Economic Development Speech Green Mtn. Business Expo

I’d like to talk with you today about the new reality of economic development in Vermont. Historically, I don’t believe we’ve been very strategic in our business development initiatives, choosing often to simply mimic the efforts of larger states but without their larger budgets – a bit like buying the back half of a pickup track. Furthermore, we have made little or no effort to harmonize the values and economic aspirations of Vermonters, the indigenous assets Vermont has to offer business, and the realities of a global marketplace.  We trot out the “economic development toolbox” of states working to attract global manufacturers and massive service centers and find that we have only a screwdriver and pliers with which to forge a new economy.

We are a community of 650,000 people and 300,000 taxpayers with widely mixed incomes and assets, a shared and deeply held appreciation for the landscape in which we live and work, and a sincere empathy for the disadvantaged in our midst which has resulted in some social programs and benefits we can no longer afford without substantial gains in economic prosperity for which we have no effective plan.

We have strong assets and largely shared values and these must form the basis of any sound future economic development policy. We are hard working and creative. We still know how to engage in civil discourse. Our communities are managed largely by citizens volunteering their time and expertise. And — people are always surprised when I say this — we have no corruption in Vermont to speak of. Corruption in Vermont is the exception, not the rule and when it occurs almost always surfaces. We are simply too small for a culture of corruption. We value transparency and open process. It makes no sense to steal from someone on a small island, because the thief can never openly enjoy what they’ve stolen without notice.

In general, Vermont trails the nation economically, though we have often led the nation socially and environmentally, depending of course on your point of view.  A good strategic marketing plan for Vermont must be based on intrinsic value, added-value, shared social and economic values and market demand.  Our intrinsic value or marketable assets are not those of Alabama, California or Florida. We are different and must market ourselves differently.  What assets and what challenges need to be taken into account as we forge a plan for Vermont’s durable prosperity?

Here is some context for our discussion:

We have invested in our communities. Our educational systems and healthcare systems are among the best in the nation.  We have about 300,000 workers whose average age is the highest in the nation. There are more women in the workplace here than in almost any other state. Our workforce is more literate, articulate, motivated and educated than many.

Our unemployment rate is low, but our underemployment rate is among the highest in the nation.

Although we have a durable, but declining, culture in Vermont that resents the accretion of wealth, business success and the rewards that success brings, fueled unfairly I might add, by the egregious and internationally embarrassing compensation excesses of the urban finance sectors, signs indicate that this culture of wealth resentment is declining and that more Vermonters are coming to respect and understand the value of risk-taking, hard work and the rewards that they occasionally bring.

As much as 1/3 of our workforce is employed in the non-profit sector if we include the 54,000 local and state government employees.  Three of Vermont’s four largest employers are not businesses.

Vermont workers retain a strong work ethic. When I was in business, we had competitors who would complain to me that they had to employ 20% more people than they needed because of chronic absenteeism whereas we could often employ somewhat less than we needed because of people’s willingness to pitch in and work overtime to accommodate peak business cycles.

We have protected — some might argue over-protected, though the future may indicate otherwise – our environment. We consider carefully – again, some would argue too carefully — changes to our landscape and try to balance change with economic growth. Too often, business people are differentiated from real people. When I was chair of the VT Business Roundtable, I would hear policy makers talking about business people and environmentalists as if they were different races, yet I have met very few business people who were not, in fact, environmentalists themselves.  There issues were with process not principle, yet the debate became and remains adversarial.

We have enduring, but endangered, industries in agriculture, forest and stone products and manufacturing. For over a century these have defined our economy and our landscape. Not only are we at risk of losing all three, but also of losing their infrastructure, land and rights-of-way. We should learn from the loss of our railways in the US. We have largely abandoned our rail infrastructure. Former rights-of-way have become bike paths or wilderness. We are now beginning to understand that we need a pervasive and efficient rail system for the energy-efficient movement of people and products, but, unlike Europe, we have lost much of the infrastructure and access.  In agriculture, forest and earth products, and manufacturing we run the very same risk.

Should we preserve and protect what we have had in the past and are at risk of losing in the present? Will we be strategic or tactical? Economic gurus make their living promoting the future and killing off the past, but societies and economies have usually proven to be more evolutionary than revolutionary and also more resilient. The hollow promise of revolutionary change and a “do-not-resuscitate” past often ends up depriving us of economic options. Remember how electricity would be too cheap to meter, the miracle of mortgaged back securities, how TV would kill off radio and then Hollywood?

