Jan. 23:
Economist Tom Power and the West's Post-Cowboy Economy

Jan. 30:
Forest Service learned little from 30 years of controversy on Montana forest.

Feb. 6
Idaho's newest judge illustrates the rising influence of Hispanics.

Feb. 13
Utah's newest monument proposal could be a chance to mend political fences.

Feb. 20
Collaboration and consensus emerge as new ways to manage public lands.

Feb. 27
Montana's Rock Creek Mine would undercut wilderness.

Good schools, low crime and beautiful scenery more valuable than economic planning

By Pete Geddes
for Headwaters News

I have a friend whose job is to attract high-tech businesses to Montana. He knows that folks with integrity, intelligence and a strong work ethic, people with high human capital, are the key to success. He’s trying to develop financial and physical resources to lure these scientists and entrepreneurs.

He’s explained the ingredients of progress to our governor. Attracting and retaining human capital, maintaining quality schools, protecting the environment and reducing the state’s income taxes will increase prosperity. He’s got a big stake in the state’s economic future, and I wish him good luck. For in Montana, he’ll need it.

Past economic policies that focused on agriculture and extraction no longer work well. Global forces are shaping new economic landscapes. Reductions in the costs of distance and advances in technology make places like Gallatin County, Mont., attractive to new industries.

We have been liberated from geographic constraints by the Internet, FedEx and jet service. Firms whose goods have high value-to-weight ratios (unlike cars and steel) can relocate to attractive places.

Two realities influence our economic future. Montana’s prospects will be much dimmer if our leaders ignore or pretend them away.

First, there’s no magic economic elixir; it’s impossible to plan economic development. Economic life evolves by technological innovation and competition, just as biological life evolves by genetic mutation and natural selection. Both involve undirected actions of millions of participants, each independently pursuing his own interests.

We can, however, capitalize on Montana’s economic assets, including good schools, low crime, beautiful scenery and accessible amenities. The state should foster entrepreneurship and retain and attract high human capital, not guess likely winners.

Constructive acts include substantial investments in higher education and fundamental tax reform. Here are ingredients for economic failure: relaxed environmental standards, poor schools, and high marginal income and business property taxes. All repel entrepreneurs.

Economic planning fails because the information and resources required to create value are vast and widely scattered. These insights are well articulated in the classic 1945 article, “The Use of Knowledge in Society” by Nobel laureate F.A. Hayek. Hayek’s simple, powerful insight is as important today as it was then.

He explains why we can easily plan at small scales (e.g., a family). Here it is relatively easy to agree on goals. Also, the people involved have time- and place-specific knowledge of available resources.

But at larger scales, both agreement and knowledge decrease. Hence, economic planning attempts to determine the economic lives of people with widely different ideas and values, and does so with very poor information.

Those who neglect these facts can learn from the history of the West. Here’s an example:

Between 1933 and 1938, the Columbia Basin Project impounded water behind the Grand Coulee Dam. It was to provide irrigation and power to 100,000 family farms and turn the desert of eastern Washington into lush farmland.

Two generations later, only a few thousand farmers and corporations work the irrigated land, at great cost to taxpayers and the environment.

What was the problem? Planners designed policies for an unknown future, the only kind we have. The plans did not anticipate changes in technology, such as the replacement of horses by tractors. The tractors, tillers and harvesters all became much, much larger and faster. This led to huge consolidation, rather than 40-acre farms.

Likewise, no one could have anticipated the technological advances that have made small, previously isolated communities, such as Bozeman, internationally attractive. Social preferences are even more difficult to predict; imagine predicting in the 1930s today's preference for healthy runs of wild salmon, rather than more dams and increased irrigation.

Here is the second point: Montana is fundamentally two states. The fast-growing western counties are economically and culturally linked with major metropolitan areas. Their economic growth is driven by the region’s environmental amenities. Bozeman and Gallatin County typify this change.

Thirty-eight percent of the growth in personal income in the county during the past 25 years came from non-labor sources, such as pensions, investments, rent, royalties and Social Security. In Montana, social security benefits amounted to $1.626 billion in 1995. (Income from agriculture was $1.038 billion.)

Retirees come to western Montana to enjoy boating, camping, fishing and other activities that depend in part on environment quality. Clear-cut forests, polluted waters and scarce wildlife repel these people.

In contrast, the eastern two-thirds of the state is part of the high desert plains extending east to the 98th Meridian. It has fewer people today than during World War I.

