Maryland After the Recession? Plenty of Reasons to Worry

December 15, 1991|By LESTER M. SALAMON

As the 1990-91 recession grinds on, the central question for Maryland is whether it will prove able to resume in the 1990s the favorable growth rate relative to the nation that it enjoyed in the late 1970s and 1980s.

As is always the case, there are economic signposts pointing in both directions. But the preponderance of the evidence suggests that the answer to this question may well be "no," unless serious corrective action is taken.

That, at any rate, is the central conclusion of a two-year study of the state's economy recently completed by the Johns Hopkins Institute for Policy Studies. The message for Marylanders, therefore, is that the end of the recession will not suffice to bring prosperity to the state in the 1990s. Additional medicine is also needed. To appreciate this point, it is necessary to understand the past strengths and current challenges facing the state.

Past Strengths

Until the 1990 recession, serious conversation about Maryland's economic problems was largely left to academic economists and other congenital pessimists, and for what appeared to be good reason:

State per capita income already stood at 7 percent above the national average as of 1979, and over the next decade it climbed to 17 percent above. Also, Job growth was robust and unemployment consistently lagged two or three points behind the U.S. average.

These favorable trends reflected several state strengths:

* Limited reliance on manufacturing.

In the first place, at a time when international competition was knocking the bottom out of U.S. manufacturing, Maryland benefited from the fact that its economy depended less on manufacturing than that of many states and of the country generally.

As of 1965, for example, slightly more than 20 percent of Maryland workers were employed in manufacturing, compared to close to 30 percent for the nation as a whole. When the oil shock of 1973 and the subsequent expansion of global competition undermined the U.S. manufacturing sector, Maryland was therefore affected far less severely than the more industrial regions of the northeast and Midwest and was able to gain ground on the nation.

* Producer services.

Not only did it benefit from its smaller manufacturing base at a time of manufacturing decline, but also Maryland benefited during the 1970s and '80s from the fact it built an alternative

economic base centered on services, and particularly producer services, during a period when these services were expanding mightily.

As of 1986, nearly 80 percent of Maryland's output came from services. More significantly, 42 percent came from so-called "producer services" -- such as banking, finance, computer programming, research, engineering, law, accounting and the like. This was well above the U.S. average (34 percent) and reflected Maryland's proximity to Washington, with its tremendous research and information needs.

Such services generally have higher wage rates than the service economy as a whole and contribute to economic growth almost as powerfully as manufacturing. The fact that this had become Maryland's dominant industry by the late 1970s thus positioned the state to gain ground on the nation during the turbulent '70s and '80s.

* Technical personnel.

One useful consequence of this producer services strength has been the establishment in Maryland of a solid cadre of technical personnel. Thus, the state ranks eighth in the nation in its concentration of employed scientists and engineers; third in per capita federal research funding; and fourth in total university research funding, behind only Massachusetts, New York, and Texas -- all much larger states.

At a time when brain power has replaced "brawn power" as the key to economic growth, this technical base represents a powerful economic asset.

* Amenities.

Contributing further to Maryland's growth potential is its outstanding natural and cultural amenities, which are especially

important in a knowledge-based economy in which the key to success is the ability to attract and retain skilled personnel who, thanks to modern communications, can operate almost anywhere.

The Challenges

Given these considerable strengths, why should there be concern about Maryland's economy once the national recession eases?

The answer is that Maryland's economic strengths are accompanied by at least six structural problems that could stall any recovery unless they can be fixed.

* Regional disparities.

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