Take agriculture for example, just at the point where some in Vermont are saying that Vermont agriculture is dead and Vermont cannot compete with Wisconsin and California where, incidentally, farmers are dying as fast as they are in Vermont, but on a larger scale, the nation’s focus on food quality and safety has moved to center stage.  Misty Knoll chickens, Hardwick Beef, and Jasper Hill cheese start appearing on menus in New York’s most expensive restaurants. Murray’s Cheese Shop in New York sends two busloads of cheese buyers and consumers t o Shelburne Farms to sample Vermont’s wares. Meanwhile, agriculture doesn’t even appear in Vermont’s current economic development plan at precisely the point where the Vermont brand could lead the nation in food quality and safety. Talk about added-value product. Fluid milk sells into the commodity market below the cost of production at $.12 a pound while artisan Vermont cheese sells for $8.00 a pound wholesale and as much as $32/ lb retail. Vermont has several hundred farms doing that now, not to mention apples, maple syrup, heirloom fruits and vegetables, artisan breads, and condiments.

What about Vermonter’s values? An expansive inquiry by the VT Council on Rural Development into the social, environmental and economic values of over 5000 Vermonters from all socio-economic sectors tells us that we have many shared values:

Community – a shared feeling of belonging, acceptance and trust; a sense that the success of each neighborhood, town, county, and the state depends on the contributions and engagement of every individual.

Environment – a reverence for the land and committed stewardship of the working landscape, including farms and forests; the natural landscape, including mountains, lakes, and streams; and the built landscape, including the state’s historic architecture and community centers. Did you see the front page image on the travel section of the NY Times several weeks ago? It’s a Vermont farm, a farmer astride his tractor and a bevy of New York City vacationing bicyclists.

Hard Work – a tradition rooted in the state’s agrarian and industrial heritage and legendary work ethic that invites and encourages entrepreneurism, resourcefulness and creativity.

Independence – both politically and as a way of life, reflecting a desire to live independently and championing individual freedoms and self-reliance.

Privacy – as a personal right and as an expression of respect toward others that encourages tolerance and open mindedness about the lifestyles and beliefs of others.

Small Scale – the strength that comes when government, business and communities are accessible and personal.

See: http://futureofvermont.org/files/u1/Imagining_Vermont_Report1.pdf

As I mentioned earlier, Vermont cannot afford a broad-brush national marketing campaign. We end up trying to say what every other state says, with a media budget that can afford radio listeners in New Haven, Albany and Schenectady. It’s a waste of money and yields little in the way of tangible results. We need to understand ourselves as a niche market player and focus on our saleable assets, promoting those to emerging markets.

Here are some sectors worth looking at:

Diverse Entrepreneurial:

Existing: A great deal of job growth comes from innovation in small business: Burton, VT Coffee Roasters, Symquest, Jasper Hill, NRG Systems, Gardener’s Supply, Voice of the Mountain Catalog, IDX, Dealer.com,  Resolution, Danforth Pewter, Autumn Harp, Vermont Butter and Cheese… there  are literally hundreds of small entrepreneurial businesses employing people in Vermont. They need bookkeepers, IT people, marketers, designers, operations people, customer care people, and warehouse and inventory managers. They need people who can read, write, research, and communicate. Any sound economic development plan will include an ongoing plan to communicate with, facilitate networks for and take the temperature of these drivers of job growth in Vermont. The state should integrate them on a volunteer basis into the tactical strategies for economic development based on their experience in Vermont. We have much to learn from them and are often curiously disconnected from this resource. We should also create an early warning system for incipient business failures and a swat team approach to aiding stabilization and recovery while understanding that businesses are born and die naturally like humans. No business, however, should die for lack of available treatment to use a medical analogy. It is less costly and offers less risk to recover an existing business in trouble than to start a new one.

Development:  Work with the colleges and secondary schools to encourage and develop new entrepreneurs like Champlain’s innovative Bring Your Own Business model or UVM’s Center for Emerging Technologies. Developmental efforts are often silo’d and in such a small state should be highly visible and integrative. There are also opportunities for investors to import functioning businesses that are suffering from changes in the real estate or labor markets and transplant them to Vermont.  The persistent problem of seed capital will need to be solved.

Information Technology, always in a state of rapid flux, is, however, a growth area within the State. New companies like Dealer.com and Union St Media and fifty others now employ hundred of Vermonters and are growing. Nationally, the DOL says this is one of the fastest growing industry sectors with an average salary of $67,900 and 600,000 new jobs expected nationally even with the recession. The rise in e-commerce, portal-based information management, online financial transactions & reporting, and digital content delivery are all driving this, as is the promise of interactivity in Internet II. The important message here is that menial transactional tasks will be automated, putting an additional premium on education and training and human intelligence. Institutions such as Marlboro, VTC and Champlain are preparing candidates for these jobs. VT Software Developers Association with 50 odd members and 100’s of employees is growing fast. Dealer.com has been hiring at a terrific clip.  Although loath to admit, VT was not early in the game here. The sector should be monitored; its employment growth benchmarked and tracked and its industry leaders queried as to what they need to continue their growth.

