Economic myths continuing to haunt Md. into the '90s

November 25, 1990|By Charles McMillion

Eight years of rapid growth have brought Maryland's economy to a dangerous crossroads. As growth slows, bold new strategies and actions are now clearly needed. Yet economic myths prevent or misdirect the broad support essential for charting new directions. Six of the key myths haunting Maryland are:

* Myth No. 1: Maryland is different; because of its diversity and dependence on Washington, it is relatively recession-proof.

In fact, national business cycles are immediately reflected in Maryland. The year-to-year path of the state's economy has virtually paralleled that of the nation. Maryland has gone through decade-long cycles of growing somewhat faster than the nation during the 1960s, slower in the 1970s, and has again grown faster than the nation in the 1980s. The challenge to business and public leaders is to maintain the momentum established during the past decade.

* Myth No. 2: Manufacturing and the Port of Baltimore are the keys to the state's economy.

In fact, Maryland's relative prosperity in the 1980s was due precisely to the fact that manufacturing and the port play a relatively minor role in the state's economy. States that were heavily dependent upon these sectors suffered during the past decade.

Of the 50 states, Maryland ranks 42nd in terms of dependence on manufacturing. Less than 10 percent of state jobs are in manufacturing, putting Maryland in a league with such states as Nevada and North Dakota.

The Port of Baltimore lost 40 percent of its cargo volume during the 1980s. In a statewide work force of 2.2 million, the port now directly employs fewer than 12,000 workers -- 60 percent below its 1970 peak. (Westinghouse, by contrast, has 16,000 employees in Maryland.)

More importantly, the port generates relatively few indirect jobs. More than 70 percent of its exports are coal and corn -- very little of which is produced in Maryland. Almost half its imports is iron ore destined for the reviving but still highly vulnerable metals industry.

Certainly, manufacturing and the port are essential pillars in the Maryland economy. But the state's recent prosperity has been achieved despite them, not because of them.

* Myth No. 3: High-technology products will save manufacturing.

In fact, Maryland's high-tech manufacturing jobs accounted for only 3.4 percent of total employment in 1984 and have fallen to an estimated 2.5 percent today. The electronics industry -- a large part of high-tech manufacturing -- has seen the largest job loss of any industry in the state, losing 18 percent of its jobs in just the past two years.

Technological change is radically transforming our economy, of course, but far more in the process of production than in the creation of new, high-tech products. Today, coal piers and brick makers often use extraordinary new process technologies and can be two of the most high-tech operations to be found.

Maryland's enormous research base is a tremendous asset. Because of its largely non-commercial nature, it has provided only a small fraction of its potential benefits. But competition for new products is especially intense. The state should assure that as it targets high-tech products for the 21st century, it does not overlook the less glamorous processes that will take us there.

* Myth No. 4: Small businesses have an inherent advantage and are driving the state's prosperity.

In fact, inherent disadvantages generally far outweigh any advantages for small firms. Many government set-aside and other programs provide non-market preferences to small firms to compensate for these inherent disadvantages.

For example, creditors and investors typically demand a premium from small firms. They are (rightly) concerned that small firms lack such business basics as breadth of talent, diversification of supplier and customer base, sufficient scale to justify expensive ongoing modernization and new product development.

Small firms typically suffer most during economic downturns such as Maryland now faces. But even in the booming 1980s, small firms were hardly the engine of prosperity. The much-touted job creation in small firms largely reflects the growth of the service sector -- where small firms dominate -- and the decline of manufacturing -- where larger firms have dominated. Within the service sector, average size has remained unchanged. In manufacturing, the average primary metals firm has gotten smaller while the average electronics producer has gotten larger.

Furthermore, as a general rule, within each industry the smaller the business, the lower the wage and the fewer benefits are provided. With hard work and lots of luck, small firms do, very occasionally, grow up to be large firms. But in a global economy in which Mitsubishi and Daimler Benz are doing deals together, it is romantic folly to look to small firms to provide regional prosperity.

* Myth No. 5: Service-sector jobs pay low wages but are secure.

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