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Why Virginia has a slow-growth economy

Why Virginia has a slow-growth economy


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Silly us. All those years, whenever someone talked about how the Roanoke Valley needs more growth, some people worried that we were in danger of becoming another Northern Virginia.

Turns out, Northern Virginia is becoming more like Roanoke.

By that we mean this: We’re accustomed to being in a slow-growth part of the state. Now Virginia’s two biggest metro areas — Northern Virginia and Hampton Roads — have become slow-growth economies, as well.

The reason isn’t hard to figure out: Both places are heavily dependent on federal spending — federal spending that has slowed. Throw in a recession, and a slow national recovery and here’s what you get: The state’s two biggest economic engines have stalled, and dragged Virginia’s economy down with it.

That’s one of the main takeaways from the 2016 State of the Commonwealth Report, an annual report on Virginia’s economy commissioned in part by the Virginia Chamber of Commerce and carried out by the Center for Economic Analysis and Policy at Old Dominion University.

Virginia’s economy grew by just 1.4 percent last year — and probably won’t be much higher this year. That’s actually an improvement from 2013 when Virginia’s economy grew by just 0.1 percent — and ranked 48th out of 50 in the country. Now we’re 33rd.

We’re about to enter a governor’s race and the “out” party – in this case, the Republicans — is already claiming it can do a better job than the “in” party. Perhaps so, perhaps not.

This isn’t really a political problem — this is a structural problem with Virginia’s economy that neither party created but which it will take both parties to fix. The report makes this structural problem clear over and over: “Virginia’s rate of growth remained low … largely because growth in Northern Virginia remained weak.” Whenever you read about state revenues being sluggish — so sluggish that state employees didn’t get their scheduled raises — well, that’s a big reason why. Northern Virginia accounts for a staggering 45 percent of the state’s economy, the report says. When it slows down, we all slow down.

A curious stat: From 2008 to 2015, the New River Valley’s economy grew at a faster rate (1.2 percent) than Northern Virginia’s (1 percent).

Here’s another instructive figure: Hampton Roads has yet to recover all the jobs it lost during the recession of 2008. The Roanoke Valley and the New River Valley have. That’s the main reason why the push for “Go Virginia” — a new statewide economic development board — came primarily out of Hampton Roads.

Here’s something else to keep in mind: When you hear politicians complain that Virginia’s economic growth pales in comparison to North Carolina’s, well, they’re right. It does. Last year, while Virginia’s growth rate was ranking us 33rd, North Carolina was ranking 10th. But there’s a reason for that and it goes back to the structural problems we cited earlier: North Carolina’s economy is not so dependent on the federal government. Put another way, North Carolina has a bigger private sector economy than Virginia does.

In 1978, the private sector accounted for only 78 percent of Virginia’s economy — meaning nearly one-quarter was dependent on government spending. By 2015, that figured had improved slightly — to 82 percent. But North Carolina is at 87 percent. That 5 percent makes a difference.

Virginia’s reliance on government spending means that when things go bad — as they did in the recession — things here are never as bad as they are in the rest of the country. But it also means that our growth rate isn’t going to be as fast as other states, either.

Policy implication: If we want more economic growth in Virginia, we need to grow the private sector.

We in this part of the state have understood that for a long time; now it’s a lesson that those in the halls of power in the urban crescent are starting to pay attention to, as well. Of course, recognizing what the problem is, and figuring out what the solution should be aren’t always the same thing.

President-elect Trump may say the key is reviving American manufacturing. It’s true that in seven of Virginia’s ten metro areas (including Roanoke, New River and Lynchburg), the worst-performing sector of the economy is manufacturing.

On the other hand, the ODU report points out an inconvenient statistic: Manufacturing output is up, sometimes way up. However, because of automation, that increase in output doesn’t necessarily mean an increase in manufacturing employment. Sometimes it means just the opposite. So “reviving manufacturing” is a very incomplete solution, at best.

State chamber president Barry DuVal talks about the need to reduce regulations that inhibit growth. He calls attention to how Virginia has dropped in the annual CNBC rankings of the best states in which to do business from third (in 2012) to 13th (2016). That doesn’t necessarily mean Virginia has enacted new regulations; it could just mean other states have reduced theirs and moved ahead of us in the rankings. Either way, 13th place isn’t as good as third place.

That sort of “cut the red tape” talk stirs conservatives’ hearts. Former ODU President James Koch, who oversaw the report, points out another problem holding back Virginia’s economic growth, one that is going to call for more government involvement.

That’s this: There’s a growing mismatch between the skills that Virginia workers have — and the skills required for the jobs being created. In the academic language of the economist that he is, Koch calls that “a structural imbalance in the workforce.” In more plain language, he describes the solution: “Virginia Western Community College.” That, at least, is how he described it to the Roanoke Regional Chamber of Commerce this week. Before a different audience, he’d have simply changed the name to fit whatever the local community college is.

He didn’t leave the audience with a “to do” list but it seems pretty plain: If you want to do something to help your local economy, donate to your local community college’s foundation.

Earlier this year, our Democratic governor proposed — and our Republican General Assembly passed — a budget that quadrupled spending on workforce training programs to dramatically increase the number of industry-certified credentials that are awarded.

That’s where the real action of fixing that “structural imbalance in the workforce” is taking place.

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