Striving To Come In Out Of The Cold War

September 02, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

High taxes and labor costs, strict regulations and shortage of financing are hindering Maryland's transition from defense-oriented manufacturing to a professional and service-based economy, according to an economists' report released yesterday.

Helping the state are its location, an educated and productive labor force and a strong entrepreneurial class.

The report, prepared by University of Baltimore economists backed by a blue-chip group of corporate sponsors coordinated by the Maryland Business Council, does little to dispel the notion that Maryland residents and businesses bear much higher tax burdens than most Americans. The state has the fifth-highest personal income tax level in the country, the report said, and the ninth-highest overall tax level.

But the 93-page "Maryland Preparedness Report" also notes that taxation is hardly the only thing that determines business climate.

The report "gives validity to the [criticism] of personal taxation," said Donald P. Hutchinson, president of the Greater Baltimore Committee. "It doesn't give validity to any communication that Maryland is a bad state in which to do business."

Also a negative for the state's ability to attract and keep jobs is the relatively high pay commanded by workers in Maryland, where unions are stronger than in nearby states. But one economist said Maryland's high-skill work force may be better suited for more advanced industries than for low-wage assembly jobs.

"By and large, I would say the Baltimore-Washington corridor can't compete on costs" with Southern states that vie with Maryland for manufacturing jobs, said Richard P. Clinch, project manager for the study and an economist at the University of Baltimore's regional economic studies program. "The corridor should compete for higher value-added jobs."

Maryland has 50 percent more workers with graduate degrees than the national average and attracts federal research and development funding at four times the national average.

Mr. Clinch also noted that low wages, while attractive to many employers, carry a price for states.

"I don't think the populace of Maryland would trade with North Carolina," Mr. Clinch said. "They don't want a North Carolina standard of living and they don't want North Carolina wages. But from a firm's perspective, it might make sense to go to North Carolina or to move part of their operations there."

The study also found a solid entrepreneurial spirit in the state, which has the 10th-highest rate of new business starts in the nation. But start-up enterprises are handicapped, the economists found, by a lack of access to financing.

"The lack of financing and venture capital is one of the key barriers to high-technology growth in the state," the report said.

While an above-average amount of venture capital is managed in the state, the report said, "little of the venture capital . . . is invested locally."

The study did not make specific policy recommendations. Maryland Business Council President Champe C. McCullough said a task force is still working on proposals.

The University of Baltimore report was commissioned in part to assess the state's ability to adapt to the huge cuts in defense spending, one big reason that Maryland has added only 72,000 jobs to its 2 million-job base since 1987.

"You can't correct defense downsizing," Mr. McCullough said.

Defense cuts account for 11,500 lost jobs in Maryland since 1988, Mr. Clinch said.

The Business Council also released a companion report that surveyed business owners and managers in the state about the pluses and minuses of doing business in Maryland. The study was heavily weighted with responses from manufacturers, although that sector provides only 7 percent of the state's jobs.

Taxes were listed by 39 percent of the respondents as a disadvantage of doing business in Maryland. Almost a quarter said "business environment" was a disadvantage, and 13 percent cited "quality of life," largely due to complaints about housing costs in the Washington suburbs.

Top advantages were location, named by 65 percent, business environment (11 percent), and labor quality (7 percent).

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