Economic and ecological forces have proved that John Wesley Powell got it right in his 1878 Report on the Lands of the Arid Region of the United States. He warned that the regions’ adverse mix of climate and topography would preclude repeating the successful homesteading experience in the Midwest.

In eastern Montana, as elsewhere in the American West and indeed the developed world, information, transportation and technological improvements drive out higher-cost agricultural producers. Prior to World War II, Beaverhead County, Mont., had more than 200,000 sheep. Today, it has only 4,000.

Last week the Montana Agricultural Statistics Service reported 26,600 farms and ranches in the state -- 1,000 fewer than a year earlier. The consolidation of farms and ranches follows, and towns decline. While economic analysis and market forces suggest abandonment, this is an unpopular prescription. Montanans value their rural heritage.

The question remains, what to do with a bad hand dealt the high plains? Here’s what we know. Human capital is ever more mobile. Across time and cultures, it gravitates toward better opportunities.

Further, every technological advance requires fewer people to work the land. In addition, farmers and ranchers face increased global competition. Many will survive only if federal subsidies continue to rise — and they are now severely challenged.

The market is an evolutionary process. We don’t know what will succeed. But let’s start by recognizing our state’s natural advantages. If we neglect them, hope for economic prosperity is doomed.

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Schools are an asset that suffer in budget crunches

By Greg Lakes, editor
Headwaters News
March 6, 2002

It's becoming a more common refrain throughout Western media, even on our fledgling op-ed page: In the West, you can indeed eat the scenery, at least if you first feed it to entrepreneurs who create jobs and bolster local economies.

The crash of Idaho's high-tech industry eliminated an estimated 2,000 jobs last year, although they never fully showed up in unemployment statistics.

Many laid-off workers, rather than find similar employment elsewhere, took their severance checks, hired some of their laid-off former co-workers and started their own businesses. No doubt much of the enticement was the fact that Boise's a nice place to live.

Nevada's gold mines are waning, the subject of last week's commentary on this page, and Idaho lawmakers are considering sizeable tax breaks to save the vestiges of their state's industry.

More than 1,000 Montana farm and ranches disappeared last year, as families quit or consolidated.

The decline of traditional industries has been chronicled for at least two decades, and the anguish of finding something to replace them goes on. Utah's Gov. Mike Leavitt has been pursuing more high-tech firms. Arizona Gov. Jane Hull is after a consortium that could sprout into a biotech industry. Montana Gov. Judy Martz is after anything that would overshadow an impressive run of political ineptitude and bad press.

But while politicians are spending serious money on economic development czars and plans, state legislators are cutting into what a rising chorus of voices are calling the most effective entrepreneur bait: good public schools and quality state university systems.

In Utah, at least two measures that would undercut public schools are getting air time in the Legislature: One would create tuition tax credits for parents who send their kids to private schools, and another would cut corporate taxes that help fund schools.

Backers say the concepts meld with Utah values: local control, the importance of family and fiscal conservatism. Criticis, including teachers and union officials, say the state's right wing is using the recession and the state's budget woes to whack away at an institution it doesn't like.

The Arizona Republic's six-week study of Arizona universities concluded that the state has invested so little over the past decade that it is killing its best chance to compete in the 21st Century economy.

The series' overview quoted Intel Corp. Chief Executive Officer Craig Barrett: "(Universities provide) the most straightforward form of economic development: job creation, product creation and wealth creation."

The study found that Arizona colleges are in the bottom third of per-student spending among similar-sized schools, spending has not kept pace with increases in per-capita income, and university funding accounts for less of the state's general fund today than in 1978.

Colorado's rural schools are losing students as parents move away to find better jobs, and lower enrollments mean less state aid. Many are talking about cutting programs, some are considering closing, and at least one may import students from Denver.

And Colorado Gov. Bill Owens' plan to cut another 1.5 percent from state agencies will mean $7 million less to the University of Colorado and, administrators said, fewer professors and larger classes.

Idaho lawmakers are working on a budget that would set a historical precedent by cutting state aid to schools, and the figure being bandied about is $23.3 million. State universities would also get cut $23 million this year and next.

A report by the Andrus Center for Public Policy said that education is one of the most important elements in attracting new businesses to small-town Idaho and one of the most critical factors in rural Idaho's economic development.

An Idaho Statesman editorial spoke to education in particular and rural economic development in general:

"Saving rural Idaho will require time, money and patience ... but far too often, rural Idaho's own lawmakers shortchange their districts with short-sighted decisions."

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all contents copyrighted 2001

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Headwaters News is a project of the Center for the Rocky Mountain West at the University of Montana.