then slower growth, unfortunately. Probably a little below
the nation for the next three or four years after that until at
least 1998 or 1999.
Womack
Roy Pearson and April Young, thank you so much for joining
us on With Good Reason.
Pearson
Thank you Laura!
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OUTTRO
My guests today are Roy Pearson, director of the Bureau of
Business Research at the College of William and Mary and April
Young, senior fellow at George Mason University's Public Policy
Institute.
On our next show, we'll talk about love. We tend to assume that
love was less complicated in the past -- more romantic. Are we
right? Tune in next week and find out.
This is With Good Reason. The project coordinator is Michael
McDowell, Carolyn Elliott is the producer. We had production
assistance from John Wilkinson, Kevin Piccini wrote the theme
music. I'm Laura Womack.
This program is produced with the assistance of WCVE, Richmond.
Announcer
With Good Reason is produced for the Virginia Higher Education
Broadcasting Consortium by the State Council of Higher Education
and public radio stations serving Virginia.
The views expressed are not necessarily those of the consortium
or this station.
To comment on today's program or to receive tapes or transcripts.
Call toll free 1-800-245-2434.
Music
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