What Does This Term "Economic Development Mean " ? - A Rant.

A Rare Standing Robin, few were produced due to unresolved production problems

PART ONE in a series in which I  place Andersen Design's vision of economic development in the economic development environment in Maine

Introduction

I was raised in a home business, similar to a farm, but instead of producing crops, we produced ceramics. From the beginning, Andersen Design, was  conceived of as part of an economic development philosophy. My father Weston Neil Andersen, often expressed the value of creating jobs. In this 1964 letter, by my father as he sought capital for the next phase of development, He talks about increasing the number of employees of our small company and about the benefit that the ceramic industry can have for Maine's feldspar industry. Our company was small but this is the stuff that real economic development is composed of, creating new avenues of wealth and connecting resources, not merely redistributing existing supplies of wealth.

We created a product line of classic ceramic design which has never gone out of style and a brand identity which can be used to market any product consistent with our style and values. These are intellectual property assets, and in my view,  an economic development resource, which can be used to revitalize a ceramics industry in the USA. Since our company has never had shareholders, we were not obligated to maximize our profit by relocating our production to low costs global labor markets, which is where most western ceramics companies produce today. I envision expanding our production through a network of independently owned slip cast productions with whom we would work on an independent contractor basis. My original inspiration was that people in the designer craftsmen community favor small teams and intimate spaces over working in a large corporate environment. When I was recently. briefly, considered the possibilities of a benefit corporation, It occurred to me that it was our absence of shareholders that made it possible to persevere as an American made ceramic product and that the network I had envisioned would enable expansion without changing that advantage.

The problem we have been dealing with for many years is a shortage of capital needed to adapt to the changing marketplace which the entire retail industry is confronting. I have been through many doors and found that we do not fit the current economic development paradigm and vice versa and so I have been telling the story, here in, about how Maine got to where it is today and developing ideas on how that can be reversed to create an economy which includes the greatest number of people and encourages diversity.This blog post is mainly about that, but I begin with my own perspective so it can be incorporated into the larger context. My idea is not a new one. There have always been regions where ceramics were made. The tradition survives in the Umbria region of Italy. England is also reviving its ceramic industry after the exodus of many companies in recent decades. Ceramics is a very engaging profession. I do not understand why the economic development community of Maine is so cold toward it, other than the mentality and culture which has developed in Maine since the government took over managing the economy, the story I have been relating here in.

The founders of Maine's public-private government understood the wealth creating function of economic development when they declared that it is appropriate to use the profit motive to generate capital in the Maine economy.

A New Form of Entitlements

The Governor’s Task Force report recommended that two complimentary corporations be chartered by the Legislature, The Maine Capital Corporation and the MaineDevelopment Foundation.

The Maine Development Corporation is the Maine board of all boards and still existent today. It is reasonable to argue that The Maine Development Foundation was put into place to facilitate a replacement for that form of decision making that the newly formed public-private government sought to eliminate. In the words of the second objective stated in the  Governor’s Task Force for Economic Redevelopment-1976:

2: eliminate the requirement for a local referendum on municipal bond issues.          

The Maine Capital Corporation has since been repealed except for section §5202-A:

1977 §5202-A. Small business investment companies exempt Corporate small business investment companies, licensed under the United States Small Business Investment Act of 1958, as amended, and commercially domiciled in Maine and doing business primarily in Maine, shall be exempt from taxation under this Part. [1977, c. 640, §2 (NEW).] As currently found in Maine statutes   

For public relations purposes, It makes practical sense to separate the act that makes investment companies exempt from taxation from acts that grant investors refundable tax credits. Refundable tax credits mean that if no taxes are owed, the tax payers owe the holder a cash payment.

The statute chartering the Maine Capital Corporation  included the following rationalization for the new system of government:

The Legislature finds that one of the limiting factors on the beneficial economic development of the State is the limited availability of capital for the long-term needs of Maine businesses and entrepreneurs. In particular, the lack of equity capital to finance new business ventures and the expansion or recapitalization of existing businesses is critical. This lack of equity capital may prevent worthwhile businesses from being established; it may also force businesses to use debt capital where equity capital would be more appropriate. This creates debt service demands which a new or expanding venture may not be able to meet successfully, causing the venture to fail because of the lack of availability of the appropriate kind of capital.

