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Growing Maine's economy

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In this Monday, Nov. 10, 2014, file photo, workers cut a sample section off a large roll of paper made at the Sappi Paper Mill in Skowhegan, Maine. The death of Maine's paper industry, once a point of entry to the middle class for thousands, accelerated when the mills in Millinocket and Bucksport closed that same year. In this Monday, Nov. 10, 2014, file photo, workers cut a sample section off a large roll of paper made at the Sappi Paper Mill in Skowhegan, Maine. The death of Maine's paper industry, once a point of entry to the middle class for thousands, accelerated when the mills in Millinocket and Bucksport closed that same year. (AP Photo/Robert F. Bukaty)

While growth exists, the state still lags the U.S. economically

BANGOR ' There's no doubt Maine is full of stereotypes. Whether it's how we do things, the natural resources we enjoy or even our jargon, we're known for many things across the country that make both our people and the state itself unique.

When it comes to the economy, however, those stereotypes are not always favorable and can work against us, especially on a field dominated by stronger players across both the nation and world. Sometimes we just don't measure up.

We're older. We're less diverse. We have a higher cost of living. And in some respects, we're at the end of the line.

That is a sentiment shared by economic experts who agree that while Maine has a lot going for it, there are a number of factors that have worked against the state, thereby limiting growth and even in some cases costing us jobs.

Several of those key points were brought to light during the Pro-Maine 21 conference held Aug. 25 at the Dyke Center for Family Business at Husson. Hosted by The Maine Institute, the conference dealt with both economic and social issues and highlighted several factors that continue to limit Maine's growth and inhibit out-of-state investment, both of which are critical to any state's economy.

According to N. Laurence Willey, a Bangor-based attorney who has been president of the institute for the past 25 years, the conference was an extension of the work he began under then-Gov. John McKernan in 1991.

'We wanted to bring together a broad range of people across the state who were non-partisan to talk about the economic issues facing Maine,' Willey said of the organization's early beginnings. 'Pro-Maine historically has focused on Northern and Eastern Maine. We were focused a lot on Bangor, Hermon and Brewer issues because we are the regional center. But the original report did not focus so much on the issues directly affecting Bangor. They were more regional. We had a very big impact on the Northern Maine Development Commission, and we did a lot with Eastport.'

A lot of the issues covered in their most recent meeting aren't new to Maine ' in fact, Willey said some have been a constant struggle during his 25-year tenure as the Institute's president. Yet the August discussion did allow for some updates to the original report that by now was largely outdated.

'I think the first report was really broader in nature. It was a different kind of roadmap,' he said. 'Over the years, Mike Aube and the great staff at EMDC [Eastern Maine Development Corporation] have done a lot of different things with Mobilize Maine, and with Maine Development Foundation's 'Measurements of Growth 2016' developed earlier this year, we were able to have a number of different speakers that covered a lot of different areas.'

Growing business

Perhaps the biggest topic of them all is the matter of driving new business investment in Maine. And such investments can take many different forms, from new programs for worker skills training and funds for research to public and private sector capital for new ventures and businesses. For Aube, who lives and breathes economic development as both the president of EMDC and a former state commissioner for economic and community development, it's a topic with so many facets feeding into it that true economic growth has so far been elusive.

'We really are in a state of transition, particularly in the Eastern Maine region. No doubt the days of competing globally in commodities and certain manufacturing are waning,' he said, adding the Penobscot Valley was hit particularly hard by the closures of the area's pulp and paper mills. 'We're in transition from what I would call those big-time investment employers to more strategic, niche types of potential manufacturing that can take place in the natural resource-based economy.'

Aube said the state and region has been going through the loss of manufacturing for decades now, with not only the loss of paper mills but also shoe manufacturing and canneries. Part of his job today is looking for business opportunities that have a chance to compete at a different level and on a global scale.

'Small is the new big. We'd all like to have a 200- to 300-person shop come into town, but if we can get a 20, 30 or 40, those singles and doubles add up. You may not have the growth you want, but then you don't necessarily go to the bottom when a recession hits,' he said. 'When you transition any economy, you've got to transition the marketing trends, the cultural trends, the educational focus. All those things come into play as you adapt to a new environment.'

