A Quiet Crisis: Regional Economic Development Transcript
Mr. Frolik–Sandy, one of the roles of the Federal Reserve Bank in Cleveland is to gather data, economic information on our region on joining states, and you also get to see what the other banks around the country do around about in their regions.
Can you give us a little sense of how Northeast Ohio stacks up in terms of, perhaps, job growth, income, wealth creation with other regions? How are we doing basically with other neighbors and nationally?
Ms. Pianalto–Well, Joe, data, different measures give you different conclusions. In the decade of the ‘90s, in many ways, Cleveland and Northeast Ohio out-pays the nation in many, many measures.
For example, we had a lower unemployment rate here in Northeast Ohio than in the rest of the nation. The typical Cleveland worker earned more than the national average. Our income growth was greater than the national average. So from those measures, you would say we are doing very well.
However, our economy is smaller than it was a couple of decades ago. We had a larger share of the nation’s jobs in this area a couple of decades ago. That’s been shrinking. So we aren’t showing a propensity to grow in this area right now.
Mr. Frolik–In terms of growth, one of the things I think struck a lot of people was when the sensory data recently came out. It showed that essentially Northeast Ohio has been stagnate for almost four decades now moving outward, but still, the basic population staying about the same. How concerned ought we to be about that? Is population in and of itself something that is a significant worry for the region?
Mr. Hill–My feeling is it’s not. In many ways, focussing on population and job growth, which we tend to do, is looking at the wrong measures. When we are looking at economic well-being, what we really should be paying attention to is incomes. And behind incomes lies growth and productivity. So it really is that link between productivity and incomes and quality of life makes a difference.
We do have some issues in terms of where people are living. The fact that we are building a lot of housing spread over a large part of the landscape without a large increase in population that’s bringing land use issues.
But if you are really looking for economic well-being, it’s income growth and productivity that’s important coupled with the concerns that people who don’t have the education and skills to earn good incomes. But, focussing purely on population growth is not a game we’re ever going to win.
Mr. Eckart–But demographics to work force are as important to ratings as ratings are to television. Anyone can get, as CBS did a few years ago, when you own the elderly market which has almost no disposable income because everyone is watching 60 Minutes. The issue in census numbers, though, in one other context, is young people. Not young people in that demographic shrinking, but when you look to the next level, when we would hope to see—if they’ve gone away to college that they would come home to Cleveland, they have not.
And when you look at the declining enrollments across some of our universities, both public and private in Northeast Ohio, you realize that the brain drain issue, I guess, is in some ways overstated as a context, but it is important that the work force remains rejuvenated, that it comes out of educational institutions that have newer technology skills, and that if they go away, they have some reason to come back.
So, I would kind of agree with you, Ned, that it may be overstated. The fact is is that it’s a harboring like the canary in the coal mine. It is sending a signal to us that our future generation is not necessarily staying here. They don’t see a future for themselves or their families here.
Mr. Frolik–Let me ask you—let’s go around the table. If you were to identify to people, what’s the one thing that is maybe the greatest call for optimism about the economy of Northeast Ohio looking ahead to the future and then maybe the one thing that ought to be the greatest concern to people. What would that be? Let’s start with Joe and go around the table.
Mr. Frolik–I would say that a cause for optimism, as a community, we are starting to focus on not only investing the things that have worked well for us, but also starting for the first time investing in new things whether it’s biomedicine or whether it’s worrying about NASA, it’s—for the first time, I feel as a generalization we’re looking for new things.
To me, the biggest concern we should all have is education. Because our kids, those kids that are in the fourth grade today are going to be entering our work force in six to ten years. And I mean, it’s right behind our doorstep and that’s something we need to be very, very concerned about.
Mr. Hill–The greatest source of optimism to me is the rate of growth of productivity in this region. It has been very, very high. There has been lots of wealth generation around it and so our firms have been reinvesting themselves quite aggressively and really focussing on innovations in production processes, essentially making the setup of products better. My concern is, two, I share Joe’s. I think that education primarily at the primary secondary level is the top concern.
The second concern is product innovation. Essentially, our existing economic base, developing new sets of products that increases the top line of the balance sheets. And I think that those two go hand-in-hand.
The way in which we get young people to stay, essentially, is providing economic opportunity. And it’s going to be, one, having the skills so you can earn a good living coupled with our current sets of firms and new firms coming in generating new sets of products.
