November 7, 2014
Massachusetts

With change of governors, a shift in approach to the economy

By Megan Woolhouse, Globe Staff | The Boston Globe | November 07, 2014 | www.bostonglobe.com

The election of Charlie Baker probably means a shift in the state’s approach to the economy after eight years with a governor who viewed and used government as a catalyst for economic growth.

Baker is likely to return to the philosophy and policies of his Republican predecessors, who believed that the best way for government to boost jobs and the economy is to largely get out of the way. That approach is in sharp contrast to that of Governor Deval Patrick, who targeted industries that his administration viewed as promising, such as biotechnology and clean energy, and supported them with taxpayer money and other initiatives.

“I don’t think that’s the direction forward in the Baker administration,” said Jim Stergios, executive director of the conservative Pioneer Institute, where the governor-elect worked in the early 1990s. “[Baker] won’t be steering with that kind of activist hand at the till.”

In his gubernatorial campaign, Baker’s economic proposals focused on traditional Republican prescriptions for the economy, including lower taxes, fewer regulations, and measures aimed at a more competitive and predictable business climate. They are the product of an outlook nurtured by his father, a Nixon-administration transportation official, and honed at the Pioneer Institute, a think tank founded by the conservative Massachusetts politician and businessman Ray Shamie to promote free-market policies.

Baker first worked as policy analyst at Pioneer and later as director, catching the attention of Republican governor William Weld, who was elected in 1990. When Baker became secretary of Health and Human Services under Weld more than 20 years ago, he said his actions would be guided by a “core set of beliefs.”

“A little ideology ain’t a bad thing,” Baker said, “because without a sense of how the world works, you’re just a process person.”

Baker became known during the Weld years for championing a market-driven, cost-cutting approach. He said the answer to rising health care costs was to introduce more free-market competition into hospital rates while reducing state involvement.

In his recent campaign, Baker continued to promote tax cuts and said the state policies “should avoid trying to pick winners and losers in certain industries.”

Chris Geehern, a spokesman for Associated Industries of Massachusetts, the state’s largest business group, said that’s a sign that the Baker administration will avoid investing taxpayer money into particular companies and adopting policies that favor particular industries, as Patrick did with the biotechnology and clean energy industries.

Generally, Geehern said, such efforts do not benefit a wide swath of people and can contribute to growing economic inequality between parts of the state, such as Greater Boston, where biotech and clean tech firm are concentrated, and Western Massachusetts, where jobs are scarce.

“Create the most competitive business climate you can across the board, and let the market do what it needs to do,” Geehern said.

Baker’s economic plan during the campaign emphasized broader-based tax relief for businesses, including eliminating the state inventory tax, exempting businesses with less $500,000 a year in profits from the corporate income tax, and creating tax-free development zones in older industrial communities known as “Gateway Cities.” Baker ruled out incentives targeted at specific industries, but he suggested they would play a limited role in his policies.

“I see a role for targeted tax credits on a short-term basis, but only when we can link them directly to job creation and economic benefits,” he said in a response to a Globe questionnaire.

Patrick, however, showed his administration was willing to tip the scales in favor of companies and industries viewed as having growth potential. In clean energy, Patrick helped pass laws that required utilities to buy power from renewable sources; pressed them to sign long-term power contracts with Cape Wind, the controversial off-shore wind farm; and pumped taxpayer money into promising companies.

The Patrick administration says these and other policies helped build an industry that has created thousands of jobs. But the bets did not always pay off. For example, the state spent millions to help Evergreen Solar, a Marlborough solar panel maker, but the company went bankrupt in 2011 when it could not compete with Chinese manufacturers.

Patrick’s signature economic development was a $1 billion life-sciences initiative of 2008, a 10-year program of grants and other assistance to support the biotechnology, scientific research, and life science industries.

A report by Northeastern University estimated that initiative has created about 8,000 jobs after five years. A subsequent study by the Pioneer Institute, however, estimated the program created fewer than half that number of jobs, about 3,000.

Baker said during the campaign that he supported biotech incentives because “the investment can be linked directly to job creation and economic benefit” for the state.

Robert Coughlin, chief executive of the Massachusetts Biotechnology Council, a trade group, said Baker probably did not have much choice, since Massachusetts is home to one of the foremost biopharmaceutical clusters in the world. Coughlin said he believes Baker will champion additional efforts to boost the industry.

“If there’s a new governor in Florida, they’re not going to come out and say we’re not going to help the orange industry,” Coughlin said. “The new governor in Massachusetts isn’t going to say we don’t need to pay attention to the delicate climate and ecosystem that has gotten us to the point we’re at in life sciences.”