Arizona Economy

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ASU economist Dennis Hoffman shares his views on President Obama’s ideas for growing jobs and how state lawmakers can stimulate Arizona’s economy.

Ted Simons: Good evening and welcome to "Arizona Horizon." I'm Ted Simons. Another prominent democrat is running for congress in Arizona's new congressional district nine. State democratic party chairman Andrei Cherny announced today that he is leaving his post to run for the seat. He joins senate minority leader David Schapira and former state senator Kyrsten Sinema, who have already announced their candidacies for the new congressional district. In his state of the union speech, President Obama outlined his plans to improve the nation's economy. He wants to focus on American manufacturing, American energy and job training for American workers. It is a message he reiterated when he visited the site of a new Intel manufacturing plant in Chandler last week. Here to talk about the president's strategy and how it impacts job growth in Arizona is ASU economist Dennis Hoffman, director of the seedman research institute at the W.P. Carey School of Business. Good to see you. Thanks for joining us.

Dennis Hoffman: Great to be here, Ted.

Ted Simons: The president wants to invigorate, reinvigorate manufacturing. Is that viable?

Dennis Hoffman: Depends on what form of manufacturing. In my opinion, at least now, he picked a -- the crown jewel of electronics manufacturing in the state of Arizona with the Intel plant. And that's a tremendous resource for Arizona, a great place for -- to create Arizona jobs. But it's very high margin manufacturing. Meaning it takes a lot of capital investment. Very, very high-skilled workers, a cluster of support businesses and related businesses. And a track record here, and we've had a track record since the better part of the post-war period in electronics manufacturing here in the valley and in Arizona.

Ted Simons: And non-electronic manufacturing. There's a line of thinking that says the depression was farm jobs. Farm jobs went away because efficiency was increased and that was one of the things that led to the depression and now they're saying the recession we're having now, manufacturing jobs. So is the president saying it came to, let's make more farming jobs back in the 1930's?

Dennis Hoffman: I think we have to be a bit cautious about this. There are pockets of places in the country where you can rekindle manufacturing. We saw this in the auto sector back in the Midwest. A lot of people, three to four years ago, they thought anything related to auto manufacturing, especially in the Midwest with the older plants and older supply chain networks, was going to transition back but it's actually had a bounce-back or resurgence, what it is driven by, high-quality workers and really good and high-quality capital investment and the synergy, this network, that allows productive -- it allows low-cost production, not because they're paying workers low wages but because these workers are so productive and that's really what's at root of this. If we can identify pockets of productive workers, you can to some degree rekindle manufacturing. Look at Germany, for example. They've done really quite well with high manufacturing labor costs but really spurred export based businesses and they've actually done well. But Ted, there's always going to be a tug, you know, an allure to take those manufacturing jobs to low-cost countries.

Ted Simons: Can Arizona work from this particular blueprint? The president calls this a blueprint for an economy made to last. How does that translate to Arizona? I mean, we're next to a foreign country there with relatively low wages compared to what's going on here. Can we work with that dynamic?

Dennis Hoffman: I think there's potential. The geography suggests there is potential. What I would be talking about is not shipping our existing manufacturing jobs to Sonora, Mexico, but what I would think about is trying to expand and grow R and D facilities and management facilities, say, perhaps on a basis in Arizona, and if you're talking about manufacturing, pursuits that are absolutely economically dependent on lower cost labor rather than pick up the entire operation and move it to Asia, why not establish a connectivity and manufacture products in Sonora, Mexico, or somewhere in Mexico, and take advantage, leverage lower cost labor there? That would require a type of open market -- excuse me -- it would require a type of open border mentality, that, you know, we haven't seen much in this state, certainly. We're all about making that border bigger and bigger. But I'm talking about, you know, establishing a supply chain kind of network or a connectivity in an organization where some of the elements of the organization could be located north of the border and some south of the border.

Ted Simons: Interesting. There's another thing that the president talks about a lot. That's infrastructure and there's so much out there that can be done, could be done. Is it going to be done, or do we just look past that and try and move in other directions?

Dennis Hoffman: When I hear economy built to last and think about what we've done and not done with respect to this nation's infrastructure and now the state's infrastructure, especially over the last several years, my colleague and I Tom Rex and I looked at this very careful this fall and identified just in talking with agency heads, literally shovel-ready, the plans in place, opportunities to invest in infrastructure needed infrastructure in this state, you know, upwards of $5 billion could be done. That would be real job creation as those construction jobs are put in place, you could finance it with, say, 10-year revenue bonds and take advantage of the lowest cost labor in decades. Low capital costs. And I'm not talking about public works for public works. I'm talking about infrastructure that needs to take place. Infrastructure investments that need to take place.

Ted Simons: Is that dialogue happening? Anyone looking at this?

Dennis Hoffman: Not that I know of.

Ted Simons: How come? Why?

Dennis Hoffman: I don't know -- there just isn't an impetus, in my opinion, for what might be perceived by some as more government. What I'm suggesting is that government has a role to provide when it comes to transportation initiatives. When it comes to fixing our schools. Dealing with our city's water and sewer systems. These are issues in my opinion -- you know, historically, economies have simply taken these things on. They've identified needs, go to taxpayers and they say, look, here's the needs here. Here's the benefits that could be provided, you need to finance these with a rational fair set of taxes. And you go to people, you don't try to find pockets of certain people or certain businesses. You ask everybody according to their means to contribute to get this thing done. But I'm talking about the evil T word. There's a lot of folks that don't -- excuse me -- I guess I get choked up on it too. Don't want to go anywhere near taxes.

Ted Simons: Ok. Last question and something else that the president talked about. He said we must educate and train for prepare for jobs of today and compete for jobs of the future. Educate and train to prepare for jobs of of today. Let's go with that. What does that neon?

Dennis Hoffman: It's complex. The example he gave was community college. An individual out east evidently got trained and got a certificate and found a place in manufacturing. He actually alluded to we need to use our workforce training dollars more efficiently. That's an interesting comment. There's millions and millions of workforce training dollars that hit every state. Tens of millions, actually, and those go into trying to convert really challenged or disadvantaged workers and make them ready for the workforce. His model is to take some of those dollars and give them to community colleges. I think we have to figure that out. It's a complex issue. What is the community colleges' mission? Are they supposed to train and certify people for low and medium manufacturing positions or are they supposed to prepare students in a two-year experience to go on to complete their degrees at universities? And I think community colleges, and not to speak for them, but I suspect they might say it's both of those things.

Ted Simons: Interesting. Quickly, 30 seconds left. The governor says Arizona is on the way back. Do you agree?

Dennis Hoffman: We're getting better. Revenue flows are strong. I think we have a good solid holiday season, tougher comparables going into the spring, so you're going to hear year over year growth rates not as high as we've seen before but I think we're in a cyclical rebound here in Arizona and we got to see domestic and migration for it to accelerate.

Ted Simons: Good to have you here. Thanks for joining us.

Dennis Hoffman: Thanks, Ted.

Dennis Hoffman:ASU Economist

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