Wednesday, December 23, 2009

The return of the Northwest Republican?

Like the Northeast, the Northwest was once characterized by the strong presence of moderate Republicans. Three term Governor Dan Evans was the poster child for Republicans who respected government, managed it well and tried to pragmatically balance opposing interests. Olympia's triumvirate of Lt. Gov. Joel Pritchard, and Senators Evans and Gorton represented the majority in the middle. Oregon was represented by moderate and pragmatic Bob Packwood and Able Lincoln liberal Republican Mark Hatfield in the U.S. Senate.

Republicans changed not the electorate. Slade Gorton, a long time environmental advocate was frustrated by the lack of recognition by the environmental community for his accomplishments in wilderness protection, clean air and clean water. He moved abruptly to the only side that consistently backed him - timber and rural interests. On issues like spotted owl and old growth forests he moved from solving the problem to using the problem as a symbol for rural Washington versus Seattle. He mounted a new Republican strategy called "surround King County" that focused on a coalition of economic conservatives, rural business interests and the religous right built on populist opposition to elitists and special interests in the city. On the old growth forest issue he even managed to suck in the Bush administration. Unfortunately, this new coalition was no longer a majority.

The Gingrich revolution swept into power a more extreme right group of Republicans united by far right religious ideology and rigid free market doctrine. As their majorities slipped away, the ideologues maintained control of the party caucuses and moderates like State Senaors Rodney Tom and Fred Jarret changed parties.

Today, Republicans represent only the two most rural congressional districts and only a third of the state legislature. These small minorities work against them. The remaining members represent only the purest districts generally rural and socially conservative. Lacking any swing districts in their caucus, their caucuses gain their energy from focusing on opposing environmental regulations, religious opposition to gay rights, and pro life. Out of touch with middle.

Obviously, this course isn't sustainable. Democrats have controlled the Governor's mansion in Olympia for 27 years now and at some point Republicans are going to attract a candidate who can rebuild a majority or come damn close. Attorney General McKenna appears to fit the bill.

McKenna manages hundreds of government attorneys in Washington State who represent state agencies and protect consumer interests. More than any other statewide elected official, McKenna commands the respect and admiration of his staff. My friends and neighbors in the A.G.'s office in Olympia believe that he listens to them and does his job well. Think about it for a minute. Government lawyers in Olympia are pretty much liberals right out of the box. This is no small feat and the mark of an excellent manager.

The man is bright, articulate and like the iconic Northwest Republican Gordon, he comes off as a bit serious perhaps even nerdy. His focus is laser picking up simple, symbolic issues which generate a lot of heat but not controversy; open government, public records, Internet safety, I.D. theft, methamphetamine abuse, and consumer protection.

McKenna does this without cutting his ties to the right. He recently sided with another 12 Republican Attorney Generals in calling the President's health care reform unconstitutional because it "buys off" Nebraska Senator Ben Nelson's with a special Medicaid subsidy for that state.

Environmentalists argue that he also parts company with traditional Northwest Republican moderates on environmental issues. While on the King County Council he was known by many as a strident property rights advocate.

The question is can McKenna appear to stay in the Center and win the in the primary? If Republicans manage to block a more conservative primary opponent he won't have to face the consequences of moves to the right to win in the primary hurting him in the general. How many of his more conservative King County green votes will count against him in the general?

McKenna is not the only successful Republican who has recently held statewide office. Former Commissioner of Public Lands Doug Sutherland was an excellent manager and a policy mediator in the Northwest Republican tradition. Secretary of State Sam Reed has resisted efforts to use his office to tip the political balance to the right and has followed the tradition of his true blue Northwest Republican Ralph Munroe who managed the office effectively and efficiently.

The bottom line is that Washington State likes moderates and will elect long as Republicans are able to nominate them. Right now, surveying the field for the 2012 Governor's race, McKenna fits this bill better than any other name mentioned in both parties.

Sunday, December 6, 2009

Why it is wrong to tax business services

There's a lot of talk about taxes in preparation for the next legislative session. Given the nearly $3 billion deficit on top of last year's bigger budget cuts, this isn't surprising. But this should take some serious thinking. Taxes actually can have a positive or a negative effect on an economic recovery.

I can think of two positive effects. One would be taxing things that aren't good for us. These are called sin taxes and raising their price actually decreases their sales. Cigarettes are a good example. A 50 cent per tax would cut consumption but still raise money.

The other positive effect is the impact of a tax on net spending. If you put a tax on wealth where let's say 2/3 of it are spent and the other 1/3 saved, and then used the money for funding general assistance to the poor, the economy would have a net boost in spending and we would be better off.

There are lots of taxes that would have a very negative effect on the recovery. One would be a sales tax on services like lawyers, accountants and architects. The logic is that these services are retail sales like buying clothes are a car.

This is doubly wrong. Most business services simply are not retail sales. They are sales from one business to another. A small software company in Redmond would likely by all three business services mentioned above from other small businesses. This is double taxation and provides a disincentive to go out of the firm and purchase these services. Double taxation distorts economic decision-making and is simply unfair.

The biggest wrong is the impact of a nearly 10% tax on the competitiveness of the business services. The state input output model shows that over half of business services are exported out of the state. Since we would be the only state taxing them we would have a 10% higher cost than any other state or country. One hell of a disincentive. Seattle's biggest industry is business services and it is one of highest paid sectors of the economy. Bad idea.

Wednesday, December 2, 2009

The Bottleneck in the Recovery

As our economy is beginning to grow again we are finding that the new jobs that are growing not the same as the jobs that have been lost. The new drivers of our economy are green jobs, technologically transformed health care and high value business export services like accounting, engineering and architecture.

However, to make the transition to this new economy we are going to have to close the skills gap in those new fields. Workers in the job that have been lost need to be retrained to fill the jobs that are growing. Even during the depth of the recession, we already saw unfilled vacancies of 10,000 jobs in health care fields, 2,500 in IT and and 500 in accounting and financial services in Washington State. As the economy picks up the skills mismatch will get worse.

What happens when employers can't find the skilled workers they need? In 2007, 4,000 firms reportedly moved at least some of their operations out of state to get the work done. Of 15,000 firms surveyed, 20% indicated that lack of skilled workers reduced their output, a third said it lowered productivity and and 14% indicated it reduced quality.

The problem is that there is no room at the inn. Washington State's Community and Technical Colleges run the Worker Retraining Program that provides money for instruction, tuition and fees for unemployed workers seeking new skills. The program is swamped with participants serving nearly twice as many students as the colleges have capacity and an equal number of students are unable to find openings in programs that they need to get a job.

Lack of capacity at our state's community and technical colleges to retrain workers for the jobs of the future could be the bottleneck that slows the recovery.