News	Patterson's Master Stroke by Bruce Fisher

Anti-government ideology invited to produce upstate rescue

When Lieutenant Governor abruptly became Governor David Paterson, New York Post columnist Fred Dicker heaped praise on him as a consensus-seeking, collegial political professional in the tradition of great New York governors. The key distinction between the great ones and the famous ones, according to Dicker, is that the famous ones—FDR, Dewey, Harriman, Rockefeller, Cuomo—were so distracted by their White House ambitions that they forgot New York. The effective governors, specifically the late lamented Al Smith and the jolly pol’s pol Hugh Carey, tended the home folks.

Governor David Patterson

Dicker has high hopes for Governor Paterson—who, by any objective measure, faces the greatest fiscal, demographic, economic, and ideological challenge since Roosevelt confronted the economic disaster of the Hoover Administration and the Great Crash of 1929.

Paterson’s biggest problem is Upstate New York. The population of the 53 counties outside the New York City metro area comprises about 40 percent of New York residents, but they are on the collective dole. An analysis prepared by Mayor Michael Bloomberg’s budget office and Rochester think-tank Center for Governmental Research found that upstate residents receive $11 billion more in state tax revenue than they pay in, despite the upstate belief that it’s New York City dragging the upstate economy down.

Upstate has seen capital flight, population stagnation, and a steady aging of the folks who remain. By 2015, for example, 25 percent of Erie County residents will be over 60.

Upstate New York also suffers from disastrous local land-use policies that have resulted in what Cornell economist Rolf Pendall has documented as sprawl without growth—rapid, unsustainable over-spreading of farmlands with new housing and retail development despite stagnant or declining population in every urban area from Buffalo to Rochester to Syracuse to Binghamton to the capital region.

And despite dozens of SUNY campuses, including the Upstate Medical Center in Syracuse and huge SUNY centers in Amherst, Albany, and Binghamton, the percentage of college graduates who remain in upstate urban areas is small—typically in the mid 20 percent range—compared to Pittsburgh, Cleveland, Columbus, Indianapolis, Milwaukee, and other comparable areas that are surviving the same economic stresses by doing a better job of keeping their educated kids.

Paterson acknowledges that his state budget problems are huge and growing, but hasn’t said anything in particular the upstate dependency on downstate prosperity. On the day he endorsed the findings of the Lundine Commission, which recommended a thorough reorganization of local governments and school districts, Paterson spoke of cumulative budget deficits in the $20 to $25 billion range over the next four years.

But Paterson isn’t standing still. In the past two weeks, Paterson has endorsed the Suozzi Commission report that calls for a cap on local property taxes, and has appointed a leading supporter of the statewide anti-tax, anti-regulatory, anti-union “Unshackle Upstate” campaign, the respected Buffalo banker Robert Wilmers of M&T, to lead the Empire State Development Corporation.

For a Republican incumbent governor, all this would make political sense. Paterson, however, is a Democrat. National Democratic standard-bearer Senator Barack Obama is running for the presidency on an economic platform that explicitly rejects the pro-capital, anti-labor, pro-tax-incentive, anti-consumer policies of the Bush administration.

What’s Paterson up to?

The box of broken tools

It’s simple. Paterson is giving the loudest members of the state business community exactly what they want: a chance to use the immense power of Empire State Development Corporation, and their own network of business leaders, to fix what they say is broken here.

We should all wish them well.

Meanwhile, we should all note that elected leaders in Pennsylvania, Ohio, Michigan, Wisconsin, and the Dakotas all face similar problems: legacy costs like brownfields, population stagnation and outright shrinkage, lots of little governments, sprawled-out suburban developments, and taxpayer-funded colleges that do a great job of training tomorrow’s Sunbelt workforce.

Gasoline at $4 a gallon makes their suburbs and rural areas problematic; gasoline at $5-a-gallon gas will make them even harder to live in. And for those areas like Buffalo, Detroit, central Wisconsin, and the many areas of Ohio where General Motors and Ford and all their suppliers have plants, the day after tomorrow will look more like the Perfect Storm than Morning in America.

Paterson’s true masterstroke, though, was in giving a leading member of the business establishment the keys to ESDC, as if saying, “You want it? You got it.”

ESDC exists for the purpose of doing deals. ESDC hands out tax breaks and public subsidies disguised as infrastructure investments. To use the terminology of ESDC, the Bass Pro-centered retail development will receive more than $100 million in public “inducement” to get built in Erie Canal Harbor, thanks to ESDC.

If ESDC does what it has always done in Upstate New York, though, it will be more about press releases and media events—and about crony capitalism—than about creating enduring economic development.

That’s because the George Bush model of economic stimulus empowers capital at the expense of consumers, poisons the media marketplace, scares off play-by-the-rules entrepreneurs, and is generally irrelevant to fostering the environment that other regions use to attract and retain the creative classes.

And not even ESDC can create oil wells.

Evidence from Canada,

Europe, and the USA

How many endowed chairs in basic bio-medical research, in engineering, in physics, chemistry, math, or computer sciences would $100 million buy? How many micro-loans to graduates of upstate colleges and SUNY schools would $100 million supply?

A recent world economic snapshot by The Economist shows what all the snapshots always show: Control over energy supplies is crucial, government planning is crucial, public investment in intellectual capital is crucial, and crony capitalism sucks.

There’s also good evidence from the international Organization on Economic Cooperation and Development that regional economies do better when there’s regional planning, ongoing investment in intellectual capital, universal healthcare coverage (because it controls costs), and enough public transportation so that consumer disposable income gets circulated in the broader economy rather than sucked up by rising gasoline prices.

But what really works is control of a source of energy. In Texas, where there are far more public employees per capita than there are in Upstate New York, revenue from oil helps mitigate the tax hit. Edmonton and Calgary, and even the empty province of Saskatchewan, are revenue-rich, and coping with wealth after decades of poverty. The brand-new cities being built in the Arab emirates will run on their own oil.

Eastern Europe, to which M&T’s Wilmers has compared Upstate New York, escaped Soviet oppression and now enjoys the benign bureaucracy of European Union membership, where a regulatory environment even Ralph Nader might find oppressive is a wealth-creating norm. But wealth isn’t being created there at the pace it is in Toronto—where Canadian oil revenue helps, and where, the Financial Post reports, somewhere between 50,000 and 70,000 new downtown residents are expected in the next few years.

Toronto has high taxes, cold winters, a much larger “nanny state” infrastructure—and wealth-creating growth. More young people means more wealth. More wealth means less dependency. Urban density as a core public policy is the norm—everywhere but in Upstate New York.

Somehow, neutral observers continue to report that every growing regional economy has a great big cluster of college students who rub shoulders in a small urban space, and ride public transport, and thrive as entrepreneurs even if the big fix of big government is in for the big guys. There’s plenty of public corruption, horrible drug crime, horrible weather, and other bad stuff in any number of other places, but micro-capitalism, immigrants, and endowed chairs at city-based universities keep those entrepreneurs a-coming.

So while Paterson has handed the rhetoricians of “Unshackle Upstate” the keys to ESDC, one hopes that he will also recognize the stimulative power of good old-fashioned investment in young people.

The best thing he could do for each upstate urban region, to get them off the dole one by one? Knock down suburban colleges and rebuild each one of them, with a streetcar line or two, in every upstate city. No student should have to drive to a SUNY campus. No student should have to choose between paying $5 for a gallon of gas or buying a latte for his or her date.

Paterson is smart enough to let the mega-capitalists induce each other. That means he’s smart enough to help every mayor of every city in this state attract more young people the way cities have always done: by promising them more opportunities to meet other young people. Which is how growth happens.