By MICHAEL D. KLEMENS
Edgar v Hartigan on economic development
This is the third in a series of interviews with the candidates for governor. The interview with Republican candidate Jim Edgar was conducted on August 26. The interview with Democratic nominee Neil F. Hartigan was done on September 14. The first interviews on state and local finances appeared in the July magazine, and the second set of interviews on human services were included in the August/September magazine.
Illinois has been through some hard economic times. Before 1976 Illinois had consistently trailed national unemployment rates; since 1976 Illinois has run ahead of national averages. The manufacturing sector of the state economy suffered the loss of 301,000 jobs between 1978 and 1988. Downsate industrial centers like Peoria, Rock Island and Decatur were devastated as were Chicago neighborhoods dependent upon plants now shuttered.
Economic crisis produced demand for a political response. At the same time the federal government, the designated manipulator of the economy since Franklin D. Roosevelt's New Deal, was backing off. President Ronald Reagan marked programs for termination, including the Economic Development Administration and Urban Development Action Grants. Both Illinois political parties responded. First in the General Assembly and then in Gov. James R. Thompson's office, plans were drafted to stimulate Illinois' economy. The multiplicity of state efforts included Prairie State 2000, enterprise zones, the Illinois Development Finance Authority and finally, the biggest of all, Build Illinois.
Today things are better than they were 10 years ago. Moderate growth has returned to Illinois' economy. There is growth again in manufacturing, and farm product sales are again on the increase. With the respite from economic troubles has come
October 1990/Illinois Issues/17
an examination of what state government has wrought by its economic development efforts.
With those examinations have come questions about the organization of the state's economic development campaign, Illinois Auditor General Robert G. Cronson last year examined the Department of Commerce and Community Affairs' (DCCA) efforts and concluded that the agency has not planned or managed its programs well.
The next governor of Illinois will take office with state government's economic development efforts subject to new scrutiny, although demands for job creation will remain. Whoever is elected will confront problems with an economy that is changing from manufacturing to service. And the next governor could take office during a recession. The two gubernatorial candidates assess Illinois' present economic position very differently. Democrat Neil F. Hartigan looks at the economic landscape and sees problems. Republican Jim Edgar sees a state on the rebound.
Hartigan argues that Illinois is doing poorly. "Three weeks ago on the front page of the New York Times Illinois was one of 16 states listed in or near recession. And many of the areas downstate are already in recession, and some are actually in depression," Hartigan says. He cites a number of indicators to show that Illinois is doing poorly, including:
The loss of more than 300,000 manufacturing jobs since 1977.
A ranking on the Grant Thornton Index of Manufacturing Climates of 19th among 29 "high manufacturing intensity states."
A $1.8 billion loss in farm marketing revenue between 1980 and 1988 and the loss of 27,000 farms since 1977.
A grade of "F" in entrepreneurial energy on the 1990 Development Report Card for the States, one of five states to earn the failing grade from the Corporation for Enterprise Development.
A ranking of 24 in the rate of growth of per capita personal income.
Edgar, in contrast, sees Illinois at one of the better points of the last two decades. He says the state has gone through tough times and is doing reasonably well: ' 'If you look at Illinois today and compare it to the early '80s, I think we look pretty good. If you look at Illinois today and compare it to other states, I think we look pretty good."
Edgar says he senses an upbeat mood in the Quad Cities, Rockford, Peoria and Decatur. He says that farm equipment manufacturer John Deere is having its best year ever and that Caterpillar is stronger today than it was in the early '80s. "I think we have to recognize that we're not going to go back to the old days. That's not going to happen, but I think today Illinois appears to be on track."
Both candidates would change the way that Illinois state government conducts its economic development efforts. As he has in other areas, Hartigan criticizes the lack of vision and a strategic plan for Illinois. The first step in determining an economic development strategy, Hartigan says, is to determine Illinois' place in the domestic and international marketplaces, what kinds of businesses will succeed, what sort
18/October 1990/Illinois Issues
of jobs they will create and what schools must do to prepare workers for those jobs. To make that determination Hartigan would assemble a Council of Management and Economic Advisors comprised of representatives of business, agriculture, labor, the academic community and social services to decide where Illinois is headed.
Having developed the strategic plan, Hartigan identifies six principles that he would use in formulating an economic development strategy:
1. Wholesaling state services. Hartigan argues that Illinois has tried to be all things banker, provider and consultant to any company that seeks assistance. This retail approach is expensive and inefficient. Instead he would target whole industries or regions for assistance of a more general nature. His example: If a market for home appliances develops in Eastern Europe, the state could assist that industry association with market research, information and assistance in developing supplier networks.
