An economic downturn can be the mother of reinvention. With a little ingenuity and a lot of initiative, Oregon can turn economic upheaval into employment for many of its residents. How? Look no further than the state's manufacturing sector -- especially high-tech.
Manufacturing jobs are important to the state's economy because they pay well and because each manufacturing position creates 2 1/2 jobs in other areas such as retail, restaurants and real estate. High-tech jobs are especially lucrative, paying an average of $88,700 a year in Oregon and creating as many as 15 other jobs.
Yet, at a time when the federal government is spending billions to spawn job creation, Oregon recently approved increases in corporate and personal income taxes that could delay job creation by manufacturers and other firms in the state.
As Oregon contemplates how to retain employment and battle the recession, it should consider high-tech manufacturing as key to a speedy recovery. Based on the Milken Institute's recent study, "Manufacturing 2.0: A More Prosperous California," in which we compared the manufacturing industry in California to Oregon and six other key manufacturing states, here are a few suggestions:
1. Build on the state's existing strengths. Despite recent job losses, Oregon's manufacturing industry is still a key player. In 2008, manufacturers were responsible for 31.5 percent of Oregon's economy. Oregon also has a number of key incentives in place, a business-friendly environment and a strong long-term economic plan. These are invaluable tools that the state must continue to fund to remain competitive.
2. Recruit high-paying industries and give them a good reason to stay. Despite being home to Silicon Valley, California is losing high-tech jobs to Oregon and several other states, our study shows. California's share of the nation's high-tech jobs fell 5 percent from 2000 to 2008 while Oregon's rose by 7 percent. Oregon's high-tech manufacturing employment was 6 percent higher than the national average in 2008. The state should actively promote itself as a hub for these types of high-tech industries, allowing those manufacturers to share suppliers and a trained workforce.
3. Invest in the state's capacity for technological innovation. The federal stimulus bill earmarks billions of dollars for the establishment of "green jobs," but Oregon isn't in a strong position to compete for them. In the institute's latest State Technology and Science Index, which ranks states' capacity for technological innovation, Oregon fell to 23rd, down four spots from 2004. If Oregon hopes to capture a reasonable share of green jobs, particularly in the state's burgeoning renewable energy sector, it must implement clear and consistent incentives and invest substantially more in the state's "innovation infrastructure."
4. Avoid permanent tax increases because they will delay job creation even longer. Oregon's tax structure is one of its primary competitive advantages. Despite the recent increase, the state's corporate, property and sales tax rates are among the lowest in the country. On a per-capita basis, Oregonians pay roughly $500 less than the national average in state and local taxes. Between 2000 and 2007, the state saw a 10 percent increase in the number of new businesses created, easily besting the national average -- a likely benefit of a competitive tax climate. However, the recent increase approved by the Legislature is a slippery slope to more tax hikes and may scare off would-be entrepreneurs flocking to the state.
5. Shun the any-job-will-do approach to increasing employment. Oregon should not rely on new government programs funded with federal stimulus money to stem the tide of unemployment. The low-skilled, low-paying jobs these programs often create generate few ripple effects, and Oregon taxpayers foot the bill once the federal money runs out. Instead, use stimulus money as collateral for private loans to companies that will create high-paying jobs in Oregon.
6. Eschew borrowing as a way out of the recession. From 2000 to 2007, Oregon's dependence on public debt increased 30 percent, making it one of the highest increases among the states we studied in terms of government debt relative to the state's gross domestic product. Further borrowing will only exacerbate the state's financial woes and weaken its ability to compete.
The recession presents Oregon with an opportunity to chart a new course to prosperity, building on its robust manufacturing base and growing high-tech industries. But the recession also highlights some weaknesses, including an onerous regulatory climate, unsustainable government borrowing and spending, and an uncoordinated confluence of economic development incentives. Oregon must balance the clamoring for immediate results today against the tremendous opportunities of tomorrow. In short, it must turn adversity into opportunity.
Perry Wong is a senior managing economist at the Milken Institute, based in Santa Monica, Calif.