In the last few weeks, I have seen two Maine leaders who ought to know better opine that the solution to our economic woes is to revert to our natural resource base and focus on agriculture, fishing, forestry and tourism! I was shocked. This is the same as saying that we ought to be in the buggy whip business as long as possible!

Here are the facts. Innovation drives as much as 80 percent of economic growth. The other 20 percent comes from labor and capital. With our shrinking labor force, that is not going to be a driver, unless we suddenly attract a slew of young, talented and educated immigrants. Capital isn't our strong suit either, so that leaves innovation.

With a few exceptions, I don't see a lot of innovation happening in our agriculture, fishing, forestry or tourism businesses. I see a lot of hand-wringing as years of benign neglect make each of these industries less and less competitive in the global markets. We're losing jobs in most, if not all of these sectors. There are not a lot of new ideas, but rather a focus on cost-cutting, and retrenchment. This is what happens when a sector is dying, not growing.

Cathy

The View from Augusta--

Seed Capital Tax Credit - YES; Bonds - NO

The Governor is planning to allow Maine's Seed Capital Tax Credit bill to become law without his signature this week. Apparently this is because LePage doesn't think that it is adequately funded. 

Therefore, the Tax Credit, which had reached its statutory cap early in 2013, will become available again in 2014, with a cap of $675,000, phased in with higher caps in the years to follow. This was a clever compromise that decreased the fiscal note on the bill and allowed it to be funded in a year with significant budget constraints. 

One slight concern is that the bill will not become law until the Legislature has been in session for three days, something that won't happen until January 2014. However, this is all great progress and shows what can be done when a small group of folks who are dedicated to increasing access to capital in Maine are tenacious!

Huge Differences in Basic Values and Beliefs

Make Moving Forward Difficult

We are not alone here in Maine confronting huge differences in basic values and beliefs among our citizens that are playing out in the political arena. With a Tea Party Governor, perhaps we are seeing it in higher relief, but these divisions are reflected in the national conversation as well.

The Brookings Institution recently released a report on Economic Values, based on telephone interviews conducted between May 30, 2013 and June 16, 2013, among a random sample of 2,002 adults in the entire United States.

Among their most significant findings were that less than one-third of Americans believe the federal government is either "generally working" (7%) or working with some major problems (24%). But while 15 percent of Democrats said the federal government is "completely broken," those who identify with the Tea Party agreed 51% of the time.

There continues to be a huge gap in beliefs about what government should do. More than 63 percent of Americans agree that government should be doing more to reduce the gap between rich and poor. Sixty-two percent say it is the responsibility of government to take care of people who cannot take care of themselves and 56% believe the government should guarantee health insurance for all citizens, even if it would require tax increases.

However, there is a huge gap between the parties on this issue. Republicans generally don't agree with reducing the gap (67% do not agree with helping people who cannot take care of themselves) and only 33% of Republicans agree with reducing the gap between rich and poor.

What Makes Companies and Organizations Innovative?

Hal Gregersen, a professor at INSEAD, the European business school, has recently written about what makes some individuals and organizations more innovative than others. His answer - three things: people, processes and philosophies.

For people, he says, "Innovative companies are led by innovative leaders who excel at discovery and are not bashful about leading the innovation charge. . . Highly innovative companies show stronger discovery skills at all management levels and each functional area."

Under processes, he says, "innovative organizations systematically develop processes to encourage and employ [questioning, observing, networking and experimenting] skills into the fabric of its culture." He goes on to say that "They have instituted a strong culture of experimenting. ...By creating organizational processes that enable employees to lean and practice key discovery skills as a natural part of the working day, companies unleash the creative capacity of the workforce."

Gregersen concludes that there are four guiding philosophies: "(1) innovation is everyone's job; (2) disruptive innovation is part of our innovation portfolio; lots of small, properly organized innovation project teams are the most effective unit of innovation; and (4) smart risks must be taken in the pursuit of innovation."

Interesting, for me, is that these philosophies directly correspond to the underpinnings of Innovation Engineering. IE is a system, a process, that produces innovation on a replicable basis, increasing the speed of new product and process development up to 6 times and reducing the risk of innovation 30-80 percent. It supports companies with an innovation mindset by giving employees the tools and framework to incorporate innovation into their day-to-day work.

Tax Policy Reform

It seems like everyone agrees that our national tax system needs to be reformed, but there is little agreement as to how to do it. Some of this has to do with basic disagreements about how much tax policy should be used for "social engineering," and some is just plain old politics.

Regardless, the Tax Policy Center has written an informative review of the various proposals out there. Their report is HERE. Most reform packages discussed here (and indeed in many state legislatures) concerned so-called tax expenditures - the exclusions, deductions and credits that provide subsidies for various groups and activities. [See Seed Capital Tax Credit, above (sic)). At the federal level, there are in excess of 200 of these. In Maine, the list exceeds 50. In both cases, these are legacy expenditures, instituted at a point in time with no expiration date, and are very difficult to evaluate and even more difficult to undo.

Tax expenditures are very popular among voters - the two biggest at the federal level are the mortgage interest deduction and the tax break on employer-sponsored health insurance. That makes them hard to get rid of, even though removing tax expenditures increases revenues and making the system simpler.

Where the Jobs Are Now

Many are now saying that the changes brought about by the Great Recession have dramatically and permanently changed the geographic and sectorial landscape of where the jobs are. 

For instance, the Bureau of Labor Statistics shows that the largest number of jobs gained in the last few years was in health care and in professional and technical services. The latter is critical because the average pay is dramatically higher than in health care or in other growing service industries. Professional and technical services include a lot of the technology industry, as well as architects and lawyers and other skilled knowledge workers.

The US Department of Labor also just released data showing that at least ten percent of all new jobs being created since the Recession are in technology sectors. Reportedly, American companies hired between 18,000 and 22,000 technical workers in June.

A new book out by Bruce Katz and Jennifer Bradley of the Brookings Institution suggests that another outcome of the Great Recession is the resurgence of metropolitan areas as drivers of growth and innovative policy. The top 100 metropolitan areas now house 2/3 of our population and generate more than 75% of our GDP. The book, The Metropolitan Revolution, says that cities are the leading laboratories of public policy with regard to economic growth, increasing diversity, investment and innovation.