2. Strategic investment. Hartigan would seek to use state dollars where they will do the most good.
3. Growth from within. Hartigan would first stress efforts to help existing businesses expand. Second, he would attempt to foster entrepreneurship. Third, he would try to attract outside investment.
4. Building self-sustaining communities. Hartigan wants to rebuild depressed inner cities from the inside out by capital investments and human development.
5. Bridging the gap between "economic" and "social'' investments. Hartigan says Illinois must recognize that human service spending is an investment in economic development. "If you don't have a strong economy, you don't have jobs. Without those two you don't have a tax base, and without all three you can't pay for the social services," Hartigan says.
6. Back to the basics. Hartigan says that good schools, well-maintained roads, a communications system and a clean environment lay the foundation for a healthy economy.
Hartigan has two specific initiatives. First he would establish four Technology and Education for Agriculture and Manufacturing (TEAM) centers around Illinois. Modeled after programs in Ohio, Pennsylvania and Michigan, the centers would support manufacturers with less than 500 workers, which provide more than half the manufacturing jobs.
The centers would collect, analyze and provide information on market research, foreign competition and technology trends. The centers could also promote cooperation to achieve economies of scale, Hartigan says. His example: A small screw machine shop needs labor training; if 10 companies have the same requirement, a lower cost industry-specific training program can be undertaken. Sharing could also be extended to industry-specific research and new technology, buying commodities in bulk, developing an industry-specific quality assurance program, identifying solid waste disposal or resource recovery methods, linking related firms and creating electronic data interchange systems.
The TEAM centers would be run by a board that would include entrepreneurs from the private sector. They would take direction from the governor's management and economics advisors. The board would approve budgets and business plans for each of the four regional centers. Hartigan puts the start-up costs at $2 million.
Hartigan's second specific innovation would be the Illinois Capital Fund, a public/private effort to leverage money for new and expanding businesses. His proposal is designed to get the state out of the business of making direct loans to individual firms. Like the TEAM centers, the Illinois Capital Fund would be quasi-public, with members appointed by the governor and other public and private officials.
As with many other proposals, Hartigan begins with planning. He would "audit" capital markets to see what kinds of businesses are having trouble borrowing money. Needs that Hartigan believes will be identified include lack of seed capital and money for venture capitalists. He believes that lack of capital may be a problem both in rural areas and for black businesses in Chicago.
Edgar's economic development approach is considerably simpler. Edgar believes that the state's economy is on the mend and that the state should be careful not to create problems. "I think overall the state can probably do a lot more damage than it can good by its involvement." Edgar's example of what the state government should avoid is the increase in workers' compensation and unemployment insurance benefits enacted under the Walker administration. That move, he said, hurt business badly until other states caught up in the mid-1980s. Edgar says that the proposed Family Leave Act could erect the same kind of barrier to business.
Edgar sees the state's primary role in economic development as providing the infrastructure, a concept that he extends from "bricks and mortar" to include human capital. He sees a state role in providing roads and bridges to get people to work and goods to market. Edgar would like to see Illinois take the longer view toward road construction, undertaking work based on need instead of on political clout.
He sees an identical and even more significant role in providing an educated work force as part of the human infrastructure. Improving schools is, in many ways, more difficult than creating new programs, Edgar says. "It's easier to spend $20 million on some sexy program than to put $300 million in the school aid formula."
Edgar says that when he asks business leaders what the state can do, they come back with education, Education cuts two different ways, he says. Edgar recalls a session with the Decatur Chamber of Commerce when members told him they need good schools both for the workers they produce and to attract managers. The first thing an executive transferred to Decatur wants to know is how good the schools are, Edgar says.
Edgar would place more emphasis on job training and less on direct investment in individual firms. "I'd just be more invested in that worker, and if the company leaves, that worker is still in Illinois and can find a job somewhere else. Or maybe we can attract an industry because we have a work pool that has those skills." Edgar would like to see efforts expanded by Illinois community colleges to train workers for Illinois businesses.
Edgar wants to see state government build bridges to the private sector. He says that the state needs to listen as closely to
October 1990/Illinois Issues/19
people in small- and medium-size businesses as it does to the chief executive officers of major corporations. Edgar suggests that committees of business people could be involved in awarding grants and loans to businesses.
Hartigan's vision for Illinois is centered on solutions to environmental issues and the jobs that he believes will be created in solving them. Hartigan says that the environment "is the question of the '90s. That crisis offers an economic opportunity on the other side of it." Hartigan sees future jobs that will take care of asbestos and clean up toxic waste sites. He would make Illinois the recycling center of the Midwest. Hartigan also sees opportunities in the electronics and medical technology fields. State government's role, he says, should be to identify businesses that will thrive and do what it can to help them.
