Vermont Economics and the Creative Economy

There are many great and vibrant places in the world.  Having lived in some (Boston, London, SanFranciso, Sevilla), and visited many more (Shanghai, Tel Aviv, Buenos Aires, to name a few), I've always been fascinated by the conventional wisdom in Vermont that we have a great quality of life that should attract businesses, but for our horrendously negative business environment.  Taxes, Welfare, Permitting, fix those and businesses will move here in droves, I hear.  I'm told Vermont has more than its share of lazy workers who would prefer to be on the dole.  What's the Truth?

It turns out that Vermont is middle of the pack on most giveaway programs.  A little research on state and federal sites like http://www.usgovernmentspending.com/ and http://www.bls.gov/ and projects.propublica.org, to name a few, shows that, for example, Vermont spends $928 per capita on welfare, versus $1,114 in Massachusetts and $1200 in New York.  The national average is $800, and New Hampshire is $640.  There is no evidence that people are streaming into Vermont for the great benefits.

Vermont provides middle of the pack unemployment benefits that range from $60 to $425 per week at yearly cost of $329 per worker.  Workers comp is similarly unexceptional.  Our unemployment rate is one of the lowest in the country.

Now, we can all tell stories of the "welfare queen" (a term coined by Ronald Reagan about a woman, who turned out not to exist, who exploited the welfare system in Chicago), or the person we know who was a crappy employee, but one doesn't develop policy on anecdotes.  Facts work much better.  Of course, one can cut the numbers in any number of ways to try to make the case that Vermont is anti-business, but as someone who built businesses in "Taxachusetts" and has worked with many excellent Vermont businesses as a strategy consultant, I just don't see it. So why does Vermont struggle economically?

Well, I'll grant that Vermont does have an issue related to labor.  No one will want to hear this, but at the macro-level, Vermont does not attract enough of the best and the brightest - entrepreneurs, venture capitalists - who drive an economy.  Richard Florida of Creative Economy fame makes the case vividly that the best and the brightest choose to be around others of their ilk, and flock to Boston, New York, SanFrancisco and other centers of innovation and excitement, creating a virtuous cycle of opportunity and attractiveness. 

Florida goes on to demonstrate that rural economies will increasingly face a competitive disadvantage in the global economy because the regions that have been winners in the information age, will continue to win (check out housing costs in Boston, NY and Silicon Valley, to test the theory).  Anecdotally, most of my Wharton buddies simply would not have considered Vermont as a place to build a career when Manhattan, Cambridge and Silicon Valley beckoned.  Further, as an angel-investor helping to finance young companies, I can tell you that there are very few exciting deals in Vermont compared to the more thriving entrepreneurial centers.  During the dot-com boom, not a single IPO came out of Vermont, at a time when any sharp MBA with a good idea was going public (for better or worse).  Yes we have great individual success stories here, but again, that is not what sound analysis is based on.

So what do we do?  Well first we need to stop using our tax, welfare and permitting policy as a scapegoat.  Then we have to acknowledge that there are structural issues associated with being a rural state (especially a very cold and cloudy rural state)  that make it impossible for us to compete in the global economy on MOST dimensions.  We need to stop hoping that Vermont can be a leader in the Green Economy (we might be able to win in certain very narrow subsegments). 

We need to recognize that not everyone was cut out to be an entrepreneur and run their own business.  Having a profitable business is not a right.  It is not our job to provide subsidies, tax credits or marketing dollars so that every small business owner can make a profit.  I would love it if the government would pay people to hear me sing Bruce Springsteen songs, but as a singer I suck.  Being a business owner is no more a right than being a Rock Star.  Great business people with great products don't need government handouts (though they'll always take them if offered).  If we are going to help businesses, lets be smart about it, and help businesses that can really win, and create jobs and wealth. 

We need to hire McKinsey, Monitor or Bain to do a detailed analytical study on the Vermont economy to find those very narrow niches where we might be able to compete globally (yeah, I know they come from the coastal elite class, but they've helped other states and regions beyond measure).  It will mean picking winners and losers.  It will mean tough conversations with parts of the state that may never excel, but may benefit from the growth in others.  Once we have clarity on where we can generate a competitive advantage, we need to invest.  It will require tremendous focus from our academic institutions, business leaders and government.  And it will still be tough because of the dynamics associated with The Creative Economy, but at least we'll be focused on the right problem.