The State of Economic Diversification: Money talks—which is why it’s so quiet
Thu, Jan 21, 2010 (midnight)
Photo: Erik Kabik/Retna/www.erikkabikphoto.com
Things suck, economically. In fact, a few days ago, when HUD declined to award Southern Nevada its requested $367 million in stimulus money for foreclosure-stricken communities, an outraged Mayor Oscar Goodman told reporters, “We’re the poster child for economic woe at this time”—a far cry from the halcyon days of five years ago.
So maybe this is the moment Nevada leaders will finally work on diversifying the economy—generally speaking, they didn’t show much will to recruit new industries when tourism and construction made us fat enough to afford it. Years of following the words “economic diversification” with idle ideological chat and not much else has made the concept nearly meaningless to Southern Nevadans. But if there’s hope for it yet, it’s regrettably born in lean and desperate times, which is where we sit now.
“In the past year, taxable sales have fallen by over 17 percent and gaming revenue is down by almost 12 percent,” says an annual forecast by UNLV’s Center for Business and Economic Research. “These categories make up over 70 percent of Nevada’s state revenue, and as a result, suggest that the fiscal situation will continue to deteriorate in the coming year.”
Economists say the train wreck of those revenue numbers combined with foreclosures (1 in 68 homes; 44 percent increase over last year), unemployment (12 percent) and overextended government coffers (state, county and cities cutting programs and laying off employees) make Southern Nevada primed for a restructuring. What’s needed, most agree, is a joint effort between business leaders and policymakers to broaden the types of industries our economy is based on. Perhaps we could add green technology (solar and geothermal)? Medical instruments or medical tourism (think Oscar’s Cleveland Clinic)? Data storage (think Rory Reid’s gubernatorial vision statement about high-tech plants)? Trucking and shipping (LA’s port is overflowing)?
All of these are ideas being tossed about, but none are yet viable, according to economists, because the state doesn’t have the groundwork in place to truly grow new industries.
“You have to look at two things,” says Mary Riddel, interim director of UNLV’s Center. “First, what are you good at? ... And second, do you have an educational infrastructure that will support it?”
Riddel compares Vegas’ one-trick-pony collapse to Pittsburgh’s steel manufacturing industry challenge in the 1950s. When other regions’ steel manufacturing growth diminished Pittsburgh’s economy, the city answered question No. 1 by growing the technology and design arm of the steel industry, which raised the skill and pay level of the workforce. Eventually it drew a slew of corporate headquarters to relocate there. But—troublingly for Vegas—Pittsburgh had the right answer to question No. 2, education, with the presence of esteemed schools like Carnegie Mellon University and the University of Pittsburgh.
In our case, Riddel says, the need to provide an educated workforce is still not a political priority—the state continues to cut education funding; Gov. Jim Gibbons proposed an 8 percent cut to UNLV earlier this month. Last week Nevada’s K-12 school system received a grade F from Education Week for the “college readiness” of its pupils; Gibbons proposed cutting back on K-12 programs.
Las Vegas economic consultant John Restrepo also points to education as one of two major factors in developing new, high-paying industries. The other is spending on business recruitment.
“The effective investment in primary, secondary and vo-tech education are key to this process,” he says, “as is sufficient investment in promoting economic development. To not properly fund economic development promotion is to only pay lip service to it.”
On the latter point, Restrepo points out that a disproportionate share of government funding goes to advertising the resort and convention industries compared to agencies that promote new businesses.
“The most direct evidence of the short shrift that economic development promotion has received in the state over the 20 plus years I’ve lived here is the fact that the Nevada Development Authority only had about $1 million this fiscal year to promote diversification, while the Las Vegas Convention and Visitors Authority had $86 million to promote tourism,” Restrepo says. “And this lack of funding is not just the result of the recession, it’s been the case for many years.”
So the question is whether there’s the political will to rearrange our tax structure, coordinate state, local and federal government recovery and development plans, and enhance the Nevada resort economy with other industries.
“We don’t know yet,” Restrepo says.
“Not yet,” says Riddel.
“I haven’t seen a lot of discourse that would indicate we’re diversifying yet,” says UNLV economic professor Stephen Miller. “We’re shoring up.”
At the moment, then, the state of economic diversity in Southern Nevada is either promising, inasmuch as these are desperate times begging for new measures; or it is still stagnant, in a community clinging to hopes of resuscitating an economic model that created its wealth.
Restrepo says it may take a business leader, not a political leader, to step up and lead the charge—likely, he says, from the dominant industry, gaming.
“We have to develop a vision for our community that includes both the tourism and non-tourism sectors ...
“This will require the emergence of a leader from the business community that has the ability to put aside the parochial interests of his or her company and industry.”
Until then, he says, Vegas hangs in the stages of grieving.
“It’s like a death. It is a death of a paradigm, the religion of unfettered growth,” he said. “We’re at the acceptance stage, but there’s still some denial.”