Light Manufacturing:  Factors: the increased cost of importation transport, the rise of middle classes in all high-growth, low labor-cost Asian markets and the existence of skilled labor in VT bodes well for a resurgence of light manufacturing, especially where resources are indigenous.

1. Resource-based: 1. Forest products to high finish (chairs and cellos) and to fuel sources (cordwood and pellets), 2. Dairy to artisan milk products (cheese, ice cream, chocolate), 3. Stone to high-finish landscape and architectural elements, 4. Water (exportable branded water products)
2. Specialty: heavy and precision metal fabrication, energy component manufacture (NRG), technology circuit controls and components, pharma and mechanical medical innovation et al.

Agriculture:  Vermont agriculture for the last 100 years has been the defining element of Vermont’s working landscape and of its economy.

The new American consciousness of food safety, food quality and proximity to market is driving massive changes in our food systems, as is an emerging appreciation for locality (terroir) and artisan production methods in which Vermont is an internationally recognized leader.

Vermont produces 63% of the New England milk supply, over 2.5 billion pounds of milk a year. The real economic impact of all farming in Vermont amounts to $3B annually, of which dairy accounts for $1.89B, according to a 2001 study done by the University of NH in which the radiant economic impact on a per cow basis was found to be $1400. With 135,000 cows, this amounts to $1.89B in dairying alone. The figure includes energy, ag. support industries, total employment and taxes paid, as well as intrastate economic market activity. It does not include the evident spin-off effects of tourism.  Count the number of images in Vermont Life or other tourism publications that are of Vermont’s working landscape and its people.  15,300 Vermonters are employed directly or indirectly in agriculture, of which 7500 are on farm and 7800 are in agricultural support industries like feed supply, transport, equipment, veterinary etc.

The jeopardy to Vermont dairying and to our expressed vision of ourselves is quite simply that the long out-of-date federal pricing scheme for commodity milk along with the monopolization of processing is killing the source.  Even nature knows that a good parasite never kills its host. Vermont farmers, like their colleagues in Wisconsin and California, are paid less for their milk than it costs them to produce it. Solve this problem and we have killed three birds with one stone. We will have preserved the cherished working landscape, a major element of Vermont’s waning economy, and we will have maintained a defining element of Vermont’s powerful brand.

Vermonters consume only 5% of the commodity fluid milk its farmers produce and sell the balance out of state. We could market and process VT milk under the Vermont brand, as distinct from NE fluid milk, and set a price floor for this milk. If we want dairy farms, we will have to mandate and support a price in excess of $.15 cents a pound. It is currently dropping to $.11 and threatening the survival of several hundred more of VT’s 1100 remaining dairy farms.

In order to commercialize the rapid expansion of our emerging artisan agriculture we will need a network of regional slaughter, processing, storage, food preservation and local market facilities to preserve and distribute small scale Vermont meat, dairy and fresh produce year round. Vermont has the brand value to invest in an annual North American celebration of Artisan Food like the Terra Madre in Milan to further strengthen Vermont’s dominant brand in quality food production.

Healthcare: We currently spend almost 18% of our GDP on it. Fletcher Allen Health Care is the largest non-government employer in the State. Dartmouth Hitchcock and the fourteen community hospitals together may account for as much as 10% of Vermont’s employment.  In fact, employment growth in healthcare nationally has been 30% in the last ten years. Our hospitals could probably hire 300 nurses tomorrow at a starting salary in excess of $55K. Other technical areas, such as lab technicians, technologists, chefs, medical transcriptionists, intake and IT professionals are also in great demand. The UVM college of Nursing and Healthcare and UVM Medical School are preparing candidates for these jobs. The USDOL is projecting a need for 1 million nurses by 2012 nationally with salaries escalating to $40-50/hour. The US population is ageing and will require even more healthcare as they do so. Vermont is a leader in healthcare and is emerging as a model for national changes. It is also a leader in artisan food production and has one of the healthiest populations in the country. Combine these three Vermont capabilities and you have the genesis of a new business opportunity combing wellness, disease management, whole foods, nutrition and natural exercise in our wilderness areas to serve an ageing population preoccupied with longevity and wellness.

Higher education in Vermont is a growth industry with 24 colleges. Although the K-12 public education population is shrinking, the market for quality VT higher education is growing. For reasons which no one seems able to explain, we invest more than almost any other state in our shrinking K-12 system and less than almost any other state in our burgeoning and respected higher ed. system.  There are opportunities to extend the global reach of VT’s colleges abroad and also to help them draw on a broader age range of students. More and more retirees are turning to higher education to enrich their longer retirements, to train for a specific skill they can use in their retirement, or to fulfill an unfulfilled childhood learning dream. Imagine if the next dorm built at Middlebury, UVM, Marlboro, or St Mikes was an apartment complex or condo units for retirees who either taught or pursued advanced degrees there or did both.  The 42,000 higher education students in Vermont have a significant business impact on Vermont and many develop an interest in staying or starting businesses here. They should be encouraged to do both.