Edgar's vision for Illinois would build on the telecommunications industry that is already here in the presence of firms like Motorola and Ameritech. Edgar agrees with those who say that telecommunications may be to the 21st century what railroads were to the 19th and air transportation was to the 20th century: "Illinois is poised to be in the center of that." Today, Edgar says, information can be transmitted from Chicago around the world, but it can't be sent to southern Illinois because phone lines cannot handle it. The state could encourage upgrading of those lines, he says.
Edgar also sees opportunities in agriculture. He thinks that Illinois should identify markets for the products that farmers raise and for food products that are manufactured here. He suggests Mexico, which he says will never be self-sufficient.
Both candidates would deemphasize direct state subsidies of individual firms, but neither will rule out such action in the future. The two most recent efforts involved assistance to the Diamond-Star Motors plant in Normal, a joint venture of Chrysler Corp. and Mitsubishi, and the relocation of Sears' retail operation to Hoffman Estates. The Illinois Economic and Fiscal Commission put the state direct subsidy for Diamond-Star at $80 million and the state cost for the Sears package at $60 million.
Hartigan condemns both actions. He criticizes state subsidies for Sears in the state's hottest real estate market while needs went unmet in other areas. His criticism of Diamond-Star echoes the auditor general's report and hits at the lack of documentation: "Where are the internal documents, the research documents that would be in place for any other major investment?" He says that before the state invests directly in a business, it must be sure citizens are getting their money's worth.
Edgar says that Illinois must recognize that it cannot do for everyone what was done for Sears and Diamond-Star. And he says that such deals would be less apt to happen in an Edgar administration than they were under Thompson, but he defends Thompson: "I think that people who have been critical of Thompson for what he provided for Sears would have criticized him more if Sears had left."
And Edgar offers an example of where he would support incentives. The closing of Chanute Air Force base at Rantoul is such a case. Edgar says that if state investment in the runways would convince United Air Lines to locate a maintenance facility there, he could support it because the community would otherwise be devastated.
Both candidates would look to private business for help in formulating the state's economic development policy. Hartigan says the public sector does not have the expertise to make judgments on which businesses will succeed and must look to the private sector: "There's an old saying that you can't talk the talk unless you've taken the walk." Edgar says he would like to find people to run DCCA with some gray in their hair: "Somebody that's been through it and knows when they're getting a fine of malarkey and what's really cracking." The two candidates diverge in their views on the performance of DCCA. Hartigan says that given the money DCCA has spent, it had to do some good things. But overall he is critical: "Look at the results in terms of job loss, farm loss, number of businesses failing, number of people leaving here by choice, and the performance is disgraceful." Hartigan has no kind words for DCCA. Its performance has been poor and its efforts inept, he says. "DCCA's run by throwing it up against a wall and whatever way it comes down, it ends up hitting somebody's pal," Hartigan charges.
Edgar offers a 20-year perspective for DCCA's performance. He says there was little interest in job creation when he came to Springfield in 1968. He says that enactment of new workers' compensation benefits agitated business and then the economy went bad: "Now in the '80s Democrats sound like they've been lifelong members of the Chamber of Commerce. I'm not saying they're insincere. I'm saying there's a lot more emphasis today on economic development."
The problems with the economy produced demands for instant results, Edgar says. "People were in a hurry to get resuits. Whenever that happens you are going to make some mistakes.'' Overall Edgar says that DCCA has been more of a plus than a minus. The change in administration will provide the opportunity to review programs and set standards for performance and determine if jobs can be eliminated in the agency, Edgar says.
Hartigan and Edgar espouse similar views in many areas of economic development. Both would deemphasize "mega" projects like Sears and Diamond-Star Motors. Both look for growth in small firms. Both would make changes at DCCA. Both see a relationship between good schools and a sound economy. And both would build ties to the private sector and rely on advice from those in business.
There are substantial differences in their overall approach to economic development. Hartigan is far more the activist and offers detailed initiatives like his TEAM Centers and Illinois Capital Fund to stimulate the economy. Edgar says that the best thing Illinois can do for its economy is to be sure that state government does not get in the way.
By far the most striking difference between the candidates surfaces in their views of the current economic situation. Hartigan looks out over the Illinois economic landscape and sees citizens with their lunch pails half empty. Edgar sees those same workers with their pails half full.
20/October 1990/Illinois Issues