Mr. Minter–Well, in some respects I think I will probably be a little redundant, but I certainly would say we still have a significant manufacturing base to build on and to keep working on because that’s the core. The challenge is to identify some new clusters of things that we could really dramatically make a change in over the next 3 to 15 years.
I would say my second concern is that we still have got a major job to do in this region in terms of the inclusion of minorities, more in the economic mainstream. And as business owners, as persons who are contributing to productivity and our record is not very good in that regard.
Mr. Eckart–I think Joe hit the nail on the head when he spoke about education. We all just have to look at Issue 14, what a tremendous mode of confidence the City of Cleveland gave itself in investing in primary education. Simply a link to the biopark initiative, I think graphics, I think materials, I think fuel cells are bright lights. Case Western and the linkage with what they are doing with fuel sells at NASA Glenn I think has some exceptional needs, some opportunities.
I think beyond that, though, we have to start thinking much bigger. Joe has talked about this before. Thinking about things in terms of scope and scale, to start doing things, stop asking for permission, start expanding the envelope and not think about small initiatives, although as successful and helpful as they might be, to start doing things that makes fundamental changes in the way our economy functions. And I see that particularly in biopark, if we could ever get the two hospitals to stop warring with each other and figure out how to construct a joint agreement between University Hospitals, the Clinic and the University.
Ms. Pianalto–I would have to echo what Ned said about productivity in terms of what I’m optimistic about. The companies in our region have helped the rest of the world become more productive. We have a very high concentration of capital goods industries in our region and they help other producers of goods produce them with technology and more efficiently, and I think we are going to continue to build on that.
My concern about the future actually goes back to the issue that we were just talking about in terms of population. Even though we have seen a slow down and the decline of our population, the age group or the category that is slowing or declining most rapidly is that population between the ages of 20 and 44. They are a critical component of our future work force, and I think the reason that we are seeing that age category either leave our region or not come into our region goes back to the concern that a couple people have already raised, Joe and Ned, about our educational system. That age group is the age group of child bearing age and they want to have children and raise a family in an area that has a good quality of life, and it’s very important for a quality of life to have a good educational system. So, that’s one of my concerns, losing that critical component of our population, and one of the reasons I think we are losing it is because we don’t have the educational system they want for their children.
Mr. Shatten–That’s true. I’m a project guy. And so I think about what are the projects. And I’m encouraged. Joe’s comment says we have a queue. So for the first time in a while you think about the last 20 years. We had a wonderful rush of projects. We did downtown, we did the stadiums, we did this amazing array of housing in all of our neighborhoods. We did a lot of stuff. Now this doing sort of slowed down. And so I’m optimistic a little bit because there is a new queue. There is a queue out there. It’s the biopark, it’s the Cuyahoga Valley, it’s the convention center, it’s the array of manufacturing initiatives.
You have a queue. Now what’s the concern? The concern is does this community have the will and the capacity to get over the edge? It’s what Dennis said. Can we imagine the scale to say oh, the next stop on hospitals, the next stop on land is a billion dollars. And the notion that we are fighting over or having the debate over, spending the additional money to move this place another step will require another—and I used to be very reluctant to say these things, but I’ll say it, another billion dollars and probably tax increases, a lot of things we don’t want to talk about. If you want to pay for things that are big, big projects cost a lot of money. You can’t wish them away.
But the list is there, the queue is there. We have learned as a community in the last 20 years how to move things over the edge. It’s very contentious, it’s always tough. And so my only concern is that we maintain the will to move a good queue over the line to get the big projects done that cost a lot of money.
Mr. Eckart–And Richard is so right. We have to do this ourselves. We can’t count on Columbus, Ohio. We used to have—we were spoiled. We had 16 years of governors from Cleveland; Voinovich and Celeste. They knew the difference between Playhouse Square and Shaker Square. They understood the personalities of projects and individuals. We can’t blame Columbus.
The City has certain financial resources that are available to us and so Richard, I think, raises a very good point. Do we have the capacity and the will to think in scope and scale beyond our boarders as well and to do the kinds of things that we can invest in ourselves and not count on Washington or Columbus. Whatever they give us should almost be viewed as surplus.