Energy:  According to a piece in The Economist last month, The National Academy of Engineering states that the greatest engineering achievement of the 20th century is America’s “vast networks of electrification.” One can effectively measure the GDP of any nation by simply looking at the extent of its electrical grid. Meanwhile our electric grid for the most part is overbuilt, dumb and wasteful. Vermont’s $69M “Smart Grids” application to ARRAS was the only one in the nation to present a state-wide coordinated and integrated project and we got it. Yes, we can get it right sometimes. Vermont’s utilities will match this federal funding over the next three years, building out a smart grid that will help us all use energy at less cost by wringing out inefficiencies.

Currently our electric costs are the lowest in New England and are even low in regional comparisons. This may end in 2012 at the expiration of the current under-market contracts with Vermont Yankee and Hydro- Quebec, which together provide 2/3 of Vermont power. We Vermonters have been clear that we want energy efficiency and new reliable, renewable generation here in Vermont, but we remain deeply divided on nuclear power, though we like power from Hydro Quebec.

The “Standard Offer” for renewable energy showed a great pent-up demand for renewable energy projects in Vermont, especially for solar. Whether these projects will all be built, however, remains a question mark because of the limited availability of state solar tax credits and because Vermont companies must be profitable in the midst of a major economic downturn to take advantage of them. The credits will disappear by 2011 just as we emerge from the downturn in earnest. We are not always consistent in our public policy goals and in the energy world (other than the recent Smart Grid effort) but this is business as usual.

Meanwhile the opportunities for academic research and entrepreneurial energy businesses like NRG and others to grow into this space remains strong.

Niche tourism: Vermont already enjoys substantial tourism and has prospects for more, but, lacking any focused vision for what makes Vermont compelling to visitors, the State has no comprehensive strategy for articulating what it is selling or to whom. I sometimes think that the best economic development initiative would be for Vermont to take a few million dollars and commission a state of the art state website based on Internet II architecture that would connect the world’s niche interests with Vermont’s niche resources such as:

1. Culinary tourism – slow food – cheese maker s– beer and wine tours
2. Agri-tourism – stay on a farm and see agriculture at work, very developed in France and Italy, fall county fairs and field days
3. Wellness tourism – FAHC and Dartmouth // resort//slow food// world reknowned researchers// disease management institutes
4. Cultural tourism – Champlain Quad, Lake Champlain Maritime History, Open Studio Tours, Community Theater, Vermont, the State of the Arts. Dalhalla, VT History Day, architectural tours
5. Educational tourism – adjunct to higher ed, language / literary, writing emersion,  elder hostels
6. Hunting, fishing, kayaking, canoeing (cross NE), swimming holes
7. Antiquing, auctions, antiquarian bookstores, old tractor shows,
8. Equestrian tours and events

Arts, Cultural Heritage and Entertainment: Vermont’s inordinately large population of artists and writers creates opportunities for integration of cultural tourism (Samuel de Champlain Quad), content creation communities (VT College of Fine Arts, VT Folklife Center, VT Center for Cartoon Studies, VT Historical Society, Breadloaf Writer’s Conference, Johnson Studio School)  and performance venues like the  Composer’s Conference, Bach Festival, Weston Playhouse Theater, The Flynn Center, Yellow Barn, Champlain Valley Folk Festival, Chandler Music Hall, Adamant, Paramount Theater, and Marlboro Music Festival)

Emulate Ireland and create a modest tax advantage for cultural philanthropists, artists and production facilities to further the economic development of the arts with an eye towards making Vermont The State of the Arts.

Develop a major arts arena like Dalhalla (www.Dalhalla.SE) in Rattvik Sweden built into an abandoned stone quarry or natural bowl ski area.  (Stowe – NY Philharmonic story)

Retirement Industry:  More and more people retire to Vermont but often only for 175 days.

1. Develop a competitive and targeted tax strategy that is compelling to retirees that preserves income and focuses more on capital and assets, and rewards philanthropy and re-investment
2. Explore life-long learning adjuncts to higher ed. Enrich retirement by building retirement communities on campus
3. Develop international recovery institutes for major degenerative diseases: diabetes, cancer, depression, utilizing slow food resources, FAHC, Dartmouth, outdoor recreation and destination resorts.

The Vermont brand is one of the most powerful brands in the country. It is also one of the most mismanaged. We can’t do things the same old ways. We really need to rethink who we are, who we want to be, how we want our economy to interact with our environment. What elements of our working landscape play in our economy and how?  Economic Development is marketing. Anyone in marketing will tell you that the cheapest, most effective way to market is simply to be good. We are good and we can be better.