Willey agrees that the new environment is challenging, and several areas that jumped out at him during the August conference were energy and a serious need for investment in research and development, especially for the industries remaining in the state. Still, many local economies are driven by new startups, something Maine can steadily improve upon.

'It's so expensive to start a business here based on direct costs, corporate taxes and cost of regulations. The cost of startups, particularly for a state like Maine that is geographically in the corner, those costs to me are a big factor,' he said. 'We haven't spent enough time creating good paying jobs so that people who are not working have an opportunity to get retrained and get to a good job.'

It can be overwhelming

While Maine trails the nation in many key economic indicators, there are bright spots that dot the landscape. For instance, the state fell below the U.S. average for new business startups in 2015, yet it ranks 23rd nationally and second in New England only behind Vermont, which ranks fifth, according to data from the Maine Development Foundation's 'Measures of Growth 2016' report.

Aube said new startups are often the brainchild of either those who are unemployed or have recently graduated college; they're generally based on an idea of meeting a need or market niche that is largely underserved.

'We've seen an uptick in entrepreneurial activity ' we've seen a lot of dislocated workers over the last two years,' he said. 'Ten to fifteen percent say they want to start their own business. That's across all ages, but [ages] 30 and above were the most impacted dislocated workers.'

Starting a business is challenging enough, but Aube feels most people get frustrated with the confusing myriad of regulations and laws that need to be followed to set up shop. In the recent case of a new brewery, he said the owners had to go through a year and a half of red tape at both the state and federal levels just to get the all-clear to begin operations. And while regulation requirements are not insurmountable, he added the process could be simplified from a public policy standpoint where you have one course to navigate.

'States like Georgia and Virginia have decent models in terms of quick turnaround of their regulatory process and resources to help you navigate through the requirements,' he said. 'It's an issue in Maine where an entrepreneur doesn't know where local, state and feds all intersect. Efficiency could be accomplished with a streamlined process.'

And once they start operation, other factors come into play including whether a new venture can find employees within the state's workforce with the proper skill sets needed to make it successful. Aube said. In a lot of cases, such workers may be hard to find and skills may be lacking.

'The challenge that I have seen is two-fold. Small businesses don't have the time or perhaps the knowledge base to know where to get incumbent workforce skill,' he said. 'But like everything else in the world, we've moved to just-in-time inventory and you need just-in-time education and training. The ability of us transitioning from an agrarian type of educational system to training partnerships with the public and private sector really is what's going to have to happen in our region if we're going to see those new small and emerging businesses and companies succeed.'

Yellow Light Breen, a former vice president for Bangor Savings Bank who is now president of the MDF, also feels that Maine's business climate is in transition and cites similar issues with Maine's workforce as possible keys to future growth, yet also as potential limitations.

'The one that I've heard over the past year in this new role at MDF has been workforce, workforce, workforce,' he said, adding the labor market has tightened considerably as the economy has rebounded. 'There certainly are a lot of underemployed people in Maine or people who have stopped looking, so I don't want to gloss over that issue. But overall, in the traditional metrics, unemployment has fallen quite a bit and a lot of the labor markets are tight. That challenge is going to get worse because of Maine's demographics being the oldest state in the nation.'

Not only is the workforce aging, but it's going to begin to shrink substantially. Breen said MDF's latest projections indicate that it's going to shrink by about 20,000 workers from 2015 to 2020. All sectors will be involved, and hardest hit will be those manufacturers still left in the state.

'It's a huge challenge in manufacturing, so even though manufacturing jobs in the state have shrunk and part of that is a change in the mix of our economy as technology has made several industries more efficient, they still need workers,' he said. 'There's going to be a dramatic turnover in the workforce in every sector. There's not going to be one silver bullet to fix that.'

Breen also feels that education will be one of the largest factors that can spur growth, especially in those areas where traditional college degrees don't apply.

'The challenge we have is that the education levels of our workforce significantly trail the New England average so you've got a situation where you're competing in a high-cost region that has a relatively high skill level that in part tries to compensate for that high cost of doing business,' he said. 'While Maine has a competitive advantage in the cost of doing business amongst several New England states, the state's workforce doesn't have the same education and skill levels.'