Mr. Roman: Well, it’s two things. It’s not only that it’s probably going to result in increased taxes, but it’s also getting our local governments to realize, we do have to do it ourselves which means we have to start building a capacity within our current governments within their current revenues to make investments. Not just to support the things they have already been doing for years and years and years, but to find ways to create new revenue strains within their own structures that will support capital investment.
And I’m not just talking about roads and bridges and sewers, the traditional, but new things, the kinds of things that are on the queue that will either help keep us moving forward or will allow us to slide back.
Mr. Minter: And I certainly agree with that, but it seems to me a large part of what has to happen in our economic future is to re-calibrate the partnership. Because the realty is, if we go back and look very carefully at why we were successful over the last 20 years, it is because there was, in fact, a partnership between the local community, the City, the county, the business sector, the civic sector, the foundations, the Federal money that came in new UDAG and the State dollars. I mean, there is almost no project that we can point to and say we accomplished something in which there weren’t a lot of participants that had to fill the gap. So, the leadership that has to come from our local community is quite significant, and I think it is time for a renewing of that, and we have that opportunity, but I don’t think we can write off and think that it’s possible that we can get where we want to go without significant State and Federal support.
Mr. Eckart: But doesn’t that beg the question of something where you have to rely on independent constructed political geographic entities to each give permission when perhaps you use the Mayor’s race this fall as a way to talk about restructuring the port authority, to create a true countywide, almost regional economic development authority that has some independent financing basis on it’s own instead of going to war over which are mayor appointments or which are the county’s appointments and what are their bonding jurisdictions, I agree.
I think the fundamental partnerships that did so well for Cleveland 20 years ago probably still fundamentally are sound, but in some ways, they need to be reconfigured because some of the players and some of the people that they represent aren’t around anymore as entities, so you could use an election year to change the governance issues, the vehicles to create a referendum on some of these things that that might not require us to have to do it the way we did it before.
Mr. Hill: But you can’t write off Columbus and Columbus can’t write off Northeast Ohio. 30% of the state’s economy is Northeast Ohio. 40% of the manufacturing base of the State is Northeast Ohio.
One of the things that has happened is we have to reconstruct and rebuild that relationship with Columbus. And fundamentally, the business tax structure is hurting the northeast part of the State. It’s hurting our base. We have a State budget that is not an investment budget, it’s a crisis budget, and the lack of investments in that budget are directly hurting this region. So part of what we have to do is to figure out in a predominantly democratic part of the State how to have a bipartisan conversation and really try to understand about not just the State’s capital budget, but the operating budget, as a way of making investments. And you two guys have been talking about this and needing it for a long time. And this notion that we are a I state to ourselves is it going to work.
Mr. Shatten: We tend to ignore the State except for when we come in for these transactional events. We built that—that’s the piece you want to try to re-calibrate, Steve.
We have built, in 20 years, this remarkable and unique partnership of everybody that can write a check and can sit at a table and have learned how to come together to do that. And all of a sudden, I think we are discovering that the State is a crucial piece of all of this. And as the State has its own constructed physical crises, it will hurt us tremendously.
I have been concerned, that the budget as currently debated, if adopted as planned, will set this State’s economy behind over the next eight years. We are in the middle of a very bad set of budgets that will hurt the State of Ohio because we don’t have the partnership around how to pay and we don’t have the will of how much to pay.
Sandy is right. Education is where this starts. So if the State of Ohio is way behind in education, if we are 20% or 30% or 40% behind, you mentioned, Joe, all the workers that we care about, right now they are in the fourth grade. They are there. My daughter Lauren is in the fourth grade. We know who they are. Are they going to be scientists? Are they going to be mathematicians? Are they going to go college? That’s all unknown to us right now and State policy I think is one of the most crucial pieces and the State is ducking it right now because they are taking a budget crises and they are whittling their budget down to the 19 point where they are going to adopt a budget where the operating side is going to be a crises and the capital side is going to be close to zero which means the State will drift for the next round with sort of modest, good data news that will keep going out, we’ll find a little story here and there. I think you are right. The State is just a vital place in all this right now.
Mr. Hill: And, Richard, it goes to the next step, too. The focussing on the supply side of those markets, where those workers are going to be. The easiest and best way to keep people in the State and attract people to the State is good incomes.
Mr. Shatten: Innovation.
