Arizona’s Economic Competitiveness

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A roundtable discussion with President and CEO of Science Foundation Arizona William Harris; Executive VP for DMB Associates Karrin Kunasek Taylor; ASU Economist Dennis Hoffman; and Senior Economist for Elliott D. Pollack & Company Jim Rounds discuss how Arizona can compete in the global economy.

Ted Simons: Comments by a leader of a public/private nonprofit whose mission is to diversify and strengthen Arizona's economy seem to have hit a nerve with the governor's office. At a recent economic summit William Harris, CEO of science foundation Arizona, warned that Arizona could become a third world society if state leaders don't do more to improve public education and develop a highly skilled, more globally competitive work force. Brewer's chief of staff fired back saying that state is on the right track. She pointed to a balanced budget, recent cuts to business taxes and regulations, newly adopted education standards and pension reforms that make state government more affordable. What is Arizona's future in an environment of increasing global competition. Joining me is William Harris, president and CEO of Arizona science foundation. Karrin Kunasek Taylor, ASU economist Dennis Hoffman, and Jim Rounds, senior economist for Elliott D. Pollack and company. Thank you for joining us.

Guests: Great to be here.

Ted Simons: Bill, you're one of the reasons we're even having this discussion. your comments destined for third world status. What's that all about ?

William Harris: I think the Arizona Republic editorial had a good summary of the meeting. It said I had good ideas and probably used the wrong words when saying third world status. What I have tried to do is talk about a degrading challenge to the United States. Not just Arizona. I have spent a lot of time thinking about this, and my concern is that our educational system as a country is not ranking as a world leader. My comments were put in that context. I was talking about how you get to be a world leader and how you have world class companies and how you make Arizona the place of discovery. I think that part may not have been in the newspaper article. So the context wasn't there to explain what I was saying. I did not appreciate that the term third world would cause so much I guess resentment, repulsion. Apparently Michael Crow might have used that term sometime ago. I didn't want to try to describe it but I was saying if you don't have a well educated society, you're not going to be competitive.

Ted Simons: Let's don't use third world. Let's talk about being left behind in a rapidly changing and growing world. Are we in danger of that?

Karrin Kunasek Taylor: I don't think so. I think Arizona like the United States has significant challenges when it comes to education, but we should look at the good things we have going on. Arizona is a leader in school choice, for example. That has led to some stellar charter schools operating in the state which many people are familiar with, basis ranked one of the top performing public schools in the country focused on math and science. We need to encourage that type of education. Not focus on so much on what's bad but rather focus on and encourage what's good in our system.

Ted Simons: Dennis, focusing enough on what's good in our system?

Dennis Hoffman: Well, I think we need to do more to promote the state, make the argument that we need to do more to promote a positive Arizona in temperatures of our tourism, a place to be, a place to grow, a place to do business. That's what we have done historically. I think going all the way back to Arizona highways some of the why not that 21st century version in terms of promotion. We have done a lot of good things in the last few years. I think the governor's office reaction, who knows, I didn't talk with them about it, but when they took office in 2008-2009, the fiscal situation in this state was disastrous. There's been a lot of tremendously positive moves have been made. I think in terms of business legislation, in particular, we have a lot of good things going in the right direction. Now, I have written extensively about long term challenges so I can think about long run challenges that we have to step up and face them, but when I say that I don't think of that as an indictment of any of our current leaders.

Ted Simons: Jim, I'm hearing everything is just great, just wonderful. Is everything great and wonderful right now?

Jim Rounds: I think it's somewhere in between. When you're dealing with economics and public policy it takes a while for an economy to change, to implement good public policy. It was only two, three years ago our office ranked Arizona 50th out of all 50 states for economic development programs. The legislature and the governor acted. They also modified tax codes, some people like it, some don't, about I think they have been very aggressive. This is the first session I probably would have be given lawmakers an A grade. Here's what people have to think about. We have done a lot of the things that can impact the economy in the short term, things that are easier to implement. We have to think about mid term and long term. It's not just about throwing money at a particular issue, it's about trying to use a quantitative analysis to figure out how to better our economy short term, mid term and long term and that's difficult to do.

Ted Simons: Michael Gallis was not quite as rosy about Arizona as what I'm hearing so far from our guests. Is he off track here? He was basically saying Arizona needs another way of thinking as far as the future is concerned. There's no mission statement for the state. No way of implementing that mission statement. I believe he said there was a lot of talk, meetings, conferences but not much getting done from a global perspective. Is he wrong?

William Harris: Well, I'm going to probably want some help from Dennis on this. Dennis had a conversation with Michael today and I was on an airplane what you're trying to do is almost have a scorecard. You don't want one that says you're perfect because if people are like companies, they don't go like this. You go down or you go up. I have personally a great ambition for the country. I have great ambition for Arizona. When I speak, what I'm trying to do is inspire people to really have an ambition for excellence and to have an ambition for their children to succeed. One of the things I'm very pleased with and I think has taken Arizona on the right path is the international benchmark standards. The state has signed up for that. It's raised the bar considerably. I think the things that have happened over the last couple of years in terms of allowing kids to go through school when they are ready to go they can go. All of these things are incredibly innovative activities. I'm speaking about 30 years down the road trying to look at changes taking place down there. Trying to challenge people to recognize that if we're ranked as a nation somewhere around 30 in science and mathematics where we used to be number one, why don't we have the ambition to be number one? I want our basketball team and football team to be number one but I would like our state and our country to be number one.