Cost of doing business

While education and the need for a diverse skilled workforce is part of the state's challenges, another major obstacle to outside investment is the cost of doing business in Maine. Whether it's the tax structure, energy prices or the cost of moving products out of state, operating in Maine can be costly when compared to other regions where energy is cheaper and transportation is more efficient.

Yet some of that intrinsic cost is related to how governmental services are delivered in Maine, especially when compared to other states that have found more efficient ways of doing things at the state or county level.

'That's been a passion of mine for 25 years,' Willey said referring to one of The Maine Institute's primary objectives, which has been to reduce the size of state government. 'The reason it's been controversial is that people don't understand that restructuring doesn't mean destruction of what we have. It means combinations and permutations to be more efficient.'

One of the institute's proposals has been to reduce the state's departments from 14 to nine. He says such a reduction may save state taxpayers millions of dollars per year, but such a major reengineering of government should be done under a model that streamlines not just the state level but also the county and local levels as well.

'Governor [John] Baldacci tried to do some of that with the school consolidations,' he said. 'The restructuring proposals need some serious discussion, and the legislature and the governor need to work together.'

According to Willey, 25 agencies currently have no oversight by state commissioners. Under his plan, all the agencies would fall under one of the nine new departments.

'There should be no regulations enacted without a commissioner looking at them, reporting to the governor and the legislature approving them,' he said. 'We're delegating authority to bureaucrats for regulations, some of which are very onerous and some that are just completely contrary to the original legislation.'

While Breen feels such an undertaking would need research to determine true cost savings, he does see how the tax structure can be improved and services delivered more efficiently if government is reorganized. A major obstacle, however, is the local governments that would have to be involved, a situation he saw occur during Baldacci's attempt at school consolidations.

'Maine is a fairly large state geographically with a small population, and of course we have this enormous tradition of local control in Maine, so our counties are relatively weak. Most services occur at the town level or the school district level and counties do relatively little compared to some other parts of the country,' he said. 'I think it's always a major challenge and a big opportunity for us to figure out how we can regionalize a lot of these services. Sometimes the payoff isn't in cost savings, it's just being more effective with what we're doing.'

Researching the future

One common theme that all can agree upon is the need for more investment in research and development. For years, Maine has lagged both the national and regional level when it comes to the dollars spent developing new technology and innovative products. Yet the resources available to industry are limitless, especially when it comes to forest products.

'We're trailing in R&D against every meaningful comparison group,' Breen said. 'Maine is a high-cost state in a high-cost country, so we're never going to out-compete developing countries based on the sheer cost of doing business. We've got to improve our productivity. We've got to improve our innovation.'

Aube says there's already a great anchor for innovative research at Jackson Laboratory in Bar Harbor, which is known internationally for its genetics research for the medical and pharmaceutical industries. With such a company already in Maine, he feels the state needs to do more to foster R&D investment and possibly even spinoffs from Jackson Lab itself.

'What some states have done effectively is put risk capital into companies that are going to actually use some level of that R&D and move it to commercialization. We haven't done that very well,' he said. 'We tend to be generally shy with our expenditures in what I would call high risk, high gain ventures. You don't need a hundred hits out of a hundred batters. Two or three hits pay it off.'

For Willey, the state's wood products industry is an obvious area where such investment could pay huge dividends. With a nearly $8.5 billion contribution to Maine's economy already, the industry has proven resilient despite the closure of some of the sector's end-users and major growth opportunities exist in cellulose-based products including jet fuel, textiles and building products. His hope is to not only produce the cellulose here, but also the final products such raw materials would go into ' thus landing the jobs that come with those producers.

'This is the area that many people see as a potential new product development in Maine,' Willey said. 'Let's not ship our product out. Let's do it here. Let's build the plants here. Let's keep those jobs here.'

Breen adds that the future of Maine innovation rests with the state's natural resources, tons of which sit idle as they're no longer being utilized by the state's former mills and biomass plants and can be put to better use.

'We're suffering through the tragic loss of our traditional paper industry in the Penobscot Valley, but that leaves this significant gap in the supply where you've got two or three million tons of wood supply that were flowing to those mills and biomass plants that could be used to make something else,' he said. 'It won't be easy, but there's an opportunity to attract new investment in Maine wood products and create that future for the next 50 years.'

Last modified on Wednesday, 30 November 2016 14:38

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