This impediment to the development and expansion of viable Maine businesses affects all the people of Maine adversely and is one factor resulting in existing conditions of unemployment, underemployment, low per capital income and resource underutilization. By restraining economic development, it sustains burdensome pressures on State Government to provide services to those citizens who are unable to provide for themselves. To help correct this situation, it is appropriate to use the profit motive of private investors to achieve additional economic development in the State. This can be accomplished by establishing an investment corporation to provide equity capital for Maine businesses and by establishing limited tax credits for investors in the corporation to encourage the formation and use of private capital for the critical public purpose of maintaining and strengthening the state's economy. (emphasis mine)

A new government function, that of the state centrally managing the economy, was then deemed into existence, justified by this line of reasoning:

1. Because businesses do not have access to capital, they do not grow, or they grow at a slower rate.
2. Because businesses growth is slow, there is unemployment, under employment, low incomes and resource underutilization creating pressure on the state to provide for the needy.
3. Therefore it is appropriate to appropriate money from the taxpayers to refund investors for investing their capital in the state, which is to say, to take capital out of the whole economy to give to investor class.

Under Longley, the government compartmentalized society into two classes. one class which is hampered from growing because of capital shortages, and another class of citizens who are unable to provide for themselves, apparently not due to a lack of  resources but because of something lacking within themselves.

What was the source of public money refunded to private investors? It was taken from the middle because the bottom is "unable to provide for themselves" and the top, only, is hampered by capital shortages. Some of the refund might also be paid by the top income earners, but one has to ask to what advantage that would be to the top, when, by investing in the Maine Capital Corporation, there is guaranteed a "limited tax credit" which was a refund, by Maine taxpayers, of  50% of the investors investment, without the investor having to part with a share of the profits? To be fair, in truth, no class is composed of multiple individuals all sharing one homogeneous identity and so there are probably top earners who also paid the taxes to finance the states new redistribution of wealth system for the top.

The Maine Legislature justified the appropriation of public funds by deeming that it was appropriate to use the "profit motive" to create capital for Maine businesses, and so a new government function was created, that of creating capital for special interests. It was an act prohibited by the Maine Constitution in Article IV Part Third Section 14, which  prohibits the Legislature from chartering corporations by special acts of legislation. No one in the public, private, or media sectors took issue. It was declared, by the Maine Legislature, that "centrally managing the economy is an essential government function" and the Maine Capital Corporation was chartered. Federal law requires a public corporation to prioritize the profits in the shareholder's interest. In compliance, the Maine Legislature wrote a sweet deal to attract shareholders to the new investment corporation, creating a burden on the middle class to pay for it.

Flash forward to 2018. How has economic development policy evolved?  I have written in this blog much about the economic development policies written to benefit the top of the economy, but what about economic development programs for the bottom half of the economy?

In example, here is the mission statement from Midcoast Maine Community Action, a non-profit organization:

 Midcoast Maine Community Action is a community action organization advocating on behalf of low-income and other at-risk individuals, assisting them to identify and address their needs, enabling them to achieve self sufficiency and independence.  MMCA actively promotes economic and community development of the businesses and communities in the mid-coast area where individuals and families reside. (emphasis mine)

That latter sentence, which I have emphasized, is either an intentionally false statement, or the people who work in such organizations believe economic development is distributing living subsidies to as many people as possible. (see website). If that were the case, why did we ever need the state to take over central management of the economy? There already existed people dependent on the state for subsistence. If economic development were public assistance programs, we were doing great back in the seventies, though not quite as great as today, when an even greater number of Mainers depend on food stamps, heat assistance, section eight housing and so forth, than ever before.

In the rhetoric of the Longley Doctrine, people dependent on the state for subsistence were portrayed as the problem, not the solution. Today we have evolved to the point where  living on government assistance is conflated with economic development- true at both the bottom and top of the economy but in the class structure, the conflation takes on extreme status differentiations. One sector is glorified with such phrases as "the creative class" and "quality jobs" while the other sector, denigrated, led by Governor Lepage, portraying people on public assistance as losers who spend all their time and money in state owned vice industries, though of course LePage does not mention the the profit the state makes in the vice industries.