Karrin Kunasek Taylor: I think we need to really give a lot of kudos to the governor and the legislature. What they have done in the last several years to diversify this economy, all you have to do is look at where we were three years ago and where we are today. The trajectory is very, very positive from a regulatory environment, a tax environment, we're now competitive. The fruit of those efforts is now paying off. It is not just the Governor and state legislature. I'm seeing it at the local level. Weir seeing mayors competing not just for their own city but for Phoenix as a region and for Arizona. That's something we didn't see just a few years ago. I'm very encouraged by the efforts that have taken place to put us in a very competitive position.

Jim Rounds: In fact I think it's not that bad to have some people go up to the podium and bang their fists and be upset with something. We need more of that. I spent some time talking to Michael through some work with mag recently. The only thing that I slightly disagree with, some others locally bring this up too much, is they want us to get away from being a growth state. I don't think the people really look at the numbers and understand what it takes to fully diversify the economy. We're going to be dependent on growth. The key is to manage that growth. Then at the margin see what we can do in terms of public policy encouraging the private sector, diversifying the economy. So it's okay to have these lofty goals. The expectations are there. If you don't have lofty goals you won't implement the small policy changes that are needed. Over all it's okay to disagree.

Dennis Hoffman: Mike builds strategic frame works for business economies. That's his business. Part of his comments I think you have it take in the sense that he was here in some sense marketing his framework. I'm quite intrigued by it. It's an interesting way of looking at it that planning infrastructure and planning for growth depends on a very careful analysis of trade flows in the economy and where the economy is. So it's not just building roads and infrastructure why certain people have property rights and certain developers reside, it's a thoughtful planning exercise. So since we don't have that right now, and he would be willing to offer that to mag, I think that some of his comments were clearly in that direction.

Ted Simons: Jim, back to your idea regarding growth and Arizona's growth industry has been growth for so long and some see that as a problem, I'm hearing good moves by the governor and the legislature, easing regulations and taxes and these sorts of things, going with growth and realizing that is important and tourism, is that enough of a global -- that sounds somewhat parochial to be honest with you, is that enough when we have a world of folks running the 100 yard dash in nine seconds and we may not be breaking ten yet?

Jim Rounds: We first have to realize who we are. We're going to a growth state for another decade or two, maybe longer. Once you figure out who you are, then you try to maximize those other opportunities. So I think those are the next steps. Thinking longer term, more globally. On the infrastructure issue Dennis has done a lot of work on this and it's actually excellent work on what our long term needs are. Well, you have to maintain the state's infrastructure. You can't go to the legislature and say I need $10 billion for roads in one year. If we can bring economic development into the transportation discussion that would be very helpful. It's more difficult to bring it into the education discussion because that's more of a gray area. The benefits aren't as tangible as a roadway under your feet.

Ted Simons: Is there a little bit of a cart before the horse here when you're talking about global issues and Arizona is still in many respects trying to get the cart back on its wheels?

Dennis Hoffman: Everyone wants to be a global economy. They understand the value of an export based economy. The wealth driver base industries that come with it. So everybody is chasing that. I think what we have done is laid the foundation. We put the framework in place that we can build a global economy on this framework, but I do want to get back. If you look at economic development matrix, incentives are important, regulatory environment is important, taxes are important, infrastructure, transportation infrastructure, proximity in airports and roads being able to get goods in and out. Vital. Quality of work force, productivity of that work force, absolutely vital. That would be the linkage to education. Where I agree with Jim is just dumping more dollars into K-12 doesn't necessarily at the other end come out a quality work force. I think it's an important ingredient. We got to figure it out in the context of efficient programs. We'll probably need dollars as well.

Ted Simons: When you're hearing this, does this make sense? This whole idea we're trying to run too fast before we learn to walk here.

Karrin Kunasek Taylor: I don't think so. I think when we say infrastructure I think not just physical but you have from a work force development standpoint, we have to be firing on all of these. I think in my experience we have been doing a lot better job in the last several years because we have had to. Because we have been so dependent for decades on the growth industry, when the rescission hit we came face to face with the realty that we had to diversify our economy. It's taken much on all these front to make sure we do that successfully.

Ted Simons: What do you think, bill?

William Harris: I think the foundation of the future is an educated work force. That's what's going to distinguish you. About a year ago Craig Barrett noted if Intel was thinking about things now they may not come to Arizona because of the educational system. I think with all of the things passed, we have basically the Arizona ready council that Craig is going to be chairing pushing us to higher standards. The most important thing we can do as a community I think is agree to these international benchmark standards for our children and don't back off when we run into a problem. Let's let them graduate. Let the community colleges help them reach those standards themselves. That's going to Dennis's idea of a plan but focus on the human capital and if you want to diversify the economy, you're going to do this in large part with a very significant Rand D. commitment if you can get the universities working cooperatively with industry you'll create an advantage for the state.

Ted Simons: In 20 years, will we be having the same discussion?

William Harris: No.

Ted Simons: What do you think, in 20 years?

Karrin Kunasek Taylor: I hope we are. I hope we continue to challenge ourselves to get to the next level. It should be an ongoing endeavor.

Ted Simons: Really, in 20 years are we still going to be worrying about Arizona playing catchup to everyone else?

Dennis Hoffman: No I'm optimistic we're going to get this moving on the right track. I think we're so very close on just a couple of margins.

Ted Simons: Jim?

Jim Rounds: We have a great future.

Ted Simons: Very good. Good to have you. We appreciate it.

William Harris:President and CEO, Science Foundation Arizona; Karrin Kunasek Taylor:Executive VP, DMB Associates; Dennis Hoffman:ASU Economist; Jim Rounds:Senior Economist, Elliott D. Pollack & Company;

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