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Investing in human capital best way to boost economy

ALBUQUERQUE, N.M. — New Mexico’s governors, like all governors, get far too much blame for bad economic times and claim far too much credit for good times. They can’t affect the price of oil, which has a great deal to do with how much money the state will have to spend in any given fiscal year. They don’t appropriate the funds our national labs will use to hire local consulting firms. They don’t set the interest rates that determine whether consumers can afford new homes.

Even so, New Mexico’s seemingly endless slog from the Great Recession to something resembling recovery begs for some sort of action. With the next legislative session only a month away, I asked three experts on New Mexico’s economy what the governor and legislators can do to hurry the recovery along.

Their consensus answer: Stop trying to hurry the recovery along. Quit looking for short-term fixes. They haven’t worked anyway. Our problem is we have a workforce that isn’t right for the economy we live in now. It will take several years, money, political will, patience and collaboration among all parts of our society to fix that problem.

“I would argue strongly the best thing we could do right now is change the nature of the discussion,” said New Mexico State University economics professor Jim Peach. “A governor could do that.”

New Mexico’s per capita personal income has been among the nation’s lowest for 50 years, and our economic development strategy hasn’t changed in years, Peach said. Economic development comes down to offering tax incentives and job-training funds to get firms to move here from other states. “That’s not why firms move,” Peach said.

We need to establish conditions that people and businesses find attractive so that they want to come here even absent tax incentives, he said.

Our economy has lagged historically because our jobs are concentrated in low-wage industries, Peach said. New Mexico has never had a strong manufacturing sector, which in other states was a source of high-paying jobs. The best jobs are in oil and gas, but the industry is cyclical and the benefit of those jobs is concentrated in just a few counties. We compete with 42 other states to attract film production, he said. We compete with 49 other states to attract biotech companies.

Nationally and locally, there has been “a structural realignment of the economy,” said University of New Mexico Bureau of Business and Economic Research Director Jeffrey C. Mitchell. “Human capital counts for far more than it used to.” New Mexico has tried to differentiate itself from competing states with tax incentives, cheap labor and low business costs. “Over the next very long time, places will be differentiated by the quality of their workforces,” Mitchell said.

To compete, New Mexico needs a more productive, more adaptable, healthier and better-educated pool of labor, Mitchell said. The places that have solved the human capital problem, such as Boston, Seattle, Silicon Valley and North Carolina’s Research Triangle, have been investing in human capital for decades, he said. We will have to do so as well.

Our strategy has not only been ineffective, but it has been harmful, said M. Brian McDonald, a former BBER director who is now a consulting economist. Tax changes over the past decade or so haven’t improved the economy, and they are starving state and local government of revenue to the point that people’s daily lives are being affected, he said.

Personal income tax cuts pushed by former Gov. Bill Richardson were supposed to encourage investment, spending and business creation. Instead, they took as much as $500 million a year out of the state coffers and have not encouraged economic growth. Eliminating gross receipts taxes on food lowered state revenue $200 million a year, McDonald said.

The resulting revenue starvation means district attorneys’ offices don’t have enough staff to get cases to trial, police departments can’t pay enough to recruit officers, rape kits go unprocessed so felons can’t be prosecuted, and New Mexico ranks 46th out of 50 states in its average pay for teachers, McDonald said.

Meanwhile, “our spending priorities are out of whack,” McDonald said. Some counties collect a one-eighth-cent gross receipts tax to support a commuter railroad train few people use, money that could go to improving our human capital, he said. The return to the state would have been better if money we’ve spent on the spaceport had been spent on people instead.

Our infrastructure investments have to be smarter, Peach said. New Mexico wants to attract tourists but doesn’t put enough money into our parks and other attractions. We want to attract and grow innovative, knowledge-based businesses, but broadband Internet connections are available only in certain areas of the state.

All of this, plus development of a high-quality workforce, requires money, a long-term strategy and political leadership, Peach said. Not doing this will mean another 50 years of watching other states thrive while we stagnate.

UpFront is a daily front-page news and opinion column. Comment directly to Winthrop Quigley at 823-3896 or Go to to submit a letter to the editor.