Mr. Hill: Innovation. And the fact is—and no one demands labor. They demand products. So again, this is a Statewide issue. How do we get innovation taking place? Two ways. One is across our existing base because that’s where most job creation comes from, or more importantly, wealth creation comes from. And the second is how do you go about 20 putting together a tax system that encourages new product formation, new firm formation? We have a corporate franchise tax that hurts new firm formation, and we have a tangible personal property tax that hurts product and process innovation. And those really should be issues that the northern part of the State is leaning on. We have to—if we aren’t getting the policy dialog out of the middle part of the State, it’s got to start from the north.
Mr. Frolik: Politically, the power is shifting in Ohio to the south and to the southwestern part of the State. We are going to see that probably when the congressional districts and the legislative districts are redrawn. Dennis, as we have less of a percentage of power in the State of Ohio, how do we make sure the concerns of Northeast Ohio, of Greater Cleveland are heard in Columbus and effectively?
Mr. Eckart: Well, it probably means muscling up a little more in the political gym than we have in the past. Mr. Roman and I worked on a couple campaigns together a lot longer ago than either of us 21 want to remember and we used to have regular delegation meetings. We used to have a concerted agenda.
Mr. Shatten: I would be very clear to that to all the audience here on that point.
Mr. Eckart: In the old days, and we will go back 10, 12 years. Folks all came together, came to Washington, Vern Riffe, may he rest in peace, Governor Celeste, Mayor Voinovich, the whole crowd came in and laid out a 16 point—here is the things you have to do for Northern Ohio.
Mr. Shatten: And you did it as a group.
Mr. Eckart: And we did it as a group and the business community presented a concerted agenda in conjunction with the political leadership. And, for whatever reasons, that has not occurred lately. Secondly --
Mr. Shatten: That’s not happening right now and that’s a serious issue.
Mr. Eckart: And secondly, we treat the City of Akron as if it’s 300 miles away and not 30 minutes away. There is an 22 inexorable linkage. If we are shrinking ourselves, you can get bigger yourself. And one way to do that, Columbus has taught us this lesson from Franklin County, they just annexed the whole county.
Well, we can create as apropos of what you said, Steve, strategic partnerships with the Akron Regional Development Board integrating Akron University which has some phenomenal new initiatives going. Embracing—again, Joe, you and I have talked about how we define the lake front. We are going to kind of define it and try to define it for development purposes as including Lake County and Lorain County. Guess what, the lake washes up on those shores.
So, if our political cloud has shrunk, and secondly, we have lost some seniority—think about this for a second. We have lost Suhadolnik, we have lost a Sweeney, we have lost a Glenn or a Metzenbaum, a Lou Stokes, hundreds of great—literally hundreds of years of seniority from our delegation.
And while many of our current political representatives are good, they are very green. And so we have to broaden our reach. I think 23 we have to tighten our message. We have to make demands that are inexorable. You have to use the political process.
The Growth Association is likely to make endorsements in these upcoming elections. Why? Because there are important things that need to be discussed, not that you expect to ever get everything that you always want, but you need to let folks understand that there is an ask that’s what part of creating what I like to call a barrier-free intersection between public policy and private investment. We have lost it, it’s shrinking. We have to get muscled back up. We have to broaden our region, include more people in what is inexorably a single region who’s limited only by artificial political lines drawn over 200 years ago when the map makers sat down out to carve out counties.
Mr. Minter: I think one of the things we are all really facing is we are probably being pushed very hard to decide where are we going to make the big bets. And as of yet, I’m not sure we have arrived at a conclusion, quietly or otherwise, that if it’s biotech, biotechnology, then this is really what it takes, not a down payment, but to make that big bet, or if it’s something else, we really ought to expand greatly on polymers and the leadership, and that is really going to come more out of Akron and others are going to be supportive, and that’s the tough piece that I think we are going to find ourselves facing up to.
The more I have gone back and looked at what other regions have done who have moved ahead in significant ways, it’s very clear that the educational institutions, the business establishments, everything has been focussed on drilling very deep. And certainly, at the Cleveland Foundation, we have a lot of discussions, because we are into the quality of life business and we understand it isn’t any one thing and tend to invest in a number of things, but I think the issue we are facing up to right now in terms of the conversations are what are the next couple of big things that are going to make a difference from the standpoint of improving our region’s economy?
