RI’s Economic Struggles May Persist After Virus Is Contained – Gary Sasse

Monday, June 01, 2020

Gary Sasse, MINDSETTER™

If the past is prologue, the coronavirus could be a drag on Rhode Island’s economy for a number of years.

It took the Ocean State a decade to replace the 40,000 jobs wiped-out by the Great Recession of 2008. Current projections indicate that Rhode Island’s employment may not return to the pre-pandemic level until sometime in 2027. Last month IHS Markit informed state revenue estimators that the state’s employment is expected to total 503,400 in 2026. Last February it was 508,400. These projections suggest that Rhode Island’s economic pain could linger long after the pandemic has been contained.

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Like the rest of the country, the magnitude of Rhode Island’s economic distress is impacted by uncertainty from both the virus and dismal national leadership. The Wall Street Journal columnist Gerald Seib wrote, “When it comes to economic recovery, the coronavirus remains Public Enemy No.1.  But not far behind is an equally insidious force: uncertainty.”

Resolution of serious national economic contractions have always been enhanced by unambiguous policies and competent administration.  In the current pandemic American families, businesses, schools, and local governments are being asked to navigate a patchwork of differing reopening plans and procurement and supply chain policies with incomplete federal assistance programs.

Furthermore, it will be more difficult for Rhode Island to recover from the pandemic recession compared to other states due to chronic structural challenges.

Small businesses are one of the state’s primary economic engines. Unfortunately, small businesses may hit hardest by the coronavirus crisis. Writing in the New York Times, Neil Irwin reported, “In a Survey by the Society of Human Resource Management, half of small owners expect to be out of business within six months.” If this forecast proves even partially accurate Rhode Island’s economic recovery could be significantly slowed.

The collapse of small businesses will not only cost thousands of jobs but could devastate the economic and social health of our communities. Small business closings can increase foreclosures, bankruptcies, and evictions with commercial real estate owners incurring huge losses. This means reduced property values with either less money for municipalities or higher residential property taxes. This is an acute problem for Rhode Island because of our over-dependence on property taxes. Nationally one-third of state and local revenues are generated by property taxes. In Rhode Island, it is 43 percent.

In 2019, Rhode Island’s average annual unemployment rate ranked 28th among the fifty states. By April 2020, it had plummeted to 47th- the fourth-worst in the nation. Part of the reason might be due to the fact that 44 percent of the jobs created in Rhode Island over the last ten years were in low paying industries. In March 2020, according to The Wall Street Journal, about 40 percent of households earning less than $40,000 annually had at least one job loss.

In the five years before the coronavirus, Rhode Island’s economy was making gains. The unemployment rate dropped to historic lows, and the state was adding jobs even though it lagged the nation in labor force and GDP growth. A lot of this progress could be attributed to reforms in economic development policies and practices.

In 2013, the legislature restructured the state’s economic development organization. Utilizing the new structure, Governor Raimondo recommended and the General Assembly enacted an array of tools and incentives to assist companies expand, locate and develop products in Rhode Island.

Several of these initiatives played an important role in improving the state’s economic well-being.

However, the business climate has radically changed since the coronavirus arrived, and as Lincoln said, “The dogmas of the quiet past are inadequate to the stormy present.”

To successfully compete in the post-COVID-19 world Rhode Island will need to review and retool its economic growth strategies and programs. Going forward the strategy should be based on a “productivity agenda” focused on innovation and technology.

An inescapable result of the coronavirus will be states aggressively battling to provide the most productive environment for businesses to grow and prosper.

A state’s competitiveness will be determined by the productivity with which it utilizes its human, capital and natural resources.

 

Gary Sasse is the Founding Director of the Hassenfeld Institute for Public Leadership at Bryant University. He previously was Rhode Island’s Director of Administration and head of RIPEC.

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