Since the 1970's the state has furthered a cultural and economic class society, composed of the "quality" classes , and by default, "the unquality classes", each having their own state designated sets of rules. Since the state concentrates and redistributes the wealth in Maine, it becomes difficult for any organization or individual not to serve as an extension of the state. The control of the flow of capital in culture is akin to controlling the flow of water in nature.

What is missing from the economic development programs offered by MMCA, are any programs that assist business to develop jobs and opportunities for the middle and bottom sectors of the economy. This is where our business would be a great resource but there is no support offered for businesses that I have found. Being that the mission statement says it exists to help business and for economic development purposes, I called and asked to speak to the head of economic development but the woman answering the phone had never heard of the term. With the institution of the Longley Doctrine, was born the idea that the state should only further those jobs paying higher than average wages, based on a delusion that an upper end of the economy can be created artificially and not damage the whole cultural and economic fabric of society, as if by taking money from the middle and giving to the top, the same money will trickle back down to the middle.

The alleged public benefit that the Maine Capital Corporation delivered were jobs for a relatively small percentage of the Maine people and the supposed  trickle down effect which, in theory, benefits the whole economy. Statistics show that since the mid seventies, when refundable tax credits, aka wealth redistribution, came into use across the USA.  inflation grew like a steep wall dividing the haves from the have nots. The justification for the redistribution of wealth by government is that there exists one class of people who is inherently deserving of the opportunities which access to capital enables and another class of people who cannot provide for themselves, implying an absence of skills and intelligence, and therefore a class to which living rations are distributed, Even within the "quality jobs sector"  the state negotiates rations for the workers, as if social justice is the equivalency of economic development:

Observe in this testimony by Mr Douglas Ray, legislative liaison for the DECD, as a wage increase is negotiated for the quality jobs sector.  Note that the negotiations are not just for a raise but for a raise for a state approved expenditure, premised in the principals of social justice arranged by the state, as a third party, without access to information about the wealth creation exchange existing in the relation between employee and employer.

In this testimony given in the congressional session for  §3304.Industry partnerships,  Mr. Ray describes his vision for the expansion of the role of government in a centrally managed economy, led by the private sector, in other words, led by those who have access to the real exchange between employee and employer, which is where the return on investment is measurable. Qualified employees are ones who have earned a bonus by the measure of the wealth creation exchange existent in the employee-employer relationship to which the state does not have access. In short the real contribution given to the employer results in an increase in funds which affords the employer the means to give the employee a raise or bonus.

DECD also supports the Industry Partnership model and recommends that the partnerships be led by the private sector, the job creators in our economy.             ……... The creation of the Skills Academy could fit very nicely with DECD’s initiative to address the immediate hiring needs of Maine businesses, which Commissioner Gervais touched on when he met with the Committee a while back. We are looking to help match skilled workers with companies seeking similarly skilled employees. These companies, should they decide to participate, would then pay qualified new employees in this program a bonus towards their educational or housing debt. While this document is again a good starting point we must not fall into the trap of re-funding the same programs that cannot demonstrate a measurable return on investment. DECD is a willing partner in your efforts and we look forward to working with you every step of the way. The question we encourage you to ask when considering each policy decision and part of this document is: Are the results measurable, and, will this make Maine a more competitive state? (emphasis added) Testimony by legislative liaison for the DECD, Douglas Ray

A policy which determines the rate at which an employee should be paid in terms of what the employee should be able to afford, as opposed to basing the rate of pay on the value of the service provided to the employer, is consistent with a system of rationing.

Rationing is not economic development. The term economic development implies that something actually develops as in those quaint old times in America when people used to "pull themselves up by their boot straps" or "earn a living". If you ever watch the Mad Men series,there is one episode when the lead character expresses excitement about building something. That is the essence of economic development.

Sleeping Sandpiper by Elise Isabel Andersen ccrca 2016

GO TO PART TWO OF THIS SERIES

Go to Part Three